Xunlei Limited (NASDAQ:XNET) Q3 2020 Results Earnings Conference Call November 12, 2020 8:00 AM ET Company Participants Megnen Gau - Investor Relations Manager Eric Zhou - Chief Financial Officer Conference Call Participants Trista Yang - Venture Smart Operator Good day, ladies and gentlemen, thank you for your patience. You’ve joined Xunlei’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will have a Q&A session after a few management remarks. I wo ...

Xunlei Limited (NASDAQ:XNET) Q2 2020 Results Earnings Conference Call August 25, 2020 8:00 AM ET Company Participants Megnen Gau - Investor Relations Manager Jinbo Li - Chief Executive Officer Eric Zhou - Chief Financial Officer Conference Call Participants Janet Zhang - China Evergreen Asset Management Operator Good day, ladies and gentlemen, and thank you for your patience. You’ve joined Xunlei’s Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We wil ...

Xunlei Limited (NASDAQ:XNET) Q1 2020 Earnings Conference Call May 14, 2020 8:00 AM ET Company Participants Charlene Lu - Manager, IR Jinbo Li - CEO Eric Zhou - CFO Conference Call Participants Trista Yang - Noah Group Operator Good day, ladies and gentlemen. And thank you for your patience. You've joined Xunlei's First Quarter of 2020 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. We will have a Q&A session after few management remarks. I would now like to turn t ...

Part I [Key Information](index=8&type=section&id=Item%203.%20Key%20Information) This section presents selected historical financial data for the five years ended December 31, 2019, highlighting revenue decline and widening net loss, alongside significant business and regulatory risks [Selected Financial Data](index=8&type=section&id=A.%20Selected%20Financial%20Data) Selected Consolidated Statements of Comprehensive Income/(Loss) Data (in thousands of US$) | (in thousands of US$) | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues, net** | 104,837 | 140,985 | 201,911 | 232,132 | 181,267 | | **Gross profit** | 45,271 | 60,278 | 82,707 | 114,937 | 80,752 | | **Operating loss** | (31,521) | (41,502) | (54,201) | (44,329) | (56,422) | | **Loss from continuing operations** | (18,567) | (30,806) | (44,216) | (40,793) | (53,415) | | **Net loss** | (14,466) | (24,183) | (37,809) | (39,490) | (53,415) | | **Net loss attributable to Xunlei Limited's common shareholders** | (13,167) | (24,111) | (37,822) | (39,278) | (53,169) | | **Net loss per ADS (Basic & Diluted)** | (0.20) | (0.36) | (0.57) | (0.59) | (0.79) | Selected Consolidated Balance Sheets Data (in thousands of US$) | (in thousands of US$) | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total assets** | 538,361 | 509,795 | 533,437 | 455,431 | 424,687 | | **Total liabilities** | 93,680 | 103,545 | 150,600 | 111,251 | 129,144 | | **Total shareholders' equity** | 446,749 | 408,238 | 384,997 | 345,296 | 296,878 | Selected Consolidated Statements of Cash Flows Data (in thousands of US$) | (in thousands of US$) | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- |\n| **Net cash from/(used in) operating activities** | 13,764 | 16,970 | (14,216) | (35,608) | (45,649) | | **Net cash (used in)/generated from investing activities** | (54,982) | (158,335) | 35,208 | (69,357) | 79,260 | | **Net cash generated from/(used in) financing activities** | 5,030 | (11,041) | 2,561 | 929 | 12,177 | [Risk Factors](index=10&type=section&id=D.%20Risk%20Factors) - The company's business model is undergoing significant innovation and transition towards mobile internet, cloud computing, and blockchain technology. Historical growth may not be indicative of future performance, and new business initiatives face substantial uncertainties and risks[32](index=32&type=chunk)[33](index=33&type=chunk) - The emerging blockchain industry in China is subject to developing and evolving laws. Failure to comply with current or future regulations, such as the Blockchain Provisions, could materially and adversely affect the business[34](index=34&type=chunk)[35](index=35&type=chunk) - The company faces risks of copyright infringement claims. As of the report date, it was involved in **20 copyright lawsuits** in China with total claimed damages of approximately **RMB54.2 million (US$7.8 million)**[49](index=49&type=chunk)[51](index=51&type=chunk) - The company's ability to retain its large user base (**88.3 million monthly unique visitors** in Dec 2019) and convert them to subscribers is a key risk. The subscriber base decreased from **4.4 million** in 2014 to **4.0 million** as of Dec 31, 2019, partly due to intensified government scrutiny of internet content[34](index=34&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - The company's corporate structure relies on contractual arrangements with its Variable Interest Entity (VIE), Shenzhen Xunlei, due to PRC restrictions on foreign investment in internet businesses. This structure carries risks related to enforceability and potential conflicts of interest[172](index=172&type=chunk)[174](index=174&type=chunk) - The company believes it was a Passive Foreign Investment Company (PFIC) for the 2019 tax year and will likely be a PFIC for 2020, which could result in significant adverse U.S. federal income tax consequences for U.S. investors[303](index=303&type=chunk)[304](index=304&type=chunk) [Information on the Company](index=62&type=section&id=Item%204.%20Information%20on%20the%20Company) Xunlei, a Chinese innovator in shared cloud computing and blockchain, operates an internet platform through a VIE structure, focusing on mobile and ThunderChain development [History and Development of the Company](index=62&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) - Commenced operations in January 2003 through Shenzhen Xunlei. Established Xunlei Limited as a Cayman Islands holding company in February 2005[306](index=306&type=chunk)[307](index=307&type=chunk) - Completed its Initial Public Offering (IPO) on the NASDAQ Global Select Market under the symbol "XNET" in June 2014[316](index=316&type=chunk) - As part of a strategy to streamline its business and focus on mobile internet, the company completed the sale of its entire stake in Xunlei Kankan in July 2015 for **RMB 130.0 million**[317](index=317&type=chunk) - Expanded overseas by establishing a subsidiary in Thailand in July 2018 to engage in cloud computing and blockchain business[315](index=315&type=chunk) [Business Overview](index=63&type=section&id=B.%20Business%20Overview) - Xunlei is a leading innovator in shared cloud computing and blockchain technology in China, providing services like cloud acceleration, blockchain platforms (ThunderChain), live streaming, and online games[320](index=320&type=chunk) - The core product, Xunlei Accelerator, had approximately **88.3 million monthly unique visitors** in December 2019. The subscriber base for premium services was **4.0 million** as of December 31, 2019[321](index=321&type=chunk)[340](index=340&type=chunk) - The company is transitioning to mobile, with its Mobile Xunlei app having an average of **6.6 million daily active users** in 2019. A key partnership with Xiaomi involves pre-installing the mobile acceleration plug-in on Xiaomi phones[324](index=324&type=chunk)[325](index=325&type=chunk) - A key strategy involves crowdsourcing idle bandwidth and storage from users via hardware like OneThing Cloud to power its Content Delivery Network (CDN) services and reduce bandwidth costs[326](index=326&type=chunk) - Launched ThunderChain in 2018, a high-performance blockchain open platform enabling enterprise users to develop and manage blockchain applications, capable of processing over **a million transactions per second**[328](index=328&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk) Revenue Breakdown (2017-2019) | Revenue Source | 2017 (US$M) | 2018 (US$M) | 2019 (US$M) | | :--- | :--- | :--- | :--- | | Subscriptions | 85.0 | 81.9 | 81.5 | | Online advertising | 22.5 | 27.8 | 15.6 | | Product revenue | 32.9 | 54.6 | 8.3 | | Cloud computing & other IVAS | 61.6 | 67.9 | 75.8 | | **Total** | **201.9** | **232.1** | **181.3** | [Organizational Structure](index=97&type=section&id=C.%20Organizational%20Structure) - Xunlei Limited is a Cayman Islands holding company that operates its PRC business primarily through a Variable Interest Entity (VIE) structure to comply with Chinese regulations restricting foreign investment in internet and telecommunications services[498](index=498&type=chunk)[762](index=762&type=chunk) - The VIE is Shenzhen Xunlei Networking Technologies Co., Ltd. The structure is maintained through a series of contractual arrangements between the wholly-owned subsidiary Giganology (Shenzhen) Ltd. and Shenzhen Xunlei and its shareholders[499](index=499&type=chunk)[500](index=500&type=chunk) - Key contractual agreements that provide effective control and transfer economic benefits include: Business Operation Agreement, Equity Pledge Agreement, Powers of Attorney, Exclusive Technology Support and Services Agreements, and Equity Interests Disposal Agreement[500](index=500&type=chunk)[501](index=501&type=chunk)[502](index=502&type=chunk)[503](index=503&type=chunk)[508](index=508&type=chunk) - As of the report date, Mr. Sean Shenglong Zou, a co-founder and director, owned **76.0%** of Shenzhen Xunlei's equity interests[499](index=499&type=chunk) [Property, Plant and Equipment](index=101&type=section&id=D.%20Property%20Plant%20and%20Equipment) - The company's principal executive offices are leased in Shenzhen, comprising approximately **7,575 square meters**. It also leases office space in Beijing, Xian, and Hong Kong[514](index=514&type=chunk) - Servers are primarily hosted at internet data centers owned by major domestic providers, with hosting agreements typically having one-year terms[514](index=514&type=chunk) [Operating and Financial Review and Prospects](index=101&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) Fiscal year 2019 saw total revenues decrease by **21.9%** to **$181.3 million**, leading to a wider operating loss and persistent negative operating cash flow [Operating Results](index=102&type=section&id=A.%20Operating%20Results) Revenue by Segment (2017-2019, in thousands of US$) | Revenue Segment | 2017 (in thousands of US$) | 2018 (in thousands of US$) | 2019 (in thousands of US$) | | :--- | :--- | :--- | :--- | | Subscriptions | 84,956 | 81,877 | 81,532 | | Online advertising | 22,484 | 27,781 | 15,643 | | Product revenue | 32,894 | 54,604 | 8,269 | | Cloud computing and other IVAS | 61,577 | 67,870 | 75,823 | | **Total** | **201,911** | **232,132** | **181,267** | - **2019 vs. 2018:** - **Total Revenues** decreased by **21.9%** from **$232.1M** to **$181.3M**, mainly due to a sharp decline in OneThing cloud hardware sales and reduced demand for online advertising services[564](index=564&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk)[583](index=583&type=chunk) - **Gross Profit** decreased by **29.7%** from **$114.9M** to **$80.8M**. Gross margin fell from **49.5%** to **44.5%**[564](index=564&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk)[583](index=583&type=chunk) - **Operating Expenses** decreased by **13.9%** to **$137.2M**, driven by lower R&D and sales & marketing costs[564](index=564&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk)[583](index=583&type=chunk) - **Operating Loss** widened from **$44.3M** to **$56.4M**[564](index=564&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk)[583](index=583&type=chunk) - **Net Loss Attributable to Xunlei Limited** increased from **$39.3M** to **$53.2M**[564](index=564&type=chunk)[573](index=573&type=chunk)[574](index=574&type=chunk)[583](index=583&type=chunk) - **2018 vs. 2017:** - **Total Revenues** increased by **15.0%** from **$201.9M** to **$232.1M**, driven by product sales, live streaming, and mobile advertising[584](index=584&type=chunk)[593](index=593&type=chunk)[594](index=594&type=chunk)[601](index=601&type=chunk) - **Gross Profit** increased by **39.0%** from **$82.7M** to **$114.9M**. Gross margin improved from **41.0%** to **49.5%** due to high-margin product sales and lower bandwidth costs[584](index=584&type=chunk)[593](index=593&type=chunk)[594](index=594&type=chunk)[601](index=601&type=chunk) - **Operating Expenses** increased by **16.3%** to **$159.3M**, due to investment in cloud computing and blockchain, and higher staff costs[584](index=584&type=chunk)[593](index=593&type=chunk)[594](index=594&type=chunk)[601](index=601&type=chunk) - **Operating Loss** narrowed from **$54.2M** to **$44.3M**[584](index=584&type=chunk)[593](index=593&type=chunk)[594](index=594&type=chunk)[601](index=601&type=chunk) - **Net Loss Attributable to Xunlei Limited** increased slightly from **$37.8M** to **$39.3M**[584](index=584&type=chunk)[593](index=593&type=chunk)[594](index=594&type=chunk)[601](index=601&type=chunk) [Liquidity and Capital Resources](index=122&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) - As of December 31, 2019, the company had **$265.3 million** in cash, cash equivalents, and short-term investments[663](index=663&type=chunk) Summary of Cash Flows (in thousands of US$) | (in thousands of US$) | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | (14,216) | (35,608) | (45,649) | | **Net cash from/(used in) investing activities** | 35,208 | (69,357) | 79,260 | | **Net cash from financing activities** | 2,561 | 929 | 12,177 | - The company has experienced persistent negative cash flow from operating activities, worsening from **-$14.2 million** in 2017 to **-$45.6 million** in 2019[669](index=669&type=chunk)[670](index=670&type=chunk) - The ability to transfer funds from PRC subsidiaries is restricted. As of December 31, 2019, the amount of restricted net assets (registered capital and statutory reserves) was **US$245.9 million**[665](index=665&type=chunk) [Contractual Obligations](index=125&type=section&id=F.%20Contractual%20Obligations) Contractual Obligations as of December 31, 2019 (in thousands of US$) | Obligation Type | Total (in thousands of US$) | Less than 1 year (in thousands of US$) | 1-3 years (in thousands of US$) | 3-5 years (in thousands of US$) | More than 5 years (in thousands of US$) | | :--- | :--- | :--- | :--- | :--- | :--- | | Bandwidth lease obligations | 12,033 | 7,918 | 4,115 | — | — | | Capital obligations | 22,510 | 21,453 | 1,057 | — | — | | **Total** | **34,543** | **29,371** | **5,172** | **—** | **—** | [Directors, Senior Management and Employees](index=126&type=section&id=Item%206.%20Directors%2C%20Senior%20Management%20and%20Employees) This section details the company's leadership, compensation, and board practices, including executive compensation and share incentive plans - As of the report date, Jinbo Li was Chairman and CEO, Sean Shenglong Zou and Hao Cheng were Co-Founders and Directors, and Naijiang (Eric) Zhou was CFO[687](index=687&type=chunk) - For fiscal year 2019, aggregate cash compensation paid to executive officers was approximately **US$0.6 million**, and **US$0.1 million** was paid to two non-executive directors[698](index=698&type=chunk) - The company has three active share incentive plans: the 2010 Plan, 2013 Plan, and 2014 Plan, used to grant options and restricted shares to employees, directors, and consultants[699](index=699&type=chunk) - As of December 31, 2019, the company had **1,070 employees**, with the majority (**839**) in research and development[747](index=747&type=chunk) [Major Shareholders and Related Party Transactions](index=135&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section outlines major shareholders, with Itui International Inc. as the largest, and details significant related party transactions, particularly through the VIE structure and Xiaomi affiliations Principal Shareholders as of April 15, 2020 | Shareholder | Number of Shares | Percentage Ownership | | :--- | :--- | :--- | | **Directors and executive officers (as a group)** | **161,997,127** | **47.7%** | | Jinbo Li (beneficial owner) | 135,320,239 | 39.8% | | Sean Shenglong Zou | 22,931,611 | 6.8% | | **Principal Shareholders (>5%)** | | | | Itui International Inc. | 135,320,239 | 39.8% | | Yong Rong (HK) Asset Management Limited | 49,398,310 | 14.5% | - The company's operations are conducted through contractual arrangements with its VIE, Shenzhen Xunlei, which constitutes a significant related party relationship[762](index=762&type=chunk) - Significant related party transactions exist with Xiaomi-affiliated companies. In 2019, Xunlei recognized **US$2.5 million** in revenue from Guangzhou Millet for technology solution services and **US$2.7 million** in cloud computing revenue from Beijing Xiaomi and Xiaomi Technology[776](index=776&type=chunk)[777](index=777&type=chunk) [Financial Information](index=140&type=section&id=Item%208.%20Financial%20Information) This section covers legal proceedings, including copyright infringement and a dismissed U.S. shareholder class action, and states the company's policy of not paying cash dividends - The company is frequently involved in legal proceedings, primarily related to alleged copyright infringement in China[779](index=779&type=chunk) - A putative shareholder class action lawsuit filed in the U.S. alleging that its OneCoin (LinkToken) was a disguised "initial coin offering" was dismissed with prejudice in September 2019[779](index=779&type=chunk) - The company has not declared or paid cash dividends and does not plan to in the foreseeable future, intending to retain earnings for business operations and expansion[781](index=781&type=chunk) [Additional Information](index=142&type=section&id=Item%2010.%20Additional%20Information) This section outlines the company's tax obligations in the Cayman Islands and PRC, including preferential rates for HNTEs, and notes its likely PFIC status for U.S. investors - **Cayman Islands Taxation:** The company is not subject to taxes on profits, income, or capital gains in the Cayman Islands[790](index=790&type=chunk) - **PRC Taxation:** The standard Enterprise Income Tax (EIT) rate is **25%**. However, qualified "High and New Technology Enterprises" (HNTEs) can enjoy a reduced rate of **15%**. Several of the company's PRC entities, including Shenzhen Xunlei and Xunlei Computer, qualified for this preferential rate[1094](index=1094&type=chunk)[1096](index=1096&type=chunk)[1097](index=1097&type=chunk) - **U.S. Federal Income Tax:** The company believes it was a Passive Foreign Investment Company (PFIC) for its 2019 taxable year and likely will be for 2020. This status can have significant adverse tax consequences for U.S. Holders of its ADSs or common shares[801](index=801&type=chunk)[807](index=807&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=148&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks are foreign exchange risk due to RMB-USD fluctuations and interest rate risk from cash deposits, with significant cash balances held in both currencies - The primary market risk is foreign exchange risk due to the fluctuation of the RMB against the U.S. dollar, as revenues are denominated in RMB while ADSs are traded in USD[819](index=819&type=chunk) - As of December 31, 2019, the company held RMB-denominated cash, cash equivalents, and short-term investments of **RMB 345.8 million** (approx. **US$49.6 million**) and U.S. dollar-denominated balances of **US$218.4 million**[821](index=821&type=chunk) - Interest rate risk is mainly related to interest income from bank deposits and is not considered a material risk[824](index=824&type=chunk) Part II [Controls and Procedures](index=150&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that as of December 31, 2019, the company's disclosure controls and procedures were effective[830](index=830&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[834](index=834&type=chunk) - The independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, audited and confirmed the effectiveness of the company's internal control over financial reporting as of December 31, 2019[835](index=835&type=chunk) [Corporate Governance](index=153&type=section&id=Item%2016G.%20Corporate%20Governance) As a foreign private issuer, Xunlei follows Cayman Islands corporate governance practices, deviating from NASDAQ rules regarding annual meetings, board independence, and committee composition - Xunlei follows its home country (Cayman Islands) practices in lieu of certain NASDAQ corporate governance requirements[849](index=849&type=chunk) - Key deviations from NASDAQ rules include: - Not required to hold an annual shareholder meeting[849](index=849&type=chunk)[850](index=850&type=chunk)[851](index=851&type=chunk)[852](index=852&type=chunk) - Board of directors is not required to have a majority of independent directors[849](index=849&type=chunk)[850](index=850&type=chunk)[851](index=851&type=chunk)[852](index=852&type=chunk) - Audit committee has two members instead of the required three[849](index=849&type=chunk)[850](index=850&type=chunk)[851](index=851&type=chunk)[852](index=852&type=chunk) - Nominating and compensation committees are not composed solely of independent directors[849](index=849&type=chunk)[850](index=850&type=chunk)[851](index=851&type=chunk)[852](index=852&type=chunk) Part III [Financial Statements](index=154&type=section&id=Item%2018.%20Financial%20Statements) This section presents the audited consolidated financial statements for 2017-2019, prepared under U.S. GAAP, including the independent auditor's unqualified opinion and key financial statements - The report includes the audited consolidated financial statements for the years ended December 31, 2017, 2018, and 2019[858](index=858&type=chunk) - The independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[866](index=866&type=chunk)[867](index=867&type=chunk) Consolidated Balance Sheet Summary (in thousands of US$) | (in thousands of US$) | Dec 31, 2018 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | 362,899 | 316,583 | | **Total Assets** | 455,431 | 424,687 | | **Total Current Liabilities** | 108,035 | 111,286 | | **Total Liabilities** | 111,251 | 129,144 | | **Total Shareholders' Equity** | 344,180 | 295,543 | Consolidated Statements of Comprehensive Loss Summary (in thousands of US$) | (in thousands of US$) | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | **Net Revenues** | 200,583 | 230,604 | 180,665 | | **Gross Profit** | 82,707 | 114,937 | 80,752 | | **Operating Loss** | (54,201) | (44,329) | (56,422) | | **Net Loss Attributable to Xunlei Limited** | (37,822) | (39,278) | (53,169) |

Financial Data and Key Metrics Changes - Total revenues for Q4 2019 were $48.3 million, up 10.2% from the previous quarter [21] - Revenues from cloud computing and IVAS were $24.6 million, representing an increase of 18% sequentially [21] - Net loss for Q4 2019 was approximately $18.1 million, an improvement from a net loss of $24.6 million in the previous quarter [26] - For the full year 2019, total revenues were $181.3 million, down 21.9% year-over-year [27] Business Line Data and Key Metrics Changes - Revenues from subscriptions in Q4 2019 were $19.8 million, a 2.9% increase from the previous quarter, with subscribers increasing from 3.8 million to 4.0 million [7][22] - Online advertising revenues were $3.9 million, up 3.9% from the previous quarter, but down 43.7% year-over-year [8][28] - Revenues from cloud computing and IVAS declined 31.3% year-over-year, primarily due to reduced OneThing Cloud hardware sales [6][27] Market Data and Key Metrics Changes - The company reported strong operational execution in cloud computing, with significant growth in bandwidth sales, which more than doubled compared to the previous year [9][37] - The online advertising segment faced challenges due to reduced demand from the mobile gaming industry [8] Company Strategy and Development Direction - The company is transitioning to shared cloud computing and blockchain technologies to meet emerging user needs and has developed competitive strengths in these areas [9][10] - Xunlei aims to expand its shared cloud computing capacity and implement a hybrid development strategy to reduce reliance on traditional bandwidth suppliers [16][44] - The company is focusing on maintaining high-caliber research and development to enhance its competitive edge in cloud computing and blockchain [12][13] Management's Comments on Operating Environment and Future Outlook - Management noted that the coronavirus situation has limited business visibility but has not significantly impacted operations, with some positive effects observed in cloud computing and subscription services [35][36] - The company expects total revenues for Q1 2020 to be between $47 million and $51 million, indicating a quarter-over-quarter increase [32] Other Important Information - The company has established partnerships with leading internet companies in China and has made progress in blockchain development, including collaborations with government bodies [10][12] - Xunlei has been recognized for its innovation in AI and cloud computing technologies, winning several awards [13] Q&A Session Summary Question: Exposure to COVID-19 and its impact on business - Management confirmed no direct exposure to the epicenter and noted that operations have not been significantly affected in the short term, with some positive impacts on cloud computing and subscription services [35][36] Question: Expectations for growth in 2020 - Management expressed confidence in growth driven by distributed computing technologies and noted that while revenues declined in 2019, bandwidth sales have been growing rapidly [37] Question: Competitive advantage in the cloud market - Management highlighted the unique approach of utilizing small hardware devices to collect bandwidth and computing power, differentiating from larger competitors like Alibaba and Tencent [41][42] Question: Ability of established players to replicate Xunlei's strategy - Management stated that they do not comment on competitors but emphasized their established market leadership and ongoing investment in technology and resources [46]

Financial Data and Key Metrics Changes - Total revenue for Q3 2019 was approximately $43.8 million, down 8.3% from the previous quarter, primarily due to lower subscription and live streaming revenues [5][23] - Subscription revenues were $19.2 million, a decrease of approximately 10% from the previous quarter, with the subscriber base declining from 4.3 million to 3.8 million [21][23] - Average revenue per subscriber increased to RMB35.1 from RMB33.9 in the previous quarter [21] - Gross profit was $19.3 million, down 13.6% from the second quarter, with a gross margin of 44.1% compared to 46.7% in the previous quarter [24] - Net loss for Q3 was approximately $24.6 million, compared to a net loss of $2 million in the previous quarter [26] Business Line Data and Key Metrics Changes - Revenues from cloud computing and other IVAS combined were $20.9 million, representing a decrease of 7.4% sequentially, mainly due to reduced promotional activities affecting live streaming revenues [23] - Revenues from online advertising were $3.7 million, down 4.4% from the previous quarter, primarily due to a decline in mobile advertising revenues [21][23] - Live streaming revenues declined due to seasonal conditions and fewer promotional activities [20] Market Data and Key Metrics Changes - Demand for cloud computing services remained strong, driven by enterprise clients such as Baidu, Youku, iQiyi, and Xiaomi [12] - The company anticipates significant growth in the IoT space and related industries, which will drive demand for edge computing [13] Company Strategy and Development Direction - The company is focusing on building its presence in the cloud computing market, which is seen as a high growth opportunity [6] - Xunlei is committed to advancing its mission of empowering individuals through technological innovation and the development of a shared cloud computing and blockchain-based ecosystem [7] - The company aims to leverage shared cloud computing and AI technologies to provide efficient and cost-effective solutions for enterprise users [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential of shared cloud computing and blockchain technology, highlighting the importance of these areas for long-term growth [11][22] - The company is aware of the challenges in the blockchain space, including the need for high performance, data protection, and regulatory compliance [16][31] - Management expects total revenues for Q4 2019 to be between $45 million and $50 million, indicating a quarter-over-quarter increase of about 8.4% [26] Other Important Information - The company successfully dismissed a securities class action complaint against it, which was filed in January 2018 [10] - The company has obtained blockchain registration numbers from the Cyberspace Administration of China for its key blockchain projects [9][18] Q&A Session Summary Question: Has the company generated any material income from blockchain-related products? - Management indicated that while blockchain technology provides potential business benefits, income from blockchain has not yet become a large portion of total revenue [30][31] Question: When does the company expect to generate material revenues from the blockchain business, and what are the major obstacles? - Management highlighted the need for government policy support and industry motivation to upgrade existing business structures as key obstacles to widespread blockchain adoption [31][32] Question: Can the company disclose the number of enterprise customers using ThunderChain? - Management mentioned several enterprise customers leveraging ThunderChain technology but did not disclose specific numbers [35]

Xunlei Limited (NASDAQ:XNET) Q2 2019 Results Conference Call August 14, 2019 8:00 AM ET Company Participants Charlene Lu - Investor Relations Manager Lei Chen - Chief Executive Officer Eric Zhou - Chief Financial Officer Conference Call Participants Operator Good morning and thank you for standing by for Xunlei's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We have a Q&A session after a few management's remarks. I will now turn the turn the call ove ...

Xunlei Limited (NASDAQ:XNET) Q1 2019 Results Earnings Conference Call May 13, 2019 8:00 AM ET Company Participants Charlene Lu - Manager, Investor Relations Lei Chen - Chief Executive Officer Eric Zhou - Chief Financial Officer Conference Call Participants Operator Good morning and thank you for standing by for Xunlei's First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will have a question and answer session after a few management's remarks. I will now ...

User Growth and Engagement - Xunlei reported a significant increase in daily active users, reaching 10 million, representing a 25% year-over-year growth[10] - Xunlei's premium acceleration service subscribers grew to 2 million, up 30% from the prior year[10] - The platform had approximately 128.4 million monthly unique visitors in December 2018, highlighting significant user engagement[38] Financial Performance - The company achieved a revenue of $150 million for the fiscal year, marking a 15% increase compared to the previous year[18] - Xunlei's operating margin improved to 25%, an increase of 5 percentage points from the previous year[18] - Xunlei's cash flow from operations was reported at $30 million, reflecting a 20% increase year-over-year[18] - Net revenues for 2018 were $230,604 thousand, an increase of 15% compared to 2017's $200,583 thousand[19] - Gross profit for 2018 reached $114,937 thousand, representing a gross margin of approximately 50%[19] - Operating loss for 2018 was $44,329 thousand, a decrease from the operating loss of $54,201 thousand in 2017[19] - The net loss attributable to Xunlei Limited in 2018 was $(39,278) thousand, compared to $(37,822) thousand in 2017[19] - Basic net loss per share attributable to Xunlei Limited from continuing operations was $(0.12) in 2018, compared to $(0.13) in 2017[19] Investment and Development Plans - The company plans to invest $20 million in new product development and technology enhancements in the upcoming fiscal year[13] - The company plans to invest a total of RMB600.0 million ($87.4 million) in constructing a new research and development center and headquarters, with a loan facility agreement in place for up to RMB400.0 million ($58.2 million)[114] - The company has invested significantly in research and development to maintain technology leadership, with expectations of increased R&D expenses in the near term[107] Market Expansion and Strategy - Xunlei aims to expand its market presence in Southeast Asia, targeting a 10% market share by 2025[13] - The company has initiated a strategic partnership with a leading gaming company to enhance its digital media content offerings[13] - The company established a joint venture in Thailand in July 2018 to expand its business into overseas markets, facing risks such as increased competition and compliance with foreign laws[51] Regulatory and Legal Challenges - Regulatory uncertainties regarding LinkToken operations may adversely affect business and results of operations[29] - The company faces ongoing copyright infringement claims, which could divert management's attention and financial resources[41] - The company was required to compensate MPAA for a total of RMB1.4 million (US$0.2 million) due to copyright infringement on 28 video products[43] - The company has faced multiple copyright infringement lawsuits in China, with ongoing claims that may divert management's attention and financial resources[44] - The legal environment in China may limit the company's ability to enforce contractual arrangements, affecting operational control[173] Operational Risks - System failures and cyber-attacks pose risks to user satisfaction and could materially affect the company's financial condition[81] - The company may face significant administrative burdens and litigation risks related to intellectual property infringement claims[61] - The company relies on third-party payment systems for revenue collection, and any failures or security breaches in these systems could adversely affect its business results[124] - The company does not maintain insurance for network system losses, which could lead to material adverse impacts on revenues in case of system failures[83] Competition and Market Dynamics - The live video industry is highly competitive, and the company may struggle to compete effectively and achieve continued growth[71] - The company faces significant competition in the cloud acceleration market, particularly from major players like Tencent and Baidu, which could impact its market position and subscriber retention[119] - The traditional PC-based download acceleration subscriptions have experienced declines due to changing user behaviors and increased government scrutiny[28] Financial Health and Liquidity - The company had net operating cash outflows of $14.2 million in 2017 and $35.6 million in 2018, indicating potential liquidity pressure in the future if sufficient cash from operating activities cannot be generated[112] - As of December 31, 2018, the company had cash, cash equivalents, and short-term investments totaling $319.5 million, but may face liquidity challenges if operating cash flows do not improve[114] - The company may face limitations on making loans to its PRC subsidiaries, which could adversely affect its liquidity and ability to fund operations[183] Intellectual Property and Compliance - The company relies on a combination of patent, trademark, copyright, and trade secret protections, but the effectiveness of these protections in China may be limited compared to other jurisdictions[202] - The company has implemented internal procedures for copyright protection but may still face challenges in identifying infringing content due to the volume of digital media available[60] - Protecting intellectual property rights is costly and time-consuming, and any significant impairment could harm competitiveness[66] User Retention and Advertising - The subscriber base decreased from 4.4 million as of December 31, 2014, to 3.8 million as of December 31, 2018, indicating a decline in user retention[28] - Online advertising revenue decreased from US$38.4 million in 2014 to US$4.8 million in 2015, but increased to US$27.8 million in 2018 due to optimized pricing strategies[86] - The number of advertisers using online advertising services decreased from 252 in 2014 to 89 in 2018, indicating a significant loss of advertising partners[86] Future Outlook and Challenges - The company expects to maintain a revenue growth rate of 12-15% for the next fiscal year[13] - Future financing for business expansion is uncertain and dependent on market conditions and the company's financial health[104] - The enactment of the PRC Foreign Investment Law may introduce uncertainties regarding the company's corporate structure and governance[189]

Financial Data and Key Metrics Changes - For Q4 2018, total revenue was approximately $42.3 million, a decrease of 6.6% from the previous quarter [18] - Gross margin increased from 41% to 49.5% year-over-year, indicating improved product reception [12][24] - Net loss from continuing operations was $32.4 million in Q4 2018, compared to a net loss of $15.9 million in the previous quarter [21] Business Line Data and Key Metrics Changes - Revenue from cloud computing and IVAS was $18.1 million, a decrease of 8.5% from the previous quarter, primarily due to hardware sales decline [18] - Subscription revenues were $18.2 million, down 4.8% from the previous quarter, attributed to a drop in average revenue per user [18] - Online advertising revenues decreased by 6.3% sequentially, mainly due to reduced demand from game advertisers [15] Market Data and Key Metrics Changes - The number of subscribers increased to 3.78 million as of December 31, 2018, up from 3.4 million as of September 30, 2018 [19] - Bandwidth costs in Q4 2018 were $9.3 million, representing 22% of total revenues, down from $10.2 million in the previous quarter [19] Company Strategy and Development Direction - The company is transitioning from a traditional Internet company to a technology provider focused on shared cloud computing and blockchain technology [5][6] - Strategic partnerships, such as with China Mobile IoT, aim to enhance the integration of shared cloud computing and blockchain into emerging IoT technologies [9] - The focus for 2019 includes expanding bandwidth capacity and improving traditional business performance while supporting blockchain use cases [30] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about continued growth in shared computing despite macroeconomic headwinds [10] - The company expects total revenues for Q1 2019 to be between $39 million and $43 million, indicating a quarter-over-quarter decrease of about 3% [27] Other Important Information - The company has submitted numerous patent applications related to blockchain technology, positioning itself for future market opportunities [10][32] - The OneThing Cloud mini, a new smart device designed to aggregate idle computing resources, received recognition at CES 2019 [13] Q&A Session Summary Question: What is the growth strategy for 2019? Which business lines will be the priority? - The company will focus on cloud acceleration, shared cloud computing, and blockchain technologies, with an emphasis on expanding bandwidth capacity and improving traditional business performance [30] Question: What are the latest developments in the blockchain business? - Recent practical use cases have been launched on the ThunderChain Open Platform, with partnerships across various industries [32] Question: How has the bandwidth sold in the CDN business changed? - Sold bandwidth has increased significantly, but competitive pricing has limited revenue growth despite increased sales [33][34]