Xunlei Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 16, 2024

There are 3 speakers on the call.

Operator

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's First 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'd now like to turn the call over to the host, Investor Relations Manager, Ms.

Operator

Lu Han Tang.

Speaker 1

Good morning, everyone, and thank you for joining Xunlei's Q1 2024 Earnings Conference Call. With me today are Eric Zhou, CFO and Lily Li, VP of Finance. Our IR website has our earnings press release available to supplement our prepared remarks during the call. Today's agenda includes the prepared opening remarks from Chairman and CEO, Mr. Jingbo Li on Q1 operations highlights followed by CFO, Mr.

Speaker 1

Eric Zhou, presenting financial results details and our revenue guidance for Q2 2024 before we open up the floor to your questions in the Q and A session. Please note that this call is reported and can be replayed on our Investor Relations Web site at ir.finlay.com. 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.

Speaker 1

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. Xunle assumes no obligations 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 and comparable GAAP measures can be found in our earnings press release.

Speaker 1

Please note that all numbers are in U. S. Dollars unless otherwise stated. Now the following is the prepared statements by Mr. Jingbo Li, Chairman and CEO of Xunlei Limited.

Speaker 1

Good morning and good evening, everyone. Thank you all for joining us today. We kicked off 2024 with our Q1 revenue meeting our expectations and maintaining quarterly profitability, driven by improved gross margin and increased gross profits. During the Q1, we achieved $80,400,000 in revenue, representing a growth of 4.2% compared to the previous quarter, but a decline of 19% year over year. As we continue to navigate the impact of the downside of our domestic audio live streaming business since June 2023, we anticipate its impact on our year over year quarterly financial comparison will gradually fade away in the second half of this year.

Speaker 1

Despite the evolving market conditions, we believe that our business continues to exhibit resilience and we are optimistic about operations in 2024. Let's talk about our Q1 operations. Our subscription revenue achieved a remarkable milestone, reaching $33,100,000 which represents a year over year growth of 12.9%. This outstanding performance can be attributed to both an increased number of subscribers and a higher conversion rate among premium subscribers. The rise in the subscriber base is primarily driven by the implementation of more effective marketing promotions, as well as the seasonal impact of Chinese New Year holiday.

Speaker 1

By continuously enhancing product features and collaborating with strategic partners to retain and acquire users, we generally expect continued development of our business, although we may encounter short term fluctuations from time to time. In the Q1 of 2024, our cloud computing business generated a revenue of $30,200,000 reflecting a decline of 1.2 percent quarter over quarter and 7.8% year over year respectively, primarily attributed to intensified pricing competition and reduced sales volume of hardware devices. However, we're encouraged that we had a more than 6 fold quarter over quarter increase in the sales of OEA, a more affordable line of hardware device in our product portfolio. We provide several choices of products to cater users' different needs. Now, let's turn to our live streaming and Internet value added services.

Speaker 1

We generated $17,100,000 in revenue, representing an increase of 13.7 percent quarter over quarter and a decrease of 54.1% year over year respectively. The decrease was due to the impact of downsizing our domestic audio live streaming business started last June and we expect the impact will continue to affect our top line comparison for a few more quarters. To mitigate this impact, we have been expanding our international operations as well as incubating new products and businesses to accelerate business development. In the second half of twenty twenty four, we intend to make bold efforts to transform our businesses. Among our strategic initiatives, we will embrace decentralized and AI driven technologies and harness their capabilities to enhance our operational efficiency, enrich user experiences and gain competitive advantages.

Speaker 1

As AI emerges as a revolutionary technology that will profoundly impact our life, We acknowledge the challenges ahead and have confidence in making progress in our endeavor given Xunle's rich heritage of innovation and entrepreneurial spirit. We're in early phase of innovation and strategic execution and I look forward to providing more information and sharing with you our progress in the near future. With that, I'll turn the call over to Eric. Eric will cover the financial results in detail and provide our revenue guidance for the Q2 of 2024.

Speaker 2

Thank you, Lu Han, and thank you all again for participating in Xunlei's conference call to discuss the financial results of the Q1 of 2024. In the Q1, total revenues were $18,400,000 a decrease of 19% year over year. The decrease was mainly attributable to the decreased revenue from our live streaming business as a result of the downsize of our domestic audio live streaming operations since June 2023. Revenues from cloud computing were $30,200,000 representing a decrease of 7.8% year over year. The decrease was mainly due to the decreased revenues from certain of major customers of cloud computing services, as well as the decreased sales revenue of our cloud computing hardware devices.

Speaker 2

Revenues from subscription were $33,100,000 representing an increase of 12.9% year over year. The increase was mainly driven by the increase in the number of subscribers. The number of subscribers was 5,760,000 as of March 31, 2024, compared with 4,840,000 as of March 31, 2023. The average revenue per subscriber for the Q1 of 2024 was RMB39.5 compared with RMB41 in the same period last year. The lower average revenue per subscriber was due to more promotional activities we conducted during the Q1 of 2024.

Speaker 2

Revenues from live streaming and other RBS were $17,100,000 representing a decrease of 54.1% year over year. The decrease of live streaming and other IBS revenues was mainly due to the downsize of our domestic audio live streaming operations since June 2023. Cost of revenues were $37,100,000 representing 46.2 percent of our total revenues, compared with $59,300,000 or 59.8 percent of the total revenues in the same period of 2023. The decrease in the cost of revenues was mainly attributable to the decreased revenue sharing costs for our live streaming business, which was consistent with a decrease in live streaming revenues. Bandwidth costs as included in cost of revenues were $27,100,000 representing 33.8 percent of our total revenues, compared with $29,100,000 or 29.3 percent of the total revenues in the same period of 2023.

Speaker 2

The decrease was primarily due to the decreased bandwidth usage for the development of innovative products and the decrease in sales revenue of our cloud computing services during the quarter. The remaining cost of revenues mainly consisted of the 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 Q1 of 2024 was $42,800,000 representing an increase of 8.2% year over year. Gross profit margin was 53.3% in the Q1 of 2024, compared with 39.9% in the same period of 2023. The increase in gross profit was mainly driven by the increase in the gross profit of our subscription business and the increase in gross profit margin was mainly attributable to the increased percentage of subscription revenues to total revenues, which has a high gross profit margin as well as the decreased percentage of live streaming revenues to total revenues, which has a relatively lower gross profit margin.

Speaker 2

Research and development expenses for the Q1 of 2024 were $17,600,000 representing 22% of our total revenues, compared with $18,000,000 or 18.2 percent of our total revenues in the same period of 2023. The decrease was primarily due to the decrease in employee compensation incurred during the quarter. Sales and marketing expenses for the Q1 of 2024 were $10,100,000 representing 12.5 percent of our total revenues, compared with $9,300,000 or 9.4 percent of our total revenues in the same period of 2023. The increase was primarily due to more marketing expenses incurred during the quarter for our subscription and overseas live streaming businesses as part of our ongoing efforts on user acquisition. G and A expenses for the Q1 of 2024 were $11,100,000 representing 13.9% of our total revenues, compared with $11,700,000 or 11.8 percent of our total revenues in the same period of 2023.

Speaker 2

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 $4,000,000 compared with an operating income of $700,000 in the same period of 2023. The increase in operating income was primarily attributable to the increase in gross profit from our subscription business during the quarter. Other income was $300,000 compared with other income of $1,400,000 in the same period of 2023. The decrease was primarily due to one time write off in long term investment and the decrease in subsidy income received during the Q1 of 2024.

Speaker 2

Net income was $3,600,000 compared with $1,200,000 in the same period of 2023. Non GAAP net income was $4,500,000 in the Q1 of 2024 compared with $5,500,000 in the same period last year. The increase in net income was primarily attributable to the increase in the gross profit of our subscription business, partially offset by the decrease in other income as discussed above. The decrease in non GAAP net income was primarily attributable to the increase in labor costs as compared with the same period of 2023. Diluted earnings per ADS in the Q1 of 2024 was approximately 0 point 0 6 dollars as compared to 0.02 dollars in the same period of 2023.

Speaker 2

As of March 31, 2024, the company had cash, cash equivalents and short term investments of $272,500,000 compared with $271,900,000 as of March 31, 2023. The increase in cash, cash equivalents and short term investments was mainly due to the net cash from operations and the proceeds from bank borrowings, partially offset by repayment of bank borrowings, spending on share buybacks and payment for a long term investment during the Q1 of 2024. Now turning to our share repurchase program, in June 2023, Xunle announced that its Board of Directors had authorized repurchase of up to $20,000,000 of its shares over the next 12 months. As of March 31, 2024, the company had spent approximately $4,700,000 on share of buybacks under the share of the push forward. Finally, for our revenue guidance, for the Q2 of 2024, Xunlei estimates total revenues to be between $79,000,000 $84,000,000 and the midpoint of the range represents a quarter over quarter increase of approximately 1.4%.

Speaker 2

This estimate represents our 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 the prepared remarks for the conference call. Operator, we are ready to take questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Yajun Guo from Ping An Insurance. Please go ahead.

Speaker 2

As she stated that first thing and congrats on the record revenue for the subscription business and she observed a decline in the number of subscribers this quarter compared with the previous quarter. She would like to know some insights into the current strategy for subscription business and our approach to acquire new users. Thanks for asking. The decline in the number of subscribers in the Q1 of 2024 was due to the seasonal impact of the Chinese New Year holidays. Currently, we are implementing a multi faceted strategy to enhance users' loyalty and a faster collaborations with various online platforms and strategic partners to acquire new users.

Speaker 2

Generally speaking, we expect to maintain a relatively stable user base and product revenue, although we may encounter fluctuations from time to time. Going forward, our focus will remain on building a robust and sustainable ecosystem, enhancing our user benefits, iterating more features to boost the user engagement and expand user base. Thank you. The question is according to the Q1 earnings press release, you mentioned that the decrease in live streaming revenues was because Xinyi had downsized its domestic audio live streaming business since June 2023. I wonder how much this will continue to affect your future earnings and if you may plans to resume these operations in the future.

Speaker 2

Thanks for asking. We have already completed on-site of our domestic audio live streaming business and the impact on our future financial results will be minimum if any on a sequential basis. And we don't have any plans right now to resume this business. Instead, we will focus on expanding our operations overseas to mitigate the impact of this business adjustment. Thanks again.

Operator

Thank you for your question. I'm showing no further questions. I'll now turn the conference back to the management team for closing comments.

Speaker 2

Thank you again for your time and participation. If you have any questions, please feel free to visit our website at ir.xunlei.com or send us e mail to our Investor Relations. Have a good day. Thank you. Operator, we conclude today's conference call.

Speaker 2

Thank you.

Operator

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

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Key Takeaways

  • Xunlei reported Q1 2024 revenue of $80.4 million, up 4.2% quarter-over-quarter but down 19% year-over-year, while maintaining quarterly profitability through improved gross margins and gross profits.
  • Subscription revenue reached $33.1 million, a 12.9% year-over-year increase driven by a higher subscriber count (5.76 million) and stronger conversion rates from promotional efforts.
  • Cloud computing revenue was $30.2 million (down 1.2% QoQ and 7.8% YoY) amid pricing competition, though sales of the more affordable OEA hardware line rose more than six-fold quarter-over-quarter.
  • Live streaming and value-added services revenue fell 54.1% YoY to $17.1 million due to the downsizing of the domestic audio streaming business, prompting a strategic shift toward international expansion and new product incubation.
  • Gross profit margin improved to 53.3% from 39.9% a year ago and operating income rose to $4 million, with Q2 2024 revenue guidance set between $79 million and $84 million (midpoint +1.4% QoQ).
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Earnings Conference Call
Xunlei Q1 2024
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