Good day, thank you for standing by. Welcome to Agora, Inc. fourth quarter 2021 financial results conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I'd now like to hand the call over to your first speaker today, Ms. Fiona Chen. Thank you. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us for Agora's fourth quarter and full year 2021 earnings conference call. Our earnings results, press release, SEC filings, and a replay of today's call can be found on our IR website at investor.agora.io. Joining me today are Tony Zhao, Founder, Chairman, and CEO, and Jingbo Wang, our CFO. Reconciliations between our GAAP and the non-GAAP results can be found in our earnings press release. During this call, we will make forward-looking statements about our future financial performance and other future events and trends. These statements are only predictions that are based on what we believe today and actual results may differ materially.
These forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could affect our financial results and performance of our business, and which we discuss in detail in our filings with the SEC, including today's earnings press release and the risk factors and other information contained in the final prospectus relating to our initial public offering. Agora assumes no obligation to update any forward-looking statements we may have on today's call. With that, let me turn over to Tony. Hi, Tony.
Yes. Thank you, Fiona, and welcome everyone to our earnings call. 2021 was a year of great opportunities and challenges for Agora. I'm extremely proud to see how hard our team worked together across the globe and across every vertical to drive Agora forward. It is exciting to see how much we have accomplished and how much innovation we have fostered with our real-time engagement platform. I am proud to say that as of the end of 2021, the Agora SDK were installed globally in more applications than any other real-time video or voice SDK by a very large margin, according to Data.ai, previously known as App Annie. Our technology and product innovation are what distinguish us as a pioneer and a leader in real-time engagement. Today, we are powering the new norm of engagement and emotional human connection, both virtually and in real life.
Now let's shift to our earnings. We delivered another quarter of strong results. Our revenue for the first quarter was $40.4 million, up 21% year-over-year. At the end of December, we had more than 400,000 registered apps on our platform, and our number of active customers reached nearly 2,700, adding nearly 600 year-over-year. For the full year of 2021, we powered more than 600 billion minutes of real-time engagements in total, and our revenue was $168 million, which represents an increase of 26% from 2020. If we look at our key markets, revenue from United States and APAC, excluding China, recorded the strongest growth in this quarter.
We are now powering many leading Metaverse platforms in South Korea, many leading online education companies in South Asia, and many highly innovative interactive e-commerce, audio live cast, and virtual event platform in the U.S. In China, our market leadership was clearly demonstrated by a recent IBC report, which ranked Agora as the number 1 real-time video and voice API provider, with a market share greater than the next 7 providers combined. In this quarter, despite the impact of the new regulation on K-12 after-school tutoring sector, revenues from other sectors remained healthy. As real-time engagement use case continue to expand across regions, our revenue source have also become more diversified. In this quarter, revenue contribution from usage outside of China was 35%, the highest in our history. Moving on to new use cases.
One of my favorite use case in 2021 is with Blue Frog Robotics. This amazing company, powered by Agora technology is changing the way hospitalized students interact with teachers, classmates, friends, and families through this emotional robot named Buddy. In France, Buddy the robot was deployed to nearly 2,000 schoolchildren, and the first lady of France has been supportive in extending this program across the country. In 2022, you will be seeing much more from Blue Frog, Buddy, and how Agora is powering the world for the better. In the Netherlands, Conference Compass, a hybrid event engagement platform focused on global, scientific, and medical conferences, leveraged Agora's interactive live technology live-streaming technology to double their revenue.
A bit closer to home, across the country from our Santa Clara, California headquarters, the University of Maryland Medical System built a fully integrated app into all their back-end systems to obtain patient information. They named it Teleport. Teleport is used across 14 hospitals and 200 departments. Agora is embedded in this platform for all video and audio engagement between doctors and patients, as well as between providers and the staff. In the longer term, I believe Metaverse will become one of the most important use cases for Agora. We have made a significant investment in this field and recently announced several solutions tailor-built for Metaverse. For example, MetaKTV and MetaChat. Our MetaKTV solution is an expansion of our one-stop online karaoke solution that I mentioned in previous earnings call.
On top of our technology that enables user to sing together at ultra-low latency and our usage-based copyright solution for hundreds of thousands of song tracks. MetaKTV reproduces an old-school karaoke room in the virtual world with avatar singers and audiences, stages, party lights, and screens. All these beautiful 3D rendering. In this virtual karaoke room, users are able to sing and dance on the stage or wave and cheer in front of it and hear and see each other in real-time. Our MetaKTV solution allow users to create and customize avatars with hundreds of options, meet friends in a virtual bar or cafe, and engage with each other through voice chat in the shared virtual space.
Both MetaKTV and MetaChat are supported by our latest 3D spatial audio technology, which allows users to perceive sound as coming from different locations and distance around the user in the virtual space. Technically, this is a very challenging task because all the sounds generated by users and the environment need to be updated in real-time as users move inside the virtual space. Despite the technical challenge, I believe 3D spatial audio is an important technology that makes the virtual world feel real. With spatial audio, users will feel more present and engaged, whether they are in a live class session or during a gameplay. These R&D investments have enabled fast go-to-market for our customers.
We are seeing many innovative Metaverse use cases from all over the world leveraging our RTE technology. For example, we helped Oasis, a popular Metaverse platform in Brazil, to enable house parties at their users' virtual home, powered by our MetaKTV solution. A company called XRSPACE built an online karaoke platform called Party On, and I welcome you to experience it for yourself. It's available on both smartphones and AR devices. Now, moving on to security, compliance, and privacy protection. As always, they are critical to our success. Recently, we were awarded the ISO/IEC 27701 certificate on our information security management system. We also partnered with Bishop Fox to improve our ability to defend real-world sophisticated attacks. Looking forward, we will continue to work with leading experts to ensure that our security practice remains best in class.
Lastly, I would like to take the opportunity to thank our customers and our developer community for their innovation and passion to build RTE all the way with us. I also want to say thank you to all the Agorans for their hard work and the dedication to our customers' success. I feel incredibly confident to embrace the promising future of real-time engagement. Let's create and enjoy it together. Now let me turn things over to Jingbo, who will reveal our financial results.
Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the Q4, and then I will discuss our outlook for the fiscal year of 2022. Total revenues grew 21% year-over-year to $40.4 million in the first quarter of 2021. Total revenues for the fiscal year of 2021 were $168 million, which represented 26% year-over-year growth and exceeded the high end of our guidance range by $3 million. Number of active customers reached more than 2,600, excluding growth for EaseMob, up 27% year-over-year. The growth in revenue and active customers was mainly driven by continued adoption of our technology by worldwide developers, as well as the emergence and growth of new use cases.
As we mentioned in previous earnings calls, our revenue growth in the quarter was negatively impacted by the new regulation on K-12 academic tutoring sector in China. We expect such impact to continue and hopefully bottom out in the first quarter of 2022. Our trailing twelve months constant currency dollar-based net expansion rate is 104%, excluding EaseMob at the end of 2021. We also calculated adjusted expansion rate to exclude the impact from COVID-19 in the first half of 2020, and the adjusted expansion rate would be 124%. Moving on to costs and expenses. For my following comments, I will focus on non-GAAP results, which exclude share-based compensation expenses, acquisition related expenses, amortization expenses of acquired intangible assets, and income tax related to acquired intangible assets.
Non-GAAP gross margin for the fourth quarter was 64%, which was 3.5% higher than Q4 2020. As we mentioned in previous earnings calls, the increase were mainly driven by technical and infrastructure optimizations we have been implementing since the beginning of 2021. Non-GAAP R&D expenses were $23.5 million in Q4, up 80.2% year-over-year, as we continue to hire talented employees and strengthen our R&D team, as well as the consolidation of EaseMob's R&D team. Non-GAAP R&D expenses were 58.1% of total revenues in the quarter, compared to 39.2% in Q4 last year. Our strategy is to focus on long-term growth opportunities and innovation instead of maximizing short-term profitability.
We'll continue to invest significant resources in our R&D capabilities in order to further strengthen our technology leadership, provide a more diverse product portfolio, and empower emerging use cases around the world. Non-GAAP sales and marketing expenses were $12.2 million in Q4, up 76.1% year-over-year, mainly attributable to team expansion and increased advertising and event expenses, including expenses related to our RTE 2021 conferences. Sales and marketing expenses represented 30.2% of total revenues in the quarter, compared to 20.8% in Q4 last year. Non-GAAP G&A expenses were $7.3 million in Q4, up 29.5% year-over-year, mainly due to team expansion and expected credit losses, credit loss provisions.
G&A expenses represented 18.1% of total revenues in the quarter, compared to 17% in Q4 last year. Non-GAAP operating loss was $15.4 million, translating to a 38.2% non-GAAP operating loss margin for this quarter, compared to an operating loss margin of 14.4% in Q4 last year. Turning to cash flow. Operating cash flow was positive $5.1 million in Q4, compared to positive $2 million last year. Free cash flow was positive $2.9 million, compared to a negative $1.4 million last year. Moving on to balance sheet. We ended Q4 with $755 million in cash equivalents and short-term investments, compared to $767 million at the end of Q3.
Net cash outflow in the quarter was mainly due to consideration paid for EaseMob acquisition of $13.9 million.
Now turning to guidance. COVID-19 is still an unprecedented variable to our business model, where historical experience may not apply. Our guidance on full year revenues reflect various functions that are subject to change based on uncertainties related to the impact of the COVID-19 pandemic. In addition, as mentioned before, we expect the new regulation on K-12 academic tutoring sector in China will continue to have a significant negative impact on our revenues in the near term. With that, we currently expect total revenues for the fiscal year of 2022 to be in the range of $176 million-$178 million, which would represent approximately 5.4% year-over-year growth at midpoint. Today, we announced that our board of directors has authorized a share repurchase program of up to $200 million.
The program demonstrates our confidence in the fundamentals, strategies, and long-term growth potential of Agora and our commitment to enhancing shareholder value. With more than $750 million of cash on hand at the end of 2021, we believe we will be able to continue to invest in our technology and business expansion at the same time. In closing, we are very proud of the execution, strong performance in this remarkable year. Regardless of all the difficulties and challenges, we are confident about the long-term prospect of our business. Thank you to the entire Agora team for your hard work and everyone attending the call today. Hope you are healthy and safe. Let's open it up for questions.
Thank you, management. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile the Q&A roster. First question comes from the line of Yang Lu from Morgan Stanley. Please go ahead.
Thanks for the opportunity. I have two questions all regarding the overseas business opportunity. The first one is: How do management think about the growing opportunities? With current guidance range, what is the growth for the overseas market and contribution or full year revenue contribution in 2022 for overseas market? The second question is could management update us in terms of overseas market growth margin profile in Q4 and 2022 outlook. Thank you.
Sure. I'll talk about the first part, outlook on overseas, you know, opportunity. I'm actually very excited about the opportunities for us in, like, North America, Europe, and APAC, excluding China. Many countries in these regions have largely reopened their economy, but we continue to see strong usage numbers. It is clear to me that the pandemic has permanently changed how people work, collaborate, and study. I'll mention a few areas where we see enormous growth opportunity. First, future of work. This would include virtual office platforms, virtual events platforms, online collaboration platforms for creating graphics, documents, and music and so on. In the past year, we added many virtual event customers that hold all kinds of events, from trade shows to celebrity gym class through our platform.
We also helped several collaborative design platforms to enable live discussion between users while working on a design project. We're working with virtual office platforms such as Loop and Roam to define how distributed teams will work together in the future. Most recently, we also helped one of the largest companies in the world by market cap to launch an audio live cast platform for the workplace, reflecting that the trend of a lot of the real-time engagement features previously only available in social apps are now coming to professional apps. With this customer, we went through a very rigorous vendor selection process and have proved that our product can meet the requirements of large enterprise customers in the U.S. I believe this will open doors for us in many more enterprise opportunities in the future. Second, around education.
Recently, we see strong usage growth from education customers in South Asia, Middle East, Europe, and U.S., even after the reopening. We now power many of the largest education technology unicorns in South Asia. What we see is that they are basically replicating what EDU and the TAL did successfully in the past in China, which is leverage Agora's capabilities to build branded and proprietary apps that offer better online classroom experience than standard conferencing apps. This market has huge population and penetration of RT and powered online education is still very low, which means there is huge revenue potential for Agora. Third, Metaverse related use cases. I already talked a lot about Metaverse in my opening remarks.
Now we are already powering several leading Metaverse platforms in South Korea and Brazil, and we will, and we also just announced solutions such as, MetaKTV and MetaChat. However, I believe we are only at the beginning of a multi-year trend that will change how people live their lives online. As I summarize, the opportunity for Agora are very clear. It's now up to us to execute well on our strategy and convert these opportunities into business outcome. Jingbo may add on more financial side.
Thank you, Tony. Yes, the guidance at the midpoint represent about 5% year-over-year growth. I think to understand what it means, what the guidance means, we need to really break down our business into three parts. The first is the non-China business, as Tony just discussed, then it's the China K-12 business, and finally the China non-K-12 business. The K-12 business in China last year represented about 25% of total revenues, and we expect to lose almost all of that revenue stream almost entirely in 2022. It's not really apple- to- apple comparison between the $168 million and the guided range for next year. A more apple- to- apple comparison would be 2022 guidance versus 2021 revenue excluding K-12 in China.
In that case, the guidance will still imply a healthy growth rate. If we break down the three parts of our business, the China non-K-12 business, we expect to do moderate growth in 2022, driven by verticals such as IoT, traditional enterprises we call digital transformation, and also by new products like Fusion CDN and Full-Path Accelerator, and also a lot of the new solutions recently released, like MetaKTV and MetaChat. That's the source of growth in China. Outside China, Tony already talked about this, so we are quite confident we will be able to deliver very strong growth outside China. In terms of the margins, actually, in the latest quarter, the gross margin in China and outside China are almost the same.
As we mentioned before, we expect that as we continue to expand our footprint in different regions and continue to scale our infrastructure, we should get additional cost benefit. In the end, we expect our GP would be actually higher outside China.
Thanks a lot.
Thank you for the questions. As a reminder, if you'd like to ask a question, please press star one and wait for your name to be announced. Next question comes from the line of Vincent Yu from Needham & Company. Please go ahead.
Hi, can you hear me?
Yes.
Okay. Sure. Thanks, management, for taking my question. I have two. The first question is on your expenses, especially for the marketing expenses, how you are viewing about the growth of your marketing expenses going forward. Should we expect more and more growth expenses on this part because of the development in the overseas market? My second question is on the utilization of the cash and in addition to the stock, well, I just would like to know, do you have an idea or a plan to make more investments or acquire some non-China business to expand the overseas business development? Thank you.
Sure. I guess I'll take both questions. The first one, I think in the near term, our sales and marketing expenses will increase at a moderate pace in absolute dollar terms, as we continue to invest in branding, marketing, developer community, especially in markets like the United States. In the medium to long term, we think we'll enjoy strong operating leverage here. Once we take that developer mind share, and once our platform is adopted and integrated into our customers' apps, it becomes quite sticky, and we won't need as much marketing or sales expense, compared with now.
We do think in the longer term, sales and marketing expense as percentage of revenue should be at a lower level, especially if you consider the complex and developer-driven nature of our products.
On the balance sheet, yes, we do have a pretty strong balance sheet, and we'll continue to invest in our business, especially in markets outside China. We'll invest in things like brand marketing, develop community, customer support, product localization, security and compliance, and so on. We expect the size of a team in the Silicon Valley, Singapore, India to grow rapidly this year, while the total headcount in China would remain more or less flat. We will not rule out the possibility in terms of acquisition, but it needs to complement our current product portfolio and product strategy. But there's no guarantee we will be able to find a suitable target.
Got it. Thank you.
Thank you for the questions. Once again, to ask question, please press star one and wait for your name to be announced. We got new questions from the line of Bing Duan from Nomura. Please go ahead.
Hi. Thank you, management. Can you hear me?
Yes.
Yes.
Oh, thank you. Thank you, management, for asking the question. I have two questions. One is about the competition landscape. You've mentioned in opening remarks that Agora now has over 40% of the market share. Can you give us more colors on how you think about the competition in the future? For the demand change in China and overseas market, do we expect more competitors in this market in the RTE market going forward? Do we see any like pricing pressure in the next couple of quarters?
My second question is also about the overseas expansion. Can we say that the gross margins and expense profiles will continue to be under pressure in the next couple of quarters because we do need to tap into the new opportunities in the overseas market? Thank you.
Yes, let me talk about the competition side. I think the overall competitive landscape wasn't changed much in the past few quarters, and I don't expect to change drastically going forward. With that said, I did see more players trying to enter the RTE market from different angles. For example, Cloudflare from a CDN live streaming angle and Adobe from an audio processing angle. However, so far, I think none of our competitors can match the overall QoE and complete feature set of our product portfolio. As such, serious developers who really understand RTE technology tend to choose Agora. This was confirmed, as you mentioned, by the latest data.
For example, the latest App Annie data, which shows that Agora SDK is being integrated into more unique apps than any other competitors by a very large margin and in almost every geography. In 2021, we actually invested $111 million in R&D, more than any other competitors in the RTE space. In the future, we will continue to be the most focused-
Hello?
Telephone line problem. Give us a few
Yeah. Why don't I ask the second question first?
Yeah.
We wait.
I was cutting off, right?
Yes. You're back.
From which part? Sorry, from which part? I can continue.
Why don't we just start from the beginning?
Okay. Okay.
After you talk about the App Annie data, you were cut off.
Oh, okay. All right. I mean, App Annie data was you know, a latest sort of industry you know, kind of data to prove our market leading position.
I was trying to speak that in 2021, we actually invested $111 million on R&D, more than any other competitors in the RTE space. In the future, we will continue to be the most focused company on RTE and continue to invest in the most R&D resources. We are very confident that Agora will continue to lead this market. Jingbo will...
Yeah, sure. In terms of the profit outlook for this year, as we mentioned earlier, right? Our priority this year is to invest especially in the markets outside China. We do expect this to cause pressure on the margin in the near term. As you can imagine, a lot of the expenses, marketing expense, the R&D expense, the G&A expenses, these are not directly correlated with revenue, with the loss of revenue from the K-12 sector in the near term. As we continue to expand on the expenses, that will cause pressure on the net margin. With our balance sheet, we do think we will be able to weather through this period.
We think it's in the best interest of the company and our shareholders, to invest for the future. I don't know. Does that answer your question?
Sorry about the previous technological problem. We're actually doing this call in two separate locations. Tony is currently in the quarantine hotel coming back to China. Operator, if we experience another outage over this telephone line, please let me know.
Thank you. Mr. Duan, do you have follow-up questions?
No. That's all my questions. Thank you very much.
Thank you for your question. We'll move on to the next questions from the line of Allen Li of JP Morgan. Please go ahead.
Yeah. Thank you, management, for taking my question. I have a follow-up question on the competition and pricing. I understand you have a clear edge in technology, but still want to get a sense on what's your pricing strategy, especially in overseas market, given the revenue drivers seems to shift to overseas, increasingly. Also I'm wondering, what's the revenue price trend in China, given all the relatively, you know, weak demand due to regulation and the macro slowdown? Thank you.
Okay, maybe I'll take this question. What we see in the non-China market so far, especially in more developed markets like United States and Europe, is that actually I'm quoting a sales leader within Agora. He said, "No customer choose Agora because we are cheap." Customer always choose Agora because of our quality of feature set. In this market, because RTE experience is so critical to the success of many applications, and the fact that users can perceive that difference very clearly. Once you have a hiccup, right? Immediately all the participants in that session will feel that very clearly. Actually, what we see is customers are willing to pay for a higher quality, a more stable service, and better security and privacy production standards.
I think it's fair to say in these more developed markets, we don't think pricing is, kind of, the number one factor in terms of competition. In less developed markets, sometimes we do run into price competition. However, it's still largely in a very orderly fashion. People do take pricing into consideration, but it's one of the considerations. In China, as we mentioned before, this market has been around for several years now. What we have seen is similar to many other types of cloud services. Pricing is, like, we cut our pricing in terms of discount almost every year. The year-on-year change has been in the range of 10%-15% in the past four to five years. Last year was no different.
Our strategy is try to at the same time cut our income costs at a similar pace, so that we can maintain a relatively stable margin.
Okay. Got it. Thank you.
Thank you for the questions. Once again, to ask question, please press star one. There are no further question at this time. I would like to hand the call back to the management for closing remarks.
Well, thank you, operator, and thank you everyone for attending today's call. Later on, we will have the transcript of the call to be posted on our website, which is investor.agora.io, also along with our earnings filings and the presentation of this call. Well, thank you. Have a great day ahead.
Thank you.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.
Bye.