Prepared remarks
Good day, and thank you for standing by. Welcome to the Agora Inc. Second Quarter 2026 Financial Results Conference Call. 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 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 which the company discussed in detail in its filings with the SEC, including today's press release and the risk factors or other information contained in the final prospectus relating to the 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. Hi, Tony.
Thank you, operator, and welcome, everyone, to our earnings call. Let me begin with a review of our operating results for the quarter. I'm pleased to report another quarter of accelerating top-line growth as well as our seventh consecutive quarter of GAAP profitability. Total revenues for the second quarter of 2026 reached $40.4 million, an increase of 18% year-over-year. This performance reflects both the continued strength of our core real-time engagement business and the growing contribution from our conversational AI products as more customers move from proof of concept to commercial production. Our GAAP net profit for the quarter was $2.2 million, up 50% year-over-year, which demonstrates improved operating leverage and disciplined cost management across the organization. Our most important progress this quarter occurred in call center across the globe. We are seeing strong momentum in adoption of our voice AI agent. Trained on the best sales and customer service playbooks, this agent delivered consistent high-quality performance across every conversation. The agents do not experience fatigue, lose focus, or vary in performance based on workload or time of day. They also maintain calm and steady interactions even during challenging calls. Further, customers are now seeing substantial cost savings from deploying our voice AI agent. Indeed, we're beginning to see them match or even surpass human performance in an increasing number of tasks in achieving target business outcomes. The first example is outbound marketing and buyer interest capture. Our voice AI agents are now being used to initiate calls, qualify leads, collect information, and schedule meetings with prospective customers at similar conversion rates as human representatives. Our voice AI agent also outperformed in two other important areas: the volume of calls they can handle and the unit economics they deliver. The second example is market survey. Our voice AI agent can conduct in-depth interviews for consumer insights and product feedback while capturing structured data throughout each conversation. The high concurrency of our solution compresses the time it takes to conduct large-scale surveys that traditionally take weeks or days into just a few hours. Marketing and surveying are only two examples of how voice AI agents can reshape call centers worldwide. We see similar opportunities in financial services outreach, gaming user acquisition and retention, debt collection, and many other areas. We are already working with customers across these sectors, and we expect several of them to move from proof of concept to large-scale deployment in the coming quarters. At the same time, we continue to invest in our developer ecosystem. This quarter, we launched Agora Skills and Agora CLI. Agora Skills packages our platform knowledge for AI coding assistants, including Claude Code, Cursor, or Codex, and works with our latest SDKs and best practices when building real-time engagement or conversational AI applications. The Agora CLI complements this with a single command-line interface for coding agents to do their work. Together, these tools make it easier for both human developers and AI coding agents to build and deploy real-time engagement applications with us. We're also continuing to strengthen our technology ecosystem through strategic partnerships. This quarter, we announced a partnership with Gradium, a leading voice AI platform recently founded by the research team behind WuXi and TBK, two speech models with strong recognition in the open-source community. Through our partnership, developers can enable Gradium TTS within our conversational AI engine through a simple configuration without introducing additional latency costs. Looking ahead, we will first remain laser-focused on accelerating the transition of our conversational AI solutions from pilot to production across use cases. Each use case will present its own set of challenges, but each will also help us refine our technology. We believe that continued improvements in our solutions will unlock additional demand and drive industry shift towards AI-led workflows in call centers. Second, we will continue to invest in our real-time infrastructure. Our software-defined real-time network, or SD-RTN, has long been a foundational advantage for us. As we expand into human-to-AI interactions, the importance of this infrastructure does not diminish. On the contrary, it becomes more critical because smooth conversations require ultralow latency inference and transmission. We are confident that our investment in real-time inference and the communication infrastructure will serve as a decisive factor in our ability to compete and succeed in the conversational AI arena. And third, we will continue to strengthen our partner ecosystem and build up our developer ecosystem. On October 23 and 24, we will host our iconic and annual conference, IRTE, or Intelligent Real-Time Engagement, in Beijing. We look forward to bringing together developers, partners, enterprises, and industry leaders to explore the next phase of real-time engagement and conversational AI. In summary, we believe the center of gravity in the AI industry is increasingly shifting from model capabilities towards the infrastructure and hardest layers required to operate voice AI agents reliably at scale. At the intersection of real-time engagement, AI, and global infrastructure, we believe Agora is uniquely positioned to help enterprise customers make this transition and create sustainable long-term value for both our customers and shareholders. Before I conclude, I would like to thank our customers, developers, partners, and shareholders for their continued trust and support and our global Agora and Shenghong teams for their dedication and innovation. With that, let me turn it over to Jingbo, who will review our financial results.
Thanks, Tony. Hello, everyone. Let me start by first reviewing financial results for the second quarter of 2026, and then I will discuss the outlook for the third quarter. Total revenue for the second quarter reached $40.4 million, above the high end of the guidance range and representing 18% year-over-year growth. This marks our third consecutive quarter of accelerating growth, driven by continued expansion of our real-time engagement services across sectors such as e-commerce as well as growing customer adoption of our conversational AI solutions. Our dollar-based net retention rate for the quarter was 104% compared to 94% in the second quarter of 2025. This represents a meaningful improvement and moves us back above 100%. Gross profit for the quarter was $25.7 million, representing a 12.5% increase year-over-year. Gross margin was 63.7% compared to 66.8% in the same period last year and 63.4% in the first quarter of 2026. On a year-over-year basis, the decline was primarily due to product mix change as conversational AI products continue to see growing usage during the quarter but have remained at a subscale stage. On a sequential basis, the increase was mainly driven by technical optimization. Turning to expenses. R&D expenses were $15.4 million in Q2, up 10.2% year-over-year. R&D expenses represented 38.1% of total revenue in the quarter compared to 40.8% in the same period last year. The increase was primarily due to our continued investment in conversational AI products. Sales and marketing expenses were $6.4 million in Q2, down 1.5% year-over-year. Sales and marketing expenses represented 15.9% of total revenue in the quarter compared to 19% in the same period last year. The decrease was primarily due to disciplined expense management. General and administrative expenses were $5.5 million in Q2, down 9.5% year-over-year. G&A expenses represented 13.5% of total revenue in the quarter compared to 17.6% in the same period last year. The decrease was primarily due to a lower allowance for current expected credit loss as customer credit conditions and collection outcomes improved. Turning to operating results. We recorded GAAP operating loss of $1.0 million in the second quarter compared to a loss of $3.1 million in the same period last year, thanks to continued improvement in operating leverage. Based on our current business momentum, our goal is to achieve quarterly GAAP operating profitability by the end of this year. Moving on to the bottom line. We delivered net income of $2.2 million in Q2, up 50.3% year-over-year and representing a net income margin of 5.4%. Now turning to cash flow. Operating cash flow was negative $2.1 million in Q2 compared to negative $0.4 million in the second quarter of 2025. Moving on to the balance sheet. We ended Q2 with $361.7 million in cash, cash equivalents, bank deposits, and financial products issued by banks. The decrease in our cash balance was mainly due to annual bonus payments as well as share repurchase during the quarter. During Q2, we repurchased approximately 1 million ADS for approximately $3.7 million. As of June 30, 2026, we have repurchased approximately 44.6 million ADS in total for approximately $159.9 million under the current share repurchase program. As of June 30, 2026, we had 83.8 million ADS outstanding, compared to 87.3 million ADS at the end of 2025. The current share repurchase program will expire at the end of February 2027. Now turning to guidance. Based on currently available information, we expect total revenue for the third quarter of 2026 to be between $41 million and $42 million, representing year-over-year growth of 15.8% to 18.6%. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change. In closing, this was another strong quarter for us, both in terms of revenue growth and profitability. At the same time, we are increasingly encouraged by usage momentum and commercial potential in conversational AI, and we'll continue to invest with discipline to support our long-term growth. Thank you all for joining today's call. Let's open it up for questions.
Questions and answers
Our first question is going to come from the line of Harry Zhuang with BofA Securities.
Congratulations on the strong results and guidance. I have three questions. The first one is regarding demand. How is the demand trend in overseas and domestic markets? And what are the key sectors driving the growth? Second, regarding AI: we're happy to see that the call center application is growing really fast. What are the other data scenarios that could drive meaningful conversational AI demand growth? What will be the revenue contribution from conversational AI by the end of the year and the gross margin trend? And lastly, about competition, could management share the latest competitive landscape in overseas markets against our major competitors?
Okay. In terms of demand, I will talk about the RTE side and Tony can talk about the AI side. So on the RTE side, actually things haven't changed that much overall from what we saw last quarter in both China and the U.S. and international markets; it's largely the same as the last quarter. In China, thanks to a more stable operating environment, demand from social entertainment and education customers continues to recover, so I think they're looking pretty stable here. On the U.S. and international side, demand from large shopping, financial services, and gaming use cases continues to grow. So demand looks healthy on the RTE side.
Yes. And on the AI side, I think it's fair to say our vision has been validated and reinforced in our daily business with the rapid development and continued improvement we have achieved on the ground. In call centers, as I mentioned in the remarks, AI agents are matching and sometimes even surpassing human representatives on certain tasks with solid, verifiable business outcomes for enterprise customers. This is just the beginning of a very, very long run, and I believe we will witness the transition from human call center representatives to AI agents around the world, similar to how large language models reshaped software engineering. This is actually a very good thing for people and for society because it will free people from very tedious and stressful lines of work. Keeping conversations strictly professional for hours about the same task is very exhausting and emotionally draining.
Yes. So in terms of use cases for conversational AI, I can talk about two verticals: call center and companionship devices. Tony already covered a lot on the call centers, but I want to highlight one point. When we talk about call centers, it's not a single use case. It's a collection of many use cases, each with different features and different knowledge. In terms of difficulty for replacement by AI agents, these use cases form a spectrum from the easier ones on the left-hand side to the harder ones on the right-hand side. We are only beginning to explore a few use cases on the easier side, such as outbound marketing and surveys. These are low-hanging fruits. As we continue to refine our solutions and accumulate more experience working with our customers, we will convert more and more use cases from impossible to proof of concept to real-world production. So this is a very long-run opportunity. It's not one single use case we can capture in one quarter or one year; it's going to be a multiyear process. On companionship devices, we have talked with customers in the past, and in this quarter we expanded into new markets in Japan and other countries, and initial feedback has been encouraging. We also partnered with several chip makers to make our solution compatible with more chips because these are not mobile phone chips; these are very specialized LTE chips, and making our solution compatible will make it available on a wider range of smart devices, including robots. So overall, we are still targeting a 5% revenue contribution from conversational AI by the end of this year. Tony, do you want to talk about competition?
Okay. Do you want to talk about gross margin or not?
Not at this time.
Okay. So about competition, especially on conversational AI, the space has several distinct technology layers: the agent layer that orchestrates and optimizes the call experience; the model layer that includes large language models and voice models such as ASR or TTS; and finally the infrastructure layer such as telecom APIs and cloud. Different players attack this market from different angles. For example, Twilio would leverage its strength in telecom APIs and phone numbers from their CCaaS business. We are focused on the voice models, audio preprocessing and post-processing, low-latency cloud infrastructure, and the agent layer to deliver the best possible call experience. Given the huge potential of the conversational AI market, it is natural to have competition. A lot of the technology in conversational AI involves audio processing, such as handling noise, echoes, or packet loss. We have a lot of experience in those areas, which can hugely improve the conversational AI experience. So we remain confident about our position in this market.
Harry, does that answer your question?
Yes. They were helpful. Congratulations again on the results.
Our next question comes from the line of Yue Xu with China Securities Co.
Congrats on another strong quarter. My first question is in regards to conversational AI. Could you please update on conversational AI revenue progress and the projected contribution to full-year value? My second question is the conversion cycle for AI use cases. Could you disclose the current backlog for these AI use cases and, perhaps, the number of customer accounts? How would you view the trend for AI revenue in the coming quarters and next year?
Thank you. Thanks for the question. We already talked a lot about the use cases. First, I want to explain that it actually takes quite some time for a use case to really ramp up from the start of the POC to the point where AI agents can deliver consistent performance and be deployed at scale. It typically takes several months. There are many use cases we need to address one by one, and we can do a few in parallel, but it is still a process. As I mentioned earlier, we're targeting 5% revenue contribution from conversational AI by the end of the year. So our goal is to achieve a run rate in Q4 that corresponds to roughly 5% of revenue. That means the full year 2026 contribution will be smaller than 5%, but if we achieve 5% by year-end and given the strong pipeline we already have, which should grow by year-end, we believe there will be significant room for growth next year. We remain quite optimistic about this market.
Our next question comes from the line of Zongxuan Yang with Citic Securities.
I have one question regarding our AI business. Have you given any guidance on a longer-term, three- to five-year AI penetration rate of total revenue and any guidance on gross margin evolution?
I'll take the question. In the end, the call center market will have three segments. First is the easiest tasks, such as simple notifications; these will be handled by IVR-based technology, which has no real intelligence but can understand simple keywords from humans. The second would be the hardest or most important tasks, such as handling complaints from high-value customers or emergency situations, which will continue to be handled by humans. Even if an AI agent is technically able to handle the task, in some cases only humans can take certain responsibilities, such as a 911 call. The third is everything in the middle; those will be handled by voice AI agents with real intelligence. It's hard to say exactly how big this middle part will be, but it will be a significant portion of the entire market.
So yes. Tony talked about the three- to five-year outlook for the call center market, which is a huge market. There are literally close to 20 million people working in call centers around the world today. As Tony said, there will be three categories in the future, and probably the middle category will be the biggest and handled by voice AI agents. Even taking a small part of that market would be transformational for our company. At this point, it's hard to give a clear number because this market is still at a very early stage and overall penetration of AI agents is still very low. In terms of gross margin: today, conversational AI gross margin is not high. We discussed this last quarter; it's crossing the breakeven line but still near that level. The reasons are not fundamental: one, we are subscale — volumes are distributed across different geographies and are still small at each geography; and two, we haven't yet focused heavily on technical optimization for cost. Right now, our optimization focuses more on experience than cost. Once we achieve larger scale and focus more on technical optimization for cost, we believe gross margin will be similar to, if not higher than, what we have today in the RTE business.
Our next question comes from the line of Tristan Yang with DoubleLine Capital.
Nice results today. Tony, regarding your announcement to purchase an additional $20 million of shares on the open market, I'm wondering how much you have purchased to date? What valuation do you believe appropriately reflects Agora's intrinsic value? And given your existing ownership stake, have you considered taking the company private or returning additional capital to shareholders through a special dividend or an accelerated buyback program?
Let me answer this question because it's more technical. Tony has not started repurchasing yet due to certain blackout and legal restrictions. Once these are cleared, he will start repurchasing. He has made previous purchases earlier this year, but there are legal restrictions. As to the additional $20 million, that has not started yet. We have returned about $160 million of capital back to shareholders through share repurchase to date. That compares to a market cap of roughly $350 million to $400 million for the company, which is substantial. We will continue to repurchase shares. At this point, we have not considered a special dividend, which we might consider in the future, but not at present.
I think my purchase will start in two to three weeks, around September or October.
Yes. Yes, subject to certain conditions.
Okay. I don't think we will consider taking the company private. We want to keep communicating with the capital markets and focus on business operations and improving our overall technical and operational strengths. We're still very confident that the future in our direction has very big potential. We think by focusing on business operations and technical advancement, we will be able to create significant value for our customers, our shareholders, and our employees.
Showing no further questions. This will conclude today's Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, a recording and the earnings release will be available on the company's website at investor.agora.io. If you have any questions, please feel free to e-mail the company. Thank you. You may now disconnect. Everyone, have a great day.