Earnings Call: Q1 2021

May 20, 2021

Earnings release

Good day, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's Q1 of 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a question and answer session after the management's remarks. I would now like to turn the call over to your host, Investor Relations Manager, Ms. Mengnan Gao. Please take over, ma'am. Thank you. Good morning and good evening. Thank you for joining Xunlei's Q1 of 2021 earnings conference call. For our agenda today, Mr. Eric Zhou, the CFO, will first read the prepared remarks by Mr. Jinbo Li, Chairman and CEO of Xunlei. After that, he will provide additional details on the financial results and wrap up with our revenue guidance for the Q2 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 bear question 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 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 our numbers are U. S. Dollars unless otherwise stated. And with that, let me pass to our CFO, Mr. Eric Zhou for prepared remarks. Thank you, Wenlan. Hi, everyone. I'm Eric Bizong, CFO of Qunlei Limited. Thanks again for joining Qunlei's first quarter of 2021 earnings conference call. The following is a prepared remark by Mr. Jingbo Lin, our Chairman and CEO. Good morning and good evening, everyone. Welcome to Xinyi's Q1 of 2021 earnings conference call. We delivered robust financial and operating results in the Q1 due to our solid execution on the product innovation strategy. We saw the growth of subscription and cloud computing service revenues and the enhancement of key operating metrics, which contributed to a double digit growth rate of the bottom line. In the Q1, our strong emphasis on strategic execution as well as operational enhancement drove steady and high quality growth in revenue and net income, following a turnaround performance in the previous quarter. The total revenue in the Q1 of The net income increased to $6,800,000 a 5.9% growth sequentially. The net income increased to $6,800,000 a 45.4% growth quarter over quarter, which was mainly due to the high gross margin and optimized operations. It gives us confidence in our ability to uncover Xunlei's value and monetize future growth. The solid first quarter results demonstrated our efforts on business breakthroughs and innovation when entering the year of 2021. We have been building on our competitive strengths we have gained over the years and doubling down our efforts to improve our product offerings to our users. We will always be looking out for new ways to create more value for our customers through user experience enhancement and technological innovation. Now I'd like to shed some color to our main business segments. First, let's take a look at our subscription service. We saw the subscription revenue increased by 6.9% sequentially, which was mainly driven by the user base expansion. We believe our product initiatives to optimize user experience started to pay off, which was reflected through the expanded user base and their willingness to pay for value added services. And at the end of the Q1, our subscription services reached 4,050,000 subscribers and the average revenue per user in the Q1 was RMB35.5. At the same time, we also saw some signs of revival of our improved user activity and retention rate on our platform, which also benefited our monetization efficiency and revenue growth in advertising and other online game businesses. These results demonstrated the strength of our subscription services. We are confident that we still have room to continue to develop our subscriber base and further explore the potential of users lifetime cycle value if we remain focused on providing users with top notch experience and creating value for them. We think the potential and resilience of our subscription business also reside in the scalability of this service, which can be demonstrated by the growth potential of the user base and breadth of service offerings. We believe user experience is very important to scale our subscription business. Therefore, we will continue our efforts in this regard and upgrade our user experience in downloading, cloud video playing and cloud storage. And in this way, we will be able to strengthen customer loyalty and return more fee paying users. On top of that, we will strive to provide additional value added products and services and deliver top notch user experience to increase subscribers, which will in turn lead to more venues for monetization. Now turning to our cloud computing business. We kept the gross momentum for our cloud computing business and achieved a 10.9% revenue growth quarter over quarter. It's worth noting that we expect the demand from our existing and new clients will be growing as people's entertainment and social activities are more and more video based. We trust our continuing investment in technological innovation will open new opportunities in cloud computing for us, which is driven by the acceleration of the digital transformation trend of our society. As a result of our performance in the quarter discussed above, we have updated our 2nd quarter revenue guidance to reflect the recent progress. I'm confident that we are on track to pursue business expansion and breakthroughs. I believe that Xunlei's strong business fundamentals will enable us to achieve our growth prospects and to deliver meaningful value to our users, partners and shareholders. And I look forward to sharing with you our progress in the near future. Thank you. That was the prepared remarks by our Chairman and CEO. Now I'd like to review the financial results of the Q1 of 2021 and provide a revenue guidance for the Q2 of 2021. Total revenues for the Q1 of 2021 was $53,300,000 representing an increase of 5.9 percent from the previous quarter. The increase was primarily driven by the revenue increase from cloud computing and subscription services. Revenues from cloud computing and other IVS combined were $27,300,000 representing an increase of 5.7% from the previous quarter. The cloud computing revenue was $21,000,000 increasing 10.9% sequentially. The increased cloud computing and other IBS revenues were mainly due to increased demand for our cloud computing services. Revenues from subscriptions were $22,100,000 a 6.9% increase from the previous quarter. The number of subscribers was approximately 4,050,000 as of March 31, 2021, compared with 3,830,000 as of December 31, 2020. The average revenue per subscriber for the Q1 of 2021 was RMB35.5 compared with RMB35.9 for the previous quarter. Revenues from online advertising were $3,900,000 representing an increase of 2.4% from the previous quarter. Cost of revenues was $24,400,000 representing 45.8 percent of our total revenues, compared with $23,300,000 or 46.4 percent of our total revenues in the previous quarter. The increase was mainly due to the increased sales of our cloud computing services. Gross profit for the Q1 was $28,600,000 representing an increase of 6.7% from the previous quarter. Gross margin was 53.7% in the 1st quarter, compared with 53.3% in the previous quarter. The increase in gross profit and gross margin was mainly due to increased revenues of our subscription business, which had higher gross margin than other product lines. Research and development expenses for the Q1 were $13,300,000 representing 24.9 percent of our total revenues, compared with $12,000,000 or 23.9 percent of our total revenues in the previous quarter. Sales and marketing expenses for the Q1 were $4,500,000 representing 8.4% of our total revenues compared with $2,800,000 or 5.6% of our total revenues in the previous quarter. The increase was mainly due to more promotional activities. General and administrative expenses for the Q1 were $6,600,000 representing 12.5% of our total revenues compared with $7,900,000 or 15.7 percent of our total revenues in the previous quarter. The decrease was primarily due to less improving wearables and professional consulting expenses compared with those for the previous quarter. Operating income was $4,200,000 compared with $4,100,000 in the previous quarter. Net income was $6,800,000 compared with $4,600,000 in the previous quarter. Non GAAP net income from continuing operations was $7,400,000 in the Q1 of 2021, compared with $4,800,000 in the previous quarter. The increased net income and non GAAP net income were primarily due to the increase in revenue of our major business lines and a high gross margin as discussed above. Diluted earnings per ADS from continuing operations in the Q1 of 2021 was approximately $0.10 as compared with about $0.07 in the previous quarter. As of March 31, 2021, the company had cash, cash equivalents and short term investments of approximately $245,200,000 compared with $255,100,000 as of December 31, 2020. Now turning to the revenue guidance for the Q2 of 2021. We expect total revenues to be between $54,000,000 $58,000,000 and the midpoint of the range represents a quarter over quarter increase of approximately 5.1%. This estimate represents management's preliminary view as of the date of this 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. Certainly, sir. Ladies and gentlemen, we will now begin the question and answer We have a question coming from the line of Xu Zhu. Please go ahead. Now I will speak briefly in English. We think basically the person asked whether we are developing a short video business and when we are going to launch this product. We think it is the right time for us to develop short form video product. We form our rationale from several points of consideration. First is the operation of each of our business lines is stable and positive after transition in last year, and we are pursuing in the next stage of growth. And so we need to enhance retention of current users with additional product features and capture further growth opportunities. Secondly, I believe that our 2C business still has promising growth potential. As users' social and entertainment demands are becoming more video based, short form video is a kind of business opportunities with growing market and monetization potential, And it is also a great supplement to our existing products. And we intend to enter this market by focusing on certain vertical contents that appear that may be appealing to some groups of users. And we believe there's still some rooms for us to capitalize on our investment. And that being said, we have been in research and developing certain products. And but for the time being, we still have we still don't have a specific timeline to launch this product, but we intend to launch this product in the near future. Thank you for your question. We have the next question coming from the line of Youshey Zhang from Retail Investor. Please go ahead. The question basically he has 2 questions. 1, first is about our cloud computing business model and he said how we could expand our business in the future, how we could deepen our cooperation with national telecommunication carriers. Basically, I said, our cloud computing business is an innovative business and we use the so called sharing economy business model and at one hand we try to use the energy bandwidth contributed by our users. At the same time, we are also exploring potential cooperation opportunities with our national telecom carriers? And the second question, he asked whether we would disclose our Xunlei app users with either DAU or MAU and we don't disclose it on a frequent basis because of commercial considerations, but we do have certain numbers disclosed in our recently issued annual report. So I would encourage interested investors to read our annual report to see if you can find the right information. Thank you for your question. We have the next question. This is coming from Marshall M from Dongzhi. Please go ahead. Hi, and thanks a lot for taking my question. I'm wondering if you could elaborate more on the hybrid P2P technology and cloud computing and for your CDN services. What are the main advantages And how are they perceived by the market? Maybe, for instance, could you give a number on the current clients? And if this number of clients that are using it is increasing or not? Thank you. Okay. Xunlei is one of pioneers in P2P or P2SP in the network technology. And over the years, we have developed in-depth expertise in this regard. As I mentioned earlier, answering the previous caller's question, we are using an innovative business model. It's basically, it's like based on the sharing economy, we crowdsource the idle bandwidth from our users of one thing called hardware intelligence and process it and to provide the service to our enterprise customers. And one of our in addition to our technological qualification and expertise. One of our advantages is we are a low cost service providers. And because of this, today, I'd like to say many of the top Internet companies in China and some of the household name Internet companies are our customers. And because of the confidentiality, I'm not at liberty to disclose their names, but I'd like to say some of the most well known Internet companies in China are our clients. Thank you. The next question comes from Sue Su. Please go ahead. The question is, he asked about the status of Xunlei buildings under construction. And we previously planned to have the building construction completed by the end of the April, but now it looks like we are going to have it completed in either June or July because it was impacted by the enabling and the municipal construction projects, which affect the construction of our buildings and we are in the process of the preparing for the internal renovation work, and we plan to have the building internal renovation complete by the end of this year, and so it's most likely we may move into the new building at the beginning of next year. Thank you. Thank you. We have the next question from Yujie Zhang, regional investor. Please go ahead. Basically, asking in the Q1, all our other business showed improvement except for the so called other business. The other business in the previous quarters, we had the other business basically included the video streaming business and some of the other one time so inventory clearance sales and we didn't have in the last quarter, but we had in the previous quarters. So basically our last quarter's other business was affected by some of the one time event as well as of our live streaming business. Thank you. Thank you, Guy, for your time and participation. If you have any questions, visit our website at www.xunlei.com or send e mails to our Investor Relations. Have a good day. Operator, I think we can conclude today's conference call. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.