Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.

Thank you, Andrew. 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. Fei Chen, President; and Mr. Shan-Nen Bong, Chief Financial Officer. Following the prepared remarks, all three 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 US 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 US 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'd now like to turn the conference over to Mr. Luo. Please go ahead.

Thanks, operator. Good morning, and good evening to everyone on the call. Welcome to Aurora Mobile's fourth quarter and full year 2021 earnings call. Before I comment on our Q4 and full year 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. Despite a very challenging operating environment in 2021, we have achieved remarkable progress in our business operation and financial performance. The conclusion of the fourth quarter marked the first full year of our successful transition into our SAAS business model, which include Developer Services and Vertical Applications. I am more than delighted to share with you the achievements we have made with various record high key business results. For an apples to apples comparison, numbers present its core contribution from the legacy Targeted Marketing business in the prior year. We entered the fourth quarter with a lot of momentum. Our key business metrics are showing exceptionally great results, which further puts our strategic decision to fully transition into the [top] business is of great victory. Revenues were CNY101.2 million, up 32% year-over-year. This marked the highest SAAS revenue record for the company, surpassing CNY100 million for the first time, a key milestone for us. Gross profit was CNY72.1 million, the highest gross profit since Q1 of 2020, up by 23% year-over-year. Group gross margin was 71.2%, which is more than 1.2x compared with 36.7% a year ago. Adjusted EBITDA was CNY1.84 million, the first ever adjusted EBITDA profitable quarter since our transition to the pure SAAS business since Q1 of 2021 and adjusted EBITDA significantly improved by CNY19 million year-over-year from negative CNY17.1 million in Q4 2020. Net loss was CNY35.6 million, significantly…

Thanks, [Chris]. Let me start the discussion by elaborating on the different revenue streams within the SAAS businesses. In fourth quarter of 2021, our Developer Services continued to deliver solid results with 42% year-over-year growth, which was mainly fueled by a substantial 73% year-over-year growth in value-added services and 27% strong growth in our subscription services. Subscription services revenues were CNY44.4 million, an increase of 27% year-over-year, primarily driven by new customer acquisition and the strong growth in the private cloud services. Our strategy of cross-selling various non-push subscription products has also been contributing to this significant growth. As a result, our revenue contribution of non-push notification products increased to 49% from 38% a year ago. Non-push notification products, which include private cloud, SMS and JVerification also achieved a higher ARPU of CNY43,000, resulting in an overall ARPU for subscription services increasing by 8% to RMB 18,200 compared with RMB 16,800 a year ago. New and renewed contracts of notable customers in the quarter include China Telecom, Tesla, China Eastern Airlines and so on. Value-added services within Developer Services, which include revenues from JG Alliance services and Advertisement SAAS continued to deliver impressive results by achieving a 73% year-over-year growth to RMB 30.2 million from RMB 17.4 million in fourth quarter 2020. Since we first started our value-added services in fourth quarter 2019, the revenue has exponentially grown by 8.2x and they reached a new historical high this quarter. On the supply side of the JG Alliance, during the quarter, we continued to grow the traffic pool as it is a vital part of our strategy to increase opportunities for monetizating channels. The total number of apps within our network exceeded 470 apps compared to 394 in third quarter 2021, representing a 21% growth quarter-over-quarter. And the total number of…

Thanks, Fei. I'll go over some of the key expenses and balance sheet items. Let's talk about operating expenses. As a result of our continuous effort to efficiently manage operating expenses, in Q4 2021, our OpEx decreased by 13% year-over-year to CNY92.5 million. In particular, R&D expenses increased by CNY11 million to CNY45 million, mainly due to a CNY4.5 million increase in cloud costs to support the expansion of the SAAS businesses. Selling and marketing expenses increased by 48% to CNY33.2 million, mainly due to the increase in sales commission and expansion of our sales organization. G&A expenses decreased by 67% to CNY14.4 million, mainly due to a year-over-year reduction of CNY11 million in bad debt provision due to our proactive and strict financial control measures, reduction of CNY11 million in long-lived assets impairment due to one-time costs for growing cloud project in the same quarter last year and a CNY5.9 million decrease in staff-related compensation. Also during the quarter, we streamlined our workforce in an effort to further improve our overall operating efficiency and to ensure OpEx maintain at a healthy level. We will continue to optimize our organizational structure and fine-tune our OpEx level while sustainably grow our revenue. Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, reduction in force charges, impairment of long-lived asset, impairment of long-term investment and change in fair value of foreign currency swap contract has had a significant breakthrough and delivered a first positive quarter since 2020 at CNY1.8 million, which significantly improved by CNY19 million year-over-year from negative CNY17.1 million in Q4 2020.For the fourth quarter of 2021, we have delivered a set of excellent financial results, which includes the following highlights: First, revenue of our SAAS business increased significantly by 32%. Our gross margin improved from 56.7% to 71.2%, a direct…

[Operator Instructions] And I'm showing we have a question from the line of Brian Kinstlinger with Alliance Global.

Nice results. Can you talk about the announcement for verification services with HUAWEI CLOUD? What are the dynamics to generate revenue from this? And can you help us understand when it will begin generating revenue and maybe some targets for this business that we should evaluate?

So, actually this collaboration with HUAWEI started actually last quarter, right? So, actually, in last quarter in the call, we've already mentioned that actually, already started to generate the revenues, although the revenue is not -- it's not big, okay, it's in the tens of thousands, right? But it does have a contribution to our Developer Services revenue. And going forward, now the only -- this JVerification product, this is just the first product. We are actually in the process of adding the whole suite of our product portfolio into HUAWEI CLOUD, like UMS, IF, right, you name it. So, hopefully by the end of this year, we will be able to upload and get certified by HUAWEI for all of our product offerings. And this year, we think our goal is to -- not to have an ambitious goal to have the relationship started and it generates a certain amount of revenue. It's not going to be big. It should be in a few million renminbi.

And then, last quarter you spoke about JG Alliance installations starting to improve, but they were dealing with the personal information protection-wise. Can you update, is this no longer a challenge? Is it still a challenge? Just talk about how the rate of installations kind of you're seeing versus a quarter ago.

So, actually the regulation hurdle is largely behind us in the fourth quarter. So, everything comes back to normal. And as we talk about, disclosed in the prepared remarks, right, we have over 20% of growth in number of apps joining this app pool, right? So, we do see things come back to normal and we do expect the trend to continue in the following quarter. And as you can see, actually the revenue also exhibits this trend, right? The revenue had a big sequential double-digit growth, which totally is a reflection of more apps coming to join our JG Alliance network as well as, in last call, we also mentioned actually the ad load is also another factor, right? So, in the quarter, we also increased the ad load. So, both effects actually contributed to the sequential growth of the revenue for JG Alliance.

And I'm sure I'm wrong, but SendCloud sounds like a targeted marketing platform, but a lot more. So, talk about how SendCloud is different than your Targeted Marketing business that you exited and the strategic fit for your company, now it's different.

SendCloud is not a Target Marketing company. SendCloud is an e-mail API platform, which are very similar to SendGrid, which acquired by Twilio 3 years ago. So, his company mostly are -- his customer is mostly like a bank or hotel or even [the 2B] company like [D1] is also their customer. So, HK, we are using their API to send e-mail notifications through our customers, like developers. And the bank use their API to send e-mail notifications to their credit card customers. So it's not a target marketing company, it's a SAAS company actually.

And can you give us a little bit about the financial profile of the company? Maybe what are trailing 12-month revenue is? What's the growth rate and margin profile?

Margin profile is very similar to our margins, I think it was over 30%.

It's over 70%. And also, it's a profitable company. So actually, which is a good thing, right? They already generate profit. And the annual revenue for that company is around CNY20 million to CNY30 million. So, we expect in 2022, because the deal is going to be close before end of March, right, so we will add 3/4 of the revenue to our financials. So, we expect to generate CNY20 million -- around CNY20 million revenue from this company after the acquisition.

And what about the purchase price, is it cash? Is it stock? How did you value this company?

Brian, at this stage, we are not -- have the liberty to disclose more. I think when the document is done and dotted and signed, so we will make some press release on that regard.

Couple of numbers questions. Yeah, if I look at the gross margin, while it's above your guidance, it's a bit below each of the last 3 quarters. So, talk about, is it a mix? Is it some other trend in pricing? Just talk about how fourth quarter compared to the last -- the first nine months of 2021 and what were the factors?

I think it's both. I think that the mix probably play a bigger role. As you know, the JG Alliance actually carries a smaller lower margin than the rest of the developer subscription business, right? So developer subscription business gross margin is like over 75%. But this JG Alliance, usually it's like around 60%. So, as we continue to grow the JG Alliance business line, when JG Alliance contributes a bigger portion of the total revenue, you should expect to see the overall gross margin to give a little bit. But I think -- so over 70% total gross margin going forward is not realistic due to the reasons I just mentioned, right? So, for this year, I'm sure you want to know what the gross margin target should be. I think anywhere between 65% to 70% is the gross margin we are trying to maintain, okay? And another reason is because when JG -- when we get more traffic into our network, so the deals are conducted case by case basis, right? So, for some app developers, they might commence a higher revenue share. So, in that instance, we will have a lower gross margin for -- compared to other traffic or contributor, right? So, this again, JG Alliance gross margin is not static, it's very dynamic. But overall, I think, from what we are seeing, I think, 60% is a reasonable number.

Last question, just a housekeeping item. Just to understand your EBITDA, where do I find on the interim statement the severance charges and the impairment of long-lived assets, what line items are those under included?

Brian, the severance will be under OpEx, operating expenses and depends on the associated employee, whether it be R&D, sales and marketing or G&A. So that's the severance. And in term of impairment, it would be under other losses after loss from operation.

[Operator Instructions] Our next question comes from the line of Ryan Roberts with Navis Capital.

Mine is pretty simple. So, looking at the Q4 results, I think you made it better than the market expected and that's fantastic. I want to ask about kind of the current run rate because with the RIF, reduction in force, and kind of the other kind of cost-cutting happened during Q4, I want to ask about what's the kind of current quarterly run rate kind of a ballpark because it seems like there has been some cost-cutting and I don't know if that was in the early part of the quarter or last part of the quarter. But looking forward, it seems like there's just kind of some less cost in the stack here. I want to get a sense of what that is.

So you want to know what the cost structure look like going forward, right?

That's correct. Because I reckon, in December, it maybe looks very different than October.

So, actually, if you can recall, in last call, I specifically mentioned that the company was conducting a number of cost-cutting initiatives, right, trying to optimize our business operation not only from the labor perspective, but also from the IT results perspective, right? So, as you can see, actually in the quarter, we have made very meaningful progress, okay. And we also finished budgeting process for the coming year and that we identified the areas which we can eliminate the redundancies and the inefficiencies. So net-net, after all these assessments, so we believe for the OpEx for 2022, you will not see any growth, okay. Instead, you should see some declines compared to last year. So, currently we are estimating anywhere between 10% to 15% reduction of OpEx for 2022. So, the goal actually for 2022 is, you know, with the current revenue guidance, right? We also, with this cost structure, maintained disciplined approach to achieve this cost structure, and that we are very confident that we will be able to achieve the full year adjusted EBITDA profitable for the whole year. And so, we've done a sensitivity analysis, and even considered some very -- worst case scenario, I think that we are able to achieve that.

I'm curious like -- again, and just given the history kind of the cash burn, can you give us a sense of like what some of those assumptions are behind that claim of getting to non-GAAP EBITDA profitability. What are some of your major assumptions?

Yes. So, basically, to get to EBITDA positive, right, basically like I said, the cost control, cost measure is we've done several analysis on the cost control, cost measure, right. And the biggest cost element actually are 2 parts. One is labor. And the second is the IT resource, right? So, IT resource, we already identified a number of areas that we can continue to eliminate the unnecessary IT spending, okay. So, this work has been done -- has been committed by the head of IT department, okay. So, we should be able to -- for the IT spending, we should be able to save anywhere between 10% to 15% compared to last year. And also, in terms of the labor -- on the labor cost, right. So, throughout the fourth quarter last year, we've done -- already have done the organizational restructuring. And we kind of like eliminated the lower performance employees, which made our -- basically the total number of employees had anywhere around like 15% reduction. So -- which we want to set a new base for the labor cost, right. And also, in terms of the variable cost, so this is the fixed cost for the labor. And also there's a variable cost of the labor part. That's purely decided basically determined by the performance. Right? So, basically if we can achieve our internally set financial targets, they will get, for example, like 2 months of salary, right, as a bonus at the year end. But if they cannot, if we are not able to deliver satisfied -- meet financial target of 100%, then that's kind of like a tiered structure to significantly reduce the bonus part of the variable cost, right? So, by designing this structure, we are trying to incentivize. Everybody is aligned with the company's goal to achieve 100% or 100% of our financial targets.

I guess, maybe just kind of drilling down a bit. In that analysis of kind of scenario kind of computation that you do, what are you expecting like revenue-wise and kind of -- in terms of like an overall envelope of high and low, what do you guys expect?

The revenue?

Because, I mean, it's clearly -- to reach EBITDA positive, you've got to have some assumptions about the revenue high, revenue low in what we do. Just curious [indiscernible]

So, assuming very little revenue growth, okay, you could assume less than 10% of revenue growth under the current cost structure and that we will be able to achieve adjusted EBITDA positive.

[Operator Instructions] And I'm showing no further questions. So with that, I'll hand the call back over to Rene for any closing remarks.

Thank you, Andrew. 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 very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.