Q2 2023 Agora Inc Earnings Call
[music].
Yeah.
Good day, and thank you for standing by and welcome to <unk>, Inc. Second quarter 2023 financial results Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
We advised that today's conference is being recorded.
The Companys earnings results press release earnings presentation, and SEC filings and a replay of today's call can be found on its IR website at Investor Day, I got that I O.
Joining me today are Tony <unk>, our founder Chairman and CEO , Jean <unk> the company's CFO .
Reconciliations between the Companys GAAP and non-GAAP results can be found in its earnings press release.
During this call the company will make forward looking statements about its future financial performance and other future events and trends.
These statements are only predictions that are based on what the company believes today and actual results may differ materially.
These forward looking statements are subject to risks uncertainties assumptions and other factors that could affect the company's financial results and the performance of its business in which the company discussed in detail in its filing with the SEC, including today's earnings press release, and the risk factors and other information contained in the final prospectus relay.
It into its initial public.
Offering.
<unk>, Inc remains no obligation to update any forward looking statements. The company may make on today's call with that let me turn it over to Tony Hi, Tony.
Hi, Thanks, operator, and welcome everyone to our earnings call our revenue for the second quarter was $15 $3 million for Agora down five 6% year on year, mainly due to a challenging global macro environment and tightening financial <unk>.
<unk> of certain customers.
Our revenue was $131 5 million RMB for Shanghai Tang.
11, 7% year on year.
Excluding revenue from that is posed customer engagement called business okay.
Children sector, mainly due to a slowing economy and fast evolving regulation and certain downstream verticals.
As of the end of this quarter, we have what I'll call. The 560 active customer for Agora and close to 4000 for sure an increase of 24% and 5% respectively.
Compared to one year ago.
Now moving on to our business.
And technology update for the quarter.
First <unk>.
<unk> Aurora.
We recently announced our partnership with a leading global provider of AI, driven content detection and moderation service.
After first solution and users safe from the widest spectrum of online harps, and long tail content and the malicious behavior, including adult content.
<unk> and harassment.
Abuse page speed <unk> wireless and more.
We believe content moderation is a particularly important.
Our real time engagement applications.
Given that content is generated and consumed in real time.
So our essentials market place.
First content, while there isn't force allow developers to easily add live audio and video content moderation functionalities to their applications.
Without significant change to their documents processes.
By detecting and removing all kinds of unwanted harps in real time.
And after the first half.
<unk> customers better handle emerging online safety and compliance talent.
While boosting and user engagement in a safer and more trusted environment.
On the use case side over the past few quarters, we have seen an increase in real time engagement adoption and usage from vertical social networks.
Applications for interest based communities.
In typical use cases create hers experts or influencers in the specialized area such as meditation yoga astrology, religion sports or creative Arts.
Engage with their fan base through video cost or interactive live streaming session.
A good example is Astro talk.
Prominent.
Our strategy platform operating in over 60 countries with a network of over $5.
Astrologers.
By leveraging our cross technology Astro talk introduced innovative use cases that enables video cost between plants and astrologers to be forecasted simultaneously to multiple potential customers.
After two was to create a platform that.
Would show astrologers, providing live predictions to clients.
World class absorb others talking with astrologer. They are more inclined to engage with the same Australia. As a result, as Astra talk has experienced a remarkable straightforward growth in active session. Following the launch of this feature.
Moving on to show up in the past quarter, we upgraded our solution for high definition video quality and live streaming.
Previously Kusmer hartzell separately integrate our <unk> based product features and the third party extensions such as video enhancement.
For our part proprietary codecs Super resolution due to vacations and other video effects.
And it often took substantial time to find the most beautiful architecture.
Specifications for the customers a unique use case.
<unk> to deliver a balanced and user experience considering video quality latency fluency functionality and device compatibility.
With our new use case oriented solutions customers can now easily access best practices tailored to their specific use cases.
Such a single host live streaming hosts peak PK <unk>.
Post all of this interruption multiple host allow screaming and life shopping.
Customers not only experience a shorter development time, but also benefit from an enhanced user experience.
This ultimately leads to improved and user retention and better monetization opportunities for our customers.
For example at <unk>.
<unk> platform recently adopt our comprehensive solution to upgrade.
And live streaming video.
From standard definition to high definition.
In addition to the increase in video resolution our solution also improved video quality in an environment with poor or even lighting provided we don't noise suppression.
Perceptual coding and good vacation.
As a result of the high definition upgrade the average user.
Yogurt duration increased by more than 10%. Meanwhile, hosting matchmakers in there and the Dalian platform itself also generated higher tips and the revenue.
In early July so long was chosen as one of the <unk> six leading companies to showcase AI innovations at the peninsula right word artificial intelligence conference.
So that's demonstrated its AI powered noise suppression capabilities based on deep learning algorithms.
Which can effectively remove more than 100 types of unwanted background noises and apples.
Ensuring a destruction of free and more immersive experience for users.
Our end noise suppression has been widely used by our customers across verticals, such as telehealth remote calibration calibration, social and gaming for example awards social platform realized a 5% increase in average recession.
After integrating our AI noise suppression in their application.
Before concluding my prepared remarks, I would like to invite all of you to our upcoming RPE conferences.
Aurora side, the RPE program. This year will consist of three events.
We will launch with RP launched shocking.
<unk> Webinar series focused exclusively on this rapid rapidly evolving space <unk>.
Original events for RP, India, and RP APAC will take place on October 5th.
India will be a fully virtual event highlighting how our technology is facilitating the evolution of new communities within phase CAC astrology, social media and entertainment life shocking and gaming.
Our key APAC programs will be hosted in Korea, and Indonesia language Fisher as key leaders and discussions around matter worse education and Lotte shopping.
We are excited to continue.
To continue growing our global RPE Committee and foster the spirit of innovation through our conferences.
So outside the conference will be held in Beijing from October <unk> to <unk>.
This year's conference will center around how the future of Rte will be shaped by generating artificial intelligence and high definition immersive environment.
Immersive experiences.
Skylar with.
Industry, leading expert in the practitioners.
We'll explore and envision the possibility and advancement.
This technology will bring to RP.
With that let me turn sales or to <unk>, who will review our financial results.
Thank you Tony Hello, everyone.
Let me start by first reviewing our financial results for the second quarter.
We will discuss.
For the third quarter of 2023.
Total revenues were 34 million.
The second quarter of 2023.
Decreased 16, 9%.
<unk> was the same quarter last year.
The decrease of six 6% quarter over quarter.
Core revenues were $15 3 million in the second quarter of 2023.
Five 6% year over year, and an increase of one 3% quarter over quarter.
The year over year decrease was primarily due to reduced usage of our products and customers increased pricing sensitivity.
Challenging macroeconomic environment, starting from the second quarter second half of last year.
Yeah quarter over quarter increase.
That's primarily going to use it grows and the <unk>.
From new use cases, such as vertical social networks as Tony just mentioned.
So on revenues.
RMB $131 five minutes.
Second quarter of 2023.
19, 8% year over year, and a decrease of nine 9% quarter over quarter.
Excluding revenues from the disposed the CEC business and K 12 tutoring sector shown on revenue.
Chris.
One 7%.
Over here.
Eight 8% quarter over quarter.
Which was primarily due to slow and general economic conditions.
The fast evolving regulations.
In downstream markets.
While our base net retention rates.
8%.
Dollar based net retention rate for sure.
91%, excluding revenues from the K call back Patrick tutoring sector.
Moving on to cost and expenses.
My following comments.
non-GAAP adjusted financial measures, which exclude share based compensation expenses.
<unk> related expenses.
Amortization expenses of acquired intangible assets.
Income tax related to acquired intangible assets.
Paramount goodwill.
Property and equipment.
Amortization of land use right.
Adjusted gross margin for the second quarter was 67, 2%.
It was two 6% lower than Q2.
Sure.
Finally, due to a change in product mix.
Analysts flat compared to Q1.
Honestly.
As mentioned in previous earnings calls.
We have restructured and reduced our global workforce in Q4 2022.
And we have continued to implement effective expense controls.
As a result.
Adjusted R&D expenses.
$16 6 million in Q2.
37, 4%.
Over here.
Adjusted R&D expenses represented 48, 8% of total revenues in the quarter compared to.
64, 8% in Q2 last year.
That's just the sales and marketing expenses were $7 1 million in Q2.
34% year over year.
Marketing expenses represented 29% of total revenue in the quarter compared to 26, 3% in Q2 last year.
Adjusted G&A expenses.
$6 2 million in Q2.
Decreased nine 5% year over year.
G&A expenses represented 18, 2% of total revenues in the quarter compared to 16, 6%.
Q2 last year.
Adjusted EBITDA was negative $6 six minutes.
Turning to a 19, 5% adjusted EBITDA loss margin first quarter.
Significantly lower than the adjusted EBITDA loss margin.
37, 4% in Q2 last year.
The investment loss was $1 9 million in Q2.
Primarily due to loss on investments in certain private companies are $4 9 million.
Which was offset in part by fair value change in equity investments.
For a minute.
non-GAAP net loss was $6 6 million in Q2 it.
Translating to a $19 4 million non-GAAP net loss margin fourth quarter.
Compared to a net loss margin of 58% in Q2 last year.
Five 1% in Q1 this year.
One extraordinary P&L items this quarter is impairment of goodwill in.
In Q2.
We completed the integration of this margin pressure.
Afterward.
And if I could one reporting unit.
Considering the natural impact.
Market demand as a result of challenging global macroeconomic environment and regulatory changes in certain sectors.
<unk> performed.
Impairment tests on goodwill.
And recognized.
The impairment.
Well in relation to the smart acquisition.
$31 $9 million.
As of the end of Q2.
There was no market, we're all standing on balance sheet.
Now turning to cash flow.
Operating cash flow.
$5 3 million in Q2.
Compared with negative $28 8 million last year.
Free cash flow was $5 six minute.
Compared to a negative $24 2 million last year.
Moving on to balance sheet.
We ended Q2 with.
$391 6 million in cash cash equivalents and.
Deposits and financial products each buybacks.
Net cash outflows in the quarter was mainly due to free cash flow.
$5 3 million.
Share repurchase.
'twenty one.
Since the board approved our share repurchase program in February 2022.
And as of June 32023.
We have returned approximately eight.
$2 million to shareholders through share repurchases.
Demonstrating the board's commitment safeguarding shareholder value and as confidence in the long term prospect of the company.
As of June 32023.
The company had approximately.
$97 5 million.
Randy.
Reflecting a reduction.
Approximately $14 9 million of ideas.
Our 13% reduction of total shares outstanding.
From January 31st plenty plenty to pay for the share repurchase program started.
So far we have completed 41%.
Of our $200 million share repurchase program.
<unk> will expire at the end of February 2024.
And we intend to continue to undertake as meaningful capital return.
Shareholders.
Now turning to guidance.
For the third quarter of 2023.
We currently expect total revenues to be between.
U S dollar $34 five to $36 five minute.
This forecast reflects our current and.
On the market and operational conditions.
Which are subject to change.
In closing, we're confident about the long term prospect.
Mobile market, Paul how many came from the technology.
And we are well prepared for near term uncertainties and challenges.
Thank you to those of card and strong teams.
Good work and why investors Trust.
Thank you everyone for attending the call today.
Operator.
Open up for questions.
Thank you Sir as a reminder to ask a question you will need to press star one one on your telephone.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
And I show. Our first question comes from the line of Yang Liu from Morgan Stanley . Please go ahead.
Okay.
Hi, this is lidia.
Representing <unk> from Morgan Stanley .
So a question for.
For management to you.
Review your observation of the demand recovery situation, both domestic and overseas market and as well as your outlook for.
The second half of this year. Thank you.
Sure.
In terms of the market.
Yes.
International market in China market, so for the U S and international markets, we do see pretty healthy demand from verticals such as E Commerce.
Vertical social networks.
Certain interest groups.
And I just mentioned.
Patients in the Iot is that doctors are doing pretty well at the moment.
How they had merchant markets and certain use cases.
That were popular during the pandemic such as online events are relatively weaker.
Oh on the China side.
Demand from digital transformation sector is more resilient such as financial institutions.
Rises.
Also we see healthy demand from professional training.
Can make application.
Hum.
Within the social entertainment sectors. Despite the.
And challenging.
Literally environment in China.
We see promising growth from customers operating apps also China.
So we see pretty healthy demand growth there.
On top of the original situation.
Also like to.
Come on the prototype.
Outside we see a lot of customer demand and unit demand.
Features such as content moderation.
<unk> transcription and.
And also.
Hey, How's it going man.
A recent high definition video.
Products.
So in terms of the three year outlook.
We are cautiously optimistic that demand will gradually improve.
Overall can we say remainder of the year driven by it.
New products I just mentioned.
Same time offset by ongoing macro challenges in China and also in March.
Markets.
Yes.
Yeah.
Thank you.
As a reminder to ask a question you would need to press star one one on your telephone.
And I show. Our next question comes from the line of Harry Shrunk from Bank of America Securities. Please go ahead.
Hi, Thanks management for taking my question two questions first one is regarding the margin trend again.
Give us some outlook on the future.
Our gross margins in the next two quarters and also about the next year and the second question is what is the plan.
The products and the future revenue contribution for the company.
Yes.
Yes.
Gross margin as you can see here sequentially is basically flat and the.
It may have been a pretty healthy level. So we do expect gross margin to remain relatively stable for the remainder of the year.
We continue to optimize our cost structure.
As for next year.
It's probably it's too early to say, but.
It doesn't need to.
Try to maintain.
A stable housing gross margin levels.
As to the.
Related to upland and.
Actually our high definition.
We do initiative.
Is a product that leverage AI capabilities to greatly improve video performance.
We.
We are the first one that are able to provide mobile.
Real time video.
The level of true HD.
State.
First mature mobile 10, ADP real time video solution.
Based on this actually initiative.
Our also our third party expansions like what I mentioned.
Opening remark.
Two friends also leveraging AI technology to moderate real time content and activities.
Or.
Like one of our other product real time transcription is also leveraging AI.
Also as a much bigger trend the aig's fee development is very encouraging.
Firmly believe generative AI it will expand the boundaries of RP and significantly enhance end user experience, but it won't be a short term revenue contributed contributor as awards and we do.
Multimodal capabilities are still early.
Early stage for all major large models.
We have been working closely with customers sort of vertical used cases.
Leveraging AI GC.
Such as AI powered game players in real time voice based AI.
Companions.
Expect.
To make product launch announcements in the coming months.
In addition, the ICC will also be one of the main topic of our upcoming <unk> Conference in October we will also have the latest demo showcase.
During this conference.
C.
Please join us for a deeper and more detailed discussion.
Okay.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Okay.
And to your question. Please press star one again.
I show. Our next question comes from the line of her Brian Wong from Citi. Please go ahead.
Yes, Hello can you hear me.
Yes.
Yeah, Yeah. Thank you.
Actually two questions from my side and the first one is that <unk> therapy any change in the company's guidance on the property and B are there any more related optimization completing the year. Thank you.
Okay.
I'm sorry can you repeat your second question.
And we'd be happy.
Happy anymore related optimizations.
We think that yes. Thank you. Thank you.
I'll take both questions. So.
Despite the.
Macroeconomic challenges and regulatory challenges.
Remain committed to achieve.
Cheating.
GAAP net income breakeven in Q4 this year so it's noncash.
non-GAAP net income.
In Q4 this year. So as you can see in the past few quarters, we have exactly.
It is operating expenses by roughly 30%. So we believe we are now operating at quite that fast.
Current level.
The rice team size. So I'll focus in Q3 is really to drive revenue growth.
To further.
Further cutting head count costs.
I think as we see revenue.
Cover and we make incremental small.
Incremental savings.
We think we still have a catastrophe.
Leaving.
GAAP net income breakeven.
In the year.
Okay. Thank you very clear.
My second one is that.
A noticeable change in the domestic and international competitive environment, Yes.
Yes, that's my last one thank you.
Sure.
There hasn't been much.
Much change and overall competitive landscape in China competitive landscape remains the same as previous quarter, but in the U S and international markets, we see slightly increase increasing competition from original startups I think this is a good thing overall for the industry with more.
For customers and more ideas to drive the industry towards industry forward.
Together.
We will create a more vibrant market and the third is the adoption of <unk> technology in general the recent macro.
The challenge.
However, we will also impact.
Those are competitors.
Especially for smaller players in the market. We also see we also saw some companies went out of business.
They're all competitive landscape remains largely the same we're still the clear leader in this space in terms of technological performance and competitive.
Completeness of features with the right focus on execution I think we are well positioned to gain market share during the challenging period.
Okay. Thanks, a lot.
Thank you.
Yes.
I'm showing no further questions in the queue.
This concludes our Q&A.
Thank you everybody for attending the Companys call today as a reminder, the recorded in the earnings release will be available on the company's web site at Investor got a Gore I O.
And if there are any questions. Please feel free to email the company. Thank you.
Thank you for that.
Yeah.
Okay.
[music].
Okay.
[music].
[music].
[music].
[music].
Good day and thank you for standing by welcome to Aurora, Inc. Second quarter 2023 financial results Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised.
Your question. Please press star one again.
Please be advised that today's conference is being recorded.
The Companys earnings results press release earnings presentation, SCC filings and a replay of today's call can be found on its IR website at investor that I got that I O.
Joining me today are Tony Zhao founder, Chairman and CEO , Jim Boldt, Wang the company's CFO .
Reconciliations between the Companys GAAP and non-GAAP results can be found in its earnings press release.
During this call the company will make forward looking statements about its future financial performance and other future events and trends.
These statements are only predictions that are based on what the company believes today and actual results may differ materially.
These forward looking statements are subject to risks uncertainties assumptions and other factors that could affect the company's financial results and the performance of its business in which the company discussed in detail in its filing with the SEC.
Today's earnings press release, and the risk factors and other information contained in the final prospectus related to its initial public.
I'll frame it.
<unk>, Inc remains no obligation to update any forward looking statements. The company may make on today's call with that let me turn it over to Tony Hi, Tony.
Hi, Thanks, operator, and welcome everyone to our earnings call our revenue for the second quarter was 15 $3 million for Agora.
<unk> five <unk>, 6% year on year, mainly due to a challenging global macro environment and tightening financial conditions of certain customers.
Our revenue was $131 5 million RMB for so long.
11, 7% year on year.
Excluding revenue from that is post customer engagement called business and a key call academic tutoring sector, mainly due to a slowing economy and fast evolving revelation certain downstream verticals.
As of the end of this quarter, we have what I'll call. The 550 active customer for Agora and Costco for them for sure an increase of 24% and 5% respectively.
Compared to one year ago.
Now moving on to our business.
CT often technology update for the quarter.
First starting with Agora.
<unk> recently announced our partnership with <unk>, a leading global provider of AI driven content detection and the motivation there is.
After first solution and deals are safe from the widest spectrum of online harps and lumpy the content and the malicious behavior, including adult content.
And harassment.
Abuse hate speech illegal codes wireless and more.
We believe content duration is a particularly important.
For real time engagement applications Keven.
Given that content is generated on a consumed in real time.
So our pensions market place.
So felt content while the recent force allow developers to easily at live audio and video content moderation functionalities to their applications is.
Without significant change to their development processes.
By detecting and removing all kinds of unwanted harps and real time of Cora in active funds to help customers better handle emerging all lines of therapy and the complex talent.
While boosting and user engagement in a safer and more trusted environment.
On the use case side all of the past few quarters, we have seen an increase in real time engagement adoption and usage from vertical social networks.
Applications for interest based communities.
In typical use cases create heart experts or influencers in the specialized area such as meditation yoga.
Religion sports or creative art.
Engage with their fan base through video calls or interactive live streaming session.
A good example is Astro talk.
From a prominent <unk>.
I'll, let I'll strategy platform operating in over 60 countries with a network of over $5.
Astrologers.
By leveraging our broad technology Astro talk introduced no way to use case that enables lido costs between class and astrologers to be forecasted simultaneously to have multiple potential customers.
Object to was to create a platform that.
Would show astrologers, providing live predictions to class.
World class absorb others talking with astrologer they are more inclined to engage with the same color here.
As a result, as Astro talk has experienced a remarkable straightforward growth in active session. Following the launch of this feature.
Moving on to so long in the past quarter, we upgraded our solution for high definition video quality and live streaming.
Previously Kusmer hartzell separately integrate our video based product feature and the third party extensions such as video enhancement.
For our part proprietary codecs Super resolution due to vacations and other video effects.
And it often took substantial time to find the most beautiful architecture.
[noise] specifications for the housewares unique use cases.
In order to deliver a balanced and user experience call theater on video quality latency fluency functionality and device compatibility.
With our new use case oriented solutions customers can now easily access best practices.
Tailored to their specific use cases.
Such a single host live streaming hosts peak PK.
Host audience interruption multiple host loud screaming and life shocking.
Customers not only experience a shorter development time, but also benefit from an enhanced user experience.
This ultimately leads to improved and user retention and better monetization opportunities for our customers.
For example at <unk>.
<unk> platform recently adopt our comprehensive solution to upgrade their y on Y and live streaming video.
From spend our destination tool high definition.
In addition to the increase in video resolution.
Our solution also improved video quality in environment with poor or even lighting provided we didn't noise suppression.
Perceptual coding and good vacation.
As a result of the high definition upgrade the average user.
Yogurt duration increased by more than 10%. Meanwhile, hosting matchmakers in there and the dating platform itself also generated higher peaks in the revenue.
In early July so long was chosen as one of the <unk> six leading companies to showcase AI innovations at 20, <unk> Street work artificial intelligence conference.
So on the demonstrated its AI powered noise suppression capabilities based on deep learning algorithms.
<unk> can effectively remove more than 100 types of unwanted background noises and alcohols.
Insurance at the structure of free and more immersive experience for users.
Our AI noise. The price has been widely used by our customers across verticals, such as telehealth remote calibration calibration, social and gaming for example awards social platform realized a 5% increase in average at fashion.
After integrating our AI noise suppression in their application.
Before concluding my prepared remarks, I would like to invite all of you to our upcoming RPE conferences.
Aurora side, the RPE program. This year will consist of three events.
We will launch with RP lines shocking.
I'll slow webinar series focused exclusively on this rapid rapidly evolving space.
Original event for RP, India, and RP APAC will take place on October 5th.
India will be a fully virtual event, highlighting how our <unk> technology is facilitating the evolution of new communities within phased CAC astrology, social media and entertainment life shocking and gaming.
Our key APAC programs will be hosted in Korea, and Indonesia language Fisher as key leaders and discussions around meta worse education and loves shopping.
We are excited to continue.
To continue growing our global RPE Committee and foster the spirit of innovation through our comprehensive.
So long side the conference will be held in Beijing from October 24th to <unk>.
This year's conference will center around how the future of our tea will be shaped by generating artificial intelligence and high definition immersive environment.
Immersive experiences.
Skylar with.
Industry, leading expert in the practitioners, whether they will explore and envision the possibility and advancement.
This technology will bring to our team.
With that let me turn things over to Tim who will review our financial results.
Thank you Tony Hello, everyone.
Start by first reviewing our financial results for the second quarter.
We'll discuss our outlook for the third quarter of 2023.
Total revenues were 34 million.
Second quarter of 2023.
A solid 16, 9% compared with the same quarter last year.
The increase of six 6% quarter over quarter.
Core revenues were $15 $3 million in the second quarter of 2023.
With a five 6% year over year, and an increase of one 3% quarter over quarter.
The year over year decrease was primarily due to reduced usage of our products.
Customers increased project activity.
LNG macroeconomic environment, starting from the second quarter second half of last year.
Yeah quarter over quarter increase was primarily due to usage rose and the emergence of new use cases, such as political and social networks as Tony just mentioned.
Shlomo revenues.
RMB.
$131 5 million in the second quarter of 2023.
The decrease of 19, 8% year over year, and a decrease of nine 9% quarter over quarter.
Excluding revenues from the disposed the CEC business and K 12 academic tutoring sector sure.
And on revenue.
11, 7% year over year.
Eight 8% quarter over quarter.
Which was primarily due to a slowing general economic conditions.
On the capacity evolving regulations, yes.
So the industrial markets.
Dollar based net retention rate.
108%.
Dollar based net retention rate for certain loan at 91% excluding revenues from the K call that Derek to transact.
Moving on our cost and expenses.
In my following comments I will talk about non-GAAP , adjusted financial measures, which exclude share based compensation expenses.
Physician related expenses.
Amortization expenses of acquired intangible assets.
Income tax related to acquired intangible assets.
Paramount goodwill.
Property and equipment.
Amortization of land use right.
Adjusted gross margin for the SEC.
Closure was 67, 2%.
Well it was two 6% lower than Q2 2000.
Chip.
Thank you to a change in credit mix.
And were flat compared to Q1 2020.
As mentioned in previous earnings calls, we have restructured and reduced our global workforce in Q4 2022 and.
And we have continued to implement effective expense control.
As a result.
Adjusted R&D expenses were $16 6 million in Q2 decreased.
37, 4% year over year.
Adjusted R&D expenses represented 48, 8% of total revenues in the quarter compared to.
64, 8% in Q2 last year.
Adjusted sales and marketing expenses were $7 1 million in Q2.
Decreased 34% year over year.
Sales and marketing expenses represented 29% of total revenues in the quarter compared to 26, 3% in Q2 last year.
Adjusted G&A expenses were $6 2 million in Q2.
Decreased nine 5% year over year.
G&A expenses represented 18, 2% of total revenue in the quarter compared to 16, 6%.
Q2 last year.
Adjusted EBITDA was negative $6 six minute.
Translating to a 19, 5% adjusted EBITDA loss margin fourth quarter.
And that's currently lower than the adjusted EBITDA loss margin of 37, 4% in Q2 last year.
The investment loss was $1 9 million in Q2.
Primarily due to loss on investments exerted private companies are $4 9 million.
Which was offset in part by the fair value change you have for your investments.
Freeman.
non-GAAP net loss was $6 6 million in Q2.
Translating to a $19 4 million non-GAAP net loss margin in fourth quarter.
Compared to a net loss margin of 15, 8% in Q2 last year.
25, 1% in Q1 this year.
One extraordinary P&L items this quarter is impairment of goodwill in <unk>.
We have completed the integration of these small to appreciate it.
We only identified one reporting unit.
Considering the natural impact.
Market demand as a result of the challenging global macroeconomic environment and regulatory changes in certain sectors.
<unk> performed quantitative impairment test of goodwill and.
And recognize the full impairment of goodwill in relation to the smart acquisition.
Okay.
$31 $9 million.
As of the end of Q2.
No more goodwill are standing on balance sheet.
Now turning to cash flow.
Operating cash flow was enacted $5 3 million in Q2.
Bedroom.
So $8 8 million last year.
Free cash flow was $5 6 million compared to a negative 24 points from entering last year.
Moving on to balance sheet.
We ended Q2 with.
$391 6 million cash cash equivalents.
August financial credit Suisse for buybacks.
Net cash outflows during the quarter was mainly due to free cash flow.
$5 square milling and share repurchase of 21.
Since the board approved.
Share repurchase program in February 2022.
As of June 32023.
We have returned approximately $82 million to shareholders.
Share repurchases.
Demonstrating the commitment safeguarding shareholder value.
And as confidence in the long term prospect of company.
As of June 2023.
The company had approximately.
$97 5 million.
Outstanding.
Reflecting a reduction of.
Approximately.
$14 nine many ideas.
Well, our 13 person reduction of total shares outstanding.
On January 31, 'twenty 'twenty to pay for the share repurchase program started.
So far we have completed 41%.
Over $200 million share.
Share repurchase program.
Will expire at the end of February 2024.
And what we intend to continue to undertake this meaningful capital return Clos shareholders.
Now turning to guidance.
For the third quarter of 2023.
<unk> total revenues to be between.
<unk> 34, 5% was $36 five minute.
This forecast reflects our current and Nevada.
Our reviews on the market and operational conditions.
Which are subject to change.
So in closing.
We're confident about the long term prospect.
Global market for Amikacin that technology.
And we are well prepared for near term uncertainty and challenges.
Thank you to both CT and show on teams.
Hard work and why investors for the trust.
Thank you everyone for attending the call today.
Operator, let's open up for questions.
Thank you Sir as a reminder to ask a question you will need to press star one one on your telephone.
Should we draw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
And I show. Our first question comes from the line of Yang Liu from Morgan Stanley . Please go ahead.
Okay.
Hi, This is <unk>, representing <unk> from Morgan Stanley . So a question as.
Poor management can you.
Review your observation of the demand recovery, Chris Your Asian, both domestic and overseas market.
As well as your outlook for <unk>.
The second half of this year. Thank you.
Thank you.
Sure.
In terms of the Martin I will divide this.
Yes.
U S international market in China market, so for the U S and international market, we do see pretty healthy demand from verticals such as E Commerce.
Vertical social networks.
Certain interest Brooks.
Ron just mentioned.
Patients in the Iot is that settles out doing pretty well at the moment.
The other hand emerging markets and certain use cases.
That were popular during the pandemic such as online events.
Lee weaker.
On the China side.
Demand from digital transformation sector is more resilient such as financial institutions and the.
Prizes.
And also we see healthy demand from professional training.
Education.
And within the social entertainment sectors. Despite the.
Great challenging regulatory environment in China.
We see promising growth from customers operating apps also China.
Uh huh.
So we see pretty healthy demand close there.
<unk>.
On top of the original situations.
Also like to.
Come on the prototype.
Prototypes.
We see a lot of customer demand more demand.
Based features such as content moderation.
Prescription.
And also.
But he housing demand.
Oh hi.
High definition video products.
So in terms of three year outlook.
We are cautiously optimistic that demand will gradually improve.
Overall, the remainder of the year driven by these new products I just mentioned.
Same time offset by ongoing macro challenges in China and also in other emerging markets.
Sure.
Okay.
Thank you.
As a reminder to ask a question you would need to press star one one on your telephone.
And I show. Our next question comes from the line of Harry Shrunk from Bank of America Securities. Please go ahead.
Hi, Thanks management for taking my question I have two questions first one is regarding the margin trend again.
Give us some outlook on the future.
Gross margins in the next two quarters and also about the next year and the second question is what is the plan for the AI products and the future revenue contribution for the company. Thank you.
Yes on the across the <unk>.
Gross margin as you can see sequentially is basically flat and.
You have a pretty healthy level. So we do expect gross margin to remain relatively stable for the remainder of the year.
To optimize our cost structure.
As for next year.
Probably it's too early to say, but.
So as any too.
Try to maintain.
A stable and healthy gross margin levels.
As to the.
Related to upland and prop actually our high destination.
The initiative.
<unk> is a product that leverage AI capabilities to greatly improve video performance.
We believe we.
We we are the first one that are able to provide mobile.
Real time video.
The level of true HD.
<unk> the first mature mobile 10, ADP real time video solution.
Based on this actually initiative.
Our also our third party extensions like what I mentioned.
Opening remark.
Defense also leveraging AI technology to moderate real time content and activities.
Or.
Like one of our other product real time transcription is also leveraging AI.
Also as a much bigger trend the aig's fee development is very encouraging.
Firmly believe January two AI, it will expand the boundaries of RP and significantly enhance end user experience, but it won't be a short term revenue country with contributor as awards and we do.
Multimodal capabilities are still at early.
Early stage for all major large models.
We have been working closely with customers.
<unk> used cases.
Leveraging aig's.
Such as AI powered game players in real time voice based AI companions, we expect.
To make product launch announcements in the coming months.
In addition, <unk> will also be one of the main topic of our upcoming <unk> Conference in October we will also have the latest demo showcase tier.
During this conference.
I see.
Please join us for a deeper and more detailed discussion.
Okay.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Okay.
And to reach our your question. Please press star one again.
I show. Our next question comes from the line of Hebron Wong from Citi. Please go ahead.
Yes, Hello can you hear me.
Yes.
Yes, yes. Thank you.
Actually two questions from my side first one is that <unk> therapy any change in the company's guidance on the property.
Will there be any more related optimization completing the year. Thank you.
Okay.
Can you repeat your second question.
And we'd be happy.
Any more related optimizations.
Hey, Michael.
We think that yes. Thank you.
Yeah, I'll take both questions. So.
Despite the.
Macroeconomic challenges and regulatory challenges.
Remain committed to achieve.
Cheating.
GAAP net income breakeven in Q4 this year, so again, it's noncash.
non-GAAP net income.
I hope breakeven in Q4 this year. So as you can see in the past few quarters, we have exactly.
It is operating expenses by roughly 30%. So we believe we are now operating at quite that.
Efficient level, whereas the.
Right.
So our focus in Q3 is really to drive revenue growth.
To.
Further cutting head count costs.
So I think that as we see it.
Recover and we make incremental small.
Incremental savings.
We think we still have a good chance of them achieving.
GAAP net income breakeven.
Towards the end of the year.
Yeah.
Okay. Thank you very clear.
My second one if that's.
It's approaching the domestic and international competitive environment, Yes, that's my last one thank you.
Okay.
Sure.
There hasn't been.
Much change in overall competitive landscape in China competitive landscape remains the same as previous quarter, but in the U S and international markets, we see slightly increase increasing compared to the competition from regional startups. I think this is a good thing overall for the industry with more.
Those four customers and more ideas to drive the industry towards industry forward.
Together.
We will create a more vibrant market and accelerated adoption of RPE technology in general the recent macro.
The challenges.
However, we will also impact.
Those competitors.
And especially for smaller players in the market. We also see we also saw some companies went out of business.
They're all competitive landscape remains largely the same we're still the clear leader in this space in terms of technological.
Performance and competitive.
Cleveland News of features with the right focus on execution I think we are well positioned to gain market share during the challenging period.
Okay. Thanks, a lot.
Thank you.
Thank you.
I'm showing no further questions in the queue.
This concludes our Q&A.
Thank you everybody for attending the Companys call today as a reminder, the recorded in the earnings release will be available on the company's web site at Investor that GOR that I O and if there are any questions. Please feel free to email the company. Thank you.