Xunlei Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 13, 2024

There are 3 speakers on the call.

Operator

Welcome, ladies and gentlemen, and thank you for your patience. You've joined us in the 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, Ms.

Operator

Luhan Chang.

Speaker 1

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.

Speaker 1

Eric Zhou, presenting financial results details and revenue guidance for the Q3 2024. Before we open up the floor to your questions in the Q and A session. Please note that this call is recorded and can be replayed on our Investor Relations website at ir.xinlay.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.

Speaker 1

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.

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 the prepared statement by Mr.

Speaker 1

Jinbu Li, Chairman and CEO of Xunlei Limited. Good morning and good evening, everyone. Thank you all for joining us today. Our Q2 results are in line with our expectation, 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.

Speaker 1

Furthermore, during the Q2, 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 some 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 1,000,000 users in our subscription subscriber base over the past year.

Speaker 1

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, aim to further enhance not only our subscription business, but also all aspects of Xunlei's products and services. In the Q2, our cloud computing business faced challenges as we experienced a decline in revenue of 20 $6,400,000 representing a decrease of 13.8% year over year.

Speaker 1

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 IVAS business reached $20,300,000 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 Q2 last year.

Speaker 1

However, we're pleased to see that our efforts to mitigate the negative impact by expanding our overseas markets yielded positive results in the Q2 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 investments in innovation and growth initiatives, we believe we are well positioned to create long term and sustainable value for all shareholders.

Speaker 1

With that, I will now pass the call over to Eric. Eric will give a detailed review of our Q2 financial results and provide revenue guidance for the Q3 of 2024.

Speaker 2

Thank you, Lu Han. Thank you all again for participating in Xunlei's conference call to discuss the financial results of the Q2 of 2024. In the Q2, our total revenues were $79,600,000 representing a decrease of 23.7 percent 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 $32,900,000 representing an increase of 10.8 percent year over year.

Speaker 2

The increase in subscription revenues was mainly driven by the increase in the number of subscribers. The number of subscribers was 5,700,000 as of June 30, 2024, compared with 4,720,000 as of June 30, 2023. The average revenue per subscriber for the Q2 of 2024 was RMB39.5 compared with RMB42.9 in the same period of 20 23. The lower average revenue per subscriber was due to more promotional activities during the Q2 of this year. Revenues from cloud computing were $26,400,000 representing a decrease of 13.8% year over year.

Speaker 2

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 IVS were $20,300,000 representing a decrease of 53.9 percent year over year. The decrease of live streaming and other IVAS 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 $38,600,000 representing 48.5 percent of our total revenues, compared with $58,100,000 or 55.7 percent 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.

Speaker 2

Bandwidth costs as included in cost of revenues were $25,800,000 representing 32.4 percent of our total revenues compared with $28,900,000 or 27.7 percent 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 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 Q2 of 2024 was $14,700,000 representing a decrease of 11.3% year over year. Gross profit margin was 51.1 percent in the 2nd quarter compared with 44% in the same period of 2023.

Speaker 2

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 Q2 were $17,500,000 representing 21.9% of our total revenues, compared with $17,200,000 or 16.5 percent of our total revenues in the same period of 2023. Sales and marketing expenses for the Q2 were $10,900,000 representing 13.7 percent of our total revenues, compared with $15,400,000 or 14.7 percent 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.

Speaker 2

General and administrative expenses for the Q2 of 2024 were $11,200,000 representing 14.1 percent of our total revenues, compared with $12,400,000 or 11.9 percent of our total revenues in the same period of 2023. The decrease was primarily due to the decreased CL based compensation expenses, partially offset by the increase in labor costs during the quarter. Operating income was $1,000,000 compared with an operating income of $900,000 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 $2,500,000 compared with other income net of $4,700,000 in the same period of 2023.

Speaker 2

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 $2,800,000 compared with $5,000,000 in the same period of 2023. Non GAAP net income was $3,200,000 in the same period of 2024, compared with $8,400,000 in the same period of 2023. The decrease of net income and 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 Q2 of 2024 was approximately $0.04 as compared to $0.08 in the same period of 2023.

Speaker 2

As of June 30, 2024, the company had cash, cash equivalents and short term investments of $263,400,000 compared with $272,500,000 as of March 31, 2024. The decrease was mainly due to the net cash outflows from operating activities, spending on share buybacks and the statements of construction opportunity buildings headquarters. Now turning to our share repurchase program. In June 2023, Xunlei announced that its Board of Directors had authorized to repurchase up to $20,000,000 of shares over the next 12 months. As of June 30, 2024, the company had spent approximately $4,700,000 on the share buybacks under the aforementioned share repurchase program.

Speaker 2

In June 2024, the Board of Directors of the company had authorized a new plan for the repurchase of up to $20,000,000 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 Q3 of 2024, Xunlei estimates total revenues to be between $81,000,000 $86,000,000 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.

Speaker 2

Operator, we are ready to take questions.

Operator

We have questions from the line of Kiki Li. Please go ahead.

Speaker 2

And the caller's question is, congrats for a good quarter. And Xi would like to know if our 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 its subscription business? Thanks for the question. Xunlei has been in the subscription business for about 20 years, starting from its earliest download 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 and storage, consumption of digital content, content sharing, etcetera.

Speaker 2

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. So far, we have received a lot of positive user feedback and successfully acquired a substantial number of users without engaging in significant promotional activities. We are actively pursuing the 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.

Speaker 2

Thanks for your question.

Operator

Thank you for the questions. There are no questions at this time. I would like to I beg your pardon. We have follow-up questions from KK Lee. One moment please.

Operator

Miss Li, your line is open again. Please ask your question.

Speaker 2

And her follow-up question is, she noticed that Dewey, another Chinese registered company 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, she is curious if the company would follow Zhong Yu's example of boosted investors' confidence? Thanks for the question. Our Board of Directors has not yet discussed any related measures so far. However, we will keep you updated.

Speaker 2

So far, we have allocated our capitals to exploring new initiatives and growth opportunities. Thanks again for your questions.

Operator

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.

Speaker 2

Thank you again for your time and participation. If you have any further questions, please visit our website at irxunlei dotcom or send e mails to our Investors Relations. Have a good day. Operator, we conclude today's conference call. Thank you.

Operator

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

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Key Takeaways

  • Overall Q2 revenue was $79.6 million, down 23.7% year-over-year, primarily due to the strategic downsizing of domestic audio live streaming operations.
  • Subscription revenue grew 10.8% year-over-year to $32.9 million, with subscriber count increasing to 5.7 million, driven by product feature improvements and targeted marketing.
  • Cloud computing revenue declined 13.8% year-over-year to $26.4 million amid intense pricing competition and reduced hardware sales, leading to strategy adjustments for more cost-effective offerings.
  • Live streaming and IVAS revenue fell 53.9% year-over-year to $20.3 million but rose 18.7% quarter-over-quarter thanks to expansion into overseas markets following domestic downsizing.
  • For Q3 2024, management forecasts revenue of $81 million–$86 million (approximately 4.9% sequential growth) and continues executing share repurchase programs to support shareholder value.
A.I. generated. May contain errors.
Earnings Conference Call
Xunlei Q2 2024
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