Agora, Inc. Q2 FY2025 earnings call

1. The company achieved its third consecutive quarter of GAAP profitability in Q2 2025, with total revenue reaching $34.3 million, up 11% year-over-year. 2. Since launching the Conversational AI engine product a few months ago, rapid iterations have been made based on the road map and customer feedback. New features like advanced attention locking, real-time vision-based intelligence, and natural interactive avatars were unveiled at the World Artificial Intelligence Conference. 3. Developers and customers across various industries are leveraging the conversational AI solution to build AI applications, with examples such as a major food delivery platform in South America and Fuzozo, an AI companion toy. 4. Sheng Zhong resigned from his positions, and Tony Wang and Jingbo Wang were appointed as directors. 5. R&D expenses decreased 23% year-over-year to $14 million, sales and marketing expenses increased 4% to $6.5 million, and G&A expenses decreased 26.6% to $6 million.

In the second quarter of 2025, Agora's revenues reached $18.2 million, marking a 16.7% year-over-year growth but a 2.2% quarter-over-quarter decline, accounting for approximately 53.1% of the total revenue of $34.3 million. Shengwang's revenues in Q2 amounted to RMB 115.5 million. Excluding certain end-of-sale low-margin products, Shengwang's revenues saw a 6.7% year-over-year growth and a 9.5% sequential growth. Agora's dollar-based net retention rate was 97%, while Shengwang's was 87%, both showing improvement for the second consecutive quarter. The gross margin for the second quarter was 66.8%, but when excluding gross profit from certain end-of-sale low-margin products, the gross margin of the continuing business slightly decreased by 1.2% year-over-year and sequentially.

For the third quarter of 2025, the company anticipates total revenues to range between $34 million and $36 million, representing a year-over-year growth rate of 7.6% to 13.9% compared to the $31.6 million in the third quarter of 2024. This outlook is based on current and preliminary views of the market and operational conditions, which are subject to change.

The company's forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could materially affect financial results and business performance, as detailed in its SEC filings, including risk factors and information in the initial public offering prospectus.

Q: Firstly, congrats on the strong results and solid growth. And I have 2 questions. Number one, regarding the AI-related business. You mentioned like for the downstream demand from the IoT and also the AI companion toys. Do we expect which application area will see the faster application and the potential revenue contribution to us going forward? My second question is about the gross profit margin in Q2 achieved of 4.8 percentage points year-over-year expansion. Well, quarter-on-quarter, see some -- suddenly drop. And is this a seasonality or any other reasons? How do you see the future trend for gross profit margin and net profit margin?

A: Thank you for the question. So for AI use cases, in conversational AI applications, currently, 3 use cases 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 those verticals, we expect the success then of those customers will drive broader adoption. In terms of margins, so the gross margin of the current RDCO RTE business has been quite stable in the past year, fluctuating between 66% and 68%. And I expect this to continue in the coming quarters, and the sequential and year-over-year decline of 1% in this quarter is more due to like normal fluctuation. And as to the new products, the conversational AI products, I think it's still too early to say about gross margin. We might have a lower margin initially due to ramp-up and testing and prototyping cost. But once we reach a more steady state, I expect the gross margin on this product to be at least same as RTC, if not higher, because of the higher value and higher technical sophistication of this new product. So in terms of net margin, we expect the expenses to be relatively stable. So as we ramp up on revenues, we do expect the net margin to improve in the coming quarters this year. And in the longer term, as we guided before, we do think we should be able to achieve an operating margin of between 15% and 20%, but that's for the medium to long term.

Q: I'm Chenyuan Wang from CICC. My question concerns the market reception of your newly launched the advanced attention locking and the avatar feature? So could you please share the early adoption trends and also the client feedback on these innovations.

A: Okay. Thank you for the question. When we initially planned and designed these features, we have already taken real-world applications and customer needs into consideration. This actually comes from some of the corner cases received we from early adoption of our conversational AI engine. Advanced attention locking is an essential feature in a noisy environment, especially with other people talking in the background. For example, our customers AI companion toy, Fuzozo will naturally be carried around by users. When users want to talk to Fuzozo in a place like subway station or shopping mall, attention locking is crucial to ensure a seamless user experience. Interactive avatars, on the other hand, must-have to -- for users -- for use cases like education and customer service, as they enable more lifelike engaging interruptions. So those are all coming from demand of solving certain corner case or providing a better expense experience for certain use cases.