Dani Zhang - Manager, IR Sean Zou - Chairman and CEO Lei Chen - Co-CEO Tom Wu - CFO.

Analysts:.

Good morning and thank you for standing by for Xunlei's Fourth Quarter and Fiscal Year 2015 Earnings Conference Call. At this time, all participants are in listen-only-mode. After Management's prepared remarks, there will be a question-and-answer-session. Today's conference call is being recorded.

I would now like to turn the call over to your host today, Ms. Zhang Dani, IR Manager of Xunlei. Please go ahead..

Thank you, Operator. Good morning and good evening. Welcome to Xunlei's fourth quarter 2015 earnings call. I'm Dani Zhang, Investor Relations Manager at Xunlei. With me today on the call are Mr. Sean Zou, our Chairman and CEO; Mr. Lei Chen, our Co-CEO and Mr. Tom Wu, our CFO.

Today's conference call is being broadcasted and a replay of the call will be available on our website following the call. Our earnings release was distributed earlier today and it is now available on the IR section of Xunlei's website as well as Newswire service.

Before we get started, please note 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.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results.

We do not assume any obligations to update any forward-looking statement except as required under applicable law. During this call, we will be referring to both GAAP and non-GAAP financial measures.

The non-GAAP measures are reconciled to the most recent directly comparable to GAAP measures in the tables attached to our earnings release, which can be found again on our IR website. Please note that all numbers are in U.S. dollars unless otherwise stated. I would now turn the call over to our Co-CEO, Lei Chen. Lei, please..

first, to continue to advance on the product and technology front. It is still a fast evolving technology. There is further optimization and the potential to be harnessed. Second, to secure up its revenue and customer size for building up its customer pipeline.

We are also improving our user experiences and customization in order to get more (inaudible) share of existing customers. And third, to ramp our investments in the business, our initial success further anchors our confidence in the future of our cloud business.

Let me comment on our mobility progress, as I mentioned earlier bigger (inaudible) funds will enhance the storage capacity has mentally altered user behavior on how they access on (inaudible) on their mobile phones.

Xunlei has developed a range of mobile products which are increasingly gaining popularity and at the same time starting to generate revenues contributing to our growth. Mobile Xunlei is becoming a popular mobile app. This mobile app allows users to search, download and consume content on their mobile devices in a user friendly way.

Based on our estimates, the common stock based of Mobile Xunlei has exceeded 140 million at the end of December, and daily active user is approaching 9 million, making it one of the largest mobile apps in China.

During the fourth quarter, we started to monetize that mobile traffic through advertising sales, generating mobile advertising revenues for the first time. Moreover, this app is also synergistic with our existing subscriptions business, as it reaches a wider set of user base or at least through multiple devices.

About 28% of all our subscribers for our subscription business join or extend their memberships through this Mobile Xunlei. The development at Mobile Xunlei undoubtedly has helped our subscription business, which is regaining growth trajectory, combining revenues from mobile advertising and the subscriptions revenues through this mobile app.

Mobile revenues accounted for 17% of Xunlei’s total revenues during the fourth quarter, up from 10% the previous quarter, contributing to revenue growth. Our mobile business is further complimented by a partnership with Xiaomi, one of our largest shareholders.

The stock base of Xunlei’s mobile acceleration product in Xiaomi mobile phones continues to increase as a function of Xiaomi’s own sales growth. The daily active user of the mobile acceleration product has reached 27 million, up from 22 million previously, and we are also looking at very closely to profitably monetize the mobile traffic.

I think the key to our local business is how we capture the secular shift of user behavior on the mobile phones, given the changes in devices, and we think that we are involved in a number of interesting applications to benefit from this secular shift, both on our own and through our partnership with Xiaomi.

Before I finish my comments, let me quickly update you on our subscription business. The focus is better customer care through improvement of user interface, new product launch and new services offerings.

Let me give you a couple of examples, we launched (inaudible) or [Quick Bird] in 2015, this product helps subscribers increase overall internet speed rather than speed during downloading, which is our traditional approach.

It is a trusted product which began to gain tractions with both existing subscribers and equally importantly attracting new subscribers. We also started a new service offering Super VIP services which allowed subscribers to enjoy more privileges and services. Since the launch, it has been well received.

Not only would this contribute to ARPU growth in the future, it helps rejuvenate and energize our subscription business. The number of our paid subscribers at the end of the fourth quarter surpassed 5.02 million up from 4.94 million at the end of the previous quarter.

We think through the initiatives I mentioned, we are beginning to regain trajectory of growth for this business. Let me finish by pointing out the revenue guidance for first quarter 2016. The midpoint of the guidance range represents 20% growth on a year-over-year basis. This is probably the fastest growth for Xunlei recently.

We think we have clear positioning of the company, clear strategies and we are squarely focused on executing our strategies. We look forward to updating you on our progress in the near future. I will now turn it over to Tom for more detailed financial review. Tom. .

First of all it was a milestone quarter as Lei mentioned the Project Crystal our anchor - our competing product continue to generate revenues with a growth of 33.9% this quarter as Xunlei recorded mobile application revenue for the first time this quarter.

Total revenues for the quarter were 35.1 million which exceeded the high end of our guidance range. Compare that to the previous quarter, revenues grew by 4.8%. Growth in IVAS revenues which included revenues from Project Crystal and mobile application revenues were the major contributors for a sequential growth.

Subscription revenues were 19.8 million. Excluding currency translation loss, subscription revenues were essentially flat. The number of subscribers at the end of the quarter was 5.02 million, an increase of 80,000 during the quarter. ARPU was RMB25.3, a slight decrease from 25.6 in the previous quarter.

IVAS revenues which included cloud computing revenues were 13.3 million for the quarter. This represented 10% increase from the previous quarter and 21.9% increase on a year-over-year basis. Cost of revenues increased by 12.7% to 70.9 million from 15.8 million in the third quarter of 2015. Bandwidth cost increased from 9.5 million to 10.9 million.

The operating expenses were 23 million an increase from 19.6 million in the third quarter. The increase was primarily attributable to marketing and promotion expenses related to cloud computing. Net loss from continuing operations for the quarter was 4.6 million.

We continue to invest in the range of new technologies and services including our initiatives in mobility as well as cloud computing. These investments are still generating losses. Non-GAAP net loss from continuing operations was 2.2 million. Turning to our balance sheet, we continue to have a strong balance sheet.

We ended the quarter with cash, cash equivalent and short-term investment balance of 432.1 million. Our cash value per ADS was $6.37 at the end of the quarter. Our strong balance sheet should continue to support us to execute our growth strategies on cloud computing and mobility that Lei has outlined in his section.

Let me finish by going over our guidance range for next quarter. We expect our revenues to be between $35 million to $38 million for the first quarter of 2016. The midpoint of the range represents a year-over-year increase of 20.9%. As Lei pointed out, this is probably the fastest growth rate for Xunlei recently.

Cloud computing should be one of the key drivers for the expanded growth, and we look forward to updating everyone in the near future. With that, operator we’ll turn to questions. .

[Operator Instructions] the first question comes from the line of [Trumble Yan], a private investor. Please ask your question..

The first one is, we see the short term investments increase significantly this year. So could you please expand more on that? The second one would be, can you elaborate more on the Project Crystal and please let us know when this project will really take the profit or when will it gain profit in the future.

And last question would be the exchange rates question, just that like Xunlei host US dollars instead of the RMB, so why would there be an exchange [run]. .

Let me take questions one and three and I’ll ask either Lei or Sean to comment on your second question which is on the cloud computing. Your question on the short-term investments and the amount of fluctuations, simply put, it’s a function of our cash management.

So as we have a strong balance sheet, $432 million on the balance sheet and depends on how we deploy the cash from generating interest income. That’s the primary reason behind the fluctuation in short-term investment. Your question on FX loss, I think it depends on what you mean by that.

What we meant in our FX loss when we commented on ARPU fluctuation was primarily a translation loss. So, we hold cash obviously in both RMB and US dollars offshore and onshore. I don’t want to get in to too much in to that. And our reporting currency is US dollar. So it depends on the exchange rate quarter-over-quarter.

There is some FX loss based on what currency you’re talking about. So in large it’s not a major issue, all we tried to comment on was in terms of RMB the exchange rate there was some fluctuation that was the whole point of that. And let me turn over to Lei to answer your second question about profitability of Project Crystal..

The question was when will Project Crystal have profit in the future? Currently the company believes that Project Crystal is a new way of cloud computing and it is innovative and potentially disruptive.

Because we have a strong balance sheet today, and we believe we are in the future of Project Crystal and what it represents in the potential of reducing quickly the cost of computation for the years to come. So we are in a position of investing and accelerate the development of this technology.

We’re starting monetizing the Project Crystal today, but we are not in a hurry to make profit out of it. .

I’ll just add to that [Trumble], I think what we’re trying to say is really it’s still in the investment phase of the technology, number one. Number two, potentially we believe it’s an innovative and disruptive technology. But the third point really is that what you were getting at.

We are still in the investment phase of this technology even though, we achieved very solid milestones for this quarter. So we’re not forecasting for the street yet, but this much I can add, most of the losses for the company if almost all, most of the losses came from our investments in Project Crystal.

And we do not believe for the next short run not going to change anytime soon, because we think 2016 remains as an investment for us. But it’s critical for us to invest in it, because we believe the trajectory of the business and we believe that it’s important for us to invest in the growth drivers for the company.

Operator, are there other questions?.

Not at this time sir. [Operator Instructions]..

If there are no more questions, thank you for joining us today. And we’ll look forward to updating you in the near future. Thank you. Good morning and good evening. .

Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating, you may all disconnect the lines now. Thank you..