Good day and thank you for standing by. Welcome to Agora Incorporated First Quarter 2021 Financial Results. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ms. Fionna Chen. Thank you. Please go ahead.

Thank you, operator. Good evening, and good morning, everyone. My name is Fionna Chen. I’m the Investor Relations Director at Agora. Thank you for joining Agora's first quarter 2021 earnings conference call. Joining me today are Tony Zhao, Founder, Chairman and CEO; and Jingbo Wang, CFO. Our earnings results, press release and a slide deck can be found on our IR website at investor.agora.io. Reconciliations between our GAAP and the 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 and trends, including guidance. These statements are only projections 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. We will discuss some in details in 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 assumes no obligation to update any forward-looking statements we may make on today's call. With that, let me turn it over to Tony. Tony, please?

Thanks Fionna, and welcome, everyone, to our earnings call. I would like to start by saying that our hearts and thoughts are with the people in India and other parts of the world dealing with the current pandemic. Some of our own Agora team members and their families were affected. But together, we will help each other through this difficult period. The world has changed. Everyone is looking for a way to stay connected to their loved ones. So our real-time engagement platform, Agora is committed to making this meaningful human connection possible. With that said, let's talk about Agora's performance for Q1 2021. We had another quarter of strong growth in Q1 2021. As developers and innovators around the world continue to create new immersive engagement experience with our real-time voice, video, chat and streaming products, transforming all industries. In this quarter, the amount of real-time voice and video engagements powered by Agora exceeded 50 billion minutes per month for the first time. As we watch the bloom of innovative new use cases build with Agora over the past year, it is clear that the world is evolving from a consumer economy and knowledge economy towards a greater economy, where people make a living by sharing their skills, hobbies, and interests online. These creators include foreign language teachers, yoga instructors, tutor guides - tour guides, chefs, DJs, musicians and many more. Increasingly, these creators are leveraging the Internet and the power of Agora’s real-time engagement network to enable those experiences and engage with their audience. For example, we recently partnered with a virtual tour platform in Europe to enable tour guides to serve customers from thousands of miles away. Here, tourists can join the live streaming - live streamed tour, where local guides introduce the destination and share their…

Thank you, Tony. Hello, everyone. Let me start by reviewing financial results for Q1 and then I will discuss our outlook for the full year. Total revenues were 13% year-over-year, and 21% quarter-over-quarter to $40.2 million in the first quarter of 2021. Number of active customers reached more than 2,300 excluding rose for Easemob up 98% year-over-year. The growth in revenue of the customer was driven by the continued adoption of our technology developers and the emergence and growth of new use cases. We reached more than 300,000 registered app accounts at the end of March, excluding rose for Easemob adding about 11,000 per month in the quarter. We also saw significant usage growth from use cases, such as interactive lecture hall and audio live cast during the quarter. Additionally, Easemob contributed approximately $1 million for our top line. As we mentioned in our last earnings call in order to help investors better understand organic growth, excluding the impact from one-off events, such as the complete lockdown in China in the first half of 2020 due to COVID-19. We calculated adjusted total revenues for the periods when comparing to adjusted total revenues in Q1 last year. Our revenue grew 81% year-over-year in this quarter. Our trading 12 months constant currency dollar based net expansion rate is 131% excluding Easemob. If we use adjusted total revenues, the expansion rate would be 146%. Moving on to costs and expenses, from my following comments, I will focus on non-GAAP results, which exclude share-based compensation expense, acquisition related expenses, amortization expense of acquired intangible assets and income tax related to acquiring intangible assets. Please note that a significant portion of the consideration, paid or payable to the management team and employees of Easemob and Netless is accounted for as acquisition related expense, here our…

[Operator Instructions] Our first question comes from the line of Yang Liu from Morgan Stanley. Please ask your question.

Thank you for the opportunity. I have three questions here. The first is on the education regulation. We noticed that there are a lot of noises in the market, that some of your customer could be subject to new regulations on their customer acquisition or their content, et cetera. And based on your discussion - ongoing discussion with your customers, what should be the expected impact from these regulation changes? And also what is revenue from this sector in the past quarter? The second question is how will – how should we look at the gross margin? In the recent quarter, it was 58%. And what should be the outlook for the full year and what will drive the potential stabilization and turnaround of the gross margin? And the third question is towards the intensifying competition from public cloud and other smaller players? What is the recent competitive dynamic in the market? Thank you.

Yes, I'll take the first question. I think it's very hard to talk about the impact from the regulations at this point. The government is still drafting more details of the new regulations and consulting with various stakeholders in the education industry. It is unclear what the final regulation will look like and at what pace the government will enforce the new rules. Meanwhile besides those regulations being discussed, I think government has made clear that they are trying to promote the so-called free classroom initiative, which is leaning towards leveraging more online classroom services to help improve the overall education services. Therefore, we think no matter how regulatory change would happen, the overall public and the private sector use cases for online education should continue to grow. If we think in long-term, I can also offer a few more perspectives. I think, one, the overall education system based on merit and exams, is unlikely to change, which means the demand for off-school tutoring is hard to diminish. And the shift from offline to online is likely to continue given the convenience and cost advantage of the online. Then the shift from one-way broadcasting to interactive class is likely to accelerate, given the better experience and the learning outcome of interactive class. Who - as to who will organize and provide the actual tutoring service, whether it's education companies or public schools, or even individual teachers, I think this is something will depend on the new regulation. For us, we will just continue to focus on the things that will not change, which is more and more and better experience with online classroom solutions. And we will be dedicated to trying to provide the best of such online classroom solutions for all education providers.

And just to add, in Q1, education sector contributed to about 35% of total revenue.

The margin?

Okay, the second question. So on the gross margin, there are a few factors at play here. On the one hand, we are continuing to optimize our incoming cost and our technology architecture. On the other hand, our global expansion and things like initiatives like start-up program will incur additional cost. So on balance, we expect gross margin to remain relatively stable in the coming quarters. With that said, I want to highlight that we believe we are still in the early days of real-time engagement technology. Use cases, geographies, our cost structure are all changing very rapidly, which means gross margin will fluctuate from quarter-to-quarter. At this stage, we are more focused on expanding our scale and use cases. We think that as long as we keep innovating and delivering high-quality products, there's no reason to worry about our margin in long-term.

And the third question is about intensifying competition from public cloud and other small players. We think, the competition with public clouds and start-ups has been happening for many years. I think, in very early days, like four or five years ago, when some of those giant public cloud companies start to offer a similar products or APIs and trying to compete with us. And the competition is naturally going to strengthen, as the market grow or the industry grow. The condition we are seeing in the market today is not really out of the ordinary, it's just a natural development of the growing market. And for us, as industry progress and condition grow, we will just continue to stay focused on the needs from developers, customers, and create value for them. We will also focus on product and technology innovations so to provide better and professional offerings to all developers and customer base. As I mentioned in my opening remarks, our interactive live streaming product can now achieve sub-second latency with video fluency same as long latency technologies, such as CDN. This kind of breakthrough is innovation that help us with competition and we will continue to roll out more products like this.

Thank you. May I - just to follow-up in terms of global revenue contribution, we know this will be a little bit negative for gross margin, but definitely, it's a huge market opportunity for Agora. Could you please update us in terms of the revenue contribution from global market outside China? Thank you.

In Q1, revenue contribution from U.S. and other international markets was about 27% to 28% of total revenues.

Thank you.

Our next question comes from the line of Emerson Chan from BofA Securities. Please ask your question.

Hi. Thank you, management. I have three questions. My first question is a follow-up on the regulation on the education market. Given the unclear regulatory outlook, I wonder what assumptions on the record impact we built into our full year's revenue guidance? And also there's a narrative that regulation on education will favor those market leaders. I just want to understand what will be the impact to us if customer getting bigger or in case market is consolidating? Will they be more incentivized to do it in house or look for a cheaper alternative? This is my first question. My second question is related to R&D investment, given our R&D costs increased quite a bit in Q1. So could management give us more color on the trend of R&D spending relative to revenue in this year? And what areas of R&D we were investing? Also, when do we expect these investments translate into growth in the future? My last question is how we can increase our customer stickiness given I noticed that we have more than 2,300 active customers now. We also provide some start-up programs to encourage our LTE adoption. But our platform technology leadership, what value or features we are providing that can increase the stickiness of our customer. I just wonder if there's anything that our competitors are unable to offer, so that our customer will stay with our platform? Thank you.

Sure, in terms of the assumption under the guidance, I will say for education sector, we are assuming a modest tightening in regulation. And we have revised our revenue growth rate downward accordingly. We are now seeing a very drastic change in the entire industry. So on the customer consolidation point.

Right, on that part, I think in a period of time customer consolidation in education, might more or less change the composition of our education customer base. But it will be dynamic, because there will be continued innovations, and there will be also continued changes in our environment, as you all aware. As to the impact of consolidation I think, our current education customer base includes already quite some established large education companies. Therefore, we don't think, there will be too much impact in there. I can also further elaborate of course around just in general competition with the DIY our in-house solutions. First, I think this question, almost like applies to all parts of SaaS providers. They all might face situation that their customers when they grow bigger, trying to build something on their own. For us, my view is that real-time engagement platform as a service is still a very young call service, it still has a long way to evolve. The quality of the experience will get better, cost will get cheaper, new features will be added, every year, even the form and format of the product is still has many things to improve or to be defined in the next few years. So it will get harder and harder to build something to see in-house with the same quality and cost and completeness of those offers. No matter how big you are, if you can't build it better or cheaper, why would you still build it. And in end, I think it's about the boundary of companies, each company should have a clear core competency. For example, education companies should focus on education, not hardcore technologies, like real-time engagement, which will be used widely, outside of our education itself. As time goes on, every company needs to stay focused to make their competition par in their own sector better. So, I think it will be a natural outcome.

The second question on R&D, first of all, I would advise investors to really look at the non-GAAP R&D number, because the GAAP number includes one-off expenses, such as acquisition related expense, escalation composition of the acquisition consideration paid to the teams of Easemob and Netless was classified as R&D expense in the income statement. So in terms of the non-GAAP R&D expense, it was 43% of revenues in this quarter. And we actually expect this to remain as around 40% level as well this year, as we continue to invest very heavily in R&D. So right now we have close to 1,000 employees that's excluding Easemob, which has about 200. And out of that 1,200, total employee base, about two-third are R&D employees, and they are working on a lot of things. I can roughly divide these things into three categories. The first one is quality improvements. On the front end are the SDK is the end user software side, right video/audio compression. How to minimize the video size while keeping high fidelity, how to lower CPU usage, how to reduce the size of the SDK, how to become more compatible with thousands of new devices coming out every year so these are the things the front-end team is working on. And then the back-end team as they work on the global network routing algorithms. How to deal with packet loss, how to deal with the failure of one server, one datacenter, one transmission line or in all one part of the whole network, how to scale up and down without affecting user experience, how to optimize cost structure, all of these things. The second category would be new products, things like technical classroom and content moderation for video is that you have two examples of the new products we released recently. And also, what Tony talked about in his opening remarks are these new products. And the three category will be to support of new use cases, when the new use cases they often requires new features to be developed, new demos, new templates, and deep optimization of all the technical details with developers and customers, so yes that’s a third direction. So all these things as you can see, they don't like translate one on one to revenue of our overall they enhance our competitiveness and they see overall breadths and depths of the platform. So there will be a gradual revenue impact. And as we scale as use cases, proliferate, we do expect, eventually R&D expense will come down as percentage through revenue. But we do not expect that to change significantly during the course of this year as we are still in the face of investment.

Okay, I think there's a question around the stickiness, right.

Yes.

So on how – we increase stickiness of customers. I think as you can see, we're just keep rolling out new technologies features with the bigger product portfolio, and also more professional services, as a result of keep focusing on creating value for developers. In addition to that, there are also a few things we always try to do at Agora. I could start the relationship early developer’s needs our help the most, when they are very small. And this is why we had large developer evangelist team in place and they recently launched the start-up program. We offer technical support, industry best practice, new RTE use cases, free minutes or even financial advisors, this kind of comprehensive engagement help us build trust with our developers. And for larger customers we offer work, we often work closely with them to deeply integrate our software with their app to create best-in-class end user experience. We also co-explore or co-developer solutions for new use cases, such as the recent lecture hall use cases. If such effort is successful, it will both deepen our relationship and drive usage. And lastly, we also try to create value for all kinds of customers. Many customers don't see Agora as just a technology provider, but a partner that can help make their business more successful.

Our next question comes from the line of Vincent Yu from Needham and Company. Please ask your question.

Thank you, thanks for management for taking my question and congrats on the strong quarter. I have two questions. The first one is about the progress of incorporating the Easemob services into our product offering? How is the initial responses by customers and should we still think about the annual run rate to be around 10 million? And the second question is about the new business expansions, are we looking for a new acquisition target in 2021 for other business like the expansion areas? And if so which like these which are these areas are to enhance our capabilities? Thank you.

I'll take both questions. So the initial response from developers and customers on the Easemob concession I think very positive. We are now able to pitch a new customer with a combined video voice and chat offering. And we have also integrated Easemob chat. The chat APIs our flexible classroom and platform product and several open-source projects, such as flat. As Tony mentioned in the opening remarks while the integration in China market has been completed, and we are working very hard with the Easemob team to make the chat product ready for the global market. We are working on things like English documentation, the API conversion and also GDPR compliance. Currently, we plan to launch it globally as a core chat at the end of this year. And in terms of revenue run rate yes, I think we can still use $10 million for now. So in terms of new acquisitions, we are certainly looking at opportunities. Obviously, they may mature right or not in the end is highly uncertain. And to be more specific, I think we are looking for three segments one, technology, we're looking for technologies that can help make our product better. For example, video, audio codecs or video intelligence algorithms and secondly, products that can complement our existing product portfolio, it can be either horizontal or vertical. And certainly, we're also interested in reaching our presence that's complementary throughout yes.

Our next question comes from the line of [Akida Arkin] from China Securities. Please ask your question.

Thank you for taking my question. I just have a question about the overseas business. So management just mentioned that the revenue contribution of overseas businesses is around 27% to 28% correct me if I'm wrong. So I was wondering what is the revenue structure or contribution of different vertical sectors of non-China markets, such as education and social entertainment and so on? And also I was wondering in the global market, what is the customer acquisition strategy? It would be helpful if you can share a bit more about the current ways of acquiring customers? And if there is any change in terms of self strategy in the global market? Thank you.

Sure yes, the number is correct. And in terms of the – we see ourselves as a global company, so it's really not only overseas, it's we have three primary markets, the China market, the US market, and we call rest of the world or the international markets. So for the U.S. market and rest of the world market actually, we see a more diverse set of use cases. We have seen very strong growth in many use cases that don't have a strong presence of strong use case employee in China, things like watch party. We have a customer call center right, we have a free event, which is very big also China customer like AEM it’s a customer and a partner and we have for office case. We have several large customers in this space. All these use cases are very and of course also the recent audio live cast use case. We have several large customers in that vertical already. So broadly speaking, it's still entertainment, social education, plus, enterprise, but the mix is actually a lot more diverse. So in terms of the go-to-market model, right, we pretty much okay, first of all, we have been in the market for a very long time. So it's not that we recently expanded there and hired the team. The team has been there for a long time. Our go-to-market is really focused on both the grassroots developer community, developer driven sales motion, and also the proactive outbound, honking motion. And we have a sales team of about 20 people, mostly focused on outbound. And we have a very strong developer-oriented sales and marketing team, our developer evangelist providing developer support. And we have a very easy-to-use self serve portal. So there is easy, this model is quite well balanced.

Our next question comes from the line of Bing Duan from Nomura. Please ask your question.

Thank you management for taking my questions. I have two questions. So first is a follow-up question about the development of our large customers are we seeing like for example, our top five customers which have already started or accelerated their in-house development of the real-time engagement solutions, and like online education and social media et cetera in the first quarter? And so what kind of solutions we have or add value add service we have to help retain and grow this kind of a customer in the future? My second question is that, could you elaborate more on the extended reality opportunities or use cases like, what kind of technology barriers in this kind of vertical? And are there any new or different solutions we need to provide? And how does management look at the future opportunities in this segment? Thank you.

All right, I think for the first question on, further discuss with enhanced development for large customers. From the beginning of Agora, we've been in constant battle with in-house solutions. Things are – as you all know, initially there is no such concept of third-party professional providers. So almost all our business are winning from in-house solution or it's just something customers start to build our platform. In the history of our business growth, we've been seeing customers who switch to enhance, as well as customers who, you know, again, switch back from in-house to us. In multiple cases, we saw customers who switch to in-house first, and they had to switch back again to us. But overall, I would say more and more customers start to realize the value of professional third-party providers. It’s not just quality and cost, but also the fact that they are safe, we are saving them from all the troubles and the focus so that they can focus on their core business. This has been reflected on our steady revenue growth, despite certain customer switched in-house, switch into in-house. As to how to retain large customers, I think the answer is always to build the best solution or more professional solution for them. Showing them how big a qualitative difference we can make and how professional our product and service offering we can deliver, and how much of those differences leads to business success to them. In addition, we also offer work with our large customers to co-developer or co-explore in our solutions on new use cases, such as the recent lecture hall use case. With such effort to become successful it we'll both deepen the relationship and drive usage and making the partnership not just about prompt service rather on innovation.

So in terms of the extended reality prospect, obviously, we feel very optimistic about the potential of these new development seen extended reality our virtual reality, augmented reality, all these new devices, new experiences. And our strategy is we want to really help both the device manufacturers, and also the software developers. As Tony mentioned in his opening remark right, we recently announced the partnership, with HTC. And as part of that partnership, our SDK will be preinstalled in all the HTC VIVE devices. So it will become a default choice for any software developer to use real-time engagement capability on that device. So that – as we continue to build more and more partnerships like that. We want to really become a standard or the go-to-solution for RTE technology any VR or XR devices. And as to the use cases right, we have a combination first of all, we can enable different device users to connect to video or voice. And additionally, and probably more importantly, we can allow them to livestream their experience with AC the virtual world, to other people, whether it's other people sitting in front of the mobile phone or people in other members, you can stream this to another virtual work and become a connector between the two metal work. We see a lot of potential use cases like this obviously this is all in very still very early stage. And we believe the imagination of developers are far behind our home.

Yes, I want to add a little bit to that, because I'm personally very excited about the potential of building such solutions our use cases. Although as Jingbo point out, the overall growth is going to be long-term it’s not going to be something just happened overnight. Although we do see evidence that the growth or the, improvements on those XR or VR experiences are accelerating in the past few quarters. The reason we are so much looking at this direction is because real-time engagement for any XR or VR experiences is super important to make sure the overall fluency or real-time is of the experience. And with that, I think Agora is going to be critical for enabling or ensuring such experience to be immersive in any moment. So that's where we’ll see the statistical value we can offer for such use cases. I think you can also see such a statement from press release of our partnership with different partners.

Thank you very much.

Our next question comes from the line of Chen Wang from Macquarie. Please ask your question.

Thanks for taking the questions and congratulations on the impressive results. Roughly three questions here so firstly, can management share some colors on the user acquisition which verticals are we getting more new customers? And do we have more have proportionally more clients in the U.S. and the rest of the world markets? And the second question is, your perspectives, you mentioned that, your powers more than 40 billion minutes of real-time engagements in last March, can management maybe, update that number for us? And thirdly, what can we expect before Easemob revenue contributions in the following quarters? Thanks.

Sure. So first of all in term of user acquisition yes as I mentioned in the opening remark right. We added about 11,000 apps, new apps registered on platform per month in this quarter, and the maturity they came from U.S. and rest of the world markets. And in terms of verticals, we've got lot of interest from the education sector, not just in China and actually in U.S. and rest of the world market as well, particularly on the new flexible classroom product. And we also got a lot of inquiries from several leading internet companies on the audio live cast use case. The lecture hall use case obviously has huge revenue potential because it can transform the whole large class experience. In addition, obviously we saw a lot of the interest from next generation use cases like AR/VR and also same like immersive gaming platforms that people say matters. Other interesting use cases or emerging use cases, in the virtual event, a virtual office was report what party. Just name some examples. So the second question on the minutes, we enable more than 50 billion minutes of video and voice engagement per month on average in Q1 this year. That compares to the 40 billion minute number in March last year. Please note that that 40 billion number happened during the total lockdown in China and that number was more than doubled the number of minutes in December 2019. So if we compare the 50 billion in this quarter was December 2019, minutes almost tripled in the last 15 months. And so what was the last question? Okay.

The revenue contribution, potential revenue contribution from Easemob?

Oh, yes. Yes, we are still guiding a run rate of about 1 million per month.

There's no more question at this time. I would now like to hand the conference back for today's presenter. Please continue.

Thank you, operator. Thank you all for attending this call. If you have any further questions, please feel free to email us. We will also upload remarks of this call on our IR website after the call. Thank you so much. Thank you.

Thank you.

Thank you.

This concludes today's conference call. Thank you for participating, you may now disconnect.