Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Christian Arnell. Thank you. Please go ahead, sir.

Thank you. Hello, everyone, and thank you for joining us today. Aurora Mobile's earnings release was distributed earlier today and is available on its 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. 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 call over to Mr. Luo. Please go ahead.

Thanks, Christian. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 fourth quarter earnings call. Before I comment on our Q4 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. Overall, if I were to give a comment for the performance of this quarter, the appropriate discussion for this quarter is growth, growth and growth. The reasons are as follows. Firstly, we have a record, for the first history, consecutive quarters of positive adjusted EBITDA. Secondly, our total revenue grew every single quarter in 2023. Thirdly, Developer Subscription revenue also recorded sequential revenue growth in all quarters of 2023. Fourthly, our gross profit also grew in every quarter of 2023. Last but not least, our overseas product, EngageLab, continue to expand globally and recorded great results this quarter. Next, let me shed more light on the business and revenues. For our total group revenue, we achieved a steep growth of 5% quarter-over-quarter, driven mainly by the growth in Developer Services revenue. Now let me go through our different revenue streams. Developer Services revenue, which consists of subscription services and value-add services, decreased to 1% year-over-year but grew 8% quarter-over-quarter, mainly due to the weakness in the value-added services, offset by the 5% growth in subscription services. Next is the detailed discussion of each business line. Subscription services revenues were RMB48.8 million, up 5% over year-over-year and quarter-over-quarter. This was mainly driven by increase in ARPU both year-over-year and quarter-over-quarter. Within the year 2023, the Subscription Services revenue grew sequentially in all four quarters, mainly due to the steady increase in ARPU throughout the year. In Q4 2023, our team has completed a handful of private deployment…

Thanks, Chris. Next, I'll go over the revenue for Vertical Applications where it is made up of financial risk management and market intelligence. Vertical Applications had a tough quarter, where revenue recorded single-digit decline both year-over-year and quarter-over-quarter. However, for financial risk management, revenue grew 17% year-over-year and stayed pretty much stable quarter-over-quarter. The 17% year-over-year revenue growth was positively impacted by a 26% customer number growth. In particular, one good trend that we have observed is that the fact that customer number has recorded sequential growth in every quarter of 2023. The Q4 customers that we have signed up include but not limited to Meituan, 360 Finance, [indiscernible] and many other licensed financial institutions throughout China. As for market intelligence, the revenue decreased 40% year-over-year and 10% quarter-over-quarter due to the continued great demand for Chinese-based app data as the investment sentiment towards Chinese ADR still remains lackluster. Nevertheless, amidst this slow market condition, we still managed to sign up some well-known large customers such as Baidu, Ite, Taobao, 58 and many top-tier global hedge fund and investment funds. I'll now go through some of the key expenses and balance sheet items. On to operating expenses. The Q4 operating expenses was at RMB61.2 million, representing 36% decrease year-over-year but slightly increased 2% quarter-over-quarter. Overall, we are very pleased with our expense control and monitoring efforts between the years. In summary, our Q4 OpEx has decreased year-over-year by RMB34.2 million. This is a testament of our commitment to wisely spend every single penny. And if you look at the OpEx on an annual basis, it has decreased by RMB108 million between the years, representing a 30% decrease year-over-year. This again show the management determination to effectively execute its cost-saving plans as previously announced. I think at this stage, the Company…

[Operator Instructions] We will now take our first question. First question is from the line of Calvin Wong from Spica Capital. Please go ahead.

First of all, congrats to your management for consecutive quarters of positive adjusted EBITDA. This is a great result, well done. I would like to have two questions, if I may. The first one, a follow-up on this adjusted EBITDA. I just want to hear from management how you see this adjusted EBITDA will trend going forward in 2024? That's the first question. And second question again on EngageLab. We have been tracking your engaged lab business every quarter. So, it seems that it has been doing great with better than our expectation results in terms of customer number and contract value every quarter. So, we would like to know two things: A, are you expecting such explosive growth every quarter going forward; and B, what is the revenue contribution by EngageLab in this quarter?

Okay. Thanks, Calvin. Let me take a minute to recap your question. So, you have two questions. One is on positive adjusted EBITDA and the other one is on EngageLab. Yes, let me take this question. Yes. I guess, yes, we are very pleased with the fact that we delivered another quarter of positive adjusted EBITDA in Q4 of 2023. And as I said, this is a historical event for us since IPO to have two quarters of positive adjusted EBITDA. This is possible to the hard work that we are putting every day, day in and day out. And I believe besides the fact that you, our shareholders and investors are really thrilled see this positive adjusted EBITDA that we have recorded. And if we peel through, the most important thing that I think we'd like to deliver the message is the OpEx numbers over the four quarters, you'll see one good trend there as mentioned. Between the years, the annual OpEx of between 2023 and 2022 has actually decreased by RMB108 million. So, in summary, we have saved or trimmed our more than RMB100 million expenses in 2023 to various cost-cutting initiatives that we have undertaken from headcount reduction and then we reviewed all the expenses. We even reduced our office rental space. So, we have been working hard over the past year to seriously reduce our OpEx in the past 12 months. So, what this means is really, really important. With this much lower OpEx, we are in a good position for 2024. As I said, so long as we continue to grow our top line domestically or through EngageLab globally, I believe sooner or later the positive adjusted EBITDA will come as a natural course of events. So, this is an answer to your first question.…

We will now take our next question. This is from the line of Brian Kinstlinger from Alliance Global Partners. Please go ahead.

I have a whole bunch. Subscriptions are growing nicely, you mentioned due to the higher ARPU. Can you talk about new customer accounts? I think I heard 26 in the quarter. But generally, what are new business trends like, what industries are driving this recovery? And maybe discuss your ability to continue to grow subscriptions and the impact the Chinese economy might have on this service offering or is having.

Okay. Yes. Thanks, Brian. This is Shan-Nen. I guess for industry for subscription, we don't see any particular concentration. I think it's across the board. As we mentioned a couple of quarters ago, for the past few years, we have seen a change in terms of how people look at push notification investment. Rather than investing in their own infrastructure, employing employees, engineers to do this work they now are more than willing to outsource to a company like us. So, we see this change in terms of mentality by companies. That's where we pick up all the new customers, be it private cloud or public cloud. So, this -- we do not see any concentration in terms of where the new customers are growing.

And then, can you just speak to the Chinese economy? Is it neutral right now to the impact on your revenue? Is it offsetting the strength in demand and you could do much better on the recovery? Just kind of take us through the impact the economy is having on your subscriptions in China.

Sure. If you compare domestic and overseas, I'm sure you can sense that overseas market is where the growth is from. Yes, domestically, we do not see such explosive growth, but we still -- we think that it will go through a stable but relatively low growth domestically.

EngageLab is not having a big impact on your revenue. So, I assume still the growth in recovery is coming in China now?

Yes, yes. But the growth is much slower compared to EngageLab.

And then, can you quantify the change in ARPU per subscription that's driving this? And is there still opportunity to grow ARPU even more? And if so, what gives you that confidence?

Sure. The -- if you look at the ARPU from Q1 of 2023, it's around RMB8,000, and come Q4, it's RMB11,000, okay? So, this is where we have seen a 17% growth year-over-year. And we do see this to continue to grow but at a much slower pace, probably about single-digit 5% growth. And partly of this is the fact that we are able to complete some of the private cloud project as well, which is of much bigger contract value. So yes, so this is what is driving the ARPU growth. On an annual basis, the same customers, we are not able to increase the price too much.

Got it. That's helpful. And then in terms of non-subscription revenues such as Vertical Applications, I know this includes market intelligence and other services. But it seems like that revenue base has stabilized. What has to happen in terms of market conditions to begin to get confident that revenue line will begin to recover and grow even more?

Yes. If you look at the advertising business, in a way, we do not invest as much in it. So, we'll let it run on this natural cost. So, this very much fluctuate, depends on the overall sentiment, right? If you look at how the fourth quarter pan out every single year, the advertising market will peak in Q2 and Q4. Q2 being the 6/18 online festival. And then the Q4 is just what Chris has mentioned, we've got Double 11, Double 12. So, these are the two peaks. So that is for value-added service. And for Vertical Applications, I think overall, market intelligence is still a bit slow in terms of the demand for Chinese ADR APP numbers. But what we've seen is the financial risk management is doing well. It's doing well. It's increasing 17% year-over-year. So, this is where we earn money to the credit companies or the banks who are trying to get the creditworthiness of individual lenders or the borrowers -- the borrowers of their credit cards. So, we see this trending up in terms of the inquiries each bank is buying our services. So, if you look at the three non-subscription business, financial risk management is something that we have higher hopes in terms of continued growth.

Got it. And then just to the balance sheet, it looks like quarter-to-quarter, you increased tax by RMB4 million. I think I heard cash flow, if I did a quick calculation from operations, was up RMB1 million and change. So, what were the other sources of cash that increased RMB4 million compared to the cash flow of RMB1.3 million sequentially?

Sure. Sure. We -- in Q4, we divested one of the investments that we have made. So, we made some -- we received some additional cash based on that. So, those are -- that's under investing activities.

That divestiture does have any impact on revenue?

No, not at all. It's pure divestiture of investment.

Great. And then lastly, on seasonality, I assume the first quarter is your weakest quarter given holidays. Correct me if I'm wrong. And help us with any other seasonality. I think you said the second and the fourth quarter, you're strongest. Or I just want to make sure that I understand completely the seasonality.

Sure. If you look at overall in terms of business, even the entire China, if I may, the Q1 will be slow simply because of the fact that it's Chinese New Year, February is a shorter month, everybody is away. So, the last thing they want is to sign contract and do everything else. So Q1 will definitely be a slow season. But for non-subscription business, I think only the value-added service which is the ad service were picked in Q4 and Q2. The others, assuming if the economy is doing, as it should be, we should see an uptrend every single quarter from Q1.

And to the previous caller's question, given the seasonal weakness in the first quarter, I assume you won't be EBITDA positive, but in quarters following that, you will be? Is that how -- am I reading it right? Or am I not reading that right?

Yes. I think it will be pretty much what you say. Q1 will be -- it will be difficult to get positive EBITDA.

Right. Do you think you'll be around breakeven after?

Yes, that's the goal. That's the goal, yes.

Nice work on the recovery over the year.

Thank you, sir.

Thank you. [Operator Instructions] There no further questions at this time. So, I will now hand the conference back to Christian Arnell for closing remarks. Thank you.

Thank you, everyone, for joining the call tonight. And if you have any further questions or comments, please don't hesitate to reach out to the IR team. That concludes the call. Thank you, and have a good evening.

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