Agora Inc. (API) has reported a moderate increase in revenues for the second quarter of 2024, with total revenues reaching $34.2 million, marking a 3.6% rise from the previous quarter and a slight 0.5% growth year-over-year. This marks the first year-over-year revenue growth since 2021 for the company. Agora's strategic focus on product innovation and cost management has contributed to this performance despite ongoing macroeconomic challenges. The company's launch of new products and a website redesign, along with its emphasis on conversational AI and real-time engagement, positions it for potential growth in various markets. Looking ahead, Agora anticipates Q3 revenues to be between $31.5 and $33.5 million and aims to reach GAAP breakeven by 2025.
Key Takeaways
- Q2 2024 revenues for Agora hit $34.2 million, a 3.6% increase from the previous quarter.
- Year-over-year revenue growth observed for the first time since the pandemic began in 2021.
- Product launches include real-time speech-to-text and voice SDK for conversational AI.
- The company has partnered with Unity (NYSE:U) China and launched a new developer-focused website.
- Agora is actively engaging in the AI space, with nearly 500,000 AI models being explored.
- Adjusted operating expenses have decreased, with a focus on phasing out low-margin products.
- Management projects Q3 revenues between $31.5 and $33.5 million and aims for breakeven in 2025.
Company Outlook
- Agora is confident about its long-term growth potential.
- The company expects to achieve breakeven on a GAAP basis in 2025.
Bearish Highlights
- The company noted a slight 1.3% quarter-over-quarter decrease in revenues to $15.6 million.
Bullish Highlights
- Agora has returned to year-over-year revenue growth.
- The company is innovating with new products and partnerships, especially in AI.
- Cost management initiatives have resulted in reduced expenses across various departments.
Misses
- Despite overall growth, there was a minor downturn in revenues compared to the previous quarter.
Q&A Highlights
- CFO Jingbo Wang expressed optimism about returning to year-over-year growth.
- CEO Tony Zhao emphasized the company's focus on multimodal AI product development.
Agora Inc.'s Q2 2024 earnings call paints a picture of a company that is cautiously optimistic about its future. By focusing on innovation in the AI space and maintaining strict cost controls, Agora is setting itself up for potential success in the evolving digital landscape. The company's strategic decisions to phase out less profitable products and focus on high-growth areas like live shopping and IoT are expected to contribute positively to its financial health in the coming years. With a clear eye on the future, Agora Inc. is taking steps to ensure its place in the competitive world of real-time engagement and AI.
Full transcript - Advanced Photonix Inc (API) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Agora Inc. 2nd Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.
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.
The reconciliations between the company's GAAP and non GAAP results can be found in its earnings press release. During this call, the company will make forward looking statements about its future financial performance and other future events and trends. These statements are only predictions that are based on what the company believes today and actual results may differ materially. These forward looking statements are subject to risks, 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.
Remains no obligation to update any forward looking statements the company may make on today's call. With that, let me turn it over to Tony. Hi, Tony.
Tony Zhao, Founder, Chairman and CEO, Agora Inc.: Thanks, operator, and welcome, everyone, to our earnings call. I'll first review our operating results in the past quarter. Our revenue were $15,600,000 in the 2nd quarter, up 2% year over year, mainly driven by business expansions in certain use cases such as live shopping. Shoungou revenue were RMB132 1,000,000 in the 2nd quarter, up 0.3% year over year and 8% quarter over quarter, mainly due to usage growth of digital transformation and Internet of Sales customers. I'm glad to see that both Abora and Xiong Wang delivered year over year revenue growth this quarter despite a very challenging macro environment.
This success is due to our relentless innovation in driving new use cases and enhancing the quality and value of our products in existing use cases. Now moving on to our business, products and technology update for this quarter. Let's first talk about Agora. Recently, our real time speech to text product transitioned from data to general availability. As I mentioned in our previous earnings call, this product enables customers to transcribe the audio of each user in the channel.
Text can be distributed as live caption to all channel participants to enhance accessibility and user experience. Throughout the development and beta testing stage, we have improved the performance of our product to accommodate up to 3 simultaneous speaker and added support for all major languages and dialects. Additionally, our product is integrated with large language models, logging customers to receive automatically generated summarize of meetings or events and gain insights at the end of each session. For example, HelloTalk, a leading language learning platform with more than 50,000,000 users, has been one of our customers to first adopt our real time speech to text product. With the integration of our product and the large language model, Alotalk can now provide their users advanced capabilities, including live language analysis, live translation, language proficiency assessment, creating contextual and personalized learning experiences.
Additionally, I'm happy to announce the launch of Agora's new website. At Agora, we believe all our customers are developers at heart, Recognizing the innovative spirit of our new website boosts an intuitive interface, enhanced navigation and a more modern design to create a cool and sleek user experience. It also offers a wealth of resources tailored to both developers and key business decision makers. Next (LON:NXT), let's turn to Shun Huang. We are excited to announce our recent partnership with Unity China to integrate our in game voice calling capabilities in Unity China's UOS engine.
This cooperation allows game developers to seamlessly add multiplayer voice channel into their games. It is especially appealing to small game studios and independent developers who often lack the skill set and resources to address all the technical challenges on their own. In addition, our proprietary advanced feature such as 3 d spatial audio, AI noise suppression and echo cancellation are available to developers, enabling them to create immersive experiences for players. In this quarter, we have also facilitated wider application of AI in our customers' use cases. For example, we helped Xiaoxingtai to add real time transcription for video calling in their latest flagship smart voice.
Previously, when users conduct video calling video calls on a smartwatch in noisy environment, it was often difficult to hear the other party clearly. Moving the wrist and watch closer to the ear would make it impossible to see video on the screen, therefore, forcing user to make a hard choice between audio and video. Now, with our cloud AI, real time transcription capabilities, users can enjoy video call with captions on their smartwatch, significantly enhance their user experience. Last September, we become the 1st company to offer real time voice SDK that enables conversation with generative AI models. Since then, we have facilitated our customers to launch conversational AI applications in various use cases such as AI companion, productivity assistant, language tutor and customer service.
Although these applications are still in their early stage, we have already seen promising user adoption and engagement trend. Looking forward, we are committed to staying at the forefront of technology advancement to enable developers to innovate at a faster pace and build the conversational AI application of tomorrow. This year marks the 10 year 10th anniversary of our iconic real time engagement or RTE conference. This coming October, we will host our RTE conference in Beijing, focusing on the intersection of AI and RT technologies and the exciting possibility that lies ahead. Experts and practitioners from both the AI and RT community will gather to share their vision and efforts to create revolutionary technologies, products and applications.
There will also be forums focusing on more traditional verticals such as digital transformation, entertainment, education and Internet of Things. We welcome you all to attend the conference and experience firsthand the vibrant spirit of the industry. Before concluding my prepared remarks, I want to thank both Agora and Chen Wang teams for their hard work and commitment during the challenging period. Let's stay focused on creating long term customer value and strengthen our leading market position. With that, let me turn things over to Jingbo, who will review our financial results.
Jingbo Wang, CFO, Agora Inc.: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the Q2 of 2024, and then I will discuss outlook for the Q3. Total (EPA:TTEF) revenues were $34,200,000 in the 2nd quarter, an increase of 3.6% quarter over quarter and an increase of 0.5% year over year. We have finally overcome the impact of the pandemic in macroeconomic turmoil and regulatory changes and returned to year over year revenue growth for the first time since 2021.
Agora revenues were CNY 15,600,000 in the 2nd quarter, a decrease of 1.3% quarter over quarter and an increase of 2% year over year. The quarter over quarter decrease was primarily due to reduced usage from customers in emerging markets. The year over year increase was primarily due to business expansion and usage growth in certain verticals, such as live shopping. Shunhong revenues were RMB 131,900,000 in the segment closure, an increase of 7.6% quarter over quarter and an increase of 0.3% year over year. The increase was primarily due to increasing revenues from certain verticals, such as Internet of sales.
Our base net extension rate is 92% for the quarter and 79% for Xunhua, excluding revenues from discontinued business. Moving on to cost and expenses. For my following comments, I will focus on non GAAP adjusted financial measures, which exclude share based compensation expenses, acquisition related expenses, amortization expenses of acquired intangible assets, income tax related to acquired intangible assets, impairment of goodwill, depreciation of property and equipment and amortization of land use rights. Adjusted gross margin for the Q2 was 63.4%, which was 3.8% lower than Q2 last year and 0.2% higher than Q1 this year. The year over year decrease was mainly due to change in product mix.
The quarter over quarter increase was mainly due to improved utilization rate of infrastructure. Adjusted R and D expenses decreased 6.6% year over year to $15,500,000 in Q2, mainly due to our continued cost control measures. Adjusted R and D expenses represented 45.4% of total revenues in the quarter compared to 48.8% in Q2 last year. Adjusted sales and marketing expenses were $5,900,000 in Q2, decreased 16.9% year over year. Sales and marketing expenses represented 17.3% of total revenue in the quarter compared to 20.9% in Q2 last year.
Adjusted G and A expenses were $6,600,000 in Q2, slightly increased 6.5% year over year, primarily due to increase of expected credit loss. G and A expenses represented 19.1% of total revenues in the quarter compared to 18.2% in Q2 last year. Overall, adjusted operating expenses were 6.1% lower than the same period last year, thanks to our effective cost control. Adjusted operating expenses were 2.2%, higher than Q1 this year. The sequential increase was mainly because we decided to replace certain share based compensation with cash compensation for employees in order to reduce dilution for our shareholders when shares are trading at below cash value.
Adjusted EBITDA was net $6,000,000 translating to a 17.6 percent adjusted EBITDA loss margin 4th quarter compared to 19.5% in Q2 last year. Non GAAP net loss was CNY 6,000,000 in Q2, translating to a 17.5% net loss margin for the quarter, lower than the net loss margin of 19.4% in Q2 last year. Now turning to cash flow. Operating cash flow was negative $7,600,000 in Q2 compared to negative $5,300,000 last year. Free cash flow was negative $7,900,000 compared to negative $5,600,000 last year.
Moving on to balance sheet. We ended Q2 with 3 CNY 3.71 million in cash, cash equivalents, bank deposits and financial products issued by banks or $4.03 per ADS. Net cash outflow in the quarter was mainly due to free cash flow of negative $7,900,000 and share repurchase of 2,300,000 Now turning to guidance. For the Q3 of 2024, we currently expect total revenues to be between $31,500,000 $33,500,000 This forecast reflects our end of sale of certain products with unsatisfactory profitability. Such products generated approximately $2,400,000 of revenue in the Q3 of 2023 $3,300,000 of revenue in the Q2 of 2024.
The average gross margin of such products was below 10%. So we expect end of sale of such products will lead to a meaningful increase in our gross margin and a positive impact on bottom line in the Q3. This outlook also reflects our current and preliminary views on the market and operating conditions, which are subject to change. In closing, returning to the year over year growth is an inspiring turning point under a challenging operating environment. We are excited about emerging use cases, especially the intersection between real time engagement and conversational AI.
And we remain confident about our long term growth potential. Thank you to both the Core and Strong teams for your hard work and contribution during this period. Thank you, everyone, for attending the call today. Operator, let's open it up for questions.
Operator: Thank First question is from the line of Yang Liu with Morgan Stanley (NYSE:MS). Please go ahead.
Yang Liu, Analyst, Morgan Stanley: Good morning. Thanks for the opportunity to ask questions. I have two questions here. The first is regarding the business outlook. As Jinbo just mentioned that you will face out some of the low margin business.
Could you please elaborate more about the reason behind that due to the competition or the outlook of that business? And whether or you mentioned that that business has a quite low gross margin and I'm not sure whether that business OP margin or net margin is also very bad or what is the potential impact to the bottom line? And the second question is based on the company's pipeline, what is your expectation of future emerging applications or use cases for IT or whatever AI related application, if you see any potential booming of the RT usage, could you please share more about that? Thank you.
Jingbo Wang, CFO, Agora Inc.: Thank you. I'll take the first question. So yes, we already end of sale certain products in this quarter. And these products, we mentioned a few years back, these were more like CDM based technology. And given how competitive that market is, these products have pretty low gross margin in the low single digit range.
And because we there are also related other expenses. So actually, on a net margin operating margin basis, it's close to pretty low, even slightly inactive. And as we know, we have been very focused on improving the overall operating efficiency and drive business towards sustained profitable growth. And that's why we believe this business is not generating profit, and we don't see that market turning around very quickly in the near term. And that's why we decided to basically terminate the sale of such products.
That doesn't mean we will exit the entire kind of the medium latency live streaming market. We are doing other innovative products, not based on the traditional C10 technology, but more based on the RTC related technology. So we continue to be competing in the market, but we'll be more focused on innovation, rather than offering more traditional and legacy products?
Tony Zhao, Founder, Chairman and CEO, Agora Inc.: I'll take the general AI side of the question. We have been actively talking to leading large multi modal companies globally with very positive feedbacks in general. The importance of our multimodal capabilities and a highly reliable low latency transmission network is well recognized by our players. We are working closely with many of them to develop multimodal products and solutions. Some of our consumer applications have already some of their consumer applications have already integrated with our SDK.
Meanwhile, we have also worked together in engaging with AI developer community. If you look at the Hagenfels, there's almost 500,000 different models such we have working with them to engage with developed communities on that to bring the models into real use case. We also partner with companies like MotionShot for the tao yin soon startup program to help developers to innovate. Please stay tuned for more announcement in our RT conference in October.
Yang Liu, Analyst, Morgan Stanley: Thank you.
Operator: Thank you. One moment for our next question. It comes from the line of Dally Li with Bank of America (NYSE:BAC) Securities. Please go ahead.
Dally Li, Analyst, Bank of America Securities: Hi, management. Thanks for taking my question. I have two questions here. Number 1 is about the revenue by segment. It seems that Shenhua revenue is getting stronger, quote on quarter, recovery in Q2 compared to Agora?
And what's the key drivers? And how do we see the trend in Q3 for the domestic market and the international one? And the same question about the our breakeven target as we have been trying to control about the expenses and also fuel down the low margin business. And do we have update about the breakeven target either following quarters or sometime? Thank you.
Tony Zhao, Founder, Chairman and CEO, Agora Inc.: In terms of the Q3 demand for U. S. And international markets, we see growth momentum in live shopping and IoT verticals, particularly in developer market. Since we've become the 1st company to offer real time voice SDK that enables our conversation with generative AI models, competitors have also followed us and provide similar products. We believe this will be the new battlefield of RT.
With our recent launch of our conversational AI framework, we will gain significant competitive edge to engage with AI developers and serve their applications. In China market, we see growth potential in IoT customers, also some strong demand for conversational AI applications. Competitive landscape largely unchanged during the past quarter. Competitive pressure stabilized.
Jingbo Wang, CFO, Agora Inc.: Okay. I'll take the second question. So from what we see right now, demand for our core products remain pretty robust. So we do expect sequential revenue growth in Q3 compared to Q2 and hopefully Q4 compared to Q3 as well. And the gross margin of our corporates remain very healthy.
So you will see a pretty nice uptick in the on gross margin in Q3 and Q4. As I mentioned, the termination of certain low margin products will not impact the bottom line. In terms of the OpEx, we'll continue to manage OpEx very cautiously, and we cannot expect OpEx to be higher than Q2 in the coming quarters. If anything, we might try to further improve efficiency. So at this point, I cannot promise the exact timing of the debt breakeven, given there are still a lot of moving parts.
But we are committed to achieving profitable and sustainable growth. So if we think about the business, right, in this quarter, we returned to year over year growth after a lot of the macro challenges and dynamic, the macroeconomic environment in both China and in the U. S. Came in all these rate hikes and funding environment changes and all the regulations. So now we have finally come back to revenue growth, and we believe this is a turning point and core business will continue to grow from this point on.
And as we maintain our cost discipline and drive efficiency, I believe it's just a matter of time before we achieve that goal of that breakeven and continue to grow from 0. And I guess we expect to achieve such breakeven on GAAP basis and on continued basis in 2025.
Dally Li, Analyst, Bank of America Securities: Thank you, Tony and Jingbo. Thank you.
Operator: Thank you. And as there are no further questions, I want to thank everybody for attending the company's call today. As a reminder, the recording of the earnings release will be available on the company's website at investor. Agora. Io.
And if there are any questions, please feel free to e mail the company. Thank you, everyone.
Jingbo Wang, CFO, Agora Inc.: Thank you. Thank you. Bye bye.
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