Agora, Inc. Q1 FY2026 earnings call

### Core Financial Achievements - Marked the sixth consecutive quarter of GAAP profitability, with accelerating top-line growth compared to prior quarters - Exceeded the high end of the prior Q1 2026 revenue guidance range - Completed significant share repurchases: repurchased ~3.6% of total outstanding shares for $13.1 million in Q1, with 78.1% of the $200 million repurchase program utilized as of quarter-end (program expires February 2027)

### New Product Launches - Launched Agent Studio, a no-code visual development environment that allows developers and enterprises to build, test, and deploy AI agents at scale in minutes (compared to weeks or months with alternative solutions) introduced pre-built conversational AI agents for both inbound customer service and outbound sales/marketing use cases - Launched Intelligent Meeting Engine for enterprise collaboration, offering end-to-end encryption, flexible on-premises/private cloud deployment, full data isolation, and integrated AI capabilities including real-time transcription, translation, meeting summaries, and automated workflow integration, which has seen strong early reception from regulated industries including finance, government, and healthcare

### Conversational AI Growth Trajectory - Since launching the commercial conversational AI engine in Q1 2025, usage has grown over 150% sequentially each quarter, with strong early customer validation from production deployments (one survey client achieved a 10% conversion rate matching human agent performance with far lower operational costs) - Agora's integrated solution combines domain-specific conversation design, orchestration of ASR, LLM, and TTS capabilities with noise suppression and multilingual support, and Agora's global low-latency real-time network, filling a market gap for reliable scalable conversational AI deployment - Key early high-demand verticals include call centers, IoT connected devices, and companion toys, with recurring subscription revenue from sticky customer segments

### Ecosystem and Partnerships - Integrated leading third-party AI models including Google Gemini Live and XAI Squawk into conversational AI solutions, with Google featuring Agora as a recommended real-time conversational AI partner - Entered a strategic partnership with NetEase Smart Enterprise to deliver integrated solutions spanning real-time video, content moderation, and AI agents, combining NetEase's content moderation expertise with Agora's RTE leadership to expand go-to-market opportunities across education, customer service, digital entertainment, and enterprise collaboration

### Market and Competitive Landscape - The global RTE market in China is experiencing ongoing consolidation: former competitor NetEase has become a partner, other competitors have shifted focus from scale to profitability or reduced RTE business investment, creating favorable tailwinds for Agora's growth

Agora simplified its segment disclosure starting in Q1 2026 and no longer reports separate revenue breakdowns by product segment. Overall total revenue for Q1 2026 was $37.7 million, up 13.5% year-over-year, exceeding the prior guidance range of $36-$37 million. Gross profit reached $23.9 million, up 5.7% year-over-year, with a gross margin of 63.4% (down from 68% in Q1 2025), driven by product mix shifts as new conversational AI products remain at a subscale stage. Excluding the subscale conversational AI segment, gross margin for the core real-time engagement (RTE) business remained stable in Q1 2026. GAAP net income was $1.1 million, more than doubling the year-ago level, for a 2.9% net margin. Dollar-based net retention rate was 99% in Q1 2026, up from 95% in Q1 2025. Management expects conversational AI revenue to reach approximately 5% of total company revenue by the end of 2026.

- Q2 2026 total revenue guidance is set at $39-$40 million, representing 13.7% to 16.6% year-over-year growth, with even the low end of the range expected to deliver faster growth than Q1 2026's 13.5% year-over-year growth - Management expects GAAP net income for full-year 2026 to be significantly higher than full-year 2025, with operating and net income projected to grow sequentially quarter-over-quarter from Q1 through Q4 2026 - The company targets achieving GAAP operating profitability in the second half of 2026 - Conversational AI revenue is expected to ramp quickly from its current low base, reaching approximately 5% of total company revenue by the end of 2026 - Management expects conversational AI gross margin to turn positive and reach healthy levels by year-end as usage scales, with long-term expected margins higher than core RTE business due to higher pricing and greater value creation for customers

- Forward-looking statements regarding conversational AI growth, adoption timelines, and profitability are inherently predictions, and actual results may differ materially due to risks, uncertainties, and unmet assumptions, as detailed in the company's SEC filings - Conversational AI is an early-stage market, and slower-than-expected adoption or technological progress could impact near-term revenue and margin outcomes, though management notes this would not change the target of operating profitability in H2 2026 - Early-stage conversational AI products currently generate low revenue while incurring upfront development and POC costs, creating near-term margin drag for the overall company - Competition in the conversational AI market is intense, particularly in the U.S., with multiple players attacking the market from different strategic angles - The conversational AI market in China remains particularly challenging, with most domestic AI players achieving far lower revenue than their U.S. peers at this stage

Q: Analyst asked for regional growth trends and driving verticals, current conversational AI application stages, expected 2026 year-end revenue scale for conversational AI, and 2026 operating profit targets and breakeven timeline.

A: Both China and U.S./international businesses are growing rapidly, with U.S. growth slightly outpacing China; traditional social, entertainment, and education verticals are recovering in China, while live shopping, financial services, and gaming drive strong growth in the U.S. Call centers and IoT are expected to be the largest 2026 conversational AI revenue contributors, with sequential quarterly usage growth over 150% and revenue contribution projected to reach ~5% by year-end. Management expects sequential profit growth each quarter in 2026, with full-year GAAP net income significantly higher than 2025, and targets GAAP operating profit in H2 2026.

Q: Analyst asked for an update on overseas e-commerce/live shopping development and 2026 revenue contribution potential, plus the impact of the NetEase Smart Enterprise partnership on China growth.

A: Video-based live shopping remains nascent in developed markets, but Agora saw continued strong demand from the prior highlighted customer after its successful Super Bowl event, and won a new fast-growing e-commerce customer from a competitor. Multiple additional players are planning similar large events, so the vertical is expected to deliver strong growth in 2026. The NetEase partnership expands go-to-market opportunities and reflects ongoing RTE market consolidation in China, which will support Agora's revenue growth as competitors shift focus away from scale.

Q: Analyst asked how further domestic Chinese competitive consolidation will drive pricing and revenue growth, the underlying margin trend of core RTE excluding conversational AI drag, conversational AI unit economics, and whether the H2 2026 operating profit target holds if AI progress underperforms expectations.

A: Ongoing consolidation in China's RTE market will support both revenue growth and margin improvement; core RTE gross margin remained stable in Q1 2026, with the overall gross margin decline entirely driven by early-stage conversational AI. Conversational AI is currently incurring costs from low-revenue POC and experimentation, but management expects margin to turn healthy positive by year-end as usage scales, with long-term margins higher than core RTE. Even if AI progress is slower than expected, the company's investment plans are already accounted for, and the target of operating profitability in H2 2026 remains unchanged.