Good day, and thank you for standing by. Welcome to Agora Inc. Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] 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 risk and certainties assumptions and other factors that could affect the company's financial results and the performance of its business, and which the company discussed in detail in its filing 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 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.

Hi. Thanks operator, and welcome everyone to our earnings call. Our revenue for the second quarter was $15.3 million for Agora, down 5.6% year-on-year, mainly due to a challenging global macro environment and tightening financial conditions of certain customers. Our revenue was RMB 131.5 million for Shengwang, down 11.7% year-on-year if excluding revenue from the disposed customer engagement cloud business and K-12 academic tutoring sector, mainly due to a slowing economy and fast-evolving regulation in certain downstream verticals. As of the end of this quarter, we have 1,560 active customers for Agora and close to 4,000 for Shengwang, an increase of 24% and 5%, respectively compared to 1 year ago. Now moving on to our business product and technology update for the quarter. First, starting with Agora. We recently announced our partnership with ActiveFence, a leading global provider of AI-driven content detection and moderation service. ActiveFence solution keep end users safe from the widest spectrum of online harms, unwanted content, and the malicious behavior including adult content, bullying and harassment, child abuse, hate speech, illegal goods, violence and more. We believe content moderation is a particularly important for real time engagement applications, given that content is generated and consumed in real time. Through our Extensions Marketplace, ActiveFence’s content moderation tools allow developers to easily add live audio and video content moderation functionalities to their applications without significant change to their development processes. By detecting and removing all kinds of unwanted harms in real time, Agora and ActiveFence can help customers better handle emerging online safety and complex challenge while boosting end user engagement in a safer and more trusted environment. On the use case side, over the past few quarters, we have seen an increase in real time engagement adoption, and usage from vertical social networks or applications for interest-based…

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the second quarter, and then I will discuss outlook for the third quarter of 2023. Total revenues were $34 million in the second quarter of 2023, a decrease of 16.9% compared with the same quarter last year and a decrease of 6.6% quarter-over-quarter. Agora revenues were $15.3 million in the second quarter of 2023, a decrease of 5.6% year-over-year and an increase of 1.3% quarter-over-quarter. The year-over-year decrease was primarily due to reduced usage of our products and customers increased pricing sensitivity due to challenging macroeconomic environment starting from the second half of last year. The quarter-over-quarter increase was primarily due to usage growth and emergence of use cases such as vertical social networks, as Tony just mentioned. Shengwang revenues were RMB 131.5 million during the second quarter of 2023, a decrease of 19.8% year-over-year and a decrease of 9.9% quarter-over-quarter. If excluding revenues from the disposed CEC business and K-12 academic tutoring sector, Shengwang revenue decreased 11.7% year-over-year and 8.8% quarter-over-quarter, which was primarily due to slowing general economic conditions and fast evolving regulations in certain downstream markets. Dollar-based net retention rate for Agora is 108%. Dollar-based net retention rate for Shengwang is 91%, excluding revenues from the K-12 academic tutoring sector. Moving on to cost and expenses. For my following comments, I will talk some non-GAAP adjusted financial measures, which exclude share-based compensation expenses, acquisition-related expenses, amortization expenses of acquired intangible assets, income tax related to acquired intangible assets, impairment of goodwill, depreciation of property and equipment and amortization of land use right. Adjusted gross margin for second quarter was 67.2%, which was 2.6% lower than Q2 2022, mainly due to a change in product mix and was flat compared to Q1 2023. As…

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

This is Lydia representing Yang Liu from Morgan Stanley. So our question is for management, can you review your observation of the demand recovery situation, both in domestic and overseas market and as well as your outlook for the second half of this year?

Sure. In terms of the market – I would divide this into the U.S. international market and China market. So for the U.S. and international market, we do see pretty healthy demand from verticals such as e-commerce, vertical social networks focused on certain interest groups, like just mentioned, education and IoT are sectors that doing pretty well at the moment. On the other hand, emerging markets and certain use cases that were popular given the pandemic, such as online events are relatively weaker. On the China side, demand from digital transformation sector is more resilient, such as financial institutions, large enterprises and also we see healthy demand from professional training, academic education. And within the social entertainment sectors, despite the pretty challenging regulatory environment in China, we see promising growth from customers, operating apps also in China, we see pretty healthy demand growth there. And on top of the regional situation, I’d also like to comment on the product side. On the product side, we see a lot of customer demand – AI-based features such as content moderation, real time transcription and also pretty healthy demand for base on high definition video products. So in terms of full year outlook, we are cautiously optimistic that demand will gradually improve overall during the remainder of the year, driven by like these new products I just mentioned, and at the same time, offset by ongoing macro challenges, both in China and also in other emerging markets.

[Operator Instructions] Our next question comes from the line of Harry Zhuang from Bank of America Securities.

I have 2 questions. First one is regarding the margin trend. Can you give us some outlook of the gross margins in the next 2 quarters and also about the next year? And the second question is what is the plan for the AI products and the future revenue contribution for the company?

On the gross margin, as you can see, sequentially, is basically flat, and it's currently at not a pretty healthy level. So we do expect gross margin to remain relatively stable for the remainder of the year as we continue to optimize our cost structure. As for next year, it's probably still early to say, but our plans certainly to try to maintain a stable and healthy gross margin levels?

As to the AI-related document and prop, actually, our high definition video initiative is a product that leverages AI capabilities to greatly improve video performance. We believe we are the first ones that are able to provide mobile real-time video to the level of true HD state, the first mature mobile 1080P real-time video solution is based on this HD initiative. Also our third-party expansions, like what I mentioned in opening remarks, ActiveFence are also leveraging AI technology to moderate real-time content and activities or like one of our other products, real-time transcription is also leveraging AI. Also, as a much bigger trend, the AIGC development is very encouraging. We firmly believe generative AI will expand the boundaries of RTE and significantly enhanced end user experience, but it won’t be a short-term revenue contributor as a voice and video multi-model capabilities are still at their early stage for all major large models. We have been working closely with customers on certain vertical use cases leveraging AIGC, such as AI-powered game players and real-time voice-based AI companies. We expect to make product launch announcement in the coming months. In addition, AIGC will also be one of the main topic of our upcoming RTE conference in October. We will also have the latest demo showcase during this conference on AIGC. Please join us for a deeper and more detailed discussion.

[Operator Instructions] Our next question comes from the line of [indiscernible] Wong from Citic.

Actually two questions from my side. And the first one is that, has there been any change in the company's guidance on the profit? And will there be any more related optimization within the year?

Can you repeat your second question?

And will there be any more related optimizations about the [indiscernible] resource within the year?

I'll take those questions. So despite the recent macroeconomic challenges and regulatory challenges, we remain committed to our goal of achieving non-GAAP net income breakeven in Q4 this year. So against the non-GAAP net income level per year in Q4 this year. So as you can see in the past few quarters, we have effectively reduced operating expenses by roughly 30%. So we believe we are now operating at a quite efficient level with the right team size. So our focus in Q3 is really to drive revenue growth rather to further cutting headcount cost but as we see revenue recover, and we make incremental small incremental savings. We think we still have a good chance of achieving our non-GAAP net income breakeven towards the end of the year.

And my second one is that has there been a noticeable change in the domestic and international competitive environment? That's my last one.

Sure. There hasn’t been much change in overall competitive landscape. In China, competitive landscape remains the same as previous quarter. But in the U.S. and international markets, we see slightly increasing competition from regional start-ups. I think this is a good thing overall for the industry, with more choices for customers and more ideas to drive industry forward. Together, we will create a more vibrant market and accelerated adoption of RTE technology in general. The recent macro environment challenge, oweverr, will also impact those competitors. And especially for smaller players in the market, we also saw some companies went out of business. Overall, competitive landscape remains largely the same. We’re still the clear leader in this space in terms of technological performance and completeness of features. With the right focus and execution, I think we are well-positioned to gain market share during the challenging period.

I'm showing no further questions in the queue. This concludes our Q&A. Thank you, everybody, for attending the company's call today. As a reminder, the recorded 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 e-mail the company. Thank you.