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]