Xunlei Limited

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shunglei's fourth quarter and fiscal year 2024 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. Please go ahead.

Good morning, everyone, and thank you for joining Trinley's Q4 and fiscal year 2024 earnings conference call. With me today are Eric Zhou, CFO, and Li Li, Vice President of Finance. Our website has our earnings press release to supplement our prepared remarks during the call. Today's agenda includes a prepared opening remark from Chairman and CEO, Mr. Jinbo Li, on Q4 operational highlights, followed by CFO Eric Zhou's presentation of financial results details of Q4 and fiscal year 2024 and revenue guidance for Q1 2025 before we open up the floor to your questions in the Q&A session. Please note that this call is recorded and can be replayed on our IR website at ir.shunlei.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 our management's current expectations under existing 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 a forward-looking statement. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results Xunlei assumes no obligation to update any forward look statements except as required under applicable laws. This call will 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, otherwise stated. Now, the following is the prepared statement by Mr. Jinbo Lee, Chairman and CEO of Xunlei Limited. Good morning and good evening, everyone. Thank you all for joining us today. We're pleased to close 2024 with overall solid fourth quarter operating results, and our revenue exceeded the upper end of our guidance range. 2024 was a year of resilience and strategic transformation, and a cornerstone of our success was the record-breaking 6.38 million subscribers for our subscription business in Q4. It is a testament of our ecosystem-driven strategy and partnerships with the industry-leading channel players in the mobile industry. These initiatives have not only expanded our user base, but also enhanced the value we deliver across platforms. However, the Q4 of last year was not without challenges. In particular, we encountered intensified competition and pricing pressure in an evolving industry environment for our cloud computing business, especially in the latter part of the year. After a prudent assessment, the company booked a non-cash goodwill impairment expense for the full amount of the goodwill on a balance sheet. I'd like to mention that the goodwill impairment does not impact our cash position, operating cash flows, or future operations of the company. Now, I'd like to share with you some insights about our operations in Q4 2024. Our subscription business continues to demonstrate its pivotal role as a core asset and growth driver of our company. In the fourth quarter, we generated $34.4 million in revenue, representing a 9% year-over-year increase and a 12% annual growth rate from 2023 to 2024. This sustained momentum, now spanning two consecutive years of double-digit annual growth, is underpinned by two fundamental strengths. First, our tightly integrated business ecosystem has achieved remarkable success, with 77 of total paying subscribers opting for our premium subscription service, the highest level of membership we offer, which fosters user engagement across content consumption, accelerating tools, and community features. Second, strategic alliance with leading mobile maker partners has enabled us to reach over 1 million new users who were previously beyond our coverage. In essence, we are not only acquiring users, but also collaborating with our partners to share community dynamics and technology, fostering mutual success. Looking forward, we will continue to integrate advanced smart features to better meet users' needs and expand our market presence in pursuit for further growth. As I mentioned earlier, our performance was impacted by the notable decline in our cloud computing revenue. In the fourth quarter of 2024, cloud computing revenue fell 25.6% year-over-year and 10.1% quarter-over-quarter due to unfavorable industry conditions. After careful assessment, we decided to write off the full amount of the goodwill asset on the balance sheet. The cloud computing sector has been encountering challenges such as heightened competition and pricing pressures, among other things. Moreover, macroeconomic factors, including industry development and changes in regulatory environment, has exacerbated these difficulties. These external pressures have made it challenging for the business to sustain previous growth rates, and we're exploring various options to mitigate its impact on our overall operations. Let's move to our live streaming and IVAS business. In Q4, we generated $27.2 million in revenue, representing an 80.7% year-over-year increase. This growth reflects our strategic position on exit low-margin and volatile domestic markets towards the end of 2023, and pivot to emerging regions such as Southeast Asia and the MENA. The year-over-year rebound in the business validated our efforts to cope with these challenges. By leveraging our capabilities in product refinement, user engagement, and monetization, we have achieved organic growth in our overseas audio live streaming business. We expect this positive trend to continue and gain further attraction among users. To conclude, I'd like to say that 2025 will be a pivotal year for StreamWay. We will continue to implement growth initiatives as well as explore corporate restructuring moves to make the company more focused and dynamic. In January, we announced the acquisition of Hupu. Hupu brings with it a vibrant community and diverse content offerings that align seamlessly with our existing portfolio. This strategic acquisition is expected to unlock significant cross-platform synergies, enabling us to deliver more comprehensive and engaging experiences to our users. Furthermore, I believe We were well positioned to continue to make targeted R&D investments in emerging technologies to strengthen our core competencies and explore new growth opportunities. We will harness our deep rooted technical expertise to strategically integrate emerging technologies across our operations, product development, and user engagement efforts, thereby creating sustainable value for our shareholders. With that, I'll now pass the call over to Eric. Eric will give a detailed review of our Q4 and fiscal year financial results and provide revenue guidance for the first quarter of 2025.

Thank you, Luhan, and thank you all again for participating in Xunlei's conference call today to discuss the financial results of the first quarter and the fiscal year of 2024. In the fourth quarter, our total revenues were $84.3 million, representing an increase of 9.6% year over year. The increase in total revenues was mainly attributable to the increase in our revenues from subscription and live streaming businesses. Revenues from subscriptions were $34.4 million, representing an increase of 9% year over year. The increase in subscription revenues was mainly driven by the increase in the number of subscribers. The number of subscribers was 6.38 million as of December 31st, 2024, compared with 5.99 million as of December 31st, 2023. The average revenue per subscriber for the fourth quarter was RMB 36.6, compared with RMB 36.5 in the same period of 2023. Revenues from cloud computing were $22.7 million, representing a decrease of 25.6% year-over-year. The decrease in cloud computing revenues was mainly due to the reduced sales of cloud computing services and hardware devices as a result of heightened competition, pricing pressure, and evolving regulatory environment. Revenues from live streaming and other RVAS were $27.2 million, representing an increase of 80.7% year over year. The increase of live streaming and other IBIS revenues was mainly due to the increase in the revenues from our overseas audio live streaming business. Cost of revenues were $40.4 million, representing 47.9% of our total revenues compared with $36.8 million or 47.7% of the total revenues in the same period of 2023. The increase in cost of revenues was mainly attributable to the increase in revenue sharing costs for a live streaming business incurred during the quarter. Gross profit for the fourth quarter of 2024 was $43.6 million representing an increase of 8.7% year over year. Gross profit margin was 51.7% in the fourth quarter, compared with 51.9% in the same period of 2023. The increase in gross profit was mainly driven by the increased gross profit from our subscription and overseas audio live streaming businesses. Research and development expenses for the fourth quarter were $18.7 million, representing 22.2% of our total revenues, compared with $19.5 million, or 25.3% of our total revenues in the same period of 2023. Sales and marketing expenses for the fourth quarter were $12.5 million, representing 14.8% of our total revenues, compared with $9.3 million, or 12.1% of our total revenues, in the same period of 2023. The increase was primarily due to the expansion of marketing campaign and related expenses incurred for subscription and overseas audio live streaming business. GNA expenses for the fourth quarter were $12.1 million, representing 14.4% of total revenues, compared with $11.6 million or 15.1% of our total revenues in the same period of 2023. An impairment of goodwill of $20.7 million was identified and recorded in the fourth quarter of 2024, primarily due to a significant decline in the revenue of our cloud computing business in later 2024. And such trend was determined to have sustained impacts and therefore reflect in the quantitative impairment test on Goodwill performed at the end.

Ladies and gentlemen, please continue to stand by your conference. We'll resume shortly. Thank you.

Hello, can you hear me?

Yes, we can hear you. Please continue.

Okay. Operating loss was $20.5 million, compared with operating loss of $0.7 million in the same period of 2023. The increase in operating loss was primarily attributable to the non-cash impairment of Goodwill. Net loss was $9.9 million, compared with net income of $3.7 million in the same period of 2023. The increase in net loss was primarily due to the increase in operating loss as discussed above, partially offset by the decrease in income expenses, income tax expenses. Non-GAAP net income was $11.3 million in the fourth quarter of 2024, compared with $4.5 million in the same period of 2023. loss per ADS in the fourth quarter of 2024 was $0.16 compared with diluted earnings per ADS of $0.06 in the fourth quarter of 2023. Non-GAAP diluted earnings per ADS was $0.18 in the fourth quarter compared with non-GAAP diluted earnings of $0.07 in the same period of 2023. As of December 31, 2024, The company had cash, cash equivalents, and short-term investments of $287.5 million, compared to its $272 million as of September 30, 2024. The increase was mainly due to the proceeds from bank borrowings and the net cash inflow from operating activities, partially offset by spending on share buybacks and payments for long-term investments. Now let's talk about the four-year 2024 financial results. Total revenues were $324.4 million, representing a decrease of 11.1% on a year-over-year basis. The decrease in total revenues was mainly attributable to the decreased revenues from our cloud computing and the live streaming and other IBS businesses. Revenues from subscription were $133.7 million, representing an increase of 12.0% on year-over-year prices. The increase was mainly due to the increased number of third subscribers, which was increased from 5.99 million as of December 31, 2023, to 6.38 million as of December 31, 2024. Revenues from cloud computing were $104.6 million, representing a decrease of 15.3%, on a year-over-year basis. The decrease was mainly attributable to the reduced sales of cloud computing services and hardware devices as a result of heightened competition, pricing pressure, and evolving regulatory environment. Revenues from live streaming and other IVS were $86.1 million, presenting a decrease of 29.5% on a year-over-year basis. The decrease in live streaming and other IVAS was mainly due to the downsizing of our domestic audio live streaming operations since June 2023. Cost of revenues were $155.6 million, representing 48% of our total revenues, compared with $200.6 million, or 55% of the total revenues in 2023. The decrease in cost of revenues was mainly due to the decreased demand for cloud computing services and reduced revenue sharing costs, resulting from the downsizing of a domestic audio lab streaming business. Gross profit for the year was $167.6 million, presenting an increase of 2.8% on a year-over-year basis. Gross profit margin was 51.7%. compared with 44.7% in the previous year. The increase in gross profit was mainly driven by the increase in gross profit from a subscription business. The increase in gross profit margin was mainly attributable to the impact from the downselling of a domestic live streaming business, which had a lower gross profit margin, and the increased portion of subscription revenues in a company's total revenues, which had a higher gross profit margin. Research and development expenses for the year were $71.6 million representing 22.1% of our total revenues compared with $74.2 million or 20.3% of our total revenues in the previous year. The decrease was primarily due to the decreased labor costs and share-based competition as compared with the previous year. Sales and marketing expenses for the year were $44.8 million, representing 13.8% of total revenues, compared with $43.5 million, or 11.9% of total revenues, in the previous year. The increase was primarily driven by the expansion of marketing campaigns and the related expenses incurred for subscription, live streaming business, and increased labor costs. G&E expenses for the year were $45.8 million, representing 14.1% of our total revenues, compared with $46.9 million, or 12.8% of our total revenues in the previous year. The decrease was primarily due to the decrease in share-based and compensation expenses during the year, partially offset by the increase in labor costs as compared with the previous year. An impairment of goodwill $20.7 million was identified and recorded in the first quarter of 2024, primarily due to a significant decline in the revenue of a cloud computing business in late 2024, and such trend was determined to have sustained impacts and therefore reflect in the quantitative impairment tests on goodwill performed at the end of 2024. Operating loss was 15.7 million in 2024, compared with operating loss of 1.6 million in the previous year. The increase in operating loss was primarily attributed to the impairment of goodwill, partially offset by the increase in gross profit from our subscription business and the decrease in operating expenses during the year, as discussed above. Net income was 0.7 million dollars in 2024, compared with net income of $14.3 million in the previous year. The decrease in net income was primarily driven by the impairment of goodwill, partially offset by the decrease in income tax expenses during the year. Non-GAAP net income was $23.9 million in 2024, the same as the previous year. Diluted earnings per eight years was two cents, compared with diluted earnings per eight years of $0.22 in the previous year. Non-GAAP diluted earnings per eight years were $0.38, compared with non-GAAP diluted earnings per eight years of $0.37 in the previous year. As of December 31, 2024, the company had cash equivalents and short-term investments of $287.5 million compared with $271.9 million as of December 31, 2023. The increase in cash equivalents was mainly attributable to the net cash inflow from operating activities partially offset by the spending on share buybacks, expenditure on long-term investments, and payments for the construction of Xunlei headquarters. On share buybacks during the year ended December 31, 2024, the company spent approximately $7.7 million and it purchased about 4.17 million ADS. Let's turn to the guidance for the first quarter of 2025. For the first quarter of 2025, Xunlei estimates total revenues to be between $85 million and $89 million, and the midpoint of range represents a quarter-over-quarter increase of approximately 3.2%. This estimate represents management's preliminary view as of the date of this press release, which is subject to change, and any changes could be material. Now we conclude prepared remarks for the conference call. Operators, we are ready to take questions.

Thank you. As a reminder, to ask a question, please 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. Once again, please 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 roster. This will take a few moments. Thank you. Once again, ladies and gentlemen, please press star 1 and 1 for any questions or comment. We are now going to proceed with our first question. The questions come from the line of channel Go from Retail Investors. Please ask your question.

Your line is opened. The core question is a conference on your recent capital market performance.

The stock was doing well and she would like to know what is the company's plan following in this IPO and she wants to know if the company wants to sell the shares. And it's a good question, but I'm afraid it might be too early to address the question now because the company has not completed its IPO yet. In any case, we have high confidence in the company and expect the company will achieve great success in the future.

Thank you for your question. Thank you for your question.

Thank you. Another question.

The company recently acquired Hupu. What is the business model of Hupu? What are its revenues? Thanks for the question. Hupo is a sports blog established in 2004. It provides comprehensive coverage of sports-related reports, including the Premier League and other top European leaguers, the UEFA Champions League, the Chinese Super League, NBA, CBA, F1, NFL, et cetera. The platform offers detailed event information, expert commentary, and in-depth analysis, making it the largest sports community in China. Currently, Hupo operates through its official website, H-O-P-O dot com, and the H-O-P-O mobile application. Its main source of revenue comes from advertising. We expect the deal to be immediately earnings accretive after closing, expected in the first half of this year. Because the deal has not been closed yet, we are unable to discuss who posts financial numbers for the time being. Thank you for your question.

Thank you for your question. Hupu is a sports blog that was founded in 2004. Hupu Sports introduces sports-related reports, such as the five major league competitions, the European Championship, the Chinese League, basketball, NBA, CBA, F1, and NFL, and other competition information, comments, and analysis. Currently, it is the largest sports community in China. Currently, it is operated by Hupu Network and Hupu's APP. Their main revenue source is from advertising. We expect to complete the entire transaction in the first half of this year. We expect that the transaction will also have a more positive impact on the company's profit after completion. However, as the transaction is not completed yet, we cannot disclose the relevant financial data to you. Thank you.

As a reminder to ask a question, please 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. Once again, please press star 1 and 1 on your telephone. We have no further questions at this time. I would now like to hand back the call to you. Thank you.

Thank you again for your time and participation. If you have any questions, please visit our website at irshunlei.com or send emails to our investors' relations. Have a good day. Operate, we conclude today's conference. Thank you.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.