Earnings Call: Q2 2021

Aug 12, 2021

Earnings release

Good day, ladies and gentlemen, and thank you for standing by. You joined Chunlei's 2nd Quarter of 2021 earnings results call. At this time, all participants are in a listen only mode. There will be a Q and A session after the management's remarks. I would now like to turn the call over to your host, Investor Relations Assistant, Ms. Xiaorong Liu. Please take over, ma'am. Thank you, operator. Hello, everyone, and thank you for joining Xunlei's Q2 of 2021 earnings conference call. For our agenda today, I will first read a prepared remarks by our Chairman and CEO, Mr. Jingbo Li on the highlights of our Q2 operations. After that, Mr. Eric Zhou, our CFO will provide additional details on the financial results and wrap up with our revenue guidance for the Q3 of 2021. We will be happy to take your questions after our management remarks. Please be limited to 2 questions at a time, so others can get their questions in as well. Today's conference call is being recorded and a replay of the call will be available on our IR website afterwards. Our earnings press release was distributed earlier today and is now also available on our IR website. Please note 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 and 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 SEC filings for a more detailed description of the risk factors that may affect our results. We do not undertake any duty to update any forward looking statements, except as required under applicable laws. During this call, we will refer to 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 prepared statement by Mr. Mr. Jinbo Li, Chairman and CEO of Xunlei Limited. Thank you all for joining us today. We continue to deliver revenue growth and met our revenue guidance for the Q2. The total revenues for the Q2 reached CAD 55,200,000 representing a 3.6% growth sequentially. Further, we realized a profit for the 2nd quarter despite rising operating expenses as a result of higher headcount and annual salary merit adjustment as well as increased marketing expenses to promote our new product. I trust our investment in human resources and new development of new products will help drive future growth. Now let me review the financial and operating highlights for the quarter. Our subscription business in the 2nd quarter accounted for approximately 41.2% of our total revenues and achieved 3% growth sequentially and 9.8% year on year. Even though there was a slight decrease in the number of the subscription base, our VIP membership proportion continued to increase, which resulted in an increased average rate per user and consequently higher revenue than the previous quarter. Over a longer period of last 12 months, membership count maintained relatively stable and more members were using our premium services. We achieved this through continuously improving our products and services and giving users what they want. Meanwhile, we're committed to delivering quality products to our customers. Turning to our cloud computing and other Internet value added business. It grew 5.8% in the Q2 of 2021 sequentially. After a very strong performance in the previous quarter with the growth driven primarily by our live streaming During the Q2, we launched new products and increased related marketing expenses. This business segment accounted for approximately 52.4 percent of our total revenues. For our cloud computing business, although the sole bandwidth was up in the 2nd quarter, but revenue declined slightly due to a number of factors, including the effect of changes in foreign currency rates and reduced hardware sales as compared with the first quarter. Despite the lackluster product performance in the second quarter, we maintain optimism that future demand for our products will be strong due to continuing popularity of short form and long form video and other streaming products, which generally require CDN service. Therefore, we expect elevated growth in sold bandwidth in our cloud computing business in the second half of this year. Moving to our online advertising business. Revenue declined 8.7% in the Q2 of 2021 as compared with the Q1. Our advertising business accounted for approximately 6.4% of our total revenues in the 2nd quarter. The reduction was primarily due to reduced advertising placements on our platform in a competitive landscape. Further, domestic regulatory entities have lately heightened scrutiny of Internet operations. And Xunlei was among a number of companies that were mentioned in public and asked to rectify certain issues related to the way in which advertising was conducted. We will be striving to be in compliance with relevant rules and regulations. As a result, we anticipate our advertising business will be affected, leading to a reduction in our advertising business in the short term. Looking forward, we are continuing our endeavor on advancing decentralized networking technology. Lately, we have been cooperating with a domestic university to apply for a grant to develop blockchain based key technologies that can be applied for big data asset management. We believe the blockchain industry is still in its nascent stage and full of both challenges and opportunities. We will take a selective approach to exploring potential business opportunities. In closing, I'd like to say we have confidence that Xunlei's strong balance sheet and financial liquidity will help us tie over a period of tremendous volatility in the capital market. Further, in addition to committing long term investments to improve users' experience in order to better serve our large loyal customers, we will also elevate the importance of social value when making decision concerning our products and services. Having said that, I will now turn the call over to Eric to review financial results of the Q2 of 2021 and provide a revenue guidance for the Q3 of 2021. Thank you. Thank you, Xiaolong. Hello, everyone, and thank you again for joining our 2021 earnings conference call. I will now go through the details of our financial results and wrap up with our revenue guidance for the Q3 of 2021. Total revenues were $55,200,000 representing an increase of 3.6% from the previous quarter. The increase in total revenues was mainly attributable to increased revenue from live streaming and subscription business. Revenues from cloud computing and other IVS were $28,900,000 representing an increase of 5.8% from the previous quarter. The increase was mainly driven by increased other IBS revenue. Revenues from subscription were $22,700,000 an increase of 3% from the previous quarter. The number of subscribers were 3 0.96000000 as of June 30, 2021, compared with 4,050,000 as of March 31, 2021. The average revenue per subscriber for the Q2 of 2021 was RMB36.9 compared with RMB 35.5 for the previous quarter. Revenues from online advertising were $3,500,000 representing a decrease of 8.7% from the previous quarter, primarily due to lower advertising placements. Further, due to the evolving breakthrough environment of the domestic Internet industry, advertising revenue is expected to continue to decline in the short term. Cost of revenues was $26,200,000 representing 47.5 percent of our total revenues compared with $24,400,000 or 45.8 percent of the total revenues in the previous quarter. The increased cost of revenues was mainly attributable to increased revenue sharing costs of live streaming business. Bandwidth costs as included in cost of revenues were $18,500,000 representing 33.6% of our total revenues compared with $17,700,000 or 33.2% of the total revenues in the previous quarter. The remaining cost of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming business and the depreciation of servers and other equipment. Gross profit for the Q2 was $29,000,000 representing an increase of 1.2% from the previous quarter. Gross margin was 52.5% in the 2nd quarter, compared with 53.7% in the previous quarter. The decrease in gross margin was mainly due to decreased revenue of online advertising, which had a high gross margin than other business lines. Research and development expenses for the Q2 were $15,200,000 representing 27.5 percent of our total revenues, compared with $13,300,000 or 24.9 percent of our total revenues in the previous quarter. The increase was mainly due to increased staff cost as a result of merit salary adjustment and increased headcount as compared with the previous quarter. Sales and marketing expenses for the Q2 were $6,700,000 representing 12.1 percent of our total revenues compared with $4,500,000 or 8.4% of our total revenues in the previous quarter. The increased sales and marketing expenses were mainly due to more promotional activities during the quarter. General and administrative expenses for the Q2 were $7,700,000 representing 14% of our total revenues compared with $6,600,000 or 12.5 percent of our total revenues in the previous quarter. The increase in general and administrative expenses was primarily due to increased employee related costs as compared with the previous quarter. Operating loss was $1,100,000 compared with an operating income of $4,200,000 in the previous quarter. Net income was $5,800,000 compared with a net income of $6,800,000 in the previous quarter. Non GAAP net income was $1,300,000 in the Q2 of 2021 compared with $7,400,000 in the previous quarter. The decreased net income and non GAAP net income were primarily due to increased operating expenses as discussed above. Diluted earnings per ADS in the Q2 of 2021 was approximately $0.0005 as compared with a diluted earnings per ADS of $0.10 in the previous quarter. As of June 30, 2021, the company had cash, cash equivalents and short term investments of approximately $245,000,000 compared with $245,200,000 as of March 31, 2021. Now turning to the revenue guidance for the Q3 of 2021. We expect total revenues to be between $54,000,000 $58,000,000 and the midpoint of the range represents a quarter on quarter increase of approximately 1.4%. This estimate represents management's preliminary review as of the date of release, which is subject to change and any change could be material. Now, we conclude prepared remarks for the conference call. Operator, we are ready to take questions. Excuse me. Please go ahead. Yes. If we don't have any questions today, then we can conclude our conference call today. And for the audience, if you have any questions in the future, please visit our website at www.xunlei.com or send e mails to us to our Investor Relations department. Thanks again. Have a nice day. Operator, we conclude today's conference call. Thank you. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may now disconnect.