Xunlei Limited (XNET) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, and thank you for the patience. You've joined Xunlei's First Quarter 2025 Earnings Conference Call. [Operator Instructions]. 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 Xunlei's Q1 2025 Earnings Conference Call. With me today are Eric Zhou, CFO; and [Lee Li], Vice President of Finance. Our IR website has our earnings press release to supplement our prepared remarks during the call. Today's agenda includes our prepared opening remarks from Chairman and CEO, Mr. Jinbo Li, on Q1 operational highlights; followed by CFO of Eric Zhou's presentation of financial results details of Q1 2025 and the revenue guidance for the Q2 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 Investor Relations website at ir.xunlei.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 marketing -- 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. Xunlei assumes no obligation to update any forward-looking statements, except as required under applicable laws. On this call, we 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 -- unless otherwise stated. Now the following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited.

[Interpreted] Good morning and good evening, everyone. Thank you all for joining us today. We're delighted to report that we have successfully delivered expected quarterly revenue in Q1 to kick off 2025, marking a year-over-year top line growth of 10.5% to $88.8 million. This positive outcome reflects the hard work and dedication of our team as well as the trust and support from our valued users and clients. The growth we achieved is primarily attributable to 2 key areas: our subscription business and overseas audio live-streaming operations. Specifically, subscription revenue increased by 7.7% year-over-year to $35.7 million, while the total number of subscribers grew by 5% year-over-year to $6.04 million. This robust growth can be attributed to our intensified efforts in diversifying marketing channels for new user acquisition. Through innovative strategies such as targeted advertising, enhanced social media engagement and strategic partnerships with well-known mobile phone manufacturers, who successfully expanded our reach to a broader audience. Moreover, we will continue to focus on creating more convenient and innovative features, while enhancing service efficiency. Our goal is to ultimately elevate the overall user experience and strengthen user retention, thereby ensuring long-term sustainability. In addition to our subscription business, we observed a significant 66% year-over-year growth in revenue from live streaming and other services. Notably, overseas audio live-streaming revenue increased by 79.2% year-over-year, reflecting the recovery from the downsizing of our domestic audio live-streaming business. And a significant increase in overseas revenue demonstrates that our efforts to adapt to international markets are yielding tangible results. Over the past year, we have intensified our focus on expanding and strengthening our presence in overseas regions. A key component of this strategy has been the implementation of a more refined and targeted marketing approach. By customizing our service to align with the specific preferences and the cultural nuances of users in different regions. We have been able to effectively engage with the broader and more diverse user base. However, our cloud computing business has been facing significant challenges due to intensified competition and pricing pressures within the rapid evolving industry environment since the latter part of 2024. As a result in Q1, revenue from the cloud computing business declined by 18% year-over-year to $24.7 million. Looking ahead, we intend to proactively address these challenges. We will explore all viable options to minimize the impact of the cloud computing business on the company's overall performance. To conclude, I think this year will be a pivotal year for Xunlei. Our strategic priorities are centered on fostering growth through innovation, while exploring business restructuring opportunities to enhance focus and operational dynamism. In January, we announced the acquisition of Hupu with the aim of expanding our market presence and diversifying our service offerings. Additionally, we are actively developing AI-driven applications, leveraging large language models to broaden our product portfolio and unlock new growth opportunities. Supported by strong capital structure and robust financial liquidity, our objectives are to deliver enhanced user value, capitalize on our technological expertise and generate sustainable long-term value for the holders. With that, I'll now pass the call over to Eric. Eric will give a detailed review of our Q1 2025 financial results and provide revenue guidance for the second quarter of 2025.

Thank you, Luhan. Thank you all again for participating in Xunlei's conference call to discuss the financial results of the first quarter of 2025. In the first quarter, our total revenues were $88.8 million, representing an increase of 10.5% year-over-year. The increase in total revenues was mainly attributable to the increased revenues from our subscription business as well as overseas audio live-streaming business. Revenues from subscription were $35.7 million, representing an increase of 7.7% year-over-year. The increase in subscription revenues was mainly driven by the increase in number of subscribers. The number of subscribers was 6.04 million as of March 31, 2025, compared with 5.76 million as of March 31, 2024. The average revenue per subscriber for the first quarter of 2025 was RMB 40.9 compared with RMB 39.5 in the same period last year. The higher average revenue per subscriber was due to the increased proportion of premium subscribers, which have higher average revenue per subscriber. Revenues from live-streaming and other services were $28.4 million, representing an increase of 66% year-over-year. The increase in live-streaming and other services revenues was mainly due to the increase in revenues from our overseas audio live-streaming business. Revenues from cloud computing were $24.7 million, representing a decrease of 18% year-over-year. The decrease in cloud computing revenues was mainly due to the reduced sales of our cloud computing services and hardware services as a result of heightened competition, pricing pressure and evolving regulatory environment. Costs of revenues were $44.4 million, representing 50% of our total revenue compared with $37.1 million, or 46.2% of the total revenues in the same period of 2024. The increase in costs of revenues was mainly attributable to the increase in revenue sharing expenses in our overseas audio live-streaming operations which were consistent with growth in live-streaming and other services revenues. Gross profit for the first quarter of 2025 was $44.1 million representing an increase of 2.9% year-over-year. Gross profit margin was 49.7% in the first quarter compared with 53.3% in the same period of 2024. The increase in gross profit was mainly driven by the increase in gross profit generated from our overseas live-streaming business and subscription business. The decrease in gross profit margin was mainly attributable to the decreased gross profit margin of our cloud computing business. Research and development expenses for the first quarter of 2025 were $18.7 million, representing 21.1% of our total revenues compared with $17.6 million or 22% of total revenues in the same period of 2024. The increase was primarily due to the increased labor costs incurred during the quarter. Sales and marketing expenses for the first quarter were $15.5 million, representing 17.5% of our total revenues compared with $10.1 million, or 12.5% of our total revenues in the same period of 2024. The increase was primarily due to more marketing expenses incurred during the first quarter of 2025 for our subscription and overseas audio live-streaming business as part of our ongoing efforts on user acquisition. G&A expenses for the first of 2025 were $11.8 million, representing 13.3% of our total revenues compared with $11.1 million or 13.9% of our total revenues in the same period of 2024. Operating loss was $1.9 million compared with an operating income of $4 million in the same period of 2024. The decrease in operating income was primarily attributable to the decrease in gross profit margin and the increase in sales and marketing expenses during the quarter. Net loss was $0.9 million compared with net income of $3.6 million in the same period of 2024. The net loss was primarily due to the increase in operating loss, partially offset by the increased other income. Non-GAAP net income was $0.1 million in the first quarter of 2025 compared with $4.5 million in the same period of 2024. Diluted loss per ADS in the first quarter of 2025 was $0.01 compared with diluted earnings per ADS of $0.06 in the first quarter of 2024. Non-GAAP diluted earnings per ADS was $0.004 in the first quarter compared with non-GAAP diluted earnings of $0.07 per ADS in the same period of 2024. As of March 31, 2025, the company had cash, cash equivalents and short-term investments of $274.6 million compared with $287.5 million as of March 31, 2024. The decrease in cash, cash equivalents and short-term investments was mainly due to the first tranche of payment for the acquisition of Hupu, spending on share of repurchase and repayment of bank loans during the quarter, partially offset by the net income inflow from operating activities. On June 4, 2024, Xunlei announced that its Board of Directors had authorized a new plan for the repurchase of up to $20 million of its ADS or shares over the 12 months that followed. As of March 31, 2025, the company had spent $6.5 million on share buybacks under the new share repurchase program, of which about $0.9 million was spent in the first quarter of 2025. Now let's turn to the guidance for the second quarter of 2025. For the second quarter of 2025, Xunlei estimates total revenues to be between $91 million and $96 million, and the midpoint of the range represents a quarter-over-quarter increase of approximately 5.3%. This estimate represents management's preliminary view as 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. Operator, we are ready to take questions.

[Operator Instructions]

Can you hear me?

Yes.

[Foreign Language]

[Interpreted] She learned from the company's press release that Xunlei is developing some AI products, and she would like to know what they are and what's the status of this exploration? Thanks for asking. Currently, our team is engaging, developing and testing several AI-driven application products, leveraging mainstream large language models. The products under development include an AI-powered auto editing tool and effective AI containing an app as well as an AI integrated toolbar solution. While these products are currently under development and testing, we will launch them when ready. And we will keep you updated. We appreciate your interest and encourage you to stay tuned for further upgrades.

[Foreign Language]

[Operator Instructions] There are no further questions at this time. So I will hand the conference back to the speakers.

Thank you, again, for your time and participation. If you have any questions, please feel free to visit our website at ir.xunlei.com or send e-mails to our Investor Relations. Have a good day. Operator, we conclude today's conference call. Thank you.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.