Q3 2022 Agora Inc Earnings Call
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Good day and thank you for standing by welcome to the a garage Inc. Third quarter 2022 financial results Conference call.
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Fiona Chin head of Investor Relations. Thank you. Please go ahead ma'am.
Thank you operator.
Every one and thank you for joining us where I grew up in third quarter of 2022 earnings Conference call. Our earnings results Press release F. E C filings and a replay of today's call can be found on our IR website at investor a dog or a dual I O. Joining me today are Tony Jones, founder Chairman and CEO Jim.
Hold on 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 and these statements are only predictions that are based on what we believe today and actual results may differ materially.
These forward looking statements are subject to risks and uncertainties.
The 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 our final prospectus relating to our initial public golf.
A friend of ours.
No obligation to update any forward looking statements. We may make on today's call with that let me turn it over to Tony.
Texas.
And welcome everyone to our earnings call.
Although revenue for the quarter was $41 million, a decrease of 9% year over year and flat quarter over quarter.
This quarter 76 solid.
Patients registered on our platform and our total number of registered applications exceeded half a million.
At the end of September our number of active customers was close to three solvent.
More than 400 compared to one year ago.
In the past few quarters, we faced.
Greenlee challenging operating environment.
Revenue was five restrictive regulations in certain markets.
Which was the main reason behind year over year revenue do Chris.
More recently.
Inflationary pressure.
So as rate hikes continued turbulence and global capital market have impacted some of our customers.
And their ability to raise funding.
Which in turn limited their usage of our products.
Lastly, the appreciation of the U S. Dollar also had a negative impact on our non U S dollar.
Related revenues.
Despite those macro changes.
Despite those macro challenges, we continue to see strong demand for our products for new use cases, such as live videos, which didn't really exist in the U S market 18 months ago.
As we have seen again and again our history really.
Engagement technology can transform.
Line activity and make it a more immersive.
This is why we remain optimistic about the long term potential of our technology and products.
However, the market environment will likely remain volatile for some time.
To cope with such uncertainties, we must remain nimble laser focused.
Entrepreneurialism.
In recent months, we have been working hard to improve our operational efficiency and focus our efforts on priorities, including it has.
It has in the quality of experience and ease of use all of our core products.
I mean, our go to market efforts and winning benchmark customers.
We have also made a few management changes to streamline all of them I appreciate it.
Fuels redundancies.
Including appointing Mr. Sean Zhang our chief scientist since 2018 to take on an expanded role as our Chief Technology officer to oversee our global R. M D.
Organization.
Lots of malls, we also made the difficult decision to restructure and reduce our global workforce.
Here I would like to thank again, those impacted friends and colleagues for their contribution along our journey.
Jim will discuss the financial impact of the reduction of the reduction in his remarks.
I believe those tools will help us navigate the uncertainties in the near term.
And with the right focus on execution I think we are well positioned to gain market share and emerge from this challenging period stronger than ever.
Well, we own tool.
I'm thrilled to announce that in this quarter. They officially launched our next generation real time engagement, the SDK, whereas full point, all which has major upgrades in three key areas.
Namely more flexible simpler to use and the more powerful.
First on flexibility.
Our SDK for point all eyes are open on the modular architecture by design.
It breaks down the entire transfer.
Transmission path into dozens of loosely coupled components with standardized interface for each module.
First now enjoys much more granular control over the media pipe to create the optimal optimal experience for their specific use case.
That's on simplicity.
With just a few lines of code developers can easily integrate a wide range of first party and third party extensions with rich and engaging features such as audio and video effects. What's your firearms transcription content moderation spatial audio AI noise suppression and more.
Being flexible and easy to use does not mean any compromise on performance for.
We'll use cases that require high torque SDK 4.0, now supports the op two <unk> video at 60 frames per second.
Figure 4.0 also supports multiple media sources from one single user which is perfect for use cases, such as online properly.
Online Procter ran all professional music live streaming.
For those that require highly synchronized transmission at ultra low latency such as online karaoke, we kind of combine them. They were also on track to all participant precisely at the same time.
With our next generation of SDK developers will be able to create innovative and immersive applications.
Faster speed than ever before.
No.
Onto a new use cases.
The first one is like when you go shopping which is growing very fast and we are already have a.
We already have several benchmark customers for example, a leading collectibles auction marketplace Leverages all leverage our platform to hold live auctions through real time video.
It feel describes the marketplace at a cost between live streaming platform change and the auction site ebay.
It provides real time auctions, where customers can engage with the centers.
Each other in a fast paced environment.
Our option can be completed.
As fast as certain second.
The second one is professional social networking a global leading professional social network is leveraging our technology to par it's live audio Taiwan.
This rules for wide credit person. He was one of the service the ability to have live interactive conversations with people all over the world.
Users can enjoy the speakers onstage and make border network not working connections post event.
Our quality in all of the technology and the global coverage throughout the ward there shore's.
Premium quality perfectly matching their position as a professional social network.
Moving onto our RPT conference.
In October and November we hosted our iconic global RPE conferences for the Ace.
Constructive year.
Where do I first customers.
Leaders from over 100 countries joined together to discuss data as pets and explore the future off real time engagement.
Nearly 500 people attended in person sessions.
Person program in San Francisco.
Coastal tenants all the more registered for online sessions and the total number of session meals exceeded 500 as follows.
This year also marks the first part that we hosted a dedicated Rte APAC conference.
Which has been well received.
With a ton of data by local participants.
Here I would like to highlight some of the observations key messages from the conference.
First.
Their experience.
It has continued to build across use cases, and the geographics that all of our customers' business success is profoundly depend on the end user experience that they can deliver.
For example.
Mall increase freeze rate artist tidal wave will reduce user session lengths and retention rates.
I noticed the pressure for in game team Aldo chat.
Significantly increased session lengths.
Therefore, it is paramount for developers to partner with the most capable and reliable RP provider in order to have the most advanced of building blocks.
<unk> real time engagement experiences.
Second on the trend of high definition video.
We expect to see the mainstream leading restaurants here in real time engagement steadily increase from for ADP to 77000 AP in response.
To end users growing demand for better quality.
Based on the usage of our platform.
Other things being equal changing lido russelsheim form for ADP to 720 P leads to us.
Approximately 15% increase overall, especially less.
In case local network conditions are not accommodate their card and west.
Our Super resolution all of them can take care of the tissue by enhancing leading resolution through the same thing to us with only a 3% increase in CPU and memory usage.
This upgrade in video quality and experience will bring more business opportunities for our customers and for us as.
As we have already seen a huge leap in southern Philippines sessions since the beginning of this year.
Lastly, on the trend of adding our team's capabilities to Iot device.
We are seeing that with our team features are generally are generally sold at higher premium compart call part of its planned vanilla modal.
All such capabilities.
Examples include Paas heaters, which cover us for real time video.
Treadmills and voting machines, where scripts for live streaming classes.
Studying labs with our projection capabilities, enabling students to collaborate with their classmates.
This type of human touch is only possible SaaS to our teeth apologies.
Lately, there's experiences whether it be one of the fundamental drive drivers of Iot's future calls.
Before concluding my prepared remarks for this quarter.
I want to say that all our Lawrence for your hard work and commitment during this challenging period.
The fundamentals and long term potential of real time engagement technology remains the same despite the turbulence.
Despite the turbulent market environment.
Yeah, neither or optimistic or overly.
Pessimistic.
The future of our industry.
And we are still in the early stage of building a great company.
A somewhat less that.
Today. It is difficult tomorrow is even harder the day after that will be great. Although most people will be that before that.
I'm confident in our strategy for growth and our ability to help a girl succeed.
Your ability to help Alcoa succeed.
What we need to keep keep excluding with determination and focus.
You all.
With that let me turn things over to Tim Boyle, who will review our financial results.
Okay.
Thank you Tony.
Hello, everyone.
Let me start by first reviewing our financial results for Q3, and then I will discuss I'll look for the fiscal year of 2022.
Total revenues were 41 minute you know third quarter was 2022.
<unk>, 9% year over year.
Flat compared to last quarter.
Year on year decrease was mainly due to stricter regulations.
That's.
Which was offset in part by revenue growth in other sectors and regions.
If we look at Q3 versus Q2 this year.
The reason the interest rate hikes, and Cochrane Hill financing environment have impacted some of our customers and partners.
But I did when I founded.
When she got reduced to usage.
Level.
In addition, the continued appreciation of U S. Dollar has impacted all non U S dollar denominated revenues.
Translated into U S dollar amount.
Our trailing 12 month constant currency all of it.
Based on that expansion rate is 84% excluding east mob.
Especially all of our parents can match pressure right.
130% for the U S and international business.
We should remain strong and healthy.
And approximately 70%.
China business, mainly due to the strict regulation have you sort of markets.
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.
Financing related expenses.
It's actually expenses of acquired intangible assets.
And income tax related to the acquired intangible assets.
non-GAAP gross margin for the third quarter was 59 point.
8%.
It was five 7% lower in Q3 2021.
Mainly due to increased revenue.
Broadcast streaming product, which contributed approximately 80% of total revenues in the quarter.
And at a lower cost market.
Yeah.
As Tony mentioned, just now we made the difficult decision to restructure and reduce our global workforce last month.
Yeah associated severance costs of 3.2 minute are reflected now for us.
<unk> expenses in Q3.
We also reduced our operating expenses such as rental benefits software and that's what I mean.
Together, we expect to see roughly $9 million of cash savings on quarterly non-GAAP operating expenses in Q4.
Okay sorry.
non-GAAP R&D expenses were $25 2 million in Q3.
Which included a provision of severance costs of $1 nine minutes.
If we exclude the severance costs at pro forma R&D expenses.
Approximately 14% from Q2 this year.
non-GAAP R&D expenses was 61, 4% of total revenues in the quarter.
<unk> 59.
And 9% in Q3 last year.
non-GAAP sales and marketing.
We're tracking it closely.
Up 17, 7% year on year.
Mainly due to team expansion in the U S.
And certain international markets.
And increased advertising and event expenses.
Sales and marketing expenses represented 31, 8% of total revenues in the quarter.
Net of 24, 6% last year.
non-GAAP G&A expenses.
Seven 4 million in Q3.
I think one 9% year over year.
Finally, the entertainment expansion in Europe .
G&A expenses.
The 18, 1% of total revenue in the quarter.
Compared with 15, 1% in Q3 last year.
non-GAAP operating loss was 18 seven minutes.
Personally I think two or.
$45 seven non-GAAP operating loss margin fourth quarter.
Compared to operating loss margin of 24, 6% and keeps me last year.
Now turning to cash flow.
Operating cash flow was negative $8 8 million in Q3.
Patrick.
14 million last year.
Free cash flow was nine.
$9 nine compared.
Compared with $15 6 million off here.
Oh, yeah on the balance sheet.
And as Q3 with 200.
H T and screaming and cash cash equivalents and investments.
Compared to 641 minute.
Q2.
That's cash outflow in the quarter was mainly due to a free cash flow on that to $9 nine minutes.
Prepayment Orlando purchase.
137 point for a minute.
A lot of deposit refunded.
Cash paid for long term investments of three point of women.
And share repurchase of three point a woman.
I think end of Q3, we repurchased.
Approximately $13 $2 million of our ordinary.
Ordinary shares equivalent to approximately 3.3 million yes.
For $23 $2 million, representing 12% of our.
One remaining share repurchase program.
Now turning to guidance.
COVID-19 is still unknown unprecedented vulnerable well it doesn't matter where historical experience may not apply.
All guidance, our full year revenues.
Flex various assumptions.
To change based on uncertainties.
Due to the impact of the COVID-19 pandemic.
In addition tried angie macroeconomic environment, and the turbulence and global capital markets.
It impacted some of our customers.
And Aaron.
Funding machine term because he could limit.
Is it a product.
What's that.
We expect total revenues for the three of 2022.
Well, I don't know 61 or $62 million.
In closing we.
Tough decision in this quarter.
There are challenges.
The macroeconomic environment.
Looking forward well stick to our long term strategy.
Laser focus on key priorities.
And continuing to improve operational efficiency.
When the right focus and execution.
I believe we're well positioned to gain market share and emerge from this challenging period stronger than ever.
Thank you to the entire team for their hard work.
And thank you everyone for attending the call today.
I'll pause here, that's opened up for questions.
Thank you.
We will now begin the question and answer session to Wassa question, you will need to press star one one on your telephone please.
Please standby, while we compile the Q&A roster once again Thats star one one for Ted for questions. Our first question comes from David Li from Bank of America Securities. Please ask your question daily.
Hi management, Thanks for taking my questions I have two questions. Firstly could you share more color on the customer demand trend as well.
Domestic market and overseas, especially in Q4 and my second question is regarding the ARP, who and GP gross profit margin and it seems to be implied op, who or what work needs to be seen a decline in Q3 versus year over year growth in Q2, how.
How do we see the op when gross profit margin change I mean, according Cogs all of them last year.
Thank you.
Yeah.
I'll take the demand question.
Yes, and the international market saw Covid as a.
Covid has already passed largely.
So in the recent quarters, all our demand was not really.
Driven by Covid or anything related to Covid.
But rather more drive to buy new use cases, such as libraries as shocking as I mentioned earlier and also in increasing adoption immature use cases, such as life cost education powerhouse.
You know similar similarly in China Covid is.
Also our coated steel.
The important thing here affecting the whole macro economy. However is not anymore, a significant drop demand driver for US currently the main challenge all of the demand side is rather on also the macro economy environment.
Dropped from the call it policy adjustment as we have been seeing.
Theme in recent company earnings.
User growth and revenue growth of Internet companies have been flat or significantly slowed down. Many companies also cutting their growth target for next year, which are limiting their usage of our products.
We do see equipment told them in a more traditional in their process or Iot industries.
And the feel of a small sectors those will continue.
Areas that we will continue to invest more into but it will take some time to ramp up adoption on those areas.
Oh. It's question all are put on the GP margin. So in the U S market actually are put on the market has been quite stable recently are the main challenge was from international markets, such as Southeast Asia South Asia.
In these markets, we do see more pricing pressure.
Which also affects our pool.
Got it continuous pop kids are continuing depreciation on U S dollar as effectively made our products more expensive in these markets.
Currency because we are.
Talking about our global coffee taller and Oh, okay.
These are emerging market currencies.
I appreciate it that more than 10% and in some cases more than 20% so better demand in these regions.
Two if additional discount at all.
Just to be.
Comparisons in those markets. So that's.
Random behind me some weakness are putting chicken margin in these markets.
And also more broadly speaking as Tony mentioned.
E.
Rick Hough.
Uh huh.
Easy pattern they have financing environment.
Right.
A lot of our customers more difficult, which in turn affected demand and our pool.
So.
Looking forward, we are right now.
I'm, saying Gee people remained relatively stable.
That's correct that I mentioned around here.
Decrease in GP margin was mainly due to a product mix shift and.
So that's the extent due to the PRASM pressure from these emerging markets.
I'm looking forward to that sandy.
Alright part of Maxwell not further change someone's there we don't see we're not seeing incremental pressure.
Excuse me.
Thank you Tony and thank.
Thank you.
Okay.
Great. Thank you for your question.
Next question comes from the line of Tom <unk> from Morgan Stanley . Please ask your question Tom.
Goodbye.
I just had a quick question on the guidance things with us.
It really is on your guidance just wondering if there's any.
Clothing side, what the offer on our 2023 outlook.
With previous mentioned, we wanted to break even by plenty flex rate if there's funding grants us any changes to the plan. Thank you.
Sure I'll take this one so.
Oh, no, that's where I went with Florida up from here.
For 2022, and this was mainly due to me all right.
Some macroeconomic challenges.
Just mentioned.
Hi.
The financing environment and all of that so in term of 2023.
It is still too early to give her an official guidance, although I am very high level, we are targeting.
Wanting to 70% gross U S International markets.
That's a very moderate across China.
But again all of these.
Operating targets asked you are still moving.
Uh-huh Hardy uncertain macroeconomic environment.
U S emerging markets and also in China.
Andrew.
Towards the breakeven timeline.
<unk> committed to see.
Sam got us wait until breakeven.
On cap on non-GAAP basis by the end of 2023.
Okay. Thank you.
Thank you.
Next question comes from the line of Ben <unk> from Nomura. Please ask your question thing.
Hi, Good morning, Thank you management for us.
The questions I just have one question.
So how do we think about the the headcount growth in the next few quarters.
Do we have in our estimates.
The gross of the R&D and sales and marketing employees and what.
What will this affect the the operating expense.
Gross.
Our Q4, and our Q1 next year. Thank you.
Yes, I'll take the first part I think.
We take a very serious concentration before they make the decision to restructure and reduce the workforce. So we don't see in the last few quarters, we want to expand the workforce.
Again, we will continue to operate and trying to practice a more efficient leaner accretion down the road.
Similarly to other costs.
And these two will have anything Paul yeah.
It's a word from the from a financial perspective, so are you interested in restructuring.
Reduction.
Putting us at about $9 million of cash savings in Q4, compared with care suite and how can we expect to see some additional personnel, saying, hey, Q1 compared to Q4, because he didn't actually happen Uh huh.
Our acute care Fortunately, we still had one.
Well most of higher cost in Q4.
And that's why I mentioned, we do not expect we further increased satcom.
In 2023.
Okay. Thank you Tony and thank you for chemo.
Okay.
As a reminder to all sick question. Please press star one one on your telephone.
Two last quick question. Please press star one one on your telephone.
So for the question I'll turn the call back to the management team for closing remarks.
Thank you operator, and thank you everybody for attending our call today.
If there are any more information placements at our IR website.
Today's presentation.
Presentation and also the.
The Speakers' remarks will be off of course data on our website again. Thank you everybody. Thanks.
Okay. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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