Agora Inc - ADR Stock

Good day, and thank you for standing by. Welcome to the Agora Inc. Second 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 we -- 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 press release and the risk factors of other information contained in the final prospectus relating to the 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 the call over to Tony. Hi, Tony.

Thank you, operator, and welcome, everyone, to our earnings call. Let me begin with a review of our operating results for the quarter. I'm pleased to report another quarter of accelerating top line growth as well as our seventh consecutive quarter of GAAP profitability. Total revenues for the second quarter of 2026 reached $40.4 million, an increase of 18% year-over-year. This performance reflects both the continued strength of our core real-time engagement business and the growing contribution from our conversational AI products as more customers move from proof of concept to commercial production.

Our GAAP net profit for the quarter was $2.2 million, up 50% year-over-year, which demonstrates improved operating leverage and disciplined cost management across the organization. Our most important progress this quarter occurred in call center across the globe. We are seeing strong momentum in adoption of our voice AI agent. Trained on the best sales and customer service playbooks, this agent delivered consistent high-quality performance across every conversation. They do not experience fatigue, lose focus or vary in performance based on workload or time of day. They also maintain calm and steady interactions even during challenging calls.

Further, customers are now seeing substantial cost savings from deploying our voice AI agent. Indeed, we're beginning to see them match or even surpass human performance in an increasing number of tasks in achieving target business outcomes. The first example is outbound marketing and buyer interest capture. Our voice AI agents are now being used to initiate calls, qualifying leads, collect information and schedule meetings with prospect customers at a similar conversion rates with human reps. Our voice AI agent also outperformed in 2 other important areas: the volume of calls they can handle and unit economics they deliver. The second example is market survey. Our voice AI agent can conduct in-depth interviews for consumer insights and product feedback, while capturing structured data throughout each conversation.

The high concurrency of our solution compresses the time it takes to conduct large-scale survey that traditionally takes weeks or days into just a few hours. Marketing and surveying are only 2 examples of how voice AI agent can reshape call center worldwide. We see similar opportunities in financial services outreach, gaming user acquisition and retention, debt collection and many other areas. We are already working with customers across these sectors, and we expect several of them to move from proof of concept to large-scale deployment in the coming quarters.

At the same time, we continue to invest in our developer ecosystem. This quarter, we launched Agora Skills and Agora CLI. Agora Skills package our platform knowledge for the AI coding assistants, including Claude Code, Cursor or Codex and work with our latest SDKs and best practices when building real-time engagement or conversational AI applications. The Agora CLI complements this with a single command-line interface for coding agents to do their work. Together, these tools make it easier for both human developers and AI coding agents to build and deploy real-time engagement applications with us. We're also continuing to strengthen our technology ecosystem through strategic partnerships. This quarter, we announced a partnership with Gradium, a leading voice AI platform recently founded by the research team behind WuXi and TBK, two speech models with strong recognition in the open source community.

Through our partnership, developers can enable Gradium TTS within our conversational AI engine through a simple configuration without introducing additional latency costs. Looking ahead, we will first remain laser focused on accelerating the transition of our conversational AI solutions from pilot to production across use cases. Each use case will present its own set of challenges, but each will also help us refine our technology. We believe that continued improvements in our solutions will unlock additional demand and drive industry shift towards AI-led workflows in call centers.

Second, we will continue to invest in our real-time infrastructure. Our software-defined real-time network or SD-RTN, has long been a foundational advantage for us. As we expand into human to AI interactions, the importance of this infrastructure does not diminish. On the contrary, it becomes more critical because smooth conversations require ultralow latency inference and transmission. We are confident that our investment in real-time inference and the communication infrastructure will serve as a decisive factor in our ability to compete and succeed in the conversational AI arena.

And third, we will continue to strengthen our partner ecosystem and build up developer venture. On October 23 and 24, we will host our iconic and annual conference, IRTE, or Intelligent Real-Time Engagement in Beijing. We look forward to bringing together developers partners, enterprises and industry leaders to explore the next phase of real-time engagement and conversational AI.

In summary, we believe the center of gravity in the AI industry is increasingly shifting from model capabilities towards infrastructure and hardness layer required to operate voice AI agents reliably at scale. At the intersection of real-time engagement, AI and global infrastructure, we believe Agora is uniquely positioned to help enterprise market to help enterprise make this transition and create sustainable long-term value for both our customers and shareholders. Before I conclude, I would like to thank our customers, developers, partners, and shareholders for their continued trust and support and our global Agora and Shenghong teams for their dedication and innovation.

With that, let me turn it over to Jingbo, who will review our financial results.

Thanks, Tony. Hello, everyone. Let me start by first reviewing financial results for the second quarter of 2026, and then I will discuss the outlook for the third quarter. Total revenue for second quarter reached $40.4 million, above the high end of the guidance range and representing 18% year-over-year growth. This marks our third consecutive quarter of accelerating growth, driven by continued expansion of our real-time engagement services across sectors such as e-commerce as well as growing customer adoption of our conversational AI solutions. Our dollar-based net retention rate for the quarter was 104% compared to 94% in the second quarter of 2025. This represents a meaningful improvement and moves us back above 100%. Gross profit for the quarter was $25.7 million, representing 12.5% increase year-over-year. Gross margin was 63.7% compared to 66.8% in the same period last year and 63.4% in the first quarter of 2026. On a year-over-year basis, the decline was primarily due to product mix change as conversational AI products continue to see growing usage during the quarter, but has remained at a subscale stage. On a sequential basis, the increase was mainly driven by technical optimization.

Turning to expenses. R&D expenses were $15.4 million in Q2, up 10.2% year-over-year. R&D expenses represented 38.1% of total revenue in the quarter compared to 40.8% in the same period last year. The increase was primarily due to our continued investment in conversational AI products. Sales and marketing expenses were $6.4 million in Q2, down 1.5% year-over-year. Sales and marketing expenses represented 15.9% of total revenue in the quarter compared to 19% in the same period last year. The decrease was primarily due to disciplined expense management. General and administrative expenses were $5.5 million in Q2, down 9.5% year-over-year.

G&A expenses represented 13.5% of total revenue in the quarter compared to 17.6% in the same period last year. The decrease was primarily due to a lower allowance for current expected credit loss as customer credit conditions and collection outcomes improved. Turning to operating results. We recorded GAAP operating loss of $1 million in the second quarter compared to a loss of $3.1 million in the same period last year, thanks to continued improvement in operating leverage. Based on our current business momentum, our goal is to achieve quarterly GAAP operating profitability by the end of this year. Moving on to the bottom line. We delivered net income of $2.2 million in Q2, up 50.3% year-over-year and representing a net income margin of 5.4%.

Now turning to cash flow. Operating cash flow was negative $2.1 million in Q2 compared to negative $0.4 million in the second quarter of 2025. Moving on to balance sheet. We ended Q2 with $361.7 million in cash, cash equivalents, bank deposits and financial products issued by banks. The decrease in our cash balance was mainly due to annual bonus payments as well as share repurchase during the quarter. During Q2, we repurchased approximately 1 million ADS for approximately $3.7 million. As of June 30, 2026, we have repurchased approximately 44.6 million ADS in total for approximately $159.9 million under the current share repurchase program.

As of June 30, 2026, we had 83.8 million ADS outstanding, compared to 87.3 million ADS at the end of 2025. The current share repurchase program will expire at the end of February 2027. Now turning to guidance. Based on currently available information, we expect total revenue for the third quarter of 2026 to be between $41 million and $42 million, representing year-over-year growth of 15.8% to 18.6%. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change.

In closing, this was another strong quarter for us, both in terms of revenue growth and profitability. At the same time, we are increasingly encouraged by usage momentum and commercial potential in conversational AI, and we'll continue to invest with discipline to support our long-term growth. Thank you all for joining today's call.

Let's open it up for questions.

[Operator Instructions] Our first question is going to come from the line of Harry Zhuang with BofA Securities.

Congratulations on the strong results and guidance. I have 3 questions. The first one is regarding the demand. How is the demand trend in overseas and domestic market? And what are the key sectors driving the growth? Second one is regarding AI. We're happy to see that the call center application levers growing really fast. And what are the other data scenarios that could drive meaningful conversational AI demand growth? And what will be the revenue contribution from conversational AI by end of the year and the gross margin trend? And lastly, about the competition, could management share the latest competitive landscape in overseas market against our major competitors?

Okay. In terms of demand, I will talk about the RTE side and Tony can talk about the AI side. So on RTE side, actually things haven't changed that much overall what we see this quarter in both China and U.S. and international markets, largely the same as the last quarter. So in China, thanks to a more stable operating environment. So demand from social entertainment, and education customers continue to recover. So I think they're looking pretty stable here. On the U.S. and international side, demand from large shopping, financial services, gaming use cases continue to grow. So demand looks healthy on the RTE side.

Yes. And on the AI side, I think it's fair to say, our vision has been validated and reinforced in our daily business with rapid development and continued improvement we achieved on the ground. In call centers, as I mentioned in the remarks, with AI agents matching and sometimes even surpass human reps on certain tasks with solid verifiable business outcome for the enterprise customers. This is just the beginning of a very, very long run, and I believe we will witness the transition from human call center reps to AI agents around the world besides how large language model has reshaped the software engineering. This is actually a very good thing for people and the society because it will free people from very tedious and stressful line of work. Keep talking to different persons for hours about the same task and keep the conversation strictly professional is very exhausting and emotionally draining.

Yes. So in terms of the use case for conversational AI, I can talk about 2 verticals: call center and companionship devices. But Tony already talked about a lot -- covered a lot on the call centers. But I want to highlight 1 point. When we talk about cost centers, it's not a single use case. It's a collection of many, many use cases, each with different features and different knowledge. And when we talk about these use cases, actually, in terms of difficulty for replacement by those AI agents, actually they form a spectrum from the easy ones on the left-hand side to the hard ones on right-hand side. And now we are only beginning to explore a few use cases on the license side, such as outbound marketing survey. But these are low hanging fruits. As we continue to refine our solutions and accumulate more experience working with our customers, we will convert more and more use cases from impossible to proof of concept to real-world production. So it has a very long run rate. It's not one single use case we can counter in 1 quarter or in 1 year. It's going to be a multiyear process.

And secondly, on the companionship device, we talked with our customers in the past. In this quarter, we actually expanded into new markets in Japan and other countries, and the initial feedback has been quite encouraging. We also partnered with several chip makers to make our solution compatible with more chips because these are not mobile phone chips, these are very specialized LTE chips and this will make our solution available on a wider range of smart devices, including robots. So overall, we are still targeting a 5% revenue contribution from conversational AI by the end of this year. Competition. Tony, do you want to talk about competition?

Okay. You want to talk about gross margin or not?

Not at this time.

Okay. So about competition, especially on conversational AI, conversational AI has several distinct technology layers from the agent layer that orchestrate and optimize the call center or the call experience to model layer that includes large language model and voice models such as ASR or TTS. And finally, infra layer such as telecom APIs and cloud. Different layers -- different players attack this market from different angles. For example, Twilio would leverage its strength in telecom API and phone numbers from their CCaaS business. And we are focused on the voice models, audio preprocessing and post-processing, low-latency cloud infrastructure and agent layer to deliver the best possible call experience.

Given the huge potential of the conversational AI market, it is natural to have competition. In fact, a lot of the technology in conversational AI involves audio processing, such as handling noise echos or packet loss. Obviously, we have a lot of experience in those areas which can hugely improve conversational AI experience. So we remain confident about our position in this market.

Harry, does that answer your question?

Yes. They were helpful. Congratulations again on the results.

Our next question comes from the line of Yue Xu with China Securities Co.

Congrats on another strong quarter. My first question is in regards to conversational AI. So could you please update on conversational AI revenue progress and the projected contribution to full year value? My second question is the conversion cycle for AI use cases. Could you disclose the current backlog for this AI use cases and foreign maybe just customer accounts? And how would you view the trend for AI revenue for coming quarters, maybe next year?

Thank you. Thanks for question. So we already talked a lot about the use cases. So first of all I want to explain that, it actually takes quite some time for a use case to really ramp up from the start of the POC point where AI agents can deliver consistent performance and can be deployed at scale. It only takes several months. And I talked about there are many, many use cases we need to attack them one by one. And also, we can do a few in parallel but still is going to take -- is going to be quite a process. So as I mentioned earlier, we're targeting 5% revenue contribution by the end of the year.

So basically our goal is in Q4 or in terms of the run rate, AI run rate, we want to achieve 5% by the end of the year. Obviously, that means for the full year of 2026, it's not going to be 5%. It's going to be smaller than that. But as we -- if we achieve 5% by the end of the year, and given the strong pipeline we already have on hand, which will only become bigger by the end of the year. We believe there will be still significant room for growth next year. Yes. So we remain quite optimistic at how we are looking in this market.

Our next question comes from the line of Zongxuan Yang with Citic Securities.

Okay. I just have one question regarding to our AI business. So have you ever given any guidance on the long term for about 3 to 5 years for the AI penetration rate for our total revenue and also for the gross margin guidance?

I'll take the question. In the end, the call center market will have 3 segments. First is easiest tasks, such as simple notifications. This will be handled by IVR-based technology, which has no real intelligence but can understand simple keywords from human. The second would be the hardest task or most important tasks such as handling complaints from high-value customers or emergency situation, which will continue to be handled by humans. Even if AI agent is technically able to handle the task, in some cases, only humans can take certain responsibilities, such as in the 911 call. The third would be everything else in the middle of the previous tool, those will be handled by voice AI agents with real intelligence. It's hard to say exactly how big this part will be, but it will be a significant portion of the entire market.

So yes. So Tony talked about the 3- to 5-year outlook for the call center market, which is a huge market. There are literally close to 20 million people working in call center today in the world. And as Tony said, there will be 3 categories in the future. And probably in the middle category will be the biggest, and that will be handled by voice AI agents. So even taking a small part of the market that would be transformational for our company. So at this point, it's hard to give a clear number as this market is still at a very, very early stage. And the overall penetration of AI agents is still very low. So it's hard to say exactly how this will become, but it certainly will be a transformation for us.

And in terms of the gross margin. Today, the gross margin is not high for us. We talked about that last quarter, it's crossing the negative positive line, but it's still around there. But it's not because fundamentally -- any fundamental reason is because, one, we are subscale. The volume is more and volume happened at different geographies. So at each single geography, or even smaller. So subscale. And secondly, we haven't really focused much on the technical optimization. Right now, our optimization is more focused on the experience about the cost. So once we have larger schedule and also be more focused on the technical activation on cost, we believe in the end, the gross margin will be similar to if not higher than what we have right now in the RTE business.

[Operator Instructions] Our next question comes from the line of [ Tristan Yang ] with [ DoubleLine Capital ].

Nice results today. Tony, regarding your announcement to purchase the additional $20 million of shares on the open market, I'm wondering how much have you purchased to date? And then what valuation do you believe appropriately reflects Agora's intrinsic value? And then given your existing ownership stake, have you considered taking the company private or returning additional capital to shareholders through a special dividend or an accelerated buyback program?

Let me answer this question because it's more quite technical. So definitely, Tony has not started due to certain blackout and legal restrictions. But once these are cleared, he will start repurchase -- so obviously, insider and he has previous purchase in the past at beginning of this year. So there are certain legal restrictions. So as to the $20 million, that has not started yet. We have returned up to this point, about $160 million of capital back to the shareholders through share repurchase. And that compares to what about $400 million, $350 million of market cap of the company, which is substantial and probably among the most substantial among any public company in the world. So we will continue to do that. But at this point, we have not considered a special dividend, which we might consider in the future, but not at present.

I think my purchase will start in like 2, 3 weeks, right? September, October.

Yes. Yes, subject to certain conditions.

Okay. I don't think we will consider take the company off the market. We will want to keep communicate with capital market and for ourselves focused on business operation and improve our overall technical and operation strengths. We're still very confident that the future of our direction has a very big potential. And we think by focus on our business operations and technical advancement, we will be able to make a lot of value for our customers, our shareholders and our employees.

Showing no further questions. This will conclude today's Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, a recording and the earnings release will be available on the company's website at investor.agora.io. And if you have any questions, please feel free to e-mail the company. Thank you. You may now disconnect. Everyone, have a great day.

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.

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.

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 Instructions] First question comes from the line of Harry Zhuang from Bank of America Securities.

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?

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.

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.

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 Instructions] Next, we have Rachel Han from CICC.

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?

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 Instructions] Last question comes from Yue Xu from China Securities.

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?

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.

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.

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 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.

Thank you. Bye-bye.

Good day and thank you for standing by. Welcome to Agora, Inc. Fourth Quarter and Fiscal Year 2025 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 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 of which 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 take on today's call.

With that, let me turn the call over to Tony. Please go ahead.

Thanks, operator, and welcome, everyone, to our earnings call. I'll begin by reviewing our operational performance for the past quarter.

We are pleased to report our fifth consecutive quarter of GAAP profitability in Q4, marking our first full year of GAAP profitability since 2018, driven by sustained double-digit revenue growth, improved operating leverage and disciplined cost management. Total revenue for the fourth quarter were $38.2 million, representing 10.7% year-over-year growth. Our GAAP net profit for the quarter was $4.9 million with a GAAP net margin of 12.9%.

Next, I would like to share with you our recent business update, which highlights both the strength of our core real-time engagement business and the accelerating momentum of our conversational AI initiatives.

Our platform's scalability and reliability were recently validated during a high-profile live streaming event over the Super Bowl weekend. MrBeast, the world's most followed content creator, hosted a broadcast session on Whatnot, the leading video-based shopping platform and a long-standing customer of Agora. We delivered high-quality full HD video to nearly 600,000 peak concurrent viewers worldwide while enabling their interactions at sub-second latency.

To quote our customers' own words from their technical blog, "On event day, Agora's real-time media pipeline performed reliably at peak. Time to first frame stayed under 1 second, latency remained consistently low, and video quality held stable throughout the stream, even as we pushed systems to their limits at extreme load."

We believe this is the largest live video shopping event in U.S. history. Events of this magnitude are the ultimate stress test for real-time infrastructure. Our ability to deliver stable, high-quality video with ultra-low latency at a global scale demonstrates our leadership in network resilience, distributed architecture and real-time routing.

This event was powered exclusively by our platform, as no competitor can match our performance and scale. This is why industry leaders in e-commerce, social, entertainment and education continue to trust our infrastructure for their most critical moments.

At the same time, we are witnessing rapid adoption of our conversational AI engine product. Since its launch in March 2025, usage has more than doubled each quarter. We are also encouraged to see early experimentation among our customers quickly evolve into real-world deployment across multiple verticals, including customer services, smart devices, education and AI-powered consumer applications.

Companionship toys powered by our solution, such as Fuzozo, are driving accelerated shipments with high user stickiness. Validating this momentum, a leading consumer hardware giant recently launched a companionship toy built on our technology. Furthermore, our conversational AI kit, integrating a voice module and an emotion-display screen, has set an industry trend and is now widely adopted by manufacturers.

We started the year with a strong reception of our conversational AI solutions for Physical AI at CES 2026 in January. At the event, we introduced the latest upgrade of our conversational AI device kit, featuring enhanced multimodal capabilities, including vision understanding and motion control. These new capabilities enable the development of embodied AI hardware and robotics across multiple use cases. For example, our customer Luwu Dynamics is developing a desktop embodied AI robot powered by this solution.

Many of our customers also showcased products at CES that leveraged our solutions, ranging from AI companion devices and robotics to next-generation Physical AI products. The strong market interest and media coverage coming out of CES further validates the growing demand for real-time, human-like interaction embedded directly into smart devices.

Beyond one-on-one interaction between humans and AI agents, we are also expanding into multi-agent collaboration scenarios. During the quarter, we supported Agnes AI in launching its next-generation AI group chat and multi-agent collaboration platform.

By leveraging our real-time engagement infrastructure and conversational AI capabilities, Agnes AI enables multiple AI agents and human participants to interact seamlessly. We believe multi-agent orchestration represents the next frontier of AI-driven productivity while agents can coordinate tasks, share information and collaborate with humans in real time.

Across these developments, a clear theme is emerging. As AI becomes more interactive and multimodal, the technical complexity behind delivering a seamless interaction experience between a human and an AI agent increases significantly. Real-time conversational AI requires not only powerful foundation models, but also advanced audio processing, ultra-low latency networking, global scalability, interruption handling, turn-taking management and device-level optimization. These are areas where we have made substantial investments and have built a strong competitive edge. Our deep expertise in real-time infrastructure uniquely positions us to bridge the gap between AI model capability and production-grade user experiences.

Looking ahead, we remain focused on driving revenue growth and advancing conversational AI innovation throughout 2026. We enter the new year with strong momentum, supported by an expanding customer pipeline, growing production deployments and increasing ecosystem partnerships. We believe we are well positioned to capture this transformation and create long-term value for our shareholders.

Before I conclude, I would like to thank our customers, developers, partners and shareholders for their continued trust and support and our global teams for their dedication and innovation.

With that, let me turn things over to Jingbo, who will review our financial results.

Thank you, Tony. Hello everyone. Let me start by first reviewing financial results for the fourth quarter of 2025 and then I will discuss outlook for the first quarter of 2026.

Total revenues for the fourth quarter reached $38.2 million, representing a 10.7% year-over-year increase and exceeding the high end of our guidance. This marks our fourth consecutive quarter of double-digit organic growth.

If we look at the 2 business divisions, Agora revenues reached $19.9 million in Q4, representing 14.4% year-over-year growth and 9.3% quarter-over-quarter growth. The strong growth reflects our successful market penetration and growing adoption in verticals such as live shopping. Shengwang revenues reached RMB 129.2 million in Q4, up 5.7% year-over-year and 5.6% sequentially, driven by continued business expansion and adoption in key verticals such as social and entertainment and IoT. Dollar-Based Net Retention Rate is 109% for Agora and 89% for Shengwang.

Gross margin for the quarter was 65.1%, down 1.5 percentage points year-over-year and 0.9 percentage points sequentially. The slight decline was primarily driven by the lower margin profile of our conversational AI-related products, as usage is still ramping and remains at a subscale level.

Turning to expenses. R&D expenses were $13.6 million in Q4, down 7.7% year-over-year, reflecting our continued cost discipline. R&D expenses accounted for 35.8% of total revenues compared to 42.9% in the same period last year.

Sales and marketing expenses were $7.1 million in Q4, down 2.1% year-over-year. Sales and marketing expenses represented 18.7% of total revenues in the quarter compared to 21.1% in Q4 last year.

G&A expenses were $5.4 million in Q4, a decrease of 16.5% year over-year, primarily due to lower provisions for credit losses following improved customer collections. G&A expenses represented 14.1% of total revenues compared to 18.7% in Q4 last year.

Moving on to the bottom line. We delivered net income of $4.9 million in Q4, representing a 12.9% net income margin. As Tony just mentioned, this marks our fifth consecutive quarter of GAAP profitability and first full year of GAAP profitability since 2018. Based on our current business momentum and visibility into 2026, we expect net income to grow compared to 2025.

Now turning to cash flow. Operating cash flow was $9.3 million in Q4 compared to $4.5 million in Q4 last year.

Moving onto balance sheet. We ended Q4 with $374.9 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 of $10.9 million.

In the fourth quarter, we repurchased 12 million ordinary shares, or 3 million ADSs, representing 3.3% of our outstanding shares at the beginning of the quarter. Since our Board approved the share repurchase program in February 2022, we have repurchased $143.1 million worth of shares through December 31, 2025, which represented 71.6% of our $200 million share repurchase program.

We are pleased to announce that our Board has authorized a 12 month extension of our share repurchase program through February 28, 2027, with all other terms unchanged. This reflects the Board's confidence in our long-term growth prospects and our continued commitment to delivering shareholder value.

Now turning to guidance. For the first quarter of 2026, we currently expect total revenues to be between $36 million and $37 million, compared to $33.3 million in the first quarter of 2025, representing year-over year growth rate of 8.1% to 11.1%. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change.

In closing, I want to extend my sincere gratitude to our exceptional teams in Agora and Shengwang. Our sustained double-digit revenue growth and double-digit net income margin are a direct result of your dedication and execution. Let's remain focused on driving revenue growth and advancing conversational AI innovation throughout 2026.

To our shareholders, thank you for your continued trust and partnership. Thank you all for joining today's call. Let's open it up for questions.

[Operator Instructions] First question comes from Daley Li from Bank of America Securities.

Firstly, congrats on the strong Q4 results. And I have two questions here. Firstly, could you update us the overall RTE demand trend in China and overseas? And what industries are the key demand drivers?

Secondly, you have released the ConvoAI Device Kit. And could you please share more color on the conversational AI applications and what industries and applications are the key drivers? And besides I'm not sure, could you share some color about your targeted revenue for the conversational AI this year?

Okay. For the real-time engagement market trend, in China, demand from social entertainment and education customers continue to grow at a modest rate while we remain optimistic on the vast growth potential of IoT and digital transformation customers to drive our China revenue.

In recent months, competitive pressure further abate, and we believe the industry will continue to consolidate. In U.S. and international markets, as I mentioned earlier, our success in one of the massive single-channel live streaming event solidifies our position and brand awareness among live shopping customers, which will bring more business opportunities for us. We are confident that we will gain more market share in this vertical.

And for ConvoAI Device Kit, so we do expect our conversational AI revenue to continue to grow. The use cases, not just companionship toys, as I mentioned, also physical AI equipment are all happening. For the...

For the revenue, so as you know, we released our conversational AI engine in March last year. And since its release, as Tony just talked about, its usage has more than doubled every single quarter. Its revenue contribution is still relatively low at the moment because a lot of customers are in POC stage. So the revenue growth lagged behind usage growth. But we do see a healthy pipeline of customers. So based on that, we expect to see revenue contribution from conversational AI to ramp up throughout this year. And our goal is for conversational AI to approach 5% of ARR contribution towards the end of this year. Tony, do you want to talk more about the use cases?

Sure. We've been talking about the conversational AI use cases before. It's still focused on customer service, companionship devices, education and interactive. We're now also focusing closely with global customers from U.S., Europe, South America, Asia Pacific region and inside China to implement our solution in a couple of customer service scenarios such as outbound marketing, marketing, cooling market cooling, appointment scheduling, order confirmation and so on.

For companionship devices, a number of device shipments and activations are promising. And more importantly, our solution is becoming the de facto industry standard or best practice, we expect to see more customers launch their products throughout the year, including some based on well-known IP with the potential to become a global hit.

Next, we have [ Ri Han ] from CICC.

This is [ Ri Han ] from CICC. Can you hear me?

Yes.

Congrats on another solid quarter, especially with revenue coming above the high end of guidance. My first question is on gross margin. We noticed that gross margin declined slightly year-over-year to 65%, just as Jingbo said. Can you walk us through the key factors behind that decline? Should we view this as mix driven and temporary or more structural given AI ramp-up costs? How should we think about margin trend into 2026?

My second question is on profitability for 2026. After achieving full year GAAP profitability in 2025, how do you think about operating income and operating margin next year? What are the main drivers that could support further margin expansion? Yes, that's it.

Sure. So I will talk about gross margin first. As I said, the slight decrease in gross margin was mainly due to the impact of conversational AI-related products because some of the customers are still in early pilot stage, and we don't charge customers for pilot POC experimentations. So revenue ramp-up lags behind usage growth.

And also the, ConvoAI infrastructure is currently running at a very small scale, subscale levels. So that's why the -- if we only look at the margin of that particular product, it's very, very low at the moment, and that drags down the overall margin slightly. We do expect this to improve as usage and revenue ramp up, but it might take a couple of quarters to fully recover. So when we kind of do our internal forecast and give guidance on 2026 profitability, we are essentially forecasting flat gross margins compared to Q4 2025.

So in terms of operating income -- so we expect operating income to improve significantly -- further improve significantly compared to 2025. It's driven by revenue growth, improved operating leverage. And our goal is to achieve GAAP operating profit in Q4 2026.

Please note, this is after taking into consideration about $6 million of share-based compensation in 2026 and also nearly $4 million of amortization related to the headquarters project. So after these 2 items, we expect to significantly improve the operating income.

Next question comes from Zongxuan Yang from CITIC Securities.

Also congrats on the last quarter's performance. So I just have one question follow the first question from Bank of America regarding to AI. So we can see that the stock price for -- especially for those U.S. software companies have fluctuated recently. So like the market has a lot of concern about AI software. So I just want to know that how do you think of the -- maybe like the infrastructure and the cybersecurity company position on this AI era? And also maybe like other company's leader on this issue and the other company's position in the AI.

Yes. So SaaS service strengthened because of the drastic cost reduction in building UI/UX and application layer logic of software by web coding or AI coding. However, the system level or infrastructure level core services, including the PaaS and API services we provided are actually facing increasing demand from web coding. And the need for an even higher quality and scalable API services are actually much needed than before. And it's hard to imagine those hardcore low-level or system-level infrastructure technology would be easily disrupted by web coding or just AI coding.

So as the demand for real-time multimodal interactions with AI engine growth, especially in this sector, we will largely benefit from the global trend of AI development. Plus who is not an AI company these days? If you're not, you're outdated.

We, as a company, is the first one to introduce AI technology into RTE sector even before the generative AI era. And we are the first one to launch AIGC RTE SDK, first one to demo full duplex conversational AI. We provide the best AI turnkey and AI models in the world, and we are one of the few to launch the real-time API with OpenAI. So we are heavily invested in the AI development and AI infra front. We have also positioned the company as a leading innovator in generative AI era, and we are committed to be one in the coming decades.

Yes. Actually, I want to add like layman's perspective from a non-technical person. So now if you ask a coding agent, a cloud code or open cloud to write an app with real-time engagement features like write a meeting app for your own company or your team, it's most likely actually if you try, you'll see that the agent will call API to build this instead of trying to rebuild the entire real-time communication infra and the fundamental code again. So actually, will be used by the coding agents rather than be replaced by coding agents.

Our last question comes from Xu Yue from China Securities Co.

Congrats on the solid results. So I have two questions. The first question is regarding the gross profit margin. We see that this quarter, the gross profit margin is kind of dragged down by AI investment. So how do we forecast for future AI product margin trend? And the second question is, how do you view the growth trajectory for the coming quarters for AI toys and customer service? And have we seen the inflection point of adoption in these verticals?

Sure. So again, in terms of gross margin, we actually think the conversational AI product has great margin potential based on our own internal estimate. If we operate at normal levels at a good utilization rate and a decent scale, the gross margin of the AI product should be at least similar, if not higher, than the current core RTE products. So the current relatively low margin is really due to the suboptimal scale and also a lot of POC ongoing. So we don't have like a fundamental concern on the margin. It will just take some time to ramp up to the target levels. So that's on gross margin.

In terms of the AI product adoption, as Tony talked about, right, we do expect the adoption to grow throughout this year. And you talked about the performance and cost, right? I think it's not just us in terms of performance, but for all the players globally in conversational AI, there are a lot of new start-ups focused on this area. And I think we face the problem, same problem.

The technology itself is fundamentally ready. But from an engineering perspective, there remains a lot of corner cases and use case adoption to be done. This will take time. But it's really just a question of time, not a question of whether it will work or not. So we think we made a lot of progress already in 2025. That's why in several use cases like companion card, like outbound calling. In several use cases, it's already working, and we'll solve more problems this year. And we do think it's not like one single turning point, but we will solve use case by use case and gradually penetrate into more verticals. And on the cost side, as we all know, cost is coming down steadily on all the models, so we do not think the cost will be a blocking factor.

Thank you. There are no further questions. That concludes today's Q&A session. 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's any other questions, please feel free to e-mail the company. Thank you.

Thank you. Bye-bye.

Good day, and thank you for standing by. Welcome to Agora Inc. Third Quarter 2025 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; and Jingbo Wang, the company's CFO. During this time, the company will make forward-looking statements about its future financial performance and future financial -- future events and trends. These statements are only predictions that are based on what the company's believes today, and 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 which the company has discussed in detail in its filing with the SEC, including today's earnings press release, risk factors and other information contained in the final prospect 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 the call over to Tony. Please go ahead.

Thanks, operator, and welcome, everyone, to our earnings call. I'll first review our operating results from the past quarter. We are pleased to report our fourth consecutive quarter of GAAP profitability in Q3, supported by double-digit revenue growth and expanding margins. Total revenue in Q3 reached $35.4 million, up 12% year-over-year. Our GAAP net profit for the quarter was $2.7 million with a GAAP net margin of 7.8%, and we expect our revenue and net profit to continue growing on a quarter-over-quarter basis in Q4.

As you can see, our core real-time engagement PaaS business is rebounding strongly and is on track to deliver its first full year revenue growth since the pandemic, providing a stable, profitable foundation for us. At the same time, we are significantly increasing our investment in conversational AI. Voice-based human machine interaction is not new, yet most conversational AI solutions today still disappoint users. Why? Because building voice agents that can converse naturally with the human is just hard.

Just a few months ago, Greylock Partners, a leading venture capital firm, published a blog post titled Voice Agents, Easy to use, Hard to Build. They know that the core challenge behind the simplicity user expect lies immersed complexity, system orchestration, real-time audio processing, latency management and compliance requirements. Consider the issue of background noise and multiple speakers, just 2 of the many technical challenges in real-world setting like a busy home, office or car, clean audio is the exception, not the norm. A voice agent must accurately isolate a user's voice from overlapping speech and ambient sounds.

Without this, transcription becomes unreliable. Intent is misunderstood and the agent's reasoning falters undermining the whole interaction. Furthermore, as [ Andrew Tapassi ] has pointed out, there is often a significant gap between a working demo and a production-ready product. Conversational AI is no exception. For instance, in our discussion with customers and prospects, many have expressed frustration with the reliability and scalability of current solutions, especially when users are distributed across geographics or when concurrent usage is high.

Our investment in conversational AI is specifically aimed at addressing these challenges. Recently, we launched our Conversational AI Engine 2.0. It integrates over a decade of advanced audio research and development, including AI-powered noise suppression, acoustic echo cancellation, a proprietary audio codec and adoption -- and adaptation across thousands of device types to ensure that AI hears and speaks with consistent clarity.

In addition, the engine also tackles core interaction challenge, selective attention, turn picking, interruption handling, emotion detection and natural conversational flow. In short, we're not just providing the transmission pipeline for voice and video, we're building the behavioral intelligence that powers truly responsive human-like conversational AI agents. To help developers build voice agents more easily, we announced our conversational AI studio at our recent Convo AI & RTE Conference in last October -- in late October, which allows developers to create, configure and deploy voice agent through a zero-code interface.

Complementing this, our conversational AI benchmark and orchestration platform allows developers to evaluate, mix and match and optimize both our proprietary and third-party modules so they can identify the best performing combination for their specific use case. Our open-source TEN framework designed for building voice agents continues to gain traction in the developers' community. Recognized for its high concurrency architecture and deep cross-platform integration, it has been adopted by multiple cloud providers and major enterprises for their agent orchestration platforms.

All these products are backed by our global distributed real-time insurance cloud. Over the past several months, we've expanded this infrastructure to cover key regions across North America, South America, Europe and Asia, ensuring consistent latency, reliability and performance even under high concurrency and varying network conditions. Early adoptions from customers around the world has been encouraging, and our pipeline of use cases and prospects continue to grow as we head into next quarter. Our recent Convo AI & RTE Conference attracted more than 3,000 on-site attendees, a record for us and made it the largest gathering focused on conversational AI technology globally.

Our customers and developers are deploying our conversational AI solutions to build voice agent for outbound marketing, inbound customer service, tutoring and many other applications. Hardware manufacturers are also integrating our technology into smart toys, enabling voice-powered companionship and learning experiences.

In conclusion, the convergence of advanced AI models and robust real-time infrastructure is unlocking a new era of possibilities, backed by proven scalability, deep technology expertise and a forward-looking product suite, we are well positioned to empower this next chapter, enabling truly human-like, reliable and scalable voice agents.

With that, let me turn things over to Jingbo, who will review our financial results.

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the third quarter of 2025, and then I will discuss outlook for the fourth quarter. Total revenues for the third quarter reached $35.4 million, up 12% year-over-year, representing our third consecutive quarter of double-digit organic growth. If we look at the 2 business divisions, Agora revenues reached $18.2 million in Q3, representing 15.9% year-over-year growth and flat quarter-over-quarter. The strong year-over-year growth reflects our successful market penetration and growing adoption in verticals such as live shopping.

Shengwang revenues reached RMB 122.4 million in Q3, up 8.4% year-over-year and 6% sequentially, driven by continued business expansion and adoption in key verticals such as social, entertainment and IoT. Dollar-based net retention rate is 108% for Agora and 90% for Shengwang, marking the fourth consecutive quarter of improvement for both businesses. Gross margin for the third quarter was 66%, slightly decreased 0.7% year-over-year and 0.8% sequentially.

Moving on to expenses. R&D expenses were $13.8 million in Q3, decreased 52.8% year-over-year. R&D expenses represented 39.1% of total revenues in the quarter compared to 92.7% in Q3 last year. Sales and marketing expenses were $6.5 million in Q3, decreased 5.6% year-over-year. Sales and marketing expenses represented 18.3% of total revenues in the quarter compared to 21.7% in Q3 last year. G&A expenses were $5 million in Q3, decreased 48.4% year-over-year. G&A expenses represented 14.1% of total revenue in the quarter compared to 30.8% in Q3 last year.

Moving on to the bottom line. We delivered net income of $2.7 million in Q3, representing a 7.8% net income margin. This result represents a significant improvement from last year and marks our fourth consecutive quarter of GAAP profitability. Based on our current business momentum and the visibility into the fourth quarter, we expect net income to grow sequentially compared to Q3.

Now turning to cash flow. Operating cash flow was $0.7 million in Q3 compared to negative $4.6 million last year. Moving on to balance sheet. We ended Q3 with $374.3 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 of $4.8 million. In the third quarter, we repurchased 5.2 million ordinary shares or 1.3 million ADSs, representing 1.4% of our outstanding shares at the beginning of the quarter.

Since our Board approved the share repurchase program in February 2022, we have repurchased $132.1 million worth of shares through September 30, 2025. The share repurchase program demonstrates our dedication to returning value to our shareholders, balanced with our ability to continue investing in strategic growth opportunities.

Now turning to guidance. For the fourth quarter of 2025, we currently expect total revenues to be between $37 million and $38 million compared to $34.5 million in the fourth quarter last year, representing year-over-year growth rate of 7.2% to 10.1%. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change.

In closing, I would like to express my gratitude to our outstanding team in Agora and Shengwang. Our sustained double-digit revenue growth and profit expansion are a direct reflection of your hard work and strategic focus. To our shareholders, thank you for your continued trust. We remain focused on executing our road map to build a durable market-leading company at the forefront of AI innovation.

Thank you all for joining today's call. Let's open it up for questions.

[Operator Instructions] First question comes from the line of Harry Zhuang from BofA Securities.

Congratulations on another quarter of double-digit growth and solid guidance for the fourth quarter this year. And I have 3 questions. First is regarding the demand outlook. Could management share about the key trends in both domestic and international market for the coming quarters? And what are the key downstream sectors that are driving the demand growth?

And second question is regarding the AI application. Could management share the latest update on the development of AI? And also what are the key scenarios that could drive meaningful revenue contribution in near term?

And thirdly is on the profitability outlook. Could management share the profitability outlook for both fourth quarter this year and also FY '26 on the operating profit level and also the net profit level?

All right. I'll take the first 2 questions, and Jingbo will take the last one. So for the demand in China, the overall demand recovery trend continues with stabilized regulatory environment and demand from social, entertainment and education customers rebounded and gradually goes up. Demand from IoT and digital transformation customers are experiencing rapid growth. In U.S. and international markets, live commerce demand continued its rapid growth and other verticals generally show growth as well. The overall growth rate is slightly faster than in China.

As to the AI demand and the trend, before I answer the question, I want to first clarify the difference between voice AI and conversational AI. We are actually focused on conversational AI, which is very related to our real-time engagement business. And it means the real-time human AI voice interaction. On the other hand, voice AI is a much broader concept. It includes both real-time conversation and non real-time functionalities such as audio recognition and generation. The non real-time use case actually is much more broad and non real-time audio recognition generation is also much more easier to achieve usability and to find practical use cases.

So in the past 2 years, audio generation or text-to-speech has been widely used in non real-time content production. For example, most of the short video clips people watch today are using AI-generated voice over. So those has been growing in the last 2 years in the social media and a lot of other markets. However, when we move to real-time conversation, the complexity of the technology makes the whole experience much more challenging, as I stated in the opening remarks and takes longer to mature and gain adoption.

In conversational AI applications, currently, there are 3 use cases that have progressed to more advanced stage, namely call center, education and companionship toys. For these use cases, we already see some customers have moved from proof-of-concept phase to real-world production.

Given the vast scale and the potential usage of these verticals, we expect the success of these customers will drive broader adoption. We already have customers in production today, but usage is still ramping up. We expect to see some sizable conversational AI revenue in the first half of next year. And hopefully, Convo AI will become a meaningful revenue contributor towards the end of next year.

Okay. On third question, so for Q4 this year, given that Q4 is normally a strong season for us, we expect to achieve GAAP operating profit breakeven in Q4. And therefore, the GAAP net profit will further grow on top of the Q3 level. So for next year, our target is to achieve GAAP operating profit for the full year of 2026. GAAP net profit -- that's, first of all, a big improvement over 2025 already. In terms of the GAAP net profit, that will have some level of uncertainty due to the potential interest rate cut. But under the current forecast, we expect year-over-year net income improvement over 2025 as well.

Next question comes from [ Rachel Han ] from CICC.

Can you hear me?

Yes.

This is [ Rachel Han ] from CICC. First of all, congrats on the solid growth this quarter and especially the continued improvement in profitability. I have 2 questions. First, I noticed that our third quarter revenue came in slightly above the midpoint of the guidance range. Could you give us more color on what drove this solid performance?

And my second question is on the AI side, which downstream applications are showing the strongest momentum so far? In particular, how is the adoption trend for AI companionship toys and when should we expect these use cases to start contributing to your financial results?

Okay. I'll take the first question. So as Tony mentioned in the earlier question, so for Q3, actually, we see pretty strong demand from U.S. and international market as well as the China market. In the U.S. and international market, live commerce continued to grow very strongly, and it's -- especially in more developed markets. And the other verticals such as social and fintech are also growing pretty well in Q3. And in China, First of all, we had the summer vacation in Q3, which is generally the strong season for social apps and also for education apps. And in addition, the IoT sector, so smart cameras, smart wearable devices like watches and also the smart toys are all experiencing very rapid growth.

Yes. So for the AI sort of use cases side, there are quite strong pipeline of customers and prospects for call centers, including outbound marketing and inbound customer services. For AI companionship toys, we see strong momentum from our customer, Robopoet. Their sales and usage number are quite impressive, and they also started to charge end user monthly subscription fees, which we believe is a more healthy and sustainable business model and also a breakthrough in similar kind of toys. A couple of other toys manufacturers are also in the process of integrating our solutions, and we expect to see the coming to market -- to see them coming to market in the next few months.

Our next question comes from [ Yu Sing ] from China Securities.

Congrats on the strong execution quarters. And so my first question relates on the AI usage. Could you share the sequential growth trend for AI-related usage? And looking at our current customer pipeline, when could we see sign of meaningful scale for these AI applications?

And my second question relates on maybe strategy expansion. We could see some CDN vendors expanding into edge GPU inference and security. Given our R&D infrastructure, can we see a similar path to maybe offer or just cross-sell edge inference or security features?

Yes. So conversational AI usage increased by more than 150% on a quarter-over-quarter basis. So it's quite fast. And although, as I mentioned, the voice AI has matured for years already, but Convo AI is still at the early stage. And we do see a strong pipeline of customers and prospects. We believe we are not far from more broader adoption and proliferation of voice agents.

For the second question, we're not a ceding company, but we do have a global distributed network and a large number of data centers distributed across every major regions. So it's a good question. In fact, we have opportunities that are similar, but from a different perspective. Specifically, we are targeting real-time inference services for conversational AI. This is what we build for our own product.

This inference service needs to connect with multiple distributed ASR, TTS, large language model service as well as our self-developed and deployed modules in different locations. This kind of capability is a must to support the call process in a way that it has to be very low latency so that the real-time nature of the interaction could be enabled. Such infrastructure services are of great value to any agent that requires ultra-low latency or real-time inference. So this is also an opportunity we could expand in the future.

[Operator Instructions] There are no further questions. That concludes today's Q&A session. Thank you, everybody, 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 other questions, please feel free to e-mail the company. Thank you.