Good day and thank you for standing by. Welcome to Agora, Inc. Fourth Quarter and Fiscal Year 2025 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. 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 of which 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 take on today's call. With that, let me turn the call over to Tony. Please go ahead.

Thanks, operator, and welcome, everyone, to our earnings call. I'll begin by reviewing our operational performance for the past quarter. We are pleased to report our fifth consecutive quarter of GAAP profitability in Q4, marking our first full year of GAAP profitability since 2018, driven by sustained double-digit revenue growth, improved operating leverage and disciplined cost management. Total revenue for the fourth quarter were $38.2 million, representing 10.7% year-over-year growth. Our GAAP net profit for the quarter was $4.9 million with a GAAP net margin of 12.9%. Next, I would like to share with you our recent business update, which highlights both the strength of our core real-time engagement business and the accelerating momentum of our conversational AI initiatives. Our platform's scalability and reliability were recently validated during a high-profile live streaming event over the Super Bowl weekend. MrBeast, the world's most followed content creator, hosted a broadcast session on Whatnot, the leading video-based shopping platform and a long-standing customer of Agora. We delivered high-quality full HD video to nearly 600,000 peak concurrent viewers worldwide while enabling their interactions at sub-second latency. To quote our customers' own words from their technical blog, "On event day, Agora's real-time media pipeline performed reliably at peak. Time to first frame stayed under 1 second, latency remained consistently low, and video quality held stable throughout the stream, even as we pushed systems to their limits at extreme load." We believe this is the largest live video shopping event in U.S. history. Events of this magnitude are the ultimate stress test for real-time infrastructure. Our ability to deliver stable, high-quality video with ultra-low latency at a global scale demonstrates our leadership in network resilience, distributed architecture and real-time routing. This event was powered exclusively by our platform, as no competitor can match our performance and…

Thank you, Tony. Hello everyone. Let me start by first reviewing financial results for the fourth quarter of 2025 and then I will discuss outlook for the first quarter of 2026. Total revenues for the fourth quarter reached $38.2 million, representing a 10.7% year-over-year increase and exceeding the high end of our guidance. This marks our fourth consecutive quarter of double-digit organic growth. If we look at the 2 business divisions, Agora revenues reached $19.9 million in Q4, representing 14.4% year-over-year growth and 9.3% quarter-over-quarter growth. The strong growth reflects our successful market penetration and growing adoption in verticals such as live shopping. Shengwang revenues reached RMB 129.2 million in Q4, up 5.7% year-over-year and 5.6% sequentially, driven by continued business expansion and adoption in key verticals such as social and entertainment and IoT. Dollar-Based Net Retention Rate is 109% for Agora and 89% for Shengwang. Gross margin for the quarter was 65.1%, down 1.5 percentage points year-over-year and 0.9 percentage points sequentially. The slight decline was primarily driven by the lower margin profile of our conversational AI-related products, as usage is still ramping and remains at a subscale level. Turning to expenses. R&D expenses were $13.6 million in Q4, down 7.7% year-over-year, reflecting our continued cost discipline. R&D expenses accounted for 35.8% of total revenues compared to 42.9% in the same period last year. Sales and marketing expenses were $7.1 million in Q4, down 2.1% year-over-year. Sales and marketing expenses represented 18.7% of total revenues in the quarter compared to 21.1% in Q4 last year. G&A expenses were $5.4 million in Q4, a decrease of 16.5% year over-year, primarily due to lower provisions for credit losses following improved customer collections. G&A expenses represented 14.1% of total revenues compared to 18.7% in Q4 last year. Moving on to the bottom…

[Operator Instructions] First question comes from Daley Li from Bank of America Securities.

Firstly, congrats on the strong Q4 results. And I have two questions here. Firstly, could you update us the overall RTE demand trend in China and overseas? And what industries are the key demand drivers? Secondly, you have released the ConvoAI Device Kit. And could you please share more color on the conversational AI applications and what industries and applications are the key drivers? And besides I'm not sure, could you share some color about your targeted revenue for the conversational AI this year?

Okay. For the real-time engagement market trend, in China, demand from social entertainment and education customers continue to grow at a modest rate while we remain optimistic on the vast growth potential of IoT and digital transformation customers to drive our China revenue. In recent months, competitive pressure further abate, and we believe the industry will continue to consolidate. In U.S. and international markets, as I mentioned earlier, our success in one of the massive single-channel live streaming event solidifies our position and brand awareness among live shopping customers, which will bring more business opportunities for us. We are confident that we will gain more market share in this vertical. And for ConvoAI Device Kit, so we do expect our conversational AI revenue to continue to grow. The use cases, not just companionship toys, as I mentioned, also physical AI equipment are all happening. For the...

For the revenue, so as you know, we released our conversational AI engine in March last year. And since its release, as Tony just talked about, its usage has more than doubled every single quarter. Its revenue contribution is still relatively low at the moment because a lot of customers are in POC stage. So the revenue growth lagged behind usage growth. But we do see a healthy pipeline of customers. So based on that, we expect to see revenue contribution from conversational AI to ramp up throughout this year. And our goal is for conversational AI to approach 5% of ARR contribution towards the end of this year. Tony, do you want to talk more about the use cases?

Sure. We've been talking about the conversational AI use cases before. It's still focused on customer service, companionship devices, education and interactive. We're now also focusing closely with global customers from U.S., Europe, South America, Asia Pacific region and inside China to implement our solution in a couple of customer service scenarios such as outbound marketing, marketing, cooling market cooling, appointment scheduling, order confirmation and so on. For companionship devices, a number of device shipments and activations are promising. And more importantly, our solution is becoming the de facto industry standard or best practice, we expect to see more customers launch their products throughout the year, including some based on well-known IP with the potential to become a global hit.

Next, we have [ Ri Han ] from CICC.

This is [ Ri Han ] from CICC. Can you hear me?

Yes.

Congrats on another solid quarter, especially with revenue coming above the high end of guidance. My first question is on gross margin. We noticed that gross margin declined slightly year-over-year to 65%, just as Jingbo said. Can you walk us through the key factors behind that decline? Should we view this as mix driven and temporary or more structural given AI ramp-up costs? How should we think about margin trend into 2026? My second question is on profitability for 2026. After achieving full year GAAP profitability in 2025, how do you think about operating income and operating margin next year? What are the main drivers that could support further margin expansion? Yes, that's it.

Sure. So I will talk about gross margin first. As I said, the slight decrease in gross margin was mainly due to the impact of conversational AI-related products because some of the customers are still in early pilot stage, and we don't charge customers for pilot POC experimentations. So revenue ramp-up lags behind usage growth. And also the, ConvoAI infrastructure is currently running at a very small scale, subscale levels. So that's why the -- if we only look at the margin of that particular product, it's very, very low at the moment, and that drags down the overall margin slightly. We do expect this to improve as usage and revenue ramp up, but it might take a couple of quarters to fully recover. So when we kind of do our internal forecast and give guidance on 2026 profitability, we are essentially forecasting flat gross margins compared to Q4 2025. So in terms of operating income -- so we expect operating income to improve significantly -- further improve significantly compared to 2025. It's driven by revenue growth, improved operating leverage. And our goal is to achieve GAAP operating profit in Q4 2026. Please note, this is after taking into consideration about $6 million of share-based compensation in 2026 and also nearly $4 million of amortization related to the headquarters project. So after these 2 items, we expect to significantly improve the operating income.

Next question comes from Zongxuan Yang from CITIC Securities.

Also congrats on the last quarter's performance. So I just have one question follow the first question from Bank of America regarding to AI. So we can see that the stock price for -- especially for those U.S. software companies have fluctuated recently. So like the market has a lot of concern about AI software. So I just want to know that how do you think of the -- maybe like the infrastructure and the cybersecurity company position on this AI era? And also maybe like other company's leader on this issue and the other company's position in the AI.

Yes. So SaaS service strengthened because of the drastic cost reduction in building UI/UX and application layer logic of software by web coding or AI coding. However, the system level or infrastructure level core services, including the PaaS and API services we provided are actually facing increasing demand from web coding. And the need for an even higher quality and scalable API services are actually much needed than before. And it's hard to imagine those hardcore low-level or system-level infrastructure technology would be easily disrupted by web coding or just AI coding. So as the demand for real-time multimodal interactions with AI engine growth, especially in this sector, we will largely benefit from the global trend of AI development. Plus who is not an AI company these days? If you're not, you're outdated. We, as a company, is the first one to introduce AI technology into RTE sector even before the generative AI era. And we are the first one to launch AIGC RTE SDK, first one to demo full duplex conversational AI. We provide the best AI turnkey and AI models in the world, and we are one of the few to launch the real-time API with OpenAI. So we are heavily invested in the AI development and AI infra front. We have also positioned the company as a leading innovator in generative AI era, and we are committed to be one in the coming decades.

Yes. Actually, I want to add like layman's perspective from a non-technical person. So now if you ask a coding agent, a cloud code or open cloud to write an app with real-time engagement features like write a meeting app for your own company or your team, it's most likely actually if you try, you'll see that the agent will call API to build this instead of trying to rebuild the entire real-time communication infra and the fundamental code again. So actually, will be used by the coding agents rather than be replaced by coding agents.

Our last question comes from Xu Yue from China Securities Co.

Congrats on the solid results. So I have two questions. The first question is regarding the gross profit margin. We see that this quarter, the gross profit margin is kind of dragged down by AI investment. So how do we forecast for future AI product margin trend? And the second question is, how do you view the growth trajectory for the coming quarters for AI toys and customer service? And have we seen the inflection point of adoption in these verticals?

Sure. So again, in terms of gross margin, we actually think the conversational AI product has great margin potential based on our own internal estimate. If we operate at normal levels at a good utilization rate and a decent scale, the gross margin of the AI product should be at least similar, if not higher, than the current core RTE products. So the current relatively low margin is really due to the suboptimal scale and also a lot of POC ongoing. So we don't have like a fundamental concern on the margin. It will just take some time to ramp up to the target levels. So that's on gross margin. In terms of the AI product adoption, as Tony talked about, right, we do expect the adoption to grow throughout this year. And you talked about the performance and cost, right? I think it's not just us in terms of performance, but for all the players globally in conversational AI, there are a lot of new start-ups focused on this area. And I think we face the problem, same problem. The technology itself is fundamentally ready. But from an engineering perspective, there remains a lot of corner cases and use case adoption to be done. This will take time. But it's really just a question of time, not a question of whether it will work or not. So we think we made a lot of progress already in 2025. That's why in several use cases like companion card, like outbound calling. In several use cases, it's already working, and we'll solve more problems this year. And we do think it's not like one single turning point, but we will solve use case by use case and gradually penetrate into more verticals. And on the cost side, as we all know, cost is coming down steadily on all the models, so we do not think the cost will be a blocking factor.

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 in the earnings release will be available on the company's website at investor.agora.io. And if there's any other questions, please feel free to e-mail the company. Thank you.

Thank you. Bye-bye.