Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Agora Inc (API, Financial) reported a year-over-year revenue growth of 2% for the second quarter, driven by business extensions in use cases like live shopping.
- The company successfully transitioned its real-time speech-to-text product from beta to general availability, enhancing accessibility and user experience.
- Agora Inc (API) launched a new website with an intuitive interface and enhanced navigation, aimed at both developers and business decision-makers.
- The partnership with Unity China to integrate in-game voice calling capabilities into Unity China's UOS engine is expected to benefit small game studios and developers.
- The company is seeing promising user adoption and engagement trends in conversational AI applications, indicating potential for future growth.
Negative Points
- Agora Inc (API) experienced a quarter-over-quarter revenue decrease of 1.3%, primarily due to reduced usage from customers in emerging markets.
- Adjusted gross margin for the second quarter was 63.4%, which is 3.8% lower than the same period last year.
- Operating cash flow was negative $7.6 million in Q2, compared to negative $5.3 million last year, indicating increased cash outflow.
- Free cash flow was negative $7.9 million, compared to negative $5.6 million last year, showing a deterioration in cash flow.
- The company has terminated the sale of certain low-margin products, which generated approximately $3.3 million in revenue in Q2 2024, impacting short-term revenue.
Q & A Highlights
Q: Could you elaborate more about the reason behind the termination of certain low-margin businesses and its impact on the bottom line?
A: (Jingbo Wang, CFO) The terminated products were based on older XTDM technology and had very low gross margins, often in the low single digits, and sometimes even negative net operating margins. Given the competitive market and our focus on sustainable profitable growth, we decided to discontinue these products. This move will not affect our presence in the medium-latency live streaming market, as we will focus on innovative RTC-related products instead.
Q: What is your expectation for the future of emerging applications or use cases for RTE and AI-related applications?
A: (Tony Zhao, CEO) We are actively collaborating with leading large language model companies to develop multimodal products and solutions. Some consumer applications have already integrated our SDK. We are also engaging with the AI developer community to bring models into real use cases. More announcements will be made at our RT conference in October.
Q: What are the key drivers behind the stronger recovery of Shengwang revenue compared to Agora, and what is the trend for Q3?
A: (Tony Zhao, CEO) Growth momentum in live shopping and IoT verticals, particularly in the developer market, is driving Shengwang's recovery. We see growth potential in IoT customers and conversational AI applications in China. The competitive landscape has stabilized, and we expect sequential revenue growth in Q3 and Q4.
Q: Do you have an update on the break-even target given your efforts to control expenses and terminate low-margin businesses?
A: (Jingbo Wang, CFO) We expect sequential revenue growth and a healthy gross margin for our core products in Q3 and Q4. We will continue to manage operating expenses cautiously. While I can't promise an exact timing for GAAP break-even, we are committed to achieving profitable and sustainable growth, aiming for break-even on a continued basis in 2025.
Q: How are you engaging with the AI developer community to drive innovation?
A: (Tony Zhao, CEO) We are working with platforms like Hugg & Fizz, which hosts nearly 500,000 different models, to engage with the AI developer community. We are also partnering with companies like SmallShot for the toy startup program to help developers innovate. More details will be shared at our RT conference in October.
Q: What are the growth prospects for Agora's core products in the coming quarters?
A: (Jingbo Wang, CFO) Demand for our core products remains robust, and we expect sequential revenue growth in Q3 and Q4. The gross margin for these products is healthy, and we will continue to manage operating expenses efficiently. We believe this is a turning point, and our core business will continue to grow, leading to eventual GAAP break-even.
Q: Can you provide more details on the competitive landscape and how it has impacted your business?
A: (Tony Zhao, CEO) The competitive landscape has largely stabilized over the past quarter. We see strong demand for conversational AI applications and growth potential in IoT customers. Our recent launch of a conversational AI framework gives us a competitive edge in engaging with AI developers and serving their applications.
Q: What are the financial implications of terminating low-margin products on your overall business?
A: (Jingbo Wang, CFO) Terminating low-margin products will lead to a meaningful increase in our gross margin and positively impact our bottom line. This decision aligns with our focus on improving operating efficiency and driving sustainable profitable growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
