API - Agora, Inc.

Operator: Good day, and thank you for standing by. Welcome to the Agora Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] 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. 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. The 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 and in which the company discussed in details in its filings with the SEC, including today's call, earnings press release and the risk factors and other information contained in the final prospectus relating to its initial public offering. Agora Inc. remains (sic) [ assumes ] no obligation to update any forward-looking statements the company may make on today's call. Now, with that, let me turn it over to Tony. Hi, Tony.
Bin Zhao: Thank you, operator, and welcome, everyone, to our earnings call. I'll start with a review of our operating results for the quarter. I'm pleased to report our sixth consecutive quarter of GAAP profitability alongside another quarter of strong top line growth. Total revenue for the first quarter of 2026 reached $37.7 million, up 13.5% year-over-year. Growth further accelerating from prior quarters. GAAP net profit was $1.1 million, more than double the level of Q1 last year. These results reflect the continued expansion of our real-time engagement use cases globally as well as an increasing contribution from AI-related applications and products built with our solutions. Now let me turn to our business, product and technology update for the quarter. Over the past several months, we continue to make progress in bringing conversational AI to real-world production, deepening the AI abilities with our real-time engagement infrastructure and expanding our ecosystem partnerships. In March, we officially launched an Agent Studio, our visual low-code environment that enables developers and enterprise to rapidly build, test and deploy with AI agents at scale. We also introduced conversational AI agents for inbound use cases such as customer service as well as outbound use cases focused on sales and marketing. The market opportunity here is enormous. According to Gartner conversational agents are expected to automate 70% of customer interactions by 2027 and by 2028, AI agents are projected to outnumber human sellers by 10:1. At the same time, many enterprises still struggle to deploy with AI in production environments. The challenge is not simply the AI model itself, but the complexity of integrating multiple technology layers while maintaining low latency, reliability and the natural conversational experience at scale. In addition, effective enterprise deployment require domain-specific expertise. A successful voice AI agent must do more than respond accurately and must reflect the tone, personality and workflow of the industry it serves. For example, a car sales assistant and that debt collection agent need very different conversational styles, content guardrails and customer engagement approaches. Our solution is designed to eliminate this complexity through a fully integrated stack that combines 3 core components: [indiscernible] that allows enterprise to design, test and deploy AI agent in minutes rather than weeks or months. Second, our conversational AI agent upstreams ASR, large language model and TTS capabilities with intelligent interaction handling, noise suppression, multilingual support and domain aware conversation design, enabling more natural and human-like interactions. Third, our global realtime network infrastructure delivers subsecond latency and carrier-grade reliability worldwide. We are already seeing strong early validation from real-world deployments. In Q1, 1 customer implemented survey and polling agent that matched 10% conversion rate of human agents. This allows them to scale data collection and reward distribution, far more cost effectively without adding operational headcounts. Overall, enterprise feedback has been highly encouraging. Customers increasingly recognize that scalable conversational AI requires not only powerful models but also real-time infrastructure capability of delivering [indiscernible] and seamless interaction and integration. We believe we are uniquely positioned at the intersection of these capabilities. Last month, we also strengthened our position in the enterprise collaboration market with the launch of our intelligent meeting engine product. Intelligent meeting engine offers end-to-end encryption, flexible deployment options, including on-premise and private cloud and full data isolation to help ensure that customer meeting content remains entirely within their controlled infrastructure. At the same time, it includes AI-powered abilities such as real-time transcription, translation, intelligent meeting summaries and automated follow-up workflows that can connect with customers' existing billing system. This solution addresses growing enterprise demand around content data sovereignty and intelligent workflow automation and has been well received in industries, including finance, government and health care. Turning to ecosystem partnerships. We continue to integrate the latest AI models such as Google's Gemini Live and xAI Grok models into our conversational AI solutions. In particular, Google has featured Agora as a recommended partner for building real-time conditional AI, validating our technology leadership in this space. In addition, we recently entered strategic partnership with NetEase Enterprise Service Division, NetEase Smart Enterprise. Together, we will provide integrated solutions spanning real-time video, content moderation and AI agent. This partnership combines NetEase expertise in AI and content moderation with our leadership in real-time engagement infrastructure. We believe this partnership is meaningful validation of our technology from one of China's leading internet companies while also expanding our go-to-market opportunities across education, customer service, digital entertainment and enterprise collaboration. Before I conclude, I want to thank the Agora and Shengwang teams for their continued dedication and execution and thank our shareholders for their ongoing trust and support. Globally, conversational AI is rapidly moving from proof of concept to large-scale deployment. Since the official launch of our conversational AI engine product last year, usage has demonstrated remarkable momentum with over 150% sequential growth every single quarter. Enterprises today are no longer asking whether they should adopt conversational AI. Instead, they are asking how to deploy it at scale with reliability, low latency and seamless integration. We believe our decade of experience in real-time engagement infrastructure uniquely position us to help customers solve exactly this challenge. With that, let me turn things over to Jingbo, who will review our financial results.
Jingbo Wang: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the first quarter of 2026. Then I will discuss outlook for the second quarter. Starting this quarter, we have simplified our disclosure approach for revenues as the active customers and will no longer separately disclose these metrics for Agora and Shengwang. We've also refined our dollar-based net retention rate, or DBNRR methodology. We now compare quarterly revenue from the same cohort of paying customers year-over-year to calculate DBNRR. This change aligns DBNRR more closely with our quarterly revenue growth rate, making it easier for investors to compare the two. Total revenues for the first quarter reached $37.7 million, representing 13.5% year-over-year growth. These results exceeded the high end of our guidance range of $36 million to $37 million and reflected continued expansion and usage growth of real-time engagement services in sectors such as U.S. live shopping, social and entertainment and financial services. DBNRR first quarter were 99% compared to 95% in the first quarter of 2025. Gross profit for the quarter was $23.9 million, representing a 5.7% year-over-year increase. Gross margin was 63.4% compared to 68% in the same period last year, mainly due to product mix change, especially conversational AI products remaining at a subscale stage. Turning to expenses. R&D expenses were $14.4 million in Q1, up 2.9% year-over-year. R&D expenses accounted for 38.1% of total revenues compared to 42.1% in the same period last year. The increase was primarily due to continued investment in conversational AI Products. Sales and marketing expenses of $5.9 million in Q1, down 4.8% year-over-year. So the marketing expenses represented 15.6% of total revenues in the quarter compared to 18.7% in Q1 last year. The decrease was primarily due to disciplined expense management, including lower personnel and promotion expenses. General and administrative expenses was $6 million in Q1, down 2.4% year-over-year. G&A expenses represented 15.9% of total revenues, compared to 18.8% in Q1 last year. The decrease was primarily due to a lower allowance for current expected credit losses mainly as a result of improved customer credit conditions and collection outcomes. Moving on to the bottom line. We delivered net income of $1.1 million in Q1, more than double the net income in the first quarter last year, representing a 2.9% net income margin. This marks our sixth consecutive quarter of GAAP profitability and reflects continued improvement in our operating leverage. Now turning to cash flow. Operating cash flow was $5.7 million in Q1, including interest received of $4.3 million compared to $17.6 million in Q1 last year, which included interest received of $17.8 million. Moving on to balance sheet. We ended Q1 with $366.1 million in cash, cash equivalents, bank deposits and financial products issued by banks. Net cash outflow in the quarter was mainly due to share repurchase. During the quarter, we repurchased approximately 12.5 million Class A ordinary shares or 3.1 million ADSs, representing approximately 3.6% of our total outstanding shares at the beginning of the quarter for approximately $13.1 million. As of March 31, 2026, we have repurchased 174.7 million Class A ordinary shares or 43.7 million ADSs for approximately $156.2 million under our share repurchase program, which represented 78.1% of a $200 million share repurchase program. The current program will expire at the end of February 2027. Now turning to guidance. Based on currently available information, we expect total revenues for the second quarter of 2026 to be between $39 million and $40 million compared to $34.3 million in the second quarter of 2025, representing year-over-year growth of 13.7% to 16.6%. Notably, even at the low end of this range, we expect to deliver faster revenue growth than we did in the first quarter. In closing, I want to thank our teams for their focused execution in the first quarter. We beat revenue guidance and net income more than doubled year-over-year. Our second quarter outlook also points to a further acceleration in revenue growth. We will continue to invest in AI with discipline, and we are confident that it will become an increasingly important driver of long-term growth. Thank you all for joining today's call. Let's open it up for questions.
Operator: [Operator Instructions] First question comes from the line of Harry Zhuang from Bank of America Securities.
Harry Zhuang: Congratulations on the strong first quarter results and solid Q2 guidance. I have 3 questions here. The first one, since the company did not disclose the revenue breakdown by region. So we would like to know the growth trend in overseas and China market and what are the verticals driving the growth behind. And secondly, in terms of the conversational AI, we would like to know the primary application scenarios at the current stage? And what revenue scale could the company achieve by the end of this year. And thirdly, it's about the operating profit guidance. What is the operating profit target for FY '26 and any time line for operating level breakeven?
Jingbo Wang: On the first question, first of all, in this quarter, both the China business and the U.S. international business are growing very rapidly. So the growth rate in the U.S. business is still a little bit faster as we're approaching both at a very healthy rates. So in terms of the demand in both markets. I'll talk about the demand in the RTE market first. And Tony will talk about demand in the AI market. So for RTE in China, demand for the traditional vertical social entertainment, education, from all these verticals demand continue to recover. And in the U.S. international markets, demand from live shopping, financial services and gamings business among the strongest, and we have a very healthy pipeline of new customers in these verticals as well. So overall, RTE demand looks quite healthy.
Bin Zhao: About the demand on AI side. From the beginning of this in [indiscernible] closely watching the progress on all fronts. We were the first to introduce AI into the whole RTE technology stack and offer the first generation of products empowered by those capabilities. Since then, we've been closely working with customers on practical demand. The thing is, in the last few years, there has been a lot of hype around how AI can change people's lives. And those claims are not fake, but many of those claims are overstatements that far ahead of what's happening on the ground, mostly oversimplifies the practical challenges and actual adoption process. Since early last year, we've been seeing demand from call center [indiscernible] education, digital [indiscernible], et cetera. I think we talked about that last year. This is happening over the past few quarters in different regions. In each of those areas, we actually have certain partners and customers to work with them to go into real production. With them, we made progress in the overall experience, cost-per-token economy and customer use case adoption. At this moment, we see fairly large demand from the call center side, as the technology of voice agents is increasingly able to communicate and resolve many communication tasks. Leveraging large language model intelligence is improving day by day. On IoT side, after successfully helping to launch the companion toy [indiscernible], similar demand is expanding. [indiscernible] growth itself is also very promising. It can get enough monthly subscription revenue from the most sticky user group every month so it's not just a onetime sale of the hardware toy. We're seeing a similar trend in other use cases of conversational AI.
Jingbo Wang: So Tony just talked about the demand for conversational AI. So I think that also answered partly the second question. So yes, revenue contribution this year, we believe call center and IoT will be the biggest contributors. And I think Tony also talked about that in his opening remarks that since we released our conversational AI engine product in March last year, its usage has been growing at more than 150% sequential growth rate every single quarter. So also the revenue contribution at the moment is still relatively low. We expect to see revenue to quickly ramp up and towards somewhere around 5% revenue contribution by [indiscernible]. So in terms of the Q1 '26 operating target. So given the current growth trajectory and the seasonality, we expect operating income and net income to both grow sequentially every quarter from Q1 to Q4. And in terms of the full year profit, we expect the GAAP net income will be significantly higher than last year. And our goal is to achieve GAAP operating profit in the second half of this year.
Operator: [Operator Instructions] Next, we have Rachel Han from CICC.
Rui Han: This is Rui Han Rachel from CICC. Congrats on another strong quarter especially with revenue coming above the high end of guidance. My first question is on e-commerce overseas. Last quarter, I remember you highlighted [indiscernible] and the Super Bowl live shopping events. So could you give us an update on how this vertical has been developing since then? And how should we think about the potential revenue contribution from overseas e-commerce for the rest of 2026? My second question is on domestic China business. I know we shared some color on the growth drivers for the domestic business this year. I noticed we announced NetEase Smart Enterprise partnership this quarter. So how should we think about its potential impact on our Shengwang growth in 2026?
Jingbo Wang: Sure. So the first question, e-commerce use case. So I want to say that in the U.S. market and in probably all development markets in general, video-based live shopping is still a very new set. So we mentioned on last quarter. So after that event -- very successful event, actually the difficult [indiscernible] new user acquisition and customer user stickiness. So we continue to see growing demand from that customer. In addition, we recently won over another fast-growing video-based e-commerce customer in the U.S. market from a competitor. And on top of that, last quarter, it was milestone in the industry. So now everybody in the industry is watching and several other players are trying to host similar events in the future, and we are discussing with a few of them already. So we do expect this vertical to have a lot room for growth, and we are making solid progress on that front. So in terms of the business in China, as I said earlier, demand from these internet-based use cases, social entertainment, education, we see demand recovery, also still at a moderate rate and also from verticals such as IoT, e-commerce, [indiscernible] and [indiscernible] wearable devices, demand from IoT is growing very fast. It has been very fast in the past 2, 3 years. And also digital transformation customers with additional features we also see renewed demand growth from digital transformation, traditional enterprise customers. In terms of the I think it's certainly very helpful but also it reflects the further -- reflected further consolidation of the RTE market in China, right? So we recently -- to just give some more examples when it is recently a private competitor in this market, we purchased all of its venture capital investors and started to force more profitability rather than scale, right? And that used to be a competitor now with those partner and we also see another public cloud competitor has further reduced its staff, the RTE business. So we do believe this trend of easing -- this kind of consolidation will gradually help our revenue growth as well.
Operator: [Operator Instructions] Last question comes from Yue Xu from China Securities.
Yue Xu: Congrats on the strong results. And just 2 quick ones. First, are we seeing further improvement in the domestic competitive landscape? And how should that translate into pricing power and revenue growth? Also, excluding the initial negative gross margin drag from the AI, what is the underlying gross margin trend for our core business? Second question as the [indiscernible] unit economic trend. If AI progress comes in below expectation, how should we think about the target of turning OP margin positive by Q4 of '26?
Jingbo Wang: Sure. So first question on competition and the margin. So I will talk about RTE and Tony will talk about AI. So but just talked about the competition in the China market, we see that the market is moving to further consolidation. Probably more players not place to no longer going after scale, so we do believe that will help with revenue growth as well as margin improvement in coming quarters. So as you can see, Overall, the gross margin in this quarter was a few compared to the same quarter last year, but that's mostly due to the initial active gross margin will become conversational AI business, excluding conversational AI gross margin of the core RTE businesses remain at relatively steady in the first quarter.
Bin Zhao: And on the AI side, there's a lot of competition for conversational AIs in online and the U.S. market. The market is still at early stage, and there are different players trying to attack it from quite diverse angles because it's still a growth market. So every company has a chance to attack from different goes and timing progresses. We are the ones who focus more on the fundamental technology trying to enable the most promising use cases through the ultimate quality of competition. The customer demand is strong as we see the standard is actually adapting to those customer demands and improving the conversational quality so that it can resolve communication tasks at a higher and better level making it more effective. China market is quite different. As you can see, most of the AI companies can only make a fraction of revenue in China market compared to their U.S. peers. The market is quite hard to get to at this moment. However, there is similar demand on conversational AI side and the technology and product progress are also similar.
Jingbo Wang: Okay. So in terms of the unit economics of the conversational AI product, look, I think it is still too early to talk about lead in first quarter season, we have enacted the gross margin for this product is because they have a lot of POC customers, lot of experimentation that this channel is no revenue but has a lot of cost. So we believe as we continue to scale as customers move from POC to deployments and scale usage, by the end of the year, we expect to see a meaningful revenue contribution. And as a point, the gross margin growth, certainly turned positive and also [indiscernible] level. In the long run, we actually expect the comes to generate similar, if not higher, gross margin than current RTE business because of on higher pricing to the more technical sophistication and value creation for customers. If the AI progress is like slower than expectation, we have considered all the investments we need to make on that front. And it will not affect our goal of turning operating profitability in the second half of this year.
Operator: [Operator Instructions] With that, this concludes today's Q&A session and conference call. Thank you again, everyone, for attending the company's call today. As a reminder, the recording and the earnings release will be available on the company's website at investor.agora.io. And if there's any further questions, please feel free to e-mail the company. Thank you.
Bin Zhao: Thank you. Bye-bye.