Good day, and thank you for standing by. Welcome to the Agora Inc. Third Quarter 2024 Financial Results Conference Call. 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. 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 and uncertainties, assumptions and other factors that could affect the company's financial results and the performance of its business, 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 under 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.

Thanks, operator, and welcome, everyone, to our earnings call. I will first review our operating results in the past quarter. Agora's revenues were $15.7 million in the third quarter, up 3% year-over-year, mainly driven by business expansion in certain use cases, such as live shopping. Shengwang revenues were RMB 130 million in the second quarter, down 9% year-over-year, excluding revenues from certain end-of-sale low-margin products, mainly due to a challenging regulatory and macro environment. Now moving on to our business, products and technology updates for this quarter. As many of you already know, we recently launched our conversational AI SDK in collaboration with OpenAI's real-time API to allow developers to bring voice-driven AI experiences to any application. Our joint solution has two distinct advantages. First, OpenAI's GPT-4.0 model is multimodal, which means it can process voice input from humans directly without the need to convert words to text and therefore can understand and respond to human emotions much better than previous text-based models. Second, end users can enjoy Agora's advanced noise suppression and echo cancellation features as well as low-latency conversation even under challenging network conditions, thanks to our global real-time network and optimization algorithms. Since our joint launch with OpenAI in early October, we have seen many fascinating and innovative use cases being developed and brought to market by developers across various verticals. One area where we believe conversational AI will have a significant impact is the Internet of Things, or IoT. Many of us have had unpleasant experiences with previous generations of so-called smart speakers or smart assistants, which often struggle to understand our requests and lack the ability to speak naturally or make real-time decisions. Now with our conversational AI SDK, IoT devices connected to an advanced AI model can easily understand complex requests, hold natural conversations, and take actions based on live video feeds. For example, our customer Miko makes advanced educational robots for kids between the ages of 5 and 10. Previously, Miko used our video calling SDK to enable parents to monitor and talk to their children, and our signaling SDK to allow parents to move the robots around and follow a child during a video call. Thanks to our conversational AI SDK, Miko can now add interactive storytelling powered by advanced AI models in their content platform. The robot can adapt its response and behaviors based on a child's motion and interactions, providing a dynamic learning companion that grows with the child. Last month in Beijing, we hosted our Tenth Annual RTE Conference, focusing on the intersection of AI and RTE technologies. Both registration and attendance hit record highs, demonstrating the industry-wide excitement around real-time conversational AI and continued interest from developers in RTE use cases, its huge market potential, and our unique place within its ecosystem. At the conference, we also demoed a conversational AI solution jointly developed with Minimax, a leading AI company. We believe that for conversational AI to succeed, there needs to be a vibrant ecosystem of foundational models and building blocks, such as text-to-speech, speech-to-text, streaming, orchestration, and other developer tools. We are now working closely with several leading foundational model companies and other key players to build such an ecosystem together. As part of this effort, we sponsored an open-source project in our developer community called Transformative Expansion Network, or TEN for short. TEN is the orchestration framework for building AI agents with real-time multimodal AI capabilities. It supports integration with a wide range of large language models, speech-to-text and text-to-speech extensions and offers flexibility in edge cloud architecture. With TEN, developers can easily create AI agents that not only talk to users naturally but also understand video feeds from a device camera. Throughout this process, our global network ensures high performance and low-latency interaction between users and cloud-based AI models. To summarize, we believe multimodal AI agents that can interact with humans through natural voice will gain widespread adoption in many use cases such as customer support, education, and wellness. In these use cases, RTE technology is essential for enhancing the user experience to the point where AI agents can match and even outperform humans. This will drive significant usage growth and create new opportunities for the RTE industry. As an industry pioneer and leader, we are well positioned to become a key infrastructure provider for real-time conversational AI. To support this vision, we recently made some structural changes aligning our organization to fully leverage the accelerating conversational AI opportunities and operate in a faster, leaner, and more responsive fashion. These changes will help us build the next-generation real-time engagement technology for the generative AI era and strengthen our position as a leader in the real-time engagement space. Today, we also announced that Mr. Roger Hale will leave the company after serving 2.5 years as our Chief Security Officer. We are grateful for Roger's dedication and expertise. His leadership has been invaluable in strengthening our security and compliance foundation. Moving forward, Patrick Ferriter and Robbin Liu will assume responsibility for security and compliance, and we will continue to uphold the highest standard to protect our customers and stakeholders. Roger will continue to provide strategic advice as an adviser to the company. Before concluding my prepared remarks, I want to thank both the Agora and Shengwang teams for their resilience, dedication, and belief in what we can accomplish together. I believe we are well positioned to harness emerging technologies and innovations to build the best real-time engagement experiences in the generative AI era. 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 2024, and then I will discuss guidance for the fourth quarter. Total revenues were $31.6 million in the third quarter, a decrease of 7.7% quarter-over-quarter and a decrease of 9.8% year-over-year. If excluding revenue from certain end-of-sale low-margin products, total revenues increased 2.3% quarter-over-quarter and decreased 3.1% year-over-year. Agora's revenues were $15.7 million in the third quarter, an increase of 0.4% quarter-over-quarter and an increase of 2.6% year-over-year. The increase was primarily due to business expansion and usage growth in certain verticals such as live shopping. Shengwang revenues were RMB 112.9 million in the third quarter, a decrease of 14.5% quarter-over-quarter and a decrease of 20% year-over-year. If excluding revenues from certain end-of-sale low-margin products, Shengwang revenues increased 4.2% quarter-over-quarter and decreased 8.7% year-over-year. The quarter-over-quarter increase was primarily due to an increase in revenues from certain verticals such as Internet of Things, as well as usage increase from the education vertical during summer vacation. The year-over-year decrease was primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions. The dollar-based net retention rate is 94% for Agora and 78% for Shengwang, excluding revenues from certain end-of-sale products and discontinued business. Moving on to cost and expenses. As Tony mentioned just now, we made a difficult decision to restructure and reduce our global workforce this month. The associated severance costs of $4.8 million are reflected in cost of revenues and operating expenses in Q3. As part of the restructuring, we also canceled certain equity awards for the remaining employees. These awards were mostly granted in 2021 while our stock price was significantly higher. As a result, share compensation expenses are locked in at the stock price at the time of the grant, although the cash value of the awards is much lower at today's stock price. According to GAAP rules, the cancellation of these awards will cause immediate recognition of share-based compensation expense for the remaining awards, which is $11.4 million. However, I want to emphasize that these awards are simply canceled, so the company is not paying any stock option or cash to relevant employees. In other words, there is no actual cost to the company. The $11.4 million expenses in Q3 are only an accounting treatment. Going forward, the cancellation of these awards will free us from this accounting burden. Post the restructuring, we expect to see savings on operating expenses of roughly $4 million in Q4 this year and $7 million in Q1 next year compared to the baseline in Q2 this year. Gross margin for the third quarter was 66.7%, which was 2.7% higher than Q3 last year and 4.7% higher than Q2 this year. The increase was mainly due to the end of sale of certain low-margin products, which was offset partially by higher severance costs in this quarter. If we exclude severance of $0.3 million, pro forma gross margin is 67.7% for the third quarter. R&D expenses were $29.3 million in Q3, which included severance of $3.6 million and equity award cancellation expense of $9 million. If we exclude these two items, pro forma R&D expenses decreased 17.1% year-over-year to $16.6 million in Q3, representing 52.5% of total revenues in the quarter compared to 57.2% in Q3 last year. Sales and marketing expenses were $6.9 million in Q3, which included severance of $0.7 million. If we exclude severance, pro forma sales and marketing expenses decreased 20.9% year-over-year to $6.2 million in Q3, representing 19.6% of total revenue in the quarter compared to 22.2% in Q3 last year. G&A expenses were $9.7 million in Q3, which included severance of $0.1 million and equity award cancellation expense of $2.4 million. If we exclude these two items, pro forma G&A expenses decreased 19.7% year-over-year to $7.3 million in Q3, representing 23.1% of total revenues in the quarter compared to 25.9% in Q3 last year. Moving on to the bottom line, the net loss for the quarter was $24.2 million if we exclude severance of $4.8 million, equity award cancellation expense of $11.4 million, and losses from equity affiliates of $4.1 million. Pro forma net loss was $3.9 million, translating to a 12.4% net loss margin for the quarter. Now turning to cash flow, operating cash flow was negative $4.6 million in Q3 compared to negative $3 million last year. Free cash flow was negative $6 million compared to negative $3.2 million last year. Moving on to the balance sheet. We ended Q3 with $362.6 million in cash, cash equivalents, bank deposits, and financial products issued by banks, or $3.94 per ADS. The net cash outflow in the quarter was mainly due to free cash flow of negative $6 million and share repurchase of $3.9 million. During Q3, we repurchased approximately 6.8 million of our Class A ordinary shares, equivalent to 1.7 million ADS for $3.9 million, representing 1.9% of the $200 million share repurchase program. So far, we have completed 57% of the share repurchase program, which will expire at the end of February 2025, and we intend to continue to undertake this meaningful capital return to our shareholders. Now turning to guidance. For the fourth quarter of 2024, we currently expect total revenues to be between $34 million and $36 million compared to $31.6 million in the third quarter of 2024 and $33.3 million in the fourth quarter of 2023, if revenues from certain end-of-sale low-margin products were excluded. We also expect significant improvement in net income loss in the fourth quarter. This outlook also reflects our current and preliminary view of the market and operating conditions, which are subject to change. In closing, thank you to both Agora and Shengwang teams for your hard work and contributions during this period. Thank you, everyone, for attending the call today. Let's open it up for questions.

And our first question comes from the line of Xiaodan Xiang, Senior Associate.

Thanks, management for taking my questions. First of all, I wonder what would be the impact of your recent organization on the earnings of the upcoming quarters? And secondly, could you please update us on the progress of your collaboration with OpenAI? And please share your views on the recent adjustment of the cash price.

I'll take the first question. As I said just now, we expect operating expenses on a GAAP basis to be about $4 million lower in Q4 and about $7 million lower in Q1 compared to the baseline in Q2 this year, which was about $32.6 million in Q2. The reason the savings are more in Q1 compared to Q4 is because restructuring happened in November. So we still had about 1.5 months of salary for the employees who left the company this quarter. On the other hand, we do not expect the restructuring to have a significant impact on revenues. So most of these savings will translate into improvement on the bottom line. Tony?

Yes. On collaboration with OpenAI, ever since the launch of the Realtime API, we see a lot of interest from developers and our customers. There are some parallel efforts actually happening with a group of customers mostly on POC stage, and we hope to launch certain use cases in the near future. Meanwhile, we also see areas to improve on the technology and infrastructure design side to make the conversational experience even smoother in terms of audio quality and the interaction between humans and AI. The current stage of the OpenAI API is still under beta. We are working with partners to bring that to market sooner.

Okay. On the pricing question, yes, now OpenAI is offering cash pricing for cash voice input, which is 80% cheaper than the standard input price. It is certainly one way to bring the cost down and developers, including us, are all watching very closely on what might happen next. But I want to emphasize that the standard pricing of audio input is still $100 per 1 million tokens. That has not changed. The cash price is lower at $20, but that’s for cash input, which is basically the repetitive input the AI has seen already. For different use cases, the percentage of cash input really differs, and it’s hard to say how high the cash hit rate you can achieve with various use cases. The other thing is the pricing for the output token has not changed, which is actually a lot more expensive. The price for output tokens is four times the price for the input token. So with that unchanged, the overall pricing has not actually changed that much. With that said, we do believe in the medium term, there will be significant room for cost reduction.

Thank you. One moment, please, for our next question. Our next question comes from the line of Daley Li with Bank of America.

I have two questions here. First question is about our Q4 guidance regarding the revenue. It seems kind of a better trend compared to Q3. Could you give more color about the key drivers for better revenue for Q4? And for more color about the demand in Mainland China business and overseas will be quite helpful. The third question about conversational based AI, how do we see the progress with the domestic large language model players and how we see the trend between China and the like OpenAI, the U.S. trend in terms of the AI application in this RTE and the conversational AI?

Thank you, Daley. I'll take the first question. Our guidance for Q4 in terms of revenue is $34 million to $36 million compared to Q3. So sequentially, that implies about $2.5 million to $4.5 million increase, and that was actually driven by demand in both U.S. and international markets, as well as the China market. So in the U.S. international market, we see more demand in live shopping, so-called credit economies, or social space, and also customers in Asia. As we talked about in previous earnings calls, in the past two years, we had a pretty challenging market environment in Southeast Asia, the Middle East, and India, but we are seeing some recovery in the most recent quarter, especially in Southeast Asia and the Middle East. In China, we see improvement in IoT and digital transformation in Q4. Traditionally, Q4 is a high season for digital transformation. We also see some market share expansion in China. Although the overall economic conditions are still challenging, we have been successful in expanding our market share. That also led to sequential revenue growth in Q4 compared to Q3.

I will take the AI side of the question. We have a lot of cooperation with various foundational model companies and even non-foundational model companies leveraging general algorithms to build viable building blocks. We also see a huge amount of interest in exploring the possibilities and opportunities of leveraging conversational AI features to build use cases as well. There’s a few events where we announced our partnership with foundational model companies, as we talked about in the opening remarks. But most of the use cases are more in the experiment and development period in kind of a POC stage. It will take some time for the technology to mature to become generally available for real-time API in domestic models. And use case-wise, we see a clear fit into customer service, education, IoT, and social companionship.

Our next question comes from the line of June Zia with Gushin Securities.

I have a question regarding the outlook for next year. Could you please give us more color on our revenue outlook next year and our cash flow outlook next year? Also, we mentioned that we will achieve breakeven point next year. Based on what assumptions do we think that we will achieve the breakeven point?

Sure. So yes, we have always guided the market that we target to achieve GAAP breakeven for the full year 2025, and that’s actually under very conservative revenue assumptions. Our internal goal is certainly to drive moderate revenue growth for the existing use cases. We want us to be technologically and organizationally ready for additional demand from conversational AI use cases. In summary, the guidance has not changed. I talked about the savings of operating expenses just now. With that level of savings and with a very conservative revenue assumption, we believe we’ll be able to breakeven in 2025.

Thank you. There are no further questions. 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 are any questions, please feel free to email the company. Thank you.

Thank you. Bye-bye.

Bye.