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spk05: Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shingle's 2022 Second Quarter 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. Luhan Tang.
spk07: Thank you. Hello. Good morning, everyone, and thank you for joining Shunlei's 2022 Second 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 first read a prepared opening remark by our Chairman and CEO, Mr. Jim Bulley, on the highlight of our second quarter operations. Then Mr. Eric Zhou, our CFO, will go through the details of financial results and wrap up with our revenue guidance for the third 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 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 Security 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 a forward-looking statement. Please refer to our SEC filings for more detailed description of the risk factors that may affect our results. Xunlei 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 for a reconciliation of non-GAAP Two comparable gap measures can be found in 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. Jim Bulley, Chairman and CEO of Shinley Limited. Good morning everyone and thanks for joining us today. I'm very pleased to report that We achieved a good quarterly result as most of our business lines delivered expected performance in the second quarter of 2022. Before I get into the results of the quarter, I'd like to step back and share with you the highlights of our business in the second quarter. Our subscription business did a great job that our premium subscribers reached a record level of 35% of total subscribers. And our live streaming services realized top line growth for five consecutive quarters. Those exciting results are attributable to our efforts to cater to users' needs, as well as effective marketing campaign that led to increased demand for our products and services. Also, I'm very proud that our cloud computing subsidiary received several industry awards in the last quarter for innovation and a contribution to the industry. We achieved these inspiring results in spite of challenging macro environment dealing with COVID-19, a slowing down economy, evolving government regulations, et cetera. In the second quarter of 2022, our total revenues reached $78.3 million. And this is the seventh quarter in which we reached consecutive quarterly business growth. But due to the impact of devaluation on RMB against the US dollar in the second quarter, Our total revenue reported in the US dollar exhibited a slight decrease of about 1% after currency conversion. Despite so, I'm pleased that our net profit grew to $6 million, a 10.1% increase from the previous quarter, and it was the second consecutive profitable quarter. And I'm encouraged that our efforts to optimize our operations began to pay off and enhanced our ability to pursue high growth opportunities. As I mentioned earlier, our cloud computing business maintained its competitiveness in the market. Among other recognition, Shenzhen Wangxin was nominated as the top 20 edge computing company in May and received 2021 to 2022 leading brand award. and the Cloud Connect China Cloud Computing Conference in June. With these inspiring accomplishments, we are more determined to deliver reliable, scalable, and cost-effective services to our clients and become the service provider of choice for our customers. In the second quarter, the bandwidth fold was relatively stable versus the first quarter, but cloud computing revenue was down 6.2% primarily as the sudden change in foreign exchange rates negatively affected our cloud computing revenue when translated into US dollars. That said, we're proactively researching and developing diversified applications for edge computing to cope with intense industry competition and a continuous pricing pressure on a CDM business. I'm also encouraged to witness the progress on our subscription business which realized $25.4 million in revenue, an increase of 0.2% from the previous quarter. Even though our total number of subscribers declined to 4.46 million in the second quarter of 2022 from 4.61 million from the previous quarter, the average revenue per subscriber grew to 37.8 RMB in the second quarter from 34.9 RMB versus that the first quarter. The increase in average revenue per subscriber was due to more members opted for our premium services. By building an engaging member community, we believe that users' loyalty will improve as more user-friendly features are added and upgraded to our services in the future. In the second quarter, our live streaming and other internet value-added services continued their growth momentum, which generated $24.5 million in revenue an increase of 4.5% from last quarter. Since launched our new live audio streaming product in 2021, we've seen our live streaming products and services grew 191.3% in revenues in the second quarter of 2022 as compared to that of second quarter of 2021. A large portion of the growth came from our overseas market. We're expanding the presence of our products and services in more regions and different brand recognition in existing markets. And we expect that the live streaming business will continue to grow. On the other hand, however, our internet advertising delivered less than desired results and negatively affected our overall performance. Last quarter, our digital collectible service platform collaborated with art institutions, museums, and other IP owners and produced a number of digital collectibles, which were uniquely identified using the blockchain technology of Thunder Chain. Although its contribution to the total revenue has been very small so far, it is a new endeavor by our blockchain team. In the future, our digital collectible service platform will continue to expand collectible categories and create a diverse portfolio of digital collectibles. We believe this product is of both great potential and significant risks. Meanwhile, we'll continue to strictly comply with relevant laws and regulations. In conclusion, I'm grateful for our employees' dedication and contribution to our business development. Looking forward, we will continue to be focused on our strategy of leveraging our core competitive edge and innovative capabilities to cultivate new resources new sources of revenue to diversify and accelerate our top-line growth. Oliver will also continue to optimize our operations to enhance profitability. In conclusion, I'd like to say that we're optimistic that the positive momentum we enjoyed in the first half of this year will continue into the second half of 2022. With that, I'm now turning the call over to Mr. Eric Zhou, our Chief Financial Officer Eric will cover our financial results in detail and share our outlook. Thank you.
spk02: Thank you, Luhan. Hello, everyone. And thank you again for joining Schindler's 2022 Second Quarter Earnings Conference Call. I will now go through the details of our financial results. And at the top is our revenue guidance for the third quarter of 2022. Total revenues were $78.3 million. representing a decrease of 1% from the previous quarter. The decrease in total revenues was mainly attributable to devaluation of R&B against US dollars, partially offset by increased revenues from our live streaming and other IVS services. Revenues from cloud computing were $28.3 million, representing a decrease of 6.2% from the previous quarter. The decrease of cloud computing revenues was mainly due to devaluation of exchange rate of RMB against the US dollar as our cloud computing revenues were denominated in RMB. During the second quarter, the bandwidth sold was practically stable and we are mindful of intense industry competition. Revenues from subscription were $25.4 million. representing an increase of 0.2% from the previous quarter. The number of subscribers was 4.46 million as of June 30th, 2022, compared with 4.61 million as of March 31st, 2022. Historically, the number of membership fluctuated from period to period and sometimes significantly. The average revenue per subscriber for the second quarter was 37.8 RMB, compared with 34.9 RMB for the previous quarter. The higher average revenue per subscriber was due to a larger percentage of users opted for a premium service option. Revenues from live streaming and other IBS were $24.5 million, representing an increase of 4.5% from the previous quarter. The increase of live streaming and other IVS revenues was mainly due to the increased demand for new live audio streaming products, which we launched in 2021. Gross profit for the second quarter was $33.7 million, representing a decrease of 3.2% from the previous quarter. Gross profit margin was 43.1% in the second quarter, compared with 44.1% in the previous quarter. The decrease in gross profit and gross profit margin was mainly due to increase the increase in payment handling fees and other operating related costs driven by the increases of our live streaming and other IBS revenue and subscription revenue, which were partially offset by improved gross profit margin of our live audio streaming product. Research and development expenses for the second quarter were $16 million, representing 20.4% of our total revenues, compared with $16.3 million, or 20.6% of our total revenues in the previous quarter. Sales and marketing expenses for the second quarter were $5 million, representing 6.4% of our total revenues, compared with $5.3 million, or 6.8% of our total revenues in the previous quarter. General and administrative expenses for the second quarter were $12 million, representing 15.4% of our total revenues, compared with $9.6 million, or 12.2% of our total revenues in the previous quarter. The increase was primarily due to the vesting of restricted share units granted to our senior management, which led to the increase in share-based compensation expenses during this quarter. Operating income was $0.7 million, compared with $3.9 million in the previous quarter. The decrease in operating income was primarily due to increased stock-based compensation expenses accrued during the second quarter as discussed above. Other income was $7 million, compared with other income of $1.2 million in the previous quarter. The increase was primarily due to folding exchange gains and the reversal of certain payables during more than three years with low probability of payment. Net income was $6 million, compared with $5.4 million in the previous quarter. Non-GAAP net income was $9.8 million in the second quarter of 2022, compared with $7.2 million in the previous quarter. The increase in net income and non-GAAP net income was primarily due to the increased other income as discussed above. Diluted earnings per eight years in the second quarter of 2022 was approximately $0.09, as compared to $0.08 in the first quarter of 2022. As of June 30, 2022, the company had cash, cash equivalents, and short-term investments of $259.9 million, compared with $269.9 million as of March 31, 2022. The decrease in cash and cash equivalents was mainly due to distribution of 2021 annual employee bonuses in the second quarter of 2022. Regarding the ongoing stock repurchase program, in March 2022, Xunlei announced that its board of directors authorized the repurchase of up to $20 million of its outstanding stocks over the next 12 months. As of June 30th, 2022, the aggregate value of purchase shares were approximately $1.74 million. Regarding Xunlei Research and Headquarters building under construction, we have been furnishing the building for the last several months, and now we expect to relocate to the new building in October this year. Turning to gardens for the third quarter of 2022, Xunlei estimates total revenues to be between $82 million and $87 million. And at the midpoint of the range represents a quarter-over-quarter increase of approximately 7.9%. These estimates represent 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. After it, we are ready to take questions. Thank you.
spk05: If you wish to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Once again, if you do wish to ask a question, please press star 1 and 1 on your telephone. Please stand by while we compile the Q&A roster.
spk03: Thank you. We will take our first question.
spk05: Please stand by. And your first question comes from Li Zhang from MSL Group. Please ask your question.
spk01: Hi, hello. Hi, hello. This is Li. And thank you for sharing your financial highlights of the second quarter performance. I have a question today. I will use Chinese. Thanks for asking. And he asked, since Xunlei is on the watch list of ACC under the
spk02: Hold Foreign Companies Accountable Act, or HFCAA. And if the acceleration bill is enacted, Xunlei would be delisted from NASDAQ as early as next year. He does not know if the company has any countermeasures, and where the company considered privatization. It's a good question. I surely is aware that the company has been identified by the ACC under the HFCAA in May this year. We believe in such identification may be the result of its filing of its annual report on Form 20, Form 28 for the fiscal year ended December 31st, 2021. Under the HFCAA, a company will be delisted from the U.S. stock exchange if the company has been identified by the SEC for three consecutive years as a result of PCAOB's inability to inspect the working paper of the company's audit. If the accelerated version of HFCAA is enacted, that could be happening in 2023. We are monitoring the talks between China and the U.S., and we are actively studying alternative solutions to remain as a public company. And regarding privatization, so far the board of directors has not discussed this issue. Thanks for asking.
spk07: until December 31, 2021, when the financial report was issued, the audit report cannot be fully examined or investigated by the PCAOB. According to the law, if the PCAOB cannot examine the audit report for three consecutive years, the listed company will be disqualified by the U.S. Audit Board. And if the Age Accelerator Act is passed this year, then the whole process will be one year in advance. At present, we are always paying attention to the communication between China and the United States. At the same time, we are also studying and researching solutions to maintain our company's listing status. Regarding the plan of privatization mentioned by you, the board has not yet discussed the privatization of this issue. Thank you for your question.
spk01: Okay, thank you. Also, thank you for addressing the question. Yeah, thank you.
spk04: Thank you. We will take our next question.
spk03: And your next question comes from the line of Sarah Hua, who is a private investor.
spk05: Please ask your question.
spk06: Hello. Her question is that the growth rate of cloud computing and live streaming business was slowing down.
spk02: Will the trend continue? First of all, we don't provide any guidance for our future revenue beyond a quarter. The rapid devaluation of Chinese currency over the last quarter impacted our financial numbers. Cloud computing revenue in Chinese currency decreased by 1.6% compared to the first quarter. while it decreased by 6.2% when converted into US dollars. Revenue growth of our live streaming business in RMB was 10.2%, but it was 5% in US dollars. We estimate the impact of exchange rate is around 5%. Since the cloud computing and live streaming business have been growing, rapidly for many quarters. We think it's normal for the growth rate to slow down to a certain extent. And we don't expect this to be a long-term situation or a negative sign at this time. Again, we can't guarantee anything due to the evolving macro factors like the impact of COVID-19, the development of national economy, or the impact of geopolitics, etc. But we will be focused on our strategy of leveraging our competitive edge and commercial capability to improve our top-line growth and profitability. Thank you.
spk07: First of all, we do not make any predictions beyond one quarter of the future income. Last quarter, our business was quickly affected by the decline in RMB. Our main main business income growth has also been affected. For example, the RMB income of cloud computing decreased by 1.6%, but after it was converted into dollars, it decreased by 6.2%. The RMB income growth rate of live broadcast business is 10.2%, but after it was converted into dollars, the growth rate became 5%. Our estimated exchange rate is about 5%. Since cloud computing and live streaming have been growing rapidly for several seasons, it is normal for the growth to slow down to a certain extent. So we don't think this is a long-term state or a negative signal. At the same time, we are constantly changing to a red light factor. Thank you for your question.
spk03: We will take our next question.
spk05: Please stand by. The next question comes from the line of Yuzi Zhang, who is a retail investor. Please ask your question.
spk00: I have a question about Tencent's digital products. I noticed that Tencent's digital product platform I want the management team to discuss the future of digital products and the future of the market, especially in terms of the company's development prospects.
spk02: His question is, he said in Tencent, the digital reserves, the collectibles, the product has been off the shelf or they stopped doing so. He wants to know what's our outlook of digital collectible business. First, we don't really comment on other companies' products or the outlook. For us, the digital collectible market, the business, is one of our many endeavors. Finlay is trying to explore it. And as I mentioned earlier, the market or the business is evolving quickly, both in terms of technology and regulatory environment. And for the time being, we are working with several institutions in China and we are developing, we are continuing developing different products. And we think, you know, for the foreseeable future, you know, it has great potential. Of course, it also great, you know, risks. Again, I said it's just one of many explorations to seek, you know, the some business which may have great potential in the future. But of course, we realize, you know, it has also great risks. and at Lattice and Ampsize, we are doing strictly according to the relevant laws and regulations. Thanks for asking.
spk07: For us, Xunlei is one of the products that we are working hard to try. Recently, we have launched some products with various institutions and IP owners, as well as cooperation with some museums. Thank you very much.
spk00: We have a variety of live streaming products.
spk02: And right now we still have it, but it's not a larger efforts by us. And as we discussed in our press release, larger efforts by us. And as we discussed in our press release, one of our focuses is to develop audio, live audio streaming product. And so far, live audio streaming has been doing quite well for the last several quarters. That will be our future focus. Thank you for asking.
spk07: Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone.
spk03: There seems to be no further questions from the audience at this time.
spk05: Please continue.
spk02: Thank you again for your time and participation. If you have any questions, please visit our website at irxingli.com or send emails to our investors' relations. Have a great day. Hopefully we conclude today's conference call. Thank you.
spk05: This concludes today's conference call. Thank you for participating. Speakers, please stand by.
spk04: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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