Agora, Inc. Q1 2026 Earnings Call - Conversational AI Ramps as Core Margins Stabilize

Operator: 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 believe today. 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, and in which the company discuss in details in its filings with the SEC, including today’s call, earnings press release, and the risk factors and other information contained in a final prospectus relating to its initial public offering. Agora, Inc. remains no obligations to update any forward-looking statements the company may make on today’s call. Now, with that, let me turn it over to Tony. Hi, Tony.

Tony Zhao, Founder, Chairman, and Chief Executive Officer, Agora, Inc.: Thank you, operator, and welcome everyone to our earnings call. I’ll start with a review of our operating results for the quarter. I’m pleased to report our sixth consecutive quarter of GAAP profitability alongside another quarter of strong top-line growth. Total revenue for the first quarter of 2026 reached $37.7 million, up 13.5% year-over-year. Growth further accelerating our prior quarters. GAAP net profit was $1.1 million, more than double the level of Q1 last year. These results reflect the continued expansion of our Real-Time Engagement use cases globally, as well as the increasing contribution from AI-related applications and products built with our solutions. Let me turn to our business product and technology update for the quarter. Over the past several months, we continue to make progress in bringing Conversational AI to real-world production, deepening the capabilities with our Real-Time Engagement infrastructure, and expanding our ecosystem partnerships.

In March, we officially launched Agent Studio, a visual no-code environment that enables developers and enterprises to rapidly build, test, and deploy voice AI agents at scale. We also introduced conversational AI agents for inbound use cases such as customer service, as well as outbound use cases focused on sales and marketing. The market opportunity here is enormous. According to Gartner, conversational agents are expected to automate 70% of customer interactions by 2027, and by 2028, AI agents are projected to outnumber human sellers by 10 to one. At the same time, many enterprises still struggle to deploy voice AI in production environments. The challenge is not simply the AI model itself, but the complexity of orchestrating multiple technology layers while maintaining low latency, reliability, and the natural conversational experience at scale. In addition, effective enterprise deployment require domain-specific expertise.

A successful voice AI agent must do more than respond accurately. It must reflect the tone, personality, and workflow of the industry it serves. For example, a car sales assistant and a debt collection agent need very different conversational styles, compliance guidelines, and customer engagement approaches. Our solution is designed to eliminate this complexity through a fully integrated stack that combines three core components. First, an environment that allows enterprise to design, test, and deploy AI agent in minutes rather than weeks or months. Second, our conversational AI agent orchestrates ASR, large language model, and TTS capabilities with intelligent interaction handling, noise suppression, multilingual support, and domain-aware conversation design, enabling more natural and human-like interactions. Third, our global real-time network infrastructure delivers sub-second latency and carrier-grade reliability worldwide. We are already seeing strong early validation from real-world deployments.

In Q1, one customer implemented a survey and polling agent that matched 10% conversion rate of human agents. This allowed them to scale data collection and reward distribution far more cost effectively without adding operational headcount. Overall, enterprise feedback has been highly encouraging. Customers increasingly recognize that scalable Conversational AI requires not only powerful models, but also real-time infrastructure’s capability of delivering and seamless interaction and integration. We believe we are uniquely positioned at the intersection of these capabilities. Last month, we also strengthened our position in the enterprise collaboration market with the launch of our Intelligent Meeting Engine product. Intelligent Meeting Engine offers end-to-end encryption, flexible deployment options including on-premises and private cloud, and a full data solution to help ensure that customer meeting content remains entirely within their controlled infrastructure.

At the same time, it increases AI powered capabilities such as real-time transcription, translation, intelligent meeting summaries, and automated follow-up workflows that can connect with customers’ existing business system. This solution addresses growing enterprise demand around content, data sovereignty, and intelligent workflow automation, and has been well received in industries including finance, government, and healthcare. Turning to ecosystem partnerships, we continue to integrate the latest AI models such as Google’s Gemini and xAI’s Grok models into our Conversational AI solutions. In particular, Google has featured Agora as a recommended partner for building real-time Conversational AI, validating our technology leadership in this space. In addition, we recently entered a strategic partnership with NetEase Enterprise Service Division, NetEase Smart Enterprise. Together, we will provide integrated solutions spanning real-time video, content moderation, and AI agents. This partnership combines NetEase expertise in AI and content moderation with our leadership in real-time engagement infrastructure.

We believe this partnership is meaningful validation of our technology from one of China’s leading internet companies, while also expanding our go-to-market opportunities across education, customer service, digital entertainment, and enterprise collaboration. Before I conclude, I want to thank the Agora and Shengwang teams for their continued dedication and execution, and thank our shareholders for their ongoing trust and support. Globally, Conversational AI is rapidly moving from proof of concept to large-scale deployment. Since the official launch of our Conversational AI Engine product last year, usage has demonstrated remarkable momentum with over 150% sequential growth every single quarter. Enterprises today are no longer asking whether they should adopt Conversational AI. Instead, they are asking how to deploy it at scale with reliability, low latency, and seamless integration. We believe our decade of experience in real-time engagement infrastructure uniquely positions us to help customers solve exactly these challenges.

With that, let me turn things over to Jingbo Wang, who will reveal our financial results.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the first quarter of 2026. Then I will discuss outlook for the second quarter. Starting this quarter, we have simplified our disclosure approach for revenues and active customers, and we will no longer separately disclose these metrics for Agora and Shengwang. We’ve also refined our dollar-based net expansion rate or DBAR methodology. We now compare quarterly revenue from the same cohort of paying customers year-over-year to calculate DBAR. This change aligns DBAR more closely with our quarterly revenue growth rate, making it easier for investors to compare the two. Total revenue for the first quarter reached $37.7 million, representing 13.5% year-over-year growth.

Those results exceeded the high end of our guidance range of $36 million-$37 million, and reflected continued expansion and usage growth of our real-time engagement services in sectors such as U.S. live shopping, social and entertainment, and financial services. DBAR first quarter was 99% compared to 95% in the first quarter of 2025. Gross profit first quarter was $23.9 million, representing a 5.7% year-over-year increase. Gross margin was 63.4% compared to 68% in the same period last year, mainly due to product mix change, especially Conversational AI products remaining at a subscale stage. Turning to expenses, R&D expenses were $14.4 million in Q1, up 2.9% year-over-year. R&D expenses accounted for 38.1% of total revenues, compared to 42.1% in the same period last year. The increase was primarily due to continued investment in Conversational AI products. The marketing expenses were $5.9 million in Q1, down 4.8% year-over-year.

The marketing expenses represented 15.6% of total revenues in the quarter, compared to 18.7% in Q1 last year. The decrease was primarily due to disciplined expense management, including lower personnel and promotion expenses. General and administrative expenses were $6 million in Q1, down 6.4% year-over-year. G&A expenses represented 15.9% of total revenues, compared to 18.8% in Q1 last year. The decrease was primarily due to a lower allowance for current expected credit losses, mainly as a result of improved customer credit conditions and collection outcomes. Moving on to the bottom line. We delivered net income of $1.1 million in Q1, more than double the net income in the first quarter last year, representing a 2.9% net income margin. This marks our sixth consecutive quarter of GAAP profitability and reflects continued improvement in our operating leverage. Turning to cash flow.

Operating cash flow was $5.7 million in Q1, including interest received of $4.3 million, compared to $17.6 million in Q1 last year, which included interest received of $17.8 million. Moving on to balance sheet. We ended Q1 with $366.1 million in cash equivalents, and deposits and financial products issued by banks. Net cash outflow in the quarter was mainly due to share repurchase. During the quarter, we repurchased approximately 12.5 million Class A ordinary shares or 3.1 million ADS, representing approximately 3.6% of our total outstanding shares at the beginning of the quarter, for approximately $13.1 million. As of March 31st, 2026, we had repurchased 174.7 million Class A ordinary shares or 74.7 million ADS for approximately $156.2 million under our share repurchase program, which represented 78.1% of our $200 million share repurchase program. The current program will expire at the end of February 2027. Turning to guidance.

Based on currently available information, we expect total revenues for the second quarter of 2026 to be between $39 million and $40 million, compared to $34.3 million in the second quarter of 2025, representing year-over-year growth of 13.7%-16.6%. Notably, even at the low end of this range, we expect to deliver faster revenue growth than we did in the first quarter. In closing, I want to thank our teams for their focused execution in the first quarter. We beat revenue guidance and net income more than doubled year-over-year. Our second quarter outlook also points to a further acceleration in revenue growth. We will continue to invest in AI with discipline, and we are confident that it will become an increasingly important driver of long-term growth. Thank you all for joining today’s call. Let’s open it up for questions.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q&A roster. First question comes from the line of Harry Zhou from Bank of America Securities. Please go ahead.

Harry Zhou, Analyst, Bank of America Securities: Hi. Thanks, management, for taking my questions and congratulations on the strong first quarter results and solid two-year guidance. I have three questions here. The first one, since the company did not disclose the revenue breakdowns by region, we would like to know the growth trend in overseas and China market and what are the verticals driving the growth behind. Secondly, in terms of the Conversational AI, we would like to know the primary application scenarios at current stage and what revenue scale could the company achieve by the end of this year. Thirdly is about the profit guidance. What is the operating profit target for 2026 and any timeline for operating level of breakeven? Thank you.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Thank you. On the first question, first of all, in this quarter, both the China business and the U.S. international business are growing very rapidly. The growth rate, the U.S. business is still a little bit faster, but the two are approaching also at very healthy rates. In terms of the demand in both markets, I’ll talk about the demand in the RTE market first, and Tony will talk about demand in the AI market. For RTE in China, demand for the traditional verticals, social, entertainment, education, from all these verticals, demand continued to recover. In the U.S. international markets, demand from live shopping, financial services, and gaming scales are among the strongest. We have a very healthy pipeline of new customers in these verticals as well. Overall, RTE demand looks quite healthy.

Tony Zhao, Founder, Chairman, and Chief Executive Officer, Agora, Inc.: About the demand on AI side. From the beginning of this gen closely watching the progress on all front. We were the first to introduce AI into the whole RTE technology stack and offer the first generation of products empowered by those capabilities. Since then, we’ve been closely working with customers on practical demand. The thing is, in the last few years, there has been a lot of hype around how AI can change people’s lives, and those claims are not fake. Many of those claims are overstatements that far ahead of what’s happening on the ground, mostly oversimplifies the practical challenge and actual adoption process. Since early last year, we’ve been seeing demand from call center education, digital avatar, et cetera. I think we talked about that last year. This is happening over the past few quarters, in different regions.

In each of those areas, we actually have certain partners and customers to work with them to go into real production. With them, we made progress in the overall experience, practical token economy, and customer use case adoption. At this moment, we see fairly large demand from the call center side. As the technology of voice agent is increasingly able to communicate and resolve many communication tasks. Leveraging large language model intelligence is improving day by day. On IoT side, after successfully helping to launch the companion toy for Zuzu, similar demand is expanding. For Zuzu’s growth itself is also very promising. It can get enough monthly subscription revenue from the most sticky user group every month. It’s not just a one-time sale of the hardware toy. We’re seeing a similar trend in other use cases of Conversational AI.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Yeah. Tony just talked about the demand for Conversational AI. That should also answer partly the second question. Yes, for revenue contribution this year, we believe call center and IoT will be the biggest contributors. I think Tony also talked about that in his opening remarks, that since we released our Conversational AI Engine product in March last year, its usage has been growing at more than 150% sequential growth rate every single quarter. Also the revenue contribution at the moment is still relatively low. We expect to see its revenue to quickly ramp up and towards the summer, around 5% revenue contribution by then. In terms of the 2026 operating target. Given the current growth trajectory and seasonality, we expect operating income and net income to both grow sequentially every quarter from Q1 to Q4.

In term of the full year profit, we expect the GAAP net income will be significantly higher than last year. Our goal is to achieve GAAP operating profit in the second half of this year.

Harry Zhou, Analyst, Bank of America Securities: Yeah. Thanks very much, Ryan. Very clear. Thank you.

Operator: Thank you. Just a moment for our next question, please. Next, we have Rachel Han from CICC. Please go ahead.

Rachel Han, Analyst, CICC: Thanks. Hi, this is Rachel Han from CICC. Thanks for taking my questions. Congrats on another solid quarter, especially with revenue coming above the high end of guidance. My first question is on e-commerce overseas last quarter. I remember you highlighted Whatnot and the Super Bowl live shopping events. Could you give us an update on how this vertical has been developing since then, and how should we think about the potential revenue contribution from overseas e-commerce for the rest of 2026? My second question is on domestic China business. I know we share some color on the growth drivers for the domestic business this year, but I noticed we announced NetEase Smart Enterprise partnership this quarter. How should we think about its potential impact on our Shengwang’s growth in 2026? Thank you.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Sure. The first question on commerce use case. I want to say that in the U.S. market and in probably all developed markets in general, video-based live shopping is still very new thing. We mentioned one last quarter. After that event, very successful event, actually, it did perform well in term of new user acquisition and customer user stickiness. We continue to see growing demand from that customer. In addition, we recently won over another fast-growing video-based e-commerce customer, in U.S. market from a competitor. On top of that, in the last quarter was a milestone in the industry. Now everybody in the industry is watching, and several other players are trying to host similar events in the future, and we are discussing with a few of them already.

We do expect this vertical to have a lot of room for growth, and we are making solid progress on that front. In terms of the business in China, as I said earlier, demand from these internet-based use cases, social, entertainment, education, we see demand recovery also still at a moderate rate. From verticals such as IoT, cameras, doorbells, cars, from wearable devices. Demand from IoT is growing very fast. It has been very fast in the past two, three years. Digital transformation customers with additional AI features. We also see renewed demand growth from digital transformation, traditional enterprise customers. In terms of the piece, I think it’s certainly very helpful on its own, but also it reflected further consolidation of the market in China, right?

Recently, to just give some more examples, recently, a private competitor in this market repurchased all of its venture capital investee and started to focus more on profitability rather than scale, right? That used to be a competitor, now it is a partner. We also see another large public cloud competitor has further reduced its staff on the RTE business. We do believe this trend of consolidation will gradually help our revenue growth as well.

Rachel Han, Analyst, CICC: Okay, thanks, Bingbo Dong. That’s very helpful and all the best going forward. Thanks.

Operator: Thank you. Just a moment for our next question, please. Last question comes from Yu Xu from China Securities. Please go ahead.

Yu Xu, Analyst, China Securities: Hi, management. Thanks for taking my question and congrats on the strong results. Just two quick ones. Are we seeing further improvement in the domestic competitive landscape, and how should that translate into pricing power and revenue growth? Excluding the initial gross margin drag from Conversational AI, what is the online gross margin trend for our core business? Second question. As for Conversational AI scale, how are its unit economics trending? If AI progression comes in below expectation, how should we think about our target of turning operating margin positive by Q4 of 2026?

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Sure. First question on competition and the margin. I will talk about RTE and Tony will talk about AI. Actually I just talk a little bit about the competition in the China market. We see that the market is moving into further consolidation. There was more players to no longer going after scale, right? We do believe that will help with revenue growth as well as margin improvement in the coming quarters. As you can see, overall, the gross margin this quarter was a few compared to the same quarter last year. That’s mostly due to the initial negative gross margin on the Conversational AI business. If excluding Conversational AI, the gross margin of the Core RTE businesses remain actually relatively stable in the first quarter.

Tony Zhao, Founder, Chairman, and Chief Executive Officer, Agora, Inc.: On the AI side, there’s a lot of competition for Conversational AI in Silicon Valley and the U.S. market. The market is still at an early stage, and there are different players trying to attack it from quite diverse angles. It’s still a growth market, so every company has a chance to attack from different angle and still making progress. We are the ones who focus more on the fundamental technology, trying to enable the most promising use cases through the ultimate quality of conversation. The customer demand is strong. As we see, the status is actually adapting to those customer demands and improving the conversational quality so that it can resolve communication tasks at a higher and better level, making it more effective. China market is quite different.

As you can see, most of the AI companies can only make a fractional of revenue in China market compared to their U.S. peers. The market is quite hard to get through at this moment. However, there is similar demand on Conversational AI side, and the technology and product progress are also similar.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Okay. In terms of the unique economics of the conversational product, I think it is still too early to talk about. For example, in first quarter, the reason we have a negative gross margin for this product is because we have a lot of POC customers, a lot of experimentation that basically generate no revenue, but has a lot of cost. We believe as we continue to scale, as customers move from POC to deployment and scale usage, by the end of the year, we expect to see a meaningful revenue contribution. At that point, the gross margin will certainly turn positive, and also will be at a healthy level.

In the long run, we actually expect the conversational revenues to generate similar, if not higher gross margin than the current RT products because of, one, higher pricing, and two, the more technical sophistication and value creation for customers. We talk about if the AI progress is below, like does not meet the expectation. Actually, we have considered all the investments we need to make on that front, and it will not affect our goal of turning operating profitability in the second half of this year.

Tony Zhao, Founder, Chairman, and Chief Executive Officer, Agora, Inc.: Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Thank you. With that, this concludes today’s Q&A session and conference call. Thank you again, everyone, for attending the company’s call today. As a reminder, the recording and the earning release will be available on the company’s website at investor.agora.io. If there’s any further questions, please feel free to email the company. Thank you.

Jingbo Wang, Chief Financial Officer, Agora, Inc.: Thank you. Bye-bye.