Agora, Inc.

good day and thank you for standing by welcome to the agora inc fourth quarter and fiscal year 2023 financial results conference call to ask a question during the session you 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 the company's earnings results press release earnings presentation SEC filings and a replay of today's call can be found on its IR website at investor.agore.io. Joining me today are Tony Zhao, founder, chairman, and CEO, Jingbo Wang, the company's CFO. Reconciliations between the company's GAAP and non-GAAP results can be found in its earnings press release. During this call, the company will make forward-looking statements about its future financial performance and other future events and trends. These statements are only predictions that are based on what the company believes today, and actual results may differ materially. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could affect the company's financial results and the performance of its business and which the company discussed in detail in its filings with the SEC, including today's earnings press release and the risk factors and other information contained in the financial prospectus relating to its initial public offering. Agora Inc. remains no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn it over to Tony. Hi, Tony.

Thanks, Alfredo, and welcome everyone to our earnings call. Let me first quickly review our operating result in 2.4. Revenue was $15.3 million for Agora, flat compared to last quarter, and 148.3 million RMB for Shunwang, an increase of 5% quarter over quarter, mainly driven by revenue growth from digital transformation customers. As of the end of 2023, we had close to 1,700 active customers for Agora and more than 4,100 for Shunwang. an increase of 18% and 12%, respectively, compared to one year ago. I'm pleased to announce that we achieved a non-GAAP net income of $1.4 million in Q4, despite a very challenging operating environment. Thanks to our effective cost control and relentless drive for revenue growth, Jingbo will discuss in more detail shortly. Now moving on to our business product and technology update for the quarter. Let's start with Agora. In this quarter, we held a series of webinars to discuss how real-time engagement, which combined with state-of-the-art technologies in artificial intelligence and AR and VR, can greatly influence or even transform various industries, including live shopping, telehealth, and Internet of Things. For example, in live shopping, we see more and more retail brands and platforms relying on interactive live streaming to redefine the way consumers make their buying decisions. By creating a personalized, social, and engaging experience for the audience, a loyal community of repeated buyers will thrive and help drive sales. The combination of RTE, AI, and AR VR is driving a rapid revolution of IoT use cases. For example, heavy machinery operators can work remotely with an enhanced view that sees beyond blind spots, enabling them to carry out challenging tasks in a safe and efficient manner. For autonomous vehicles or AI-powered robotics. Human operators can monitor their operations from remote locations and take over whenever necessary. This series of webinars was well received and attracted thousands of participants globally. We believe Agora is uniquely positioned to facilitate innovations in this industry. by leveraging our cutting-edge RT technology and deep understanding of industry-specific use cases. In this quarter, we also released a brand new beta version of our signaling product, which provides real-time data synchronization and low latency event notifications between devices and servers. The new version can now accommodate an unlimited number of users per channel. deliver better synchronization, support storage, and manage conflicting messages effectively. It enables a wide range of use cases, such as real-time bidding in live shopping, virtual gifting in live streaming, player status synchronization in online gaming, live pooling in education, and remote command of IoT devices. In December, Twilio announced the upcoming end of life of its programmable video product, which was a competing solution with our video coding product. We have pushed a series of blogs covering guidance and best practice for migrating from Twilio to Aurora across major operating systems and developer platforms. Additionally, we are offering up to two months free to customers who switch from Twilio. We believe Agora is the ideal alternative for Twilio's video customers based and expect to enhance our global market share following Twilio's exit. We are also thrilled to see OpenAI's recent launch of Sora, a powerful AI model that can create realistic and imaginative video clips based on text instructions. It aligns with our early view that multimodal capabilities of generative AI models will advance rapidly, eventually enabling human users to directly interact with AI models in voice and video format. This technology breakthrough in AI will greatly expand the boundary of real-time engagement and bring about tremendous new possibilities. IW Agora is well positioned to play a critical role in facilitating massive data transmission between AI models and human users. Moving on to Shenwang. Following the availability of Apple Vision Pro earlier this month, we have enabled many customers to launch applications in the Vision Pro app store. I have personally used Vision Pro, and I believe it marks an important breakthrough in XR technology. The high video resolution and see-through capability of VRAM Pro demand higher quality video content and opens the possibility for hologram video content consumption and interaction. For example, people will be able to watch live keynote speech in hologram format on VRAM Pro. Our network is well positioned to power such content and interaction. Over the past few months, mini-games that overlays on video live streaming have been gaining popularity among social platforms. For example, a round of Ludo can serve as icebreaker in a matchmaking room. Live streaming channels can encrypt team-based mini-games where audience can participate by sending booty chats and gifts. We have partners with leading minigame developers to offer our customers a wide range of minigames that can be easily embedded into their applications. Early data from our customers shows that the minigame integration has resulted in increased user participation, longer session durations, and more monetized opportunities. In this quarter, we also introduced Virtual Soundcard, an advanced feature that simulates key components of a professional hardware soundcard, such as the exciter, compressor, equalizer, and reverberator, to process end users' voice in real time. Users can now easily enhance and modify their voices with only a cell phone. without the need to purchase a computer with a professional sound card. For example, a customer recently had virtual sound card in their online karaoke rooms. Users can choose from a range of preset specifics to make their voices clearer, sweeter, gentler, or more mature. Slightly off-key notes can also be adjusted automatically. This capability makes users more confident to participate, therefore boosting user engagement and stickiness on our customers' platform. Before concluding my prepared remarks, I would like to thank both Agora and Shunwang teams for their commitment and diligence during this challenging period. We not only delivered consecutive quarter-over-quarter top-line growth since the second quarter, but also achieved non-gap profitability in the fourth quarter. Looking ahead at 2024, we will keep focusing on creating customer value and enhancing our competitive advantage with the goal of expanding our market share globally. With that, let me turn things over to Jingbo, who will reveal our financial results.

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the fourth quarter of 2023, and then I will discuss outlook for the first quarter of 2024. Total revenues were $36 million in the fourth quarter, an increase of 2.9 percent quarter over quarter, and a decrease of 10.2 percent year over year. Agor revenues were $15.3 million in the fourth quarter, less compared to last quarter and decreased 3.2% year-over-year. The year-over-year decrease was primarily due to reduced usage from customers in emerging markets due to challenging macroeconomic environment and tightening financing conditions starting from the second half of 2022. Shunwang revenues were RMB 148.7 million in the fourth quarter, an increase of 5% quarter-over-quarter and a decrease of 9.6% year-over-year, excluding revenues from the disposed CEC business. The quarter-over-quarter increase was primarily due to an increase in revenues from digital transformation customers or large enterprises. The year-over-year decrease was primarily due to slowing demand from internet customers due to regulation and general economic conditions. Dollar-based net retention rate is 93% for Acora and 82% for Shenhua, excluding revenues from discontinued business. Moving on to cost and expenses. For my following comments, I will focus on non-GAAP adjusted financial measures, which exclude share-based compensation expenses, acquisition-related expenses, financing-related expenses, monetization expenses of acquired intangible assets income tax related to acquired intangible assets, impairment of goodwill, depreciation of property and equipment, and optimization of land use rights. Adjusted gross margin for the fourth quarter was 65.2%, which was 0.3% higher than Q4 2022 and 1.7% lower than Q3 2023. The year-over-year increase was mainly due to the change in product mix and the implementation of technical and infrastructural optimizations. The quarter-over-quarter decrease was mainly due to an increase in on-premises solution revenue, which had a lower gross margin. As we continue to implement effective expense controls, all adjusted R&D expenses decreased 18% year-over-year to $13.7 million in Q4. Adjusted R&D expenses represented 38% of total revenues in the quarter compared to 41.6% in Q4 last year. Adjusted sales and marketing expenses were $6.3 million in Q4, decreased 40.6% year-over-year. Sales and marketing expenses represented 17.5% of total revenue in the quarter compared to 26.4% in Q4 last year. Adjusted G&A expenses were 5.8 million in Q4, decreased 20.5% year-over-year. G&A expenses represented 16% of total revenues in the quarter compared to 18.2% in Q4 last year. Adjusted EBITDA was negative 2 million, translating to a 5.6% adjusted EBITDA loss margin for the quarter, significantly lower than the adjusted EBITDA loss margin of 21.1% in Q4 last year. Non-GAAP net income was 1.4 million in Q4, translating to a 3.9% net income margin for the quarter, compared to a get non-GAAP net loss margin of 39.3% in Q4 last year. As Tony just mentioned, thanks to our effective cost controls and relentless drive for revenue growth, we achieved profitability on a non-GAAP basis for the first time in more than three years. This demonstrates the resilience of a business amid a very challenging operating environment, as well as our continued discipline and efforts in optimizing our cost structure. Now turning to cash flow. Operating cash flow was positive 3.7 million in Q4 compared to negative 4.6 million last year. Free cash flow was positive 3.4 million compared to negative 6.1 million last year. Moving on to balance sheet. We ended Q4 with $371.8 million in cash, cash equivalents, and deposits, and financial products issued by banks, or $4.03 per ADS. Net cash outflow. Net cash outflow in the quarter was mainly due to share repurchase of $10.1 million, which was offset in part by free cash flow of $3.6 million. Since the Board approved our share repurchase program in February 2022 and as of December 31, 2023, we had returned approximately $104.7 million to shareholders through share repurchases, reducing our share count by roughly 18%. So far, we have completed 52% of a US dollar 200 million share repurchase program. We are pleased to announce that our board has authorized another 12-month extension of a $200 million share repurchase program through end of February next year, with all other terms on change, which is a vote of confidence on financial strength and long-term prospect of the business. Now turning to guidance. Due to seasonal impact, especially reduced usage in certain regions during Lunar New Year for the first quarter of 2024, we currently expect total revenues to be between $32 and $34 million. This forecast reflects our current and preliminary views on the market and operational conditions which are subject to change. In closing, we are very proud of our execution and strong financial results during this challenging period. Returning to profitability is a remarkable milestone. Thank you to both Accor and Shunwang teams for your hard work and sacrifice in the past quarters. Thank you everyone for attending the call today. Let's open it up for questions.

Thank you, sir. As a reminder, to ask a question, you will need to press star one one on your telephone. To withdraw your question, please press star one one again. Once again, to ask a question, please press star one one on your telephone.

One moment while we compile the Q&A roster.

And I show our first question comes from the line of Yang Lu from Morgan Stanley.

Thank you. Thanks for the opportunity to ask questions. First, congratulations on the non-GAAP profit in last quarter 2023. I have three questions here. The first one is, What is the management outlook in terms of the 2024 full-year profit? Do you think the profitability in the past quarter will be sustained or even be improved in 2024? Especially consider the guidance in first quarter implies some year-on-year revenue decline, whether the positive profit can be maintained. That's the first question. The second one is we would like to have some update in terms of the domestic internet companies going abroad, whether Agora can benefit from that in the overseas market, and what is the revenue split between Agora and Shenwang in the coming 2024 full year. Do you think the Agora revenue contribution will continue to drop a little bit or will turn around in terms of the total contribution? The third question is regarding the partnership with VisionPro. What will be the revenue model behind this kind of partnership? Will it be based on the consumer time spent? And if not, what will be the revenue model? Thank you.

Thank you. I'll take the first question. Yes, the Q1 revenue guidance would imply a year-on-year revenue decrease. And as you know, Q1 is generally the low season for the business. in the past few years, revenue generally doubled a bit in Q1 sequentially compared to Q4. That's due to both seasonality, as I mentioned, In some other regions where we operate, Lunar Chinese New Year is a low season for social apps and for education, apparently. So usage will drop during that holiday. And also for digital transformation businesses, a lot of the projects tend to be, we tend to book for the revenues towards the end of the year. So Q1 is also a low season. Compared to last year, obviously, we had the China internet regularly changes, passing up the environment in Q2. So last year, Q1 was a relatively higher base. So that's on Q1 guidance. In terms of year 2024, obviously, there remains a lot of uncertainty around the world. including the macroeconomic environment, funding environment, and so on. So I will try to give you my best estimate. So we expect revenue to grow on a year-on-year basis starting from Q2. And our goal is to reach double-digit revenue growth in Q4 year-on-year. And regardless of revenue growth, we do not expect expenses will grow this year. compared to the most recent base. So it's going to be a pretty stable cost base with moderate revenue growth. So if you run the numbers, hopefully we'll be able to get closer to profitability and even improve the profitability towards the second half of the year. But as to Q1, it will be challenging to achieve profitability in Q1 given the revenue dip? That's the first question.

About helping China Internet companies going overseas, I think we are in a very strong, unique position to help them. Because on one side, we do have a strong and very influential customer base in China Internet industry. A lot of them were actively planning going overseas or expanding in global market. While we help them, we can leverage a lot of our existing partnership and customer-based knowledge and the market knowledge with our global practice with local customer base and market already. And we have been helping people with all those knowledge and know-how already, and those are the unique advantages we could have to help them to grow into a bigger global market.

And in terms of revenue split, we don't think it will change very significantly. However, we are a little bit more optimistic about our business. given especially the resilience we are seeing in the U.S. market, another developed market, and also some of the emerging use cases we see there. Tony mentioned exit that also give us additional room to grow in those markets. So we expect some moderate increase in terms of the contribution coming from the agro-business as we move along in 2024.

About the Veeam Pro, the revenue model is going to be similar to what we do. We are still going to enable use cases and customers by selling API-based capabilities. Although with increased offering from our overall product portfolio, we might have a more diverse pricing model. with all the different SKUs, different products we are selling into. But overall, it will tie to consumer usage on Varian Pro. And in mid-term to long-term, we do see the powerful impact where Varian Pro can enable a lot more attractive new use cases or make some new use cases more viable or more meaningful for consumer or business use cases where we would be able to support both like persona-based social interactions or business collaborations in that platform. And we also anticipate a lot of other XR devices will catch up with Spirit Pro to make this capability to be available more widely for customers and consumers.

Thank you. Can I follow up with one quick question? When Jinbo mentioned the OPEX will be flattish, Do you mean that Flatish versus 2023 full year or Flatish versus last quarter in 2023? Because over the past year, the sequential quarterly OPEX has been on a downward trend. So I would like to clarify whether it's a year-on-year or based on first quarter. Thank you.

The base will be first quarter. It would probably not be exactly the same. It might fluctuate a little bit, but it will not be significantly higher from the base in Q4.

Got it. Thank you.

Thank you. And I show our next question comes from the line of Harry Schwing from Bank of America. Please go ahead.

Thanks, Benjamin, for taking my questions. I also have three questions. The first one is... The demand outlook competition landscape and price trend in both overseas and domestic market. And the second question is, what does the management see the potential impact of business from the open AI's video generator, so on? And the third question is on the potential market share gain. Management said that after Twilio exits the market, the company could potentially gain share. How will Algoa seize this opportunity, and what is the current acceptance from the customers transiting from Twilio service to our service? Thank you.

All right, I'll take those questions. First of all, in terms of the market and competitive landscape, we see in U.S. and international markets, we do see strong growth momentum in media and entertainment sector and telehealth verticals. Live shopping, IOT, particularly in developer market, Those are the areas that we see strong growth momentum. Price-wise, we see more pressure in emerging market, where it's impacted by macro environment, including the currency exchange rate, et cetera. Price has been healthy and stable in developed market, US and European market. About Twitter's exit. What we're seeing in terms of competition, Tudu's exit is only a sign of competitors leaving the market. It's not just Tudu. There are other startup competitors who are struggling and downsizing of their operations. We expect we will be gaining market share with those changes. In China market, we see growth potentials in going overseas, especially internet companies based in China now looking heavily in going overseas expansion. And also digital transformation is still having a clear trend to grow. And also IoT side of the customer base are seeing more actively growth. Overall usage in both markets we actually see still growing despite all the regulatory and market changes, which is the foundation of overall customer value growth and revenue growth. Price-wise in China market generally drops about 10% over the last few years and often happens in beginning of the year. This puts some pressure to our Q1 results. Together with the seasonality issue, of Chinese New Year activity change or consumer behavior change. Our gross margin remains quite healthy. In terms of competitive landscape, it's largely unchanged in China market during the past quarter. While we continue to see there are more competitors backing off, which in last quarter we see another large internet company reduce their team in this area in Q4. I expect market to continue to consolidate. The next question is about the latest OpenAI offering video generation. I think this is only the very early stage of video format generating model, but we can see the huge potential and the possibility lies ahead. Currently, the model is able to generate short video clips based on text, image, or video prompting. And it can already be used in some of customers' use cases to enhance user experience. For example, the virtual background of a video chat room or live streaming session can be a short video clip generated by AI model as a raw background. It could be either realistic or imaginary to perfectly match the context or topics of the channel. This will create more engaging and immersive experience for audience. In the future, we believe human user will be able to directly interact with AI models in voice and video format, as we mentioned before. This will make us the critical infrastructure as massive amount of data will flow between users and AI models in real time. Maybe to add a little to Tridel's exit, we think, like I said, it's only merely a sign of competitors leaving this market. They're backing off or focusing on their more minstrel business, as I mentioned. We see this happens in both global market and China market, including, let's say, in US market, it's not just Twilio. There are some other smaller competitors also downsizing or stopped working in this area. The competitive environment with that we see is clearly improving. Of course, Twilio has still a sizable customer base, which we already start to work on to convert that. So this is a clear room for us to grow into.

Thank you very much. Thank you.

Thank you. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Once again, to ask a question, please press star one, one on your telephone. And I show our next question comes from the line of Bing Duan from Namur. Please go ahead.

Um, yeah. Hi. Uh, thank you management for the opportunity to ask the question. Just the one follow up question from me about the Twilio's, uh, exits, uh, in the, uh, programmable video product, uh, segment, uh, So can you share more color about the reason behind this? Is this more because of the competition, the fears of competition, or because of the demand is not growing strongly in the U.S. market? And about we offer two months free customer switch from Twilio. how do we think that would affect our user growth and top line growth in the next one or two quarters? Thank you.

I do think 2D's exit is mainly because of the fierce competition in this area because as we repeatedly state, this area is a very tech-savvy sector where all the offerings require a lot of investment in technology and product. Some competitors' products only build on top of WebRTC open source projects or a simple, rather lean layer of technology add-ons, which can only serve a friction part of the demand for our RTE use cases, which of course limited their ability to expand and grow in this area. And, you know, especially for a company like Clilio, they might want to be more focused on their mainstream, you know, business. We see that's the main reason. You know, there could be a reason that COVID demand is also fading away. But as I mentioned in our earlier statement, we, you know, while the COVID demand is fading away, We do see there are growth, very active use cases growth in developer marketing in global market. So I would rather just put that as another factor in their living. In terms of our offerings, I do think the two months free offer for a lot of small, mid-sized customers is a very important reason for them to consider and makes them easier to decide to jump on our platform. We do have some other strengths and collaborations or work with a rather large customer base, which our team is focusing on to help them to migrate to our platform.

Thank you very much.

Thank you. Once again, if you have a question at this time, please press star 11 on your telephone. I'm sure no further questions in the queue. This concludes our Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, the recording and the earnings release will be available on the company's website at investor.agora.io. And if there are any questions, please feel free to email the company. Thank you and have a good day.

Thank you. Bye-bye. Thank you. you Thank you. Thank you. Thank you.

Good day and thank you for standing by. Welcome to the Agora Inc. Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. 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. The company's earnings results press release earnings presentation SEC filings and a replay of today's call can be found on its IR website at investor.agore.io. Joining me today are Tony Zhao, founder, chairman, and CEO, Jingbo Wang, the company's CFO. Reconciliations between the company's GAAP and non-GAAP results can be found in its earnings press release. During this call, the company will make forward-looking statements about its future financial performance and other future events and trends. These statements are only predictions that are based on what the company believes today, and actual results may differ materially. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could affect the company's financial results and the performance of its business and which the company discussed in detail in its filings with the SEC, including today's earnings press release and the risk factors and other information contained in the financial prospectus relating to its initial public offering. Agora Inc. remains no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn it over to Tony. Hi, Tony.

Thanks, Alfredo. And welcome, everyone, to our earnings call. Let me first quickly review our operating result in 2.4. Revenue was $15.3 million for Agora. flat compared to last quarter, and 148.3 million RMB for Shunwang, an increase of 5% quarter-over-quarter, mainly driven by revenue growth from digital transformation customers. As of the end of 2023, we had close to 1,700 active customers for Agora and more than 4,100 for Shunwang. an increase of 18% and 12%, respectively, compared to one year ago. I'm pleased to announce that we achieved a net income of $1.4 million in Q4, despite a very challenging operating environment. Thanks to our effective cost control and relentless drive for revenue growth, Jingbo will discuss in more detail shortly. Now moving on to our business product and technology update for the quarter. Let's start with Agora. In this quarter, we held a series of webinars to discuss how real-time engagement, which combined with state-of-the-art technologies in artificial intelligence and AR and VR, can greatly influence or even transform various industries, including live shopping, telehealth, and Internet of Things. For example, in live shopping, we see more and more retail brands and platforms relying on interactive live streaming to redefine the way consumers make their buying decisions. By creating a personalized, social, and engaging experience for the audience, a loyal community of repeated buyers will thrive and help drive sales. The combination of RTE, AI, and AR VR is driving a rapid revolution of IoT use cases. For example, heavy machinery operators can work remotely with an enhanced view that sees beyond blind spots, enabling them to carry out challenging tasks in a safe and efficient manner. For autonomous vehicles or AI-powered robotics. Human operators can monitor their operations from remote locations and take over whenever necessary. This series of webinars was well received and attracted thousands of participants globally. We believe Agora is uniquely positioned to facilitate innovations in this industry. by leveraging our cutting-edge RT technology and deep understanding of industry-specific use cases. In this quarter, we also released a brand new beta version of our signaling product, which provides real-time data synchronization and low-latency event notifications between devices and servers. The new version can now accommodate an unlimited number of users per channel. deliver better synchronization, support storage, and manage conflicting messages effectively. It enables a wide range of use cases, such as real-time bidding in live shopping, virtual gifting in live streaming, player status synchronization in online gaming, live pooling in education, and remote command of IoT devices. In December, Twilio announced the upcoming end of life of its programmable video product, which was a competing solution with our video coding product. We have pushed a series of blogs covering guidance and best practice for migrating from Twilio to Aurora across major operating systems and developer platforms. Additionally, we are offering up to two months free to customers who switch from Twilio. We believe Agora is the ideal alternative for Twilio's video customers based and expect to enhance our global market share following Twilio's exit. We are also thrilled to see OpenAI's recent launch of Sora, a powerful AI model that can create realistic and imaginative video clips based on text instructions. It aligns with our early view that multimodal capabilities of generative AI models will advance rapidly, eventually enabling human users to directly interact with AI models in voice and video format. This technology breakthrough in AI will greatly expand the boundary of real-time engagement and bring about tremendous new possibilities. IW Agora is well positioned to play a critical role in facilitating massive data transmission between AI models and human users. Moving on to Shen Wang. Following the availability of Apple Vision Pro earlier this month, we have enabled many customers to launch applications in the Vision Pro app store. I have personally used Vision Pro, and I believe it marks an important breakthrough in XR technology. The high video resolution and see-through capability of VRAM Pro demand higher quality video content and opens the possibility for hologram video content consumption and interaction. For example, people will be able to watch live keynote speech in hologram format on VRAM Pro. Our network is well positioned to power such content and interaction. Over the past few months, mini-games that overlays on video live streaming have been gaining popularity among social platforms. For example, a round of Ludo can serve as icebreaker in a matchmaking room. Live streaming channels can encrypt team-based mini-games where audience can participate by sending booty chats and gifts. We have partners with leading minigame developers to offer our customers a wide range of minigames that can be easily embedded into their applications. Early data from our customers shows that the minigame integration has resulted in increased user participation, longer session durations, and more monetized opportunities. In this quarter, we also introduced Virtual Soundcard, an advanced feature that simulates key components of a professional hardware soundcard, such as the exciter, compressor, equalizer, and reverberator to process end users' voice in real time. Users can now easily enhance and modify their voices with only a cell phone. without the need to purchase a computer with a professional sound card. For example, a customer recently had a virtual sound card in their online karaoke rooms. Users can choose from a range of preset specifics to make their voices clearer, sweeter, gentler, or more mature. Slightly off-key notes can also be adjusted automatically. This capability makes users more confident to participate, therefore boosting user engagement and stickiness on our customers' platform. Before concluding my prepared remarks, I would like to thank both Agora and Shunwang teams for their commitment and diligence during this challenging period. We not only delivered consecutive quarter-over-quarter top-line growth since the second quarter, but also achieved non-gap profitability in the fourth quarter. Looking ahead at 2024, we will keep focusing on creating customer value and enhancing our competitive advantage with the goal of expanding our market share globally. With that, let me turn things over to Jingbo, who will reveal our financial results.

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the fourth quarter of 2023, and then I will discuss outlook for the first quarter of 2024. Total revenues were $36 million in the fourth quarter, an increase of 2.9 percent quarter-over-quarter, and a decrease of 10.2 percent year-over-year. Agor revenues were $15.3 million in the fourth quarter, less compared to last quarter and decreased 3.2% year-over-year. The year-over-year decrease was primarily due to reduced usage from customers in emerging markets due to challenging macroeconomic environment and tightening financing conditions starting from the second half of 2022. Shunwang revenues were RMB 148.7 million in the fourth quarter, an increase of 5% quarter-over-quarter, and a decrease of 9.6% year-over-year, excluding revenues from the disposed CEC business. The quarter-over-quarter increase was primarily due to an increase in revenues from digital transformation customers or large enterprises. The year-over-year decrease was primarily due to slowing demand from internet customers due to regulation and general economic conditions. Dollar-based net retention rate is 93% for Agoura and 82% for Shenhua, excluding revenues from discontinued business. Moving on to cost and expenses. For my following comments, I will focus on non-GAAP adjusted financial measures, which exclude share-based compensation expenses, acquisition-related expenses, financing-related expenses, monetization expenses of acquired intangible assets, income tax related to acquired intangible assets, impairment of goodwill, depreciation of property and equipment, and optimization of land use rights. Adjusted gross margin for the fourth quarter was 65.2%, which was 0.3% higher than Q4 2022 and 1.7% lower than Q3 2023. The year-over-year increase was mainly due to the change in product mix and the implementation of technical and infrastructural optimizations. A quarter-over-quarter decrease was mainly due to an increase in on-premises solution revenue, which had a lower gross margin. As we continue to implement effective expense controls, all adjusted R&D expenses decreased 18% year-over-year to $13.7 million in Q4. Adjusted R&D expenses represented 38% of total revenues in the quarter compared to 41.6% in Q4 last year. Adjusted sales and marketing expenses were $6.3 million in Q4, decreased 40.6% year-over-year. Sales and marketing expenses represented 17.5% of total revenue in the quarter, compared to 26.4% in Q4 last year. Adjusted G&A expenses were 5.8 million in Q4, equals 20.5% year over year. G&A expenses represented 16% of total revenues in the quarter, compared to 18.2% in Q4 last year. adjusted EBITDA was negative 2 million, translating to a 5.6% adjusted EBITDA loss margin for the quarter, significantly lower than the adjusted EBITDA loss margin of 21.1% in Q4 last year. Non-GAAP net income was 1.4 million in Q4, translating to a 3.9% net income margin for the quarter, compared to a net get non-GAAP net loss margin of 39.3% in Q4 last year. As Tony just mentioned, thanks to our effective cost controls and relentless drive for revenue growth, we achieved profitability on a non-GAAP basis for the first time in more than three years. This demonstrates the resilience of a business amid a very challenging operating environment, as well as our continued discipline and efforts in optimizing our cost structure. Now turning to cash flow. Operating cash flow was positive 3.7 million in Q4 compared to negative 4.6 million last year. Free cash flow was positive 3.4 million compared to negative 6.1 million last year. Moving on to balance sheet. We ended Q4 with $371.8 million in cash, cash equivalents, and deposits, and financial products issued by banks, or $4.03 per ADS. Net cash outflow. Net cash outflow in the quarter was mainly due to share repurchase of $10.1 million, which was offset in part by free cash flow of $3.6 million. Since the Board approved our share repurchase program in February 2022 and as of December 31, 2023, we had returned approximately $104.3 million to shareholders through share repurchases, reducing our share count by roughly 18%. So far, We have completed 52% of a US dollar 200 million share repurchase program. We are pleased to announce that our board has authorized another 12-month extension of a $200 million share repurchase program through end of February next year, with all other terms unchanged, which is a vote of confidence on financial strength and long-term prospect of the business. Now turning to guidance, due to seasonal impact, especially reduced usage in certain regions during Lunar New Year for the first quarter of 2024, we currently expect total revenues to be between $32 and $34 million. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. We are very proud of our execution and strong financial results given this challenging period. Returning to profitability is a remarkable milestone. Thank you to both Accor and Shunwang teams for your hard work and sacrifice in the past quarters. Thank you, everyone, for attending the call today. Let's open it up for questions.

Thank you, sir. As a reminder, to ask a question, you will need to press star one one on your telephone. To withdraw your question, please press star one one again. Once again, to ask a question, please press star one one on your telephone.

One moment while we compile the Q&A roster.

And I show our first question comes from the line of Yang Lu from Morgan Stanley.

Thank you. Thanks for the opportunity to ask questions. First, congratulations on the non-GAAP profit in last quarter 2023. I have three questions here. The first one is, What is the management outlook in terms of the 2024 full-year profit? Do you think the profitability in the past quarter will be sustained or even be improved in 2024? Especially consider the guidance in first quarter implies some year-on-year revenue decline, whether the positive profit can be maintained. That's the first question. The second one is we would like to have some update in terms of the domestic internet companies going abroad, whether Agora can benefit from that in the overseas market, and what is the revenue split between Agora and Shenwang in the coming 2024 full year. Do you think the Agora revenue contribution will continue to drop a little bit or will turn around in terms of the total contribution? The third question is regarding the partnership with VisionPro. What will be the revenue model behind this kind of partnership? Will it be based on the consumer time spent? And if not, what will be the revenue model? Thank you.

Thank you. I'll take the first question. Yes, the Q1 revenue guidance would imply a year-on-year revenue decrease. And as you know, Q1 is generally the low season for the business. in the past few years, revenue generally debilitated in Q1 sequentially compared to Q4. That's due to both seasonality, as I mentioned, In some other regions where we operate, Lunar Chinese New Year is a low season for social apps and for education, apparently. So usage will drop during that holiday. And also for digital transformation businesses, a lot of the projects tend to be, we tend to go through the revenues towards the end of the year. So Q1 is also a low season. Compared to last year, obviously, we had the China Internet regulatory changes, testing of the environment in Q2. So last year, Q1 was a relatively higher base. So that's on Q1 guidance. In terms of the year 2024, obviously, there remains a lot of uncertainty around the world. including the macroeconomic environment, funding environment, and so on. So I will try to give you my best estimate. So we expect revenue to grow on a year-on-year basis starting from Q2. And our goal is to reach double-digit revenue growth in Q4 year-on-year. And regardless of revenue growth, we do not expect expenses will grow this year. compared to the most recent base. So it's going to be a pretty stable cost base with moderate revenue growth. So if you run the numbers, hopefully we'll be able to get closer to profitability and even improve the profitability towards the second half of the year. But as to Q1, it will be challenging to achieve profitability in Q1 given the revenue dip? That's the first question.

About helping China Internet companies going overseas, I think we are in a very strong, unique position to help them. Because on one side, we do have a strong and very influential customer base in China Internet industry. A lot of them were actively planning going overseas or expanding in global market. While we help them, we can leverage a lot of our existing partnership and customer-based knowledge and the market knowledge with our global practice with local customer base and market already. And we have been helping people with all those knowledge and know-how already, and those are the unique advantages we could have to help them to grow into a bigger global market.

And in terms of revenue split, we don't think it will change very significantly. However, we are a little bit more optimistic about our business. given especially the resilience we are seeing in the U.S. market, another developed market, and also some of the emerging use cases we see there. And also Tony mentioned Toluse exit that also give us additional room to grow in those markets. So we expect some moderate increase in terms of the percentage of revenue contribution coming from the agraria business as we move along in 2024.

About Veeam Pro, the revenue model is going to be similar to what we do. We are still going to enable use cases and customers by selling API-based capabilities. Although with increased offering from our overall product portfolio, we might have a more diverse pricing model. with all the different SKUs, different products we are selling into. But overall, it will tie to consumer usage on Vision Pro. And in mid-term to long-term, we do see the powerful impact where Vision Pro can enable a lot more attractive new use cases or make some new use cases more viable or more meaningful for consumer or business use cases where we would be able to support both like persona-based social interactions or business collaborations in that platform. And we also anticipate a lot of other XR devices will catch up with Varian Pro. So to make this capability to be available more widely for customers and consumers.

Thank you. Can I follow up with one quick question? When Jinbo mentioned the OPEX will be flat-ish, Do you mean that flatish versus 2023 full year or flatish versus the last quarter in 2023? Because over the past year, the sequential quarterly OPEX has been on a downward trend. So I would like to clarify whether it's a year-on-year or based on first quarter. Thank you.

The base will be first quarter. It would probably not be exactly the same. It might fluctuate a little bit, but it will not be significantly higher from the base in Q4.

Got it. Thank you.

Thank you. And I show our next question comes from the line of Harry Schwing from Bank of America. Please go ahead.

Thanks, Benjamin, for taking my questions. I also have three questions. The first one is... The demand outlook, can management share more color on the demand outlook, competition landscape, and price trend in both overseas and domestic market? And the second question is, what does the management see the potential impact of business from the open AI's video generator, so on? And the third question is on the potential market share gain. Benjamin said that after Twilio exits the market, the company could potentially gain share. How will Algoa seize this opportunity, and what is the current acceptance from the customers transiting from Twilio service to our service? Thank you.

All right, I'll take those questions. First of all, in terms of the market and competitive landscape, we see in U.S. and international markets, we do see strong growth momentum in media and entertainment sector and telehealth verticals. Live shopping, IOT, particularly in developer market, Those are the areas that we see strong growth momentum. Price-wise, we see more pressure in emerging market, where it's impacted by macro environment, including the currency exchange rate, et cetera. Price has been healthy and stable in developed market, US and European market. Two years, about two years exit, What we're seeing in terms of competition, Twilio's exit is only a sign of competitors leaving the market. It's not just Twilio. There are other startup competitors who are struggling and downsizing of their operations. We expect we will be gaining market share with those changes. In China market, we see growth potentials in going overseas, especially internet companies based in China now looking heavily in going overseas expansion. And also digital transformation is still having a clear trend to grow. And also IoT side of the customer base are seeing more actively growth. Overall usage in both markets we actually see still growing despite all the regulatory and market changes, which is the foundation of overall customer value growth and revenue growth. Price-wise in China market generally drops about 10% over the last few years and often happens in beginning of the year. This puts some pressure to our Q1 results. Together with the seasonality issue, of Chinese New Year activity change or consumer behavior change. Our gross margin remains quite healthy. In terms of competitive landscape, it's largely unchanged in China market during the past quarter. While we continue to see there are more competitors backing off, which in last quarter we see another large internet company reduce their team in this area in Q4. I expect market to continue to consolidate. The next question is about the latest OpenAI offering video generation. I think this is only the very early stage of video format generating model, but we can see the huge potential and the possibility lies ahead. Currently, the model is able to generate short video clips based on text, image, or video prompting, and it can already be used in some of customers' use cases to enhance user experience. For example, the virtual background of a video chatroom or live streaming session can be a short video clip generated by AI model as an oral background. It could be either realistic or imaginary to perfectly match the context or topics of the channel. This will create more engaging and immersive experience for audience. In the future, we believe human user will be able to directly interact with AI models in voice and video format, as we mentioned before. This will make us the crucial, the critical infrastructure as massive amount of data will flow between users and AI models in real time. Maybe to add a little to Twilio's exit, we think, like I said, it's only merely a sign of competitors leaving this market. They're backing off or focusing on their more minstrel business, and as I mentioned, We see this happens in both global market and China market, including, let's say, in US market, it's not just Twilio. There are some other smaller competitors also downsizing or stopped working in this area. The competitive environment with that we see is clearly improving. Of course, Twilio has still a sizable customer base, which we already start to work on to convert that. So this is a clear room for us to grow into.

Thank you very much. This is very clear. Thank you.

Thank you. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Once again, to ask a question, please press star one, one on your telephone. And I show our next question comes from the line of Bing Duan from Namur. Please go ahead.

Um, yeah. Hi. Uh, thank you management for the opportunity to ask the question. Just the one follow up question from me about the Twilio's, uh, exits, uh, in the, uh, programmable video product, uh, segment, uh, So can you share more color about the reason behind this? Is this more because of the competition, the fears of competition, or because of the demand is not growing strongly in the U.S. market? And about we offer two months free customer switch from Twilio. How do we think that would affect our users' growth and top line growth in the next one or two quarters? Thank you.

I do think Twilio's exit is mainly because of the fierce competition in this area because as we repeatedly, you know, state, this area is a very tech-savvy sector where all the offerings require a lot of investment in technology and product. Some competitors' products only build on top of WebRTC, open source projects or a simple, rather lean layer of technology add-ons, which can only serve a friction part of the demand for our RTE use cases, which of course limited their ability to expand and grow in this area. And, you know, especially for a company like Clilio, they might want to be more focused on their mainstream, you know, business. We see that's the main reason. You know, there could be a reason that COVID demand is also fading away. But as I mentioned in our earlier statement, we, you know, while the COVID demand is fading away, we do see their growth, very active use cases growth in developer marketing, in global market. So I would rather just put that as another factor in their living. In terms of our offerings, I do think the two months free offer for a lot of small, mid-sized customers is a very important reason for them to consider and makes them easier to decide to jump on our platform. We do have some other strengths and collaborations or work with a rather large customer base, which our team is focusing on to help them to migrate to our platform.

Thank you very much.

Thank you.

Once again, if you have a question at this time, please press star 11 on your telephone. I'm sure no further questions in the queue. This concludes our Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, the recording and the earnings release will be available on the company's website at investor.agora.io. And if there are any questions, please feel free to email the company. Thank you and have a good day.