Xunlei Q4 2024 Earnings Call Transcript

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March 13, 2025

There are 3 speakers on the call.

Operator

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Shumway's Fourth Quarter and Fiscal Year twenty twenty four Earnings Conference Call. At this time, all participants are in listen only mode. Please be advised that today's conference is being recorded.

Operator

I would now like to turn the call over to the host, Investor Relations Manager, Ms. Luhan Tang. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining Xunlei's Q4 and fiscal year twenty twenty four earnings conference call. With me today are Eric Zhou, CFO and Li 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 the prepared opening remarks 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 twenty twenty four and revenue guidance for Q1 twenty twenty five before we open up the floor to your questions in the Q and A session.

Speaker 1

Please note that this call is recorded and can be replayed on our IR 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 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.

Speaker 1

Please refer to our SEC filings for a more detailed description

Operator

of

Speaker 1

the risk factors that may affect our results. Xunlei assumes no obligation to update any forward looking statements, except as required under applicable law. 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.

Speaker 1

S. Dollars unless otherwise stated. Now the following is the prepared statement by Mr. Jin Bo Li, Chairman and CEO of Xunlei Limited. Good morning and good evening, everyone.

Speaker 1

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 a strategic transformation and a cornerstone of our success was the record breaking 6,380,000 subscribers for our subscription business in Q4. I believe 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.

Speaker 1

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 prudent assessment, the company booked a non cash goodwill impairment expense for the full amount of the goodwill on the 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 twenty twenty four.

Speaker 1

Our subscription business continues to demonstrate its pivotal role as a core asset and a growth driver of our company. In the fourth quarter, we generated $34,400,000 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 1,000,000 new users who were previously beyond our coverage.

Speaker 1

In essence, we are not only acquiring users, but also collaborating with our partner to share community dynamics and the 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 twenty twenty four, cloud computing revenue fell 25.6% year over year and a 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.

Speaker 1

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 challenges 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. Now let's move to our live streaming and IVAS business. In Q4, we generated $27,200,000 in revenue, representing an 80.7% year over year increase.

Speaker 1

This growth reflects our strategic decision on exit low margin and volatile domestic markets towards the end of twenty twenty three and pivot to emerging regions such as Southeast Asia and 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 traction among users. To conclude, I'd like to say that 2025 will be pivotal year for Xunwei.

Speaker 1

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 Huopu. Hopu 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 and D investments in emerging technologies to strengthen our core competencies and explore new growth opportunities.

Speaker 1

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 twenty twenty five.

Speaker 2

Thank you, Luhan, and thank you all again for participating in Xunlei's conference call today to discuss the financial results of the fourth quarter and the fiscal year of 2024. In the fourth quarter, our total revenues were $84,300,000 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 $34,400,000 representing an increase of 9% year over year. The increase in subscription revenues was mainly driven by the increase in the number of subscribers.

Speaker 2

The number of subscribers was 6,380,000 as of 12/31/2024, compared with 5,990,000 as of 12/31/2023. The average revenue per subscriber for the fourth quarter was 36.6 compared with RMB 36.5 in the same period of 2023. Revenues from cloud computing were $22,700,000 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 $27,200,000 representing an increase of 80.7% year over year.

Speaker 2

The increase of live streaming and other IVAS revenues was mainly due to the increase in the revenues from our overseas audio live streaming business. Cost of revenues were $40,400,000 representing 47.9% of our total revenues compared with $36,800,000 or 47.7 percent 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 twenty twenty four was $43,600,000 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.

Speaker 2

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 $18,700,000 representing 22.2% of our total revenues compared with $19,500,000 or 25.3% of our total revenues in the same period of 2023. Sales and marketing expenses for the fourth quarter were $12,500,000 representing 14.8% of our total revenues compared with $9,300,000 or 12.1 percent 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. G and A expenses for the fourth quarter were $12,100,000 representing 14.4% of total revenues compared with $11,600,000 or 15.1% of our total revenues in the same period of 2023.

Speaker 2

An impairment of goodwill of $20,700,000 was identified and recorded in the fourth quarter of twenty twenty four, 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 reflected in the quantitative impairment tests on goodwill performed at the end.

Operator

Ladies and gentlemen, please continue to stand by. Your conference will resume shortly. Thank you.

Speaker 2

Hello, can you hear me?

Operator

Yes, we can hear you. Please continue.

Speaker 2

Okay. Operating loss was $20,500,000 compared with operating loss of $700,000 in the same period of 2023. The increase in operating loss was primarily attributable to the non cash impairment of goodwill. Net loss was $9,900,000 compared with net income of $3,700,000 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 tax expenses.

Speaker 2

Non GAAP net income was $11,300,000 in the fourth quarter of twenty twenty four compared with $4,500,000 in the same period of 2023. Diluted loss per ADS in the fourth quarter of twenty twenty four was $0.16 compared with diluted earnings per ADS of $0.06 in the fourth quarter of twenty twenty three. 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 12/31/2024, the company had cash, cash equivalents and short term investments of $487,500,000 compared with $272,000,000 as of 09/30/2024. 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.

Speaker 2

Now let's talk about the full year 2024 financial results. Total revenues were $324,400,000 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 RBS businesses. Revenues from subscription were $133,700,000 representing an increase of 12% on a year over year basis. The increase was mainly due to the increased number of total subscribers, which was increased from 5,990,000 as of 12/31/2023, to 6,380,000 as of 12/31/2024.

Speaker 2

Revenues from cloud computing were $104,600,000 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 environments. Revenues from live streaming and other IVS were $86,100,000 representing a decrease of 29.5% on a year over year basis. The decrease in live streaming and other IVS was mainly due to the downsizing of our domestic audio live streaming operations since June 2023. Cost of revenues were $155,600,000 representing 48% of our total revenues compared with $200,600,000 or 55% of the total revenues in 2023.

Speaker 2

The decrease in cost of revenues was mainly due to the decreased demand for our cloud computing services and reduced revenue sharing costs resulting from the downsizing of our domestic audio live streaming business. Gross profit for the year was $167,600,000 representing 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 our subscription business. The increase in gross profit margin was mainly attributable to the impact from the downside of our domestic live streaming business, which had a lower gross profit margin and an increased portion of subscription revenues in the company's total revenues, which had higher gross profit margin.

Speaker 2

Research and development expenses for the year were $71,600,000 representing 22.1% of our total revenues compared with $74,200,000 or 20.3% of our total revenues in the previous year. The decrease was primarily due to the decreased labor costs and share based compensation as compared with the previous year. Sales and marketing expenses for the year were $44,800,000 representing 13.8% of total revenues compared with $43,500,000 or 11.9% of our total revenues in the previous year. The increase was primarily driven by the expansion of marketing campaign and the related expenses incurred for subscription, live streaming periods and increased labor costs. G and A expenses for the year were $45,800,000 representing 14.1% of our total revenues compared with $46,900,000 or 12.8% of our total revenues in the previous year.

Speaker 2

The decrease was primarily due to the decrease in share based compensation expenses during the year, partially offset by the increase in labor costs as compared with the previous year. An impairment of goodwill of $20,700,000 was identified and recorded in the fourth quarter of twenty twenty four, primarily due to a significant decline in the revenue of our cloud computing business in late twenty twenty four, and such trend was determined to have sustained impacts and therefore reflects in the quantitative impairment tests on goodwill performed at the end of twenty twenty four. Operating loss was R15.7 million dollars in 2024 compared with operating loss of RMB 1,600,000.0 in the previous year. The increase in operating loss was primarily attributable 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 $700,000 in 2024 compared with net income of $14,300,000 in the previous year.

Speaker 2

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 $23,900,000 in 2024, the same as the previous year. Diluted earnings per ADS was $0.02 compared with diluted earnings per ADS of $0.22 in the previous year. Non GAAP diluted earnings per ADS were $0.38 compared with non GAAP diluted earnings per ADS of $0.37 in the previous year. As of 12/31/2024, the company had cash, cash equivalents and short term investments of $287,500,000 compared with $271,900,000 as of 12/31/2023.

Speaker 2

The increase in cash, cash equivalents and 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 12/31/2024. The company spent approximately $7,700,000 and repurchased about 4,170,000.00 ADS. Let's turn to the guidance for the first quarter of twenty twenty five. For the first quarter of twenty twenty five, Xunle estimates total revenues to be between $85,000,000 and $89,000,000 and the midpoint of the range represents a quarter over quarter increase of approximately 3.2%.

Speaker 2

This estimates represents management's preliminary view as of the date of the press release, which is subject to change and any changes could be material. Now we conclude prepared remarks for the conference call. Operator, we are ready to take questions.

Operator

Thank you. We are now going to proceed with our first question. The questions come from the line of Channel Gu from Retail Investors. Please ask your question. Your line is open.

Speaker 2

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 Ying Seo's 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 in the company will achieve great success in the future.

Speaker 2

Thank you for the question. The question is that recently the company acquired Hu Po and she'd like to know what is the business model of Hu Po and what are its revenue and profit conditions? Thanks for the question. Hu Po is a sports block established in 02/2004. 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, etcetera.

Speaker 2

The platform offers detailed event information, expert commentary and in-depth analysis, making it the largest sports community in China. Currently, Hu Po operates through its official website, hopo.com and the hopo 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 Hupho's financial numbers for the time being.

Speaker 2

Thank you for your question.

Operator

We have no further questions at this time. I would now like to hand back the call to you. Thank you.

Speaker 2

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

Operator

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.

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Earnings Conference Call
Xunlei Q4 2024
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