Agora posted its strongest quarter in the set in Q2 2026, with revenue up 18% year-over-year to $40.4 million (above guidance) and net income of $2.2 million rising 50%, a seventh straight quarter of GAAP profitability. Dollar-based net retention returned above 100% (to 104%) and the GAAP operating loss narrowed to $1 million, keeping management on track for a goal of quarterly GAAP operating profitability by year-end. Gross margin was 63.7%, down year-over-year on the subscale conversational-AI mix but up sequentially. Conversational AI showed real commercial traction, with voice agents rivaling human reps in outbound marketing and surveys, new Agora Skills/CLI developer tooling and a Gradium partnership, while management guided Q3 revenue to $41-42 million and reiterated a ~5% conversational-AI run-rate target for year-end.
Hey, thank you, Pritha, and welcome everyone to our earnings call. Let me begin with a review of our operating results for the quarter. I am 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 organizations. Our most important progress this quarter occurred in call center across the globe.
We are seeing strong momentum in adoption of our voice AI agents trained on the best sales and customer service playbooks. These agents deliver consistent high-quality performance across every conversation. They 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 agents. Indeed, we are beginning to see them match or even surpass human performance in an increasing number of tasks in achieving targeted business outcomes. The first example is outbound marketing and buyer interest capture. Our voice AI agents are now being used to initiate calls, qualifying leads, collect information, and schedule meetings with prospect customers.
At a similar conversion rates with human reps, our voice AI agent also outperform 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 feedbacks 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 takes weeks or days into just a few hours. Marketing and surveying are only two examples of how voice AI agents can reshape call center 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 package our platform knowledge so that AI coding assistants, including Claude Code, Cursor, or Codex, can work with our latest SDKs and best practices when building Real-Time Engagement or Conversational AI applications. The Agora CLI complements this with a simple 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 are also continuing to strengthen our technology ecosystem through strategic partnerships. This quarter, we announced a partnerships with Gradium, a leading voice AI platform recently founded by the research team behind Moshi and Hibiki, 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 hops. 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 the 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 SDRTN, 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 ultra-low 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. Third, we will continue to strengthen our partner ecosystem and build our developer motion. On October 23rd and 24th, we will host our iconic 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 infrastructure and harness layer required to operate with 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 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 Shengwang teams for their dedication and innovation. With that, let me turn it over to Jingbo, who will reveal our financial results.
Thanks, Tony. Hello, everyone. Let me start by first reviewing financial results for the second quarter of 2026. Then I will discuss 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 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 has remained at a subscale stage. On the 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 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 -$2.1 million in Q2, compared to -$0.4 million in the second quarter of 2025. Moving on to balance sheet. We ended Q2 with $361.7 million in cash equivalents, bank deposits, and financial products issued by banks. The decrease in our cash balance was mainly due to annual bonus payment as well as share repurchase during the quarter. During Q2, we repurchased approximately 1 million ADS for approximately $2.7 million. As of June 30, 2026, we had 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%-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 the usage momentum and commercial potential in Conversational AI, and we will 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.