Xunlei Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 15, 2023

There are 3 speakers on the call.

Operator

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Chun Lei's 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded.

Speaker 1

I would now like to turn the

Operator

call over to the host, Investor Relations Manager, Ms. Lu Hai Tang.

Speaker 1

Thank you, and good morning, everyone, and thank you for joining Xunlei's 2023 Second Quarter Earnings Conference Call. On the call with me today are Eric Zhou, Chief Financial Officer and Li Li, Vice President of Finance. Now our earnings press release is available on our IR website, which is intended to supplement our prepared remarks during today's call. For today's agenda, I'll first read our prepared opening remarks on behalf of our Chairman and CEO, Mr. Jingbo Li, on highlight of our Q2 operations.

Speaker 1

Then Mr. Eric Zhou, our CFO, will walk you through the details on the financial results and a wrap up with our revenue guidance for the Q3 of 2023. After the management's remarks, we'd like to welcome any questions from you in our Q and A session. Today's call is recorded, and you can replay the call from our Investor Relations website at ir. Trinlay.com.

Speaker 1

Before we get started, I would like to take this opportunity to remind you that the 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.

Speaker 1

Xunle assumes no obligation to update any forward looking statements, except as required under applicable law. 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 U. S.

Speaker 1

Dollars unless otherwise stated. Now the following is the prepared statement by Mr. Jin Bui, Chairman and CEO of Xunlei Limited. Good morning, everyone, and welcome to our 2023 Second Quarter Earnings Conference Call, and thanks a lot for your ongoing support for Shnekla. Despite the challenges to our domestic audio live streaming business, we delivered a strong second quarter with a total revenue of $104,300,000 up 33.3% compared to last year and $5,000,000 in net income.

Speaker 1

Our top line growth was well balanced across 3 business segments, demonstrating our operational resilience amidst an ever evolving environment. We also achieved a year over year growth of 35.9 percent in gross profit and improved gross profit margin. This serves as evidence of our dedicated efforts to capitalize on economies of scale and enhance operations management. Now I would like to add some color to the performance to each of the 3 business segments. In the Q2 of 2023, our subscription business generated 29,700,000 dollars in revenue, reflecting a 17% year over year increase.

Speaker 1

Throughout this period, we observed a consistent upward trend in premium subscriber conversion rate, which rose from 35.1% in the Q2 of last year to 59.2% this quarter among all paying subscribers. Additionally, the average revenue per subscriber increased from RMB37.8 to RMB42.9 RMB42.9 compared to the same period in 2022. I'm glad that our unwavering focus on providing convenient, secured and quick access to our subscription businesses has yielded encouraging results. On top of that, through engaging initiatives carried out by my team, we gained additional and a valuable understanding of users' needs and boosted retention rates accordingly. And I expect that the growth momentum will continue as we keep exploring and testing new ideas and innovating our existing products.

Speaker 1

Despite strong competition, our cloud computing business effectively utilized its competitive edge in shared cloud technology to deliver reliable, scalable and cost effective services to our clients. As a result, we achieved a year over year growth of 8.2% and generated $30,700,000 in revenue during the Q2 of 2023. The increased sale of our cloud computing hardware, OEC, in the Q2 was the primary factor fueling this growth as this new generation of smart device outperformed earlier versions under similar conditions and brought higher rewards to users. And we intend to keep iterating our technology and product features, while pursuing sustainable business development. As a key driver of our growth, live streaming and other Internet value added services contributed to a significant 79.1% increase in revenue, reaching $43,900,000 However, during the Q2 of 2023, we encountered challenges posed by the evolving industry environment for our domestic audio live streaming business and proactively downsize its operations.

Speaker 1

We intend to further downsize domestic live streaming services in the second half of this year. We anticipate that the downsizing of this business line will significantly reduce our revenue in the upcoming quarters, whereas our subscription and cloud computing businesses will remain unaffected. We intended to reallocate the resources and explore new opportunities to offset the impact of the business adjustment. Wrapping up my remarks, Shiloh is committed to advancing core technological innovation and delivering top notch products and services for our clients and users. We will keep harnessing our strength and maintain competitive edge and expand our value chain, while utilizing years of managerial experience and the technical know how to drive future growth.

Speaker 1

With a strong financial position and a proven track record of operating performance, we firmly believe that Xunlei will emerge from the current endeavor as a more focused company, repositioned to seize long term growth opportunities and create sustainable shareholder value. With that, I'll turn the call over to Eric. Eric will cover our financial results in detail and provide revenue guidance for Q3 of 2023.

Speaker 2

Thank you, Wuhan. Hello, everyone, and thank you again for joining Xunlei's 2023 Q2 earnings conference call. I will walk you through the details of our financial results and RevPAR results, value balance for the Q3 of 2023. For the Q2 of 2023, total revenues were $104,300,000 for 20 19 a year over year increase of 33.3%. The increase in revenue can primarily be attributed to the enhanced performance of our last year, subscription and cloud computing business.

Speaker 2

Revenues from cloud computing reached $30,700,000 representing an increase of 8.2% compared to the Q2 of last year. The increase in cloud computing revenues were mainly driven by higher sales of hardware devices for cloud computing during this quarter. Revenues from subscription were $29,700,000 representing a solid 17% increase year over year. This growth was attributed to both higher average revenue per subscriber and an increased number of subscribers when compared to the same period last year. As of June 30, 2023, we had a total of 4,720,000 subscribers, up from 4,460,000 on June 30, 2022.

Speaker 2

In the Q2 of 2023 alone, each subscriber's growth in an average revenue of RMB42.9, which is significantly higher than RMB37.8 during the same period last year. This increase in average revenue per subscriber is primarily due to more users opted for our premium membership. Revenues from live streaming and other Internet value added services, or IVAS, were $43,900,000 an increase of 79.1% year over year. The increase of live streaming and other RDS revenues was mainly driven by higher demand for our live streaming services. As we mentioned in our press release, we started to monetize our domestic audio live streaming services in the second quarter.

Speaker 2

And as a result, we expect revenues from this segment will experience a significant decline sequentially in the Q3. And to mitigate this impact on our total revenues, we will strive to strengthen our existing product lines and explore new opportunities. Cost of revenues were $58,100,000 representing 55.7 percent of our total revenues, compared with $44,300,000 or 56.6 percent of the total revenues in the same period of 2022. The increase in costs was primarily attributable to the higher sales from our live streaming, subscription and cloud computing services and products. Android costs, as included in cost of revenues, were $28,900,000 representing 27.7 percent of our total revenues compared with $25,500,000 or 32.6% of the total revenues in the same period of 2022.

Speaker 2

The increase in bandwidth costs was mainly driven by the increased demand for our cloud computing services. The remaining cost of revenues mainly consisted of costs related to revenue sharing costs for our live streaming business, payment of handling fees and cloud computing hardware devices. The gross profit for the Q2 of 2023 reached $45,900,000 reflecting a significant increase of 35.9 percent compared to the same period in 2022. Furthermore, the gross profit margin was at 44% during the Q2 of 2023, exiting a slight improvement from 43.1% in the previous year. This growth in gross profit was primarily attributable to the increase in gross profits in our live streaming and subscription business.

Speaker 2

Research and development expenses for the Q2 of 2023 were $17,200,000 representing 16.5 percent of our total revenues compared with $16,000,000 or 20.4 percent of total revenues in the same period of 2022. The increase was primarily due to higher labor costs incurred during this quarter. Sales and marketing expenses for the Q2 of 2023 were $15,400,000 representing 14.7% of our total revenues, compared with $5,000,000 or 6.4 percent of our total revenues in the same period of 2022. The increase with Partner was primarily due to more frequent marketing activities resulting from our ongoing user acquisition efforts. G and A expenses for the Q2 of 2023 were $12,400,000 representing 11.9% of our total revenues, compared with $12,000,000 or 15.4 percent of our total revenues in the same period of 2022.

Speaker 2

The increase was primarily due to the increase in depreciation of Xunlei headquarters building as we finish the construction and relocate to the new headquarters in December 2022. Operating income was $900,000 compared with $700,000 in the same period of 2022. Other income was $4,700,000 compared with $7,000,000 in the same period of 2022. The decrease in other income was mainly due to less reversal of certain payables during more than 2 years with low payment probability as compared with the same period of 2022. Net GAAP net income was $1,000,000 compared to $6,000,000 in the same period of 2022.

Speaker 2

Non GAAP net income was $8,400,000 in the Q2 of 2023 compared with $9,800,000 in the same period of 2022. The decrease in net income and non GAAP net income was primarily attributable to the decreased other income as discussed above. Diluted earnings per ADS in the Q2 of 2023 was approximately 0.08 dollars as compared with 0.09 dollars in the same period of 2022. As of June 30, 2023, the company had cash, cash equivalents and short term investments of $258,500,000 compared with $258,300,000 as of March 31, 2023. The decrease in cash, cash equivalents and short term investments primarily resulted from positive net office cash inflow during this quarter, partially offset by the repayment of a bank loan, expenditures on share buybacks and devaluation of the Chinese RMB against the U.

Speaker 2

S. Dollar. In June 2023, Xunle announced that its Board of Directors authorized the repurchase of up to $20,000,000 of its shares over the next 12 months. As of June 30, 2023, the company had spent approximately $1,000,000 on share buybacks under the new share repurchase program. Turning to our revenue guidance.

Speaker 2

For the Q3 of 2023, Xunle estimates total revenues to be between $79,000,000 $84,000,000 and the midpoint of the range represents a quarter over quarter decrease of approximately 21.9%. This decline is largely due to the impact of the continued down sizing of our domestic live streaming business, whereas the operations of our subscription and cloud computing businesses are not affected. This estimates 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

Thank Our first question comes from retail investor, Jack Lu. Please go ahead with your question.

Speaker 2

Thanks for the question. And the caller asked that he looks that the company is downsizing its domestic audio live streaming business and he's got to know what's the percentage of revenue for the domestic audio live streaming business to the total revenues. And we also would like to know that the anticipated impact of the future overall revenue and whether Xunlei plans to continue downsizing its business in the future. In the Q2, we started to downsizing our relatively low gross margin domestic audio live streaming business. And this business accounted for approximately 12.4 percent of the total revenues in the first half of the year.

Speaker 2

And going forward, we will continue to assess our live streaming and IVS business and it may continue to downsize our domestic live streaming business to improve operations. And we anticipate a declining of about 21.9% in total revenues for the 3rd quarter as compared with the 2nd quarter. And that said, I'd like to mention that our subscription and the cloud computing businesses remain unaffected. Thank you.

Operator

Thank you. There are no further questions at this time. So I'll hand the call back to Eric Zhou for closing remarks.

Speaker 2

Well, thank you, Lee, for your time and participation. And if you have any questions, please visit our website at irqunlei.com or send e mails to our Investor Relations. Have a good day. Operator, we conclude today's conference call. Thank you.

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Key Takeaways

  • Total revenue of $104.3 million in Q2 rose 33.3% year-over-year, with the company reporting $5 million in net income and balanced growth across its three segments.
  • Gross profit increased 35.9% year-over-year and gross margin improved to 44%, driven by economies of scale and enhanced operations management.
  • Subscription revenue climbed 17% to $29.7 million, while premium subscriber conversion jumped from 35.1% to 59.2% and ARPU rose from RMB 37.8 to RMB 42.9.
  • Cloud computing revenue grew 8.2% to $30.7 million, led by strong sales of next-generation hardware that delivered higher efficiency and rewards.
  • Live streaming & IVAS revenue surged 79.1% to $43.9 million, but the company plans to downsize its domestic audio live streaming business and expects Q3 revenue to fall about 21.9% sequentially.
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Earnings Conference Call
Xunlei Q2 2023
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