Good day, and thank you for standing by. Welcome to the Agora Inc. Third 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. 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 and uncertainties, assumptions and other factors that could affect the company's financial results and the performance of its 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 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 will first review our operating results in the past quarter. Agora's revenues were $15.7 million in the third quarter, up 3% year-over-year, mainly driven by business expansion in certain use cases, such as live shopping. Shengwang revenues were RMB 130 million in the second quarter, down 9% year-over-year, excluding revenues from certain end-of-sale low-margin products, mainly due to challenging regulatory and macro environment. Now moving on to our business, products and technology updates for this quarter. As many of you already know, we recently launched our conversational AI SDK in collaboration with OpenAI's real-time API to allow developers to bring voice-driven AI experience to any application. Our joint solution has 2 distinct advantages. First, OpenAI's GPT 4.0 model is multimodal, which means it can process voice input from human directly without the need to convert words to text and therefore, can understand and respond to human emotions much better than previous text-based models. Second, end users can enjoy Agora's advanced noise suppression and echo cancellation features as well as low-latency conversation even under challenging network conditions, thanks to our global real-time network and optimization algorithms. Since our joint launch with OpenAI in early October, we have seen many fascinating and innovative use cases being developed and brought to market by developers across various verticals. One area where we believe conversational AI will have a significant impact is Internet-of-Things or IoT. Many of us have had unpleasant experiences with previous generation of so-called smart speakers or smart assistants, which often struggle to understand our request and lack the ability to speak naturally or making real-time decisions. Now with our conversational AI SDK, IoT devices connected to an advanced AI model can easily understand complex requests, hold natural conversations and take actions…

Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the third quarter of 2024. And then I will discuss outlook for the fourth quarter. Total revenues were $31.6 million in the third quarter. a decrease of 7.7% quarter-over-quarter and a decrease of 9.8% year-over-year. If excluding revenue from certain end-of-sale low-margin products, total revenues increased 2.3% quarter-over-quarter and decreased 3.1% year-over-year. Agora's revenues were $15.7 million in the third quarter an increase of 0.4% quarter-over-quarter and an increase of 2.6% year-over-year. The increase was primarily due to business expansion and usage growth in certain verticals such as live shopping. Shengwang revenues were RMB 112.9 million in the third quarter, a decrease of 14.5% quarter-over-quarter and a decrease of 20% year-over-year, if excluding revenues from certain end of sale low-margin products, Shengwang revenues increased 4.2% quarter-over-quarter and decreased 8.7% year-over-year. The quarter-over-quarter increase was primarily due to increase in revenues from certain verticals such as Internet of Things, as well as usage increase from education vertical during summer vacation. The year-over-year decrease was primarily due to slowing demand from social and entertainment verticals due to regulation and general economic conditions. Dollar-based net retention rate is 94% for Agora and 78% for Shengwang excluding revenues from certain end-of-sale products and discontinued business. Moving on to cost and expenses. As Tony mentioned just now, we made a difficult decision to restructure and reduce our global workforce this month. The associated severance costs of $4.8 million are reflected in cost of revenues and operating expenses in Q3. As part of the restructuring, we also canceled certain equity awards for the remaining employees. These awards were mostly granted in 2021 while our stock price was significantly higher. As a result, share compensation expenses are locked in at the stock price…

[Operator Instructions] And our first question comes from the line of [Xiaodan Xiang], Senior Associate.

Thanks, management for taking my questions. First of all, so I wonder what would be the impact of your recent organization on the earnings of the upcoming quarters? And secondly, could you please update us on the progress of your collaboration with OpenAI? And please share your views on the recent adjustment of the cash price.

I'll take the first question. So as I said just now, we expect operating expenses on a GAAP basis to be about $4 million lower in Q4 and about $7 million lower in Q1 compared to the baseline in Q2 this year, which was about $32.6 million in Q2. The reason the saving is more in Q1 compared to Q4 is because restructuring happened in November. So we still had about 1.5 months of salary for the employees who left the company this quarter. And on the other hand, we do not expect the restructuring to have a significant impact on revenues. So most of these savings will translate into improvement on the bottom line. Tony?

Yes. On collaboration with OpenAI, ever since the launch of Realtime API, we see a lot of interest from developers and our customers. And there are some parallel work actually happening with a group of customers mostly on POC stage, and we hope to launch certain use cases in the near future. . Meanwhile, also, we see areas to improve on technology and infrastructure design side to make the conversational experience even more smooth in terms of audio quality and the interaction between human and AI. Current stage of the OpenAI API is still under beta. We are working with partners to bring that to market sooner.

Okay. On the pricing question, yes, now OpenAI is offering cash pricing for cash voice input, which is 80% cheaper than the standard input price. It is certainly one way to bring the cost down and developers, including us, are all watching very closely on what might happen next. But I want to emphasize that the standard pricing of audio input is still $100 per 1 million token. That has not changed. The cash price is lower is $20, but that’s for cash input, which is basically the repetitive input the AI has seen already. So the – for different use cases, the percentage of cash input really differs. And it’s hard to say how high cash hit rate you can achieve with various use cases. The other thing is the pricing for the output token has not changed, which is actually a lot more expensive. The price for output token is 4x the price for the input token. So with that unchanged? The overall pricing has not actually changed that much. With that said, we do believe in the medium term, there will be significant room for cost reduction.

Thank you. One moment, please, for our next question. Our next question comes from the line of Daley Li with Bank of America.

I have two questions here. First question is about our 4Q guidance regarding the revenue. It seems kind of better trend compared to Q3. Could you give more color about the key drivers for better revenue for Q4? And for more color about the demand in Mainland China business and overseas will be quite helpful. The third question about -- also about the conversational based AI, how do we see the progress with the domestic large language model players and how we see the trend between China and the like OpenAI, the U.S. trend in terms of the AI application in this RTE and the conversational AI?

Thank you, Daley. I'll take the first question. So our guidance for Q4 is in terms of revenue, is $34 million to $36 million compared to Q3. So sequentially, that implies about $2.5 million to $4.5 million increase, and that was actually driven by demand in both U.S. and international markets and also China market. So in the U.S. international market, we see more demand in live shopping so-called creditor economies or social space and also customers in Asia. As we talked about in previous earnings calls, actually, in the past 2 years, we had a pretty challenging market environment in Southeast Asia, Middle East and India, but we are seeing some recovery in the most recent quarter, especially in Southeast Asia and the Middle East. So that's U.S. and international. In China, we see improvement on IoT and digital transformation in Q4. And traditionally, Q4 is a high season for digital transformation. We also see some market share expansion in China. Although the overall economic conditions still challenging because we have been successful in expanding our market share. That also led to sequential revenue growth in Q4 compared to Q3.

I will take the AI side of the question. We have a lot of cooperation with various foundation model companies and even nonfinancial model companies leveraging generally algorithms to build building blocks. We see also a huge amount of interest in exploring the possibilities and opportunities, leveraging conversational AI features to build use case as well. There’s a few events we announced our partnership with financial model companies, as we talked about in the opening remarks. But most of the use cases are more in experiment and development period in kind of a POC stage. It will take some time for the technology to mature to become generally available for real-time API in domestic models. And use cases wise, we see clear fit into customer service, education, IoT and social companionship.

Our next question comes from the line of [June Zia with Gushin Securities].

I have a question towards the outlook for next year. So could you please give us more color on our revenue outlook next year and our cash flow outlook next year and also we mentioned our -- that we will achieve breakeven point next year. So based on what assumptions do we think that we will achieve the breakeven point.

Sure. So yes, we have always guided the market that we target to achieve GAAP breakeven for full year 2025 and that’s actually under very conservative revenue assumptions. So our internal goal is certainly to drive moderate revenue growth for the existing use cases. And we want us to be technology – technologically and organizationally ready for additional demand from conversational AI use cases. So in summary, the guidance has not changed. And I talk about the savings of operating expenses just now with that level of savings and with a very conservative revenue assumption, we believe we’ll be able to breakeven in 2025.

Thank you. There are no further questions. Thank you, everybody, for attending the company's call today. As a reminder, the recording 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.

Thank you. Bye-bye.

Bye.