Agora Inc. (ticker: API), a leading provider of real-time engagement solutions, reported a 7.7% quarter-over-quarter and 9.8% year-over-year decrease in total revenues, amounting to CNY 31.6 million in Q3 2024. However, when excluding low-margin products, the company's revenues actually saw a 2.3% increase quarter-over-quarter. Agora's specific revenues were up by 2.6% year-over-year, reaching $15.7 million, bolstered by business expansion in live shopping and other areas. Despite a net loss of RMB 24.2 million for the quarter, the company's gross margin improved to 66.7%, and they have completed 57% of a $200 million share repurchase program. Looking ahead, Agora anticipates Q4 revenues to be between $34-36 million and is on track to achieve GAAP breakeven by 2025, with a focus on growth in international markets and sectors like IoT and digital transformation.
Key Takeaways
- Agora's Q3 2024 revenue experienced a decline but showed growth when excluding low-margin products.
- The company launched a conversational AI SDK in partnership with OpenAI and sponsored the TEN project to facilitate AI agent development.
- Organizational restructuring is expected to save millions in the coming quarters.
- Agora's Q4 2024 revenue forecast is optimistic, and the company aims to reach GAAP breakeven by 2025.
- The company remains confident in the adoption of multimodal AI agents and its positioning in the generative AI era.
Company Outlook
- Projected Q4 2024 revenues between $34-36 million.
- Anticipated GAAP breakeven by the full year of 2025 with conservative revenue assumptions.
- Growth expected in international markets, including Southeast Asia and the Middle East.
- Focus on sectors such as live shopping, IoT, and digital transformation for future growth.
Bearish Highlights
- Reported a net loss of RMB 24.2 million in Q3 2024.
- Q3 revenues decreased by 7.7% quarter-over-quarter and 9.8% year-over-year.
Bullish Highlights
- Revenues increased by 2.3% quarter-over-quarter when excluding low-margin products.
- Gross margin improved significantly to 66.7%.
- Positive business expansion in live shopping contributed to revenue growth.
Misses
- Despite the overall revenue decline, there were no significant misses reported.
Q&A Highlights
- The company did not disclose any specific Q&A highlights from the earnings call.
In conclusion, Agora is navigating through a challenging financial period with strategic initiatives and technological innovations. The company's leadership remains optimistic about the future, emphasizing their efforts in multimodal AI and real-time engagement technologies as key drivers for recovery and growth. With a clear focus on achieving profitability and expanding its market presence, Agora is positioning itself to capitalize on the opportunities presented by the generative AI era.
Full transcript - Advanced Photonix Inc (API) Q3 2024:
Operator: Good day, and thank you for standing by. Welcome to the Agora, Inc. Third Quarter 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Call. Please be advised that today's conference is being recorded. The company's earnings results, press release, earnings presentation, SEC filings and a replay of today's call can be found on its IR website at investor. Agora. Io.
Joining me today are Tony Zhao, Founder, Chairman and CEO Jingbo Wang, the Company's CFO. Reconciliations between the Company's 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 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 SEC, including today's earnings press release and the risk factors and other information contained in the final prospectus relating to its initial public offering.
Agora, 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.
Tony Zhao, Founder, Chairman and CEO, Agora, Inc.: Thanks, operator, and welcome everyone to our earnings call. I'll first review our operating results in the past quarter. Agora revenue were $15,700,000 in the 3rd quarter, up 3% year over year, mainly driven by business expansion in certain use cases such as live shopping. Shouang revenue were RMB113 1,000,000 in the 2nd quarter, down 9% year over year, if excluding revenues from certain end of sale low margin products, mainly due to challenging regulatory and macro environment. Now moving on to our business, product and technology updates for this quarter.
As many of you already know, we recently launched our conversational AI SDK in collaboration with OpenAI's real time API to allow developers to bring voice driven AI experience to any application. Our joint solution has 2 distinct advantages. First, OpenAI's GPT-four point zero model is multimodal, which means it can process voice input from human directly without the need to convert voice to text and therefore can understand and respond to human emotions much better than previous text based models. 2nd, end user can enjoy Agora's advanced noise suppression and echo cancellation features as well as low latency conversation even under challenging network conditions thanks to our global real time network and optimization algorithms. Since our joint launch with OpenAI in early October, we have seen many fascinating and innovative use cases being developed and brought to market by developers across various verticals.
One area where we believe conversational AI will have a significant impact is Internet of Things or IoT. Many of us have had unpleasant experiences with previous generation of so called smart speakers or smart assistants, which often struggle to understand our requests and lack ability to speak naturally or making real time decisions. Now with our conversational AI SDK, IoT devices connected to an advanced AI model can easily understand complex requests, hold natural conversations and take actions based on live video feeds. For example, our customer, Mikko, makes advanced educational robots for kids between the age of 510. Previously, Mikko used our video calling SDK to enable parents to monitor and take and talk to their children and our signaling SDK to allow parents to move the robots around and follow a child during a video call.
Thanks to our conversational AI SDK, Meeko can now add interactive storytelling by advanced AI models in their content platform. The robot can adapt its response and behaviors based on a child's motion and interactions, providing a dynamic learning companion that grows with a child. Last month in Beijing, we hosted our 10th annual RTE conference with a focus on the interests of AI and RTE technologies. Both registration and attendance hit record highs, demonstrating the industry wide excitement around real time conversational AI and continued interest from developers on RT use cases, its huge market potential and our unique place within its ecosystem. At the conference, we also demoed a conversational AI solution jointly developed with MiniMax, a leading AI company.
We believe that for conversational AI to succeed, there needs to be a vibrant ecosystem of foundational models and building blocks, such as text to speech, speech to text, streaming, orchestration and other developer tools. We are now working closely with several leading financial model companies and other key players to build such an ecosystem together. As part of this effort, we sponsored an open source project in our developer community called Transformative Expansion Network or TEN for short. TEN is the orchestration framework for building AI agents with real time multimodal AI capabilities. It supports integration with a wide range of large language models, speech to text and text to speech extensions and offers flexibility in ASH Cloud architecture.
With TEN, developers can easily create AI agents that not only talk to users naturally, but also understand video feeds from a device camera. Throughout this process, our global network ensures high performance and low latency interaction between users and cloud based AI models. To summarize, we believe multimodal AI agents that can interact with humans through natural voice will gain widespread adoption in many use cases such as customer support, education and wellness. In these use cases, RPE technology is essential for enhancing the user experience to the point where AI agent can match and even outperform human. This will drive significant usage growth and create new opportunities for the RT industry.
As an industry pioneer and leader, we are well positioned to become a key infrastructure provider for real time conversational AI. To support this vision, we recently made some structural changes, aligning our organization to fully leverage the accelerating conversational AI opportunities and operate in a faster, inner and more responsive fashion. These changes will help us build the next generation real time engagement technology for the generative AI era and strengthen our position as a leading as a leader in real time engagement space. Today, we also announced that Mr. Roger Hale will lead the company after serving 2.5 years as our Chief Security Officer.
We are grateful for Roger's dedication and expertise. His leadership has been invaluable in strengthening our security and compliance foundation. Moving forward, Patrick Ferriter and Robin Liu will assume responsibility for security and compliance, and we will continue to uphold the highest standard to protect our customers and stakeholders. Roger will continue to provide strategic advices as an advisor to the company. Before concluding my prepared remarks, I want to thank both the Agora and Shanghai teams for their resilience, dedication and belief in what we can accomplish together.
I believe we are well positioned to harness emerging technologies and innovation to build the best real time engagement experiences in the generative AI era. With that, let me turn things over to Jingbo, who will review our financial results.
Jingbo Wang, CFO, Agora, Inc.: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the Q3 of 2024, and then I will discuss outlook for the Q4. Total (EPA:TTEF) revenues were CNY 31,600,000 in the 3rd quarter, a decrease of 7.7% quarter over quarter and a decrease of 9.8% year over year. If excluding revenues from certain end of sale low margin products, total revenues increased 2.3% quarter over quarter and decreased 3.1% year over year.
Agron revenues were $15,700,000 in the 3rd quarter, an increase of 0.4% quarter over quarter and an increase of 2.6% year over year. The increase was primarily due to business expansion and usage growth in certain verticals such as live shopping. Xunghong revenues were RMB RMB112,900,000 in the 3rd quarter, a decrease of 14.5 percent quarter over quarter and a decrease of 20% year over year. If excluding revenues from certain end of sale or margin products, Xiongong revenues increased 4.2 percent quarter over quarter and decreased 8.7% year over year. The quarter over quarter increase was primarily due to increase in revenues from certain verticals such as Internet of Things as well as usage increase from education vertical during summer vacation.
The year over year decrease was primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions. Dollar based net retention rate is 94% for Agora and 78% for Shungua, excluding revenues from certain end of sale products and discontinued business. Moving on to cost and expenses. As Tony mentioned just now, we made a difficult decision to restructure and reduce our global workforce this month. The associated severance costs of $4,800,000 are reflected in cost of revenues and operating expenses in Q3.
As part of the restructuring, we also canceled certain equity awards for the remaining employees. These awards were mostly granted in 2021, while our stock price was significantly higher. As a result, share based compensation expenses are locked in at the stock price at the time of the grant, although the cash value of the awards is much lower at today's stock price. According to GAAP rules, the cancellation of these awards will cause immediate recognition of share based compensation expense for the remaining awards, which is $11,400,000 However, I want to emphasize that these awards are simply canceled. So the company is not paying any stock option or cash to the relevant employees.
In other words, there is no actual cost to the company. The $11,400,000 expenses in Q3 are only accounting treatment. Going forward, the cancellation of these awards will free us from this accounting burden. Post the restructuring, we expect to see savings on operating expenses of roughly $4,000,000 in Q4 this year and $7,000,000 in Q1 next year compared to the baseline in Q2 this year. Gross margin for the Q3 was 66.7%, which was 2.7% higher than Q3 last year and 4.7% higher than Q2 this year.
The increase was mainly due to the end of sale of certain low margin products, which was offset partially by higher severance costs in this quarter. If we exclude severance of $300,000 pro form a gross margin is 67.7 percent for the 3rd quarter. R and D expenses were $29,300,000 in Q3, which included severance of $3,600,000 and equity award cancellation expense of $9,000,000 If we exclude these two items, pro form a R and D expenses decreased 17.1% year over year to $16,600,000 in Q3, representing 52.5 percent of total revenues in the quarter compared to 57.2% in Q3 last year. Sales and marketing expenses were $6,900,000 in Q3, which included severance of $700,000 If we exclude severance, pro form a sales and marketing expenses decreased 20 point 9% over year to $6,200,000 in Q3, representing 19.6% of total revenues in the quarter compared to 22.2% in Q3 last year. G and A expenses were $9,700,000 in Q3, which included severance of $100,000 and equity award cancellation expense of $2,400,000 If we exclude these two items, pro form a G and A expenses decreased 19.7 percent year over year to $7,300,000 in Q3, representing 23.1% of total revenues in the quarter compared to 25.9% in Q3 last year.
Moving on to bottom line. Net loss for the quarter was RMB 24,200,000 if we exclude severance of RMB 4,800,000, dollars equity award cancellation expense of $11,400,000 and losses from equity in affiliates of $4,100,000 pro form a net loss was 3,900,000 translating to a 12.4 percent net loss margin in the 4th quarter. Now turning to cash flow. Operating cash flow was negative RMB 4,600,000 in Q3 compared to negative $3,000,000 last year. Free cash flow was negative $6,000,000 compared to negative $3,200,000 last year.
Moving on to balance sheet. We ended Q3 with $362,600,000 in cash, cash equivalents, bank deposits and financial products issued by banks or $3.94 per ADS. Net cash outflow in the quarter was mainly due to free cash flow of negative $6,000,000 and share repurchase of $3,900,000 During Q3, we repurchased approximately 6,800,000 of our Class A ordinary shares, equivalent to 1,700,000 ADS for $3,900,000 representing 1.9% of our $200,000,000 share repurchase program. So far, we have completed 57% of our share repurchase program, which will expire at the end of February 2025, and we intend to continue to undertake this meaningful capital return to our shareholders. Now turning to guidance.
For the Q4 of 2024, we currently expect total revenues to be between $34,000,000 $36,000,000 compared to 31.6 $1,000,000 in the Q3 of 2024 $33,300,000 in the Q4 of 2023 if revenues from certain end of sale low margin products were excluded. We also expect significant improvement in net income or loss in the Q4. This outlook also reflects our current and preliminary views on the market and our operating conditions, which are subject to change. In closing, thank you to both Agora and Shuang teams for your hard work and contribution during this period. Thank you, everyone, for attending the call today.
Let's open it up for questions.
Operator: Certainly. And our first question comes from the line of Xiaodian Zhang, Senior Associate.
Xiaodian Zhang, Senior Associate: Thanks, management for taking my questions. And first of all, so I wonder what would be the impact of your recent reorganization on the earnings of the upcoming quarters? And secondly, could you please update us on the progress of your collaboration with OpenAI? And please share your views on the recent adjustment of the cash price? Thank you.
Jingbo Wang, CFO, Agora, Inc.: Thank you. I'll take the first question. So as I just said just now, we expect operating expenses on GAAP basis to be about $4,000,000 lower in Q4 and about $7,000,000 lower in Q1 compared to the baseline in Q2 this year, which was about $32,600,000 in Q2. The reason the saving is more in Q1 compared to Q4 is because the restructuring happened in November. So we still had about 1.5 month of salary for the employees who left the company this quarter.
And on the other hand, we do not expect the restructuring to have a significant impact on revenues. So most of the savings will translate into improvement on the bottom line.
Tony Zhao, Founder, Chairman and CEO, Agora, Inc.: Tony? Yes. On cooperation with OpenAI, ever since the launch of real time API, we see a lot of interest from developers and our customers. And there are some parallel work actually happen with a group of customers on mostly on POC stage. And we hope to launch certain use cases in the near future.
Meanwhile, also we see areas to improve on technology and infrastructure design side to make the conversational experience even more smooth in terms of audio quality and the interaction between human and AI. Current stage of the OpenAI API is still under beta. We are working with partner to bring that to market sooner.
Jingbo Wang, CFO, Agora, Inc.: Okay. On the pricing question, yes, now OpenAI is offering a cash pricing for cash voice input, which is 80% cheaper than the standard input price. It is certainly one way to bring the cost down and developers, including us, are watching very closely on what might happen next. But I want to emphasize that the standard pricing of auto input is still $100 per 1,000,000 token. That has not changed.
The cash price is lower, it's $20 but that's for cash input, which is basically the repetitive input, the AI has seen already. So for different use cases, the percentage of cash input really differs. And it's hard to say how high a cash hit rate you can achieve with various use cases. The other thing is the pricing for the ARPU token has not changed, which is actually a lot more expensive. The price for ARPU token is 4 times the price for the ARPU token.
So with that unchanged, the overall pricing has not actually changed that much. With that said, we do believe in the medium term, there will be significant room for cost reduction.
Operator: Thank you. One moment please for our next question. And our next question comes from the line of Daley Li with Bank of America.
Daley Li, Analyst, Bank of America: Hi, management. Thanks for taking my question. I have two questions here. First question is about our 4Q guidance regarding the revenue. It seems kind of better trend compared to Q3.
Could you give more color about the key drivers for better revenue for Q4? And if you want more color about the demand in mainland China business and overseas will be quite helpful. My second question about also about the conversational based the AEI. How do we see the progress with the domestic large network model players? And how do we see the trend between China and the like open AI, the U.
S. Trend in terms of the AI application in this RTE and the conversational AI? Thank you.
Jingbo Wang, CFO, Agora, Inc.: Thank you, David. I'll take the first question. So our guidance for Q4 is in terms of revenue is $34,000,000 to $36,000,000 compared to Q3. So sequentially, that implies about $2,500,000 to $4,500,000 increase. And that was actually driven by demand in both U.
S. International market and also China market. So in the U. S. International market, we see more demand in live shopping, so called creator economies or social space and also customers in Asia.
As we talked about in previous earnings calls, actually in the past 2 years, we had a pretty challenging market environment in Southeast Asia, in Middle East, in India. But we have seen some recovery in the most recent quarter, especially in Southeast Asia and Middle East. So that's on U. S. International.
In China, we see improvement on IoT and digital transformation in Q4. And traditionally, Q4 is a high season for digital transformation. We also see some market share expansion in China. So also the overall economic condition is still challenging, but because we have been successful in expanding our market share, that also led to sequential revenue growth in Q4 compared to Q3.
Tony Zhao, Founder, Chairman and CEO, Agora, Inc.: I'll take the AI side of the question. We have a lot of cooperation with various foundation model companies or even non foundation model companies, companies leveraging generating AI algorithms to build building blocks. We see also a huge amount of interest in exploring possibilities and opportunities leveraging conversational AI features to build use case as well. There's a few events announced our partnership with financial model companies as we talked about in the opening remarks. But most of the use cases are more in experiment and development period in kind of a POC stage.
It will take some time for the technology to mature to become generally available for real time API in domestic models. And use case wise, we see clear fit into customer service, education, IoT and social companionship.
Daley Li, Analyst, Bank of America: Thank you, management.
Operator: One moment please. Your next question comes from the line of June Xia with Guixin Securities.
Xiaodian Zhang, Senior Associate: Yes. Thank you, management for taking my question. I have a question towards the outlook for next year. So could you please give us more color on our revenue outlook next year and our cash flow outlook next year? And also, we mentioned our that we will achieve a given point next year.
So based on what assumptions do we think that we will achieve the breakeven point? Thank you.
Jingbo Wang, CFO, Agora, Inc.: Sure. So yes, we have always guided markets that we target to achieve GAAP per kg for the full year of 2025. And that's actually under very conservative revenue assumptions. So our internal goal is certainly to drive moderated revenue growth for the existing use cases. And we want us to be technologically and organizationally ready for additional demand from conversational AI use cases.
So in summary, the guidance has not changed. And I talked about the savings of operating expenses just now with that level of saving and with a very conservative revenue assumption, we believe we'll be able to breakeven in 2025.
Operator: Thank you. There are no further questions. Thank you everybody for attending the company's call today. As a reminder, the recording in the earnings release will be available on the company's website at investor. Agora.
Io. And if there are any questions, please feel free to e mail the company. Thank you.
Jingbo Wang, CFO, Agora, Inc.: Thank you. Bye bye.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.