Ladies and gentlemen, thank you for standing by. Welcome to Aurora Mobile first quarter 2023 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press Star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the call over to your host today, Christian Arnell. Thank you. Please go ahead, sir.
Thank you, operator. Hello, everyone, 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 or through newswire services. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer, Mr. Shan-Nen Bong, Chief Financial Officer, and Mr. Guangyan Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q&A session that follows. 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. SEC. 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 would now like to turn the conference over to Mr. Luo. Please go ahead.
Thanks, Christian. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 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 website. You may refer to the deck as we proceed with the call today. Despite the challenging macro environment, we successfully conclude the first quarter of 2023, with business and social activities slowly recovering during Q3, following a shift in COVID policy towards the end of 2022. Some of our businesses were impacted to varying degrees. However, we are pleased to report that so far in Q2, we have witnessed good momentum in revenue growth, especially from developer services. Although the external macro environment was rocky during the first quarter, we have not stopping making our organization more efficient.
We carry on with our strict cost management strategy and cautious hirings, flatten our management structure, as a result, our overall expenditure have continued to drop year-over-year and quarter-over-quarter. We believe these efforts will help us improve our financial performance in the long run, which will also give us the space in a difficult environment to execute on our ambition. Here are some key financial results that I am proud to share. Lowest net loss since 2019 Q3 at RMB 15.2 million. Lowest adjusted operating expenses since IPO at RMB 57.4 million. Lowest operating expenses since IPO at RMB 64.8 million. Gross margin back to 70%. AR turnover days at 39 days. Deferred revenue balance has been higher than RMB 100 million for over 12 consecutive quarters.
Total customer number remains stable and 4,527, up 1% year-over-year. Our effective cost optimization continued to yield noticeable financial results with the lowest net loss since 2019 Q3 at RMB 15.2 million, and adjusted operating expenses at a historically low since IPO of RMB 57.4 million. We also maintain a very healthy growth margin of 70%. Let me go through our different revenue streams. Developer services revenue decreased 24% year-over-year, mainly due to the weakness in value-added services, offset by the growth in subscription services. subscription services revenue were RMB 37.5 million, up 9% year-over-year, mainly fueled by increasing output.
Subscription services as our core business include JPush, Analytics, UMS, and other products. Despite the external uncertain macro environment, we signed up many well-known clients, including but not limited to Guangda Bank, Shunfeng, Starbucks, and BYD. Going into Q2, we expect some major recovery in subscription services, and we hope we will see double-digit growth on a Q-o-Q . Value-added services revenue were RMB 8.0 million, decreased by 69% year-over-year, which was a result of weak advertising demand. We believe advertising-related revenue will continue to be impacted by the uncertain and volatile macroeconomic environment. Moving on to our Products and Services, we have seen strong growth, potential and interest in the EngageLab platform that we launched during Q4 last year. We have implemented various improvements to all the products under EngageLab.
Recently, EngageLab has established a reliable network of data centers in multiple regions around the world to ensure that customers can choose the storage location that best suit their business needs. These data centers meet the highest security centers and standards, and have passed a rigorous certification and audit process. With the rapid growth in global data exchange, overseas customers have increasing data security and compliance requirements. In addition to Singapore, EngageLab has now added a more data center option for overseas customers to deploy the push notification product, AppPush and WebPush. This include China, Hong Kong, Germany, Frankfurt, U.S., California, Japan, Tokyo, and South Korea, Seoul, UAE, Dubai, Brazil, São Paulo, and Australia, Sydney. Customers can select one appropriate data center to store data for an application based on comprehensive consideration, such as the location of their end user and regulations.
We will continue to invest in technology innovation and global infrastructure building, are committed to providing our customers with the highest level of data security and compliance assurance. We are pleased to report that EngageLab has attracted numerous valuable overseas customers and generated significant revenue and ARPU in just a few months. Encouragingly, new contribution from overseas customers continue to outpace those from domestic customers, we anticipate that our overseas business will be one of our biggest growth drivers going forward. Our products have been well received by customers in multiple countries and regions, including the U.S., Malaysia, Thailand, and Singapore. Notably, well-known companies such as BYD, Dah Sing Bank, and Midea, has become our valued customers. With this recognition from our customers, we remain committed to enhancing our products and services to enable global developers to achieve high efficiency and cost-effective user reach.
In addition to other achievement this quarter, we have launched our latest enhancement to JPush, the in-app messaging function. Unlike notifications sent through external channel, Jiguang in-app message appear within the apps using pop-up windows and floating bars to capture users' attention. This feature place emphasis on user interaction and engagement, ensuring developers can curate and retain their most valuable users. While push notification bring user back to the app, in-app message guide the user to interact with the app in a way that meets their expectation. With our app developer-centric strategy, and through our ongoing improvements and iterations of products and technologies, we will continue to improve the app and help mobile app developers answer their operational and growth demands, and provide better user experience.
With that, I will now pass the call to Shan-Nen , who will share more information about the vertical applications and other aspects of our performance.
Thanks, Chris. As Chris has mentioned before, we are facing external uncertainties during Q1, and our vertical application business was also challenged this quarter. Vertical application mainly consists of financial risk management and market intelligence. Vertical application revenues decreased by 22% year-over-year. For both Financial Risk Management and Market Intelligence segment, revenues were negatively impacted and decreased by 20% and 5% respectively, year-over-year, to RMB 11.8 million and RMB 7.2 million. Our Q1 revenue was impacted since many of our customers were not able to close contract on a timely basis due to the COVID outbreaks. Going into Q2, we have seen recovery in the revenue from both sectors already. Under the challenging environment in Q1 of 2023, we were still able to sign up various KA customers such as Guizhou Bank, Huaxia Bank, and Vips hop, just to name a few.
I'll now go through some of our key expenses and balance sheet items. On to operating expenses. We are on track in our operational goal to becoming more efficient company by centralizing our resources to focus on fewer but more important tasks. During Q1, adjusted operating expenses marked another all-time low since IPO at RMB 57.4 million. Our net loss has also narrowed down to RMB 15.2 million, the lowest since Q3 of 2019. All three components within OpEx category recorded year-over-year and quarter-over-quarter reduction. In particular, R&D expenses decreased by 21% year-over-year to RMB 31.7 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation, and a decrease in cloud costs and depreciation expenses as a result of improvement and optimization of our cloud platform.
Selling and marketing expenses decreased by 28% year-over-year to RMB 18.9 million, mainly due to the decrease in headcount by 31%. G&A expenses decreased by 49% year-over-year to RMB 14.3 million, mainly due to a RMB 8.4 million decrease in personnel costs. The RMB 2.9 million decrease in professional fee as a result of our strict cost management control strategy, and a RMB 1.8 million decrease in bad debt provision as a result of our company-wide concerted effort on strict financial control measures. Adjusted EBITDA, calculated as EBITDA, excluding share-based compensation, reduction in force charges, impairment, improved by 9% year-over-year to - RMB 7.5 million. On to the balance sheet. I will again share two very important KPI that we closely monitor. We continue to maintain a healthy AR turnover days level at 39 days.
Usually, Q1 is a slower quarter because of the Chinese New Year holidays, I'm glad to see that our persistent payment collection policy works effectively during the period. Secondly, one of the key financial KPI for tracking the performance of SaaS company is a total deferred revenue, which represent cash collected in advance from customer for future contract performance. Again, ended quarter on a high note at RMB 133.8 million, this is the twelfth quarter our deferred revenue balance has exceeded RMB 100 million. Healthy cash flow aside, the level of deferred revenue also signifies that our business is in great shape. Our customer has continued to buy our product and services quarter-over-quarter, year after year, we are very pleased with the trending of this deferred revenue balance.
Total assets were RMB 396.4 million as of March 31st, 2023. This includes cash and cash equivalent of RMB 88.4 million, accounts receivable of RMB 26.4 million, prepayments and other assets of RMB 33.7 million, fixed assets of RMB 11.9 million, long-term investment of RMB 141 million, goodwill of RMB 37.8 million, and intangible assets of RMB 22.3 million resulted from a SendCloud acquisition in March 2022. Total current liabilities were at RMB 238 million as of March 31st, 2023. This includes short-term loan of RMB 5 million, accounts payable of RMB 18.4 million, current operating lease liability of RMB 18.2 million, deferred revenue of RMB 131 million, accrued liabilities of RMB 65.2 million. Before I conclude, I'll give an update on the share repurchase plan.
In the quarter ended March 31st, 2023, we repurchased 194,000 ADSs. Cumulatively, we have repurchased a total of 1.39 million ADSs since the start of our repurchase program. This conclude management prepared remarks. We're happy to take your calls now.
Thank you. As a reminder, to ask a question, you will need to press Star one one on your telephone. If you'd like to cancel a request, please press Star one one again. One moment for the first question. First question comes from the line of Calvin Wong from Spica Capital. Please go ahead.
Good evening, management. Thank you for taking my questions. I would like to have two questions, if I may. 2 questions related to financials. First of all, about OpEx. We noticed that the company continued to record historical low on your both GAAP and adjusted OpEx. Just wonder, how did you do that? Did you make a further headcount reduction? If so, how will the reduced workforce impact on your business operations? A related question is that, do you expect to see further reduction in OpEx in the coming quarters? How low could that go? That's the question related to OpEx. Another question is related to your revenue. We saw a dip in revenue year-on-year and quarter-on-quarter. Of course, management has already made a very good explanation on the reasons behind.
What we would like to know is, going forward, what will be the revenue growth drivers? 2 questions, 1 on OpEx, the other on revenue.
Okay th anks for your call, this Shan-Nen. Let me try to answer your question. I guess from financial perspective, we are very, very pleased to report that we did achieve the so-called GAAP and non-GAAP adjusted OpEx on a low basis this quarter again. As to how we do it, there are a couple of things that we have been doing well. First, our going cloud project was executed successfully, which means that we are able to reduce significant amount of depreciation from the server expenses. This is very important. Besides the expenses aside, as you know, over the past few years, we have been spending, like, RMB 10 million per year on servers. With the going cloud project that we have done over the past year, we are no longer needing to spend such money.
For the servers that we are using right now, the cloud servers, and we are only pay as we go, which means that we only have to incur expenses, based on what we have consumed. This also greatly improve our cash flow, and this is the first thing that we did. The second, the thing that we have done on the reducing the OpEx, is that we have implemented this strict cost control-based, management strategy over the past years. Probably you can see, over the years, we have reduced the headcount. We have also looked at every single expenses that we have. Moving forward, we do not anticipate any further reduction or big reduction in our headcount, and we are pretty comfortable in terms of where we are, in terms of headcount, to continue our operations.
So this is the first question. I think you asked about how low can the OpEx go going forward?
Yes.
I think the short answer is, as I said, all expenses is at a pretty optimum level right now, and we do not expect to have significant decrease in OpEx every quarter going forward. This is a pretty optimal level that we think we are, can operate with, within the framework right now. I think the second big question you asked is the dip in revenue and what are our revenue growth driver going forward. I think if you recap what Chris has said during the call earlier, we have seen a huge opportunity from overseas business, which is the Engage Lab products. There are a couple of things that we have, I would like to share with you.
Based on the overall contract top line that we have internal research, about 15%-20% of our total sales leads are now coming from overseas. Which means that this coming back will be a big chunk of our revenue contribution, because 15%-20% of our sales leads are coming from overseas. This is one of the metrics I'll share with you. The second is, for the new contract that we have signed by value, the percentage contributed by overseas customer has grown 3x from 3%- 10% of the total contract value in Q1 2023. Which means that the contract value has grown 3 times over the past quarter.
This percentage we have seen in the Q2 of this year, which means that the month of April and May, the contribution percentage is continuing to improve. I guess with this trend, we believe that our overseas revenue will be the primary growth driver going forward. Having said that, what we have not, we have not taken our eyes off our bread and butter, which is the developer service. They are and will continue to be our major contributor for our stable cash flow and revenue in the future. I hope this answer your question.
Yes, very clear. Thank you.
Questions. As a reminder, to ask question, please dial star one one. Our next question comes from the line of Brian Kinstlinger from AGP. Please go ahead.
Great. Thanks so much. Just in a follow-up to the answer you just gave on the revenue drivers, you said overseas has gone from 3% of bookings to 10%. What products that you sell or services are most being bought by these overseas customers? Is it EngageLab, or is it some of your other services?
Hi, Brian, this Shan-Nen. Yeah, those are 100% from EngageLab.
Great. I guess if I understand correctly, EngageLab is a product that's helping customers choose data storage locations. Do you own the networks or are these partners of yours? How are you acquiring customers for this product? That would be helpful. Thanks.
Brian, the EngageLab is the push notification that we help the customers outside of China to do the notification, the messaging. It's nothing to do with the storage. Means that a customer in, say, like Singapore, they have an app, APP. They would like to reach out to their customers or users in Southeast Asia. We help them to do the push notification in Singapore.
Got it.
This is exactly what we are doing since 2021 in China, just that we replicate the product overseas.
Okay. Then, you said you expected a recovery in subscription services. What's driving this recovery, in your view? I suspect the environment remains challenging.
Yeah, I think there's a couple of things. One is simply because the Q1 was low season. That's a given. Right now, what we are seeing is, Again, people are trying to be more cost efficient. They try to get the best deal of their services, so they more likely to outsource to us, which is a one of their best partner in terms of doing the push notification. This is a kind of a change in the mindset of rather for them to invest a lot of money, people, engineers to do in-house, they are going outsource to third party like us.
I guess a good numbers that I can share with you, based on what we are seeing right now in Q2, we have the April and May numbers in already, based on this, the project, the trajectory that we're looking at is the developer service subscription business. We expect to have double-digit growth in Q2, year, quarter-over-quarter. You can see the numbers are looking good, people are buying our game services.
Yeah. Value-added services really bottomed out. You mentioned, and obviously, the advertising market is quite challenging. I don't think that's changing right now. What's the outlook for that business? Can it decline further?
Sure.
If the market remains weak, or, you know, how do you manage that business right now?
Yeah, based on what we are seeing, no, the value-added service remain to be fairly flat. We do not expect it to have a good numbers going forward. At best, it will try to be flat in the next quarter or so. If you look at what we have is, we have researched some of the big, bigger ad player in China, such as those like likes of Tencent, Baidu, and Weibo. All of them are recording quarter-over-quarter reduction in revenue on ad spending. We are not any better. I think the overall environment or overall ad market in China is remain weak or has not recovered to previous good times.
Okay. My last question is really a high-level question. You said customers have been challenged to close deals still, given COVID. Help paint a picture of what the market is today. I mean, that was the first quarter, obviously. Here we are, 2/3 into the second quarter. Is COVID still a major challenge for you? What are the main obstacles in China enterprises are facing today?
No, as far as COVID is concerned, lack of a better word, I think it's almost all over. The main, and people are not, are not shutting down or work from home because of COVID anymore, and there's no regulation or policy that workers must work from home or cannot come to work. COVID per se, is over. What we are looking is, right now is probably the recovery from the overhang of the COVID. Yeah, COVID is over, that doesn't mean that the business activity is 100% back to where it was. We do see recovery. As I say, the developer service subscription business, we have seen more double-digit growth quarter-over-quarter, this is a very encouraging sign.
Okay. Thanks so much.
Thank you.
Thank you for the questions. As a reminder, to ask question, please press Star one one. At this time, there are no further questions on the line. I'd like to hand the call back to Christian for closing remarks.
Thank you, everyone, for joining the call tonight. If you have any further questions or comments, please don't hesitate to reach out to myself or anyone on the Aurora Mobile IR team. This concludes the call. Thank you. Have a good evening.
This concludes today's conference call. Thank you for participating. You may now disconnect.