Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Q2 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today, René Vanguestaine. Thank you. Please go ahead, sir.
Thank you, Michelle. 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, 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. 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 call over to Mr. Luo. Please go ahead.
Thanks, Rene. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 Q2 earnings call. Before I comment on our Q2 results, I would like to remind everyone that the quarterly earnings deck is available on our IR website. You may refer to the deck as we proceed with the call today. Coming off from our seasonal slow Q1 quarter, we managed to achieve a few good results sequentially in this quarter. Overall, overall, we did see signs of recovery on most of the business lines between the quarters. However, they are not back to the level a year ago. During Q2 of 2023, we did a few things right. Firstly, we continued to expand our subscription business with the help of our engagement products offering overseas. I will share, I will share more on our engagement business at a later part.
Secondly, our value-added services business recorded impressive sequential revenue growth. Thirdly, our vertical application business recorded solid growth. Last but not least, we continue to control our expenses throughout the organization. With this as the backdrop, here are the good financial results that I would like to share with you. Total revenue grew 12% quarter-over-quarter. Gross profit grew quarter-over-quarter to RMB 47.7 million. Lowest adjusted operating expenses since IPO at RMB 54.6 million. Lowest operating expenses since IPO at RMB 64.1 million. AR Turnover Days at 37 days, improvement year-over-year and quarter-over-quarter. Deferred revenue balance above RMB 130 million for the past 6 consecutive quarters. Now, let me go through our different revenue streams.
Developer services revenue decreased 6% year-over-year, mainly due to the weakness seen in the value-added services, offset by the 6% growth in subscription services. However, developer services revenue grows solidly by 15% quarter-over-quarter, where both subscription and value-added services have record sequential revenue growth. Subscription services revenue were RMB 40.5 million, up 6% year-over-year, mainly driven by increasing ARPU. Similarly, we record revenue growth of 8% quarter-over-quarter, with the growth in ARPU between the quarters. Some of the notable new and renewal customers in this quarter include, but not limited to, Taikang Life Insurance, Zhongguo Dianxin, Himalaya, Juneyao Airlines, Just NetView. Value-added services revenue were RMB 11.5 million, decreased by 32% year-over-year, which was a result of weak advertising demand.
However, we did manage to record a good sequential revenue growth of 45% quarter-over-quarter. This was mainly due to our ability to capture a good portion of the e-commerce advertising spending for the 618 online shopping festival. However, we remain cautious on the revenue growth in the online advertisement market. Next, let me give you some updates on our overseas EngageLab product. As I shared in the previous quarter earnings release, we now have the data centers across the globe catering to customers in different regions and continents. As we expand our footprints globally, we have signed up more international customers. Our investment in technology innovation and building global infrastructure have paid off. As of now, we have global customers coming from 12 different countries and regions, including Hong Kong and Taiwan.
For our discussion with these overseas customers, they selected our service mainly due to the following reasons. One, reliable and stable service delivery. Two, strengthened data security and compliance. Three, local data center across the world. Let me share some other impressive metrics here. In Q2, our EngageLab business segment signed contract value was at 21% of the total new contract value for the group. This number has grown three times between the quarters, showing great momentum. In addition, we have also seen great overseas email and SMS volume growth. In Q2, the total overseas email request volume was at 3.3 billion, representing 4.2 times of our domestic email request volume. Overseas email and SMS request volumes have recorded 119% and 19% growth between the quarters.
Our EngageLab business activity is gradually growing in importance for both transaction and contract value contributions. Therefore, I'm very confident on the progress of our overseas business expansion strategy that we have started a year ago. I believe we will reap the benefit of this overseas effort in the near future. With that, I will now pass the call over to Shan-Nen, who will share more information about our vertical application and other aspects of our financial performance for this quarter.
Thanks, for this. Just to recap, vertical application mainly consists of financial risk management and market intelligence. In this quarter, vertical application recorded revenue growth on both year-over-year and quarter-over-quarter basis. For financial risk management, revenue grew year-over-year and quarter-over-quarter. This was positively impacted due to ARPU growth between the periods. In Q2 of 2023, we have seen customer consumption or purchase of our services increase, thus pushing the ARPU quarter over quarter. Apart from customers increasing their consumption, we managed to sign up more customers, such as WeBank, Ping An Consumer Finance, Haier Consumer Finance, Zhongxin Consumer Finance. As for market intelligence, the revenue remains stable year-over-year and quarter-over-quarter. I'll now go through some of our key expenses and balance sheet items. Onto our operating expenses.
I'm again very pleased to share with you that in Q2 2023, we have yet another record low quarterly OpEx at CNY 64.1 million. For year-over-year comparison, OpEx decreased by 27%, where all three categories of OpEx being research and R&D, S&M, and G&A all recorded reduction between the periods. This is critically important for us to maintain our OpEx at optimal level. This is the reason why we are able to record a 42% year-over-year improvement in adjusted EBITDA, when the revenue dropped by 4% year-over-year. We strive to continue tightly monitor and control our OpEx now and going forward. I'll now go through the individual OpEx category.
In particular, R&D expenses decreased by 26% year-over-year to RMB 30.2 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation, and a decrease in depreciation expenses as a result of us no longer needing as many servers due to our ongoing cloud initiative. Selling and marketing expenses decreased by 14% year-over-year to RMB 20 million, mainly due to the decrease of headcount by 30. G&A expenses decreased by 41% year-over-year to RMB 13.9 million, mainly due to a RMB 2.5 million decrease in personnel costs and RMB 5.3 million decrease in professional fee. As I mentioned earlier, as a result of our focus to drive OpEx at optimal level, the Adjusted EBITDA improved significantly by 42% year-over-year to negative RMB 4.6 million. On to the balance sheet.
I will again share 2 very important KPI that we closely monitor. We continue to maintain a healthy AR turnover days at 37 days. This was a huge improvement from a year ago, where the AR turnover days was at 46 days, and we also shortened the AR turnover days quarter-over-quarter. In summary, our team has done a great job in this quarter to improve our cash collection and mitigating the AR doubtful debts risk. Secondly, one of the key financial KPI for tracking and the performance of SaaS company is the total deferred revenue, which represent cash collected in advance from customers for future contract performance. The balance continued to be at high level of RMB 137.3 million, and this is the sixth consecutive quarter where our deferred revenue balance exceeded RMB 130 million.
We continue to sign up new and renewal customers, where they prepaid their fees in advance. This again, greatly improved our cash flow quarter-over-quarter. Next, total assets were at CNY 371.9 million as of June 30, 2023. This includes cash and cash equivalent of CNY 81.1 million, accounts receivable of CNY 34 million, prepayments and other current assets at CNY 31.1 million, fixed assets at CNY 10.1 million, long-term investment of CNY 140.4 million, goodwill of CNY 37.8 million, and intangible assets of CNY 20.9 million, resulted from the SendCloud acquisition in March 2022. Total current liabilities were at CNY 235.8 million as of June 30, 2023.
This includes short-term loan of RMB 5 million, accounts payable of RMB 22.2 million, current operating lease liability of RMB 7.2 million, deferred revenue of RMB 135.4 million, accrued liabilities of RMB 65.8 million. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June thirtieth, 2023, we repurchased 443 thousand ADS. Cumulatively, we have repurchased a total of 1.83 million ADS since the start of our repurchase program. This concludes management prepared remarks. We're happy to take your call now.
Thank you. If you'd like to ask a question, please press star one one. If your question has been answered, and you'd like to remove yourself from the queue, please press star one one again. Our first question comes from Calvin Wong with Spica Capital. Your line is open.
Thank you for taking my question. I would like to have two questions, if I may. The first question is related to your financials. Actually, it is great to see that your financials are recording continuous improvement every quarter. Like last quarter, we saw sequential increase in revenue, sequential decrease in OpEx, and sequential narrowing in negative Adjusted EBITDA. So the question is very simple: What is the management expectation on turning into positive Adjusted EBITDA? Is this something we will see, like, next quarter or in Q4 of this year? And the second question is related to your EngageLab product. We actually see that your EngageLab product was making good progress overseas. So could management share more about the progress and how management is looking at this business and its growth path?
So, the first question is related to your adjusted EBITDA. The second one is related to EngageLab product. Thank you.
Sure. Sure, Calvin, this is Shan-Nen. Let me take your call. Yes, you're right. Your observation is spot on. Yes, the financial KPI, be it revenue growth, OpEx number, or Adjusted EBITDA, are all improving sequentially. So as a company, we are very pleased with the effort made by the team throughout the organization over the few quarters. I guess, our work is not done. We still need to make good progress on the revenue expansion. I think we need to move customers into more customers or get more customers in and outside of China, and increasing the output across the board. And secondly, I think we certainly cannot take our eyes off monitoring our expenses, but the market conditions are relatively volatile, as you know.
So I believe we are in great position through the hard work that we have put in for the past six or eight quarters, in the past, year or two. The question you asked, based on our current trajectory, we are cautiously optimistic that, should everything goes according to our plan, we should be able to record positive Adjusted EBITDA in Q4 of this year. I guess, I still have to put a disclaimer, this is our best current estimate and is subject to market conditions. Nevertheless, I think should but there is still a possibility that we could turn Adjusted EBITDA positive in Q3, should everything goes according to plan or earlier than what we expected. So we'll see how we trend in Q3. The second question you asked about the EngageLab.
Yes, I think you have heard what Chris has said. We are very pleased with the progress with our EngageLab product. I guess a few things that we have done well, I think is, one, is the fact that we have invested additional data center infrastructure around the world. This give our overseas customer a great option to choose how and where they want to store their data, that better suits their security and compliance needs. And of course, ensuring our service delivery is utmost important. We need to make sure that our services meet or even exceed customer expectation. We need to address all our customers' concern on a timely basis.
Therefore, whether the customer is based in Singapore or Australia or in China, we'll have to provide a consistent, high level quality, high quality services to all our customers around the globe. And also, I was—I'll give you an update on the latest. I guess from, based on the deck you have seen, we—our customers are coming from 12 countries and regions around the world. I was told earlier this week that we are now starting to process additional service in Mexico and Turkey. So I guess you can see our service are, our services, our services are moving into new territories quarter-over-quarter. And therefore, we believe we have done many things right for us to be able to venture outside of China, and we should continue to grow our overseas customer base every quarter.
This is my answer to your question, Calvin.
Thank you. Thank you for your comments on the positive adjusted EBITDA. It's very clear. Thanks.
Thank you.
Thank you. Our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open.
Great. Thanks so much. The early success you're having overseas sounds great. I'm wondering if you can quantify the revenue impact during the Q2 and maybe put some context into how you expect this to ramp overseas, in terms of revenue?
Hi, Brian, this is Shan-Nen. Right now, the contribution is not material as yet, but probably as you know, based on our business model, one contract that we sign, the revenue is only contribute on a monthly basis for the next 12 months. So but I guess the good thing that we have seen is, like what Chris has said, based on the new contract that we have signed in Q2, 20% of them is coming from overseas, and this has increased 3 times from Q1. So we can see the trending of this so-called contract value contribution from overseas. So this is something that we are tracking. Maybe in the next quarter or 2, when the revenue contribution is material enough, we'll make the disclosure.
Got it. And what is that? Can you share that contract value with us?
Not the value. Not-
All right.
Yeah, we're not in the position-
Okay
to disclose the value of the contract yet.
Great. And then on subscriptions, you saw higher ARPU. Is that pricing or more services for customers? And then do you see more opportunity for ARPU growth in the second half of the year? And if so, what drives that?
Yeah, if any ARPU growth, that will come from overseas. And I think we have discussed before, I share with you or other investor or analyst, the ARPU that we get from overseas is at least double of that of China. So with the contribution from overseas getting bigger, our ARPU is certainly will have to go up.
But if overseas wasn't material in the Q2 , what was the factor that drove higher ARPU in the Q2 ?
Yeah, it's not material as yet, but it does help out on the ARPU between the quarters because Q1 is always the low quarter for the year.
Okay.
Back to your question.
Right.
Overall, overall, we did see some pickup on the ARPU, but what I'm trying to say is the major contribution is coming from overseas, the ARPU growth.
Okay. And then, how much of the sequential revenue growth in value-added services was a result of capturing the ad spend on June eighteenth Shopping Festival? And then are there any other such festivals that we should think about in the second half of the year?
Sure. I would say majority of the value-added services revenue growth is from the Six Eighteen festival. So if you look at going forward, in China, I think there are two big, so-called a big online e-commerce festival. One is the Six Eighteen, and the other one is Double 11, in Q4. So having said that, which means that Q3 will likely to be a slower season compared to Q2 and Q4.
Got it. Great. And lastly, while you guys have done a great job in managing expenses, the gross margin was at a multi-year low during the Q2 . What were the factors that drove that? And is that more of an anomaly, or is it more of the new baseline for the company? Thank you.
No, it's not a baseline. If you look at what we have in, based on our current Q3 estimate, the gross margin is going to come up. It's going to be higher than 65%. This is answer to your, the other question. The first question you asked, the reason was simply because the fact that the SMS-related revenue contribution was higher in this quarter, because the SMS business or revenue tend to have a lower margin compared to other SaaS business, because we have a kind of like a fixed cost that we need to pay to telcos-
Great. Thank you, Shan-Nen.
For every single SMS that we send.
Yep. Thank you.
Yep.
As a reminder, to ask a question, please press star one, one. There are no further questions at this time. I'd like to turn the call back over to Rene for any closing remarks.
Thank you, Michelle. 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.
This does conclude the program. You may now disconnect.