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spk01: Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shonlei's 2023 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.
spk00: Thank you, and good morning, everyone, and thank you for joining Shunlei's 2023 Second Quarter Earnings Conference Call. On the call with me today are Eric Zhou, Chief Financial Officer, and Li Li, Vice President of Finance. Now, our earnings press release is available 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 open remark on behalf of our Chairman and CEO, Mr. Ding Buoli. on highlight of our second quarter operations. Then Mr. Eric Zhou, our CFO, will walk you through the details on the financial results and wrap up with our revenue guidance for third quarter of 2023. After the management's remarks, we'd like to welcome any questions from you in our Q&A session. Today's call is recorded and you can replay the call from our investor relations website at ir.trimlight.com. 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 Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations on the current market conditions that are subject to risks and uncertainties that are difficult to predict. which may cause accurate results to differ materially from those made in a forward-looking statement. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. CHLA assumes no obligations to update any forward-looking statements except as required under applicable laws. On this call, we'll be using 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 the prepared statement by Mr. Jim Bowley, Chairman and CEO of Streamline Limited. Good morning, everyone. Welcome to our 2023 Second Quarter Earnings Conference call, and thanks a lot for your ongoing support for Streamline. Despite the challenges to our domestic audio live streaming business, we delivered a strong second quarter with a total revenue of $104.3 million, up 33.3% compared to last year, and $5 million in net income. Our top-line growth was well-balanced across three business segments, demonstrating our operational resilience amidst an ever-involving environment. We also achieved a year-over-year growth of 35.9% in gross profit and improved gross profit margin. This serves as evidence of our dedicated efforts to capitalize on economies of scale and enhance operations management. Now, I would like to add some color to the performance to each of the three business segments. In the second quarter of 2023, our subsequent subscription business generated $29.7 million in revenue, reflecting a 17% year-over-year increase. Throughout this period, we observed a consistent upward trend in premium subscriber conversion rate, which rose from 35.1% in the second quarter of last year to 59.2% this quarter among all paying subscribers. Additionally, the average revenue per subscriber increased from 37.8 RMB to 42.9 RMB compared to the same period in 2022. I'm glad that our unwavering focus on providing convenient, secured, and quick access to our subscription businesses has yielded encouraging results. On top of that, through engaging initiatives carried out by my team, We gained additional and a valuable understanding of users' needs and boosted retention rates accordingly. And I expect that the growth momentum will continue as we keep exploring and testing new ideas and innovating on existing products. Despite strong competition, our cloud computing business effectively utilized its competitive edge in shared cloud technology to deliver reliable, scalable, and cost-effective services to our clients. As a result, we achieved a year-over-year growth of 8.2% and generated $30.7 million in revenue during the second quarter of 2023. The increased sale of our cloud computing hardware, OEC, in the second quarter was the primary factor fueling this growth as this new generation of smart device outperformed the earlier version under similar conditions and brought higher rewards to users. and we intend to keep iterating our technology and product features while pursuing sustainable business development. As a key driver of our growth, live streaming and other Internet of Valley added services contributed to a significant 79.1% increase in revenue, reaching $43.9 million. However, during the second quarter of 2023, we encountered challenges posed by the evolving industry environment for our domestic audio live streaming business and for actively downsizing its operations. We intend to further downsize domestic live streaming services in the second half of this year. We anticipate that the downsizing of this business line will significantly reduce our revenue in the upcoming quarters, whereas our subscription and cloud computing businesses will remain unaffected. We intended to reallocate the resources and explore new opportunities to offset impact of the business adjustment. Wrapping up my remarks, Shunlei is committed to advancing core technological innovation and delivering top-notch products and services for our clients and users. We will keep harnessing our strength and maintain competitive edge and expand our value chain while utilizing years of managerial experience and technical know-how to drive for future growth. with a strong financial position and a proven track record of operating performance. We firmly believe that Xunlei will emerge from the current endeavor as a more focused company, be positioned to seize long-term growth opportunities, and create sustainable shareholder value. With that, I'll turn the call over to Eric. Eric will cover our financial results in detail and provide revenue guidance for the third quarter of 2023.
spk03: Thank you, Wuhan. Hello, everyone, and thank you again for joining Q&A 2023, Second Quarter Earnings Conference Call. I will walk you through the details of our financial results and best parts of our revenue balance for the third quarter of 2023. For the second quarter of 2023, total revenues were $104.3 million, representing a yearly increase of 33.3%. The increase in revenues can primarily be attributed to the enhanced performance of our live streaming, subscription, and cloud computing services. Revenues from cloud computing reached $38.7 million, representing an increase of 8.2% compared to the second quarter of last year. The increase in cloud computing revenues were mainly driven by higher sales of hardware devices for cloud computing during this quarter. Revenues from subscription were $29.7 million, representing a solid 17% increase near OVN. This growth was attributed to both higher average revenue per subscriber and an increased number of subscribers when compared to the same period last year. As of June 30th, 2023, we had a total of 4.72 million subscribers, up from 4.46 million on June 30, 2022. In the second quarter of 2023 alone, each subscriber brought in an average revenue of RMB 42.9, which is significantly higher than RMB 37.8 during the same period last year. This increase in average revenue per subscriber is primarily due to more users opted for premium membership. Revenues from live streaming and other internet value-added services, or IVAS, were $43.9 million, an increase of 79.1% year-over-year. The increase of live streaming and other IVAS revenues was mainly driven by higher demand for our live streaming services, As we mentioned in our press release, we started to downsize our domestic audio live streaming services in the second quarter, and as a result, we expect revenues from this segment will experience a significant decline sequentially in the third quarter. And to mitigate this impact on our total revenues, we will strive to strengthen our existing product lines and explore new opportunities. Costs of revenues were $58.1 million, representing 55.7% of our total revenues, compelled with $44.3 million, or 56.6% of the total revenues in the same period of 2022. The increase in costs was primarily attributable to the higher sales from our live streaming, subscription, and cloud computing services and products. Bandwidth costs that included the cost of revenues were $28.9 million, representing 27.7% of our total revenues, compared with $25.5 million, or 32.6% of the total revenues in the same period of 2022. The increase in bandwidth costs was mainly driven by the increased demand for cloud computing services. The remaining cost of revenues mainly consisted of costs related to revenue sharing costs for live streaming business, payment of handling fees, and cloud computing hardware debauches. The gross profit for the second quarter of 2023 reached $45.9 million. reflecting a significant increase of 35.9% compared to the same period in 2022. Furthermore, the growth profit margin was at 44% during the second quarter of 2023, exhibiting a slight improvement from 43.1% in the previous year. This growth in growth profit was primarily attributable to the increase in growth profit in our live streaming and subscription business. Research and development expenses for the second quarter of 2023 were $17.2 million representing 16.5% of our total revenues, compared with $16 million or 20.4% of total revenues in the same period of 2022. The increase was primarily due to higher labor costs incurred during this quarter. Sales and marketing expenses for the second quarter of 2023 were $15.4 million representing 14.7% of our total revenues, compared with $5 million or 6.4% of our total revenues in the same period of 2022. The increase was primarily due to more frequent marketing activities resulting from our ongoing user acquisition efforts G&A expenses for the second quarter of 2023 were $12.4 million, 11.9% of our total revenues, compared with $12 million, or 15.4% of our total revenues in the same period of 2022. The increase was primarily due to the increase in depreciation of Xunlei headquarters building as we finish the construction and relocate to the new headquarters in December 2022. Operate income was $0.9 million, compared with $0.7 million in the same period of 2022. Other income was $4.7 million, compared with $7 million in the same period of 2022. The decrease in other income was mainly due to less reversal of certain payables during more than three years with low payment probability as compared with the same period of 2022. As you can see, income of $2 million compared to $6 million in the same period of 2022. Non-GAAP net income was $8.4 million in the second quarter of 2023, compared with $9.8 million in the same period of 2022. The decrease in net income and non-GAAP net income was primarily attributable to the decreased other income as discussed above. Diluted earnings per ADA in the second quarter of 2023 was approximately $0.08 as compared with $0.09 in the same period of 2022. As of June 30, 2023, the company had cash, cash equivalents, and short-term investments of $258.5 million, compared with $258.3 million as of March 31, 2023. The increase in cash, cash equivalents, and short-term investments primarily resulted from positive net office cash inflows during this quarter, partially offset by the repayment of bank loans, expenditures on share buybacks, and devaluation of the Chinese RMB against the US dollar. In June 2023, Xunlei announced that its board of directors authorized the with purchase of up to $20 million of its shares over the next 12 months. As of June 30, 2023, the company had spent approximately $1 million on share buybacks under the new share repurchase program. Turning to our revenue guidance, for the third quarter of 2023, Xunlei estimated total revenues to be between $79 million and $84 million, And the midpoint of the range represents a quote-over-quote decrease of approximately 21.9%. The decline is largely due to the impact of the continued downsizing of our domestic live streaming business, whereas the operations of subscription and cloud computing businesses are not affected. The plant management's preliminary view is of the date of this press release, which is subject to change, and any change could be material. Now we conclude prepared remarks for the conference call. Offered, we are ready to take questions.
spk01: Thank you. If you'd like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. please stand by while we compile the Q&A queue. Our first question comes from retail investor Jack Liu. Please go ahead with your question.
spk02: Hello, Mr. Guan. Thank you for picking up my question. I want to ask, I just saw that the company is planning to shorten the domestic cloud live broadcast business. I want to ask if you can tell us about this part thanks for the question and the caller asked that you know he noticed that the company is downsizing its domestic audio live streaming business and he would like to know you know
spk03: What's the percentage of revenue for the domestic audio lab streaming business to the total revenues? And we also would like to know the anticipated impact of the future overall revenue and whether Hyundai plans to continue downsizing its business in the future. In the second quarter, we started to downsizing our relatively low gross margin domestic audio live streaming business And this business accounted for approximately 12.4% of the total revenues in the first half of the year And going forward, we will continue to access our live streaming and RVS business and it may continue to downsize our domestic live streaming business to improve operations. And we anticipate a declining of about 21.9% in total revenues for the third quarter as compared with the second quarter. And that said, I'd like to mention that our subscription and account computing services remain unaffected. Thank you.
spk00: In the future, we will also focus on promoting the service of food and other Internet services, which may continue to reduce our domestic live broadcast business to strengthen the operation. Compared to the second quarter, we expect to have a 21.9% decline in revenue in the third quarter, but our other members and cloud computing business will not be affected by any impact. Thank you for your question.
spk01: Thank you. There are no further questions at this time, so I'll hand the call back to Eric Zhou for closing remarks.
spk03: Thank you again for your time and participation. And if you have any questions, please visit our website at iishunlei.com or send emails to all your best operations. Have a good day. I pray that we conclude today's conference call. Thank you.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers please stand by.
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