Q2 2022 Agora Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day and thank you for standing by welcome to anchor Inc. Second quarter 2022 financial results call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
Also a question during this session you will need to press star one one on your telephone please be advised that today's conference is being recorded.
I would now like to hand, the conference over to MS. Fiona Chin head of Investor Relations. Thank you. Please go ahead maam.
Thank you operator, good evening, everybody and good morning for people in Asia and thank you for joining us for our garage second quarter 2022 earnings conference call.
Our earnings results press release, SEC filings and a replay of today's call can be found on our IR website.
Doctor in a garage or idle joining me today are 20, Joe our founder Chairman and CEO , Jim <unk>, our CFO reconciliations between our GAAP and non-GAAP results can be found in our earnings press release. During this call. We will make forward looking statements about our future financial performance.
And other future events and trends. These statements are only predictions that are based on what we believe today and actual results may differ materially.
Forward looking statements are subject to risks uncertainties.
Sure assumptions and other factors.
That could affect our financial results and the performance of our business and which we discuss in detail in our filings with the SEC, including today's earnings press release, and the risk factors and other information contained in the final prospectus relating to our initial public offering.
<unk>.
Our goal remains no obligation to update any forward looking statements we may make on today's call.
With that let me turn it over to Tony.
Any.
Yes. Thank you.
Hello, and welcome everyone to our earnings call.
Our revenue for the quarter was $41 million.
A decrease of 3% year over year, an increase of 6% quarter on quarter.
Back on the gross truck after regulatory change and our K 12 education sector in China.
During this quarter 33 saw the new application registered on our platform.
At industrial our number of active customers.
You did.
<unk> hundred 80.
Over 400 compared to one year ago.
In the U S.
International markets demand for our real time engagement platforms remain strong.
Our revenue for this segment recorded.
63% increase compared with the same period last year.
With a dollar based net expansion rate.
Suddenly consistently above 130%.
Anytime you want.
Following our announcement of the promotion of several key executives in May I am confident that we are well positioned to enhance our go to market efficiency.
And all local.
<unk> globally.
In recent months.
We have witnessed a strong response to our sub second interactive live streaming product globally.
We believe this product has the potential to disrupt the traditional CDN based live streaming market.
As he delivered large gaming experiences at lower latency in the highly synchronized fashion with only a moderately higher cost.
Well they have several a bunch of our customers in the sport and the gaming live streaming sector.
Powered by this product our customers.
Create a wide range of engaging and interactive experiences for their end users such as tap among audience and engaging live betting.
For example, <unk>.
MDC group.
The largest media company in the Middle East and North Africa.
This product on their social gaming platform Regal to offer our game players high quality interactive live streaming.
And it has become one of the biggest attraction of the video platform.
Please go apart live streaming in place MPC has already seen a 10% increase in user growth.
And South Asia, leading live streaming platform.
Your life is also powered by this product.
We provide the platform technology pipeline, Paul in live streaming and interactive features that enable content <unk> entertainers and influencers to forecast interactive live streaming to their audience and monetize duopolies for consumer transactions from their fab.
We believe this product will substantially enlarge our total addressable market is.
More and more lasting platforms with legacy technology embraced our sub second loves fueling solutions.
Also our new products.
U S and international markets.
Paypal released a golar attack, which is a powerful tool for developers to add Leslie.
Thanks, Joe.
Ah Gortat provide comprehensive features and functions.
Such as rich media messages Leslie.
Leslie it's translation.
Their preference.
Type in particular.
History export Collyn.
Content moderation and much more.
Of course has the broadest compatibility with operating systems and third party fulfillment frameworks among similar messaging API products in the market.
It is also easy to use especially for those who are already using our real time video and voice products.
So we are a full also code developers can seamlessly create immersive and engaging experience for their end users to send messages emojis and multimedia files from within their real time engagement sessions.
I'm also glad to say that <unk> is a perfect illustration of the synergies from our integration of his work over the past year.
By combining small success in providing lessening Apis ASR market.
But across industry, leading global infrastructure.
Able to offer a highly competitive product for customers in the U S and how that is.
The oil markets.
Now, let's move to our business update on China.
Revenue from China, This quarter recorded a 1% quarter over quarter increase as a sofa and Paypal ophthalmic sector was more than compensated for by the growth in other sectors.
Our revenue suffers all of the Cape Hull continue to grow healthily.
Approximately 13% increase compared with the same period last year.
Our leading market position in China has once again demonstrated by IDC recently published report on the video cloud market in California one.
According to the IDC report.
<unk> maintained its number one position RTC solution in China, as a market share greater than the lesser Southern company combined.
<unk> also recorded the largest revenue growth among all players.
In China, we formed a partnership with a title audio video Copper Association.
So loan.
We see it.
The only association appalled by the National Corporate administration to undertake collective rights betterment for copyright unrelated the rights in video and other works in China.
Through this partnership we are now able to provide a one stop solution for our customers to manage the use of music works in their live streaming sessions.
And more importantly in full compliance with the latest copyright laws and regulations in China.
Under our digital rights management system that covers more than 100000 music works in high definition.
Each and everyday usage of this works and our customers application is now truthful.
Our customers can choose from paying per use paint usage or a flat fee with unlimited access and.
And the copper owners will then be duly compensated.
We believe our partnership with VCA and this one stop solution for any profound profile and valuable to our customers and will help make our mega TV our go to product.
Product for the Lora immersive real time Croaky experience in the <unk>.
Before concluding my prepared remarks for this quarter.
I would like to invite all of you to attend our Rte 2022 call centers.
The North American Congress will take place from October to October costs.
You are welcome to join either online or in person in San Francisco.
The Asia Pacific Conference will be held online.
On October 21st two October 104.
We expect to bring the brightest minds in the business and technology is built to explore the future of voice video and Internet of things letter Wars and more.
With that let me turn things over to Jim who will review our financial results.
Thank you Tony.
Hello, everyone.
Let me start by first and resilient financial results for Q2, and then I will discuss our outlook for this fiscal year of 2022.
Total revenues were $41 million in the second quarter of 2022.
A decrease of three 2% year over year, and an increase of six 2% quarter over quarter.
As we mentioned in previous earnings calls.
Our revenue growth this quarter was negatively impacted as new regulation on K 12 tutoring sector in China.
Our revenues from this sector were approximately $1 million in the second quarter of 2022.
212 million from the same period.
On the other had a gross momentum in other geographies and sectors remained solid in this quarter.
In particular revenues from U S.
International markets.
63, 2% year over year, and 13, 4% quarter over quarter to $18 6 million in Q2.
<unk> 45, 4% of our total revenues.
Our trailing 12 months constant currency dollar based net expansion rate is.
95%, excluding his mark.
Specifically.
Expansion rate was about 130% for the U S and international business.
Which remains strong and healthy.
And approximately 80% plus China business, which was negatively impacted by the K 12 sector.
Moving on to costs and expenses.
Well my following comments I will focus on non-GAAP results, which excludes share based compensation expenses acquisition related expenses.
<unk> expenses of acquired intangible assets.
Income tax related to acquired intangible assets.
non-GAAP gross margin fourth quarter.
65, 8%, which was $4, 3% higher than Q2 last year, mainly driven by technical and infrastructural optimizations.
non-GAAP R&D expenses were $27 million in Q2.
And 30% year over year, as we continue to hire talented employees and strengthen our R&D team.
non-GAAP R&D expenses were 56% of total revenues in the quarter.
Compared to 49, 2% in Q2 last year.
Yeah.
non-GAAP sales and marketing expenses were $10 9 million in Q2.
16, 8% year over year, mainly attributable to teams expansion and increased advertising and event expenses.
As we continue to step up our code.
Mark efforts globally.
Sales and marketing expenses represented 26, 6% of total revenues in the quarter.
Compared to $22 one person in Q2 last year.
Okay.
non-GAAP G&A expenses were $7 million in Q2.
23, 1% year over year.
Mainly it is a team expansion.
And the expected credit loss provisions.
G&A expenses represented 17% of total revenues in the quarter.
Compared to 13, 3% in Q2.
Pete.
non-GAAP operating loss was $17 8 million translating to a 43, 4% non-GAAP operating loss margin fourth quarter compared to operating loss margin of 22, 3% in Q2 last year.
Exchange loss was $5 3 million in Q2.
Mainly due to U S dollar appreciation and an increase in the balance of RMB denominated cash and short term investments held by our subsidiaries in Hong Kong with functional currency is U S. Dollar.
In anticipation of funding the RMB two subsidiaries.
China.
Yes.
U S dollar appreciation accurately affected our revenue in China by approximately 4%.
Now turning to the update on land use right purchase.
As we announced on June 28, we entered into an agreement to acquire the land use rights for approximately 42000 square meters of land.
River area.
<unk> District, Shanghai Joint venture has two independent third parties.
We hold a 46% of the equity interest in the joint venture.
The aggregate consideration for acquiring the land use right is approximately RMB two 5 billion.
And we had fully paid our share of consideration in July .
We plan to build a new headquarters on our premises.
Turning to cash flow operating cash flow was negative $23 8 million in Q2.
Compared to negative $8 3 million last year.
Free cash flow was negative $24 2 million compared to negative $11 5 million last year.
Moving onto the balance sheet, we ended Q2 with 641 million in cash cash equivalents and short term investments.
Compared to seven <unk>.
<unk> hundred $18 million at the end of Q1.
Net cash outflow in the quarter was mainly due to free cash flow of negative $24.
All right.
Deposits paid for land use rights purchased.
$74 two minute.
Cash paid for a long term investment of $4 2 million and share repurchase of $12 2 million.
By the end of Q2, we repurchased approximately $9 7 million.
Uh-huh class a ordinary shares.
Trivalent to approximately $2 4 million.
Approximately $19 $8 million.
Representing 10%.
$200 million.
Our share repurchase program.
Yeah.
Now turning to guidance.
COVID-19 is unprecedented variable pricing model, where historical experience may not apply.
Our guidance.
Full year revenues reflects various assumptions that are subject to change based on uncertainty related to the impact of COVID-19 pandemic.
Is that for the full year 2022.
We maintain our previous guidance of total revenues for the full year are expected to be in the range of 176 178 minutes.
Yeah.
In closing.
Execution in the quarter under very challenging macroeconomic economic environment.
Thank you to the entire <unk> team for their hard work and everyone attending the call today.
Hope, you're all healthy and safe.
Let's open it up for questions.
Thank you <unk>.
Minder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the question and answer roster. So once again Thats star one one.
Two questions.
Our first question comes from the line of young Neil from Morgan Stanley .
Yeah.
This open please ask your question hi, thanks for the opportunity.
I have two questions here. The first one is you.
You can imagine to update us how long overdue.
Overseas market demand for our team.
We are especially that the amount of problems start ups.
Because on the.
On the positive side of that with the.
Good pick up in terms of the new customer.
This week.
This quarter.
On the negative side, though we also from time to time here that the overall overseas funding environment.
It's getting tougher and a lot of them.
Startups can now today's Oh could you always are founded in the market.
Could you please update us in terms of what our go right.
On the demand.
And the second question is the gross.
Gross margin because we see a very good pickup.
And gross margins this quarter.
What should be the outlook.
In the second half of this year do you think this is a.
Structural or sustainable trends or is it helped by some one off.
Thank you.
Yeah.
I will take.
On the business.
And.
Customers foundry them.
Et cetera overall.
We do hear some start ups talking about fund raising getting hotter antibody sharing is much lower now, but we don't see a strong we don't have a strong pressure off difficulties from our customer base, we have a more diverse customer base from large or smaller ones.
Some individual case, we see things like customer slowdown their own hiring delayed rollout of new product features or become more selective entrust structural cost is et cetera. I believe this is normal television retailing the buffer on them and we are in today.
In terms of impact to our own business.
Despite the 10 and the tenants I mentioned, just now we see that the overall trend of adoption of real time engagement technology by developers and users remained strong especially for.
Global market.
This is why with steel.
Our strong revenue growth in Q2 in the U S and international markets.
With revenue up.
63% year over year.
We'll continue to monitor the situation closely and see how it takes off.
Okay I'll take your second question GP market so.
In the past six quarters since.
Beginning in 2021.
Back in engineering team hasn't been hit with Claire very hard to optimize our infrastructure costs improve.
Actual design, so that the same task consumed last server and bandwidth resources.
It resulted in very significant reduction.
CHF per minute of video or voice call deliver.
And this is why.
By then.
Decrease in the selling process.
Selling prices of about 10% to 15%, which is normal for our cloud services.
We were still able to improve our GP margin capture.
Capture margin from 58% in Q2 or in Q1 last year.
65% in Q2 this year.
Which is a more than 7% improvement.
So I guess, the most importantly visit.
There was also a small one off factor in this quarter.
This mob.
Mall private cloud business, which has a lower margin this quarter many of their private cloud projects at length is the current situation in China, and just actually had a positive impact on the GP margin because the revenues are.
He led.
Looking forward.
Further future optimization will be harder.
New products, such as integrated CGM will have lower to the market. So we do not expect to be marching to.
Increased significantly.
Future.
It will likely fluctuate from quarter to quarter.
Second half.
Thank you just one very quick follow ups here could you please update us and come off the.
Gross margin in China.
In global market are they quite similar now or do you woke up between the two markets.
Yes, so thats a number we see there.
No no no cap the claim.
Six quarters ago.
So the margin, yes international market was quite a bit lower and now it's a true up with me.
Currently.
The difference between the two markets.
Thank you.
Okay.
Thank you.
Our next question comes from the line of Tim.
<unk> from Nomura. Please ask your question.
Your line is open. Please go ahead.
Oh, Hi, sorry.
Good morning, and management so I.
I have two questions one is about.
How about the trend of the operating expense can you.
Give us more colors on.
The second half, especially about the R&D and sales marketing expense.
The <unk>.
Our expense ratio as well.
As compared to the first half.
And.
And the second question is about a follow up on the overseas market grows.
Can you give us some more color about the revenue and our volume breakdown by application or by the vertical segments.
And.
Do we see any of the negative impact as more people are getting back to work.
Sure.
Okay. So the first question on expenses.
Yeah.
As you can see the financial statements the fastest growing segment expenses in R&D.
I've always invested a lot.
Heavily R&D in the past and we will continue to do so in the future because ultimately this is where this is the foundation of our competitiveness.
On the other hand, we acknowledge.
Challenging economic.
Economic environment.
In China.
Market as well so we intend to.
Got it.
I'm more focused.
When it comes to R&D.
Credit wise, we're focused on products, where we see strong demand such as the second last evening as Tony mentioned in his opening remarks.
We have a strong advantage such as special audio.
Hello.
So this was not as easy as kind of other promising products.
Customer wise, we will focus on large customers.
The smaller local carver really innovative customers will kind of help us product roadmap.
He brings a few shovel does have engagement.
And in terms of the organization.
Internal processes.
Putting our engineers closer to our customers.
So all in all of these initiatives.
Improve our R&D efficiency.
And hopefully as our revenue scale, we will see.
From niche.
In the second half.
Internal sales and marketing.
Increase in sales marketing expenses.
Finally, due to our expansion in the U S International markets.
<unk>.
In China.
This was.
Mostly flat.
We sing.
First marketing expenses overall will continue to increase in dollar terms.
The pace will slow down.
As our revenue scales.
Also as a percentage of revenue.
I want to add.
Another point on the G&A expenses.
In the past three to four quarters.
G&A expenses was.
Oh can be affected by it.
Do you expect is quite lost from customers.
In the K 12.
Sector in China, and now with that behind US we expect G&A.
Also.
In dollar terms.
In quarters.
So is that kind of expenses.
Z.
Uh huh.
Intermountain.
In the international market.
Thank you.
And we see growth from many different geographies and verticals.
Of course.
The strongest one.
You folks number one in this quarter, we saw very strong growth from the middle East.
Transportation in North America.
That means from a vertical.
Application.
E Commerce and social.
Generated the majority of the incremental units.
You mentioned the kind of work.
Duration.
It's true that.
The lack of trend has impacted.
Use cases, such as Uh huh.
Corporation.
Goodbye events.
Chaco exploration.
Yes, guys.
In use cases, like education and E Commerce actually we're continuing to see very strong demand.
Yeah.
Really excited about synergies.
Synergies in E media.
In E Commerce, because these are the verticals where.
Certainly.
Penetrated bachelors application of technology.
But they certainly have a lot of room for adoption in the future.
Tony mentioned.
Sub segment.
Low latency is actually incorrect.
Uh huh.
Got it.
This started to be adopted in the sports live streaming space. So now people are using this technology.
To broadcast live sports games and literally James.
His credentials for constitution.
So overall, we don't see it.
Alright.
Two particular just Chris.
We see very strong adoption across many different regions and use cases.
Thank you.
Once again, ladies and gentlemen, if you wish to ask a question now please press star one one on your telephone.
Okay.
Our next question comes from the line of Alan Lee from J P. Morgan Allen. Your line is open. Please go ahead.
Okay. Thank you management for taking my question. My question is on competition. So we know that some large platforms have shifted their focus from revenue growth to profitability. So just wondering if this is also the case for private competitors and could you give us an update on the.
Compare landscape and also the pricing trend in domestic market. Thank you.
We don't see much change compared to.
Last quarter's call.
Competition landscape.
As you mentioned.
Larger cloud providers as they heard also they renew.
<unk> investment in our field actually.
Maybe partially due to their effort to to shift focus to more profitability. Instead of just revenue growth on private sector. I think there are similar.
And were.
Accomplish all kind of look more on.
On profitability instead of just test the growth.
But overall, there's no huge change compared to last quarter.
Got it thank you.
Again, if you wish to ask a question. Please press star one on your telephone.
Murder is 114 questions.
We have a follow up question from the line of Yang Liu from Morgan Stanley . Please ask your question.
Just one very quick follow up.
FX.
I think management mentioned that China part of the business.
Few percentage or so.
FX.
Negative impact in second quarter.
And currently.
Oh.
Given the tough thing.
All of our U S.
Sure.
Do you think this kind of a trend or this kind of impact will continue in second half.
And also in terms of full year guidance.
Management have been.
Changed it but that doesn't mean that actually.
The company need to deliver a little bit more of that expected the tool.
We reached a number given the FX headwinds.
Yes.
Yes.
Yes, so for Q2.
In fact.
Yes.
RMB.
Generally stayed where it was at the end of Q1, we would have made.
With nearly $1 million more you have me.
The feedback from Q2, so when we give.
Thank you Carlos.
Assuming a constant.
Okay.
Thanks, Greg.
I don't know if Q2, so we have not.
And our doctoring further appreciate it gentlemen.
And you are right.
To deliver the same.
Got it.
Turning to Ricardo.
The full year impact.
If it stays where it is now all of this will be.
Close to $5 million, so that means we need to.
Yeah.
Got it thank you.
Our next question comes from the line of Boris <unk> from Bernstein. Your line is open. Please go ahead.
Hi, Good morning. Thank you for taking my question. This is or has been from Bernstein.
Two questions I would like to ask the first is regarding I think the gross margin performance I think it's a very.
The positive to hear about the reengineering and the pump opportunity just wanted to take this as a one off or is this something that can be.
<unk> continued to gain in terms of further efficiencies on an ongoing basis.
And the second question was broadly.
In the same vein around R&D.
I would like to hear.
A little bit more about how do you think about R&D and <unk> investments in R&D going forward because it seems like you have a lot of.
Good news good use cases.
But does this mean that R&D continues to grow or when we start getting efficiencies.
Nancy.
Over time, thank you.
Yeah.
Okay.
First question on GP margin.
Thanks, Tim.
Income and commencing 2021 was that mostly due to the engineering effort too.
Also a per ton of effort amongst means engineering effort here.
Optimize the technical design. So is that can you do this.
Same thing.
We need less silver.
This war.
We will continue to optimize.
Donald.
But does there.
Diminishing returns.
Oh optimizations, so it will get harder too.
Yeah.
Yes.
Hi.
Yes.
Got it.
Amount of op income and over time, So we'll look at other and that's why we don't we're.
We're not guiding kind of a higher and higher GP margin.
In addition, as I mentioned before our strategy is really to.
How CTG margin instead of.
Trying to.
Maximizing margin wherever we can so that we.
Okay, good enough competitive pressure.
Madison is as well.
So is that to the market.
R&D.
Yes true.
We are both investing for today and making for the future.
Expand globally, we see more use cases, we've seen more.
Vijay.
Macro environment, so we need to you.
Tim.
<unk> performance.
Sure.
Hi.
We also look at a lot of investment for the future.
Good one.
Expand our R&D.
<unk>.
<unk>.
Three years.
August .
A lot of efficiencies.
Looking forward we.
So that's that will be more.
Sockets.
We work hard to remove some other efficiencies.
So simple.
Simple times with remarks on Btu.
As we expand globally.
Right.
There should be very strong.
Operating leverage.
Z technology products.
Products, we build.
Can be leveraged across different used cases across geographies when we.
The application solution, we built in China.
Mr <unk>.
South Asia, absolutely is essentially the same.
Very very little modification. So actually we are seeing Ian there will be a lot of other.
R&D.
So do we.
We do not.
Back on the Q2 right.
Okay.
Okay.
Sure.
Okay.
Greg do you have any follow up question.
Hello, Thank you for that that's very fair.
The positive is there any.
Would you be in a position to maybe guide us on how you're thinking about the sort of the long term steady state R&D and maybe it's also marketing.
Okay.
Yes.
We have always guided that for this business.
We see that in the long term R&D.
Somewhere around 30% of revenue.
Which is a high compared to most SaaS paas business.
This is lee.
A very sophisticated technology.
That's one.
We will maintain this relatively high level of R&D.
And so those marketing.
The other half.
It will be lower given.
We gained two R&D. So we think that will stay at around 20% in myeloma.
That's not a long term steady state.
This is not this year next year.
Perfect. Thank you very much thank you.
Thank you as a reminder to ask a question. Please press star one one.
Okay.
There are no further questions I will now turn the call back to the management team for closing remarks.
Thank you operator, and thank you everybody for attending our call today as a reminder, the recording and the earnings release will be rubella available on our website investor Dot.
<unk> IL.
And if any.
Clearly feel free to E mail it thank you.
Thank you. Thank you.
Alright. Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yes.
[music].
Okay.
[music].
[music].
[music].
Good day and thank you for standing by welcome to anchor Inc. Second quarter 2022 financial results call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
That's a question during this session you will need to press star one one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to MS. Fiona Chin.
Head of Investor Relations. Thank you. Please go ahead ma'am.
Thank you operator.
Good evening, everybody and good morning for people in Asia, and thank you for joining us for our garage second quarter 2022 earnings conference call.
Our earnings results press release, SEC filings and a replay of today's call can be found on our IR website at Investor day, a gradual idle joining me today are 20, Joe our founder Chairman and CEO , Jean Paul Wang our CFO reconciliations between our GAAP and the non.
non-GAAP results can be found in our earnings press release. During this call. We will make forward looking statements about our future financial performance and other future events and trends. These statements are only predictions that are based on what we believe today and actual results may differ materially.
Forward looking statements are subject to risks uncertainties.
Sure assumptions and other factors.
That could affect our financial results and the performance of our business.
We discuss in detail in our filings with the SEC, including today's earnings press release, and the risk factors and other information contained in <unk> final prospectus relating to our initial public offering.
<unk> no obligation to update any forward looking statements we may make on today's call.
With that let me turn it over to Tony.
Any.
Yes. Thanks.
Hello, and welcome everyone to our earnings call.
Our revenue for the quarter was $41 million.
Chris up 3% year over year, and an increase of 6% quarter over quarter.
Bring me back on the growth track after rapidly for a change in our K 12 education sector in China.
During this quarter. So there's free saw the new application registered on our platform.
At industrial our number of active customers.
He did.
880.
Or 400 compared to one year ago.
In the U S.
International markets demand for our real time engagement platforms remain strong.
Our revenue for this segment recorded.
63% increase compared with the same period last year.
With the dollar based net expansion rate.
Suddenly consistently above 130% pardon.
Anytime you want.
Following our announcement of the promotion of several key executive in May I am confident that we are well positioned to enhance our go to market efficiency and expand our local <unk>.
<unk> globally.
In recent months.
We have witnessed a strong response to our sub second interactive live streaming product globally.
We believe this product has the potential to disrupt the traditional CDN based large screening market.
As we can deliver our lives building experiences at lower latency in the highly synchronized fashion with only a moderately higher cost.
Well it has several a bunch of our customers and thus for in the gaming live streaming sector.
Powered by this product.
Our customers.
Eight a wide range of engaging and interactive experiences for their end users such as tap among audience and engaging live betting.
For example, MDC group.
Largest media company in the Middle East and North Africa.
This product on their social gaming platform diesel to offer our game players high quality interactive live streaming and it has become one of the biggest attraction of the video platform.
Although a hard live streaming in place MPC has already seen a 10% increase in <unk>.
User growth.
And it's also Asia, leading live streaming platform Polo life is also powered by this product.
We provide the platform technology pipeline.
Paul in live streaming and interactive features.
Enable content creators and.
And influencers to forecast interactive live streaming to their audience and monetize duopolies for consumer transactions from their first.
We believe this product will substantially enlarge our total addressable market as more and more lasting platforms with legacy pathology embrace our sub second large screen solutions.
But also our new products.
U S and international markets.
Beta released a golar attack.
It's a powerful tool for developers to add unless it into any application.
Ah Golar attack provide comprehensive features and functions.
Rich media messages.
Leslie it's translation.
It was their preference and type in particular.
History export.
Carlos on the moderation and much more.
<unk> has the broadest compatibility with operating systems and third party fulfillment catalogs, among similar messaging API products in the market.
It is also worth easy to use especially for those who are already using our real time video and voice products.
So our whole also cold dark horse kind of seamlessly create.
Immersive and engaging experience for their end users to send the message emerges and multimedia files from within their real time engagement sessions.
Im also glad to say that <unk> is a perfect demonstration of the synergies from our integration of <unk> over the past year.
By combining its morphing Suez in providing lessening Apis ASR market with.
It's a growth industry, leading global infrastructure.
To offer a highly competitive product for customers in the U S and international markets.
Now, let's move to our business update in China.
Revenue from China in this quarter recorded a 1% quarter over quarter increase as a shortfall in total authentic total sector was more than compensated for by the growth in other sectors.
Our revenue in suffers other than Cape Hull continues to grow healthily.
Approximately 38% increase compared with the same period last year.
Our leading market position in China has once again demonstrated by IDC recently published a report on the video cloud market in Pone hundred one.
According to the IDC report.
<unk> maintained its number one position RTC solution in China.
Market share greater than the NASA Southern company combined.
<unk> also recorded the largest revenue growth among all players.
In China, we formed a partnership with China audio and video Copyright Association.
Also lower as we see it.
The only association upon by the National Copyright administration to undertake collective rights management for Coker right unrelated to Reits and other works in China.
Through this partnership we have.
Now able to Hawaii, one stop solution for our customers to manage their use of it works in their lifestyle and fashion.
And more importantly in full compliance with the latest copyright laws and regulations in China.
Under our digital rights management system that covers more than 100000 music works in high definition.
Each and every usage of this works in our customers' application is now truthful.
Our customers can choose from paying per use paint usage or a flat fee with unlimited access.
All of our owners will then be duly compensated.
We believe our partnership with VCA and this one stop solution bring profound profile and valuable to our customers and will help make our <unk> go through product for the Lora immersive real time karaoke experience in the megawatts.
Before concluding my prepared remarks for this quarter.
I would like to invite all of you to attend our our team in 2022 call centers.
The North American Conference will take place from October 10th two October 12 in.
And you're welcome to join either online or in person in San Francisco.
The Asia Pacific Conference will be held online from October 21st to October 100 Force.
We expect to bring the brightest minds in the business and technology field to explore the future of voice video and Internet of things <unk> and more.
With that let me turn things over to Jim who will review our financial results.
Thank you Tony.
Hello, everyone.
Let me start by first reviewing financial result for Q2, and then I will discuss our outlook for this fiscal year of 2022.
Total revenues were $41 million in the second quarter of 2022.
A decrease of three 2% year over year and an increase.
6.2% quarter over quarter.
As we mentioned in previous earnings calls.
Our revenue growth this quarter were negatively impacted by the new regulation on K 12 tutoring sector in China.
Our revenues from this sector or approximately $1 million.
In the second quarter of 2020 compared to 12 million from the same period.
On the other half our growth momentum.
Rohit and sectors remained solid in this quarter.
In particular revenues from U S and international markets.
63, 2% year over year, and 13, 4% quarter over quarter to $18 6 million in Q2.
Representing 45, 4% total revenues.
Our trailing 12 month constant currency matched.
Andrew It is.
95%, excluding his model.
Specifically.
Expansion rate was about 170% for the U S and international business.
Which remains strong and healthy.
And approximately 80% plus China business, which was negatively impacted are the K 12 sector.
Moving on to cost and expenses.
Well my following comments I will focus on non-GAAP results, which exclude share based compensation expenses acquisition related expenses.
Positioning expenses of acquired intangible assets.
And income tax related to acquired intangible assets.
non-GAAP gross margin first quarter.
65, 8%, which was $4, 3% higher than Q2 last year, mainly driven by technical and infrastructural optimizations.
non-GAAP R&D expenses were $27 million in Q2.
70% year over year, as we continue to hire talented employees and strengthen our R&D team.
non-GAAP R&D expenses were 56% of total revenues in the quarter.
Compared to 49, 2% in Q2 last year.
non-GAAP sales and marketing expenses were $10 9 million in Q2 up 16, 8% year over year, mainly attributable to teams expansion and increased advertising and event expenses.
As we continue to step up our go to market efforts globally.
Sales and marketing expenses represented 26, 6% of total revenues in the quarter.
Compared to 22, 1% in Q2 last year.
Okay.
non-GAAP G&A expenses were $7 million in Q2 'twenty.
23, 1% year over year.
Well it is a team expansion.
An expected credit loss provisions.
G&A expenses represented 17% of total revenues in the quarter.
In terms of 13, 3% in Q2 last year.
non-GAAP operating loss was $17 8 million translating to a 43, 4% non-GAAP operating loss margin fourth quarter.
Compared to operating loss margin of 22, 2% in Q2 last year.
Exchange loss was $5 3 million in Q2.
Mainly due to U S dollar appreciation and an increase in the balance of RMB denominated cash and short term investments held by our subsidiaries in Hong Kong with functional currency and you guys told me you.
In anticipation of funding the RMB two subsidiaries.
Anna.
In addition, U S dollar appreciation accurately affected our revenue in China.
<unk>, 4%.
Now turning to the update on land use right purchase.
As we announced on June 28, we entered into an agreement to acquire the land use rights for approximately 42000 square meters of land.
River area.
Oh, Yes with district, Shanghai Joint venture has two independent third parties.
We hold a 46% of the equity interest in the joint venture.
The aggregate consideration for acquiring the land use right is approximately RMB two 5 billion.
And we had fully paid all share of consideration in July .
We plan to build a new headquarters on our premises.
Turning to cash flow operating cash flow was negative $23 8 million in Q2.
Compared to negative $8 3 million last year.
Free cash flow was negative $24 2 million compared to negative $11 5 million last year.
Moving onto the balance sheet, we ended Q2 with $641 million in cash cash equivalents and short term investments.
Compared to seven <unk>.
$18 million at the end of Q1.
Net cash outflow in the quarter was mainly due to free cash flow of negative $24.
Hello.
Deposits paid for land use rights purchased.
$74 two minute.
Cash paid for a long term investment of $4 2 million and share repurchase of $12 2 million.
By the end of Q2, we repurchased approximately $9 7 million.
Uh-huh costly ordinary shares.
Covenant to approximately $2 4 million.
Approximately $19 $8 million.
Representing 10%.
200 million.
Our share repurchase program.
Yeah.
Now turning to guidance.
COVID-19 is unprecedented variable business model.
Our historical experience.
Uh huh.
Our guidance on full year revenues reflects various assumptions.
To change based on uncertainty related to the impact of the COVID-19 pandemic.
Was that for the full year 2022.
We maintain our previous guidance of total revenues for the full year I expect it to be in the range of 176 $178 million.
In closing.
Execution in the quarter under very challenging macroeconomic economic environment.
Thank you to the entire core team for their hard work and.
Everyone attending the call today.
Okay, all healthy and safe.
Let's open it up for questions.
Yeah.
Thank you <unk>.
Binder to ask a question you will need to press star one one on your telephone please standby, while we compile the question and answer roster. So once again Thats star one one.
Four questions.
Our first question comes from the line of young Lille from Morgan Stanley .
Yeah.
This open please ask your question.
First of all the opportunities.
I have two questions here the first one is.
Can imagine to update us and come off the.
Overseas market demand for our team.
Especially the demand from start ups.
Because on the on the positive side, we see.
Good pickup in terms of the new customer.
This week.
This quarter, but on the negative side of that.
So from time to time here that the overall overseas funding environment.
It's getting tougher under a lot of startups cannot raise equity always founded in the market.
Could you please update us in terms of what our garage.
On the demand.
And the second question is the gross.
Gross margin because we feel very good pick up.
In gross margin this quarter.
What should be the outlook.
In the second half of this year do you think this is the.
Structural or sustainable trend or is it helped by some one off benefit. Thank you.
Yeah.
I'll take the.
The business.
Trends are.
Our customer for some reason.
Et cetera.
<unk>.
We do hear some startups talking about fund raising getting hotter and evaluation is much lower now.
We don't see.
We don't have a strong pressure I'll speak recoveries from our customer base only half of our diverse customer base from large two of our smaller ones.
In some individual case, we see things like customer slowdown their home hiring delay the rollout of new product features.
Become more sensitive infrastructure cost et cetera, I believe this is normal given the challenging macro environment. We are in today.
In terms of impact to our own business.
Despite the 10 and the tenants I mentioned, just now we see that the overall trend of.
Adoption of real time engagement technology.
Eight of our person and users remained strong especially for.
Global market.
This is why with steel.
Our strong revenue growth in Q2 in the U S and international markets.
With revenue up.
63% year over year.
We'll continue to monitor the situation closely and see how it takes off.
Okay I'll take the second question to the market so.
In the past six quarters it seems plenty.
Beginning in 2021.
And engineering team hasn't been anywhere close or hard to optimize.
Infrastructure costs improve.
Architectural design, so that sustained task consumed last summer and bandwidth resources.
Resulted in very significant reduction.
<unk> per minute pump video or voice call deliver.
And this is why.
By then.
Decrease in selling process.
Selling prices of about 10% to 15%, which is normal for our cloud services.
We were still able to improve our GP margin on non-GAAP chicken margins from 58% in Q2 in Q1 last year.
65% in Q2 this year.
Which is a more than 7% improvement.
So I guess it is the most important reason.
There was also a small one off factor in this quarter.
Mob, although small.
Paul private cloud business, which has a lower margin.
This quarter many of their private cloud projects are delayed due to the current situation in China.
Actually had a positive impact on the GP margin because the revenues are.
<unk>.
Looking forward.
Further future optimization will be harder.
New products, such as integrated CGM will have lower to the market. So we do not expect to be marching to.
Increased significantly.
Future.
It will likely fluctuate from quarter to quarter in the second half.
Thank you just one very quick follow up here could.
Could you please update us and come off the gross margin in China.
And global market very quite similar now or do a gap between the two markets.
Yes, listen number we see there.
non-GAAP claim.
Six quarters ago.
So the margin, yes international market was quite a bit lower and now throughout this meeting.
Apparently there is no real difference between the two markets.
Thank you.
Okay.
Thank you.
Next question comes from the line of.
<unk> <unk> from Nomura. Please ask your question.
Ben Your line is open. Please go ahead.
Oh, Hi, sorry.
Hi, Good morning management so.
I have two questions one is about.
How about the trend of the operating expense can you.
Give us more colors on.
The second half, especially about the R&D and sales and marketing expense.
The <unk>.
Our expense ratio as a.
As compared to the first half.
And.
And the second question is about a follow up on the overseas market grows.
Can you give us some more color about the revenue and our volume breakdown by application or by the vertical segments.
And.
Do we see any of the negative impact as more people are getting back to work. Thank you.
Okay. So the first question on expenses.
As you can see in the financial statements the fastest growing segment expenses due to R&D, we have always invested a lot.
Heavily R&D in the past and we'll continue to do sort of in the future.
Ultimately this is where the foundation of our competitiveness.
On the other hand, we acknowledge the chat.
Challenging macro economic environment in the U S in China, the other markets as well so we don't intend to.
Got it.
I'm more focused.
When it comes to R&D for example, credit wise, we're focused on products, where we see strong demand such as the second last tuning as Tony mentioned in his opening remarks, or where we have a strong advantage such as pay for all of you.
Hello.
It looks like this one as long as he's kind of other promising products.
And customer wise, we will focus on large customers.
And.
The smaller the small cohort.
Innovative customers, who can help us drive our roadmap and the.
The future does have engagement.
And in terms of the organization will turn.
Turnover processes.
Engineers closer to our customers.
So all of these initiatives.
We'll improve our R&D efficiency.
As our revenue scale, we will see.
That percentage dropping.
The drop in the second half.
Our sales and marketing.
The increase in sales and marketing expenses were mainly due to our expansion.
International markets.
In China actually.
It was.
Mostly flat.
We sing.
First marketing expenses overall will continue to increase in dollar terms.
The pace will slow down.
As our revenue scales.
Also a co op as a percentage of revenue.
I won't do it.
Another point on the G&A expenses.
In the past three to four quarters.
<unk> expenses was.
Maggie affected badly.
We expect this quite lost from customers.
In the K 12.
Sector in China, and now with that behind US we expect G&A.
Also.
Drop in dollar terms in the coming quarters.
So does that comp expenses.
Z.
Uh huh.
<unk> U S and the international.
<unk> market.
Thank you.
And we'll see growth from many different geographies and verticals.
The strongest one.
You folks number one and this quarter, we saw very strong growth from the Midwest.
Southeast Asia and North America.
And in terms of vertical.
Education.
Media.
E Commerce, yes.
Social channels.
Ken.
Cardiology incremental uses our platform.
You mentioned the kind of.
Back to work.
Situations.
It's true that.
Backup where comed has impacted.
Use cases, such as Uh huh.
Collaboration.
Good for current events.
Chicago or correct sessions.
Yes, guys.
And used cases like <unk>.
Patient and e-commerce.
We're continuing to see very strong demand.
Yeah.
Particularly excited about synergies.
Synergies in E media.
In e-commerce, because these are the verticals there.
Historically.
Understood.
And the technology.
They certainly have a lot of false of adoption in the future.
Tony mentioned.
Second.
Hello, Latencies action and predict.
Uh huh.
Got it.
We're starting to be adopted in the sports live streaming space. So now people are using this technology.
To broadcast live sports games, and we believe there is a.
His credentials to close in the future.
Sure.
So overall, we don't have it right.
Two particular, just Chris we.
We see very strong adoption across many different regions and use cases.
Thank you.
Once again, ladies and gentlemen, if you wish to ask a question now please press star one one on your telephone.
Yeah.
Our next question comes from the line of Alan Lee from J P. Morgan Allen. Your line is open. Please go ahead.
Okay. Thanks management for taking my question. My question is on competition. So we know that some large platforms have shifted their focus from revenue goes to profitability. So just wondering if this is also the case for private competitors and could you give us an update on the.
Compare landscape and also the pricing trend in domestic market. Thank you.
We don't see much change compared to.
Last quarters.
Competition landscape.
As you mentioned.
Larger called providers I believe you've heard also.
<unk> investment in our field actually.
Partially due to their effort to to ship to focus to more profitability. Instead of just revenue growth on private sector. I think there are similar.
10 were.
Accomplish all kind of look more on.
On profitability instead of just just for growth.
But overall there is no huge compared to last quarter.
Got it thank you.
Again, if you wish to ask a question. Please press star one one on your telephone.
Murder Star one one for questions.
We have a follow up question from the line of young Li from Morgan Stanley . Please ask your question.
Okay.
Very quick follow up.
FX.
I think management mentioned that China part of the business.
Few percentage or so.
FX.
Negative impact in second quarter.
And currently.
Given the sustained.
Wrong of the USD.
All right.
Do you think this kind of a trend or this kind of impact will continue in the second half.
And also in terms of full year guidance.
<unk> management would be paying is unchanged, but that doesn't mean that actually.
The company to deliver a little bit more than expected at two two.
We reached a number given the FX headwinds.
Yes.
Yes.
Yes, so for Q2.
FX.
Yes.
RMB.
<unk> stayed where it was at the end of Q1, we would have made.
With nearly 1 million more revenue.
The feedback from Q2, so when we give full year.
Carlos we are assuming a constant.
Okay.
Excellent.
Okay.
Q2 non.
Perfect.
And I'll talk during any further appreciation on U S dollar.
And Youre right.
To deliver the same.
Target revenue.
Turning to Ricardo.
The full year impact.
If it stays where it is now it.
It will be.
Close to $5 million.
Thank you Simon.
Simon go some more.
Okay.
Got it thank you.
Our next question comes from the line of Boris <unk> from Bernstein. Your line is open. Please go ahead.
Hi, Good morning. Thank you for taking my question. This is or has been from Bernstein.
Two questions would love to ask them. The first is regarding I think the gross margin performance I think.
Very positive to hear about the reengineering and the POS opportunity just wanted to check if it's a one off or is this something that can be.
<unk> continued to gain in terms of further efficiencies on an ongoing basis.
And the second question I had was broadly the same vein around R&D.
I would like to hear a.
A little bit more about how do you think about R&D and <unk> investments in R&D going forward because it seems like you have a lot of.
Good news good use cases.
But does this mean that R&D continues to grow.
When you start getting efficiencies in R&D.
Overtime. Thank you.
Okay.
Okay.
First question on GP margin.
This plan.
Income implementing plenty of 21 was that mostly due to the engineering effort to Oh.
Also of particular effort amongst many engineering effort too.
Optimize the technical design, so is that to do that.
<unk> Zhang.
We need to last several analyst resources.
Sure.
We're continuing to optimize.
Hum.
But.
It was just a diminishing return.
Oh, Oh, Oh optimizations, so it will get harder.
<unk>.
Yes.
Okay.
Yeah.
And the same amount of op income and over time, So we'll look at other and Thats why.
We're not guiding kind of a higher and higher margin.
In addition, as I mentioned before our strategy is really to work.
Kip, how CTG margin instead of.
Trying to match.
Maximizing margin whenever we can.
We can keep the enough competitive pressure.
With this as well.
So is that to the market in terms of.
R&D.
Sure.
Yes true.
We are both investing for today and for the future.
And globally, we see more use cases, we see more.
And what's different.
Macro environment, so we need to.
To optimize the performance.
Hi.
He also led a lot of investment for the future.
Lee.
Dan.
Our new team.
So macro must wait times.
Three years.
Obviously, there are a lot of inefficiencies.
So looking forward.
That's right it will be more focused.
We'll work hard to remove some other efficiencies.
So in simple terms with <unk> R&D team.
As we expand our question globally.
Uh huh.
There should be very strong.
Operating leverage to hit lot of the technology omni.
Product we build.
Can be leveraged across different used cases across geographies when we.
The education solution, we build in China.
Eastern Europe , who might go to.
South Asia, absolutely essentially the same product with very very little modification. So actually we are seeing Ian there will be a lot harder.
R&D.
Average.
We do not.
Back on the Q2 right.
Okay.
Mr. Ravi.
Okay.
Alright, sorry, do you have any follow up question.
Thank.
Thank you for that.
Very positive.
If any.
Would you be in a position to maybe guide us on how you're thinking about the sort of the long term steady state R&D and maybe selling some marketing.
Okay.
Yes.
We have always guided that for this business.
We see that in the long term R&D.
Somewhere around 30% of revenue.
Which is a high compared to most SaaS paas business.
Yes.
Yes.
Go ahead technology.
And.
That's what I was saying.
We will maintain this.
The high level of R&D.
<unk>.
And sales and marketing.
The other half.
Be lower given.
The advantage we gained through R&D. So we think that will stay at around 20% in a moment.
Okay.
Hum status there.
This year or next year.
Okay. Thank you very much thank you.
Thank you as a reminder to ask a question. Please press star one one.
Okay.
There are no further questions I will now turn the call back to the management team for closing remarks.
Thank you operator, and thank you to everybody for attending our call today.
As a reminder, the recording and the earnings release will be available on our website investor Dot Eduardo IL.
Next.
Questions clearly feel free to E mail us thank you.
Thank you. Thank you.
Yes.
Alright. Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.