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spk04: Ladies and gentlemen, and thank you for your patience. You've joined Shin Lei's first quarter of 2021 earnings conference call. At this time, all participants are in a listen-only mode. There will be a question and answer session after the management's remarks. I would now like to turn the call over to your host, Investor Relations Manager, Ms. Mengnan Gao. Please take over, Meng.
spk00: Thank you. Good morning and good evening. Thank you for joining Xunlei's first quarter of 2021 earnings conference call. For our agenda today, Mr. Eric Zhou, the CFO, will first read the prepared remarks by Mr. Jinbo Li, Chairman and CEO of Xunlei. After that, he will provide additional details on the financial results and wrap up with our revenue guidance for the second quarter of 2021. We will be happy to take your questions after our management remarks Please be limited to two questions at a time so others can their question in as well. Today's conference call is being recorded and a replay of the call will be available on our IR website afterwards. Our earnings press release was distributed earlier today and is now also available on our IR website. Please note that 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 and 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. We do not undertake any duty to update any forward-looking statements except as required under applicable laws. During this call, we will refer to 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. dollars unless otherwise stated. And with that, let me pass to our CFO, Mr. Eric Zhou, for prepared remarks.
spk04: Thank you, Manan. Hi, everyone. I'm Eric Zhou, CFO of Shunlei Limited. Thanks again for joining Shunlei's first quarter of 2021 earnings conference call. The following is the prepared remark by Mr. Jingbo Li, our chairman and CEO. Good morning and good evening, everyone. Welcome to Shinglei's first quarter of 2021 earnings conference call. We delivered robust financial and operating results in the first quarter due to our solid execution on the product innovation strategy. We saw the growth of subscription and cloud computing service revenues and the enhancement of key operating metrics, which contributed to a double-digit growth rate of the bottom line. In the first quarter, our strong emphasis on strategic execution as well as operational enhancement drove steady and high quality growth in revenue and net income, following a turnaround performance in the previous quarter. The total revenue in the first quarter of 2021 was $53.3 million, a 5.9% growth sequentially. The net income increased to $6.8 million, a 45.4% growth quarter over quarter, which was mainly due to the high growth margin and optimized operations. It gave us confidence in our ability to uncover Chinese value and monetize future growth. The solid first quarter results demonstrated our efforts on business breakthroughs and innovation when entering the year of 2021. We have been building on our competitive strengths we have gained over the years and doubling down our efforts to improve our product offerings to our users. We will always be looking out for new ways to create more value for our customers through user experience enhancement and technological innovation. Now, I'd like to shed some color to our main business segments. First, let's take a look at our subscription service. We saw the subscription revenue increased by 6.9% sequentially, which was mainly driven by the user base expansion. We believe our product initiatives to optimize user experience started to pay off, which was reflected through the expanded user base and their willingness to pay for value-added services. And at the end of the first quarter, our subscription services reached 4.05 million subscribers, and the average revenue per user in the first quarter was 35.5 RMB. At the same time, we also saw some signs of revival of our improved user activity and retention rate on our platform, which also benefited our monetization efficiency and revenue growth in advertising and other online game businesses. These results demonstrated the strength of our subscription services. We are confident that we still have room to continue to develop our subscriber base and further explore the potential of users' lifetime cycle value if we remain focused on providing users with top-notch experience and creating value for them. We think the potential and the resilience of our subscription business also resides in the scalability of the service, which can be demonstrated by the growth potential of the user base and breadth of service offerings. We believe user experience is very important to scale our subscription business. Therefore, we will continue our efforts in this regard and upgrade our user experience in downloading, cloud video playing, and cloud storage. And in this way, we will be able to strengthen customer loyalty and retain more fee paying users. On top of that, we will strive to provide additional value added products and services and deliver top-notch user experience to increase the subscribers, which will in turn lead to more venues for monetization. Now turning to our cloud computing business, we kept the growth momentum for our cloud computing business and achieved a 10.9% revenue growth quarter over quarter. It's worth noting that we expect the demand from our existing and new clients will be growing as people's entertainment and social activities are more and more video-based. We trust our continuing investment in technological innovation will open new opportunities in cloud computing for us, which is driven by the acceleration of the digital transformation trend of our society. As a result of our performance in the quarter discussed above, we have updated our second quarter revenue guidance to reflect the recent progress. I'm confident that we are on track to pursue business expansion and breakthroughs. I believe that Shunlei's strong business fundamentals will enable us to achieve our growth prospects and to deliver meaningful value to our users, partners, and shareholders. and I look forward to sharing with you our progress in the near future. Thank you. That was the prepared remarks by our Chairman and CEO. Now I'd like to review the financial results of the first quarter of 2021 and provide a revenue guidance for the second quarter of 2021. Total revenues for the first quarter of 2021 was $53.3 million, representing an increase of 5.9% from the previous quarter. The increase was primarily driven by the revenue increase from cloud computing and subscription services. Revenues from cloud computing and other ideas combined were $27.3 million, representing an increase of 5.7% from the previous quarter. The cloud computing revenue was $21 million. increasing 10.9% sequentially. The increased cloud computing and other IDS revenues were mainly due to increased demand for our cloud computing services. Revenues from subscriptions were $22.1 million, a 6.9% increase from the previous quarter. The number of subscribers was approximately 4.05 million as of March 31st, 2021. compared with 3.83 million as of December 31, 2020. The average revenue per subscriber for the first quarter of 2021 was 35.5 RMB, compared with 35.9 RMB for the previous quarter. Revenues from online advertising were $3.9 million, representing an increase of 2.4% from the previous quarter. Cost of revenues was $24.4 million, representing 45.8% of our total revenues, compared with $23.3 million, or 46.4% of our total revenues in the previous quarter. The increase was mainly due to the increased sales of our cloud computing services. Gross profit for the first quarter was $28.6 million, representing an increase of 6.7% from the previous quarter. Gross margin was 53.7% in the first quarter, compared with 53.3% in the previous quarter. The increase in gross profit and gross margin was mainly due to increased revenues of our subscription business, which had higher gross margin than other product lines. Research and development expenses for the first quarter were $13.3 million representing 24.9% of our total revenues compared with $12 million or 23.9% of our total revenues in the previous quarter. Sales and marketing expenses for the first quarter were $4.5 million representing 8.4% of our total revenues compared with $2.8 million or 5.6% of our total revenues in the previous quarter. The increase was mainly due to more promotional activities. General and administrative expenses for the first quarter were $6.6 million, representing 12.5% of our total revenues, compared with $7.9 million or 15.7% of our total revenues. in the previous quarter. The decrease was primarily due to less employee welfare and professional consulting expenses compared with those for the previous quarter. Operating income was $4.2 million compared with $4.1 million in the previous quarter. Net income was $6.8 million compared with $4.6 million in the previous quarter. non-GAAP net income from continuing operations was $7.4 million in the first quarter of 2021, compared with $4.8 million in the previous quarter. The increased net income and non-GAAP net income were primarily due to the increase in revenue of our major business lines and a high gross margin as discussed above. Diluted earnings per ADS from continuing operations in the first quarter of 2021 was approximately 10 cents, as compared with about 7 cents in the previous quarter. As of March 31st, 2021, the company had cash, cash equivalents, and short-term investments of approximately $245.2 million, compared with $255.1 million. as of December 31, 2020. Now, turning to the revenue guidance for the second quarter of 2021, we expect total revenues to be between $54 million and $58 million, and the midpoint of the range represents a quarter-over-quarter increase of approximately 5.1%. These estimates represent measurements preliminary view as of the date of this release. which is subject to change, and any change could be material. Now we conclude prepared remarks for the conference call. Operate, we are ready to take questions. Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, you can press the pound or hash key. Once again, it is star followed by one to ask a question. We have a question coming from the line of . Please go ahead. .
spk02: Speaking Chinese first, then translating into English. We chose to make a short video because we thought about it.
spk04: After the adjustment and improvement of the previous business, the company's business product line is still developing steadily. In the next stage, we actually need to increase the scale and increase the number of customers. In fact, this requires us to make some economic operations on the quantity of users, to use richer products to increase user flow, and to open up a new positive market. In addition, based on the existing product line, we feel that in the 2C business, can have a greater potential for commercialization. Although this competition is relatively strong, but under the trend of social and entertainment video, we feel that short videos still have a relatively large market space. In addition, it has a diversified way of transformation. It is also compatible with our current C business. Now I will speak briefly in English. Basically, the person asked whether we are developing a short video business and when we are going to launch this product. We think it is the right time for us to develop short form video product. We form our rationale from several points of consideration. First is the operation of each of business lines is stable and positive after transition in last year. And we are pursuing in the next stage of growth. and so we need to enhance retention of current users with additional product features and capture further growth opportunities. Secondly, I believe that our 2C business still has promising growth potential. As users' social and entertainment demands are becoming more video-based, Short form video is a kind of business opportunities with growing market and monetization potential. And it is also a great supplement to our existing products. And we intend to enter this market by focusing on certain vertical contents that may be appearing to some groups of users. And we believe that there's still rooms for us to capitalize on our investment. And that being said, we have been researching and developing certain products. But for the time being, we still don't have a specific timeline to launch this product. But we intend to launch this product in the near future. Thank you for your question. We have the next question coming from the line of Yusei Zhang from Retail Investor. Please go ahead.
spk03: Eric, hello. I have two questions. Okay. The first question is that the online cloud business is mainly dependent on China's telecommunications operator Daiquan. How does Xunlei establish a relationship with the operator, so that the online business can grow for a long time? The second question is that Xunlei App's paid users are currently 4 million, but there are not many users who have not been paid. For example, can Xunlei App's daily and monthly users be reported in the report?
spk04: Let me talk about the first one. Regarding our online business, it is a innovative business. We use a mode of sharing economy. This mode has been recognized by the industry before. We have also issued some announcements before. In fact, we are still exploring and discussing the cooperation with some operators. Because some of this is related to So this is something The question basically has two questions. One first is about Wang Xin's cloud computing business model and he said how we could expand our business in the future, how we could deepen our cooperation with national telecommunication carriers. Basically, I said, you know, the cloud computing business is an innovative business, and we use the so-called sharing economy business model. And at one hand, we try to use the bandwidth contributed by our users. At the same time, we are also exploring potential cooperation opportunities with our national telecom carriers. And the second question, he asks whether we would disclose our XunLin app users with either DAO or MAO. And we don't disclose it on a frequent basis because of commercial considerations. But we do have certain numbers disclosed in our recently issued an annual report, so I would encourage interested investors to read our annual report to see if you can find the right information. Thank you for your question.
spk03: Thank you.
spk04: We have the next question. This is coming from Marshall M. from Dongqi. Please go ahead.
spk01: Hi, and thanks a lot for taking my question. I'm wondering if you could elaborate more on the hybrid P2P technology in cloud computing and for your CDN services. What are the main advantages and how are they perceived by the market? Maybe, for instance, could you give a number on the current clients and if this number of clients that are using it is increasing or not? Thank you.
spk04: OK. Xunlei is one of the pioneers in P2P or P2SP, the network technology. And over the years, we have developed in-depth expertise in this regard. As I mentioned earlier, answering the previous caller's question, we are using an innovative business model. It's basically based on the sharing economy. we crowdsource the idle bandwidth from our users of one thing called hardware intelligence and process it and to provide the service to our enterprise customers. And one of our, in addition to our technological qualification and the expertise, One of our advantages is we are a low-cost service providers. And because of this, today, you know, I'd like to say many of the top Internet companies in China and some of the household name Internet companies are our customers. And because of the confidentiality, I'm not at liberty to disclose their names. But I'd like to say some of the most well-known Internet companies in China are our clients. Thank you.
spk01: Once again, ladies and gentlemen, it is star followed by one if you wish to ask a question.
spk04: The next question comes from Sue. Sue, please go ahead. . OK. Thank you. The question is, you know, he asked about the status of Xunmei buildings under construction. And we previously planned to have the building construction completed by the end of the April but now it looks like we are going to have it completed in either June or July because it was impacted by the enabling the municipal construction projects which affect the construction of our buildings and we are in the process of the preparing for the internal renovation work. And we plan to have the building internal renovation completed by the end of this year. And so it's most likely we may move into the new building at the beginning of next year. Thank you. Thank you. We have the next question from Yuxi Zhang, a regional investor.
spk03: Please go ahead. Eric, I have another question. In this year's financial report of the first quarter, the revenue of other Internet business other than cloud computing is actually decreasing. What is the reason? Because other businesses are growing. Only this business's revenue is decreasing. What is the reason?
spk04: Basically, in the first quarter, all our other business showed improvement. except for the so-called other business. The other business, you know, in the previous quarters we had, you know, the other business basically included, you know, the video streaming, you know, business, and some of the other one-time, you know, so-called the inventory clearance sales, and we didn't have in the last quarter, but we had in the previous quarters. So basically, our last quarter's other business was affected by some of the one-time events as well as of our live streaming business. Thank you.
spk03: Thank you.
spk04: Once again, ladies and gentlemen, it is star followed by the number one on your telephone keypad to ask a question. Thank you, Guy, for your time and participation. If you have any questions, please visit our website at www.shunli.com or send emails to our investors' relations. Have a good day. I think we can conclude this conference call. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
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