Xunlei Limited

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shinlei's 2022 Fourth 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.

Thank you. Thank you, and good day, everyone. Thank you for joining Sringley's fourth quarter and fiscal year 2022 earnings conference call. As of now, our earnings release is available on our IR website, which is intended to supplement our prepared remarks during today's call. On the call with me today are Eric Zhou, Chief Financial Officer, and Li Wu, Senior Vice President of Finance. For today's agenda, I will first read a prepared remark by our chairman and CEO, Mr. Tim Foley, on highlight of our fourth quarter operations and strategies for 2023. Then Mr. Eric Zhou, our CFO, will walk you through the details on the financial results and wrap up with our guidance for the first quarter of 2023. We'd like to welcome any questions from you after the management's remarks. Before I get started, I'd 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 forward-looking statements. Please refer to our SDC filings for a more detailed description of the risk factors that may affect our results. She only assumes no obligations to update any overlooking statements except as required under applicable laws. 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 U.S. dollars unless otherwise stated. Now, the following is a prepared statement by Mr. Jim Boley, Chairman and CEO of Shinglei Limited. Good morning, everyone. Thanks for joining us today. Cisco year 2022 was a landmark year for Shinglei, and we're thrilled to end the year with record-setting revenues of $97 million, up 9.8% sequentially in the fourth quarter as compared with the previous quarter. Total revenues for 2022 were $342.6 million, up 43% year-over-year. Furthermore, we announced last quarter that we expected full-year profitability in 2022, and we're proud to say that we did it. For 2022, we achieved net profits of $21.3 million, an increase of 1,825.3%, as compared with the 2021. Both the quarterly and annual revenues were the highest in the company's 20-year history. We're pleased with our accomplishments last year, which reflects the resilience of our multi-faceted business model, robust R&D capability, and unmatched customer value proposition. Now, I'd like to provide some details on operating results. I will start with our live streaming and IVAS business. In the fourth quarter, the revenue generated from live streaming and IVAS businesses reached $40.2 million, which accounted for 41.4% of total revenues, representing 17.3% quarter-to-quarter growth and 108.6% year-over-year growth. In fiscal year 2022, the revenue reached to $122.4 million, up 128.2% compared to fiscal year 2021. The growth is driven by not only our efforts to deepen our penetration into existing markets and to continuously tap into our users' needs to enlarge user acquisition, but also by increasing users' demand and improving brand recognition and monetization capabilities. Now, moving to our cloud computing business. In the fourth quarter, revenue generated from cloud computing business reached to $31.9 million, which accounted for 32.9% of total revenues, up 9.7% sequentially and 13.1% year-over-year. In fiscal year 2022, the total revenue was $119.6 million, up 26.2% as compared with that of fiscal year 2021. They accounted for 34.9% of the company's total revenue. We believe that. Chinle has a unique competitive edge in its shared cloud computing business, which enjoys uninterrupted growth in both top-line and bottom-line, for a number of quarters, mainly driven by rising demand for the bandwidth for the short video clips and live streaming business and products. Other than that, I'd like to share some good news of Shenzhong Wangxin, the operator of cloud computing business and a wholly owned subsidiary of Xunlei. It was reported that in the first half of 2022, Wangxin was ranked number three with 11.3% of market share in public edge cloud service market, according to the study by International Data Corporation. Furthermore, Shenzhen-Wangxin launched and upgraded Edge hardware product line last year, aiming to construct an autonomous and controllable computing infrastructure through technical improvement to support a broader range of Edge application scenarios. Now turn to our subscription business. In the fourth quarter of 2022, subscription business generated $24.9 million in revenue. It edged down 0.2% sequentially and climbed by 5.2% year over year. In fiscal year 2022, annual revenue reached to $100.6 million, representing 10.3% year over year increase. We've seen some positives, positive outcomes from our continued integration of our product features and cultivation of our user community, as the total number of subscribers maintained its solid growth momentum, increasing to nearly 5 million subscribers by the end of 2022, from 4.39 million at the end of 2021. Besides, the proportion of our premium service subscribers to total subscribers have grown from 29.9% at the end of 2021 to 36.7% at the end of 2022. This is a testament of our product and services gained continuing popularity by fulfilling users' needs over time. However, even though we obtained encouraging results last year, we're still facing stiff industry competition and a macro-environment uncertainties. which could adversely affect our operations in the future. We will closely monitor regulatory policies and industry trends and try our best to adopt business strategies to mitigate the risks. Moreover, we will strictly follow the compliance requirements in a market in which we operate and pursue a sustainable business model going forward. Before I conclude my remarks, I'd like to say that, as you may already know, we relocated to our own headquarters building at the end of 2022 and entered 2023 on high notes. We believe we will be in better positions than ever before to explore new and exciting opportunities. Going forward, we're optimistic and will maintain focus as we execute on growth prospects that lie ahead of us. We're confident that our ample cash position and strong overall execution will enable us to capitalize our future growth opportunities, driving sustainable growth and creating value for all of our stakeholders. With that, I'll hand 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, and hello everyone, and thank you again for joining Xunlei's fourth quarter and fiscal year 2022 earnings conference call. I will now go through the details of our financial results and wrap up with our revenue guidance for the first quarter of 2023. Total revenues were $97 million of 2019 increase of 9.8% from the previous quarter. The increase in total revenues was mainly attributable to increased revenues from our live streaming and cloud computing businesses. Revenues from cloud computing were $31.9 million representing an increase of 9.7% from the previous quarter. The increase of cloud computing revenues was mainly due to the increased demand from major customers of our cloud computing services. Revenues from supporting Subscriptions were $24.9 million, representing a decrease of 0.2% from the previous quarter. The decrease in subscription revenues was mainly due to lower average revenue per subscriber for this quarter and the depreciation of RMB against US dollars. The number of subscribers was 4.99 million as of December 31, 2022, compared with 4.37 million as of September 30, 2022. The average revenue per subscriber for the fourth quarter was 35.4 RMB, compared with 39.1 RMB in the previous quarter. The lower average revenue per subscriber was due to more promotional activities carried out for our subscription business during the fourth quarter. Revenues from live streaming and other IBS were $40.2 million, representing an increase of 17.3% from the previous quarter. The increase of live streaming and other IVS revenues was mainly driven by the increased demand for our live streaming products and by our enhanced monetization capabilities. Cost of revenues were $59 million, representing 60.9% of our total revenues, compared with $52.8 million, or 59.9% of the total revenues in the previous quarter. The increased cost of revenues was mainly attributable to the increased sales of our live streaming and cloud computing services. Bandwidth costs, as included in cost of revenues, were $26.9 million, representing 27.7% of our total revenues, compared with $25.3 million, or 28.6% of the total revenues in the previous quarter. The increase in bandwidth costs was mainly due to increased demand for cloud computing services. The remaining cost of revenues mainly consisted of costs related to the revenue sharing costs for large streaming business and depreciation of servers and other equipment. Gross profit for the fourth quarter of 2022 was $37.6 million, representing an increase of 6.8% from the previous quarter. Gross profit margin was 38.8% in the fourth quarter, compared with 39.9% in the previous quarter. The increase in gross profit was mainly driven by the increase in gross profit of our live streaming and cloud computing businesses. The decrease in gross profit margin was mainly due to the increased portion of live streaming revenues to total revenues, which has a relatively lower gross profit margin. Research and development expenses for the fourth quarter were $19.2 million, representing 19.8% of our total revenues, compared with $16.2 million, or 18.3% of our total revenues in the previous quarter. Sales and marketing expenses for the fourth quarter were $8.7 million, representing 8.9% of our total revenues, compared with $5.8 million, or 6.6% of our total revenues, in the previous quarter. The increase was primarily due to more marketing activities held for our subscription and live streaming business during this quarter as a result of our continued user acquisition efforts. G&A expenses for the first quarter were $9.8 million, representing 10.1% of our total revenues, compared with $8.2 million, or 9.3% of our total revenues in the previous quarter. The increase was primarily due to the increase in share-based compensation expenses during the quarter. Corporate income was $0.4 million, compared with $5.1 million in the previous quarter. The decrease in corporate income was primarily attributable to the increase in employee bonuses, marketing expenses, and share-based competition expenses incurred during the quarter. Other income was $0.7 million compared with other income of $4.7 million in the previous quarter. The decrease was primarily due to the decrease in foreign exchange gains as compared with the previous quarter. Net income was $1.6 million compared with $8.3 million in the previous quarter. Non-debt net income was $3.5 million in the fourth quarter of 2022 compared with $9 million in the previous quarter. The decrease of net income and non-debt net income was primarily attributable to the decrease in office income and other income as discussed above. Diluted earnings per year in the fourth quarter of 2022 was approximately $0.02, as compared to $0.12 in the third quarter of 2022. Now I'd like to walk you through the financial results of the fiscal year 2022. Total revenues were $342.6 million, representing an increase of 43% on a year-over-year basis. The increase in total revenues was mainly attributable to increased revenues from our live streaming, cloud computing, and subscription businesses Revenues from cloud computing were $119.6 million, representing an increase of 26.2% on a year-over-year basis The increase in cost computing was mainly attributable to our expanded service capabilities and increased demand from our major customers. Revenues from subscriptions were $126 million representing an increase of 10.6% on the year-over-year basis. The increase was mainly due to a growing number of subscribers, which increased from 4.39 million as of December 31, 2021 to 4.99 million as of December 31, 2022. Revenues from live streaming and other IVAS were $122.4 million, representing an increase of 128.4% on a year-over-year basis. The increase was primary due to the increase in demand for our last-gen products we launched in 2021, and an enhanced monetization capability. Cost of revenues were 200.1 million dollars, representing 38.4% of our total revenues, compared with 118.6 million dollars, or 49.5% of the total revenues in 2021. The increase was primarily resulted from the significant increase in revenues of our major business lines. Annual costs that included in cost of revenues were $104.6 million, representing 30.5% of our total revenues, compared with $18.7 million, or 33.7% of the total revenues in the previous quarter. The increased bandwidth costs were mainly due to increased demand for cloud computing services, which was consistent with the increase in cloud computing revenues. The remaining cost of revenue mainly consisted of costs related to the revenue sharing costs for large streaming business and depreciation of servers and other equipment. God's profit for the year was $141.4 million, representing an increase of 17.7% on the year-over-year basis. God's profit margin was 41.3%, compared with 15.2% in the previous year. An increase in God's profit was mainly driven by the increase in God's profit of our live streaming business, cloud computing business, and subscription business. The decrease in gross profit margin was mainly attributed to the increased portion of large streaming revenues to total revenues, which has a relatively lower gross profit margin, and a decreased percentage of subscription revenues to total revenues, which has a relatively higher gross profit margin. Research and development expenses for the year were $67.7 million, representing 19.8% of our total revenues, compared with $61.9 million, or 25.8% of total revenues, in the previous year. The increase was primarily due to increased labor costs as a result of increased headcount as compared with the previous year. Sales and marketing advantages of the year were $24.8 million by planting 7.3% of our total revenues, compared with $24.6 million or 10.3% of our total revenues in the previous year. GMA's branches for the year were $39.7 million, roughly 11.6% of our total revenues, and Calgary was $36.9 million, or 15.4% of our total revenues in the previous year. The increase was primarily due to the increased share-based competition expenses from awarded restricted shares partially offset by decreased professional consulting expenses incurred during the year. Operating income was $10.1 million, compared with an operating loss of $4.3 million in the previous year. The increase in operating income was primarily attributable to the increase in gross profit of live streaming, cloud computing, and subscription businesses during the year, partly offset by the increase of operating expenses as discussed above Other income was $13.5 million, compared with other income of $4.7 million in the previous year The increase was primarily due to the increase in foreign exchange gains and reversal of certain non-outstanding payables with a low probability of payment during the year. Net income was $21.3 million in 2022, compared with net income of $1.1 million in the previous year. Non-GAAP net income was $29.5 million in 2022, compared with $7.3 million in the previous year. The increase in net income was primarily driven by the increase in operating income and other income as discussed above. Diluted earnings per year in 2022 was approximately $0.32, as compared with $0.02 in the previous year. As of December 31, 2022, the company had cash, cash equivalents, and short-term investments of $262.3 million. compared with $239 million as of December 31, 2021. The increase in cash and cash equivalents was mainly attributed to net cash inflow from operating activities and a bank loan, partly offset by expenditure on high-energy activities, the construction of Shirley Headquarters building, and spending on share-buyer balance. In March 2022, Xunling announced that its board of directors authorized the repurchase of up to $20 million of its outstanding common stocks over the next five months. As of December 31, 2022, we have spent approximately $6.8 million on share repurchases. Turning to our revenue guidance for the first quarter of 2023, CUNY estimates total revenues could be between $98 million and $104 million, and at the midpoint of the range represents a quarter-over-quarter increase of approximately 4.1%. These estimates represent management's preliminary view as well as the date of these investments, which is subject to change, and any change could be material. Now we conclude prepared remarks for the conference call. Hopefully we are ready to take questions.