Ladies and gentlemen, thank you for standing by, and welcome to Aurora Mobile First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be the question and answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Rene Vanguestaine. Please go ahead.
Thank you, Nadia. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.jiguang.cn. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer, and Mr. Shan-Nen Bong, Chief Financial Officer. Following their prepared remarks, they will be available to answer your questions during the Q&A session that will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based upon management's current expectations and current market and operating conditions, which are difficult to predict and may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and/or factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. With that, I'd now like to turn the conference over to Mr. Luo. Please go ahead.
Thanks, René. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's 2022 first quarter earnings call. Before I comment on our Q1 results, I would like 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 me start off today's call on the one important milestone we have reached. In Q1 of 2022, we have made a significant and important investment that we foresee to further solidify our leading position to help our customers to enhance their user engagement through multi-channel solutions that we can provide. As we shared in the Q4 earnings call, since then, we have completed the acquisition of majority interest in SendCloud, China's leading email API platform for consumer marketing and user-centric transactional email services.
With the completion of the transaction in March 2022, we have initiated the integration of the operations. In this process, we have started identifying the list of SendCloud customers that we can potentially sell our JG services into and vice versa. We believe this is an effective and efficient way to increase the revenue of the group. We will provide updates on this in the future earnings call. From product perspective, with SendCloud's very strong presence in the email services, we can integrate its email services into our UMS product. This will further enhance our leading position to help our customers from all sections of the market to reach their users through our omni-channel communication technology. We believe this is a great product offering that the market has been longing for.
Q1 of 2022 proved to be a very challenging quarter for most businesses due to very weak macroeconomic conditions and the resurgence of COVID across major economic hubs in China, which slowed down business activity significantly. Nevertheless, with the effort by the teams throughout the company, we have met another set of impressive financial results amidst this tough operating environment in Q1 of 2022. The key achievements in this quarter include as follows. Revenues were RMB 85.3 million, up 11% year-over-year. Operating expenses were RMB 94.5 million, down 7% year-over-year. Operating loss was at RMB 36 million, narrowed at 17% year-over-year. Net loss was at RMB 30.9 million, representing a 23% improvement from a year ago. Adjusted EBITDA was negative RMB 8.2 million, also significantly improved by 56% year-over-year.
AR days remained at a healthy level at around 46 days. Total deferred revenue was about RMB 100 million for eight consecutive quarters. We are and have been closely monitoring and controlling our expenses as our continued efforts to drive operating efficiency since late last year. This effort has paid off as both our operating expenses and loss from operations have reduced year-over-year. We will continue to be very stringent in all aspects of expenditures now and going forward. Let me continue with the different revenue streams within the group. In Q1 2022, our developer services continued to deliver solid results with a 14% year-over-year growth, which has mainly fueled by a substantial 48% year-over-year growth in value-added services, while our subscription services recorded a modest 2% growth during the same period.
Subscription service revenue were RMB 34.4 million, an increase of 2% year-over-year, primarily driven by new customer acquisitions. During the quarter, the financial sector, many banks and brokerages for us has contributed a sizable percentage of revenue for both the push subscription and private cloud services. The financial sector customer include Ping An Bank, Guangzhou Bank, Lanzhou Bank, Citi Credit Card, and China Investment Securities, just to name a few. With these financially sound and strong customers, we have plans to continue selling other suite of JG products and services to them in the near future. We believe this is a good strategy for us to further increase the revenue or ARPU from these existing customers, as we are in good position to know of their needs in order to provide the relevant solutions.
We will also expand our reach to explore more financial sector-based KA customers, as our products are well received in this sector of the market. Value-added services within developer services, which include revenue from JG Alliance services and advertisement SaaS, continue to deliver a solid 35% year-over-year growth to RMB 25.4 million from RMB 18.8 million in Q1 2021. On the supply side of the JG Alliance, the traffic pool remained stable during the quarter. Our effort in the quarter has shifted to better operate each of the DAUs within the traffic pool. In summary, what it means is we are making different attempts to help each of the apps within our JG Alliance traffic pool to search for better match of one or more advertisers, so that these apps can maximize their returns on each exposure.
We believe by doing so, both the traffic pool suppliers, the mobile apps, and us will benefit from such initiatives through growing the revenue to be generated for each devices within the pool. In terms of revenue contribution by product formats, both the light push and in-app message contribute approximately 60% versus 40 % respectively in Q1 of 2022. On the demand side, many program developers and targeting related demand remain strong as our JG Alliance product format remains to be very ideal and as an effective means to reach out to their target audience. In total, these both sub-pools contribute more than 90% of our JG Alliance revenue in Q1 2022. During the quarter, demands from direct customers have been very strong and contributed more than 70% of JG Alliance revenue stream, while the rest came from the third-party advertising agency.
Major customers of JG Alliance consisted of repeated customers and market leaders across many industry verticals. Key customers include BAT, Baidu, Alibaba, Tencent, JD, and Weibo. Here, I would like to provide some colors on the value-added services in recent months. Starting from March 2022, we have seen advertisers scaling back their advertising spends across all media of advertisement in China. We have felt the impact of COVID-19 and lockdowns in some key cities as the demand for our value-added services has not been as strong as anticipated. Therefore, the revenue from value-added services is expected to be impacted in Q2 2022. Nevertheless, we believe things will turn around soon, and the demand for our value-added services will pick up again as the economy recovers. Lastly, a very important product update on the value-added services.
As we announced in the press release earlier this week, we have recently launched our advertising mediation platform through our proprietary SDK technology. We will be in the best position to help mobile app developers to access other mainstream advertising platforms in China with great ease and help them better monetize their app advertising inventory. This is a mature and proven business model. Overseas players such as AppLovin, MoPub, and ironSource have been helping overseas app developers to grow and monetize using similar advertising mediation platform solutions. We believe we will bring great values to the mobile app developers through this arrangement. With that, I will now pass the call over to Shan-Nen, who will share more about the vertical applications and other parts of the Q1 2022 earnings release.
Thanks, Chris. Let's now move on to the vertical application that mainly consisted of financial risk management and market intelligence. These revenues grew steadily by 6% year-over-year, with financial risk management business contributed the lion's share of the revenue growth. In the financial risk management segment, revenue increased by 11% year-over-year with a solid 33% growth in ARPU. We are very pleased with the revenue growth recorded in the periods, especially the Q1 2022 was a tough quarter due to the relatively weak macroeconomic conditions and the resurgence of COVID in certain pockets of the key cities in China. Nevertheless, the demand for our products remains strong. During the quarter, we acquired new key customers and continued to retain many existing customer every quarter. These customer have expanded their demands with us, resulting in a very strong 33% ARPU growth year-over-year.
Some of our new and renewed customers include all licensed operators such as Didi, Ant Financial, Bank of Ningbo , Wuxi Bank, Ningbo Commercial Bank , just to name a few. Our market intelligence product line continued to sign up a number of new and well-known key account corporate customers during Q1 of 2022. They include, again, Didi, Tongcheng, Bitauto, and one of the largest pension plans in the world that is based in Ontario. Revenue remained at a fairly stable level with slight decline year-over-year, again, due to macro environment which slowed down the business activities. Now, I'll go through some of our key expenses and balance sheet items. Onto operating expenses.
As a result of our continuous effort to efficiently run the business and tightly manage our expenses, in Q1 2022, our operating expenses decreased by 7% year-over-year to RMB 94.5 million. In particular, R&D expenses decreased by 23% to RMB 40 million, mainly due to reduction in headcount that reduced the salary cost and associated share-based compensation. Selling and marketing expenses decreased by 2% to RMB 26.3 million, mainly due to the decrease in marketing expenses spending in this quarter. G&A expenses increased by 24% to RMB 28.2 million, mainly due to the reversal of AR provision in Q1 2021, that did not repeat in this quarter, that resulted in a RMB 1.5 million shrink and a RMB 1.4 million share-based compensation and a RMB 1 million increase in professional fee incurred.
Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, reduction in force charges, impairment of long-term investment, and change in fair value of foreign currency swap contracts, recorded a 56% improvement year-over-year to -RMB 8.2 million. This was made possible as we managed to grow our revenue and gross profit while effectively controlling our operating expenses year-over-year. To recap the key financial performance in these relatively tough quarters, we have managed to grow our revenue by 11%, despite Q1 of 2022 being a very tough quarter for most, if not all, businesses in China. Gross margin was at 69% this quarter as we paid more traffic costs to mobile app developers for our JG Alliance business. Operating expenses decreased by 7% due to management effective and stringent cost control measures.
As a result, both our net loss and adjusted EBITDA has narrowed by 23% and 56% year-over-year respectively. During the quarter, we continued to streamline our workforce in an effort to further improve our operating efficiency and ensure that OpEx is remain at an optimal level. Onto the balance sheet. I will again share two very important KPIs that we always closely monitor. First is the AR turnover days, which has shortened by two days as 46 days this quarter compared to 48 days a year ago. Our disciplined accounting policy and cash collection effort ensure timely collection of our accounts receivables. Secondly, the total deferred revenue balance, which represents cash collected in advance from customer, has exceeded RMB 100 million at quarter end for the 8 consecutive quarters.
As of March 31st, 2022, the total deferred revenue balance was at historical high of RMB 133.3 million. Next, total assets were at RMB 625.5 million as of March 31st, 2022. This includes cash and cash equivalent of RMB 273 million, accounts receivable of RMB 42.3 million, prepayments of RMB 15.4 million, fixed assets of RMB 55.6 million, long-term investment of RMB 137.3 million.
Goodwill of RMB 37.8 million and intangible assets of RMB 24.1 million resulted from the SendCloud acquisition in March 2022. Total current liabilities were at RMB 394.2 million as of March 31, 2022, and this includes short-term loan of RMB 160 million, which were all repaid in Q2 2022. Accounts receivable of RMB 21.6 million. Deferred revenue of RMB 129.5 million. Accrued liabilities of RMB 83 million. Next, business outlook. Since March 2022, the resurgence of COVID-19 in certain parts of China has increased the risk and uncertainties for conducting business in China. This has, in turn, making business performance harder to forecast in the near future.
With that, we believe it is the right decision for us to suspend providing or updating the revenue guidance until such time that the situation substantially improve. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended March 31st, 2022, we did not repurchase any shares. As of March 31st, 2022, cumulatively, we have repurchased a total of 921,000 ADS since the start of our program. This concludes management prepared remarks. We're happy to take your question now. René, you may proceed. René or operator.
Perfect. Thank you very much.
Thank you for confirming. Dear participants, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone keypad. The first question comes from the line of Brian Kinstlinger from AGP. Please ask your question.
Great. Thanks so much for taking my questions. First question I have, the year-over-year growth rate in JG Alliance has slowed significantly in the last few quarters you commented. Can you provide the factors that caused this? How much was market conditions versus COVID?
I mean, basically, I mean, I think that's the same thing, right? The COVID impact.
I don't think we can hear you.
Excuse me, dear speaker. Your line is not clear.
Okay. Can you hear me now?
No.
Hello? Better now?
Now it is.
Yes, it's perfect. Thank you.
Yeah, much better.
Okay. I think that's the same thing, right? I mean, the COVID impact affects the advertisers' budget. The advertisers reduced their advertising budget, so that affects, impacts our JG Alliance revenue. Because our top advertisers basically are like JD, Alibaba, right? Weibo is impacted, especially JD and Alibaba. Their business is affected by the logistics, which is impacted heavily by the COVID-19. They reduced their budget heavily in Q2. We see some color pickup in these months, but not as 100% as what happens in Q4. We still need more color in next quarter.
Got it. Okay. Thanks. Then a similar question on subscriptions. We're down to single-digit growth for this quarter. Is that generally COVID too? Is that more churn on some of your subscriptions? Just maybe take me through the factors that led to, you know, single-digit growth compared to what historically has been a little bit better growth there.
Yeah. For the subscription service, I mean, Q1 is single-digit. It's mostly impacted by COVID-19. Because in March, our headquarters in Shenzhen has been locked down for more than one week, around one week. We see in Q2 the subscription service will pick up and recover. We will see double-digit growth Q2 and Q3 as well.
I'm just curious, when subscriptions, how do they change when there's lockdown? Do they stop paying their subscriptions? That's what I'm confused about of why there was slower growth.
No. The impact is basically for the subscription service. It impacts the new customers and the renewal customers. But it's basically a delay in the contract renewal and a delay in the payment, right? When the lockdown happens, we just cannot sign the contract to the customer. We cannot deliver the invoice to the customer, so we cannot close the deal with the customer. Yeah. In Q2 from Q2, we have electronic contract or something like that to reduce this kind of a problem.
Yeah. Okay. Now, with lockdowns easing, albeit probably slowly, I wonder, are the segments beginning to improve? Although, I guess, how do you think also then about advertising budget? It seems that they're still pretty weak even without COVID, given the economic uncertainty. Maybe take us through how things are improving over the last two months in your business versus, you know, how you think the environment has changed maybe permanently for the year.
Hey, Brian, this is Shan-Nen. Now, back to your question. No, the ad budget demand has slowed down as what Chris has said in his script. What we have seen is things has been slow compared to previous quarter or previous months. What we have seen is if you look at the quarter-over-quarter, we expect the Q2 ad spend or revenue to be even potentially lower than Q1. If you look at what we are looking forward in the next couple of months, we expect the demand to continue to be fairly slow in Q2, maybe into Q3 too as well.
Okay. The new product you launched, talk about how you see that with adoption and potentially impacting revenue given those conditions?
Yeah. As you know, it's very difficult for those in the advertising market. The apps who own the traffic so they have various demands for them to improve the monetization efficiency, right? I mean, before they probably only work with one ad network, but currently they work with three or four or even more advertising networks to improve the monetization efficiency. Eventually they can improve the, like, ad load or eCPM. I think this product can bring the value and can help those apps monetize better in the current very challenging environments. Eventually they will help our JG Alliance, I think.
I mean, in the overseas market, AppLovin and ironSource, they are, I mean, this kind of product and the value is proven.
Okay. Thanks so much.
Thank you. The next question comes from the line of Ryan Roberts from Navis Capital. Please ask your question.
I'll translate that. My two questions are, number one, on the kind of the gross profit margin. It's kinda compressed a little bit from about 76%, 77% to down about 69%. I wanna know kind of more what's behind that with respect to the, you know, kind of traffic pool cost, I guess, as a revenue share. If management can give us some more color on, like, you know, is that kind of a temporary thing? I know your guidance has been over 70% historically, but is that more like a structural thing that we're seeing? Or alternatively, is that like a I think kind of a shift? If there's color in terms of, like, what kind of partners are asking for more share, that'd be good to know.
Number two is more generally on the outlook and kind of the overall condition of the market. Management seems to kind of indicate that the demand is kind of holding up and the industry should rebound, I guess, after COVID. But it seems like there are some other headwinds with respect to data collection and so on and so forth, that I think actually would be a tailwind for Aurora, given the fact that it has all the targeting data to have better ads. I'm just kinda curious if management can walk us through those two points.
Hey, Ryan, this is Shan-Nen. Okay, back to your first question on the margin. Yes, this quarter we have been giving more shares of the revenue to the traffic pool in the JG Alliance business.
I think this is something that a part of the negotiation that we have undergone with them. Having said that, going forward, I think looking out for the next few quarters or throughout the year, we expect the margin to be around 65%-70% range.
Mm.
This is something that, yeah, if you look at what we have is major besides JG Alliance, the other businesses like the likes of subscription, vertical application, fixed, financial risk management, those are the ones with a much higher margin, which is above 70%. This is the only segment of the business that we are having a relatively low or comparatively low margin. I just want to give you some color in terms of the makeup of our margins. Majority of the businesses are still having 70% and above margin. This is the first question. The second on the outlook, again, if you peel what we have in terms of the revenue, let's say we can segregate them or we can separate them into value-added services and others.
If you look at value-added services, like what Chris and I have said, the demand for the ad spending or ad revenue has been low since beginning of this quarter, which is like even the late March.
Right.
From March onwards, we have seen the demand for advertising has been low and pretty low. If you look at what Tencent has announced, again, their Q2 revenue is expect to drop again for about 20%-30%. I don't think we are any better, so things will be pretty tough for value-added services. Having said that, for the subscription, the likes of subscription or the financial risk management or the market intelligence, those are pretty okay. Okay, in a sense that, like what Chris has said in the earlier calls or answering the earlier question, the lockdown did not diminish the demand for these services. What it did is simply delay the contract renewal, delay the cash collection from customers. The customers are still there.
Just that the fact that we are not able to extend our contract, we are not able to chase our money. Those are the delays that we are experiencing. Because the fact that you don't have contract, you cannot provide service, we cannot record revenue. We do not see any disappearance of customers. It's a matter of delays.
Okay. Then maybe if I can ask kind of a follow-up. In fact, let me start two follow-ups. First, on your first one on kind of the gross margin issue. So I guess, I mean, when we first started talking about the JG Alliance and it kind of being a unique traffic pool and kind of a very differentiator offering, it sounds like this is something that, frankly, app companies really were kind of effectively price takers because you had such a unique kind of product to offer them to monetize, help them monetize that without it, they were kind of on their, you know, basically relying on the standard kind of Tencent or whatever kind of platform to push ads on their app.
With the increase in take rates, I guess the compression in margin there. It seems like that's not consistent. I'd like more color there because it sounds like maybe there's some pushback or larger platforms, Kuaishou, are like asking for more share because they realize the value of their traffic, perhaps. Kind of maybe on the second part, kind of on the overall business demand side, I understand the weakness in COVID and so on and so forth.
It does seem like there's kind of a, you know, and again, I take on board what you said about Tencent, but it does seem like there is some overall maybe, I don't know, some, back half, second half loaded potential growth there. Maybe if you give us some color on where if you have specific verticals that you're seeing either strength or weakness in, that would be helpful. Because with COVID-19 lockdowns, it seems like there are e-commerce and other kind of maybe verticals that might see some growth, which maybe could be kind of a tailwind to the second half. If you can maybe touch on those two follow-ups, that'd be great.
Yeah. We are here. Ryan, on the first question, yes, you are right. We providing a very specific unique services to those apps that needs monetization. What we are seeing is in the first quarter of 2022, due to the lack of demand or the reduced demand for the advertising, you can see the eCPM or the price that the advertisers are willing to give us has reduced, right? Because the fact that the demand has decreased. What we could not do is we could not just pass on the reduced eCPM to our app developer. In a sense that we are taking a hit in a sense. That's why our margin has dropped a bit.
Okay.
Yeah. You can see it's still fairly good. It's like still at 70% or 69%.
Yeah. Yeah, almost. That almost sounds to me kind of like a pocket subsidy that you're offering the app developers, which is, you know, that's a little bit different than just kind of saying there's a structural change in revenue share with the app developer. Is that a better way to characterize? I guess the impact on margin is that you are kind of passing through more revenue kind of on a temporary type basis, or alternatively is that a contractual structural change in how you're sharing the ad rev?
Hey, Ryan. Yes, there are some of the arrangement that we have with the app developer at a fixed eCPM arrangement, which means that, if, let's say, we are supposed to give them $ 1 or RMB 1 eCPM, if we receive $ 2, of course we got a good margin. If we receive a $ 1.5 eCPM from customer, we still have to give them $1 , I mean, to the app developer. That's why. What I'm trying to say is the amount that we have arranged to give to the app developer is kind of fixed for some of them.
Got it. Okay. That's a squeeze there. Okay, understood. Okay. Yeah.
Your second question was the overall outlook on?
Yeah, just the overall outlook kind of really on kind of maybe second half, maybe if you give some color on the different verticals that you're exposed to. 'Cause I know that, you know, kind of gaming, irrespective of the recent announcements about new games being announced or being released, that maybe there's some kind of e-commerce lift that you may see. I think Taobao and some of the other e-commerce players probably show us the way. They're kind of new customers. With some COVID lockdown, maybe there could be an offsetting effect from that and demand from those advertisers that kind of really offsets the maybe gaming and some other kind of weaker verticals.
Cool. I guess it's not really a benefit from COVID, but on the other hand, maybe I can call it a silver lining. What we have seen is a lot of our customers, the subscription related customers, have gone overseas, the likes of BYD, Midea, some of the delivery companies. When they venture into overseas, Zhuhai, right? Let's say they go to Southeast Asia. In China, they are using our push services. In Southeast Asia, when they set up a new venture, we are providing the services there as well.
What we're trying to say is we do see a new venture or new growth driver in the Zhuhai area, which means that we are providing the same customers who are going into overseas market. Even that aside, some of the Southeast Asia customer base are selecting to use or have chosen to use our push services. One of which is one from my home country, a Malaysian company, a gaming company, a gaming publishing companies. For some reason, I think for a good reason, they have chosen JiGuang services to push their services in Malaysia. This is something that we see.
So long as we are doing well in performing providing a good quality service in push services, I think we have a good chance of getting more services in Southeast Asia. Probably I give you some color. We have recently set up companies in Singapore, and the reason why is we do see some potential new businesses or signing up contracts in that area. If you look at what we have forecast internally, we expect the so-called overseas related revenue to be around 3%-5% of our subscription business in Q2 and beyond. There's some new growth driver we have seen amidst this so-called relatively steady COVID-19 environment.
Right. Maybe kind of housekeeping, one or two housekeeping questions, if I could. Could you please give us an update on the size of the JG Alliance, kind of, the DAU pool? I think you guys did that last quarter. If you'd like, that transparency is great. I'm sure we all appreciate it.
Sure.
Can you give us that?
Sure. The DAU pool in the traffic for JG Alliance is still fairly stable. It's about, I think in the last call we had it at about 190 million, 190 million DAUs. That is fairly stable. I think the numbers that I'm gonna give you is the eCPM that we've seen has declined. The eCPM quarter-over-quarter, we expect it to drop about 20%-30%.
Yeah, yeah, I think as you commented on an earlier question, that's more or less kind of market softness, since I got that. Has there been any kind of meaningful churn in kind of JG Alliance, kind of DAU outside of, let's say, normal app attrition? You know, 'cause earlier you announced some pretty large kind of marquee type wins, you know, sounds like anyway. Has there been any change in the composition of who's in the pool?
No. I think there hasn't been any big loss or big churn. I think what we try to do is even though, let's say if our DAU did not increase from 19 million, that's fine. What we have seen is we are able to increase the exposure or the ad load that we talk about. I think couple of quarters ago, we used to have like 0.5 ad load per DAU. So long as the DAUs are there, we are still able to make good traction, so long as we increase the exposure. If we are able to increase the exposure of the same DAU, we are able to increase the revenue.
What's the ad load these days, roughly?
Yeah. It's still around about 0.5 because of the lack of demand.
Because of lack of demand?
Yeah, because of lack of demand, we are not able to show as many advertisement as we would like to.
Okay. Thank you.
To this 190 million exposure or the DAUs.
Great. Thanks a lot, guys. Appreciate the color.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypad. Dear speakers, there are no further questions. I would like to hand over call back to René for closing remarks. Please go ahead.
Thank you, Nadia. Thank you everyone for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you all.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.