Ladies and gentlemen, thank you for standing by. And welcome to the Aurora Mobile Second Quarter 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, Vinay [indiscernible]. 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, I'm 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 a mandate and is 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 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, Renee. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 second quarter 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 data as we proceed with the call today. Coming up for our seasonal slow Q1 quarter, we managed to achieve a few good results sequentially in this quarter. Overall, we did seen signs of recovery on most of the business front within the quarter. However, they are not bad to the level a year ago. During Q2 of 2023, with the [indiscernible], firstly, we continue to expand our subscription business with the help of our EngageLab product offering overseas. I will share more on our engagement business at a later part. Secondly, our value added service patriots record impressively sequential revenue growth. Further a vertical application bases record solid growth, last but not least, we continue to control our expenses for our organization. With these 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 RMB47.7 million. Lowest adjusted operating expenses since IPO at RMB54.6 million rows operating expenses. Lowest operating expense since IPO at RMB54.1 million. AR turnover days at 47 days improvement year-over-year and quarter-over-quarter. The Product Revenue has about RMB130 million for the past six consecutive quarters. Now let me go for all different revenue streams. Developer Services that revenue decreased 6% year-over-year many due to the weakness in the value-added services offset by the 50% growth in subscription services. However, Developer Services revenue grew solid by one 5% quarter-over-quarter, where both subscription and value-added services have a record sequential revenue growth. Subscription services…

Thanks, Chris. Just to recap, vertical application mainly consists of financial risk management and market intelligence. In this quarter, what the gap 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, 2023, we have seen customer consumption or purchase of our services increase past pushing the ARPU quarter-over-quarter. Apart from customer increased their consumption, we managed to sign up more customers such as [indiscernible]. As for market intelligence the revenue remained stable year-over-year and quarter-over-quarter. I will now go to some of our key expenses and balance sheet items. On to operating expenses. I'm again very pleased to share with you that in Q2 2023, we have yet had another record low quarterly OpEx at RMB64.1 million. For you over your comparison OpEx decreased by 27%, where all three categories of OpEx being research and R&D S&M and G&A or 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 42% year-over-year improvement in adjusted EBITDA when the revenue dropped by 4% year-over-year, we strive to continue timing monitor and control our OpEx now and going forward. I'll now go to the individual or OpEx category. In particular, R&D expenses decreased by 26% year-over-year to RMB30.2 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 no longer needing as many servers due to our ongoing cloud initiative. Selling and marketing expenses decreased by 14% year-over-year to RMB20 million, mainly due to the decrease of headcount by 30. G&A expenses decreased by 41% year-over-year to…

Thank you. [Operator Instructions] Our first question comes from Calvin Huang with [indiscernible] Capital. Your line is open.

Thank you for taking my question. I'd 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 recording continuous improvement every quarter. Last quarter we saw sequential increase in revenue, sequential decrease in OpEx and sequential narrowing in negative adjusted EBITDA. So, the question is 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 can 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 you, adjusted EBITDA? The second one is willing 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, a financial KPI be 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 moving customers moving into more customer or getting more customers in and outside of China and increasing the ARPU 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. And the question you asked, based on our current trajectory, we are cautiously optimistic that should, if everything goes according to our plan, we should be able to record positive adjusted EBITDA in Q4 of this year. I guess, I do have to put a disclaimer, this is our best current estimate and is subject to market conditions. Nevertheless, I think should -- but there's still a possibility that we could turn adjusted EBITDA up positive in Q3 Should everything goes according to plan or earlier than what we expected. So we will see how we trend in Q3. And 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 EngageLab product. I guess a few things that we have done well. I think one is the fact…

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 earliest success you having overseas sounds great. I'm wondering if you can quantify the revenue impact during the second quarter 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 they will find the revenue is when you contribute on a on a monthly basis for the next 12 months. So 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 three times from Q1. So you can see the, 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 two, when the revenue contribution is material enough, we'll make the disclosure.

Got. And what is that? Can you share that contract value with us?

Not a value. Yeah, we're not in a position to disclose the value of the contract yet.

Right. 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?

Yes. If any ARPU growth that will come from overseas. And I think we have discussed before I shared with you or all other investors, or analysts, the ARPU that we get from overseas is, is at least double of that of China. So with the contribution from overseas getting bigger our ARPU, certainly we have to go up.

But within a bit of overseas working material in the second quarter, what was the factor that drove higher ARPU in the second quarter?

Yeah, it's not materially as it has. But it does help out on the ARPU between the quarters because Q1 is always the low quarter for the year. So back to your question. Overall, we did see some pickup on the ARPU. But what I'm trying to say is a major contribution is coming from overseas, the ARPU growth.

And then how much of the sequential revenue growth in value added services was a result of capturing the ad spend on June 18 Shopping Festival? And then are there any other such festivals that we should think about in the second half of the year?

Sure. I will say majority of the value-added services, revenue growth is from the 618 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 6/18. And the other one is 11/11 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 multiyear low during the second quarter. 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 based on our current Q3 estimate, the gross margin is going to come up is going to be higher than 65. The answer to your the other question and 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 a fixed costs that we need to pay to telcos.

Great.

For all the SMS that we sent.

Yeah, thank you.

[Operator Instructions] There no further questions at this time. I'd like to turn the call back over to Vinay 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 concludes the program. You may now disconnect.