Aurora Mobile Limited
Q1 2021 Earnings Call Transcript

Published: 10 Jun 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile First Quarter 2021 Earnings Conference Call. At this time, all participants will be in a listen-only mode. And after the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Rene Vanguestaine. Thank you. Please go ahead, sir.

[Rene Vanguestaine:]

Thank you, Annie. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier and is available on the IR website at ir.jiguang.cn.

[Weidong Luo:]

Thanks, operator. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's First Quarter 2021 Earnings Call. This is the first quarter where our financial results reflect only our SAAS Businesses as we fully exited our legacy Targeted Marketing business at the end of 2020. We now enter our new chapter and are very excited about our future business prospects. Before I comment on our Q1 results, I would like to take this opportunity to remind everyone that the quarterly earnings deck is available on our IR website for your reference. You may refer to the deck as we proceed with the call today. Let's begin our review with the highlights of our key operating and financial performance for the first quarter of 2021. As we completely exited Targeted Marketing at the end of 2020, our business is now focused on the SAAS Businesses, which include Developer Services and Vertical Applications. For apple-to-apple comparison, numbers presented excluded the contribution from the legacy Targeted Marketing in the prior year and prior quarter. In the first quarter, we continued to put our company-wide focus and concerted effort to grow our SAAS Businesses and delivered impressive results. The number of paying customers increased to 2,512 from 2,049 a year ago, up 23% year-over-year. Revenue was RMB76.6 million, up 56% year-over-year. Group gross margin reached a historical high of 75.9%, more than 2.3x from a year ago. Gross profit was RMB58.1 million, up 60% year-over-year, growing faster than revenue. And adjusted EBITDA was negative RMB18.4 million, a substantial improvement of 39% from a year ago, demonstrating strong operating leverage.

[Fei Chen:]

Thank you, Chris. Let me start with a discussion on different revenue streams within the SAAS Businesses. Following its stellar performance throughout 2020, Developer Services continued to be the biggest revenue contributor in first quarter 2021. We recorded RMB52.4 million in revenue for Developer Services, which represented a very strong 67% growth on a year-over-year basis. The significant revenue growth was driven by a strong 35% growth in Subscription Services and a 189% growth in Value-Added Services. Subscription Services revenue was RMB33.7 million, an increase of 35% year-over-year primarily driven by the -- by new push notification customer acquisition and cross-selling of non-push notification products in our product portfolio, which includes other subscription products such as JVerification, JSMS, JAnalytics, et cetera. Revenue contribution of non-push notification products increased to 35% from 23% in 1Q 2020. Non-push notification products have a higher ARPU, resulting in the overall ARPU for Subscription Services increasing by 21% to RMB16,900 compared with RMB13,900 in 1Q '20. New and renewed contracts of notable customers included Starbucks, McDonald's, Jans, iHerb, China Eastern Airlines and so on. Value-Added Services within Developer Services, which include revenues from JG Alliance services and Advertisement SAAS, recorded another very impressive quarter as revenues grew by 189% to RMB18.8 million from RMB6.5 million in 1Q '20 despite Q1 being a seasonally slower quarter. This stellar year-over-year revenue growth is attributable to the growth in both the supply and the demand side of the JG Alliance. On the supply side of JG Alliance, the total number of apps and the DAU within our network exceeded 280 apps compared to 200 in fourth quarter and 150 million DAU compared to 130 million in fourth quarter, representing very strong 40% and 15% growth from fourth quarter 2020, respectively. In this quarter, we continued to sign up many large and popular mobile apps from different industry verticals into our JG Alliance traffic supply pool. This continued increase in traffic pool is important as it provides a great number of usable DAUs, which in turn helps us to increase impressions and generate higher revenues.

[Shan-Nen Bong:]

Thanks, Fei. I'll go through some of the key expenses and balance sheet items. On to the operating expenses. Total operating expenses decreased by 9% year-over-year to RMB101.5 million. In particular, R&D expenses increased by 25% to RMB51.9 million mainly due to the increase in staff costs, higher bandwidth and cloud expenses to support our SAAS Businesses expansion. Selling and marketing expenses increased by 7% from RMB26.9 million mainly due to increased customer visits after the traffic restriction limits at the start of 2021 and other online marketing expenses incurred. G&A expenses decreased by 14% to RMB22.8 million mainly due to year-over-year reduction of RMB6.8 million in bad debt provision. The decrease in bad debt provision was partly due to the reversal of bad debt provision as we continued to receive funds from long outstanding debt to legal proceedings. This was also partly offset by the increase in professional fees incurred. Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, improved 39% year-over-year to negative RMB18.4 million from negative RMB30.3 million in Q1 2020. In summary, for the year-over-year comparison, the key takeaways in this quarter includes our SAAS Businesses revenue increased significantly by 56%; group gross margin improved from 33% to 76% as a direct result from Q1 2021 gross margin being 100% contributed by high-margin SAAS Businesses; OpEx, however, only increased by 9%.

[Operator:]

Our first question comes from the line of Bo Pei of Oppenheimer.

[Bo Pei:]

Congrats on the solid results. So I have three questions here. So first is a quick one. In the previous quarters last year, we talked about operating cash flow. I know our accounts receivable, deferred revenues, et cetera, has improved quite a lot. So can you talk about the operating cash flow for 1Q? And then the second question is about JG UMS and our Video-as-a-Service product. So you mentioned we are having a strong pipelines for both products. So can you talk about how many companies are we in talks with and then conversion rate, et cetera? And then also like the ARPU compared with our JPush and other developer services. And then the third question is about JG Alliance. So you mentioned we are seeing strong demand and supply side. So I know the business is growing very nicely or close to 200%. So -- but if you have to like pick one, which side is the bottleneck for this business right now? Would you say you need to work harder on the demand side or the supply side? That's all my questions.

[Shan-Nen Bong:]

Well, thanks for your questions. I'll take the first question in terms of the operating cash flow for Q1 2021. For Q1, we did have a negative -- a net negative cash flow from operating activities, and that was because of the following reasons. One is the collection from customers was relatively slower in Q1 due to the Chinese New Year as majority of our customers are away for the long, extended public holidays, and this delayed the cash collections in the first quarter. And secondly, the majority of our -- probably for a majority of the companies in China, including those -- pay their annual bonus to employees in Q1. So the combination of these two factors resulted in a negative cash position in Q1 of 2021. If you look back to what we did in Q1 2020, the trend was similar due to affecting factors

[Fei Chen:]

Okay. Let me answer the second question regarding JG UMS and VaaS, the pipeline situation, right? Yes. So actually, in the prepared remarks, Chris mentioned the pipeline is pretty strong. And indeed, actually, right after Chinese New Year, within a very short period of two months, actually, in both products, we have signed over 10 customers, paying customers, signed the contracts and delivered the service and with the ARPU actually both exceeding RMB100,000 per year. The ARPU is meaningfully higher than JPush products. The typical ARPU is about RMB60,000 per year, okay? And looking at the pipeline numbers, what we are seeing is like over 200 meaningful, credible pipelines have been built up, and the sales team is following with each of the pipeline customers very diligently and with the total contract value over RMB30 million, over RMB30 million, yes. So that's what I want to comment on JG UMS and the VaaS pipeline situation. And your third question regarding the JG Alliance, right, so as you know, the business model goes -- you need to have the supply first. And then once you have the supply into the JG Alliance, the traffic pool, then you can work on it and then you -- on the demand side, you can consume -- let the demand-side customers to consume the traffic, right? So which side is the bottleneck? Of course, I will not call it a bottleneck. I would say which side is more important. It's like the chicken and egg, and you need to basically -- in this situation, you need to have the chicken first. You need to have the supply first. So our BD unit actually is a very strong unit. As you know, this BD team is actually incubated from the -- from our traditional developer subscription service team, right? So they can leverage their relationship, existing relationship with those developer subscription customers and try to sell them this new type of service to help them to monetize on their own traffic. So this actually progress is going on very well. And as I mentioned, in the fourth -- in the first quarter, we already have a DAU about 150 million, right? So looking at second quarter, from now to end of the second quarter, we should have additional 30 million kind of like a DAU be on board before end of June. So the pipeline looks very strong, and we think everything is on track for us to continue to deliver the very, very good results in this business.

[Operator:]

Next question is from the line of Jacob Silverman of Alliance Global Partners.

[Jacob Silverman:]

Just to follow up on this question about JG Alliance, how has the demand been looking for mini-programs in the second quarter? And what verticals are you seeing the greatest adoption in?

[Fei Chen:]

Yes. So the demand from mini-programs continue to be very strong. Again, it contributed close to 40% of the total JG Alliance revenue in the first quarter, right? So we typically -- we see customers actually from the travel sector. Tongcheng Travel actually is one of our big customers. And also, we see big demand from actually the finance sector. The Baidu, is also a big finance customer in this segment. So overall, we see this mini-program continue to be the revenue driver for this JG Alliance business, and the trend is continuing in the second quarter as well.

[Jacob Silverman:]

Great. And are you seeing any cross-selling opportunities from your UMS offering? And what's the interest level been for mini-programs that you have? And then just if you could give us a little more detail, sorry, on the Video-as-a-Service. Is it live now? And if not, when is it going to be live?

[Fei Chen:]

Are you talking about the cross-selling of UMS with our traditional subscription product?

[Jacob Silverman:]

Yes, cross-selling between Subscriptions and then in the JG Alliance, if that's happening.

[Fei Chen:]

Yes, yes. So you are right, actually. When we go to a market, right, from the very beginning, of course we will try to find our customers who are already our subscription customers, right, because we have a massive base of subscription customers. This is our core assets. So whenever we introduce a new product, whether it's JG Alliance or whether it's JG UMS or VaaS, we typically go to the existing customer to promote this new product. So from the contracts we have signed in the first quarter as well as in the two months into the second quarter, actually majority of the signing customers are existing customers. So once we exhaust all of our existing resource, then we may think about going in to expand the customer base into those customers who are not our existing customer, right? So currently, you can consider basically a majority of the selling is from the cross-selling. And for the VaaS, actually it's already live, and we have already delivered the products for those customers who have already signed the contracts. Because customers, they will not sign if they don't have the opportunity to test the product, right? They have to be -- feel comfortable before they sign the contracts with us. So that's a must. A product should be -- need to be ready before we sign any contract.

[Jacob Silverman:]

So just to clarify, Video-as-a-Service, it's live for some customers? And are you generating revenue from it yet?

[Fei Chen:]

Yes. Yes, we are generating revenue. Actually, we already generated revenue over RMB1 million. Or actually, I will not say revenue because that's a recognition, right, accounting basis measurement. Actually, the contract value over RMB1 million, we already signed such contracts for the VaaS customers.

[Jacob Silverman:]

Okay. So I'm sorry, so I guess I misunderstood. So from UMS, have you shared the contract value so far? I know you said about 30 million in the pipeline. So have you recognized any revenue -- are you going to recognize any revenue in the second quarter from UMS?

[Fei Chen:]

Yes. Actually, in the first quarter, we already signed a contract and recognized a small number of the revenue for the UMS as well. And I think...

[Shan-Nen Bong:]

Contract value...

[Fei Chen:]

Yes.

[Shan-Nen Bong:]

RMB1 million.

[Fei Chen:]

Yes, contract value is similar to VaaS. It's over RMB1 million, yes.

[Jacob Silverman:]

Okay. And one final question for -- sorry, one final question for me and then I'll hop back in the queue if I have any more. Just curious if Apple's IDFA policy on the new iOS update has had any impact on your ability to reach mobile consumers. I would imagine it's little to no impact as Apple has minimal market share in China, but -- and I'm assuming you're getting first-party data. But has this been any issue at all?

[Fei Chen:]

No for us, actually, in China, Apple's -- you are right, right, Apple's market share is pretty small. It's only 20%, right? So --because our market presence mimic the market share -- the device manufacturer's market share, right? So majority of our SDK in the Android device, around 80% of the total market, right? So this new privacy policy, from the market share perspective, basically, impact to us is very, very minimal. And the second, actually most of our business does not really actually rely on the iOS data, right? iOS data compared to Android data, basically iOS, as you know, is a closed system. So actually, whether it's an app developer or SDK provider -- service provider, actually the access to the iOS data is very minimal to begin with, right? So we -- in our business, whether it's JG Alliance, whether it's the subscription business, actually the revenue generation does not really depend upon the iOS ecosystem and also iOS data. So the -- basically, the policy change actually will not impact us much. I would say very immaterial. So maybe, this data -- this policy change will impact the big companies, right, who will -- whose main business -- their main business is in advertisement business and also they have many iOS customers could be -- have some kind of impact. But for us, it's immaterial. We are not worried about this at all.

[Operator:]

Next question is from the line of Ryan Roberts of Navis Capital.

[Ryan Roberts:]

A couple of quick ones from me. First, what's the current ad load on JG Alliance? Kind of I think before we discuss kind of starting slowly and then ramping that up as we kind of are here at the middle of the year, what's -- and how has that been tracking? And what's the outlook for the rest of the year?

[Weidong Luo:]

Let me take this question. I'll take this question. So currently, the ad load of our JG Alliance is quite -- currently is quite small. It's less than one actually. So -- which means for each DAU, we will have less than one impression advertisement per day. So we are -- have a new product we are going to be launched later this month, so -- which we can improve the ad load per DAU significantly. So we expect the number can be between two to three per DAU after we launch this product. So you can imagine -- so the supply side can be improved a lot after we launch the new upgraded JG Alliance product, yes, so.

[Fei Chen:]

Yes. So let me add on to Chris' comments. So basically, our current -- the product, right, the in-app product does not really support multiple ad loads per DAU. But once we launch this new product, we will be able to basically have more than one. Ideally, it should be two to three ad load per DAU. Basically -- we can basically -- to show the ad based on the user's behavior, right, because -- instead of blindly showing to the user. Once the user open up the ad, after a few seconds, we show up the user -- show up that. We can basically to monitor the user's in-app behavior, whether they go to -- such as if they go to their user center, maybe that's a good opportunity to show an ad. Or they go other -- they go to other pages, we can show an ad to make sure the user experience is mostly optimized. So we have already talked to the -- basically the traffic supplier, the apps. Actually, they very much welcome this kind of mechanism. So that's why actually it made us to make the decision to upgrade our current product to enable this functionality.

[Ryan Roberts:]

Got it. Okay. And in terms of like overall pricing, and so I think, again, like the strategy was to start low with kind of -- with a pretty low like an eCPM-type number and then kind of bring it up over time. I just want to check if that's still on track and kind of what you're looking for that to kind of go out to kind of as you look at the second half of the year.

[Weidong Luo:]

Yes. Currently, our price is eCPM -- is low eCPM, but we have slightly improved our eCPM, which we pay the data traffic as long as our monetization capability is improved. So currently, our price is basically two plus x price, which means basically, we pay eCPM RMB2 to the traffic supplier, and we pass x, which x means if the traffic is -- because the traffic, the quality, is different, right? When the traffic is very good, we're going to have more bonus to this traffic. So -- which, I guess, also give us the capability to differentiate different traffic source. So currently, this two plus x pricing is -- I mean, is very -- is competitive in this market.

[Ryan Roberts:]

Okay. Okay. Okay. That's very helpful. Okay. And kind of staying on the -- just the JG Alliance just for a second. It's kind of my last one. I just kind to get a sense of on the demand side. One of the things -- it seemed like your Targeted Marketing business historically, you had kind of some pretty established verticals that you're in, and gaming was one of the ones that you were not terribly strong on. You guys are very strong in financials. As you were pushing out JG Alliance, I know you're trying to kind of attack maybe some of the similar customers and kind of used some similar relationships and so on and so forth into the business. Is there any kind of bias or kind of -- are there any trends coming out in who the buyers are for traffic? Or principally, are there some other kind of characteristics you can share?

[Fei Chen:]

Yes. So currently, actually, we break down the JG Alliance customers by different actually categories, right? If you want to look at the breakdown by industry, actually the main industry currently that consumes our JG Alliance traffic comes from U.S., right, such as I mentioned in my prepared remarks like Taobao, like Weibo. These customers, they use our JG Alliance, the product, actually to reactivate their dormant customers, right? So this is a big set. And the second, basically, the e-commerce, okay, e-commerce, like Taobao, JD, these big e-commerce platforms, they continuously use JG Alliance to -- for new user acquisition or dormant user reactivation. And the third big category is actually the finance, including the insurance, including the online lending, right? This is about like 20% of our total revenue. So currently, the big buckets, the big customer segment actually are these three segments. Over time, of course we will try to penetrate into additional industries such as the education, right, the -- actually the lifestyle kind of like services. So we are working on that. We are working on that. So I think when time goes by, I think eventually we would be very similar. The customer mix would be similar to what you see from other kind of like the traffic network, okay? And -- yes.

[Ryan Roberts:]

Okay. Then if I could maybe just tack on one last one. This is just kind of, I guess, encapsulating all the points you just discussed. So it sounds like UMS monetization is starting off very well. Sounds like Video-as-a-Service monetization is starting off, more than 10 contracts and so on and so forth and that, that's tracking -- something that's tracking well. And JG Alliance second half is shaping up nicely. You got -- eCPM sounds like you're going to guide up a little bit and ad load increasing, doubling it sounds like. I'm curious what's in your guidance. It sounds like when you guys gave guidance maybe previously, some of these items may not have been in there. I'm just kind of curious if you could kind of help me frame out what's in your guide for the rest of the year.

[Fei Chen:]

Yes. So actually, the full year guidance, actually we -- in our earning release, we actually maintained our full year guidance, which is full year revenue from RMB380 million to RMB400 million, right, based on the current business traction and outlook. So I think if we do well in -- on one of those things you just mentioned, right, ad load, the traction in JG UMS and more traffic acquisition for JG Alliance, I think if we do better than we currently anticipate, of course we have a -- we will have a good chance to beat the guidance, right? But for now, I think we just want to maintain this guidance for the time being.

[Operator:]

As there are no further questions, I'd now like to hand the conference back to Mr. Rene Vanguestaine for closing remarks. Please go ahead.

[Rene Vanguestaine:]

Thank you, Annie. Thank you, everyone, for joining our call tonight. If you have any question or comment, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you all.