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Operator: Good day, and thank you for standing by. Welcome to the Agora Fourth Quarter 2022 Financial Results. . I would now like to hand the conference over to your speaker today, Fionna Chen. Please go ahead.

Fionna Chen: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Agora’s Fourth Quarter 2022 and Full Fiscal Year Earnings Conference Call. Our earnings results press release, SEC filings and a replay of today’s call can be found on our IR website at investor.agora.io. Joining me today are Tony Zhao, our Founder, Chairman and CEO; Jingbo Wang, our CFO. Reconciliations between our GAAP and non-GAAP results can be found in our earnings press release. During this call, we will make forward-looking statements about our future financial performance and other future events trends. These statements are only predictions that are based on what we believe today, and actual results may differ materially.

These forward-looking statements are subject to risks uncertainties, assumptions and other factors that could affect our financial results and the performance of our business, which we discuss in detail with our filings with SEC, including today’s earnings press release and the risk factors and other information contained in the final prospectus relating to our initial public offering. Agora undertakes no obligation to update any forward-looking statements we may make on today’s call. With that, let me turn over to Tony. Tony?

Tony Zhao: Thanks, Fionna, and welcome, everyone, to our earnings call. Our revenue for the fourth quarter remained flat at $40 million compared with the same quarter last year. During this quarter, new applications were registered on our platform. And our total number of registered applications exceeded 548,000. At the end of 2022, our number of active customers was 3,066, adding close to 400 compared to 1 year ago. On product side, recently, we launched a beta version of our speech-to-text product for real-time engagement. Traditional speech-to-text products do not work well in RTE use cases due to the challenge such as synchronization of and the device performance issue. Working with industry-leading partners specialized in speech-to-text technology, we developed a cloud-native transcription product that delivers reliable performance in noisy environment, with multiple individuals talking simultaneously and under poor network conditions.

As a cloud-native product, no additional local processing is required and performance is consistent across a wide range of devices. We believe this product can enhance end user experiences in many ways. For example, people with impaired hearing can now watch live streaming or bid in a live auction. Leveraging an auto-translation model, this product can easily overcome language barriers and empower people with different cultural backgrounds to mingle with each other naturally. In addition, speech-to-text has also laid the foundation for other complementary features such as content and transcript recording. This quarter, we also announced the general availability of 2 new first-party expansions, 3D spatial audio and AI-powered noise suppression, which will enable developers to create more immersive and engaging experiences for their end users.

With the flexibility of Agora SDK 4.0 open and modular architecture, these expansions can be easily integrated into our core RTE products, such as voice calling, video calling and interactive live streaming. During the public beta phase, these 2 expansions have been well received by developers. For example, Hello, a social and live streaming platform for language learning, found that the best way to learn a new language is by regularly speaking with native speakers. By leveraging Agora’s AI noise suppression, Hello has removed unwanted background noises, ensuring users worldwide have a distraction-free learning experience regardless of their environment. About our new use cases. This quarter, we continue to see new use cases emerging and gaining adoption.

For example, as we mentioned previously, live video shopping is expanding rapidly in U.S. market and has attracted some well-known brands who are investing in these capabilities. For example, an important American television network that traditionally specialized in home shopping began working with Agora last quarter to provide its vast audiences with live interactive shopping. Now that we have discussed our latest product and use cases, I would like to take a moment to share some of my thoughts when looking back at 2022 and looking ahead to 2023. 2022 was an extremely challenging year, which I think many of you would agree with. Our full year revenue was $161 million, a decrease of 4% or $7 million compared with 2021. However, please bear in mind that during this period, our revenue from the K12 academic tutoring sector in China alone was down by $37 million from $40 million to $3 million.

Excluding this segment, our revenue in 2022 increased 24%, mainly thanks to our global expansion, new use cases such as live video shopping and new products such as broadcast streaming. This was no small feat, especially if we also consider the challenging macro environment such as stock market correction, inflation and the tightening of venture capital funding. As mentioned in our last earnings call, considering the challenging operating environment, we reorganized our global R&D team and reduced our overall workforce in October to focus on our strategic priorities and improve efficiency. In the past few months, we further streamlined and refocused our developer experience and content marketing teams in the U.S. and international markets. We also appoint as Chief Operating Officer, China, to lead our commercialization efforts in that market.

I believe these steps will help our teams become more customer-centric and more focused on local markets. In addition, we recently completed the sale of Easemob’s Customer Engagement Cloud, or CEC, business. When we acquired Easemob in early 2021, it had 2 business segments: the chat API business and the CEC business. The chat API business has been fully integrated into our platform. On the other hand, the CEC business is not a core market for us. The sale of the CEC business will help us focus our resources on core products and markets. Now looking at 2023, I’m cautious about the macro environment, but continue to see new opportunities in the global RTE market. On the macro side, inflation and tough financing environment will likely remain, and the post-COVID reopening in more countries will reduce demand for our product for certain use cases.

On the other hand, there are clear opportunities for us. For example, a large competitor recently shut down a key product and significantly reduced its investment in this market due to competitive pressure. We also start to see demand from certain previous untapped verticals. Facing these challenges and opportunities, our strategy for 2023 can be simply summarized into the following: laser focused on customer value, enhance competitive advantage and gain market share. First, we will strengthen our customer-centric value and leverage our latest innovation to enhance value creation for our customers. Also, acting as an innovation partner for our customers, we can create a flywheel effect, leveraging customer feedback to help refine our road map.

Second, we will focus on delivering the world’s best-performing RTE product and services with unrivaled real-time video and voice experience for end users and best-in-class ease of use for developers. Supported by the above, we will continue to win over the competition and expand our market share globally. At the same time, we will continue to improve our operational efficiency and optimize our cost structure. Before concluding my prepared remarks, I want to thank all Agorans for their hard work and commitment during this extraordinary year. I will always cherish the memory of us facing obstacles shoulder to shoulder and celebrating our wins, big and small. Let’s stay laser focused on creating customer value, enhancing the competitive advantage of our core product and gaining market share in 2023.

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

Jingbo Wang: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for Q4, and then I will discuss the outlook for the fiscal year of 2023. Total revenues were $40.1 million in the fourth quarter of 2022, a decrease of 0.7% compared to Q4 last year and a decrease of 2.1% quarter-over-quarter. The year-over-year decrease was due to significant decrease in usage from the K12 academic tutoring sector in certain markets following regulatory changes and a decrease in revenues from the divested Customer Engagement Cloud business which were offset in part by business expansion and usage growth in other sectors and regions. The quarter-over-quarter decrease was mainly due to a decrease in revenues from the divested Customer Engagement Cloud business and a decrease of revenue from the U.S. and international markets due to challenging macroeconomic environment.

As Tony mentioned just now, the interest rate hikes, worldwide inflationary pressure and tightening of venture capital funding have negatively impacted some of our customers’ financial conditions and their ability to raise funding which led to reduced usage of our products and increased pricing sensitivity. We expect the trend to persist in the near term, which would continue to negatively impact our revenues, especially from U.S. and international markets. Total revenues for the fiscal year of 2022 were $160.7 million, which represented a 4.4% decrease from 2021. The decrease was mainly due to $37.8 million drop of revenue from the K12 academic tutoring sector in certain markets due to regulatory changes. If we exclude this segment, our revenues would have increased 24% from $127.7 million in 2021 to $158.2 million in 2022.

Our trailing 12-month constant currency dollar-based net expansion rate is 81%, excluding Easemob. Specifically, net expansion rate was 118% for the U.S. and international business and approximately 100% for the China business, excluding business impacted by regulatory changes in the K12 academic tutoring sector. Moving on to cost and expenses. For my following comments, I would focus on non-GAAP results, which exclude share-based compensation expenses, acquisition-related expenses, financing-related expenses, amortization expenses of acquired intangible assets, income tax related to acquired intangible assets and impairment of goodwill. Non-GAAP gross margin for the fourth quarter was 61.2%, which was 1.4% higher than last quarter, thanks to our ongoing efforts in optimizing our infrastructure and architecture.

Non-GAAP gross margin in this quarter was 2.8% lower than Q4 2021, mainly due to increased revenue from our broadcast streaming product, which has lower gross margin. As we mentioned in the last earnings call, we restructured and reduced our global workforce in October. We saved $10.2 million on quarterly non-GAAP operating expenses in Q4 compared to Q3. Non-GAAP R&D expenses were $17.2 million in Q4, a decrease of 26.9% year-over-year. Non-GAAP R&D expenses was 42.8% of total revenues in the quarter compared to 58.1% in Q4 last year. Non-GAAP sales and marketing expenses were $10.8 million in Q4, decreased 11.9% year-over-year. Sales and marketing expenses represented 26.8% of total revenues in the quarter compared to 30.2% in Q4 last year.

Non-GAAP G&A expenses were $7.5 million in Q4, slightly increased 1.8% year-over-year. G&A expenses represented 18.6% of total revenues in the quarter compared to 18.1% in Q4 last year. Non-GAAP operating loss was $10.7 million, translating to a 26.7% non-GAAP operating loss margin fourth quarter compared to an operating loss margin of 38.2% in Q4 last year. Adjusted EBITDA was negative $8.5 million, translating to a 21.1% adjusted EBITDA loss margin fourth quarter, which is significantly lower than the adjusted EBITDA loss margin of 32.5% in Q4 last year and 40% in Q3 this year, thanks to our recent cost control efforts. Impairment of goodwill was $11.9 million in Q4, primarily due to the impairment related to Easemob as the financial performance of the divested Customer Engagement Cloud business fell below our original expectations.

Investment loss was $7.8 million in Q4, primarily due to impairment of certain minority equity investments. The challenging macroeconomic environment and tightening of funding have caused difficulties at several companies in which we made minority equity investment back in 2021. We have taken a prudent approach, evaluating the latest situation and making the impairment decision. Now turning to cash flow. Operating cash flow was $3.4 million in Q4 compared to $5.1 million last year. Free cash flow was $1.9 million compared to $2.9 million last year. Moving on to balance sheet. We ended Q4 with $428 million in cash, cash equivalents and short term investments compared to $483 million at the end of Q3. Net cash outflow in the quarter was mainly due to cash paid for time deposits with maturity over 1 year of $39 million and share repurchase of $18 million.

In 2022, we repurchased approximately $35.8 million of our Class A ordinary shares, equivalent to approximately 9 million ADS for approximately $41.8 million, representing 21% of our $200 million share repurchase program. Our Board of Directors has authorized an extension of existing share repurchase program to February 28, 2024, with all the other terms unchanged. Extension reflects the Board’s view that our stock is currently undervalued and again demonstrates the Board’s confidence in the fundamentals, strategies and long-term growth potential of Agora. We were also informed by our Founder and CEO, Tony Zhao, that as of the end of 2022, he had used his personal funds to purchase a total of approximately 1.6 million of ADS in the open market under his $30 million management share purchase split.

Now turning to guidance. COVID-19 is still an unprecedented variable to our business model where historical experience may not apply. Our guidance on full year revenues reflects various assumptions that are subject to change based on uncertainties related to the impact of the COVID-19 dynamic, challenging macroeconomic environment and the prevalent global capital markets. With that, we currently expect total revenues for the fiscal year of 2023 to be in the range of $155 million to $157 million compared to the total revenues of $155 million, excluding divested Customer Engagement Cloud business in 2022. In closing, I want to express my deepest appreciation to the entire Agora team for their hard work in this extremely challenging year and to our investors for trusting us.

Thank you, everyone, for attending our call today. Let’s open it up for questions.

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Operator: . Our first question will come from the line of Yang Liu from Morgan Stanley.

Yang Liu: Two questions from my side. The first one is I would like to hear management’s view in terms of when could we see the inflection point in the future for domestic market and the overseas market, respectively. And the second question is I remember management previously had predicted breakeven by fourth quarter 2023. I just want to double-check whether you’re still staying with this target? And if so, what could be the assumption behind this target? Like, what would be the revenue and gross margin to reach this breakeven target?

Tony Zhao: I’ll talk about the demand side. The recent slowdown in revenue growth was mainly due to macroeconomic challenges and also post-COVID reopening in more countries. This has caused pricing pressure and temporary demand pressure. But I don’t think this represents a fundamental change in demand for real-time engagement technology. We remain optimistic about demand in medium and long term driven by further adoption of existing use cases, and also there are emerging new use cases as well. For example, revenue from live video shopping increased severalfold in the last 12 months. And we continue to see new demand from new use cases, both in the U.S. and in China. Some of them will have meaningful revenue contribution this year. So in conclusion, I also don’t want to predict possibilities. I want to focus on concrete work and how to improve our internal efficiency as long as we’ll provide the best products in the market. I am not worried about demand.

Jingbo Wang: I’ll take the second question. So as you can see from our full year revenue guidance, it’s basically flat compared to last year. So we are off to a relatively slow start this year given all the macroeconomic challenges Tony just mentioned. So we expect revenue to increase quarter-by-quarter this year, and we will likely finish at a higher level than Q4 2022. In the meantime, we’ll continue to drive efficiency from operations and optimize costs wherever possible, but we will adjust our cost structure dynamically taking into the actual revenue growth we see during this year. So we don’t have a fixed revenue and OpEx target at this point, but we are determined to significantly improve our financial health throughout this year.

Operator: Our next question will come from the line of Daley Li from Bank of America.

Daley Li: I have two questions. Maybe for the first one, could management share more color about like the number of clients and the ASP trend for both domestic and overseas market? Fourth quarter last year, we see the domestic ASPs still quite stable quarter-on-quarter, but overseas see some quarter-on-quarter decline. So how do we see the trend in the following quarters? My second question is regarding the employee structure. Would we consider further optimization given the current growth outlook and our target of improving the profitabilities?

Jingbo Wang: Thank you. I’ll take both questions. So in terms of number of customers, as you can see in the press release and also our presentation, our number of customers have been increasing quite steadily, both in the U.S. and international markets and also in China market. Again, that shows the continued adoption of our technology globally. So in terms of pricing, you are correct that we faced a more challenging pricing pressure in the U.S. and international markets, especially in the past 2 quarters, and we do expect that to persist in the near term. I’ll explain a little again about why that is the case. So first of all, we do have a relatively large number of start-up companies as well as the early-stage companies as our customers.

So given the high inflation, the interest rate hikes, so it has become much harder for them to raise funding. And that has limited their usage of our products and also increased their pricing sensitivity. We don’t see those factors to change in the near term as well. We do expect continued pricing pressure in the near term. In the China market, actually, we don’t see anything different from previous years. Past experience has been that every year, our average ASP will drop 5% to 10%, which is healthy, which is how this product will gain more and more adoption and become widely used across our industries. So with that, we don’t see anything different this year. So in terms of the team, for this year, we don’t have any plan for expansion, and we will continue to optimize where we see redundancies.

And we’ll really look at this in a very detailed fashion, team by team, see where the return on investment is low, then we’ll optimize. We’ll also focused on improving the workflow, improving collaboration across teams and also investing in the confidence of our team. So we don’t have plans for a large cut in the near future.

Operator: . Our next question comes from the line of Bing Duan from Nomura.

Bing Duan: I have two. The first one is a follow-up on the demand side. So what kind of application or industry verticals do we see that might accelerate or slow down in 2023, that may drive for maybe higher or lower than our current revenue outlook, which is flat, right, excluding Easemob? And then recently, there is a strong global phenomenon about ChatGPT and AIGC. Do we currently see any kind of applications, related applications or development, that is driving our volume growth? That’s on the demand side. So the second question is about the about the ASP or take rate. So for our new applications expected to grow this year, will there be any difference compared to our previous applications or verticals?

Tony Zhao: On the demand side, I think there are use cases continuing to emerge like I already mentioned on speech-to-text. It can be used on several different use cases like live shopping but also can be used in social use cases. And there are more opportunities growing in verticals like digital transformation in China. And also, there are regional opportunities that we see a bigger potential, including Europe and Latin America. Besides that, in all of the use cases or across our platform product, we see that by enhancing the quality of experience for all our video and audio sessions, it would also enhance our customers’ attach rate to their end users and will, in turn, increase demand for us as well. It’s a natural development for all use cases, not just us, even for television, that the resolution or clarity of is going to improve over time.

So this is just a single trend that we believe that’s going to also happen in our industry. Plus, we would also spend resources to continue to improve our developer experience to reduce friction for adoption, so that more developers could easily create new apps or new use cases on the platform. All those will help us to grow in terms of serving more potential demand and also help our customers to generate more demand. About ChatGPT, it is an interesting and inspiring development in the industry just now, around this time, I think a lot of discussions around it. And we do see potential in our customers’ apps or in our own practice. I’ll maybe mention one area like the social side. ChatGPT shows potential that a real human-like conversation becomes possible.

So in some of the social apps, we also see our own platform. They start to use this large language model to create specific characters with a defined background personality and even like the of their talking language. And that attracts quite some interest from consumers because that gives customers freedom in sort of having a conversational relationship with someone that, by imagination, is their ideal partner. So that’s an interesting invention just recently. But similarly, those things could happen in customer engagement use cases. But also, people would naturally imagine that there were this smart chat sort of service, including from the past Alexa and Siri. In the past, the conversation somewhat becomes very dry, like boring. We can only do command control kind of conversation.

But now with the large language model, human and machine interaction interface could be totally disruptive. On that side, we could enhance such a conversation or a human machine interface, in a way, to ensure the interaction to be real time. So those are all potentials we could see, but there will be more. We do have a close eye on those possibilities.

Jingbo Wang: I’ll quickly chime in on the take rate and pricing side. So Tony mentioned a few new use cases, like live shopping in the U.S. There, we see the pricing remains very healthy. And digital transformation in China, that’s a very different market with large enterprises, financial institutions. So there, it requires a different pricing model. But we believe what we see is it’s still a very profitable market for us.

Operator: And our next question will come from the line of Allen Li from JPMorgan.

Allen Li: I have two questions. So firstly, could you please give us some color on the revenue breakdown by key categories in 2022, such as entertainment, education and maybe other some rising categories like live video shopping? And my second question is on our business storage. We see non-China business have slowed down quite a bit in past 3 quarters, while China revenue, excluding K12, seemed to hold up well. So do you think this is more like a temporary thing? Or is there any structural reasons behind that? And how are we going to allocate resource between China and the international markets going forward?

Jingbo Wang: Okay. I’ll take both questions. So the first one in terms of the — okay, first of all, we operate in 2 markets, the U.S. and international markets and the China market. Obviously, the vertical breakdown in those 2 markets are slightly different, so I will talk about them separately. So in the U.S. international markets, social is still the largest vertical, followed by what we call future in work. And that will include things like collaboration, online event and live video shopping. The second biggest is education. I think these are the main verticals. In China, obviously, social is dominant because now, after the regulation change, education is a much, much smaller part of the business now. And then digital transformation, so large traditional enterprises previously was almost zero and now has a meaningful contribution last year.

And also IoT, Internet of Things, something like smart doorbells, smart TV, these will also start to contribute revenue in 2022. That’s on the sector breakup. In terms of like China revenue holding up in the past few quarters, I think there are a few factors. First of all, it has to do with the new product, what we call the broadcast streaming product, which had lower GP margin but has been very nice revenue pickup. So that now contributes to about 10% of revenue in China already. So that’s something new in 2022. And secondly, we have been working with customers in China, not just focused on business in China but also, for example, expanding their apps in overseas markets. So that’s another growing business. And lastly, as I mentioned, the digital transformation business, that almost didn’t exist in 2021.

Operator: And I’m not showing any further questions in the queue at this moment. I’d like to turn the conference back to Fionna for any closing remarks.

Fionna Chen: Thank you, operator. And thank you, everybody, for attending today’s call. Again, our presentation for this call and the replay for this call is also posted on our website. Later on, we will also post the remarks of this earnings call. Again, if you have any further questions, please reach out to us at our IR website or our IR e-mail. Thank you again.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Tony Zhao: Thank you.

Jingbo Wang: Thank you.