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.