Agora, Inc.

Good day and thank you for standing by. Welcome to the Agora Inc. Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. During the presentation, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone. If your question has been answered and you wish to remove yourself from the queue, simply 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.agora.io. Joining me today are Tony Zhao, founder, chairman, and CEO, and 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 final prospectus. Relating to its initial public offering, Agora Inc. has no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn the call over to Tony. Tony, you may begin.

All right. Thank you, operator, and welcome everyone to our earnings call. I'll first reveal our operating results from the past quarter. This quarter, we achieved gap profitability, a significant milestone for our company. This success is the result of strong revenue growth from new use cases and disciplined cost management. While we faced challenges over the past few years, from the pandemic to regulatory changes and macroeconomic pressures, our team's hard work, innovation, and focus have brought us back to profitability. As we look ahead to 2025, we remain committed to driving operational efficiency and delivering sustainable, profitable growth. Total revenue in the fourth quarter were $34.5 million, up 4% year-over-year, excluding revenues from certain end-of-sales, low-margin products, mainly driven by business expansion in certain use cases, such as live shopping and entertainment. As of the end of 2024, we had over 1,700 active customers for Agora, and close to 2,000 for Shonwang excluding Izumov, an increase of 2% and 8%, respectively, compared to one year ago. Now, let's turn to our business product and technology updates for the quarter. The generative AI revolution is advancing at an incredible pace. Over the past few months, we've seen groundbreaking developments from OpenAI's reasoning model 01 to Google's multimodal Gemini 2.0, as well as remarkable open source innovations like DeepSeq. This transformation presents extraordinary opportunity for our business. Our real-time engagement technology is uniquely positioned to enable seamless voice-based interactions between human and AI models. By moving beyond basic text chat to multimodal conversations, we are the key technology to enable and ensure more intuitive and expressive communication experiences. It also introduced entirely new use cases where text input simply is not practical or efficient. However, Many large language models today still lack robust voice interaction capabilities. For those that do support voice interaction, the experience often falls short with high latency, awkward pulses, interruptions, and sensitivity to background noises, which can lead to frustrating user experience. To address this gap, We've supported and contributed to an open source project in our developer community called the Transformative Extensions Network, or TEN. TEN is an orchestration framework that enables developers to rapidly build multimodal AI agents. It integrates building blocks for speech-to-text, large language models, text-to-speech, retrieval argument generation, video understanding, and many other useful modules, enabling developers to easily create real-time, low latency AI experiences. Essentially, this framework can enable any text-based large-language model to deliver a voice-based conversational experience. For example, a developer can use TEN to quickly build a voice agent combining Microsoft's STT, DeepSeq's Large Language Model, and FishAudio's Tag2Speech, all in a matter of minutes. Since its launch, 10 has become the fastest growing project of its kind, earning over 4,500 GitHub stars in just a few months. On multiple occasions, 10 topped the trending list as the number one Python project on GitHub and remained on the list for several days. Building on Ken's success, I'm excited to announce the launch of our conversational AI engine, an enterprise-grade solution that empowers developers to create interactive voice experiences with any AI model. Whether it's a customer-built model deployed on-premise or a leading large-language model accessed via API, our conversational AI engine can make it talk and interact naturally with humans. What sets this solution apart is its ability to integrate easily with new AI models. For instance, we integrated with Google Gemini's multi-modal live API within 24 hours of its release in last December. The same 24-hour integration was true for DeepSEAT in January. Our solution is also compatible with many popular STT and TTS modules. But broad compatibility is not the only advantage. Our conversational AI engine elevates the conversational experience in three key areas. Conversation dynamics. To create natural human-like interactions, the engine intelligently detects and pulses for user interactions within 350 milliseconds, ensuring conversations feel smooth and intuitive. Second, voice processing. Our selective attention algorithm enables the AI models to focus solely on the primary speaker and topic filtering out distractions from irrelevant speakers in the background. Additionally, our advanced noise suppression and echo cancellation algorithms ensure that the AI model receives crystal clear human inputs necessary for generating high quality responses. Lastly, latency. Leveraging our global infrastructure, the engine responds to queries in as little as 500 milliseconds, dynamically handling packet loss and minimize delays across different network conditions. We have been working closely with customers to build and test conversational AI applications across various use cases. from virtual companions and live language tutoring to smart IoT devices, virtual shopping assistant, and customer support. We believe this innovation will accelerate the adoption of conversational AI across industries and become a key driver of our future growth. Before I wrap up, I want to take a moment to thank the incredible teams at Agora and so on. Your dedication and hard work in this fast-evolving environment have been nothing short of inspiring. Today, we are pushing the boundary of real-time AI interactions and unlocking new possibilities for human AI communication. I'm excited about what lies ahead, and I look forward to sharing more updates with you soon. With that, let me turn things over to Jingbo, who will review our financial results.

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the fourth quarter of 2024, and then I will discuss outlook for the first quarter of 2025. Total revenues were $34.5 million in the fourth quarter, Excluding revenues from certain end-of-sale low-margin products, total revenues increased 9.1% quarter-over-quarter and 3.6% year-over-year. Agor revenues were 17.4 million in the fourth quarter, an increase of 10.8% quarter-over-quarter, and an increase of 13.7% year-over-year. The increase was primarily due to business expansion and usage growth in certain verticals, such as live shopping and entertainment. Shenwang revenues were RMB 122.2 million in the fourth quarter, excluding revenues from certain end-of-sale low-margin products. Shenwang revenues increased 8.2% quarter-over-quarter and decreased 5.4% year-over-year. The quarter-over-quarter increase was primarily due to an increase in revenues from digital transformation customers. The year-over-year decrease was primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions. Dollar-based net retention rate is 95% for Agora and 79% for Xiongwa, excluding revenues from certain end-of-sale products and discontinued business. Moving on to cost and expenses, gross margin for the fourth quarter was 66.6%. If we exclude gross profit from certain end of sale products, gross margin of continuing business slightly decreased 0.1% over quarter over quarter and 0.8% year over year. As we mentioned in the last earnings call, we restructured and reduced our global workforce in November 2024. Operating expenses were $28.5 million in the fourth quarter, decreased $4.1 million from $32.6 million in Q2 2024 as a baseline. We expect to see additional savings on operating expenses in Q1 2025. R&D expenses were $14.2 million 8 million in Q4, decreased 9.3% year-over-year. Earnings expenses represented 42.9% of total revenue in the quarter compared to 45.3% in Q4 last year. Sales and marketing expenses were 7.3 million in Q4, increased 3.1% year-over-year. Sales and marketing expenses represented 21.1% of total revenues in the quarter compared to 19.6% in Q4 last year. G&A expenses were 6.4 million in Q4, decreased 18.4% year over year. G&A expenses represented 18.6% of total revenues in the quarter compared to 21.9% in Q4 last year. Moving on to the bottom line. Net income was $0.2 million in Q4, translating to a 0.5% net income margin fourth quarter compared to a net loss margin of 7.2% in Q4 last year. As Tony just mentioned, we achieved a significant milestone this quarter, profitability on GAAP basis for the first time in several years. This not only demonstrates our ability to deliver our commitments, but also reflects our unwavering focus on creating long-term value for our shareholders. Looking ahead, we remain committed to driving innovation, optimizing operations, and maintaining the financial discipline necessary to ensure continued success. Now turning to cash flow, operating cash flow was $4.5 million in Q4. compared to 3.7 million last year. Free cash flow was 4.3 million compared to 3.4 million last year. Moving on to balance sheet, we ended Q4 with 363.8 million in cash, cash equivalents, bank deposits, and financial products issued by banks. Net cash inflow in the quarter was mainly due to free cash flow of 4.3 million which was offset in part by share repurchase of 1.4 million. Since the Board approved our share repurchase program in February 2022, and as of the end of 2024, we have completed 58% of our $200 million share repurchase program. We are pleased to announce that our Board has authorized another 12-month extension of our Share Your Purchase Program through February 28, 2026, with all other terms unchanged. This decision reflects the Board's confidence in the company's long-term growth potential and our commitment to delivering values to our shareholders. Now turning to guidance, over the first quarter of 2025, we currently expect total revenues to be between 31 and 33 million, compared to 29.7 million in the first quarter of 2024, if revenues from certain NFCO low margin products are excluded. Looking forward, our goal is to maintain sustained profitability through 2025, throughout 2025, driven by strategic initiatives, operational efficiency, and emerging market opportunities in generative AI. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change. In closing, I'd like to express my sincere gratitude to both Agora and XiongWang teams for their incredible effort and commitment. It's what made these achievements possible. And thank you to everyone for attending the call today. Let's open it up for questions.