• Total Revenue: $31.6 million in Q3, a decrease of 7.7% quarter-over-quarter and 9.8% year-over-year.
• Agora Revenue: $15.7 million in Q3, an increase of 0.4% quarter-over-quarter and 2.6% year-over-year.
• Gross Margin: 66.7% in Q3, 2.7% higher than Q3 last year and 4.7% higher than Q2 this year.
• Net Loss: $24.2 million in Q3; pro forma net loss was $3.9 million, excluding certain expenses.
• Operating Cash Flow: Negative $4.6 million in Q3.
• Free Cash Flow: Negative $6 million in Q3.
• Cash and Equivalents: $362.6 million at the end of Q3.
• Share Repurchase: $6.8 million of Class A ordinary shares repurchased in Q3.
• Guidance for Q4 2024: Expected total revenues between $34 and $36 million.

• Warning! GuruFocus has detected 4 Warning Signs with API.

Release Date: November 26, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Agora Inc (NASDAQ:API) reported a 3% year-over-year increase in revenue for the third quarter, driven by business expansion in use cases like live shopping.
• The company launched a conversational AI SDK in collaboration with OpenAI, enhancing voice-driven AI experiences with advanced noise suppression and low-latency features.
• Agora Inc (NASDAQ:API) hosted its 10th annual RTE conference, achieving record-high registration and attendance, indicating strong industry interest in real-time conversational AI.
• The company is actively building an ecosystem for conversational AI by collaborating with leading foundational model companies and sponsoring open-source projects.
• Agora Inc (NASDAQ:API) expects significant improvement in net income loss in the fourth quarter, with projected revenue growth driven by demand in both international and China markets.

Negative Points

• Total revenues for the third quarter decreased by 7.7% quarter-over-quarter and 9.8% year-over-year, reflecting challenges in certain verticals.
• The company underwent a restructuring, resulting in a global workforce reduction and associated severance costs of $4.8 million.
• Agora Inc (NASDAQ:API) reported a net loss of $24.2 million for the quarter, with significant expenses related to equity award cancellations.
• The company faces slowing demand from social and entertainment verticals due to regulatory and economic conditions.
• Operating cash flow was negative $4.6 million in Q3, with a free cash flow of negative $6 million, indicating ongoing financial challenges.

Q & A Highlights

Q: What impact will the recent organizational restructuring have on upcoming earnings, and can you update us on the collaboration with OpenAI? A: Jingbo Wang, CFO, stated that operating expenses are expected to be about $4 million lower in Q4 and $7 million lower in Q1 compared to Q2, with most savings translating into bottom-line improvements. Tony Zhao, CEO, mentioned that the collaboration with OpenAI has generated significant interest, with ongoing work to enhance technology and infrastructure for smoother conversational experiences.

Q: Can you provide more details on the Q4 revenue guidance and the demand trends in China and internationally? A: Jingbo Wang, CFO, explained that Q4 revenue is expected to increase due to demand in both international markets, particularly in live shopping and social spaces, and in China, driven by IoT and digital transformation. Market share expansion in China also contributes to the growth despite challenging economic conditions.

Q: How is Agora progressing with domestic large model players in AI, and what are the trends in AI applications between China and the US? A: Tony Zhao, CEO, highlighted collaborations with various foundational model companies and the interest in leveraging conversational AI for customer service, education, IoT, and social companionship. Many use cases are still in the experimental stage, with technology maturing over time.

Q: What is the revenue and cash flow outlook for next year, and what assumptions support achieving the break-even point? A: Jingbo Wang, CFO, reiterated the target to achieve GAAP break-even in 2025 under conservative revenue assumptions. The company aims for moderate revenue growth from existing use cases and readiness for demand from conversational AI, supported by operating expense savings.

Q: How does the recent pricing adjustment by OpenAI affect Agora's operations? A: Jingbo Wang, CFO, noted that OpenAI's cash pricing for voice input is 80% cheaper, but the overall pricing impact is limited as the standard pricing for audio input remains unchanged. The output token pricing, which is more expensive, has not changed, indicating room for cost reduction in the medium term.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.