Aurora Mobile Ltd (JG) 2018 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Aurora Mobile Q3 2018 Earnings Call. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, the 20th of November 2018.

This call contains forward-looking statements. These statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1985. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, beliefs, estimates, confident and similar statements. Among other things, the business outlook and quotations from management in this announcement as well as Aurora Mobile's strategic and operational plans contain forward-looking statements. Aurora Mobile may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about Aurora Mobile's beliefs and expectations, are forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements, including but not limited to the following: Aurora Mobile's strategies, Aurora Mobile's future business development, financial condition and results of operations, Aurora Mobile's ability to attract and retain customers, its ability to develop and effectively market data solutions and penetrate the existing market for developers' services, its ability to maintain or enhance its brand, its competitions with current or future competitors, its ability to continue to gain access to mobile data in the future, the laws and regulations relating to data privacy and protection, general economic and business conditions globally and in China and assumptions underlying or related to any of the foregoing.

Further informations regarding these and other risks is included in the company's filings with the Securities and Exchange Commission. All informations provided on this call is as of today, and Aurora Mobile undertakes no duty to update such information, except as required under applicable law.

Thank you. I would now like to hand the conference over to your first speaker today, Mr. Chris Luo, Chairman and CEO. Please go ahead, sir.

Thanks, operator. Good morning and evening to everyone on the call, and welcome to Aurora Mobile's Q3 2018 earnings call. And we are very pleased to share with you another quarter of very strong financial and operational results. To kick off this call, I would like to take this opportunity to share with you on various key operating data in this quarter.

Firstly, the number of mobile apps utilizing at least one of our developer services, or the cumulative app installations, increased to approximately 991,000 as of September 30, 2018, from approximately 648,000 year-over-year. Secondly, the cumulative SDK installations have increased up to 17.4 billion as of September 2018 from 9.9 billion year-over-year.

Thirdly, the number of monthly active unique mobile devices we cover has increased to 1.03 billion in September 2018 from 739 million in September 2017. Lastly, in the third quarter of 2018, we have seen the number of customers increase to 1,877 from 1,311 a year ago.

With another quarterly healthy growth of this operating data, the total revenue for Q3 2018 were CNY 196.9 million, which represents an increase of 116% year-over-year increase of 19% quarter-over-quarter.

Now let me share more on each of our business lines. First is the developer services business. Within the 3 months ended September 30, 2017, and the 3 months ended September 30, 2018, our revenue from developer services increased by 51% from CNY 10.4 million to CNY 15.7 million, which was mainly due to the growth in the number of customers from 804 to 1,170 year-over-year.

Second, our -- on our data solutions business lines. During the same period, our revenue from data solutions increased by 124% from CNY 80.7 million to CNY 181 million. The 124% growth was primarily due to the increase in both the number of customers and the increase in average spending per customer.

For targeted marketing business, the revenue have grown 114% year-over-year. This increase was mainly due to both the increase of number of paying customers and ARPU. Despite the noise of slowdown of China economy, we are not seeing any impact from the slowdown. We continue to gain customers' wallet share as we purely focus on performance-based advertising.

Advertisers care more about performance in current environment, which definitely helped our strong performance. Given the relatively small size of our advertising business compared to the broader market, we are still hugely under-penetrated, we think, less than 0.1% of the total addressable market. This gives us ample room for growth.

During the quarter, our strategy to diversify our advertising customer verticals continued to be executed well besides the strong growth in financial sector and media and entertainment sector. The mix of revenue from other verticals, which includes mobile gaming, e-commerce, educations and auto, now accounts for over 20% of total advertising revenue, up from low teen in second quarter.

We also continue to diversify our media source. Now Tencent, GDT only accounts for 35% of total advertising inventory on dollar terms.

Now I'll turn the call Fei who will share with you on the Q3 performance of our other 3 business lines within the data solutions.

Thank you, Chris. For the other vertical data solutions, let me remind you again, which consists of market intelligence, financial risk management and location-based intelligence, the combined revenues have increased by 253% from CNY 6.2 million to CNY 22 million year-over-year. This was mainly due to the increase in both the number of paying customers and the increase in average spending per paying customer. We see strong growth across all 3 product lines as we continue to expand our customer base into these industry verticals.

For financial risk management, major customer wins during the quarter include leading consumer financing companies such as 360 Finance, Zhuofu Finance. These are all multi -- multiple-million renminbi deals. For market intelligence product, similar to what we observed in the second quarter, we continued to see strong momentum in the investor community with more than half of the new contracts signed in the quarter are coming from the hedge funds and loan funds. We see very strong performance quarter-over-quarter in terms of revenue growth.

Within iZone business, third quarter new business wins are mostly with real estate, automotives, tourism and the retail customers. Notable customers includes [Zhejiang Tourism Bureau], [BYD Auto] and Carrefour as our repeat customer for fifth time.

Now Shan-Nen will share with you our financial highlights.

Thanks, Fei. And with the revenue growth that Chris and Fei have shared, let's -- let me further the discussion on the other items on the P&L. Gross margins for the Q3 2018 has increased from 27% -- to 27% from 25.3% a year ago. In terms of renminbi, the gross profit has increased by 130% to CNY 53 million. Total operating expenses has increased by 76% to CNY 78.9 million year-over-year. In particular, R&D expenses has increased by 93% to CNY 37.2 million. Selling and marketing expenses has increased by 38% to CNY 24.2 million. G&A expenses increased by 113% to CNY 17.6 million. And during the third quarter of 2018, we have recorded interest expense of CNY 2.5 million, and this is offset by government grants recognized of CNY 5 million and changes in liability measured at fair value of CNY 12 million.

And as a result, the year-over-year net loss has decreased by 63% from CNY 23.3 million to CNY 8.6 million. Under adjusted EBITDA basis, it has decreased from negative CNY 18.5 million (sic) [CNY 18.9 million] in Q3 '17, negative CNY 11.1 million in Q2 '18 to negative CNY 6.9 million in this quarter.

Onto the balance sheet items. The total assets -- the total current assets has increased from CNY 293 million as of 12/31/2017 to CNY 888 million as of 9/30/2018. The key current assets' items as of 9/30/2018 are cash and cash equivalent of CNY 681 million, accounts receivable of CNY 132 million, prepayments and other assets of CNY 73 million.

Total current liabilities has increased from CNY 117 million as of 12/31/2017 to CNY 180 million as of 9/30/2018. The key items include accounts receivable -- accounts payable of CNY 25 million, deferred revenue of CNY 59 million, accrued liabilities of CNY 93 million. And as of 9/30/2018, we maintained a healthy level of working capital of CNY 708 million.

And looking forward, we expect the revenues for the Q4 2018 to be in the range of CNY 215 million to CNY 220 million, representing a year-over-year growth of approximately 92% to 96%.

And this concludes the management presentation of the Q3 2018 results. Back to you, operator.

(Operator Instructions) Our first question comes from the line of Thomas Chong from Crédit Suisse.

This is Ribery from Thomas -- speaking on behalf of Thomas. I have 3 questions for management. The first question is about the common item, and management has already mentioned the macroeconomic situation doesn't have a lot of negative impact on the business. Can we get some color for 2019 outlook from the management? The second question is that, can we have some color of breakdown on the other vertical data solutions business? We recognize that there are strong growth for 3 segments, but we just want to know if we have any color on the breakdown for these 3 segments. My third question would be any new development inside of the data solutions business. If management can share some of the new initiatives, that would be perfect.

Yes, I will take the first question. So yes, so for -- given the macroeconomic impacts on country, actually, we didn't see any impact to our business because we are basically focused on performance-based advertising. So basically at current stage, the customer would like to use our solution to reduce their user acquisition costs. So in -- I mean, in -- as we have give the guidance in Q4, revenue guidance is within the range of CNY 215 million to CNY 220 million. So currently, we don't have an exact number of, I mean, 2019 guidance, but we will still see very strong growth next year.

Yes, regarding the second question, the breakdown of the other data solutions, actually, we don't really break down the -- those 3 data solutions. Given the scale of those 3 add up together is CNY 22 million, right, it's not big enough for us to further breakdown. But what I can tell you is quarter-over-quarter, they all show very nice growth.

Yes, so for the questions on the other data solutions -- development of other data solutions. Currently, we are very pretty much focusing on other verticals, in particular, in the targeted marketing solutions. So we are very good in finance and entertainment and media verticals when we started targeted marketing business. And as I mentioned, the other verticals, which includes the gaming vertical -- the gaming and e-commerce and educations, and currently accountable, 20% of the mix of the targeted marketing revenues. So we are very -- are focusing on develop those verticals. So I'll give you some colors of other verticals, which we are very -- that we expect we are good at in Q3. So for example, the e-commerce verticals, we have new customers like [PUBG]. For the gaming verticals, we get customers like [Liu Do]. We have -- which is [Jim Skype]. For other customers like the [Chi Tou Chao] and [360], they are all new customers, which are now categorized in other verticals in our targeted marketing data solutions. So we are -- I think we are doing very good at expanding to other verticals.

(Operator Instructions) Your next question comes from the line of Piyush Mubayi from Goldman Sachs.

I know in the past we talked about supply-side platform and how that was going to progress through the rest of the year and into next year as well as the plan that you had for microloans and credit businesses that you were proposing. Could you just run through those and tell us where we stand and what the time line could be for a revenue contribution to materialize from those 2 lines of businesses? That's the first question. The second is just going through your cost lines, just if you could shed some color on your proposed spending on R&D, which is one of the factors you can control? And second, how do you plan to run sales and marketing as a percentage of revenue through the course of the rest of the year? And potentially, any light on path to profitability? Those are my 3 questions.

Yes, I'll answer the first question. So with the progress of our targeted marketing, the SSP -- I would like to talk about the SSP platform. So in Q3, actually, the inventory contribution from our own SSP is now accounting for 1% or 2% right now. So we see the developer is -- currently, they are very separating to our new platform, but we are still training the system, training the economic model. So we will see strong growth in the coming several quarters, I think, yes.

And Piyush, the second question, are you asking about our consumer products for the microlending? For that business, actually, the revenue contribution is very stable. It's still about 10% of our total advertising revenue. Yes, so for the R&D spending, actually, on the fourth quarter, we are going to be having a slight increase from the third quarter. It's not going to be a significant increase because, basically, towards the year-end, as you know, actually, it's very difficult to hire talent so most of the hiring now will probably concentrate on the first quarter next year after Chinese New Year. So you will see more R&D increase in the first quarter, towards the end of first quarter and the second quarter next year. Yes, this is very typical in China. And in terms of the profitability, actually, we are looking -- are still looking at the next year second quarter. We -- or the third quarter, I think, mid next year, we look to -- non-GAAP EBITDA basis, we're looking to be profitable or breakeven.

(Operator Instructions) We have a new question from the line of Wei Chen (sic) [Wendy Chen] from Goldman Sachs.

It's Wendy from Goldman. Two questions from me. One is a follow-up from what Piyush asked about the sales and marketing spending budgeting. So I just want to clarify what is our -- probably in the long term, how we think about budgeting sales and marketing as a percentage of revenue going forward. And second question is about the share repurchase plan we announced today for up to USD 10 million. So I just would like to probably comment on more color on the share repurchase plan and whether this plan is expected to go forward or recur in the future.

Yes. So actually, why I give you the guidance for the entire operating expense, we are looking to -- pretty much going into next year, I think we are looking at about 20 -- maybe 28%, 29% of the total revenue, okay. So that's actually the number we are currently come to it from our own internal model of how I look at it. And so if you have the historical number for the 2018, I think you can pretty much follow. And if you want to do the modeling and if you have followed the historical number, and that is quarter-over-quarter growth number to run the model to do the forecast, and you can break it down into -- in each quarter. Share buyback?

Yes, I guess, for the share buyback, we announced today, this was 6 months, and I guess, this is up to total of USD 10 million. And we were questioned whether we would do it again. I guess, we'll see how we go in the first 6 months. And yes, we -- I guess, we will not have any decision right now in terms of where we will be, whether it will be recurring. I guess we will just see how we go for the next 6 months.

(Operator Instructions) We appear to have no more questions from the phone line. I would like to thank all participants for joining. That does conclude the conference for today. Thank you, and goodbye.