Q3 2024 Agora Inc Earnings Call
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Speaker Change: After the speaker presentation, there will 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 that your hand has been raised.
Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Speaker Change: The Companys earnings results press release.
Speaker Change: Earnings presentation, and SEC filings and a replay of today's call can be found on its IR website at investor <unk> Dot I O.
Joining me today are Tony Zhao founder Chairman and CEO, Jim Malone, the Companys C F O.
Speaker Change: Reconciliations between the Companys GAAP and non-GAAP results can be found in its earnings press release.
Speaker Change: During this call the company will make forward looking statements about its future financial performance and other future events and trends.
Speaker Change: These statements are only predictions that are based on what the company believes today and actual results may differ materially.
Speaker Change: These forward looking statements are subject to risks and 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 filings with the S. E C, including todays earnings press release, and the risk factors and other information.
Contained in the final prospectus relating to its initial public offering.
Speaker Change: Gore, Inc remains no obligation to update any forward looking statements. The company may make on today's call.
Speaker Change: With that let me turn it over to Tony Hi, Tony.
Thanks, operator.
And welcome everyone to our earnings call.
Speaker Change: Well first of all all of our operating results in the past quarter.
Speaker Change: Our core revenue were $15 7 million in the third quarter.
Speaker Change: 3% year over year.
Speaker Change: Two of the five business expansion.
Speaker Change: Such as love shopping.
Speaker Change: So on revenue were 113 million RMB in the second quarter down 9% year over year.
Speaker Change: Excluding revenues from certain low margin products.
Mainly due to challenging regulatory and macro environment.
Speaker Change: No.
Two our fitness products in oncology update for this quarter.
Speaker Change: As many of you already know.
Speaker Change: Recently launched our conversational AI SDK and collaborations with opening yes, realtime PPI to allow developers to Bruce was driven experience to any application.
Speaker Change: Our solution has two distinct advantages.
Speaker Change: First opening.
Speaker Change: Typically for modal is multimodal, which means you can parse us voice input from human throttling.
Speaker Change: Without the need to come work, what's the attack and therefore.
Speaker Change: And the response to human emotions much better than previous tax based model.
Speaker Change: Second any other kind of enjoy across advanced noise suppression and echo cancellation feature.
Speaker Change: As well as low latency conversation, even under challenging network commissions SaaS to our global real time network and optimization algorithms.
Speaker Change: Since our <unk> launch with opening in early October we have seen many fascinating.
Speaker Change: <unk> have use cases being developed and brought to market by developers across various verticals.
Speaker Change: One areas, where we believe conversational AI will have a significant impact this internet of things or <unk>.
Speaker Change: Our team.
Speaker Change: Many of US have had unpleasant experiences with previous generation of so called Smart speakers are smart assessments.
Often struggle to understand our requests and lack of ability to speak naturally are making real time decisions.
Speaker Change: Now with our conversational AI SDK Iot devices connected to our advanced AI model.
Italy understand complex request hold natural conversations and take action based on live video feeds.
Speaker Change: For example, our customer Nicole makes advanced educational robot for kids between the age of five and 10 previously used our video calling SDK to enable parents to monitor and take and talk to their children and hour.
Speaker Change: SDK to allow parents to move the robots are wrong and follow a child with recall SaaS to our conversational AI SDK <unk> can now add in Morocco.
Speaker Change: Our Italian by advanced AI models in their content platform.
Speaker Change: The robot.
Speaker Change: Adapt with response and behaviors based on our <unk> motion and interactions, providing a dynamic learning companion that growth with the top.
Speaker Change: Last month in Beijing, we hosted our <unk> and <unk>.
Speaker Change: Our new Rte conference with a focus on the interest of AI and RP technologies.
Speaker Change: Both registration and attendance hit record highs.
Demonstrating the industrywide excitement.
Speaker Change: Real time conversational AI and continued interest from the offers on RT used cases.
Speaker Change: It's a huge market.
Speaker Change: And our unique place within its ecosystem.
Speaker Change: The conference we also doubled our conversational AI solution jointly developed with <unk>.
Speaker Change: Our leading AI company.
Speaker Change: We believe that for conversational AI to succeed.
Speaker Change: The need to be a vibrant ecosystem of <unk>.
Speaker Change: Foundation foundational models and building blocks, such as perhaps some speeds speaks to that streaming arbitration and other developer tools.
Speaker Change: We are now working closely with several leading foundational model companies and other key players to build such an ecosystem together.
Speaker Change: As part of this effort, we sponsored an open source project and our Gulf of community call transformative essential network or <unk> for short.
Speaker Change: <unk> is a solution framework for building AI agent with real time multimodal AI capabilities.
<unk> integration with a wide range of law large luxury model speeds through tax impacted speeds substantially.
Speaker Change: <unk> offers flexibility in ash cloud architecture with Ted golfers can easily create AI agent that not only talk to users naturally but also understand we will feed from a device camera.
This process, our global network and ensures high performance and low latency interaction between users and the cloud based AI models.
To summarize we believe multimodal AI agent that can interact with humana through natural wood will gain widespread adoption in many used cases, such as customer support education and walnuts.
Speaker Change: In this new used cases RPE technology.
Speaker Change: Central for enhancing the user experience to the point, where AI agent can match and even outperformed humor.
Speaker Change: This will drive significant youth usage growth and create new opportunities for the RV industry.
Speaker Change: As an industry pioneer and leader.
Speaker Change: <unk> positioned to become a key infrastructure provider for real time conversational AI.
Speaker Change: To support this vision.
Currently made some structural changes aligning our organization to fully leverage the authority accelerating conversational AI opportunities.
Speaker Change: And operate in a faster inner and more responsive fascia.
Speaker Change: These changes will help us build the next generation real time engagement technology for the general AI, Europe, and strengthen our position as a leading as a leader in real time engagement space.
Speaker Change: Today, we also announced that Mr. Roger Hell will leave the company after serving two and half years as our Chief Security Officer.
We are grateful for Rogers dedication and expertise.
Speaker Change: His leadership has been invaluable in strengthening our security and compliance Foundation.
Speaker Change: Moving forward, Patrick furniture, and Robin Lu will assume responsibility for <unk> currently in the contract and we will continue to uphold the highest standard to protect our customers and stakeholders.
Roger will continue to provide strategic advisors.
Speaker Change: Adviser to the company.
Speaker Change: Before concluding my prepared remarks, I want to start both the Aurora and some long team for their resilience dedication and believe in what we can accomplish together.
Speaker Change: I believe we are well positioned to harness emerging technologies and innovations to build the best real time engagement experiences in the generic AI era.
With that let me turn things over to <unk>, who will review our financial results.
Speaker Change: Thank you Tony.
Speaker Change: Hello, everyone let.
Speaker Change: Let me start by first.
Speaker Change: <unk> financial results for the third quarter of 2024, and then I will discuss outlook for the fourth quarter.
Speaker Change: Total revenue.
Speaker Change: Tier $1 6 million in the third quarter.
Speaker Change: A decrease of seven 7% quarter over quarter.
Speaker Change: And that increased nine 8% year over year.
Speaker Change: If excluding revenues from certain.
Speaker Change: Wholesale low margin products total revenue increased two 3% quarter over quarter and decreased three 1% year over year.
Speaker Change: Our core revenues were $15 7 million in the third quarter.
There is a 0.4% quarter over quarter and an increase of two 6% year over year.
Speaker Change: The increase was primarily due to business expansion and usage growth in certain verticals such as collateral.
Speaker Change: Shimon revenues.
Speaker Change: RMB $112 9 million in the third quarter, a decrease of 14, 5% quarter over quarter.
Speaker Change: And a decrease of 20% year over year.
Speaker Change: Excluding revenues from certain.
Speaker Change: Low margin products shown on revenues increased four 2% quarter over quarter and decreased eight 7% year over year.
Speaker Change: The quarter over quarter increase was primarily due to increase in revenues from certain verticals.
Speaker Change: Internet of things.
Speaker Change: As well as the increase from education vertical during summer vacation.
Speaker Change: The year over year decrease was.
Speaker Change: Primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions.
Speaker Change: Dollar based net retention rate of 94%.
Speaker Change: And 78%.
Speaker Change: Excluding revenues from certain industrial products.
Speaker Change: And discontinued business.
Speaker Change: Moving on to cost and expenses.
Speaker Change: As Tony mentioned, just now we made the difficult decision to restructure and reduce our global workforce. This month.
Speaker Change: The associated severance cost.
Speaker Change: $4 $8 million are reflected in cost of revenues and operating expenses in Q3.
Speaker Change: As part of the restructuring we also cancelled certain equity awards for the remaining employees.
Speaker Change: Worse will mostly granted in 2021.
Speaker Change: That price was significantly higher.
Speaker Change: As a result share based compensation expenses unlock team as our stock price.
Grant.
Speaker Change: Also as a cash cow awards.
Speaker Change: Awards.
Much lower at today's stock price.
Speaker Change: According to GAAP rules the cancellation of these awards will cause immediate recognition of share based compensation expense for the remaining awards, which hasnt.
Speaker Change: It Hasnt $4 million.
Speaker Change: However, I want to emphasize that these are simply canceled.
Speaker Change: As a company is not paying any stock option cash rather rather than employees.
Speaker Change: The work there is no extra cost to the company.
Speaker Change: The $11 4 million expenses in Q3, only accounting treatment.
Speaker Change: Going forward the cancellation of these awards will free us from this accounting burden.
Speaker Change: Most of the restructuring we expect to see savings.
Speaker Change: Operating expenses.
Speaker Change: Roughly $4 million in Q4, this year and settlement in Q1 next year.
Speaker Change: Paired with a baseline in Q2 this year.
Speaker Change: Gross margin for the third quarter was 66, 7%, which was two 7% higher than Q3 last year and a four 7% higher than Q2 this year.
Speaker Change: The increase was mainly due to.
And the sale of certain low margin products, which was offset.
Speaker Change: Actually a higher severance costs in this quarter, if we exclude severance.
Speaker Change: 3 million pro forma gross margin.
Speaker Change: T seven 7% for the third quarter.
Speaker Change: R&D expenses were $29 3 million in Q3, which included severance of $3 six minute and equity award cancellations on.
Speaker Change: Nine minutes.
If we.
Excluding these two items pro forma R&D expenses decreased $17, one person year over year to $16 6 million in Q3.
Speaker Change: Presenting 52.
Speaker Change: 5% of total revenue in the quarter compared to 57, 2% in Q3 of last year.
Speaker Change: As our marketing expenses.
Speaker Change: $6 9 million in Q3, which included severance of <unk> 7 million.
Speaker Change: If we exclude conference pro forma sales and marketing expenses.
Speaker Change: <unk> 'twenty.
Speaker Change: 9% over year to $6 2 million in Q3.
Speaker Change: Representing 19, 6% of total revenue in the quarter.
Speaker Change: Compared to 22, 2% in Q3 last year.
Speaker Change: G&A expenses were $9 7 million in Q3.
Speaker Change: Which included severance one meeting and could hear word cancellation expense of $2 4 million.
Speaker Change: If we exclude these two items pro forma G&A expenses.
Speaker Change: $19 7 million at 19, 7% year over year to $7 3 million in Q3 reps.
Speaker Change: Representing 23, 1% of total revenues in the quarter compared to 25, 9% in Q3 last year.
Speaker Change: Moving on to bottom line.
Speaker Change: Net loss this quarter was $24 two minute, if we exclude severance of $4 8 million equity award cancellation expense.
Speaker Change: 11 for mining.
Speaker Change: And losses from equity affiliates of.
Speaker Change: For one minute pro forma net loss was $3 9 million.
Speaker Change: Translating to a 12, 4% net loss margin in fourth quarter.
Now turning to cash flow operating cash flow was negative $4 6 million interim suite.
Speaker Change: Compared to <unk> 3 million last year.
Speaker Change: Free cash flow was negative six minute.
Speaker Change: <unk> $3 2 million last year.
Moving on to balance sheet, we ended Q3 with.
Speaker Change: $762 6 million in cash cash equivalents bank deposits and financial products issued by banks.
All three.
Speaker Change: 94 <unk>.
Speaker Change: Yes.
Speaker Change: Net cash outflow in the quarter was mainly due to free cash flow.
Speaker Change: <unk> and <unk>.
Speaker Change: <unk> repurchase.
Speaker Change: $3 9 million.
Speaker Change: During Q3.
Speaker Change: We repurchased approximately $6 8 million of our class a ordinary shares equivalent to $1 7 million Etfs.
Or sorry $9 million.
Representing one 9%.
Speaker Change: Sure.
Speaker Change: $200 million share repurchase program.
Speaker Change: So far we have completed 57%.
Speaker Change: Share repurchase program, which will expire.
Speaker Change: February 2025.
And we intend to continue to undertake some meaningful capital return core shareholders.
Speaker Change: Now turning to guidance for the fourth quarter of 2024. They are currently expect total revenues to be between.
Speaker Change: 34 and $36 million.
Speaker Change: Compared with 31 $6 million in the third quarter of 2024.
And $33 $3 million in the fourth quarter of 2023.
Speaker Change: If revenues from started end of sale of low margin correct were excluded.
Speaker Change: We also expect significant improvement in net income loss in the first in the fourth quarter.
Speaker Change: This outlook also reflects our current and preliminary view on the market operating conditions, which are subject to change.
Speaker Change: In closing thank you to pose strong teams were hard work and contribution curious peered.
Speaker Change: Thank you everyone for attending the call today.
Let's open it up for questions.
Speaker Change: Certainly.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced towards draw. Your question. Please press star one again.
Please.
And our first question comes from the line of <unk> Jain senior associate.
Speaker Change: Thanks management for taking my questions.
Speaker Change: First of all.
Speaker Change: So I wonder what would be the impact of your recent break organization on the earnings side the upcoming quarters.
Speaker Change: Secondly, could you please update us on the progress of your collaboration with open AI and please share your views on the recent adjustment of the cash price. Thank you.
Speaker Change: I'll take the first question so as I just said just now.
Speaker Change: Operating expenses on GAAP basis.
Speaker Change: To be about $4 million lower than Q4.
Speaker Change: And about $7 million lower than Q1.
Compared to the baseline in Q2 this year.
Speaker Change: It was about $32 $6 million in Q2.
Speaker Change: The reason.
Speaker Change: The saving is more in Q1 compared to Q4 is it.
Speaker Change: Because of the restructuring happened.
In November.
Speaker Change: Go ahead.
Speaker Change: One half months of salary.
For the employees, who left the company.
Speaker Change: This quarter.
Speaker Change: And on the other hand, we do not expect CE restructuring to have a significant impact on revenues. So most of these savings were translating into our <unk>.
Speaker Change: Improvement on the Pos.
Mike.
Speaker Change: Yes on publishing as often.
Speaker Change: And things.
Speaker Change: Our launch of route time Epi.
Speaker Change: We see a lot of interest from developers and all of our customers.
Speaker Change: There are.
Speaker Change: Some hurdle.
Speaker Change: Work actually.
Speaker Change: Happen.
With a group of customers.
Speaker Change: Mostly POC stage.
Speaker Change: And we hope.
Speaker Change: To launch certain use cases in the near future.
Speaker Change: Meanwhile, also we see areas to improve on technology and infrastructure design side to.
Speaker Change: To make the conversational experience, even more smooth in terms of audio quality.
Speaker Change: The interaction between human AI.
Speaker Change: Hence do stage after opening.
Speaker Change: <unk> is still in there Peter.
Speaker Change: We're working with partners to bring that.
Speaker Change: To market sooner.
Speaker Change: Okay on the pricing question, yes.
Speaker Change: Yes.
Speaker Change: Opponents offering cash pricing for cash.
Speaker Change: This input, which is 80% cheaper than the standard in progress.
Speaker Change: It is certainly one way to bring the cost down and developers.
Including us.
Speaker Change: Very closely.
Speaker Change: With my happen next but I want to emphasize that the standard pricing.
Speaker Change: Auto input is $200 per 1 million program that has not change the cash prices lower is $20.
That's for cash input, which is basically the pattern.
Speaker Change: His input.
Speaker Change: Input.
Speaker Change: It has seen R&D.
So.
Speaker Change: Or different use cases.
Speaker Change: The percentage of cash input.
Speaker Change: And it's hard to say.
Speaker Change: Our highest cash hit rate you can achieve.
Speaker Change: Various use cases.
What I'm, saying is the pricing for you ought to talk it has not changed which is actually a lot more expensive.
Speaker Change: The price of oil output. Okay. He is four times the PRASM.
Speaker Change: Okay. So is that unchanged overall pricing has not actually changed that much.
Speaker Change: With that said, we do believe in the medium term.
Speaker Change: There will be significant.
Cool.
Speaker Change: Cost reduction.
Speaker Change: Thank you.
Speaker Change: One moment please for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Daily Li with Bank of America.
Speaker Change: Yeah.
Speaker Change: Hi management. Thanks for taking my question I have two questions here.
Speaker Change: First question is about our guidance regarding the revenue seems a kind of a better trend compared to Q3.
Speaker Change: Could you.
Give more color about the key drivers for better revenue for Q4, and if a more color about the demand.
Speaker Change: Mainland China business in overseas will be.
Speaker Change: Helpful.
Speaker Change: Some question about also about the the.
Speaker Change: Hum.
Speaker Change: Conversational.
Speaker Change: Thanks to the AI.
Speaker Change: How do we see the progress with the domestic larger motor platinum players and how we see the change between China and the.
Speaker Change: And the AI that you would like to hand in terms of the application.
Speaker Change: Archie and convert additional yeah. Thank you.
Speaker Change: Yeah.
Speaker Change: I'll take the first question so okay.
Speaker Change: For Q points.
Speaker Change: Revenues 34 to 36 million compared to Q3 sequentially.
Speaker Change: Employers.
About <unk>.
Speaker Change: 2.5 to $4 5 million increase and that was actually driven by <unk>.
Speaker Change: In both.
Speaker Change: International market and also China market.
Speaker Change: So in the U S International market, we see.
Speaker Change: More demand in.
Speaker Change: Shopping so cost greater economies of social space and also a customer in Asia.
Speaker Change: As we talk about.
Speaker Change: In previous earnings call the actually in the past two years, we had a pretty challenging.
Speaker Change: Market environment.
Speaker Change: Southeast Asia immediately.
Speaker Change: India.
Speaker Change: But we have seen some recovery in the most recent quarter, especially in southeast Asia and Middle East.
Cool.
Speaker Change: International in China, we see.
Speaker Change: Improvement.
Speaker Change: Our team and the digital transformation in Q4 and traditionally.
Speaker Change: Okay.
Speaker Change: High season for digital transformation and also see some.
Speaker Change: Market share expansion in China.
Speaker Change: Anna.
Speaker Change: So although the overall economic conditions are challenging, but because we have been successfully expanding our market share.
Speaker Change: That also now to sequential revenue growth in Q4 compared to Q3.
Speaker Change: I think the.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: So I don't think question.
Speaker Change: We.
Speaker Change: We have a lot of collaboration with <unk>.
Speaker Change: <unk> is found.
<unk> financial model companies or even non fundings from all the policies companies leveraging.
One of them is to build the building blocks.
Speaker Change: <unk> also a huge amount of interest.
Speaker Change: Exploring possibilities and opportunities leveraging conversational AI features to build a use case as well.
Speaker Change: There is.
Speaker Change: A few events are announced our partnership with functional model company of size, we talked about in the opening remark.
Speaker Change: But most of the use cases.
Speaker Change: A more of an experiment in environment period.
Speaker Change: In turn off a POC stage.
Speaker Change: It will take some time for the technology to mature to become generally available for <unk>.
Speaker Change: Hi.
Speaker Change: In domestic models and use case wise, we see.
Speaker Change: Sure.
Speaker Change: Fit into customer service education, Iot and social companionship.
Thank you.
Speaker Change: One moment please.
Speaker Change: Our next question comes from the line of June.
Speaker Change: With <unk> Securities.
Speaker Change: Yes. Thank you management for taking my question I have a question towards the outlook for next year crude could you. Please give us more color on our.
Speaker Change: Revenue outlook next year, and our cash flow look next year and also we.
Speaker Change: We mentioned.
Speaker Change: That we will achieve our breakeven.
Speaker Change: Breakeven point next year, so based on what assumptions do we think that we will achieve.
Our breakeven point.
Speaker Change: Yeah.
Speaker Change: Sure. So yes, we have always guided market that we target to achieve GAAP breakeven.
Speaker Change: King.
King: Full year 2025.
King: Under very conservative assumptions, so our internal goal is certainly to our clients.
King: Moderate revenue growth for the existing use cases and.
King: We want us to be.
King: Technology.
Technologically.
King: Finally ready for additional demand from conversational AI use cases so.
In summary, the guidance has not changed.
King: And I.
King: When I talk about the.
King: Savings off of operating expenses, just now with that level of savings and with <unk>.
King: Very conservative revenue assumptions, we believe it will be able to.
King: The key thing in 2025.
King: Yeah.
King: Yeah.
King: Yes. Thank you.
Speaker Change: Thank you there are no further questions. Thank you everybody for attending the Companys call today as a reminder, the recording in the earnings release will be available on the company's website at Investor <unk> <unk>.
Speaker Change: And if there are any questions. Please feel free to email the company. Thank you.