Good day, and thank you for standing by. Welcome to Agora, Inc. Third Quarter 2025 Financial Results Conference Call. You need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. The company's earnings results press release, earnings presentation, SEC filings, and the 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 and Jim Burwand, the company's CFO. During this time, the company will make forward-looking statements about its future financial performance and future events and trends. These statements are only predictions that are based on what the company believes today, and the 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, which the company has discussed in detail in its filing with the SEC, including today's earnings press release and risk factors and other information contained in the final prospectus relating to its initial public offering. Agora, Inc. remains under no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn the call over to Tony Zhao. Please go ahead.

Thanks, operator, and welcome everyone to our earnings call. I'll first review our operating results from the past quarter. We are pleased to report our fourth consecutive quarter of GAAP profitability in Q3, supported by double-digit revenue growth and expanding margins. Total revenue in Q3 reached $35.4 million, up 12% year-over-year. Our GAAP net profit for the quarter was $2.7 million, with a GAAP net margin of 7.8%. We expect our revenue and net profit to continue growing on a quarter-over-quarter basis. As you can see, our core real-time engagement business is rebounding strongly and is on track to deliver its first full-year revenue growth since the pandemic, providing a stable, profitable foundation for us. At the same time, we are significantly increasing our investment in conversational AI. Voice-based human-machine interaction is not new, yet most conversational AI solutions today still disappoint users. Why? Because building voice agents that can converse naturally with a human is just hard. Just a few months ago, Greylock Partners, a leading venture capital firm, published a blog post titled 'Voice Agents: Easy to Use, Hard to Build.' They know that the core challenge behind the simplicity users expect lies in immense complexity—system abstraction, real-time audio processing, latency management, and compliance requirements. Consider the issue of background noise and multiple speakers. Just two of the many technical challenges. In real-world settings, like a busy home, office, or car, clean audio is the exception, not the norm. A voice agent must accurately isolate a user's voice from overlapping speech and ambient sound. Without this, transcription becomes unreliable. Intent is misunderstood, and the agent's reasoning falters, undermining the whole interaction. Furthermore, as Andrew Kaposi has pointed out, there is often a significant gap between a working demo and a production-ready product. Conversational AI is no exception. For…

Thank you, Tony. Hello, everyone. Let me start by first reviewing the financial results for 2025 and then I will discuss the outlook for the fourth quarter. Total revenues for the third quarter reached $35.4 million, up 12% year over year, representing our third consecutive quarter of double-digit organic growth. If we look at the two business divisions, our core revenues reached $18.2 million in Q3, 15.9% year-over-year growth and flat quarter over quarter. The strong year-over-year growth reflects our successful market penetration and a growing adoption in verticals such as live shopping. Shunghwa revenues, reached RMB 122,400,000 in Q3, up 8.4% year over year and 6% sequentially, driven by continuous business expansion and adoption in key verticals such as social, entertainment, and IoT. Dollar-based network retention rate is 108% for Agora and 90% for Shunghu, marking the fourth consecutive quarter of improvement for both businesses. Gross margin for the third quarter was 66%, slightly decreased 0.7% year over year and 0.8% sequentially. Moving on to expenses, R&D expenses were $13.8 million in Q3, decreased 52.8% year over year. R&D expenses represented 39.1% of total revenues in the quarter, compared to 92.7% in Q3 last year. Sales and marketing expenses were $6.5 million in Q3, decreased 5.6% year over year. Sales and marketing expenses represented 18.3% of total revenues in the quarter compared to 21.7% in Q3 last year. G&A expenses were $5 million in Q3, decreased 48.4% year over year. G&A expenses represented 14.1% of total revenues in the quarter compared to 30.8% in Q3 last year. Moving on to the bottom line, we delivered net income of $2.7 million in Q3, representing a 7.8% net income margin. This result represents a significant improvement from last year and marks our fourth consecutive quarter of GAAP profitability. Based on our…

Thank you very much. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. The first question comes from the line of Harry Zwing from Bank of America. Please go ahead.

Thanks management for taking my question. Congratulations on another quarter of double-digit growth and solid guidance for the full quarter this year. I have three questions. First, regarding the demand outlook, could management elaborate on the key trends in both domestic and international markets for the coming quarters, and what are the key downstream sectors that are driving the demand growth? Second question is regarding the AI application. Can management share the latest update on the drive for meaningful revenue contribution development of AI? And lastly, on the profitability outlook, can management share the profitability outlook for both the fourth quarter this year and also FY '26, at the operating profit level and the net profit level? Thanks.

Alright. I'll take the first two questions, and Jim will take the last one. So for the demand in China, the overall demand recovery trend continues. With a stabilized regulatory environment, demand from social entertainment and education customers rebounded and gradually goes up. Demand from IoT and digital transformation customers is experiencing rapid growth. In the US and international markets, live commerce demand continued its rapid growth and other verticals generally show growth as well. The overall growth rate is slightly faster than in China. As to the AI demand and the trend, before I answer the question, I want to first clarify the difference between voice AI and conversational AI. We are actually focused on conversational AI, which is very related to our real-time engagement business, and it means real-time human-AI voice interaction. On the other hand, voice AI is a much broader concept. It includes both real-time conversation and non-real-time functionalities such as audio recognition and generation. Non-real-time use cases are actually much broader, and non-real-time audio recognition and generation are much easier to achieve usability and find practical use cases. In the past two years, audio generation or text-to-speech has been widely used in non-real-time content production. For example, most of the short video clips people watch today use AI-generated voiceover. These have been growing in the last two years in social media and a lot of other markets. However, when we move to real-time conversation, the complexity of the technology makes the whole experience much more challenging, as I stated in the opening remark, and it takes longer to mature and gain adoption. In conversational AI applications, currently, there are three use cases that have progressed to a more advanced stage, namely call centers, education, and companionship toys. For these use cases, we already see some customers have moved from proof of concept phase to real-world production. Given the vast scale and potential usage of these verticals, we expect the success of these customers will drive further adoption. We already have customers in production today, but usage is still ramping up. We expect to see some sizable conversational AI revenue in the first half of next year, and ConvaAI will become a meaningful revenue contributor towards the end of next year.

Okay. For the third question, for Q4 this year, given that Q4 is normally a strong season for us, we expect to achieve GAAP operating profit breakeven in Q4. Therefore, the GAAP net profit will further grow on top of the Q3 level. For next year, our target is to achieve GAAP operating profit for the full year of 2026. GAAP net profit is expected to show a big improvement over 2025. In terms of the GAAP net profit, there will be some level of uncertainty due to the potential interest rate cut, but under the current forecast, we expect year-over-year net income improvement over 2025 as well.

Thank you. Just a moment for our next question, please. The next question comes from Rachel Hahn from CICC. Please go ahead.

Thank you for taking my questions. Can you hear me?

Yes.

Hi, this is Rachel Hahn from CICC. First of all, congrats on the solid growth this quarter, and especially the continued improvement in profitability. I have two questions. First, I noticed that our third-quarter revenue came in slightly above the midpoint of the guidance range. Could you give us more color on what drove this solid performance? And my second question is on the AI side, which downstream applications are showing the strongest momentum so far? In particular, how is the adoption trend for AI companionship toys, and when should we expect these use cases to start contributing to your financial results? Thank you.

Okay, I'll take the first question. As Tony mentioned in the earlier question, for Q3, we saw pretty strong demand from US and international markets as well as the China market. In the US international market, live commerce continued to grow very strongly, especially in more developed markets. Other verticals, such as social and fintech, are also growing pretty well. In China, in Q3, first of all, we had the summer vacation in Q3, which is generally a strong season for social apps and education apps. In addition, the IoT sector, including smart cameras, smart wearable devices like watches, and smart toys, is experiencing very rapid growth.

For the AI use cases side, there is quite a strong pipeline of customers and prospects for call centers, including outbound marketing and inbound customer services. For AI companionship toys, we see strong momentum from our customer RoboPong. Their sales and usage numbers are quite impressive. They also started to charge end-user monthly subscription fees, which we believe is a more healthy and sustainable business model and also a breakthrough in similar kinds of toys. A couple of other toy manufacturers are also in the process of integrating our solutions. We expect to see them coming to the market in the next few months.

Thank you. Okay, thank you for your detailed answers. I wish our company continued growth and success.

Thank you.

Our next question comes from Yu Xing from China Security. Please go ahead.

Hi, management, thanks for taking my question, and congrats on the strong execution this quarter. My first question is related to AI usage. Could you share the sequential growth trend for AI-related usage? Looking at our current customer pipeline, when could we see signs of a meaningful scale for these AI applications? My second question relates to potential strategy extension. We could see some CDN vendors expanding into edge GPU inference and security. Given our R&D infrastructure, could we foresee a similar path to maybe offer or cross-sell edge-side inference or security features?

Conversational AI usage increased by more than 150% quarter over quarter, so it's quite fast. Although, as I mentioned, voice AI has matured for years already, conversational AI is still at an early stage. We do see a strong pipeline of customers and prospects and believe we are not far from broader adoption and proliferation of voice agents. For your second question, we are not a CDN company, but we do have a global distributed network and a large number of data centers distributed across every major region. It's a good question. In fact, we have opportunities that are similar but from a different perspective. Specifically, we are targeting real-time inference services for conversational AI. This is what we build for our product. This inference service needs to connect with multiple distributed ASR, TTS, large language model services, as well as our self-developed and deployed modules in different locations. This kind of capability is a must to support the core process in a way that it has to be wire-load latency, so that the real-time nature of the interaction could be enabled. Such an infrastructure service is of great value to any agent that requires ultra-low latency or real-time inference. This is also an opportunity we could expand in the future.

Okay, thank you. That's very helpful.

Thank you. Just a reminder, to ask a question, please press 11 on your telephone keypad.

Thank you.

There are no further questions. That concludes today's Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, the recording and the earnings release will be available on the company's website at investor.agora.io. If there are any other questions, please feel free to email the company. Thank you.