Good day, everyone, thank you for standing by. Welcome to Agora, Inc’s. First Quarter 2022 Financial Results Conference Call. At this time, all participants are in the listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to hand the call over to your first speaker today Ms. Fionna Chen. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Agora's first quarter 2022 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, Founder, Chairman and CEO; Jingbo Wang, 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 and 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 performance of our business, and which we discuss in detail within our filings with the 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 remains no obligation to update any forward-looking statements we may make on today's call. With that, let me turn it over to Tony. Hi, Tony.

Hey, thanks, Fionna, and welcome everyone to our earnings call. As many of you may have known, one of our global headquarters, Shanghai, was hit by an outbreak of Omicron in March. The city has been in lockdown for nearly two months now and has just started the process of resuming offline business activities. During this time, our teams in Shanghai have been working remotely, and there has been no interruption of our business operations or research and development efforts. Here I would like to express my sincere gratitude and care to all our team members impacted by COVID. Before going through our performance in Q1, let’s take a look at our leading market position and recognition by independent market observers. According to a recent industry report from CIC, Agora continued to be the undisputed leader in the global Real-Time Engagement Platform-as-a-Service market, with more than twice market share than our nearest competitor, both in terms of revenue and number of minutes delivered in 2021. As of March 2022, we maintained our number one market share in RTE SDK installation globally. In regions like the North America, Southeast Asia and Middle East, our SDK installation market share is dominant, compared to other RTE or public cloud service provider. For example, if we look at the top 10 social dating apps globally, all of them have RTE features embedded and half of them are powered by Agora. And if we further look at different regions, we power five out of the top 10 social dating apps in North America and seven out of the top 10 in China. Also in this quarter, Agora was selected as a Finalist for Fast Company's World Changing Ideas 2022. Every year Fast Company honors the businesses and organizations driving change in the world. This year…

Thank you, Tony. Hello everyone. Let me start by first reviewing financial results for Q1 and then I will discuss our outlook for the fiscal year of 2022. Total revenues were $38.6 million in the first quarter of 2022, a decrease of $1.6 million or 4.1% year-over-year. Our revenue growth in this quarter was negatively impacted by the new regulation on K-12 academic tutoring sector in China. Our revenues from K-12 academic tutoring sector in China were approximately $40 million in the fiscal year of 2021. Our revenues from this sector were approximately $1.3 million in the first quarter of 2022, a decrease of approximately $10 million from the same quarter last year. On the other hand, our growth momentum in other geographies and sectors remained strong in this quarter. In particular, revenues from U.S. and other markets outside China grew almost 50% year-over-year and 16.3% quarter-over-quarter to $16.4 million in Q1, representing 42.5% of total revenues. As we continued to expand globally, our revenue base also became more balanced and resilient. In this quarter, revenue contribution from top 10 customers was 22%, compared to 35% in the same quarter last year. Our trailing 12-months Constant Currency Dollar-Based Net Expansion Rate is 95% in the quarter, excluding Easemob. The expansion rate was also negatively impacted by the K-12 sector and expansion rate in other sectors and geographies remained very healthy. Moving onto cost and expenses. For my following comments, I will focus on non-GAAP results, which exclude share-based compensation expenses, acquisition related expenses, amortization expenses of acquired intangible assets and income tax related to acquired intangible assets. Non-GAAP gross margin for the quarter was 63%, 4.6% higher than Q1 last year. As we mentioned in previous earnings calls, the increase was mainly driven by technical and infrastructural optimizations we have…

Thank you. [Operator Instructions] We have a question from the line of Yang Liu from Morgan Stanley. Please go ahead.

Hi, thank you. I have three questions, the first one could management this year, what is revenue growth outlook for this three business lines that is overseas business, the China K-12, and also China non-K-12 in the next few quarters? Is it fair to say that first quarter this year should be the last quarter to see negative impact from the education regulation? And also we are curious about the outlook for the China non-K-12 business as well? That is the first one. The second one is on the gross margin, because we see that 62.4% gross margin in first quarter is quite good, considering losing some education related volume. Do you think this number will be relatively sustainable in future or there'll be some fluctuation, either on the downside or upside on gross margin, especially given the overseas parties growing very rapidly? And the third question is regarding the renminbi depreciation recently, I know the company's revenue have both China part and non-China part and also the cost and OpEx also have a China and non-China parts, what is the overall impact of the FX to the future P&L, could management share a little bit on that? Thank you.

Thank you. I guess is all for me, so on the first question regarding service involved. So if you look at the last 12-months, so basically roughly speaking China K-12 was like down 90% in Q1 versus Q1 last year. And non-K-12 business in China was up about 15%. And you asked another international markets was up about 50%, so that's in the last 12-months. So I guess you’re right that hopefully, this will be the bottom for the K-12 impact in China. We still have some revenues in that sector about 1 points remaining dollar in the quarter, so that's much less significant now. And if we look forward in the next 12-months, we would expect something similar say around 50% growth in U.S. and other international markets and around 15%, 20% growth in China, obviously there are other macro uncertainties both internally and also in the U.S. So these numbers obviously subject to a lot of assumptions that will be the current expectation. On the second question on gross margin. So, actually we think the technical organization acting very effective. There was some net impact from the loss of the K-12 model, which we call the reduction in utilization rate of infrastructure, but that was compensated by a very efficient cost optimization. And as K-12 is largely growing now, we don't expect this impact to continue in the future. So actually we are expecting GP margin to remain relatively stable in the remainder of the year, compared to Q1. Obviously, there will still be some period-to-period fluctuation, but we don't expect it to be very significant. So third question on the depreciation, it's -- you’re completely right that has -- that posting top line and the bottom line a couple in the past month. So roughly speaking, RMB has depreciated by about 5% in Q2 so far compared to Q1. On the revenue side, about 60% of our revenue is currently denominated in RMB. So assuming the FX rates stayed where it is today, and it will have a negative effect of about 3% of revenue in Q2. And cost expenses will be effectively a similar fashion. The net-net impact on the bottom line will be much less significant.

Thank you. That's very helpful.

Thank you for the questions. [Operator Instructions] Our next question comes from the line of Bing Duan from Nomura. Please go ahead.

Thank you, management, for letting me ask the questions. So, my first question is about the impact from the COVID-19 and the lockdown in China since March. And how do you think about the impact to the demand and the volume growth in different verticals, whether it's good or bad, whether it's positive or negative impact? My second question is about the competition. So I'm glad to see that the -- we still maintain a global leading position in the global RTE market. But do you see that the -- going forward, the competition in China will intensify, especially for the large Internet or tech companies, which may ramp up their product launch or their other strategies in this market, in this RTE market? The last question is about the stock repurchase plan. I see we have completed 4% of the total $200 million program in 1Q. So can we -- so just want to get your thoughts on how we are going to proceed with the stock repurchase plan in the next couple of months, will we accelerate the repurchase in 2Q and 3Q? Thank you.

All right. I'll take the first two. One is on the COVID and lockdown in China. I think the recent lockdown in Shanghai and other cities has been -- has a small positive impact on our revenue, mostly from education sector. The reason why it's only a small impact is two-fold. First, this time, only a few cities were affected, not entire country compared to 2020. Second, K-12 after-school touring is strong. So, the number of incremental online classes is also much smaller than 2020. In the near-term, the overall macro environment in China is very challenging. We see that general business activities are slowing down, which will affect our customers and their end users. There is also some debate on regulation of social and entertainment apps, and it's unclear how it will play out. In summary, we are very bullish about the long-term perspective of RTE. But there is a lot of macro uncertainties in the near-term. We're watching closely and we'll adjust our strategy and operations if needed. And second, about the competition, there hasn't been too much change in strategy from our main competitors, such as Twilio in the U.S. and Tencent in China. On the RTE side, we are not seeing any big difference from operations. We have a lot of completion already in China markets, especially but we did notice that some competitors is making efforts in the low-latency live streaming area. This proves that our earlier prediction that a lot streaming services will turn to low latency technology. This prediction is actually correct. The industry is embracing it. We think this is an important market with huge potential, and our technology is actually well positioned to capture opportunities in this market. But we did see a few start-ups also raising more funds in this industry trying to build similar offerings, mostly on the local side. Overall, I think this is a good thing for the industry with more choices for customers and more ideas to drive the industry forward. Together, we will create more vibrant market and accelerate the adoption of IT technology in general. With growing competition, we also see that some companies win out of business. Overall, competitive landscape remains largely the same. We're still the clear leader in this space in terms of technology, performance and completeness of features.

Okay. I'll take the third question on the stock repurchase. Yes, we purchased about $8 million versus the shares in Q1 and repurchases continued in Q2. However, we must add we do not anticipate that we will accelerate the purchase given the whatever in the past 1.5 months, the lockdown and the general economic uncertainties in China and also the U.S. macroeconomic environment -- possible recession. So, we will be more prudent in terms of the stock repurchase. So that's all I have to share at this point.

Thank you. That’s very clear. Thank you.

Thank you for the questions. [Operator Instructions] We have a follow-up questions for Yang Liu of Morgan Stanley. Please go ahead.

Yes, thanks for the opportunity to ask question again. I have a quick follow-up in terms of the overall demand in overseas markets, because we see that several major countries are moving back to normal after the COVID semi lockdown, whatever. And I just want to have an update whether this will impact overseas demand? And what is the current observation from those key markets like U.S. or Middle East and ASEAN markets? Thank you.

Yes, sure. Life in most countries have returned to normal, this does have a negative impact on the demand for our services for certain use cases. For example usage from online events industry is now lower than one-year ago during the peak of the pandemic. However, if you look at our numbers, our revenue growth in U.S. and other international market actually accelerated in Q1, that's because there is a much stronger shift in people's mindset and behavior here. During the past two-years people have learned that interactive video engagement can be used for on many occasions outside of video conference. Now lot of businesses find out ways to leveraging real-time video engagement to conduct their business online, enhance user experience or increase efficiency. For example, we saw strong usage growth from education customers in Southeast Asia, Middle East and Europe, even after the reopening, because live video class is a very effective and low cost way of teaching. We now power many of the largest education technology unicorns in South Asia. These markets have huge population and the penetration of RTE powered online education is still very low, which means there is huge revenue potential for Agora. Another exciting example is media. We finally see that the media industry is starting to embrace RTE technology. Recently our technology was used for broadcast live sports games to thousands of audience with low latency and highly synchronized viewing experience. We believe this is a large and almost untapped market for us. The last example, I want to mention is interactive e-commerce. One of our customers in the U.S, is leveraging our technology to enable video social buying, where users can discuss and buy things as a group through video. This offers a lot different and more engaging experience, compared to traditional online shopping based on browsing catalogs. To summarize, I think the pandemic has accelerated the adoption of our RTE technology across industries. Today, the penetration of RTE is still very low and there is definitely a long way to go for us.

Yes. Thank you.

Thank you for the questions. [Operator Instructions] We have a follow-up question from Bing Duan from Nomura. Please go ahead.

Thank you, management. I have two follow-up questions. One is about the regulations on the social entertainment sector in China. Do we -- currently, do we see any like potential tightening policies that may affect the demand in this sector? For example, the short video sector. And second one is about our margin's growth trend. So I heard that management commented that the GP margin may remain largely stable in the next couple of quarters. Just wonder what would be the trend for R&D and sales and marketing expense in the next couple of quarters? Do we expect to add more headcount in the next few quarters? Thank you.

Yes, there are notable in the past one, two years, many regulation actions. And as I mentioned just now, there is also some different direction, sort of, the debate on regulations of social and entertainment apps. For example, there are reissue of game titles and there are ways about stabilizing the overall policy in those areas, but also certain restrictions might roll out for gifting. So there are still many changes in this space. And I think as we mentioned earlier, it's a little unclear how it will finally play out. And we are working closely with our customers and related bodies to find out what would be the best for us to help customers and developers.

The second question on margins. So as I said, we expect GP margin to remain relatively stable. In terms of R&D and sales and marketing, we will improve the R&D efficiency and focus on projects, high ROI projects. So we will also control the headcount. We do not expect R&D headcount to further increase. What, I mean the -- in dollar terms, we want to keep the R&D expenses relatively stable, honestly in percentage terms, so it will depend on the revenue growth. Sales and marketing, in terms of sales and marketing, we do not plan to expand in China. However, we do have plans to further expand our go-to-market efforts out of China. Well as Tony explained, there is -- we still see a lot of opportunities in many markets and many verticals, so there we will continue to invest. So in the near-term we will -- in the sales and marketing tenders continue to increase, but we’ll be more cautious about the efficiency and return on investment and we intend to -- in next -- in one, two quarters, and we might have some pressure on the bottom line, but we do -- continue to improve the -- control the overall operating margin towards the end of the year.

Thank you very much.

Thank you for the question. [Operator Instructions] At this time there are no further questions. I'd like to hand the call back to the management for closing.

Thank you, operator. Thank you, everyone for attending today’s call and the replay and the presentation of this call are already posted on our website and the prepared remarks will be posted later after this call. Thank you again, if there are anything please feel free to reach out to us. Thank you.

Thank you.

Thank you.

That does conclude today's conference call. Thank you for participating, you may now disconnect your lines.