Xunlei Limited

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shunlei's 2022 First Quarter Earnings Conference Call. At this time, all participants are in 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. Luhan Tang.

Thank you, and good morning, everyone, and thank you for joining Shunlei's 2022 First Quarter Earnings Conference Call. On the call with me today are Eric Zhou, Chief Financial Officer, and Li Wu, Senior Vice President of Finance. Now, you can find our earnings press release on our IR website, which is intended to supplement our prepared remarks during today's call. For today's agenda, I will read prepared opening remarks by our Chairman and CEO, Mr. Jinbo Li, on the highlight of our first quarter operations. Then, Mr. Eric Zhou, our CFO, will go through the details of financial results and wrap up with our guidance for the second quarter of 2022. We'd like to welcome any questions from you after the management's remarks. Today's call is recorded and you can replay the call from our investor relations website. Before I 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. 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 forelooking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. Xinlei assumed 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 conciliation of non-GAAP to comparable GAAP measures can be found in our earnings press release. Please note that all numbers are in US dollars, unless otherwise stated. Now, the following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited. Good day, everyone, and thanks for your participation in our first quarter earnings conference call. We're thrilled to see our operating and financial results have kept the momentum we saw in the previous quarter. Even we had to operate our business when the city was temporarily locked down in mid-March due to the end Omicron outbreak in Shenzhen, where our headquarters is located. We were able to cope with the challenges and continued to serve our customers without interruption. In the first quarter, our total revenues reached $79 million, an increase of 11.1% compared to that of the previous quarter. This is also the sixth quarter in which we reached consecutive quarterly revenue growth. Further, we achieved a net income of $5.4 million in the first quarter, compared with a net loss of $0.5 million in fourth quarter of 2021. We had a good start for 2022, and I'm grateful to our diligent employees and management for their dedication and successfully controlling costs and implementing our strategy of focusing on our competitive strengths. Our major line of products and businesses achieved solid growth during the first quarter. Cloud computing continued to be competitive in the market, where we strive to provide reliable, scalable, and cost-effective services to our clients. And it achieved a 7% sequential growth and generated $30.2 million in revenue in the first quarter of 2022. It is especially encouraging that the growth was built upon the momentum we achieved during the previous quarters. We also made progress on our subscription business, which realized $25.3 million in revenue, an increase of 7% from the previous quarter. In general, the number of our subscribers has been growing since we launched the Cloud Drive function in summer 2020. The total number of subscribers grew to 4.61 million in the first quarter of 2022 from 4.39 million in the previous quarter. We're seeing stable member activities and looking forward to building a more engaging member community to retain and increase our user base. In the first quarter, our live streaming and other internet value-added services have made a significant improvement too, which generated $23.5 million in revenue, an increase of 22.1% from the last quarter. In particular, our live streaming business realized an impressive 32.9% sequential increase compared to the previous quarter, driven by increased demand and market expansion. However, our internet advertising was especially hit by strict regulatory policies affecting the internet advertising, internet services, and gaming sectors. We expect our advertising business will continue to face headwinds in the coming quarters. We will closely monitor regulatory policies and industry trends and adopt business strategies to turn this business around if possible. Finally, we recently launched our digital collectible product line. So far, it is an insignificant part of our product portfolio. We are largely relying on our existing resources to explore this new and exciting industry development, and we will strictly comply with relevant laws and government regulations. We understand it is an emerging business with an untested business model. and an evolving regulatory environment. And we also face tremendous competition. In closing, I'd like to say that at Xunlei, we're constantly exploring new and innovative products and services. Our strong performance in the first quarter of 2022 further supports our confidence about the sustainability and promising outlook of our business. With a strong balance sheet stable cash flows, and an improving business. We believe our revenue growth and near-term trajectory will remain optimistic. With that, I will turn this call over to Mr. Eric Zhou, our Chief Financial Officer. Eric will cover the financial results in detail and share our outlook.

Thank you, Luhan. Hello, everyone, and thank you again for joining SHIMI's 2022 First Quarter Earnings Conference Group. I will now go through the details of our financial results and wrap up with our revenue guidance for the second quarter of 2022. For the first quarter of 2022, total revenues were $79 million, representing an increase of 11.1% from the previous quarter. The increase in total revenues was mainly attributable to increased revenues from our live streaming, cloud computing, and subscription business. Revenues from cloud computing were $30.2 million, representing a sequential increase of 7%, as compared with $28.2 million in the previous quarter. The increase was mainly driven by increased demand for cloud computing products. Revenues from subscription were $25.3 million, representing an increase of 7% from the previous quarter. The number of subscribers was 4.61 million as of March 31, 2022, compared with 4.39 million as of December 31, 2021. The average revenue per subscriber for the first quarter was RMB 34.9, compared with RMB 34.3 for the previous quarter. Revenues from live streaming and other IVAs were $23.5 million, representing an increase of 22.1% as compared with $19.2 million in the previous quarter. The increase of live streaming and other IBS revenues was mainly attributable to increased demand for live streaming services, partially offset by reduced advertising revenue. Costs of revenues were $43.9 million, representing 55.5% of our total revenues, compared with $37.6 million, or 52.8% of the total revenues in the previous quarter. The increased cost of revenues were mainly attributable to increased sales of our cloud computing and other IBIS services. Bandwidth costs, as included in cost of revenues, were $26.9 million, representing 34% of our total revenues, compared with $22.8 million, or 32.1% of the total revenues in the previous quarter. The increased bandwidth costs were mainly due to increased sales of cloud computing products, as well as additional bandwidth usage for the Cloud Drive feature, which has been added to our subscription product since summer 2020. The remaining costs of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming business and depreciation of servers and other equipment. Gross profit for the first quarter was $34.9 million, representing an increase of 4.9% from the previous quarter. Gross profit margin was 44.1% in the first quarter, compared with 46.7% in the previous quarter. The increase in gross profit was mainly due to increased live streaming, cloud computing, and subscription revenues. The decrease in gross profit margin was mainly due to increased portion of live streaming revenues to total revenues, which has a lower gross profit margin Research and development expenses for the first quarter were $16.3 million, representing 20.6% of our total revenues, compared with $16.6 million, or 23.3% of our total revenues in the previous quarter. Sales and marketing expenses for the first quarter were $5.3 million, representing 6.8% of our total revenues, compared with 6.6 million or 9.3% of our total revenues in the previous quarter. The decrease was primarily due to decreased marketing and promotional activities carried out for our major products during the quarter. General and administrative expenses for the first quarter were $9.6 million, representing 12.2% of our total revenues, compared with $11.1 million, or 15.6% of our total revenues in the previous quarter. The decrease was primarily due to the decreased legal and consulting expenses. Operating income was $3.9 million, compared with an operating loss of $1.7 million in the previous quarter. The increase in operating income was primarily due to increased gross profit and decreased operating expenses as discussed above. Other income was $1.2 million, compared with other income of $1 million in the previous quarter. Net income was $5.4 million, compared with a net loss of $0.5 million in the previous quarter. Non-GAAP net income was $7.2 million in the first quarter of 2022, compared with a net income of $1.7 million in the previous quarter. The increased net income and non-GAAP net income were primarily due to the improved gross profit and decreased operating expenses as discussed above. Diluted earnings per eight years in the first quarter of 2022 was approximately $0.08 as compared with a diluted loss per eight years of $0.01 in the fourth quarter of 2021. As of March 31, 2022, the company had cash, cash equivalents, and short-term investments of approximately $269.9 million, compared with $239 million as of December 31, 2021. The increase of cash and cash equivalents was mainly due to increased bank borrowings to support the construction of our new headquarters and research and development building and net cash generated from operations. Turning to our revenue guidance, for the second quarter of 2022, Xinglei estimates total revenues to be between $77 million and $82 million. And the midpoint of the range represents a quarter-over-quarter increase of approximately 0.6%. This estimate represents management's 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. After it, we are ready to take questions.