Xunlei Q4 2023 Earnings Call Transcript

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March 14, 2024

There are 3 speakers on the call.

Operator

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Chunelay's 4th Quarter and Fiscal Year 2023 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, Ms.

Operator

Luhan Tang.

Speaker 1

Thank you, and good morning, everyone, and thank you for 2022 and 2023 client. Now our earnings press release is available on our 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. Jin Bodi, a highlight of our Q1 operations. Then Mr.

Speaker 1

Eric Zhou, our Chief Financial Officer, will walk you through the details on the financial results and a wrap up with our revenue guidance for the Q1 of 2024. After the management's remarks, we'd like to welcome you any questions in the Q and A session. Today's call is recorded, and you can replay the call from our Investor Relations website at ir.tunlake.com. Before we get started, I would like to take this opportunity to remind you that discussion today will contain certain forward looking statements made under the Safe Harbor provisions of the U. S.

Speaker 1

Private Securities Litigation Reform Act of 1995. Such statements are based on management's current 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 forward looking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. 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.

Speaker 1

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. Dollars unless otherwise stated. Now the following is prepared statements by Mr.

Speaker 1

Jingbo, the Chairman and CEO of Xinyuan Limited. Good morning, everyone. Thank you all for joining us today. We concluded 2023 with a solid 4th quarter results as our revenue exceeded the upper end of our guidance range and we sustained profitability for the 8th consecutive quarter. Over the past year, we maintained a strong focus on enhancing our existing products and services, restructured our business operations and explored new initiatives to seek potential breakthrough in our business development.

Speaker 1

Despite more short term impact of our business adjustments, we're encouraged by what we have done so far and believe that we're on track to pursue future growth. I look forward to sharing with you our progress in the near future. Let me provide you with some insights into our Q4 operating results. As announced in our earnings press release earlier today, our flagship subscription business achieved a significant milestone with nearly 6,000,000 subscribers at the end of 2023 and over 73% of them opted for premium subscription and retention strategies and incentivizing users to stay with us. For the robust subscriber page and continuous efforts to acquire new users to optimize features and multi specific marketing campaign, we expect that the positive momentum will continue in the coming days.

Speaker 1

Okay. We'll continue. We're glad to see that despite the intense competition in the industry, our cloud computing business has managed to maintain its competitive edge. In the Q4 of 2023, our cloud computing business generated $30,500,000 in revenue, reflecting a 4.4% year over year decline, primarily due to the reduced revenue from certain major clients. However, we have observed an increase in of our hardware products, namely OES, OEC and OEA, which may give users more cash rewards with sharing idle bandwidth resources.

Speaker 1

Meanwhile, Shenzhen Wangqing, a wholly owned subsidiary of Xunle and operator of our cloud computing business, was ranked number 3 with a market share of 11.8% in the public edge cloud service market during the first half of twenty twenty three. According to the study conducted by International Data Corporation, we remain optimistic about our market position in the edge cloud computing industry and maintain fully committed to consistently delivering highly scalable, secure and cost effective services to our valued clients. Turning to our live streaming and Internet value added services. We generated $15,000,000 in revenue, reflecting a significant decrease of 62.5%. This sharp year over year decline was mainly due to our strategic downsizing of our domestic audio live streaming business since June 2023.

Speaker 1

To make up the lost revenue in the domestic market, we are actively expanding our presence in overseas markets. Additionally, our gaming business is experiencing a rebound in terms of revenue, primarily attributable to the implementation of refined operational strategies that have resulted in a higher revenue sharing model. Furthermore, our advertising business is also benefiting from the growth of our subscription services, which incentivizes more users to engage with advertisement. Currently make up a relatively small portion of our product portfolio, we're anticipating future growth opportunity in these areas. Going forward, we will be facing both challenges and opportunities in the evolving industry.

Speaker 1

By leveraging our solid cash reserve and strong balance sheet, we will continue to execute a disciplined approach, optimize capital allocation efficiency and prioritize investments in key business areas that may bring us best value. We remain committed to creating sustainable and long term value for our shareholders. With that, I will turn the call over to Eric. Eric will cover our financial results in detail and provide our revenue guidance for the Q1 of 2024.

Speaker 2

Thank you, Wuhan. Hello, everyone, and thank you again for joining Xinyi's 2023 4th quarter and fiscal year earnings conference call. I will review the details of financial results and provide a revenue guidance for the Q1 of 2024. In the Q4, the total revenues were $77,100,000 representing a decrease of 28.4% year over year. The decrease in total revenues was mainly attributable to decreased revenues generated from our live streaming business as we've downsized some of our domestic live streaming operations since June 2023.

Speaker 2

Revenues from cloud computing were $30,500,000 representing a decrease of 4.4% year over year. The decrease in cloud computing revenues was mainly due to the decreased revenues from certain of our major customers of cloud computing services. Revenues from subscription were $31,600,000 representing an increase of 26.8% year over year. The increase in subscription revenues was mainly due to the increase in the number of subscribers and higher average revenue per subscriber for the quarter. The number subscribers was 5,900,000 as of December 31, 2023 compared with 4,900,000 as of December 31, 2022.

Speaker 2

The average revenue per subscriber for the 4th quarter was RMB 36.5 compared with RMB35.4 in the same period of 2022. The higher average revenue per subscriber was due to the continued increase in the proportion of the users opting for our premium membership. Revenues from live streaming and other IVS were $15,000,000 representing a decrease of 62.5% year over year. The decrease of live streaming and other RBS revenues was mainly due to the downpiling of our domestic live streaming operations during the year. Cost of revenues were $36,800,000 representing 47.7% of our total revenues compared to $59,000,000 or 60.5% or 60.9 percent of the total revenues in the same period of 2022.

Speaker 2

The decrease in cost of revenues was mainly attributable to decreased revenue sharing costs for our live streaming business which was consistent with the decrease in live streaming revenues. Bandwidth costs as included in the cost of revenues were $26,400,000 representing 34.2 percent of our total revenues compared with $26,900,000 or 27.7 percent of the total revenues in the same period of 2022. The remaining cost 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 the Q4 of 2023 was $14,100,000 representing an increase of 6.5% year over year. Gross profit margin was 51.9% in the 4th quarter compared with 38.8% in the same period of 2022.

Speaker 2

The increase in gross profit was mainly driven by the increase in gross profit of subscription business. The increase in gross profit margin was mainly attributable to the increased portion of subscription revenues to total revenues, which has a high profit margin as well as decreased portion of last streaming revenues to total revenues, which has a relatively lower gross profit margin. Research and development expenses for the 4th quarter were $19,500,000 representing 25.3 percent of our total revenues compared with $19,200,000 or 19.8 percent of our total revenues in the same period of 2022. The increase was primarily due to increased labor costs incurred during the quarter. Sales and marketing expenses for the 4th quarter were $9,300,000 representing 12.1 percent of our total revenues compared with $8,700,000 or 8.9 percent of our total revenues in the same period of 2022.

Speaker 2

The increase was primarily due to the increase in customer service costs and more marketing activities held for our subscription business for our ongoing efforts on user acquisition, partially offset by the decrease in employee bonuses accrued during the quarter. G and A expenses for the Q4 were $11,600,000 representing 15.1% of total revenues compared with $9,800,000 or 10.1 percent of our total revenues in the same period of 2022. The increase was primarily due to the increase in labor costs and the depreciation of Xunlei headquarters building during the quarter, partially offset by the decrease in share based compensation accrued during the quarter. Operating loss was $700,000 compared with an operating income of $400,000 in the same period of 2022. The decrease in operating income was primarily attributable to the increase in operating expenses during the quarter.

Speaker 2

Other income was 3.5 $1,000,000 compared with other income of $700,000 in the same period of 2022. The increase was primarily due to the increase in foreign exchange gains and investment income for short term investments during the quarter. Net income was $3,700,000 compared with $1,600,000 in the same period of 2022. Non GAAP net income was $4,500,000 in the Q4 of 2023 compared with $3,500,000 in the same period of 2022. The increase of net income and non GAAP income was primarily attributable to the increase in other income, partially offset by the decrease in operating income as discussed above.

Speaker 2

Diluted earnings per ADS in the Q4 of 2023 was approximately 0.06¢ as compared with 0.02¢ in the same period of 2022. As of December 31, 2023, the company had cash, cash equivalents and short term investments of 200 and $71,900,000 compared with $264,700,000 as of September 30, 2023. The increase in cash, cash equivalents and short term investments was mainly due to net cash inflow from operating activities and the release of certain restricted cash, partially offset by the repayment of bank loans and the spending on share buybacks during the quarter. Now let me share with you our fiscal year 2023 financial results. In 2023, we generated $364,900,000 in total revenues, representing an increase of 6.5% on a year over year basis.

Speaker 2

The increase in total revenues was mainly attributable to increased revenues from our subscription and cloud computing businesses. Revenues from cloud computing were $193,400,000 representing an increase of 3.2% on a year over year basis. The increase in cloud computing was mainly attributable to increased sales of our cloud computing hardware devices. Revenues from subscription were $119,300,000 representing an increase of 18.7 percent on a year over year basis. The increase was mainly due to the growing number subscribers, which increased from 4,900,000 as of December 31, 2022 to 5,900,000 as of December 31, 2023.

Speaker 2

Revenues from live streaming and other IVS were $122,200,000 representing a decrease of 0.2% on a year over year basis. Gross cost of revenues were $200,600,000 representing 55 percent of our total revenues compared with $200,100,000 or 58 point 4% of the total revenues in 2022. Vendor's cost as niche component of cost of revenues were $112,500,000 representing 30.8 percent of total revenues compared with $104,600,000 or 13.5 percent of the total revenues in the previous year. The increased bandwidth costs were mainly due to the increased demand for our subscription and cloud computing services, which was consistent with the increase in subscription and cloud computing revenues. The remaining cost of revenues mainly consisted of the costs related to the revenue sharing costs for our large streaming business, payment handling charges, cost of inventory sold and depreciation of service and other equipment.

Speaker 2

Gross profit for the year was $163,100,000 representing an increase of 15.3% on a year over year basis. Gross profit margin was 44.7% compared with 41.3% in the previous year. The increase in gross profit and gross profit margin was mainly driven by the increase in gross profit of subscription business and increased portion of subscription revenue to total revenues, which has a high gross profit margin. Research and development expenses for the year were $74,200,000 representing 20.3 percent of our total revenues, compared with $67,700,000 or 19.8 percent of total revenues in the previous year. The G and A expenses for the year were 42.99 dollars, representing expenses for the year were $46,900,000 representing 12.8 percent of total revenues compared to $39,700,000 or 11.6 percent of total revenues in the previous year.

Speaker 2

The increase was primarily due to the increase in share based compensation expenses, depreciation of Chun Li headquarters building and one off impairment of servers and network equipment incurred in the yen. Operating loss was $1,600,000 compared with an operating income of $10,100,000 in the previous year. The decrease in operating income was primarily attributable to the increase in operating expenses during the year, partially offset by increase in gross profit of our subscription business as mentioned above. Other income was $16,900,000 compared with $13,500,000 in the previous year. The decrease was primarily due to an increase in investment income and the reversal of certain payables related to a previously disposed business with low payment of programmatic during the year.

Speaker 2

Net income was $14,300,000 in 20.23 compared with net income of 21 $300,000 in the previous year. Non GAAP net income was $23,900,000 in 2023, compared with $79,500,000 in the previous year. The decrease in net income and non GAAP net income was primarily driven by the decrease in operating income as discussed above. Diluted earnings per ADS in 2023 was approximately $0.22 as compared with $0.32 in the previous year. Now turning to our share repurchase program, during 2023, we spent approximately $4,700,000 on share buybacks.

Speaker 2

Let's talk about our earnings guidance. For the Q1 of 2024, Xunlei estimates total revenues to be between $79,000,000 $84,000,000 and in the midpoint of the range represents a quarter over quarter increase of approximately 5.7%. This estimate represents management's preliminary review as of the date of this press release, which is subsequent 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 There seems to be no questions at this time.

Speaker 1

We have a question in the queue.

Operator

Your first question comes from the line of Kim Wang from Hailu Asset Management. Qing Wang, your line is open. Please ask your question.

Speaker 2

For achieving record breaking membership for the subscription business. Qing would like to know some details regarding the specific marketing strategies that were implemented and she'd also like to know whether these strategies are sustainable. In the Q4, our subscription business experienced significant growth, primarily due to our strategic partnership and the collaborations with some popular online social networking platforms as well as the thriving communities of our own users. We have provided attractive incentives to attract new users and effectively retain existing ones, thereby enhancing user engagement and fostering loyalty. And we expect this positive momentum to continue in the coming days as a result of our continuing and exceptional marketing campaign efforts.

Speaker 2

Thank you. Subscribers are premium members. Could you please clarify if this refers to the 70% of the total number of subscribers were just paying subscribers. And additionally, planned to anticipate a further increase in the proportion of premium members. Approximately 73% of our paying subscribers are premium members.

Speaker 2

We continuously enhance the structure of our membership by offering options for both premium and expanded subscriptions, as well as different durations for this membership. Further, we are continuously improving our operations, iterating our existing features and striving to convert more free users to paying customers, while encouraging standard subscribers to upgrade to our premium services. As a result, we anticipate there is still some room for further growth, but maybe at a decelerated pace. Thank you.

Operator

Thank you. There are no further questions. I would like to hand back to management for closing remarks.

Speaker 2

Thank you, Dean, for your time and participation. If you have any questions, please visit our website at ir.streammedia.com or send us e mails to our Investor Relations. Have a good day. Operator, we conclude today's conference call. Thank you very much.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Our flagship subscription business reached 5.9 million subscribers—up 1 million YoY—with 73% opting for premium plans, driving subscription revenue up 26.8% to $31.6 million and boosting our gross margin to 51.9%.
  • Strategic downsizing of domestic live streaming and IVS led to a 62.5% revenue drop to $15 million, but efforts in overseas expansion, gaming rebounds, and ad integration are expected to offset declines.
  • The cloud computing segment generated $30.5 million in Q4 (–4.4% YoY) and maintained its competitive edge by ranking No. 3 with an 11.8% share in the public edge cloud market, supported by growing hardware sales.
  • Total Q4 revenue fell 28.4% to $77.1 million, yet net income rose to $3.7 million (non‐GAAP net income $4.5 million), marking our 8th consecutive profitable quarter and reflecting strong cash reserves for future investments.
  • For Q1 2024, we forecast total revenue of $79–84 million (midpoint +5.7% QoQ), emphasizing disciplined capital allocation and prioritization of high-value growth areas for sustainable, long-term shareholder value.
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Earnings Conference Call
Xunlei Q4 2023
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