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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to Cloopen's Third Quarter 2021 Earnings Conference Call. [Operator instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to, [Ilin Dai], Cloopen's Investor Relations Representative. Please go ahead.
Hello, everyone, and thank you for joining Cloopen's third quarter 2021 earnings conference call. The company's financial and operating results were issued in a press release via Newswire services earlier today and are posted online. You can download the earnings press release and sign up for our distribution list by visiting our IR website. Participants on today's call will be Mr. Changxun Sun, our Founder and Chief Executive Officer; and Mr. Steven Li, Chief Financial Officer. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I would like to remind you of Cloopen's Safe Harbor statement in relation to today's call.
Except for the historical information contained herein, certain matters discussed in this conference call are forward-looking statements. These statements are based on current trends, estimates and projections, and therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.
For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission.
With that, I'm now very pleased to turn the call over to our CEO, Changxun Sun. Please go ahead.
Hello, everyone. And thank you for joining Cloopen's third quarter earnings call. We appreciate your interest. We are excited to announce that we maintained strong top line growth in the third quarter, delivering revenues of RMB276.1 million, representing a 44.3% year-over-year increase. With the rapid revenue growth, our third quarter gross margin also remained robust at 43.5%. Since our IPO, we have strategically focused on our cloud based PC business, and providing SaaS products for marketing and service scenario to our customers. We made great progress executing our strategy during the third quarter and delivering excellent results. This is reflected in our 125.4% year-over-year revenue growth and CC business of the biggest revenue contributor in our group. We also increase the number of large enterprise customers to 219 accounting for 77.4% of our total revenues during the trailing 12 month period ended September 30 2021.
Today, I would like to discuss two important aspects of Cloopen's business, our CC product development strategy and our technological programs. First, let's talk about our products. In the Chinese markets, it is important to differentiate the needs of large enterprises and small to medium sized enterprises or SMEs with respect to sales and product service systems. Large enterprise customers require direct sales. Here we provide private cloud based services specific to their industries scenarios. For SMEs, we also standardize SaaS products to support their focus on directing online traffic with follow up from original sales teams. To better serve each customer groups, we designed two distinct product branches, [Indiscernible] formerly called Brown CC is specifically for large enterprise customers, and our 7moor brands serves SMEs. Our revenues are mainly derived from two categories, marketing and service scenario. The products we offer constantly evolved to meet demand in these categories.
We have made great strides in developing products for diverse marketing scenarios. Initially, we offered CPaaS solutions with channels to reach customers, including voice and messaging API. We then expanded our offerings to SaaS, first providing SMEs with standardized products including telemarketing services, and a text based ChatBot for lead reception, and there are 7moor brands. We later added -- products to serve large enterprise customers, including our rosy contact center outbound call robot and Agent assistance. With these products, we're more fully leveraging our communications and text AI technologies, empowering businesses to reach a broader range of potential customers in various marketing scenarios, reduce costs and enhance their operating efficiency.
We also acquired EliteCRM in March 2021, which reinforces our capabilities in that pool of sales leads and sales process management during the marketing process. Based on our data foundation, we plan to release our -- marketing cloud, other SaaS product for use by both our large enterprise customers and SMEs -- marketing cloud is designed to help our customers realize public to private domain traffic conversion and private domain user operations. And with the support from our middleware capabilities, businesses can gain a better understanding of their users for remarketing opportunities from private domain users, all of which drives additional marketing efficiency.
By providing communication services to 10s of 1000s of customers, we have accumulated a large amount of industry data and user insights that can help improve primary domain targeted marketing accuracy for our customers, in compliance with their requirements, supply CPaaS and SaaS services for leads from the public domain has also given us a deep understanding of our enterprise customers. With our advantage in these two areas we are well positioned to expand our offerings to include marketing SaaS products with a clear sales pathway.
With respect to service scenario, we have served 1000s of customers through 7moor customer service cloud and CC products that provide functions such as multi channel access, knowledge base, CRM, and work order management. In the past, we help our customers solve their online communication issues with their users. Now many of our customers require work order function solutions as they strive to digitize their after sales workflow management to address their evolving needs and based on existing customer service cloud products. We develop our after sales cloud with functions extending to after sales and aftermarket, targeting to provide a closed loop services for enterprise customers with both our customer service sales and after sales cloud. Our products helps businesses realize online workflow management by both and empowering customer service departments and also covering other related parties such as the downstream dealerships, service outlets, and outside engineers.
Having discussed our product development strategy now let me share with you our progress on technology products. In the third quarter we continue to ramp up investments in R&D to sustain our core product and technology competency. We also add in top notch talents who further round out our technical team. We established an AI Research Institute and AI Engineering Institute of Big Data departments and audio and video department and the security technology department. Meanwhile, we successfully recruited highly regarded technical experts from leading internet companies and are actively collaborating with college and university to develop and recruit talent.
Our technology system enterprise, three of our core capabilities, audio and video, big data and AI and the audio and video segments. We plan to build our own RTM or real time network conforming to the most up to date industry architecture standards. This will significantly enhanced connectivity performance within full networks and realize high concurrency and low latency.
In terms of big data, we quickly constructed a complete series of commercially applicable Big Data platform solutions in line with industry technology and innovation standards. To advance our AI capabilities, we have established two research institutes and AI research institutes, led by a professor from the prestigious [Indiscernible] University, and an AI engineering institute led by a leading internet company from company's former chief scientist. With respect to AI, we focus on Natural Language Processing, or NLP and intelligent positioning, and are also actively exploring computer vision or CB technologies. While enhancing our three core capabilities we are also improving our R&D efficiency. We upgraded our technical architecture to only need a single deployment solution to be compatible with all types of cloud vendors and customers. Furthermore, the local development platform we built will enable accelerated customized development.
These refinements will consistently improve Cloopen's technical strength and R&D efficiency. Going forward, Cloopen is committed to becoming a SaaS company that integrates its capabilities in communications, big data, and AI to better support businesses' marketing needs, and drives their digital and intelligent transformation. As we continue to refine our products and services to empower companies across industries, we are confident in our ability to create additional value for our shareholders.
That concludes Changxun's prepared remarks and now we would like to turn the call over to Steven for a closer review of our third quarter financials.
Thank you, Changxun and Ilin. Hello, everyone. And thank you for joining our call today. Before going through the third quarter financials in detail, I would like to share with you the recent developments. We are excited to announce that we received our first order from the Southeast Asia market. The order comes from one of Thailand's largest commercial banks, marking an important milestone in our overseas expansion plan. With a pandemic gradually receding in this region, we expect our endeavors will progressively bear fruit in the coming quarters. We will continue to expand our customer base in this region, leveraging our comprehensive proven products and services, as well as abundant experience in serving companies of all sizes across industries in China.
In addition, according to the Blue Book on China's cloud communications industry, which was recently released by China Insights Consultancy, or CIC, China's cloud based communications market is expected to grow significantly from RMB49.8 billion in 2020 to RMB146.5 billion in 2025, at a CAGR of 24.3% with a particularly strong impetus from CC and UC&C. As the only company that offers a full scope of products and services covering CC, UC&C and CPaaS among cloud based communications solutions provider in China, we believe Cloopen has a long runway for growth given our strong momentum. Our belief is supported by CNC data, reflecting our industry leading year-over-year growth rates in revenues for the company and our CC business for the first half of 2021.
We are confident that Cloopen is well positioned to address this sizable market and unlock its value with our continuous efforts to refine our products and services, enhance our innovation capabilities, optimize our customer mix and expand our global footprint.
We are pleased with our solid third quarter operating and financial performance despite the impact from the after-school tutoring sector. Excluding its impact, our dollar-based net customer retention rate remained sound above 100% for the third quarter of 2021, a lower compared with the previous quarter primarily as a result of the discontinuation of some low-margin customers using our CPaaS messaging services. As large and medium sized enterprise customers usually have strong payment abilities and higher user stickiness. We made strategic adjustments to optimize our customer mix during the quarter, resulting in a decrease in total active customers due to a reduced number of small sized to customers.
Now let's look at our financial results in detail. We recorded revenues of RMB276.1 million during the quarter, up 44.3% year-over-year, mainly driven by the continued growth momentum of our CC business. With an increasing number of large enterprise customers and the synergies from EliteCRM, CC business generated RMB130.4 million in revenues, representing a remarkable 125.4% year-over-year increase.
In addition, according to the sorry -- cost of revenues increased by 31.8% to RMB156 million in the third quarter of 2021 from RMB118.4 million in the third quarter of 2020, which was primarily due to increased infrastructure and equipment cost, outsourcing cost and staff costs as the company continues to scale its business. Gross profit increased by 64.6% to RMB120.1 million in the third quarter of 2021 from RMB72.9 million in the third quarter of 2020. Gross margin was 43.5% in the third quarter of 2021, compared with 38.1% in the third quarter of 2020. The increase of gross margin was contributed by the optimized revenue structure.
In the third quarter of 2021, operating expenses were RMB237.8 million, representing a 51.5% increase from RMB157 million in the third quarter of 2020. R&D expenses increased by 66.9% to RMB75.5 million in the third quarter of 2021 compared with RMB45.3 million in the third quarter of 2020, primarily due to an increase in share based compensation expenses of RMB5.5 million, an increase in R&D staff expenses of RMB18.5 million as the company recruited highly regarded experts to develop core features and functions in cloud-based CC solutions, and cloud-based UC&C solutions, an increase in technology service expenses paid to the outsourcing service providers for the development of certain non core features and functions in cloud-based UC&C solutions.
Sales and marketing expenses increased by 42.3% to RMB82.6 million in the third quarter of 2021 from RMB58.1 million in the third quarter of 2020, primarily due to an increase in share based compensation expenses of RMB7.5 million, an increase in staff expenses of RMB12.6 million as the company continues to scale its business and reach a wider customer base.
G&A expenses increased by 48.4% to RMB79.6 million in third quarter of 2021 from RMB53.7 million in the third quarter of 2020, primarily due to an increase in personnel costs as the company continues to build its team, and an increase in social insurance premiums as the company has enjoyed a social insurance premiums deduction in 2020 according to the government relief policies during the COVID-19 outbreak, and an increase in the provision for a doubtful accounts resulting from increase in accounts receivables.
Net loss for third quarter of 2021 was RMB112.2 million, compared with RMB93.9 million in the third quarter of 2020. Net loss margin is sharply narrowed by around 10% year-over-year.
For the fourth quarter of 2021, Cloopen currently expects revenues to be between RMB328 million and RMB333 million, representing an increase of 26.8% to 28.7% year-over-year. The above outlook is based on the current market conditions and reflects the company's current preliminary estimates of market and operating conditions and customer demand, all of which are subject to substantial uncertainty.
With that, I'd like to open up the call to questions. Operator, please.
[Operator Instructions]
First question comes from Tina Hou of Goldman Sachs.
So I will translate in English. And so my first question is regarding the CC business, because we saw pretty strong growth in the third quarter. So just wondering, compared to the second quarter of this year, what has -- is there any new development or competition changes in 3Q versus 2Q? And then the second question is regarding the 4Q revenue guidance. If we take 4Q, '21 guidance minus 3Q, '21 revenue, then the incremental revenue is about RMB54 million and when we compare this to the 4Q, '20 and 4Q, '19 numbers is actually a little bit lower than the previous two years. So wondering what's causing that.
And then the third question is, please break down the gross margin by the three different segments. Thank you.
Okay, for the first question regarding the competitive environment for our CC business, we will actually continue to enjoy bigger and bigger competitive advantage, especially for our UC&C business line, focused on the large enterprise customers with our UC&C business actually increased by over 400% compared to third quarter of last year in the -- especially in the finance industry. We think we are now the -- it is very clear front runner in the finance industry. We actually had several, very big list in the third quarter. The finance industry right now accounted for almost 70% of our total revenue from UC&C business. So, as the -- what I mentioned during the call based on the CIC report, the revenue increase of our CC business is the top in the business. So, I think along we continue to dig deeper into the industries we focused on, especially the finance industry. We will have more expertise and know how in those industries and we have a bigger actually competitive advantage compared to our competitors.
The second question is regarding our guideline for the fourth quarter of this year in terms of the revenue increase compared to third quarter and compared that with the revenue increase for last year and the year before. Actually the reason why -- we look at the total revenue increase for the coming quarter compared to third quarter is a little bit lower compared to the previous years. It's mainly due to the revenue not increased very much, or maybe a little bit decrease of our CPaaS business. If you look at our third quarter financial results, the revenue for CPaaS business actually decreased a little bit compared to third quarter last year as we continue to shift our strategic resources to higher margin business such as CC and UC&C business, the revenue will probably for the CPaaS business will probably remain very flat or even decreased a little bit.
So that's the major reasons why our revenue for the last quarter of this year compared to the third quarter not increased that much but for the CC and UC&C business, we are very confident we have very fast increasing trend will continue. The very -- the third question is -- what is the third question? The third question is the gross margin for each of our business. The gross margin for our CPaaS business for third quarter is 28%. It's roughly the same compared to before and the gross margin for the CC business is 56% is also roughly the same compared to before. The gross margin for UC&C business for the third quarter is 41%. This is a little lower compared to our previous quarters. This was mainly due to some of the revenues for UC&C for our CC business in third quarter involves some of the hardware so that drives our gross margin for UC&C business down a little bit but this is more like a one time thing so we believe the gross margin for the UC&C business will bounce back in the coming quarters.
During the past few months, we see a trend in both domestic and overseas CC vendors that they are all adding the CC product comprehensively all expanding the functions of the traditional CC in mainly two categories. The first one is marketing and the second is after sales and services. These two categories are just what we mentioned earlier in the earnings call. We also increased a lot in our R&D investments and established our own version of the marketing and after sales safety products which is CC and 7moor -- clouds.
The next question will be from Boris Baan of Bernstein.
Hello, thank you for taking my question. I have two questions. The first, regarding the context center revenue, would like to understand what's the split between the 7moor business, the CC business and also the EliteCRM that was integrated, and if you could help us understand what are the growth rates for these three sub businesses?
And the second question is, regarding your cooperation with Tencent that you mentioned. Could you help us understand a little bit more how the corporation will work? Also, because in their recent 3Q earnings, Tencent talks a lot about developing their own CRM business and would like to understand whether your products will compete with them or will cooperate with them. Thank you.
Okay, for the first question within our CC business, revenue, like I mentioned when I answered first question, actually, the revenue increased by over 400%. But that, of course includes the revenue from EliteCRM, the EliteCRM contributed about RMB12 million revenues for the third quarter. So even take that revenue from EliteCRM out, the revenue increase for the entire CC business is still about 100%. And as for 7moor, the revenue increase for 7moor for this quarter is around 35% year-over-year. Yes, so that's the answer to the first question.
As for the second question, we are not competing with Tencent. As you know, Tencent is one of our strategic investors. We work very closely with Tencent, we actually just signed a strategic framework agreement with Tencent during October, and under this agreement, we will work with Tencent Cloud to either Tencent Cloud can actually sell our products and services to the final customers or we can work with Tencent Cloud together and combine our product together and offer one solution to the customers. We can also offer Tencent, the product and service solution with Tencent so in short, we are not competing with Tencent, but rather work with Tencent to deliver our products and services to the final customers.
There are mainly two categories of the CRM. And first one is the CRM data manage self fleet, and another is the CRM managing the sales process. Tencent actually don't have its own CRM product. But one of its important portfolio -- is a b2b CRM company, which mainly does the sales process management and we are only as CRM is mainly doing a management of sale fleet, which we said that we, our CRM product is used to manage the public domain traffic, the traffic and the sale fleet but not a direct competitor to -- and Tencent. And that closed our answer to Boris's question.
The next question comes from Yana Yu of CICC.
Hello, can you hear me? So I have three questions. The first one is about -- and I will ask it in English. So congratulations on this cloud-based solution. We noticed that -- entered into the framework cooperation agreements with the Tencent Cloud in October. Can you give us more color on the future cooperation?
And the second one is we noticed that the number of active customers and dollar based net customer retention rates decrease the size compared to second quarter. So could you share more information about the number of customers by products?
The third question is about the newly obtained order in Thailand before this -- has deployed overseas expansion plans in Japan, Malaysia and other regions. So how to compete with overseas competitors in terms of products, customer acquisition, channels, and so on. Thank you.
Yes, okay for the first question as for the relationship or our cooperation with Tencent, like I mentioned, Tencent is one of our strategic investors. So we have a lot of synergies with Tencent for our UC&C business, Tencent continues to offer us opportunities in industries such as industrial manufacturing, energy, governments. And for our CC business like I mentioned in the last question, we signed a strategic framework agreements with Tencent in October, and within this agreements, we have different ways to work with Tencent. Tencent can either sell our products directly to the end customers, or we can combine our products and Tencent products together and offer a one solution to the end customers or we can offer our technology and service products to Tencent and Tencent will then sell to the end customers. Right now there are over 10 million of contract value is either sign or is during the process of being sign including the governments, the insurance industry and the finance industry, in the manufacturing industry, in the ecommerce industry and so on.
For the second question, as for the active customers for the different product lines of our business by the end of third quarter, the actual customer numbers over 12,000 for the trailing 12 months, CPaaS business has about 6,000 active customers; CC business has also about 6,000 active customers and UC&C business has over 100 active customers. We actually mentioned this during the call the major reason why the number of customers and also the net -- the dollar based net retention rate is down a little bit compared to previous quarters is mainly due to, one, the impact from the education sector and two, we cut off some very small enterprises on purpose. So that our ROI or our gross margin will be better off.
The last question is regarding our overseas expansion. We, yes, we right now we have operations in Japan in Malaysia in -- also in Philippines. So as for our competitive advantage in the overseas markets, right now, we notice that the competition in Southeast Asia market is not as intense as the China market. So our products actually have the advantage compared to other product offered by other competitors in terms of customer experience, in terms of everything. And also we work very closely with the telecom operators in the Southeast Asia to look for potential opportunities; we mainly sell our standard products in the Southeast Asia market. And also we actually enjoy a great advantage in terms of pricing compared to the products offered by those local or other overseas companies in the Southeast Asia market and still has a better gross margin compared to the Chinese market. So those are the advantages we have when we compete in the Southeast or in the overseas markets.
We also have another two advantages over other vendor in Southeast Asia markets. The first one is our price is very competitive. Not many local vendors are playing in this market in Southeast Asia. Most of them are -- most of the services are covered by Euro and US companies. And their license and services are both very expensive. So our price is very competitive compared to theirs. And the second advantage is that we are looking for those enterprises, those Chinese enterprises which are also doing overseas businesses that we can provide our products to those companies. That is all the answers for the questions come in from the CICC.
Thank you, showing no further questions. This will conclude our question-and- answer session. At this time, I'd like to turn the conference back over to Ilin, Investor Relations for any closing remarks.
Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon. Good day and good night.
This concludes our earnings conference call. You may now disconnect your line. Thank you.