Agora, Inc.

Good day and thank you for standing by. Welcome to Agora Inc third quarter 2025 financial results conference call. To ask a question during the session, you need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised Today's conference is being recorded. The company's earning results, press release, earning presentation, SEC filings, and the 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 Jim Bowen, the company's CFO. During this time, the company will make forward-looking statements about its financial about its future financial performance and future events and trends. These statements are only predictions that are based on what the company believes today, and the actual results may differ materially. These four looking statements are subject to risk, uncertainties, assumptions, and other factors that could affect the company's financial results and the performance of its business, in which the company is discussed in detail in its filing with the SEC, including today's earnings press release and risk factors and other information contained in the final prospect relating to its initial public offering. Angora Inc. remains 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. Please go ahead.

Thanks, operator, and welcome everyone to our earnings call. I'll first reveal our operating results from the past quarter. We're pleased to report our fourth consecutive quarter of gap profitability in Q3, supported by double-digit revenue growth and expanding margins. Total revenue in Q3 reached $35.4 million, up 12% year-over-year. Our gap net profit for the quarter was $2.7 million with a gap net margin of 7.8%. And we expect our revenue and net profit to continue growing on a quarter-over-quarter basis in Q4. As you can see, our core real-time engagement path business is rebounding strongly and is on track to deliver its first full-year revenue growth since the pandemic providing a stable, profitable foundation for us. At the same time, we are significantly increasing our investment in conversational AI. Voice-based human-machine interaction is not new, yet most conversational AI solutions today still disappoint users. Why? Because building voice agents that can converse naturally with the human is just hard. Just a few months ago, Greylock Partners, a leading venture capital firm, published a blog post titled, Voice Agents, Easy to Use, Hard to Build. They nailed the core challenge. Behind the simplicity users expect lies immersed complexity, system obstruction, real-time audio processing, latency management, and compliance requirements. Consider the issue of background noise and multiple speakers, just two of the many technical challenges. In real-world settings, like a busy home, office, or car, clean audio is an exception, not the norm. A voice agent must accurately isolate a user's voice from overlapping speech and ambient sounds. Without this, transcription becomes unreliable. Intent is misunderstood and the agent's reasoning falters, undermining the whole interaction. Furthermore, as Andrew Tapasi has pointed out, there is often a significant gap between a working demo and a production-ready product. Conversational AI is no exception. For instance, in our discussion with customers and prospects, Many have expressed frustration with the reliability and scalability of current solutions, especially when users are distributed across geographics or when concurrent usage is high. Our investment in conversational AI is specifically aimed at addressing these challenges. Recently, We launched our conversational AI engine 2.0. It integrates over a decade of advanced audio research and development, including AI-powered noise suppression, acoustic echo cancellation, preparatory audio codec, and adaptation across thousands of device types to ensure that AI hears and speaks with consistent clarity. In addition, the engine also tackles core interaction challenges, selective attention, turn-taking, interaction handling, emotion detection, and natural conversational flow. In short, we're not just providing the transmission pipeline for voice and video, we're building the behavioral intelligence that powers truly responsive, human-like conversational AI agents. To help developers build voice agents more easily, we announced our conversational AI studio at our recent Convo AI and RTE conference in late October, which allows developers to create, configure, and deploy voice agents through a zero-code interface. Complementing this, our conversational AI benchmark and orchestration platform allows developers to evaluate, mix, and match, and optimize both our proprietary and third-party modules so they can identify the best performing combination for their specific use case. Our open source TAN framework, designed for building voice agents, continues to gain traction in the developer's community. Recognized for its high concurrency architecture and deep cross-platform integration, it has been adopted by multiple cloud providers and major enterprises for their agent orchestration platforms. All these products adapt by our global distributed real-time inference cloud. Over the past several months, we've expanded this infrastructure to cover key regions of course, North America, South America, Europe, and Asia, ensuring consistent latency, reliability, and performance, even under high concurrency and worrying network conditions. Early adoptions from customers around the world have been encouraging, and our pipeline of use cases and prospects continue to grow as we head into next quarter. Our recent Conver AI and RTE conference attracted more than 3,000 on-site attendees, a record for us, and made it the largest gathering focused on conversational AI technology globally. Our customers and developers are deploying our conversational AI solutions to build voice agents for on-bound marketing, inbound customer service, tutoring, and many other applications. Power manufacturers are also integrating our technology into smart toys, enabling voice-powered companionship and learning experiences. In conclusion, the convergence of advanced AI models and robust real-time infrastructure is unlocking a new era of possibilities, backed by proven scalability, deep technology expertise, and a forward-looking product suite. We are well positioned to empower this next chapter, enabling truly human-like, reliable, and scalable voice agents. 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 third quarter of 2025, and then I will discuss outlook for the fourth quarter. Total revenue for the third quarter reached $35.4 million, up 12% year-over-year, representing a third consecutive quarter of double-digit organic growth. If we look at the two business divisions, agro-revenue reached $18.2 million in Q3, representing 15.9% year-over-year growth and flat quarter-over-quarter. A strong year-over-year growth reflects a successful market penetration and growing adoption in verticals such as live shopping. Strong long revenues reached RMB 122.4 million in Q3, up 8.4% year-over-year and 6% sequentially, driven by continuous business expansion and adoption in key verticals such as social, entertainment, and IoT. Dollar-based net retention rate is 108% for Agora and 90% for Shunwo, marking the fourth consecutive quarter of improvement for both businesses. Growth margin for the third quarter was 66%, slightly decreased 0.7% year-over-year and 0.8% sequentially. Moving on to expenses, R&D expenses, were $13.8 million in Q3, increased 52.8% year over year. Army expenses represented 39.1% of total revenues in the closure, compared to 92.7% in Q3 last year. Silver marketing expenses were 6.5 million in Q3, increased 5.6% year over year. So the marketing expenses represented 18.3% of total revenues in the quarter compared to 21.7% in Q3 last year. G&A expenses were 5 million in Q3, decreased 48.4% year over year. G&A expenses represented 14.1% of total revenues in the quarter compared to 30.8% in Q3 last year. Moving on to the bottom line, we delivered net income of 2.7 million in Q3, representing a 7.8% net income margin. This result represents a significant improvement from last year and marks our fourth consecutive quarter of GAAP profitability. Based on our current business momentum and the visibility into the fourth quarter, we expect net income to grow sequentially compared to Q3. Now turning to cash flow, operating cash flow was 0.7 million in Q3 compared to negative 4.6 million last year. Moving on to balance sheet, we ended Q3 with $374.3 million in cash, cash equivalents, bank deposits, and the financial products issued by banks. Net cash outflow in the quarter was mainly due to sharing repurchase of $4.8 million. In the third quarter, we repurchased 5.2 million ordinary shares of 1.3 million ADS, representing 1.4% of our outstanding shares at the beginning of the quarter. Since our board approved the share repurchase program in February 2022, we have repurchased $132.1 million worth of shares through September 30, 2025. The share repurchase program demonstrates our dedication to returning value to our shareholders, balanced with our ability to continue investing in strategic growth opportunities. Now turning to guidance, for the fourth quarter of 2025, we currently expect total revenues to be between 37 and 38 million dollars. compared to 34.5 million in the fourth quarter last year, representing year-over-year growth rate of 7.2% to 10.1%. This all reflects our current and preliminary views on the market and operational conditions, which are subject to change. In closing, I would like to express my gratitude to our outstanding team in Agora and Xinhua, of sustained public revenue growth and profit expansion are a direct reflection of your hard work and strategic focus. Our shareholders, thank you for your continuous trust. We remain focused on executing our roadmap to build a durable, market-leading company as forefront of AI innovation. Thank you all for joining today's call. Let's open it up for questions.

Thank you very much. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by as we compile the Q&A roster. First question comes from the line of Harry Dell from Bank of America, BOFA Securities. Please go ahead.

Thanks, Benjamin, for taking my question. Congratulations on another quarter of public interest growth and solid guidance for the fourth quarter this year. I have three questions. First is regarding the demand outlook. We managed to hear about the key trends in both domestic and international markets. the coming quarters and what are the key downstream sectors that are driving the demand growth and second question is regarding the ai application uh could management share the latest update on the development of ai and also what are the key scenarios that that could drive meaningful revenue contribution in the near term and thirdly it's on the profitability outlook uh share the profitability outlook for both fourth quarter this year and also for 26 on the operating profit level and also the net profit level. Thanks.

All right. I'll take the first two questions and Jim will take the last one. So for the demand in China, the overall demand recovery trend continues with stabilized regulatory environment and demand from social entertainment and education customers rebounded and gradually goes up. Demand from IoT and digital transformation customers are experiencing rapid growth. In US and international markets, live commerce demand continued its rapid growth and other verticals generally show growth as well. The overall growth rate is slightly faster than in China. As to the AI demand and the trend, before I answer the question, I want to first clarify the difference between voice AI and conversational AI. We are actually focused on conversational AI, which is very related to our real-time engagement business. It means the real-time human AI voice interaction. On the other hand, voice AI is a much broader concept. It includes both real-time conversation and non-real-time functionalities, such as audio recognition and generation. The non-real-time use cases are actually much more broad. And non-real-time audio recognition generation is also much more easier to achieve usability and to find practical use cases. So in the past two years, audio generation or text-to-speech has been widely used in non-real-time content production. For example, most of the short video clips people watch today are using AI-generated voiceover. So those have been growing in the last two years in the social media and a lot of other markets. However, when we move to real-time conversation, the complexity of the technology makes the whole experience much more challenging, as I stated in the opening remark, and takes longer to mature and gain adoption. In conversational AI applications, currently, there are three use cases that have progressed to a more advanced stage, namely call center, education, and companionship twice. For these use cases, we already see some customers have moved from proof-of-concept phase to real-world production. Given the vast scale and potential usage of these verticals, we expect the success of these customers will drive broader adoption. We already have customers in production today, but usage is still ramping up. We expect to see some sizable conversational AI revenue in the first half of next year. And hopefully Convoy AI will become a meaningful revenue contributor towards the end of next year.

Okay. Third question. So for Q4 this year, given that Q4 is normally a strong season for us, we expect to achieve GAAP operating profit. So operating profit per season in Q4. And therefore, the GAAP net profit will further grow on top of the So for next year, our target is to achieve GAAP operating profit for the full year of 2026. GAAP net profit, that's, first of all, a big improvement over 2025 already. In terms of the GAAP net profit, that will have some level of uncertainty due to the potential interest rate cut. But under the current forecast, we expect the year over year and that can come improvement over 2025 as well.

Thank you. Just a moment for our next question, please. Next question comes from Rachel Han from CICC. Please go ahead.

Thank you for taking my question. Can you hear me?

Yes.

Hi. This is from CICC. First of all, congrats on the solid growth this quarter, and especially the continued improvement in profitability. I have two questions. First, I noticed that our third quarter revenue came in slightly above the midpoint of the guidance range. Could you give us more color on what drove this solid performance? And my second question is, on the AI side, which downstream applications are showing the strongest momentum so far? In particular, how is the adoption trend for AI companionship toys? And when should we expect these use cases to start contributing to your financial results? Thank you.

Okay, I'll take the first question. So as Tony mentioned in the earlier question, so for Q3, actually, we see pretty strong demand from the U.S. and international market as well as the China market. In the U.S. and international market, live commerce continues to grow very strongly. especially in more developed markets. And the other verticals such as social and FinTech are also going pretty well in Q3. And in China, first of all, we had the summer vacation in Q3, which is generally the strong season. for social apps and also for education, education apps. And in addition, the IoT sector. So smart cameras, smart wearable devices like watches, and also the smart toys are all experiencing very rapid growth.

Yeah, so for the AI sort of use cases side, there are quite strong pipeline of customers and prospects for call centers, including outbound marketing and inbound customer services. For AI companionship toys, we see strong momentum from our customer, RoboPump. Their sales and usage number are quite impressive. And they also started to charge end-user monthly subscription fees, which we believe is a more healthy and sustainable business model and also a breakthrough in similar kind of toys. A couple of other toys manufacturers are also in the process of integrating our solutions and we expect to see them coming to market in the next few months.

Thank you. Okay, thank you for your detailed answers. I wish our company continued growth and success. Thank you.

Thank you.

Our next question comes from Yu Xin from China Security. Please go ahead.

Hi, Amanda. Thanks for taking my question and congrats on the execution quotas and So my first question relates on AI usage. Could you share the sequential growth trend for AI-related usage? And looking at our current customer pipeline, when could we see sign of a meaningful scale for these AI applications? And my second question relates on maybe strategy expansion. We could see some CDN vendors. expanding into edge GPU inference and security. Given our RD infrastructure, can we see a similar path to maybe offer or just cross-sell edge side inference or security features?

Yeah, so conversational AI usage increased by more than 150% on a quarter-over-quarter basis. So it's quite fast. And although, as I mentioned, you know, the voice AI is matured for years already, but the current AI is still at the early stage. And we do see a strong pipeline of customers and prospects. We believe we are not far from more broader adoption and proliferation of voice agents. For the second question, We're not a CDN company, but we do have a global distributed network and a large number of data centers distributed across every major region. So it's a good question. In fact, we have opportunities that are similar, but from a different perspective. Specifically, we're targeting real-time inference services for conversational AI. This is what we build for our own product. This inference service needs to connect with multiple distributed ASR, TTS, large language model service, as well as our self-development and deployed modules in different locations. This kind of capability is a must. to support a call process in a way that it has to be very low latency so that the real-time nature of the interaction could be enabled. Such an infrastructure service of great value to any agent that requires ultra-low latency or real-time inference. So this is also an opportunity we could expand in the future.

Okay, thank you. That's very helpful.

Thank you. Just a reminder, to ask a question, please press star 11 on your telephone keypad. Thank you. There are no further questions. That concludes today's 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's any other questions, please feel free to email the company. Thank you.