Good day and thank you for standing by. Welcome to Agora, Inc.'s First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. The company's earnings results, press release, earnings presentations, SEC filing 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 risks, uncertainties, 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. remain in no obligations 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.

Thanks operator and welcome everyone to our earnings call. I'll first review our operating results in the past quarter. Agora revenues were $15.8 million in the first quarter, up 3% quarter-over-quarter. This is a great result considering the macroeconomic challenge under the high interest rate environment and is mainly driven by usage growth from emerging use cases such as live shopping. As of the end of this quarter, Agora had over 1,700 active customers, up 16% compared to 1 year ago. Shengwang revenues were RMB 122.6 million in the first quarter, down 16% year-over-year, mainly due to challenging macroeconomic and regulatory environment as well as the disposal of the customer engagement cloud business in the first quarter of 2023. As of the end of this quarter, Shengwang had over 3,800 of active customers, down 2% compared to 1 year ago. Now, moving on to our business, product and technology updates for this quarter. Despite a challenging operating environment, we continued to focus on enhancing the fundamental performance of our products. In both markets, we released new versions of our SDKs that set new standards for stability and performance, demonstrating our strong commitment to creating long-term value for our customers. Let's first talk about Agora. We recently launched our Adaptive Video Optimization technology that can deliver exceptional live video quality and enhance the overall user experience. It leverages our 10 years of real world experience and expertise accumulated through hundreds of billions of minutes of video usage. This advanced technology leverages various machine learning algorithms to dynamically adjust parameters and optimizes performance at every step along the video processing pipeline. From the moment that video is captured to its final rendering and display on the viewers' screen, our technology continues to adapt to changing network conditions and device capabilities. Our Adaptive…

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the first quarter of 2024 and then I will discuss outlook for the second quarter. Total revenues were $33 million in the first quarter, a decrease of 8.4% quarter-over-quarter and a decrease of 9.4% year-over-year. Agora revenues were $15.8 million in the first quarter, an increase of 3.3% quarter-over-quarter and an increase of 4.6% year-over-year. The increase was primarily due to the expansion and usage growth in certain verticals such as live shopping as well as business resilience in the U.S. market and other developed markets. Shengwang revenues were RMB 122.6 million in the first quarter, a decrease of 17% quarter-over-quarter and a decrease of 16% year-over-year. The quarter-over-quarter decrease was primarily due to seasonality since Q4 is generally the high season for digital transformation projects and Q1 is generally the low season for social and education customers who tend to have lower usage during the Lunar New Year. The year-over-year decrease was primarily due to slowing demand from Internet customers due to regulation and general economic conditions. Dollar-based net retention rate is 92% for Agora and 78% for Shengwang, excluding revenues from discontinued business. Moving on to cost and expenses. For my following comments, I will focus on non-GAAP adjusted financial measures, 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, depreciation of property and equipment, and amortization of land use right. Adjusted gross margin for the first quarter was 63.2%, which was 3.9% lower than Q1 last year and 2% lower than Q4 last year. The decrease was mainly due to a change in product mix and lower utilization rate of infrastructure in Q1. Our adjusted R&D expenses decreased 13.6% year-over-year…

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

Two questions here. The first one is on your customer base. We saw a sequential decline in the first quarter this year, mainly for the Shengwang part. What is the reason for that? And is the customer churn behind us or it will be an ongoing process? Yes, that's the first question. The second one is on the outlook. The guidance implies some Q-on-Q improvement and year-on-year stabilization of the total revenue. What is the driver? Is it mainly helped by the Agora revenue or you are expecting the Shengwang part can also recover in the second quarter?

Thank you. I’ll take those questions. So, on the customer part, as I said in Q1 Shengwang revenue dropped both sequentially and year-over-year. And the slight decrease in number of customers was actually in line with – consistent with the decrease in revenue. Additionally, to provide some color on the overall macro backdrop, the tougher regulatory environment and also the general macroeconomic environment in China means that a lot of the smaller social and entertainment start-ups and apps operating in much more difficult environment. And therefore, we see more churn due to customers running out of business rather than moving to other – moving to our competitors. So we expect that to continue, but hopefully that should become more moderate in the coming quarters. That’s on the customer base. In terms of outlook, we actually expect both Shengwang and Agora to have a sequential improvement in Q2 and actually more on the Shengwang side – and more on the Shengwang side. This is as I explained, Q1 is generally the low season for social and also education customers. So we normally see some pickup in Q2 and also for digital transformation customers, generally Q1 is the low season due to the new year holiday, which means the project execution will be much slower. So we see – we will see improvements on both Shengwang and Agora in Q2.

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

I have two questions. Firstly, regarding the AI, management mentioned there's more opportunities in this area. So could management give some more color on the AI, the incremental revenue possibility in future? In which scenarios we could see more meaningful revenue in future from AI? My second question is about the expenses, the operating expenses. So we noticed like in 1Q this year there's some quarter-on-quarter increase for the operating expenses, especially like R&D. How do we see the trend in the following quarters for the operating expenses?

Okay. On the AI development, it's definitely very exciting. In the previous earning calls, we actually predicted that human users will be able to directly interact with AI models in voice and video formats. Initially it's text based, but we consider it will happen in voice. What happened was actually faster than we imagined. The launch of GPT-4o is ahead of our explanation. Thanks to the rapid evolution and the global armies of generative AI models. With generated AI models multimodal capabilities, there will be another dimension being added to RTE activities. RTE activities will expand from human to human and human to machine or device to also include human to generative AI models. The scope of real-time engagement will give expand by that. In the long run, this will hugely increase the amount of RTE activities and enrich people's lives. In the next few years, we will be able to see many more use cases emerge and mature, such as AI-based interactive education, customer service, personal assistance, social and gaming use cases. Voice and video conversations will become the new norm of interaction between human users and cloud agents powered by generative AI models. As a result, massive amount of real-time voice and video will flow through global Internet and latency will become a critical factor. When introducing GPT-4o, OpenAI actually mentioned it has an average response time of 320 milliseconds. However, when an overseas user talks with the model, round trip transmission latency needs to be added on top of model's response latency and the experience cloud -- and the experience could change from exceptional to [unbearable]. To deliver a low latency, highly reliable and high-quality user experience, our technology is the right choice for foundation model AI companies and for companies who build applications on top of generative AI models.

Thank you, Tony. So I’ll take the question on the operating expenses. So I think in our last earnings call, we already explained that the low operating expenses was obviously due to our cost control measures. But at the same time, it was also due to – it was below a normal level and due to reversal of certain accrued expenses. We accrue year-end bonus and performance bonus every quarter. However, given the tough operating environment last year, the final operating result was below our internal budget. So the actual realized year-end bonus and funds bonus was lower than the earlier growth. So there was some reversal in Q4 which caused the Q4 quarterly operating expenses to be abnormally low and that’s why there was a small sequential increase from Q4 to Q1. So looking forward this year, we are still very cautious about the overall operating environment. So we will continue to manage our expenses very carefully and we do not expect OpEx in general and including R&D expenses to increase sequentially from Q1 onward. And if anything, we will try to control the overall expenses [indiscernible].

[Operator Instructions] There are no further questions. Thank you, everybody for attending the company's call today. As a reminder, the call recording and 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. That concludes today's conference call. Thank you for your participating. You may now disconnect.