Good day, and thank you for standing by. Welcome to the Agora, Inc. Second 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 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. The reconciliations between the company's GAAP and non-GAAP results can be found in 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 this business in which the company discussed in detail in its filings 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 makes on today's call. With that, let me turn it over to Tony.

Thanks, operator, and welcome everyone to our earnings call. I'll first review our operating results in the past quarter. Agora revenues were $15.6 million in the second quarter, up 2% year-over-year, mainly driven by business expansions in certain use cases, such as live shopping. Shengwang revenue were RMB 132 million in the second quarter, up 0.3% year-over-year and 8% quarter-over-quarter, mainly due to usage growth of digital transformation and Internet-of-Things customers. I'm glad to see that both Agora and Shengwang delivered year-over-year revenue growth this quarter despite a very challenging macro environment. This success is due to our relentless innovation in driving new use cases and enhancing the quality and value of our products in existing use cases. Now moving on to our business products and technology updates for this quarter. Let's first talk about Agora. Recently, our real-time speech-to-text product transitioned from beta to general availability. As I mentioned in our previous earnings call, this product enables customers to transcribe the audio of each user in the channel. Text can be distributed as live captions to all channel participants to enhance accessibility and user experience. Throughout the development and beta testing stage, we have improved the performance of our product to accommodate up to 3 simultaneous speakers and added support for our major language and dialects. Additionally, our product is integrated with large language models, allowing customers to receive automatically generated summaries of meetings or events and gain insights at the end of each session. For example, HelloTalk, a leading language learning platform with more than 50 million users has been one of our customers to first adopt our real-time speech to text product. With the integration of our product and the large language model, HelloTalk can now provide their users advanced capabilities, including live language analysis, live translation,…

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the second quarter of 2024, and then I will discuss outlook for the third quarter. Total revenues were $34.2 million in the second quarter, an increase of 3.6% quarter-over-quarter and an increase of 0.5% year-over-year. We have finally overcome the impact of the pandemic, the macroeconomic turmoil, and regulatory changes and returned to year-over-year revenue growth for the first time since 2021. Agora revenues were $15.6 million in the second quarter, a decrease of 1.3% quarter-over-quarter and an increase of 2% year-over-year. The quarter-over-quarter decrease was primarily due to reduced usage from customers in emerging markets. The year-over-year increase was primarily due to business expansion and usage growth in certain verticals such as live shopping. Shengwang revenues were RMB 131.9 million in the second quarter, an increase of 7.6% quarter-over-quarter and an increase of 0.3% year-over-year. The increase were primarily due to increasing revenues from certain verticals such as Internet-of-Things. Dollar-based net retention rate is 92% for Agora, and 79% 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, 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 the second quarter was 63.4%, which was 3.8% lower than Q2 last year and 0.2% higher than Q1 this year. The year-over-year decrease was mainly due to change in product mix. The quarter-over-quarter increase was mainly due to improved utilization rate of infrastructure. Adjusted R&D expenses decreased 6.6% year-over-year to $15.5 million in Q2, mainly due to our continued cost control measures. Adjusted…

[Operator Instructions] First question is from the line of Yang Liu with Morgan Stanley.

I have two questions here. The first is regarding the business outlook. As Jingbo just mentioned that you will face out some of the low-margin business. Could you please elaborate more about the reason behind that led you to the competition or the outlook of that business? And you mentioned that the business has a quite low gross margin, and I'm not sure whether that business operating margin or net margin is also very bad or what is the potential impact to the bottom line. And the second question is based on the company's pipeline, what is your expectation of the future of emerging applications or use cases for RDC or whatever AI-related application, if you see any potential booming of the RDC usage. Could you please share more about that?

I'll take the first question. So yes, so we already are in a certain products in this quarter, and these products we mentioned in the -- few years back is one more CDN-based technology and given how competitive that market is. These products have pretty low gross margin, but in the low single-digit range. And because we -- they are also related to other expenses. So actually a net margin -- operating margin basis, it's close to even slightly inactive. And as we know, we have been very focused on improving the overall operating efficiency and drive business towards sustained profitable growth. And that's why we believe this business is a not generally being profit, and we don't see that market turning on very quickly in the near term. And that's why we decided to basically terminate the sale of such products. That doesn't mean we will exit the entire kind of medium latency live streaming market. We are getting other innovative products, not based on the traditional existing technology, but more based on the RDC related technology. So we'll continue to be competing in that market, but we will be more focused on innovation versus that offering more traditional and legacy products.

I’ll take GenAI side of the question. We have been actively talking to leading large language model companies globally with very positive feedback in general. The importance of multi-model capabilities and a highly reliable, low-latency transmission network is well recognized by all players. We are working closely with many of them to drive multi-model products and solutions. Some of our consumer applications have already – some of real consumer applications have already integrated with our SDK. Meanwhile, we have also worked together in engaging with AI developer community. If you look at the [indiscernible] almost 500,000 different models such we have working with them to engage with different communities on that to bring the models into real low use case. We also partnered with companies like [indiscernible] start-up program to help the offers to innovate. Please stay tuned for more announcements in our RTE conference in October.

One moment for our next question. It comes from the line of David Lee with Bank of America Securities.

I have two questions here. Number one is about the revenue by segment. It seems that Shengwang revenue is getting stronger quarter-on-quarter recovery in Q2 compared to Agora. And what's the key drivers? And how do we see the trend in Q3 for the domestic market and an international one? And the second question about our breakeven target. As we have been -- how to control about the expenses and also still down the low-margin business. And do we have update about the -- for the given target in the following quarters or some time.

In terms of Q3 demand, for U.S. and international markets, we see growth momentum in live shopping and IoT verticals, particularly in direct-to-market. Since we become the first company to offer real-time voice SDK that enables a conversation with generative AI models, competitors have also followed us and provide similar products. We believe this will be the new battlefield of RTE. With our recent launch of our conversational AI framework, we will gain significant competitive edge to engage with AI developers and serve their applications. In China market, we see growth pressure in IoT customers, also some strong demand for conversational AI applications. Competitive landscape largely unchanged during the past quarter. Competitive pressure stabilized.

I’ll take the second question. So from what we see right now, demand for our corporates remain pretty robust. So we do expect a sequential revenue growth in Q3 compared to Q2 and hopefully, Q4 compared to Q3 as well. And the gross margin of our corporates remain very healthy. So you will see a pretty nice uptick in gross margin in Q3 and Q4. But as I mentioned, the information on the certain low margin products will not impact the bottom line. In terms of the OpEx, we’ll continue to manage OpEx very cautiously, and we do not act to be higher than Q2 in the coming quarters. If anything, we might try to further improve efficiency. So at this point, I cannot promise that timing of the chat breakeven, given there are still a lot of moving parts, but we are committed to achieving profitable and sustainable growth. So if we think about the business in this quarter, we returned to year-over-year growth after a lot of the macro challenges dynamic, the macro environment in both China and in the U.S., [indiscernible] and funding environmental changes as well as relations. So now we have finally come back to revenue growth, and we believes the eternal point and the core business will continue to grow from this point out. And as we maintain our cost discipline and drive efficiency, but maybe it’s just a matter of halftime before we achieve that goal – capital and continue to grow from there. And then, we expect to achieve such a breakeven on GAAP basis and on a continued basis in 2024.

And as there are no further questions, I want to thank everybody for attending the company's call today. As a reminder, the reporting of 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, everyone.