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spk01: Ladies and gentlemen, and thank you for standing by. You've joined Shunlei's second quarter of 2021 earnings results call. At this time, all participants are in a listen-only mode. There will be a Q&A session after the management's remarks. I would now like to turn the call over to your host, Investor Relations Assistant, Ms. Xiaorong Liu. Please take over, ma'am.
spk00: Thank you, operator. Hello, everyone, and thank you for joining Xunlei's second quarter of 2021 earnings conference call. For our agenda today, I will first read a prepared remark by our chairman and CEO, Mr. Jingbo Li, on the highlight of our second quarter operations. After that, Mr. Eric Zhou, our CFO, will provide additional details on the financial results and wrap up with our revenue guidance for the third 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 get their questions 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 the discussion today will contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Security 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'll 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. Now the following is a prepared statement by Mr. Xinbo Li, Chairman and CEO of Xunlei Limited. Thank you all for joining us today. We continued to deliver revenue growth and met our revenue guidance for the second quarter. The total revenues for the second quarter reached $55.2 million, representing a 3.6% growth sequentially. Further, we realized a profit for the second quarter despite rising operating expenses as a result of higher headcount and annual salary merit adjustment, as well as increased marketing expenses to promote our new product. I trust our investment in human resources and new development of new products will help drive future growth. Now let me review the key financial and operating highlights for the quarter. Our subscription business in the second quarter accounted for approximately 41.2% of our total revenues and achieved 3% growth sequentially and 9.8% year-on-year. Even though there was a slight decrease in the number of the subscription base, our VIP membership proportion continued to increase, which resulted in an increased average rate per user and consequently higher revenue than the previous quarter. Over a longer period of last 12 months, membership count maintained relatively stable and more members were using our premium services. We achieved this through continuously improving our products and services and giving users what they want. Meanwhile, we're committed to delivering quality products to our customers. Turning to our cloud computing and other internet value added business, it grew 5.8% in the second quarter of 2021 sequentially. After a very strong performance in the previous quarter, with the growth driven primarily by our live streaming products, during the second quarter, we launched new products and increased related marketing expenses. This business segment accounted for approximately 52.4% of our total revenues. For our cloud computing business, Although the sold bandwidth was up in the second quarter, but its revenue declined slightly due to a number of factors, including the effect of changes in foreign currency rates and reduced hardware sales as compared with the first quarter. Despite the lackluster product performance in the second quarter, we maintain optimism that future demand for our products will be strong due to continuing popularity of short-form and long-form video and other streaming products, which generally require CDN service. Therefore, we expect elevated growth in sold bandwidth in our cloud computing business in the second half of this year. Moving to our online advertising business, revenue declined 8.7% in the second quarter of 2021 as compared with the first quarter. Our advertising business accounted for approximately 6.4% of our total revenues in the second quarter. The reduction was primarily due to reduced advertising placements on our platform in a competitive landscape. Further, domestic regulatory entities have lately heightened scrutiny of Internet operations, and Xunlei was among a number of companies that were mentioned in public and asked to rectify certain issues related to the way in which advertising was conducted. We will be striving to be in compliance with relevant rules and regulations. As a result, we anticipate our advertising business will be affected, leading to a reduction in our advertising business in the short term. Looking forward, we are continuing our endeavor on advancing decentralized networking technology. Lately, we have been cooperating with a domestic university to apply for a grant to develop blockchain-based key technologies that can be applied for big data asset management. We believe the blockchain industry is still in its nascent stage and full of bold challenges and opportunities. We will take a selective approach to exploring potential business opportunities. In closing, I'd like to say we have confidence that Xunlei's strong balance sheet and financial liquidity will help us tide over a period of tremendous volatility in the capital market. Further, in addition to committing long-term investments to improve users' experience in order to better serve our large loyal customers, we will also elevate the importance of social value when making decisions concerning our products and services. Having said that, I will now turn the call over to Eric to review financial results of the second quarter of 2021 and provide a revenue guidance for the third quarter of 2021. Thank you.
spk02: Thank you, Xiaolong. Hello, everyone, and thank you again for joining 2021 Earnings Conference Call. I will now go through the details of our financial results and wrap up with our revenue guidance for the third quarter of 2021. Total revenues were $55.2 million, representing an increase of 3.6% from the previous quarter. The increase in total revenues was mainly attributable to increased revenue from live streaming and subscription business. Revenues from cloud computing and other IVS were $28.9 million, representing an increase of 5.8% from the previous quarter. The increase was mainly driven by increased other IVS revenue. Revenues from subscription were $22.7 million, an increase of 3% from the previous quarter. The number of subscribers were 3.96 million as of June 30, 2021, compared with 4.05 million as of March 31, 2021. The average revenue per subscriber for the second quarter of 2021 was RMB 36.9 compared with RMB 35.5 for the previous quarter. Revenues from online advertising were $3.5 million, representing a decrease of 8.7% from the previous quarter, primarily due to lower advertising placements. Further, due to the evolving breakthrough environment of the domestic internet industry, advertising revenue is expected to continue to decline in the short term. Cost of revenues was $26.2 million, representing 47.5% of our total revenues, compared with $24.4 million, or 45.8% of the total revenues in the previous quarter. the increased cost of revenues was mainly attributable to increased revenue sharing costs of live streaming business. Bandwidth costs, as included in cost of revenues, were $18.5 million, representing 33.6% of our total revenues, compared with $17.7 million, or 33.2% of the total revenues in the previous quarter. The remaining cost of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming business and depreciation of servers and other equipment. Growth profit for the second quarter was $29 million, representing an increase of 1.2% from the previous quarter. Gross margin was 52.5% in the second quarter, compared with 53.7% in the previous quarter. The decrease in gross margin was mainly due to decreased revenue of online advertising, which had a high gross margin than other business lines. Research and development expenses for the second quarter were $15.2 million, representing 27.5% of our total revenues, compared with $13.3 million, or 24.9% of our total revenues in the previous quarter. The increase was mainly due to increased staff cost as a result of merit salary adjustment and increased headcount as compared with the previous quarter. Sales and marketing expenses for the second quarter were $6.7 million. representing 12.1% of our total revenues, compared with $4.5 million, or 8.4% of our total revenues in the previous quarter. The increased sales and marketing expenses were mainly due to more promotional activities during the quarter. General and administrative expenses for the second quarter were $7.7 million, representing 14% of our total revenues. compared with $6.6 million or 12.5% of our total revenues in the previous quarter. The increase in general and administrative expenses was primarily due to increased employee related costs as compared with the previous quarter. Operating loss was $1.1 million compared with an operating income of $4.2 million in the previous quarter. Net income was $5.8 thousand, compared with a net income of $6.8 million in the previous quarter. Non-GAAP net income was $1.3 million in the second quarter of 2021, compared with $7.4 million in the previous quarter. The decreased net income and the non-GAAP net income were primarily due to increased operating expenses as discussed above. Diluted earnings per ADS in the second quarter of 2021 was approximately 0.0005 as compared with a diluted earnings per ADS of 10 cents in the previous quarter. As of June 30, 2021, the company had cash, cash equivalents, and short-term investments of approximately $245 million compared with $245.2 million as of March 31, 2021. Now turning to the revenue guidance for the third quarter of 2021, we expect total revenues to be between $54 million and $58 million. And at the midpoint of the range represents a quote-on-quote increase of approximately 1.4%. This estimate represents management's preliminary view as of the date of its release, which is subject to change, and any change could be material. Now we conclude prepared remarks for the conference call. We are ready to take questions.
spk01: As a reminder, it is star followed by the number one on your telephone keypads if you wish to ask a question. Once again, ladies and gentlemen, it is star followed by one to ask a question. If you wish to cancel your request, please press the pound or hash key. Once again, it is star one to ask a question. As a reminder, it is star followed by the number one on your telephone keypad if you wish to ask a question.
spk02: Okay, I think we don't have any questions. Excuse me. If we don't have any questions today, then we can conclude our conference call today. And for the audience, if you have any questions in the future, please visit our website at www.xingli.com or send emails to us, to our Investor Relations Department. Thanks again. Have a nice day. Operator, we conclude today's conference call. Thank you.
spk01: Thank you, ladies and gentlemen. That concludes our conference call for today. Thank you all for your participation. You may now disconnect.
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