Agora, Inc.

Good day and thank you for standing by. Welcome to the Agora fourth quarter 2022 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker today, Fiona Chen. Please go ahead.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for IGORA's fourth quarter 2022 and full fiscal year earnings conference call. Our earnings results, press release, SEC filings, and a replay of today's call can be found on our IR website at investor.igora.io. Joining me today are Tony Zhao, our founder, chairman, and CEO, Jingbo Wang, our CFO. Reconciliations between our GAAP and the non-GAAP results can be found in our earnings press release. During this call, we will make forward-looking statements about our future financial performance and other future events and trends. These statements are only predictions that are based on what we believe today, and the actual results may differ materially. These forward-looking statements are subject to risk uncertainties, assumptions, and other factors that could affect our financial results and the performance of our business, and which we discuss in detail with our filing with SEC, including today's earnings press release and the risk factors and other information contained in the final post-practice relating to our initial public offering. Agora remains no obligation to update any forward-looking statements we may make on today's call. With that, let me turn over to Tony. Hi Tony.

Hey, thanks Fiona. And welcome everyone to our earnings call. Our revenue for the fourth quarter remained flat at $40 million compared with the same quarter last year. During this quarter, 37,000 new applications were registered on our platform. And our total number of registered applications exceeded 548,000. At the end of 2022, our number of active customers was 3,066, adding close to 400 compared to one year ago. On product side, recently we launched a beta variant of our speech-to-text product for real-time engagement. Traditional speech-to-text products do not work well in RT use cases due to the challenge such as synchronization across distance and device performance issue. Working with industry-leading partners specialized in speech-to-text technology, we developed a cloud-native transcription product that delivers reliable performance in noisy environment when multiple individuals talk simultaneously and under poor network conditions. As a cloud-native product, No additional local processing is required and performance is consistent across a wide range of devices. We believe this product can enhance end-user experiences in many ways. For example, people with impaired hearing can now watch live streaming or beat in a live auction. Leveraging an auto translation module This product can easily overcome language barriers and empower people with different cultural backgrounds to mingle with each other naturally. In addition, speech-to-text has also laid the foundation for other complementary features, such as content moderation and transcript recording. This quarter, we also announced the general availability of two new first-party extensions 3D spatial audio, and AI-powered noise suppression, which will enable developers to create more immersive and engaging experiences for their end users. With the flexibility of Agora SDK 4.0's open and modular architecture, these extensions can be easily integrated into our core RTE products, such as voice calling, video calling, and interactive live streaming. During the public beta phase, these two extensions have been well received by developers. For example, Hello, a social and live streaming platform for language learning, found that the best way to learn a new language is by regularly speaking with native speakers. By leveraging Agora's AI noise suppression, Hello has removed unwanted background noises, ensuring users worldwide have a distraction-free learning experience regardless of their environment. About our new use cases. This quarter, we continue to see new use cases emerging and gaining adoption. For example, as we mentioned previously, live video shopping is expanding rapidly in U.S. market and has attracted some well-known brands who are investing in these capabilities. For example, an important American television network that traditionally specialized in home shopping began working with Agora last quarter to provide its vast audiences with live interactive shopping. Now that we have discussed our latest product and use cases, I would like to take a moment to share some of my thoughts when looking back at 2022 and looking ahead to 2023. 2022 was an extremely challenging year, which I think many of you would agree with. Our full year revenue was $161 million, a decrease of 4%, or $7 million compared with 2021. However, please bear in mind that during this period, our revenue from the K-child academic tutoring sector in China has gone all... Our revenue from K-child academic tutoring segment in China alone was down by $37 million. by $37 million from $40 million to $3 million. Excluding this segment, our revenue in 2022 increased 24%, mainly thanks to our global expansion, new use cases such as live video shopping, and new products such as broadcast streaming. This was no small feat, especially if we also consider the challenging macro environment such as stock market correction, inflation, and the tightening of venture capital in funding. As mentioned in our last earning call, considering the challenging operating environment, we reorganized our global R&D team and reduced our overall workforce in October to focus on our strategic priorities and improve efficiency. In the past few months, we further streamlined and refocused our developer experience and content marketing teams in the US and international markets. We also appoint Robin Liu as Chief Operating Officer China to lead our commercialization efforts in that market. I believe these steps will help our teams become more customer-centric and more focused on local markets. In addition, we recently completed the sale of ISMOB's Customer Engagement Cloud, or CEC, business. When we acquired ISMOB in early 2021, it had two business segments, the chat API business and the CEC business. The chat API business has been fully integrated into our platform. On the other hand, the CEC business is not a core market for us. The sale of the CEC business will help us focus our resources on core products and markets. Now, looking at 2023, I'm cautious about the macro environment, but continue to see new opportunities in the global RTE market. On the market side, inflation and tough financing environment will likely remain and the post-COVID reopening in more countries will reduce demand for our product for certain use cases. On the other hand, there are clear opportunities for us. For example, a large competitor recently shut down a key product and significantly reduced its investment in this market due to competitive pressure. We also start to see demand from certain previous and tapped verticals. Facing these challenges and opportunities, our strategy for 2023 can be simply summarized into the following. These are focused on customer value. enhance competitive advantage, and gain market share. First, we will strengthen our customer-centric value and leverage our latest innovation to enhance value creation for our customers. Also, acting as an innovation partner for our customers, we can create a flywheel effect, leveraging customer feedback to help refine our roadmap. Second, We will focus on delivering the world's best performing RTE product and services with unrivaled real-time video and voice experience for end users and best-in-class ease of use for developers. Supported by the above, we will continue to win over the competition and expand our market share globally. At the same time, we will continue to improve our operational efficiency and optimize our cost structure. Before concluding my prepared remarks, I want to thank all Agorians for their hard work and commitment during this extraordinary year. I will always cherish the memory of us facing obstacles shoulder to shoulder and celebrating our wins. big and small. Let's stay laser-focused on creating customer value, enhancing the competitive advantage of our core product, and gaining market share in 2023. Thank you all. With that, let me turn things over to Jingbo, who will reveal our financial results.

Thank you, Tony. Hello, everyone. Start by first reviewing financial results for Q4, and then I will discuss outlook for the fiscal year of 2023. Total revenues were $40.1 million in the fourth quarter of 2022, a decrease of 0.7% compared to Q4 last year, and a decrease of 2.1% quarter-over-quarter. The year-over-year decrease was due to significant decrease in usage from the K-12 academic tutoring sector in certain market following regulatory changes and a decrease in revenues from the divested customer engagement cloud business, which were offset in part by business expansion and usage growth in other sectors and regions. The quarter over quarter decrease was mainly due to a decrease in revenues from the divested customer engagement cloud business and a decrease of revenue from U.S. and international markets due to the challenging macroeconomic environment. As Tony mentioned just now, the interest rate hikes, worldwide inflationary pressure, and tightening of venture capital funding had negatively impacted some of our customers' financial conditions and their ability to raise funding, which led to reduced usage of our products. and increased pricing sensitivity. We expect the trend to persist in the near term, which would continue to negatively impact our revenues, especially from U.S. and international markets. Total revenues for the fiscal year of 2022 were 160.7 million, which represented a 4.4% decrease from 2021. The decrease was mainly due to a 37.8 million drop of revenue from the K-12 academic tutoring sector in certain market due to regulatory changes. If we exclude this segment, our revenues would have increased 24% from 127.7 million in 2021 to 158.2 million in 2022. A 12-month constant currency dollar-based net expansion rate is 81%, excluding ISMAP. Specifically, net expansion rate was 118% for the U.S. and international business and approximately 100% for the China business, excluding business impacted by regulatory changes in the K-12 academic tutoring sector. Moving on to costs and expenses. For my following comments, I will focus on non-GAAP results, which exclude share-based compensation expenses, acquisition-related expenses, financing-related expenses, amortization expenses of acquired intangible assets, income tax related to acquired intangible assets, and impairment of goodwill. Non-GAAP gross margin for the fourth quarter was 61.2%, which was 1.4% higher than last quarter, thanks to our ongoing efforts in optimizing our infrastructure and architecture. Non-GAAP gross margin in this quarter was 2.8% lower than Q4 2021, mainly due to increased revenue from our broadcast streaming product, which has lower gross margin. As we mentioned in our last earnings call, we restructured and reduced our global workforce in October. We saved $10.2 million on quarterly non-GAAP operating expenses in Q4 compared to Q3. Non-GAAP R&D expenses were $17.2 million in Q4, a decrease of 26.9% year over year. Non-GAAP R&D expenses was 42.8% of total revenues in the quarter, compared to 58.1% in Q4 last year. Non-GAAP sales and marketing expenses, or 10.8 million in Q4, decreased 11.9% year-over-year. Sales and marketing expenses represented 26.8% of total revenues in the quarter, compared to in Q4 last year. Non-GAAP G&A expenses were $7.5 million in Q4, slightly increased, 1.8% year-over-year. G&A expenses represented 18.6% of total revenues in the quarter, compared to 18.1% in Q4 last year. Non-GAAP operating loss was $10.7 million translating to a 26.7% non-GAAP operating loss margin false quarter compared to the operating loss margin of 38.2% in Q4 last year. Adjusted EBITDA was negative 8.5 million, translating to a 21.1% adjusted EBITDA loss margin false quarter, which is significantly lower than the adjusted EBITDA loss margin of 32.5% in Q4 last year and 40% in Q3 this year, thanks to our recent cost control efforts. Impairment of goodwill was 11.9 million in Q4, primarily due to the impairment related to e-small and the financial performance of the divested Customer engagement cloud business fell below our original expectations. Investment loss was 7.8 million in Q4, primarily due to impairment of certain minority equity investments. The challenging macroeconomic environment and tightening of funding have caused difficulties at several companies in which we made minority equity investment back in 2021. we have taken a prudent approach in evaluating the latest situation and making the impairment decision. Now turning to cash flow. Operating cash flow was $3.4 million in Q4 compared to $5.1 million last year. Free cash flow was $1.9 million compared to $2.9 million last year. Moving on to balance sheet. we ended Q4 with $428 million in cash, cash equivalents, and short-term investments compared to $483 million at the end of Q3. NAS cash outflow in the quarter was mainly due to cash paid full-time deposit with maturity over one year of $39 million and share repurchase of $18 million. In 2022, we repurchased approximately 35.8 million of our Class A ordinary shares, equivalent to approximately 9 million ADS for approximately $41.8 million, representing 21 percent of our 200 million share repurchase program. Our Board of Directors has authorized an extension of the existing share repurchase program through February 28, 2024, with all the other terms unchanged. The extension reflects the Board's view that our stock is currently undervalued, and again, demonstrates the Board's confidence in the fundamentals, strategies, and long-term growth potential of Agora. We were also informed by our founder and CEO, Tony Zhao, that as of the end of 2022, he had used his personal funds to purchase a total of approximately 1.6 million of ADS in the open market under his $30 million management share purchase plan. Now turning to guidance, COVID-19 is still an unprecedented variable to our business model, where historical experience may not apply. Our guidance on full-year revenues reflects various assumptions that are subject to change based on certainties related to the impact of the COVID-19 pandemic, challenging macroeconomic environment, and the turbulent global capital markets. With that, we currently expect total revenues for the fiscal year of 2023 to be in the range of 155 to 157 million compared to the revenues of 155 million excluding divested customer engagement cloud business in 2022. In closing, I want to express my deepest appreciation to the entire Agor team for your hard work in this extremely challenging year and to our investors for trusting us. Thank you everyone for attending the call today. Let's open it up for questions.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Yang Liu from Morgan Stanley. Your line is open.

Thanks for the opportunity to ask questions. Two questions from my side. The first one is I would like to hear management's view in terms of when could we see the infection point in future for domestic market and overseas market respectively. And the second question is I remember management previously, you're predicting a breakeven by fourth quarter 2023. I just want to double check whether you're still staying with this target. And if so, what could be the assumption behind this target? Like, what could be the four-year growth margin to reach this breakeven target? Thank you.

I'll talk about the demand side. The recent slowdown in revenue growth was mainly due to macroeconomic challenges and also post COVID reopening in more countries. This has caused pricing pressure and temporary demand pressure. But I don't think this represents fundamental change in demand for real-time engagement technology. We remain optimistic about demand in medium and long term, driven by further adoption of existing use cases, and also there are emerging new use cases as well. For example, revenue from live video shopping increased several falls in the last 12 months. And we continue to see new demand from new use cases, both in the US and in China. Some of them will have meaningful revenue contribution this year. So in conclusion, I also don't want to predict possibilities. I want to focus on concrete work and how to improve our internal efficiency. As long as we provide the best products in the market, I'm not worried about demand.

I'll take the second question. So as you can see from our three-year revenue guidance, it's basically flat compared to last year. So we are off to a relatively slow start this year, given all the macroeconomic challenges Tony just mentioned. So we expect our revenue to increase quarter by quarter this year. And we will likely finish at a higher level than Q4 2022. In the meantime, we'll continue to price efficiency from operations and optimize cost wherever possible. But we will adjust our cost structure dynamically. taking into the actual revenue growth we see during this year. So we don't have a fixed revenue and OPEX target at this point. But we are determined to significantly improve our financial health throughout this year.

OK, thank you. Thank you. One moment for our next question.

Our next question comes from the line of Daley Lee from Bank of America.

Your line is open.

Thanks, Matt, for the detailed presentation. I have two questions. Maybe for the first one, could you, Matt, share more color about the like the number of clients and the ASP trend for the both domestic and overseas market. Because for Q4 last year, we see the domestic ASP is still quite stable on quarter-on-quarter, but overseas see some quarter-on-quarter decline. So how do we see the trend in the following quarters? My second question is regarding the employee structure. Would we consider further optimization given the current growth outlook and our target of proving the possibilities? Thank you.

Thank you. I'll take both questions. So in terms of the number of customers, as you can see in the presentation, a number of customers have been increasing quite steadily, both in the U.S. international markets and also in China market. Again, that shows the continued absorption of technology globally. So in terms of pricing, you are correct that we face more challenging pricing pressure in the U.S. international market, especially in the past two quarters, and we do expect that to persist in the near term. I'll explain a little bit again about why that is the case. First of all, we do have a relatively large number of startup companies arrest the early stage company as a customer. So given the high inflation, the are interest rate hikes, so it has become much harder for them to raise funding, and that has limited their usage of our products and also increased their pricing sensitivity. We don't see those factors to change in the near term. That's why we do expect continued pricing pressure in the near term. In the China market, Actually, we don't see anything different from previous years. In the past, our experience has been that every year, average ASP will drop 5% to 10%, which is healthy, which is how this product will gain more and more adoption and become widely used across all industries. So there, we don't see anything different this year. So in terms of the team, for this year, we don't have any time for expansion, and we will continue to optimize where we see redundancies. And we'll really look at this in a very detailed fashion, team by team, see where the return investment is low, and we will optimize. We're also focused on improving the workflow, improving collaboration across teams, and also investing in the competency of our team. So we don't have a plan for a large cut in the near future.

Thank you, Jinbo. Thank you.

Thank you. One moment for our next question. And as a reminder, that's star 11 for questions.

Star 11.

Our next question comes from the line of Bing Duan from Nomura. Your line is open.

Hi. Thank you, management, for the opportunity to ask a question. I have two. The first one is the follow up on the demand side. So, what kind of application or industry verticals do we see that might accelerate or slow down in 2023 that may drive for maybe higher or lower than our current revenue outlook? which is flat, right, excluding E-SMOP. And recently, there's a strong global phenomenon about ChatGPT and AIGC. Do we currently see any kind of applications, related applications or development that is driving our volume growth? That's on the demand side. The second question is about the ASP or tech rate. For our new applications expected to grow this year, will there be any difference compared to our previous applications or verticals?

Thank you. On the demand side, I think there are use cases continuing to emerge. Like I already mentioned, on speech detects, it can be used on several different use cases like live shopping, but also can be used in social use cases. And there are more opportunities growing in verticals like digital transformation in China. And also there are regional opportunities that we see bigger potential, including Europe and Latin America. Besides that, in all of the use cases or all across our platform's products, we see by enhancing the quality of experience for all our video and audio sessions would also enhance our customers' attraction to their end users, will in turn increase demand for us as well. It's a natural development for all video use cases, not just us, even for television, that the resolution or clarity of framerate is going to improve over time. So this is just a simple trend that we believe that's going to also happen in our industry. Plus, we will also spend resources to continue to improve our developer experience to reduce friction for adoptions. so that more developers could easily create new apps or new use cases on the platform. All those would help us to grow in terms of serving more potential demand and also help our customers to generate more demand. About chat GPT. It is an interesting and inspiring development in the industry just now around this time. I think a lot of discussion around it and we do see some potential in our customers' apps or in our own practice. Maybe mention one area like social side. ChatGPT shows a potential that a real human-like conversation becomes possible. In some of the social apps we also see on our platform, they start to use this large language model to create specific characters with a defined background, personality, and even the style of their talking languages and that attracted quite some interest from consumers because that gave consumers freedom in sort of having a conversational relationship with someone that by imagination is their ideal partner. So that's an interesting invention just recently. But similarly, those things could happen in customer engagement use cases. But also, people would naturally imagine that there were this smart chat sort of service, including from the past, Elixir and Siri. In the past, the conversation somewhat becomes very dry, like boring. You can only do command controls kind of conversation. But now with the large language model, human and machine interaction interface could be totally disrupted. On that side, we could enhance such a conversation or human-machine interface in a way to ensure the interaction to be real-time. So those are all potentials we could see, but there would be more. we do have a closer eye on those possibilities.

I will quickly chime in on the tech pricing side. So Tony mentioned a few news cases, like video shopping in the US. There we see the pricing remains very healthy. And digital transformation in China, that's a very different market with large enterprises, financial institutions. So there it requires a different pricing model. But what we see is still a very profitable market for us.

Thank you, management.

Thanks. Thank you. One moment for our next question. And our next question will come from the line of Alan Lee from JP Morgan. Your line is open.

Okay. my question. I have two questions. So firstly, could you please give us some color on the revenue breakdown by key categories in 2022, such as entertainment, education, and maybe other some rising categories like live video shopping? And my second question is on our business strategy. We see non-China business slow down quite a bit in past three quarters, while China revenue, excluding K-12, seem to hold up well. So do you think this is more like a temporary thing or there's any structural reasons behind that? And how are we going to allocate the resource between China and the international markets going forward? Thank you.

OK, I'll take both questions. So the first one in terms of the, OK, first of all, we operate in two markets, the US international markets and the China market. the vertical breakdown in those two markets are slightly different, so I will talk about them separately. So in the US international markets, social is still the largest vertical, followed by what we call future work, and that will include things like collaboration, online event, and live video shopping. So that will be the second biggest. Then it's education. I think these are the main verticals. In China, obviously, social is dominant because now, after this revolutionary change, education is a much smaller, much smaller, much smaller part of the business now. And then digital transformation, so large traditional enterprises previously was almost and now has become has a meaningful contribution last year. And also IoT, so Internet of Things, things like smart doorbells, smart TV, these also start to contribute revenue in 2022. That's on the sector breakdown. In terms of like China revenue holding up in the past few quarters, I think there are a few factors. First of all, it has to do with the new product, what we call the broadcast streaming product, which had a lower GDP margin, but has very nice revenue pickup. So that now contributes to about 10% of revenue in China already. So that's something new in 2022. And secondly, we have been working with customers in China not just focused on business in China, but also focused on expanding their apps in overseas markets. So that's another growing business. And lastly, as I mentioned, the digital transformation business that didn't exist in, almost didn't exist in 2021.

Okay, this is Hebo. Thank you, Jinbo.

Thank you.

And I'm not showing any further questions in the queue at this moment. I'll let you turn the conference back to Fiona for any closing remarks.

Thank you, operator. And thank you, everybody, for attending today's call. Again, our presentation for this call and the replay for this call is also posted on our website. Later on, we will also post the remarks of this earnings call. Again, if you have any further questions, please reach out to us at our IR or our IRR email. Thank you again.

This concludes today's conference call. Thank you for participating. Give me an address to connect. Everyone, have a great day.

Thank you. Thank you.

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Thank you. Music. Thank you.

Thank you.

Good day and thank you for standing by. Welcome to the Agora fourth quarter 2022 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker today, Fiona Chen. Please go ahead.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for IGORA's fourth quarter 2022 and full fiscal year earnings conference call. Our earnings results, press release, SEC filings, and a replay of today's call can be found on our IR website at investor.igora.io. Joining me today are Tony Zhao, our founder, chairman, and the CEO, Jingbo Wang, our CFO. Reconciliations between our GAAP and the non-GAAP results can be found in our earnings press release. During this call, we will make forward-looking statements about our future financial performance and other future events and trends. These statements are only predictions that are based on what we believe today, and the actual results may differ materially. These forward-looking statements are subject to risk uncertainties, assumptions, and other factors that could affect our financial results and the performance of our business, and which we discuss in detail with our filing with SEC, including today's earnings press release and the risk factors and other information contained in the final post-practice relating to our initial public offering. Agora remains no obligation to update any forward-looking statements we may make on today's call. With that, let me turn over to Tony. Hi Tony.

Hey, thanks Fiona. And welcome everyone to our earnings call. Our revenue for the fourth quarter remained flat at $40 million compared with the same quarter last year. During this quarter, 37,000 new applications were registered on our platform. And our total number of registered applications exceeded 548,000. At the end of 2022, our number of active customers was 3,066, adding close to 400 compared to one year ago. On product side, recently we launched a beta variant of our speech-to-text product for real-time engagement. Traditional speech-to-text products do not work well in RT use cases due to the challenge such as synchronization across distance and device performance issue. Working with industry-leading partners specialized in speech-to-text technology, we developed a cloud-native transcription product that delivers reliable performance in noisy environment when multiple individuals talk simultaneously and under poor network conditions. As a cloud-native product, No additional local processing is required and performance is consistent across a wide range of devices. We believe this product can enhance end-user experiences in many ways. For example, people with impaired hearing can now watch live streaming or beat in a live auction. Leveraging an auto translation module This product can easily overcome language barriers and empower people with different cultural backgrounds to mingle with each other naturally. In addition, speech-to-text has also laid the foundation for other complementary features, such as content moderation and transcript recording. This quarter, we also announced the general availability of two new first-party extensions 3D spatial audio, and AI-powered noise suppression, which will enable developers to create more immersive and engaging experiences for their end users. With the flexibility of Agora SDK 4.0's open and modular architecture, these extensions can be easily integrated into our core RTE products, such as voice calling, video calling, and interactive live streaming. During the public beta phase, these two extensions have been well received by developers. For example, Hello, a social and live streaming platform for language learning, found that the best way to learn a new language is by regularly speaking with native speakers. By leveraging Agora's AI noise suppression, Hello has removed unwanted background noises, ensuring users worldwide have a distraction-free learning experience regardless of their environment. About our new use cases. This quarter, we continue to see new use cases emerging and gaining adoption. For example, as we mentioned previously, live video shopping is expanding rapidly in U.S. market and has attracted some well-known brands who are investing in these capabilities. For example, an important American television network that traditionally specialized in home shopping began working with Agora last quarter to provide its vast audiences with live interactive shopping. Now that we have discussed our latest product and use cases, I would like to take a moment to share some of my thoughts when looking back at 2022 and looking ahead to 2023. 2022 was an extremely challenging year, which I think many of you would agree with. Our full year revenue was $161 million, a decrease of 4%, or $7 million compared with 2021. However, please bear in mind that during this period, our revenue from the K-child academic tutoring sector in China, our revenue from K-child academic tutoring segment in China alone was down by $37 million. by $37 million from $40 million to $3 million. Excluding this segment, our revenue in 2022 increased 24%, mainly thanks to our global expansion, new use cases such as live video shopping, and new products such as broadcast streaming. This was no small feat, especially if we also consider the challenging macro environment such as stock market correction, inflation, and the tightening of venture capital in funding. As mentioned in our last earning call, considering the challenging operating environment, we reorganized our global R&D team and reduced our overall workforce in October to focus on our strategic priorities and improve efficiency. In the past few months, we further streamlined and refocused our developer experience and content marketing teams in the US and international markets. We also appoint Robin Liu as Chief Operating Officer China to lead our commercialization efforts in that market. I believe these steps will help our teams become more customer-centric and more focused on local markets. In addition, we recently completed the sale of EaseMob's Customer Engagement Cloud or CEC business. When we acquired EaseMob in early 2021, it had two business segments, the chat API business and the CEC business. The chat API business has been fully integrated into our platform. On the other hand, the CEC business is not a core market for us. The sale of the CEC business will help us focus our resources on core products and markets. Now looking at 2023, I'm cautious about the macro environment, but continue to see new opportunities in the global RTE market. On the market side, inflation and tough financing environment will likely remain, and the post-COVID reopening in more countries will reduce demand for our product for certain use cases. On the other hand, there are clear opportunities for us. For example, a large competitor recently shut down a key product and significantly reduced its investment in this market due to competitive pressure. We also start to see demand from certain previous and tapped verticals. Facing these challenges and opportunities, our strategy for 2023 can be simply summarized into the following. These are focused on customer value, enhance competitive advantage, and gain market share. First, we will strengthen our customer-centric value and leverage our latest innovation to enhance value creation for our customers. Also, acting as an innovation partner for our customers, we can create a flywheel effect, leveraging customer feedback to help refine our roadmap. Second, We will focus on delivering the world's best performing RTE product and services with unrivaled real-time video and voice experience for end users and best-in-class ease of use for developers. Supported by the above, we will continue to win over the competition and expand our market share globally. At the same time, we will continue to improve our operational efficiency and optimize our cost structure. Before concluding my prepared remarks, I want to thank all Agorians for their hard work and commitment during this extraordinary year. I will always cherish the memory of us facing obstacles shoulder to shoulder and celebrating our wins. big and small. Let's stay laser-focused on creating customer value, enhancing the competitive advantage of our core product, and gaining market share in 2023. Thank you all. With that, let me turn things over to Jingbo, who will reveal our financial results.

Thank you, Tony. Hello, everyone. Start by first reviewing financial results for Q4, and then I will discuss outlook for the fiscal year of 2023. Total revenues were $40.1 million in the fourth quarter of 2022, a decrease of 0.7% compared to Q4 last year, and a decrease of 2.1% quarter-over-quarter. The year-over-year decrease was due to significant decrease in usage from the K-12 academic tutoring sector in certain market following regulatory changes and a decrease in revenues from the divested customer engagement cloud business, which were offset in part by business expansion and usage growth in other sectors and regions. The quarter over quarter decrease was mainly due to a decrease in revenues from the divested customer engagement cloud business and a decrease of revenue from U.S. and international markets due to challenging macroeconomic environment. As Tony mentioned just now, the interest rate hikes, worldwide inflationary pressure, and tightening of venture capital funding had negatively impacted some of our customers' financial conditions and their ability to raise funding, which led to reduced usage of our products. and increased pricing sensitivity. We expect the trend to persist in the near term, which would continue to negatively impact our revenues, especially from U.S. and international markets. Total revenues for the fiscal year of 2022 were 160.7 million which represented a 4.4% decrease from 2021. The decrease was mainly due to a 37.8 million drop of revenue from the K-12 academic tutoring sector in certain market due to regulatory changes. If we exclude this segment, our revenues would have increased 24% from 127.7 million in 2021 to 158.2 million in 2022. A 12-month constant currency dollar-based net expansion rate is 81%, excluding ISMAP. Specifically, net expansion rate was 118% for the US and international business and approximately 100% for the China business, excluding business impacted by regulatory changes in the K-12 academic tutoring sector. Moving on to costs and expenses. For my following comments, I will focus on non-GAAP results, which exclude share-based compensation expenses, acquisition-related expenses, financing-related expenses, amortization expenses, of acquired intangible assets, income tax related to acquired intangible assets, and impairment of goodwill. Non-GAAP gross margin for the fourth quarter was 61.2%, which was 1.4% higher than last quarter, thanks to our ongoing efforts in optimizing our infrastructure and architecture. Non-GAAP gross margin in this quarter was 2.8% lower than Q4 2021, mainly due to increased revenue from our broadcast streaming product, which has lower gross margin. As we mentioned in our last earnings call, we restructured and reduced our global workforce in October. We saved $10.2 million on quarterly non-GAAP operating expenses in Q4 compared to Q3. Non-GAAP R&D expenses were $17.2 million in Q4, a decrease of 26.9% year over year. Non-GAAP R&D expenses was 42.8% of total revenues in the quarter, compared to 58.1% in Q4 last year. Non-GAAP sales and marketing expenses were $10.8 million in Q4, a decrease 11.9% year-over-year. So the marketing expenses represented 26.8% of total revenues in the quarter compared to 30.2% in Q4 last year. Non-GAAP G&A expenses were 7.5 million in Q4, slightly increased, 1.8% year-over-year. G&A expenses represented 18.6% of total revenues in the quarter compared to 18.1% in Q4 last year. Non-GAAP operating loss was 10.7 million, translating to a 26.7% non-GAAP operating loss margin, fourth quarter, compared to the operating loss margin of 38.2% in Q4 last year. Adjusted EBITDA was negative 8.5 million, translating to a 21.1% adjusted EBITDA loss margin fourth quarter, which is significantly lower than the adjusted EBITDA loss margin of 32.5% in Q4 last year and 40% in Q3 this year, thanks to our recent cost control efforts. Impairment of goodwill. was 11.9 million in Q4, primarily due to the impairment related to e-small, and the financial performance of the divested customer engagement cloud business fell below our original expectations. Investment loss was 7.8 million in Q4, primarily due to impairment of certain minority equity investments. The challenging macroeconomic environment and tightening of funding have caused difficulties at several companies in which we made minority equity investment back in 2021. We have taken a prudent approach in evaluating the latest situation and making the impairment decision. Now turning to cash flow. Operating cash flow was 3.4 million in Q4 compared to 5.1 million last year. Free cash flow was $1.9 million compared to $2.9 million last year. Moving on to balance sheet, we ended Q4 with $428 million in cash, cash equivalents, and short-term investments compared to $483 million at the end of Q3. NAS cash outflow in the quarter was mainly due to cash paid full-time deposit with maturity over one year of $39 million. a share repurchase of 18 million. In 2022, we repurchased approximately 35.8 million of our Class A ordinary shares, equivalent to approximately 9 million ADS for approximately $41.8 million, representing 21% of our 200 million share repurchase program. Our board of directors has authorized an extension of the existing share repurchase program through February 28, 2024, with all the other terms unchanged. The extension reflects the board's view that our stock is currently undervalued, and again, demonstrates the board's confidence in the fundamentals, strategies, and long-term growth potential of Agora. We will also inform by our founder and CEO Tony Zhao that as of the end of 2022, he had used his personal funds to purchase a total of approximately 1.6 million of ADS in the open market under his $30 million management share purchase plan. Now turning to guidance, COVID-19 is still an unprecedented variable to our business model. where historical experience may not apply. Our guidance on full-year revenues reflects various assumptions that are subject to change based on certainties related to the impact of the COVID-19 pandemic, challenging macroeconomic environment, and the turbulent global capital markets. With that, we currently expect total revenues for the fiscal year of 2023 to be in the range of 155 to 157 million compared to the revenues of 155 million excluding divested customer engagement cloud business in 2022. In closing, I want to express my deepest appreciation to the entire Agor team for your hard work in this extremely challenging year and to our investors for trusting us. Thank you, everyone, for attending the call today. Let's open it up for questions.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Yang Liu from Morgan Stanley. Your line is open.

Thanks for the opportunity to ask questions. Two questions from my side. The first one is I would like to hear management's view in terms of when could we see the infection point in future. for domestic market and overseas market respectively. And the second question is, I remember management previously you're predicting a breakeven by fourth quarter . I just want to double check whether you're staying with this target. And if so, what could be the assumption behind this target? to reach this break-even target. Thank you.

I'll talk about the demand side. The recent slowdown in revenue growth was mainly due to macroeconomic challenges and also post-COVID reopening in more countries. This has caused pricing pressure and temporary demand pressure. But I don't think this represents fundamental change in demand for real-time engagement technology. We remain optimistic about demand in medium and long term, driven by further adoption of existing use cases, and also there are emerging new use cases as well. For example, revenue from live video shopping increased several folds in the last 12 months. We continue to see new demand from new use cases, both in the US and in China. Some of them will have meaningful revenue contribution this year. In conclusion, I also don't want to predict possibilities. I want to focus on concrete work and how to improve our internal efficiency. As long as we provide the best products in the market, I'm not worried about demand.

I'll take the second question. So as you can see from our three-year revenue guidance, it's basically flat compared to last year. So we are off to a relatively slow start this year, given all the macroeconomic challenges Tony just mentioned. So we expect our revenue to increase quarter by quarter this year. And we will likely finish at a higher level than Q4 2022. In the meantime, we'll continue to price efficiency from operations and optimize costs wherever possible. But we will adjust our cost structure dynamically, taking into the actual revenue growth we see during this year. So we don't have a fixed revenue and OPEX target at this point. But we are determined to significantly improve our financial health throughout this year.

OK, thank you. Thank you. One moment for our next question.

Our next question comes from from Bank of America.

Your line is open.

Thanks for the detailed presentation. I have two questions. Maybe for the first one, could you mention one color about the like the number of clients and the ASP trend for the both domestic and overseas market. Because for Q4 last year, we see the domestic ASP is still quite stable on quarter-on-quarter, but overseas see some quarter-on-quarter decline. So how do we see the trend in the following quarters? My second question is regarding the employee structure. Would we consider further optimization given the current growth outlook and our target of proving the probabilities? Thank you.

Thank you. I'll take both questions. So in terms of the number of customers, as you can see in the press release and also our presentation, the number of customers have been increasing quite steadily, both in the US international markets and also in China market. Again, that shows the continued absorption of technology globally. So in terms of pricing, you are correct that we face the more challenging pricing pressure in the U.S. international market, especially in the past two quarters, and we do expect that to persist in the near term. I'll explain a little bit again about why that is the case. So first of all, we do have a relatively large number of startup companies arrest the early stage company as a customer. So given the high inflation, the rate hikes, so it has become much harder for them to raise funding, and that has limited their usage of our products and also increased their pricing sensitivity. We don't see those factors to change in the near term. That's why we do expect continued pricing pressure in the near term. In the China market, actually, we don't see anything different from previous years. In the past, our experience has been that every year, average ASP will drop 5% to 10%, which is healthy, which is how this product will gain more and more adoption and become widely used across all industries. So there, we don't see anything different this year. So in terms of the team, for this year, we don't have any plan for expansion. And we will continue to optimize where we see redundancies. And we'll really look at this in a very detailed fashion, team by team, see where the return investment is low, and we will optimize. We're also focused on improving the workflow, improving collaboration across teams, and also investing in the competency of our team. So we don't have a plan for a large cut in the near future.

Thank you, Jinbo. Thank you. Thank you. One moment for our next question. And as a reminder, that's star 11 for questions. Star 11. Our next question comes from the line of Bing Duan from Nomura. Your line is open.

Hi. Thank you, management, for the opportunity to ask a question. I have two. The first one is the follow-up on the demand side. So, what kind of application or industry verticals do we see that might accelerate or slow down in 2023 that may drive for maybe higher or lower than our current revenue outlook? which is flat, right, excluding ESMOP. And recently, there's a strong global phenomenon about ChatGPT and AIGC. Do we currently see any kind of applications, related applications or development that is driving our volume growth? That's on the demand side. The second question is about the ASP or tech rate. For our new applications expected to grow this year, will there be any difference compared to our previous applications or verticals?

Thank you. On the demand side, I think there are use cases continuing to emerge. Like I already mentioned, on speech-to-text, it can be used on several different use cases like live shopping, but also can be used in social use cases. And there are more opportunities growing in verticals like digital transformation in China. And also there are regional opportunities that we see bigger potential, including Europe and Latin America. Besides that, in all of the use cases or all across our platform's products, we see by enhancing the quality of experience for all our video and audio sessions would also enhance our customers' attraction to their end users, will in turn increase demand for us as well. It's a natural development for all video use cases, not just us, even for television, that the resolution or clarity is going to improve over time. This is just a simple trend that we believe that's going to also happen in our industry. Plus, we will also spend resources to continue to improve our developer experience to reduce friction for adoptions. so that more developers could easily create new apps or new use cases on the platform. All those would help us to grow in terms of serving more potential demand and also help our customers to generate more demand. About TechGPT, It is an interesting and inspiring development in the industry just now around this time. I think a lot of discussion around it and we do see some potential in our customers' apps or in even our own practice. Maybe mention one area like social side. ChatGPT shows a potential that a real human-like conversation becomes possible. In some of the social apps we also see on our platform, they start to use this large language model to create specific characters with a defined background, personality, and even the style of their talking languages. And that attracted quite some interest from consumers because that gave consumers freedom in having a conversational relationship with someone that by imagination is their ideal partner. So that's an interesting invention just recently. But similarly, those things could happen in customer engagement use cases. But also, people would naturally imagine that there were this smart chat sort of service, including from the past, Alex and Sarah, in the past the conversation somewhat becomes very dry, like boring. You can only do command controls kind of conversation. But now with the large language model, human and machine interaction interface could be totally disrupted. On that side, we could enhance such a conversation or human-machine interface in a way to ensure the interaction to be real time. So those are all potentials we could see, but there would be more. We do have a closer eye on those possibilities.

I will quickly chime in on the tech pricing side. So Tony mentioned a few news cases like video shopping in the US. There we see the pricing remains very healthy and digital transformation in China. That's a very different market with large enterprises, financial institutions. So there it requires a different pricing model. But what we see is still a very profitable market for us.

Thank you, management. Thanks.

Thank you. One moment for our next question. And our next question will come from the line of Allen Lee from JPMorgan. Your line is open.

Okay. Thank you, management, for taking my question. I have two questions. So firstly, could you please give us some color on the revenue breakdown by key categories in 2022, such as entertainment, education, and maybe other some rising categories like live video shopping? And my second question is on our business strategy. We see non-China business slowed down quite a bit in past three quarters, while China revenue, excluding K-12, seemed to hold up well. So do you think this is more like a temporary thing or there's any structural reasons behind that? And how are we going to allocate resources between China and the international markets going forward? Thank you.

Okay, I'll take both questions. So the first one in terms of the, okay, first of all, we are already in two markets, the U.S. international markets and the China markets. Obviously the vertical breakdown in those two markets are slightly different, so I will talk about them separately. So in the U.S. international markets, social is still the largest vertical, followed by what we call future work, and that will include things like collaboration, online event and live video shopping. So that will be the second biggest. Then it's education. I think these are the main verticals. In China, obviously, social is dominant because now, after this revolutionary change, education is a much smaller, much smaller, much smaller part of the business now. And then digital transformation, so large traditional enterprises previously was almost zero. and now has become has made a meaningful contribution last year. And also IoT, so Internet of Things, things like smart doorbells, smart TV, these also start to contribute revenue in 2022. That's on the sector breakdown. In terms of like China revenue holding up in the past few quarters, I think there are a few factors. First of all, it has to do with the new product, what we call the broadcast streaming product, which has a lower GDP margin, but has very nice revenue pickup. So that now contributes to about 10% of revenue in China already. So that's something new in 2022. And secondly, we have been working with customers in China not just focused on business in China, but also focused on expanding their apps in overseas markets. So that's another growing business. And lastly, as I mentioned, the digital transformation business that didn't exist in, almost didn't exist in 2021.

Okay, this is Hebo. Thank you, Jinbo.

Thank you.

And I'm not showing any further questions in the queue at this moment. I'll let you turn the conference back to Fiona for any closing remarks.

Thank you, operator. And thank you, everybody, for attending today's call. Again, our presentation for this call and the replay for this call is also posted on our website. Later on, we will also post the remarks of this earnings call. Again, if you have any further questions, please reach out to us at our IR website or our email. Thank you again.

This concludes today's conference call. Thank you for participating. Give me a notice to connect. Everyone, have a great day.