Participants

Bin Zhao; Chairman of the Board, Chief Executive Officer, Founder; Agora Inc

Jingbo Wang; Chief Financial Officer; Agora Inc

Harry Wang

Li Ping Zhao

Presentation

Operator

Good day and thank you for standing by. Welcome to the Agora Inc. 4th quarter and fiscal year 2024 financial results conference call. During the presentation, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question.
Please press 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, simply press 11 again. 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 Zao, founder, Chairman. And CEO and Jing Bo Wang, the company's CFO, reconciliations between the company's GAAP and non-gap 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. And 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. Has no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn the call over to Tony. Tony, you may begin.

Bin Zhao

All right, thank you, operator, and welcome everyone to our earnings call. I'll first review our operating results from the past quarter.
This quarter, we achieved GAAP profitability, a significant milestone for our company. This success is a result of strong revenue growth from new use cases and disciplined cost management.
While we faced challenges over the past few years, from the pandemic to regulatory changes and macroeconomic pressures, our team's hard work, innovation and focus have brought us back to profitability.
As we look ahead to 2025, we remain committed to driving operational efficiency and delivering sustainable, profitable growth.
Total revenue in the fourth quarter was $34.5 million up 4% year over year, excluding revenues from certain end of sales, low margin products, mainly driven by business expansion in certain use cases such as live shopping and entertainment.
As of the end of 2024, we had over 1,700 active customers for Aurora and close to 2000 for show on excluding Isov, an increase of 2% and 8% respectively compared to one year ago.
Now, let's turn to our business product and technology updates for the quarter.
The generative AI revolution is advancing at incredible pace over the past few months. We've seen groundbreaking developments from OpenAI's reasoning model 1 to Google's multi-modal, multimodal Gemini 2.0, as well as remarkable open source innovations like Disick.
This transformation presents extraordinary opportunity for our business.
Our real-time engagement technology is uniquely positioned to enable seamless voice-based interactions between human and AI models.
By moving beyond basic text chat to multimodal conversations, we are the key technology to enable and ensure more intuitive and expressive communication experiences.
It also introduced entirely new use cases where tax input simply is not practical or efficient.
However, many large language models today still lack robust voice interaction capabilities.
For those that do support what interaction, the experience often falls short with high latency, awkward pulses, interruptions, and sensitivity to background noises.
Which can lead to fru frustrating user experience.
To address this GAAP, we supported and contributed to an open source project in our developer community called the Transformative Extension Network or 0.
10 is an obtration framework that enables developers to rapidly build multimodal AI agents. It integrates building blocks for speech to text, large language models, text to speech, retrieval, argument, generation, video understanding, and many other useful models.
Useful modules, enabling developers to easily create real-time low latency AI experiences. Essentially, this framework can enable any text-based large language model to deliver a conversational, voice-based conversational experience.
For example, a developer can use 10 to quickly build a voice agent combining Microsoft STT deep 6 larger language model, and Fish audio's tact to speech, all in a matter of minutes.
Since its launch, Chen has become the fast growing, fastest growing project of its kind, earning over 4,500 gig stars in just a few months.
On multiple occasions, 10 topped the trending list as the number one peasant project on GitHub and remained on the list of, on the list for several days.
Building on 10's success. I'm excited to announce the launch of our conversational AI engine, an enterprise grade solution that empowers developers to create interactive voice experiences with any AI model.
Whether it's a customer built model deployed on-premise or leading large language model accessed via API, our conversational AI engine can make it talk and interact naturally with humans.
What sets this solution apart is its ability to integrate easily with new AI models. For instance, we integrated with Google Ge multimodal live API within 24 hours of its release in last December.
The same 24 hour integration was true for Deit in January.
Our solution is also compatible with many popular STT and TPS modules.
But broad compatibility is not only advantage. Our conversational AI engine eos, elevates the conversation experience in three key areas. First, conversation dynamics.
To create natural human-like interactions. The engine intelligently detects and pulses for user interactions within 350 milliseconds, ensuring conversations feel smooth and intuitive.
Second, voice processing. Our selective attentional algorithm enables the AI models to focus solely on the prime speaker, primary speaker and topic, filtering out distractions from irrelevant speakers in the background. Additionally, our advanced noise suppression and echo cancellation algorithms ensure that the AI model receives crystal clear human inputs necessary for generating high quality responses.
Lastly, latency.
Leveraging our global infrastructure, the engine responds to queries in as little as 500 milliseconds.
Dynamically handling packet loss and minimize delays across different network conditions.
We have been working closely with customers to build in the past conversational AI applications across various use cases.
From virtual companions and live language tutoring to smart IOT devices, virtual shopping assistant and customer support.
We believe this innovation will accelerate the adoption of conversational AI across industries and become a key driver of our future growth.
Before I wrap up, I want to take a moment to set incredible teams and Aurora and so on. Our dedication, your dedication and hard work in this fast evolving environment have been nothing short of inspiring.
Today, we are pushing the boundary of real-time AI interactions and unlocking new possibilities for human AI communication.
I'm excited about what what lies ahead, and I look forward to sharing more updates with you soon.
With that, let me turn things over to Jimbo, who will review our financial results.

Jingbo Wang

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the fourth quarter of 2024. And then I will discuss Outlook for the first quarter of 2025.
Total revenues were 34.5 million in the fourth quarter, excluding revenues from certain end of sale, low margin products, total revenuees increased 9.1% quarter over quarter and 3.6% year over year.
A core revenues for 17.4 million in the fourth quarter, an increase of 10.8% quarter over quarter, and an increase of 13.7% year over year.
The increase was primarily due to business expansion and usage growth in certain verticals, such as live shopping and entertainment.
Show on revenues or RMB122.2 million in the fourth quarter, excluding revenues from certain end of sale low margin products. She revenues increased 8.2% quarter to quarter and decreased 5.4% year over year.
The quarter over quarter increase was primarily due to an increase in revenues from digital transformation customers.
The year over year decrease was primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions.
The dollar-based net retention rate is 95% for Aurora and 79% for Shenhuang, excluding revenues from certain end of sale products and it continued business.
Moving on to cost and expenses, gross margin for the fourth quarter was 66.6%. If we exclude gross profit from certain enough sale products, gross margin of continuing business slightly decreased 0.1% over quarter over quarter and 0.8% year over year.
As we mentioned in the last earnings call, we restructured and reduced our global workforce in November 2024.
Operating expenses were 28.5 million in the fourth quarter decreased.
4.1 million from 32.6 million in Q2 2024 as a baseline.
We expect to see additional savings on operating expenses in Q1 2025.
Are the expenses?
Or 14.8 million in Q4, decreased 9.3% year over year. Earnings represented 42.9% of total revenue in the quarter compared to 45.3% in Q4 last year.
So the marketing expenses were 7.3 million in Q4, increased 3.1% year over year.
So the marketing expenses represented 21.1% of total revenues in the quarter compared to 19.6% in Q4 last year.
Yeah, they're expensive.
Or 6.4 million in Q4, decreased 18.4% year over year.
GNA expenses represented 18.6% of total revenues in the quarter compared to 21.9% in Q4 last year.
Moving on to the bottom line, net income was 0.2 million in Q4, translating to a 0.5% net margin fourth quarter compared to a net loss margin of 7.2% in Q4 last year.
As Tony just mentioned, we achieved a significant milestone this quarter profitability on GAAP basis for the first time in several years.
This not only demonstrates our ability to deliver our commitments, but also reflects on revering's focus on creating long-term value for shareholders.
Looking ahead, we remain committed to driving innovation, optimizing our operations, and maintaining the financial discipline necessary to ensure continued success.
Now turning to cash flow, operating cash flow was 4.5 million in Q4, compared to 3.7 million last year.
Free cash flow was 4.3 million compared to 3.4 million last year.
Moving on the balance sheet, we ended Q4 with 363.8 million in cash equivalents, bank deposits, and financial products issued by banks.
That cash inflow in the quarter was mainly due to free cash flow of 4.3 million, which was offset in part by share repurchase of 1.4 million.
Since the board approved our share repurchase program in February 2022, and as of the end of 2024, we have completed 58% of our $200 million share repurchase program.
We are pleased to announce that our board has authorized authorized another 12 month extension of our shared repurchase program through February 28, 2026 with all other terms unchanged.
This decision reflects the board's confidence in the company's long-term growth potential and our commitment to delivering values for our shareholders.
Not turning into guidance for the first quarter of 2025. We currently expect total revenues to be between 31 and 33 million.
Compared to 29.7 million in the first quarter of 2024.
If revenues from certain of low margin products are excluded.
Looking forward, our goal is to maintain sustained profitability through 2025.
Throughout 2025, driven by strategic initiatives, operational efficiency, and emerging market opportunities in generative A have.
This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change.
In closing, I'd like to express my sincere gratitude to both Aura and Shulong teams for incredible effort and commitment.
It's what made these achievements possible.
And thank you to everyone for attending the call today.
Let's open it up for questions.

Question and Answer Session

Operator

Certainly, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone.
And our first question comes from the line of Harry Wang from Bank of America Securities. Your question, please?

Harry Wang

Hi. Thanks for taking my question. I'm asking on behalf of Dai Lee. I have a few questions. Firstly, on the demand side, what are the trends in overseas and China market? And what are the key sectors that are driving driving growth in 2025.
Secondly, on the AI side, has recently seen an increase in AI related demand and in what scenarios have we seen the application of our AI related technologies? And lastly, on the profitability side, what are the gross profit margin and GAAP profit targets for 2025.
Thank you.

Bin Zhao

Okay, I'll talk about the demand side. On China side, we see demand, mostly on IoT side and the digital transformation side. And of course, the AI comes in with more activities to explore the potentials on global market, we see live commerce, greater economy. And, Chinese company go overseas all driving force to to growth.
After our launch of our conversational engine, we have received quite a lot of customer interest, actively exploring the opportunity to build with that.
So that's in general on the demand side, especially around AI we see growing interest from developers and customers, particularly with the recent model launch such as Deepsick and Geline and a lot of open source model launch.
Our conversational. AI engine product is a great fit with that time to build voice agents, with AI agent for or with AI based applications. We see some huge potentials in a couple of use cases, like companionship in apps and in both apps and IT devices. Such as companion robots and smart toys, smart choices, toys for children.
And with AI can also be widely applied in education platform, especially for language learning and practicing. In enterprise levels such as call center or, customer service, there's a clear demand and a lot of experimental activities on those areas, we actually see many similarities in all major markets. So it happens in parallel in different markets at this moment.
In general, we see a lot of interest in exploring all kinds of use cases based on large model, but our view is the methodologies and tools to build agents are far from mature. So it will still take a long time for sophisticated agents to be built and launched. In the long term, those agents will be disruptive and create huge volume for us. However, given the reality that the whole technology community is still actively improving the foundation models, infrastructures, tools, and frameworks to upstate agents. We expect current AI adoption to be faster in existing mature use cases where with AI agent could be used to only replace a segment of whole customer experience.
That kind of, experience have a much higher chance to success and especially those replacements focused on replacing some of the human functions. So to improve the productivity or increase the efficiency rather than creating a whole new use case or whole new user experience. That's a more, successful path. We are seeing, in the whole, experiment of new AI based use case.
We are working closely with a group of customers and the POC at the POC stage and hope we can see some application launch in the coming months. .

Jingbo Wang

Sure, I'll talk about the gross profit and net profit outlook.
So in terms of the gross margin, we expect it to maintain at a cost level around 67%, as we saw in the fourth quarter. We think that's the right balance between profitability and also competitiveness.
Pressure, peer competitors.
So in terms of the bottom line, I want to start with the revenue, right. So if you look at our revenue guidance for Q1, the at mid point, it implies a year on year growth rate of 7.7% and our plan certainly need to maintain this growth rate throughout the year, if not accelerate.
And on the other hand, we don't expect any significant increase in terms of operating expenses. So as a result, we expect to see a stronger growth, on the bottom line compared to the top line.

Harry Wang

Okay thanks management.
Thank you.

Operator

Thank you. And our next question comes from the line of Li Ping Zhao from CICC. Your question, please?

Li Ping Zhao

Good morning, Tony and JingBo. Thanks for taking my questions and congratulations, for the, GAAP profitable quarter. And I got two questions here. First is that, I noticed that Agora growth. Rating for Q reached 13.7% year over year. And could you give more color on the strong recovery of the growth rate and should we expect the growth momentum of Aurora to continue in 2025? And the second question is about the Dis impact, as we see that Dis has significantly boosted adoption in both enterprise side and also consumer side. How do you view the demand for Voice and multimodal interaction in next 2 years and which scenarios will be prioritized for Agora and Sheng Wang to focus on in the next 2 years.
Thank you.

Jingbo Wang

Oh, I'll take the first question. So yes, of course, delivered a very nice growth rate in the 4th quarter and as we guided the multi times in the past, so it was driven really by, expansion of usage in some novel use cases, for example, live commerce, we can talk about this many cultures I had before. 2 years ago, live commerce was virtually zero, was not a revenue contributor for us, and in less than 2 years, it grew to more than 10% of revenue globally and close to 20% of revenue for growth, and it is still growing, and we believe it's still in the early stage of.
Video-based shopping experience, videoba live shopping experience, in the US and other Western markets.
Videoba live shopping is already everywhere in all the apps in China, all the shopping apps have that functionality, but in Western markets that's still, you can only see that in some, newer generation.
Apps and not in the mainstream, e-commerce apps. So I believe, there's still a long way to go. And in addition to that, we have a greater economy, the san-based, social networks, which we don't really see that many in China, but, it's it's pretty interesting in case so and that has been going for well. And in this, we have some.
Customer with Chinese background operating completely in Western or Middle East or South Asian markets, they have also, delivered growth in in the past quarter. So overall, we still, we are still optimistic about the grow our business, and we certainly hope to see, further growth.

Bin Zhao

Yeah, I can add more on the growth areas for both sides. As I said, the use case of AI enabled conversational AI enabled can be divided into two categories, basically service agent for efficiency and saving time and companionship is basically for entertainment and maybe. Send people's, more time on having a better emotional support or other social demands. We see companionship apps is very active, especially with IOT devices, and, Education, use cases are also the trend. We already see a real volume start to grow on that, but we see a huge potential down down the road in the next two years to continue to grow.
LT device as I said on comanionship, is having a clear, chance to grow into volume in the next 2 years. Customer service and call center would, transform a lot of the, initial volume, maybe, outbound calls first to, agents enabled, use case, and, some other use cases, including, for, efficiency side, helping people to run. Type of co-pilot, and those co-pilots all have a chance to turn into conversational user interactions or interface, so those are the areas we see might have a good chance. And of course, AI community development would also give some strong push like the open.
Open source community gain a stronger power, and the price is definitely the price of such a large language model, kind of keep dropping quite quickly, all hoping for to enable those growth.
On the overall, over, overall trend trend size.

Jingbo Wang

Okay, sir, can you repeat the second question?

Li Ping Zhao

Oh, the second question is about, deep seek, because, the company has like significantly boosted the adoption of AI in both enterprise side and, consumer side. So I don't know, whether like, a grand show want want to find some trends, in these areas and, which kind of like key business focused, areas for.
In the next 2 years.

Bin Zhao

Yes, for, as I mentioned just now, a little bit on, it definitely give a strong push to the whole community and agent builders where it supplies a high intelligence and low cost model and open source model of, on the demand side.
So, and, not just on the cost side and the open source side, but also, on, intelligence side, it enhance the quality of the language model capabilities. So that will enable agent building a lot. So I, we're seeing agent building to be the new buzzword. And growing very fast. Technology innovations around building agent is kind of quite active and start to gain more developer attention and we are part of it, especially in enabling with, conversational experiences for our agents. And, in the next two years, multimodal or voice conversational. AI experience, will start to grow into more practical use cases, multimodal understanding, will also help enrich the power and, the kind of the reach of such use cases.
With interactions will be much more efficient compared to currently like tax-based interactions and will likely to become a critical capability of AI agents.
As a multimodal capabilities of AI agents continue to advance, the, there are more new use cases to be unlocked. .
On framework side, I think there will be more evolution around multi-agent collaboration, agent orchestration to help developers agent building activities. This will enable multi-agent coordination and data exchange, paving the way for more com complex inter interactive use case among human users and AI agents.
So, those are all.
Factors that's going to accelerate the growth of, agent, in.
In the next 2 years.

Li Ping Zhao

Thanks, Tony and Jing Boo. That's very helpful.

Operator

Thank you. And once again, if you have a question at this time, please press 11 on your telephone.
Thank you everyone 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.aggora.io. And if there are any questions, please feel free to email the company.
Thank you.