Xunlei - Q2 2024

Transcript

Operator (participant)

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to turn the call over to the host, Investor Relations Manager, Miss Luhan Tang.

Luhan Tang (Investor Relations Manager)

Good morning, everyone, and thank you for joining Xunlei's Q2 2024 earnings conference call. With me today are Eric Zhou, CFO, and Li Li, VP of Finance. Our IR website has our earnings press release to supplement our prepared remarks during the call. Today's agenda includes a prepared opening remark from Chairman and CEO, Mr. Jinbo Li, on Q2 operations highlights, followed by CFO, Mr. Eric Zhou, presenting financial results, details, and the revenue guidance for the Q3 2024, before we open up the floor to your questions in the Q&A session. Please note that this call is recorded and can be replayed on our investor relations website at ir.xunlei.com.

Before we get started, I would like to take this opportunity to remind you that this discussion today will contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations under current market conditions that are subject to risks and uncertainties that are difficult to predict, which may cause actual results to differ materially from those made in the forward-looking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. Xunlei assumes no obligations to update any forward-looking statements, except as required under applicable laws. On this call, we will be using both GAAP and Non-GAAP financial measures. A reconciliation of Non-GAAP to comparable GAAP measures can be found in our earnings press release.

Please note that all numbers are in US dollars unless otherwise stated. Now, the following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited. Good morning and good evening, everyone. Thank you all for joining us today. Our second quarter results are in line with our expectations, and we're pleased to maintain the momentum of profitability. In particular, our subscription business has demonstrated robust performance with a year-over-year increase of 10.8% in revenue, and the growth can be attributed to our continuous improvement of product features and effective marketing aimed at enhancing user engagement. Furthermore, during the second quarter, we successfully launched Xunlei Browser on major platforms, which has been widely acclaimed for its exceptional performance in video streaming, web browsing, and novel reading.

The positive feedback received from the users has been overwhelming and speaks to the dedication and hard work put forth by our team. I'd like to share with you some highlights of our operations. As mentioned earlier, our subscription business has achieved impressive revenue growth. We're thrilled to have witnessed a remarkable increase of about 1 million users in our subscription subscriber base over the past year. We're grateful for the continuous support and trust shown by our user community. Their engagement and active participation plays an important role in shaping the success of our products. As we move forward, we will continue to prioritize innovation, user centricity, and collaboration among our teams. By leveraging cutting-edge technologies and fostering an inclusive environment that boosts user acquisition, we aim to further enhance not only our subscription business, but also all aspects of Xunlei's products and services.

In the second quarter, our cloud computing business faced challenges as we experienced a decline in revenue of $26.4 million, representing a decrease of 13.8% year-over-year. This decline was attributed to intense pricing competition among competitors and a reduced sales volume of our hardware devices. To address these challenges, we have been actively adapting our strategies to align with the evolving industrial landscape. Our focus remains on leveraging our competitive edge and market position to improve financial performance by providing technology leading and cost-effective products as well as superb services. This revenue from our live streaming business and IaaS business reached $20.3 million, representing a quarter-over-quarter increase of 18.7% and a year-over-year decrease of 53.9%.

The significant year-over-year decline is due to the impact from our strategic downsizing of our domestic audio live streaming businesses since the second quarter last year. However, we're pleased to see that our efforts to mitigate the negative impact by expanding our overseas markets yielded positive results in the second quarter of this year. Our expansion initiatives have allowed us to tap into new customer bases and diversify our revenue streams. Moving forward, to grow our business, we will continue exploring international markets while improving existing products and services based on users' feedback and the latest market trends. Looking ahead, we will continue to explore all options to maintain our position as a leading distributed cloud service provider to meet the evolving needs of our users and clients. With a strong operational track record and balance sheet and continued investment in innovation and growth initiatives,...

We believe we will, we are well positioned to create long-term and sustainable value for all shareholders. With that, I'll now pass the call over to Eric. Eric will give a detailed review of our Q2 financial results and provide revenue guidance for the third quarter of 2024.

Eric Zhou (CFO)

Thank you, Luhan. Thank you all again for participating in Xunlei's conference call to discuss the financial results of the second quarter of 2024. In the second quarter, our total revenues were $79.6 million, representing a decrease of 23.7% year-over-year. The decrease in total revenues was mainly attributable to the decreased revenues from our live streaming business as a result of the downsizing of our domestic audio live streaming operations since June 2023. Revenues from subscription were $32.9 million, representing an increase of 10.8% year-over-year. The increase in subscription revenues was mainly driven by the increase in the number of subscribers. The number of subscribers was 5.71 million as of June 30, 2024, compared with 4.72 million as of June 30, 2023.

The average revenue per subscriber for the second quarter of 2024 was RMB 39.5, compared with RMB 42.9 in the same period of 2023. The lower average revenue per subscriber was due to more promotional activities during the second quarter of this year. Revenues from cloud computing were $26.4 million, representing a decrease of 13.8% year-over-year. The decrease in cloud computing revenues was mainly due to the decreased revenues generated from certain of our major customers of the cloud computing services, and a decline in the sales of cloud computing hardware devices. Revenue from live streaming and other IVAS were $20.3 million, representing a decrease of 53.9% year-over-year.

The decrease of live streaming and other IVS revenues was mainly due to the downsizing of our domestic audio live streaming operations since June 2023, which was partially offset by the increase in the revenues from our overseas audio live streaming business. Costs of revenues were $38.6 million, representing 48.5% of our total revenues, compared with $58.1 million or 55.7% of the total revenues in the same period of 2023. The decrease in cost of revenues was mainly attributable to the decreased revenue sharing costs for our live streaming business, as well as the decreased bandwidth costs incurred during the quarter.

Bandwidth costs, as included in cost of revenues, were $25.8 million, representing 32.4% of our total revenues, compared with $28.9 million or 27.7% of the total revenues in the same period of 2023. The decrease was primarily due to the enhanced utilization efficiency and the decrease in revenues of the cloud computing services during the quarter. The remaining costs of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming business, payment handling charges, cost of inventory sold, and depreciation of servers and other equipment. Gross profit for second quarter of 2024 was $14.7 million, representing a decrease of 11.3% year-over-year. Gross profit margin was 51.1% in the second quarter, compared with 44% in the same period of 2023.

The decrease in gross profit was mainly driven by the decreased gross profit from our live streaming business, partially offset by the increased gross profit from our subscription business. The increase in gross profit margin was mainly due to the high portion of the subscription revenues, which have a high gross profit margin, and the lower portion of live streaming revenues, which have a relatively lower gross profit margin. Research and development expenses for the second quarter were $17.5 million, representing 21.9% of our total revenues, compared with $17.2 million or 16.5% of our total revenues in the same period of 2023.

Sales and marketing expenses for the second quarter were $10.9 million, representing 13.7% of our total revenues, compared with $15.4 million or 14.7% of our total revenues in the same period of 2023. The decrease was primarily due to a reduction in marketing expenses incurred for our live streaming business as a result of the downsizing of our domestic audio live streaming operations since June 2023. General and administrative expenses for the second quarter of 2024 were $11.2 million, representing 14.1% of our total revenues, compared with $12.4 million or 11.9% of our total revenues in the same period of 2023.

The decrease was primarily due to the decreased share-based compensation expenses, partially offset by the increase in labor costs during the quarter. Operating income was $1 million, compared with an operating income of $0.9 million in the same period of 2023. The increase in operating income was primarily attributable to the decreased marketing expenses and share-based compensation expenses, partially offset by the decrease in gross profit from live streaming business during the quarter. Other income net was $2.5 million, compared with other income net of $4.7 million in the same period of 2023. The decrease was primarily due to the reduction in exchange gains and subsidy income received during the quarter. Net income attributable to common shareholders was $2.8 million, compared with $5 million in the same period of 2023.

Non-GAAP net income was $3.2 million in the same period of 2024, compared with $8.4 million in the same period of 2023. The decrease of net income and the Non-GAAP net income was primarily attributable to the decrease in gross profit and other income, partially offset by the decrease in operating expenses, as discussed above. Diluted earnings per ADS in the second quarter of 2024 was approximately $0.04, as compared to $0.08 in the same period of 2023. As of June 30, 2024, the company had cash, cash equivalents and short-term investments of $263.4 million, compared with $272.5 million as of March 31, 2024.

The decrease was mainly due to the net cash outflows from operating activities, spending on share buybacks, and settlements of construction of Xunlei buildings headquarters. Now, turning to our share purchase repurchase program. In June 2023, Xunlei announced that its board of directors had authorized to the purchase of up to $20 million of shares over the next 12 months. As of June 30, 2024, the company had spent approximately $4.7 million on the share buybacks under the aforementioned share repurchase program. In June 2024, the board of directors of the company had authorized a new plan for the repurchase of up to $20 million of shares over the next 12 months. As of June 30, 2024, the company had spent approximately $500,000 on share buybacks under the new share purchase program.

Finally, for the third quarter of 2024, Xunlei estimates total revenues to be between $81 million and $86 million, and the midpoint of the range represents a quarter-over-quarter increase of approximately 4.9%. This estimate represents management's preliminary view as of the date of this press release, which is subject to change, and any change could be material. Now, we conclude prepared remarks for the conference call. Operator, we are ready to take questions.

Operator (participant)

Thank you, management. We will now begin the question and answer session. If you would like to ask question, please press star one one and wait for your name to be announced. If you would like to cancel your request, please press star one one again. One moment for the first question. We have a question from the line of Kiki Li. Please go ahead. Hello,

Eric Zhou (CFO)

And the caller's question is, you know, congrats for a good quarter, and she would like to know if our subscription business has any new incentives, initiatives regarding its existing product, or has it integrated any new technology or developed synergistic products to empower the presence of the subscription business? Thanks for the question. Xunlei has been in the subscription business for about 20 years, starting from its earliest downloader and continuously incorporating new features to meet our users' needs. The current subscription product has evolved into a highly comprehensive tool that encompasses downloading, acceleration, storage, consumption of digital content, content sharing, et cetera. Moreover, we have also developed value-added functions and products within our existing ecosystem, such as recently we launched a browser, which demonstrates a high level of synergy with our core business.

Users can easily access desired resources faster, more accurately and more directly while consuming these contents. And so far, we have received a lot of positive user feedback and successfully acquired a substantial number of users without engaging in significant promotion activities. We are actively pursuing strategic partnerships to expand the recognition and exposure of our products, and try to drive further growth in our broader business through collaboration with our partners. And I look forward to sharing with you any progress in the coming days. Thanks for your question.

Speaker 3

Xunlei now on the membership business has already been engaged for 20 years, then from the earliest our downloader, after that also continuously added new functions and iterations with the times advancing technology. Currently, our membership business is already a very comprehensive tool, including our download, storage, consume book content etc. After that, we will also on our existing ecosystem develop functions and products that have value to users. For example our recently launched Xunlei Browser, this and our existing business have very strong synergistic effects. Members can more quickly, more accurately, more directly find the desired resources, also very light, also can easily go consume these contents. Currently we also obtained many very good user feedbacks, also in no doing any promotion situation under also had certain membership base number. We also in seeking strategic cooperation, hope through and cooperation partners joint, expand our product influence power, further to promote our browser business development. Expect future and you all, together share more updates. Thank you for your question.

Operator (participant)

Thank you for the questions. Once again, to ask question, please press star one, one. There are no question at this time. I would like to. I beg your pardon? We have follow-up questions from Kiki Li. One moment, please. Ms. Li, your line is open again, please ask your question.

Speaker 3

我还有一个问题，我看到七月份另外一家中概股，斗鱼派息每股 $9.76，股价也有大幅提升。我想了解一下迅雷股价长期在比较低估的状态，公司是否会考虑参考斗鱼这样的做法来给市场一些信心？谢谢。

Eric Zhou (CFO)

And her follow-up question is, you know, she noticed that DouYu, another Chinese registered company in on NASDAQ, recently announced a dividend in July. And as a result, its share prices increased significantly. And considering Xunlei's stock price has been undervalued for some time, and she's curious if the company would follow suit-

Operator (participant)

What's the-

Eric Zhou (CFO)

-the example of boost investors confidence? Thanks for the question. Our board of directors has not yet discussed any release methods so far. However, we will keep you updated. So far, we have allocated our capitals to exploring new initiatives and growth opportunities. Thanks again for your questions.

Speaker 3

我们目前董事会还没有讨论过相关的问题，如果有任何新的进展的话，我们也会及时地跟大家公布。目前为止，我们一直是用资金用在研发新项目和寻求新的增长机会上面。谢谢您的提问。

Operator (participant)

Thank you for the questions. At this time, there are no further questions from the line. I would like to hand the call back to management for closing.

Eric Zhou (CFO)

Thanks again for your time and participation. If you have any further questions, please visit our website at ir.xunlei.com or send emails to our investor relations. Have a good day.

Operator (participant)

Ladies-

Eric Zhou (CFO)

Hopefully, we conclude today's conference call. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines.