Agora, Inc. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a quarterly filing; the supplied filing text does not provide standalone 2023 Q4 financial results.
Business context
Agora provides usage-based real-time engagement platform-as-a-service (RTE-PaaS), including voice, video, livestreaming, chat and related developer tools. Its two divisions are Agora, serving the U.S. and other international markets, and Shengwang, serving China. In 2023, its platform supported approximately 620 billion minutes of engagement across more than 200 use cases.
Financial and operating performance
| Metric (US$ millions, except percentages and per-share data) | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | 141.5 | 160.7 | Down 11.9% |
| Gross profit / margin | 89.5 / 63.2% | 99.4 / 61.9% | Margin up 1.3 percentage points |
| Operating loss | 87.3 | 115.8 | Loss narrowed |
| Net loss | 87.2 | 120.4 | Loss narrowed |
| Basic and diluted loss per share | $0.22 | $0.27 | Loss per share narrowed |
| Net cash used in operating activities | 13.6 | 52.4 | Cash use declined |
| Free cash flow (non-GAAP) | (14.5) | (56.5) | Improved |
| Adjusted EBITDA (non-GAAP) | (19.5) | (56.6) | Improved |
Revenue from Agora was $61.0 million, down 2.4%; Shengwang revenue was $80.5 million, down 18.0%. Management attributed the decline to lower usage and pricing from certain Agora customers facing tighter financing conditions, and at Shengwang to currency translation, macroeconomic conditions, regulation in downstream markets and the February 2023 sale of Easemob’s customer engagement cloud (CEC) business. The sale closed with an immaterial disposal gain.
Operating expenses fell 29.2% to $146.6 million, reflecting lower research and development and sales and marketing costs following workforce optimization. Gross margin improved mainly due to technical and infrastructure optimization. Goodwill impairment was $31.9 million in 2023, versus $11.9 million in 2022. Investment loss was $18.5 million, and a $1.2 million loss arose from extinguishing a convertible note. Interest income increased to $18.8 million.
Liquidity, debt and capital allocation
At December 31, 2023, working capital was $204.5 million, compared with $413.8 million a year earlier. Current assets were $261.4 million and current liabilities $56.9 million. Current liquidity included $36.9 million of cash and cash equivalents, $86.9 million of short-term bank deposits, $84.9 million of short-term bank financial products and $8.0 million of short-term investments. The company also reported $143.1 million of long-term bank deposits and $20.0 million of long-term bank financial products.
Long-term borrowings were $11.0 million, incurred for the Shanghai headquarters project; repayment is scheduled to begin in 2028. The land-use right securing the borrowing had a carrying value of $167.2 million. Management stated that existing cash and cash equivalents were expected to cover anticipated cash needs for at least 12 months, while cautioning that liquidity assumptions could prove incorrect.
Investing cash flow was a net inflow of $56.6 million, primarily reflecting bank deposit maturities; financing cash outflow was $52.4 million, primarily share repurchases. The $200 million repurchase authorization was extended through February 28, 2025. Repurchases totaled $104.3 million cumulatively at year-end 2023. The company reported $104.5 million of contractual purchase commitments, including $55.8 million due within one year. No dividends have been declared or are planned for the foreseeable future.
Material changes and management commentary
- Revenue declined for a second consecutive year, from $168.0 million in 2021 to $160.7 million in 2022 and $141.5 million in 2023. Excluding the historical impact of China’s K12 tutoring regulation changes, management reported revenue growth of 23.5% in 2022 and a decline of 11.0% in 2023.
- Agora’s dollar-based net retention rate fell to 93% in 2023 from 144% in 2022; Shengwang’s was 82%, down from 96% (both measures have stated exclusions). Active customers increased to 1,683 for Agora and 4,144 for Shengwang.
- Headcount declined to 790 at year-end 2023 from 1,001 in 2022. Research and development expense fell 32.2% and sales and marketing expense fell 36.8% year over year.
- The company expects capital spending to support growth, and management expects R&D and sales and marketing expenses to increase in absolute dollars over the foreseeable future. The filing gives no specific revenue, earnings or margin guidance.
Risks, contingencies and unusual items
- China VIE structure: 56.7% of 2023 revenue was generated by the VIE. Agora does not own the VIE’s equity and relies on contractual arrangements that have not been tested in court in China. Regulatory action or challenges to enforceability could disrupt operations or deconsolidate the VIE.
- Cash mobility: PRC rules restrict dividends, foreign-exchange conversions and transfers of funds. PRC entities must meet statutory reserve requirements, and $167.7 million of net assets in PRC subsidiaries and the VIE was described as restricted at year-end.
- Regulatory and data risks: Licensing, cybersecurity, data-protection and overseas-listing requirements in China continue to evolve. The company said it had not been informed that it was a critical information infrastructure operator and had not been subject to a formal CAC cybersecurity review on that basis.
- Market and customer risks: RTE-PaaS is an emerging, competitive market; usage-based revenue, limited long-term customer commitments and customer application demand make revenue less predictable. The top ten customers represented 24.1% of 2023 revenue.
- Other investor risks: Agora believed it likely qualified as a passive foreign investment company (PFIC) for 2023, with significant risk for the current and future tax years. Its dual-class shares give Class B holders 20 votes per share; the CEO beneficially owned all Class B shares as of March 31, 2024. PCAOB inspection access had been restored in 2022, but the filing notes possible future HFCAA trading restrictions if inspection access is lost for two consecutive years.
- The company reported no litigation contingencies recorded for 2021–2023 and no litigation it believed would have a material adverse effect. It reported no cybersecurity threats in 2023 that materially affected, or were reasonably likely to materially affect, the business, while noting undetected incidents cannot be ruled out.
Important facts for investors to verify
- Whether revenue and retention stabilize, particularly in Shengwang and among customers facing financing constraints.
- Whether operating cost reductions can continue without impairing product development, customer support or growth; compare GAAP losses with non-GAAP measures and share-based compensation.
- The quality and collectability of receivables: net receivables were $34.7 million against a $14.9 million expected-credit-loss allowance, a matter identified as a critical audit matter.
- The nature, timing and funding of the $104.5 million purchase commitments, Shanghai headquarters construction and remaining repurchase authorization.
- Any changes in PRC VIE enforceability, licenses, data rules, cross-border cash-transfer restrictions or CSRC filing requirements.
- PFIC status for each relevant tax year, and the implications of concentrated voting control and the ADS depositary arrangements.