Good day, ladies and gentlemen, and thank you for your patience. You’ve joined Xunlei’s Fourth Quarter and Full Year of 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a Q&A session after the management remarks. I would now like to turn the call over to your host, Investor Relations Manager, Ms.

Mengnan Gao..

Thank you. Good morning, and good evening. Thank you for joining Xunlei’s fourth quarter and full year of 2020 earnings conference call. Our agenda today Mr. Jinbo Li, our CEO will provide brief overview of our strategies and financial performance. After that Ms.

Eric Zhou, our CFO will provide additional details on the financial results and wrap up with our revenue guidance for the first quarter of 2021. We’ll be happy to take your questions after our management remarks. Please limit to two questions at a time. So others can get their question in as well.

Today’s conference call is being recorded, and a replay of the call will be available on our IR website afterwards. Our earnings press release was distributed earlier today, and is now also available on our IR website. Please note that 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 management’s current expectations under current 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. We do not undertake any duty to update any forward-looking statements except as required under applicable laws. During the call, I’ll refer to our 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, unless otherwise stated. And with that, let me pass to our CEO, Mr. Jinbo Li, for prepared remarks..

[Foreign Language] Good morning, and good evening, everyone. Welcome to Xunlei’s fourth quarter and full year 2020 earnings conference call. Completing the year of 2020 with a strong fourth quarter, we’re happy to share with you the company’s recent developments and outlook.

[Foreign Language] The fourth quarter of 2020 was a quarter of accomplishments and progresses would be the high end of revenue guidance with $50.3 million for the revenue, a 15% growth sequentially. In particular, we have steadily improved the both gross margin and a pretty operational efficiency.

As a result, we achieved the profitability in the fourth quarter and ended the quarter with a higher cash position than previous quarter. I believe Xunlei the well-positioned to cope with challenges and capturing growth opportunities.

[Foreign Language] Now, I like to give you a recap of the financial highlights of the fourth quarter and full year of 2020. Our total revenues in the fourth quarter were $50.3 million, representing 15% increased sequentially, which was driven by revenue increases across our business segment.

Especially revenues from our cloud computing and other IVAS services grew by 22% sequentially as a result of the revenue demand from our enterprises clients. Revenues for our subscription business reached $20.7 million to a number of operational optimization initiatives. Our online advertising business rebounded with 27.6% sequential increase.

The overall gross margin expanded to 53.3% from 51.9% in previous quarter, reaching a record high level for the past three years. On top of that, we achieved profitability in the fourth quarter with $4.6 million net profit.

At the end of fourth quarter, our cash, cash equivalents and short-term investments reached approximately $205 million, compared with $246 million in a previous quarter. [Foreign Language] Let’s take a look at a year of 2020. Total revenues for 2020 were $187 million, a 3% year-over-year increase.

Our revenue growth also came along with gross margin and bottom line improvement demonstrating our solid execution of operational optimization. I believe these positive results well-positioned us well for strong start as we’re heading to the New Year. [Foreign Language] The year of 2020 was a year of transition and progresses.

We started this journey with the establishment of the short-term framework to compound the three pillars, which were focusing our core technological edges, enhancing operational efficiencies and upgrading organizational capability.

Today, we are confident to say that our team has exceptionally achieved these goals with the business turn around the results for the fourth quarter of 2020. And I’m optimistic that we could carry the momentum into the future. [Foreign Language] Now, I’d like to review some of our recent progresses for our major business segments.

[Foreign Language] Let’s begin with our subscription business. We have lately made some strides in providing our subscribers with additional premium features, including cloud storage. Through enhancing user experience, our subscribers structure is moving to where the one with increased fee-paying users.

Meanwhile, our monetization capabilities continue to improve resulting pensions of our high value subscribers and improve the retention rate. On top of that, by implementing disciplined cost control measures and operational enhancements, we proved with margin for our subscription business.

[Foreign Language] Our revenue growth in the fourth quarter of 2020 was also driven by a rebound of our advertising business, a 27.6% increase quarter-over-quarter. They improved advertisement replacement by applying proprietary precision targeting algorithm from our partners.

The sophisticated algorithm helped us better target customers and increase the effectiveness of the apps in our platform. As a result, we realized improved average advertising pricing per user and increase our revenue.

[Foreign Language] Now turning to our cloud computing business, our competitiveness is rooted in our capabilities and technological innovation and the resource pooling. The strong growth in the fourth quarter made us one step closer to achieving the economy of scale for profitability of our cloud computing services.

We believe the demand from our enterprise clients remain high and we will continue the growth. At the same time, our technological progresses having able to us to expand with improved the profitability. [Foreign Language] At the end of 2020, our monthly sales benefits reached a record high.

Revenue from bandwidth sales during 2020 grew by 51%, as a result of signing up new clients and increased demand from our existing clients.

During the year, we saw that our efforts on expanding our nationwide network our shared cloud computing nodes and upgrading the capacities of the nodes by technological innovation to provide improve the cloud computing solutions for commercial uses.

Although, we are in the highly competitive market, we are committed to transmitting our competitive advantages, but providing fast, reliable, and a secure service at a reasonable price through technological innovation. Our goal is to become a service provider of choice for our customers.

[Foreign Language] As one of our innovative businesses, we continue our endeavor in the blockchain space.

During the fourth quarter of 2020, Xunlei and several leading Chinese universities and institutions are awarded a research project in the realm of Blockchain and Fintech, a major research program sponsored by the Department of Science and Technology of Guangdong Province.

The research project seeks to address a number of technological issues such as data security and user privacy protection in the application of blockchain technology. We intend to focus on research and development of blockchain technologies, they can empower the real economy.

So far, we have provided blockchain infrastructure and the technology support to a company in a number of industries, and we’ll continue this for other applications. We believe blockchain has significant potential, even though it’s still in nascent stage of an industry development cycle.

We are treating our investment in blockchain as a real option, and therefore, we’ll adopt the proactive strategy. [Foreign Language] In summary, last year, we grew revenue into the gross margin and significantly reduced net losses.

We made progress in research and development and deliver superior value to our customers, which we believe will help drive our future company development. [Foreign Language] Looking forward, I like to say that we have high expectation for 2021. As mentioned in our press release, we anticipate a couple of major events for this year.

For example, the construction of our headquarters building will be soon completed and we’ll start to prepare for operations shortly afterwards.

The competition of this project – completion of the project will significantly decrease our financial and operating metrics and allow management to spend more time on growth or [indiscernible] In addition, with our core competitiveness reinforced, we’ll pursue business breakthroughs and expansion and set sights on selected overseas markets.

And we’re becoming a leading player in selective vertical sales and achieving growth prospects. I will look forward to sharing with you the latest development numbers and events in the coming days.

[Foreign Language] Having said that, I will now turn the floor over to Eric to review our financial results for the fourth quarter and full year of 2020 and provide guidance for the first quarter of 2021. Thank you..

Thank you, Jinbo. Hello, everyone. And thank you again for joining Xunlei’s fourth quarter and the full year of 2020 conference call. I’ll go through the details of our financial results and wrap up with our revenue guidance for the first quarter of 2021.

Total revenues for the fourth quarter of 2020 were $50.3 million representing an increase of 15% from the previous quarter. The increase was primarily driven by the increase of revenues from each of our major product lines.

Revenues from cloud computing and other IVAS combined where $25.9 million, representing an increase of 22% from the previous quarter. The cloud computing revenue was $18.9 million, increasing 20.2% sequentially.

The increased cloud computing and other IVAS revenues were primarily due to increased sales of our cloud computing services and the refinement of operating models for our other IVAS services during the quarter. Revenues from subscription were $20.7 million, a 5.5% increase from the previous quarter.

The number of subscribers was approximately 3.83 million as of December 31, 2020, compared with 3.75 million as of September 30, 2020. The average revenue per subscriber for the fourth quarter was RMB35.4, a slight decrease from RMB35.9 for the previous quarter.

Revenues from online advertising were $3.8 million, representing an increase of 27.6% from the previous quarter. The increase was mainly due to seasonality and optimized operations primarily attributable to the application of precision targeting algorithm.

Cost of revenues was $23.3million, representing 46.4% of our total revenues, compared with $21 million or 48.1% of the total revenue in the previous quarter. The increase was mainly due to the increased sales of our cloud computing and IVAS services.

Bandwidth costs in the fourth quarter of 2020 were $15.2 million, representing 30.2% of our total revenue, compared with $15.4 million or 35.1% of the total revenues in the previous quarter. The decrease was primarily due to increased capacity of our cloud computing nodes and improved bandwidth procurement.

Gross profit for the fourth quarter was $26.8 million, representing an increase of 18.3% from the previous quarter. Gross margin was 53.3% in the fourth quarter, compared with 51.9% in the previous quarter.

The increase in gross profit and gross margin was mainly due to improved gross margin of cloud computing services and increased revenues of subscription and online advertising businesses, which had higher gross margins than other product lines.

Research and development expenses for the fourth quarter were $12 million, representing 23.9% of our total revenues, compared with $12.1 million or 27.6% of our total revenues in the previous quarter.

Sales and marketing expenses for the fourth quarter were $2.8 million, representing 5.6% of our total revenues, compared with $4.2 million or 9.6% of our total revenues in the previous quarter. The decreased sales and marketing expenses were mainly due to fewer promotional activities and a reversal of the expenses which were previously accrued.

General and administrative expenses for the fourth quarter were $7.9 million, representing 15.7% of our total revenues, compared with $7.5 million or 17.1% of our total revenue in the previous quarter.

The increase in general and administrative expenses was primarily due to increased employee welfare expenses partially offset by decreased legal fees due to reversal of provision based on the progress of certain cases. Operating income was $4.1 million, compared with an operating loss of $1 million in the previous quarter.

Net income was $4.6 million, compared with a net loss of $1.5 million in the previous quarter. Non-GAAP net income from continuing operations was $4.8 million in the fourth quarter of 2020, compared with a net loss of $0.9 million in the previous quarter.

The decreased net loss and non-GAAP net loss were primarily due to the increase in revenues of each business line and a higher gross margin as discussed above. Diluted earnings per ADS from continuing operations, in the fourth quarter of 2020 was approximately $0.07 as compared with a loss of $0.02 in the third quarter of 2020.

As of December 31, 2020, the Company had cash, cash equivalents and short-term investments of $255.1 million, compared with $246 million as of September 30, 2020. For the year of 2020, total revenues were $186.7 million, representing an increase of about 3% on a year-over-year basis.

The increase in total revenue was mainly attributable to an increase in revenues from our cloud computing and subscription services. Revenues from cloud computing and other IVAS were $89.2 million, representing an increase of 6% on a year-over-year basis.

The revenues of cloud computing services were $64.3 million, representing a 29.1% year-over-year increase. The increase in cloud computing and other IVAS revenues was mainly attributable to the increased sales of cloud computing services as a result of our expanded service capacities and increased demand from our customers.

Revenues from subscriptions were $84.3 million, representing an increase of 3.4% on a year-over-year basis. Revenues from online advertising were $13.2 million, representing a decrease of 15.6% on a year-over-year basis.

The decrease was mainly due to a decreased demand for our online advertising by our mobile platform users during the first half of 2020. Cost of revenues was $92.6 million, representing 49.6% of our total revenues in 2020, as compared with $99.9 million and 55.1% of the total revenues in 2019.

The decrease was mainly due to decreased sales of cloud computing products and revenue sharing costs for our live streaming products. Bandwidth costs as included in cost of revenues were $62.4 million, representing 33.4% of our total revenues, compared with $57.1 million or 31.5% of our total revenues in the previous quarter – in the previous year.

The increase was mainly due to the increased sales of our cloud computing services. The remaining cost of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming products and depreciation of servers and other equipment.

Gross profit for the year was $93.7 million, representing an increase of 16.1% on the year-over-year basis. Gross margin was 50.2%, compared with 44.5% in the previous year.

Research and development expenses for the year were $55.5 million, representing 29.7% of our total revenues, compared with $68.6 million or 37.8% of our total revenues in the previous year. The decrease was primarily due to the optimization of organizational structure, employee benefits and compensation.

Sales and marketing expenses for the year were $18.1 million, representing 9.7% of our total revenues, compared with $31.8 million or 17.6% of our total revenues in the previous year. The decrease was primarily due to fewer marketing and promotional activities and the optimization of organizational structure, benefits and compensation.

General and administrative expenses for the year were $33.9 million, representing 18.2% of our total revenues, compared with $38.9 million or 21.5% of our total revenues in the previous year.

The decrease was mainly due to the decreased rental expenses as a result of consolidation of offices, decreased legal and professional fees and the optimization of organizational structure.

Impairment of assets, net of recoveries for the year was $5.1 million, comprising of a one-time write-off of certain receivables and prepayments in relation to our cloud computing business, compared with a credit amount of $2.1 million in the previous year.

Operating loss was $18.8 million, compared with an operating loss of $56.4 million in the previous year. The decrease was mainly due to the increase in revenues, improved gross margin and the decrease in total operating expenses as a result of enhanced operating efficiency.

Net loss from continuing operations was $14.1 million in 2020, compared with a net loss of $53.4 million in the previous year. Non-GAAP net loss from continuing operations was $11.8 million in 2020, compared with a loss of $48 million in the previous year.

Diluted loss per ADS from continuing operations in 2020 was $0.21 as compared with a loss of $0.79 in the previous year. As of December 31, 2020, the Company had cash, cash equivalents and short-term investments of $255.1 million, compared with $265.3 million as of December 31, 2019.

And finally, I like to turn to our guidance for the first quarter of 2021. We expect total revenues to be between $53 million and $56 million for the quarter, and the midpoint of the range represents a quarter-over-quarter increase of about 8%. We conclude management’s prepared remarks. And Operator, we are ready to take questions..

[Operator Instructions] Your first question comes from the line of Jing Liao of SinosafeCapital. Please ask your question..

[Foreign Language] So the question is about corporate business development.

So can the management share some insights about some important aspects of business development in year 2021?.

[Foreign Language] So our goal in the New Year is to do business breakthroughs through product innovation. We believe that we are – we have a compelling growth prospect and diverse application scenarios for our 2C business. To achieve this, we have made comprehensive and deep analysis for our users’ behavior and demand to set product strategy.

We are considering developing new social and entertainment products as our next move. Meanwhile, we will set sight around selected overseas markets for our incubated new products to pave way for growth.

[Foreign Language] For our cloud computing business, we still try to achieve economic subscale and product growth by technology-powered in computing segment. Our resource tool is still expanding with more nodes and increase node stability through partnerships and technology conversation.

Based on our current client base, we will also explore business activities in other vertical sectors in order to acquire more enterprise clients from various fields. [Foreign Language] Thank you for your question. So next question..

Your next question comes from the line of Chu Jiu [ph]. Please ask your question..

[Foreign Language].

[Foreign Language] So the question is about our short form video business of the company. So we think that short form video from video sector is one now our business innovation in this year, and we currently, we don’t have made a quiet disclosure about this project.

But we will make required enclosure pass on the future and communicate with the investor community. So it’s based on our current portfolio – product portfolio. So we think that’s for short form video is still one promising field and generate synergies in our ways – on our current product portfolio. Thank you for question..

Your next question comes from the line Trista Yang of VSFG. Please ask your question..

Hi, this is Trista from VSFG, Hong Kong. So I’d love to congratulate on a good quarter of yours. I have a question about Xunlei headquarters building.

What’s the size of this building and what is the total investment for the building?.

Nice question, Trista. [Foreign Language] We will try to explore our headquarter building first, approximately 65,000 square meters. And it is total investment budget is about CNY600 million and it is located in the Nanshan District of Shenzhen and we expect to complete the building in the near future and on the budget. Thank you..

Thank you..

[Operator Instructions] Your next question, please announce your first and last name and the company you’re calling from. Your line is now open. [Operator Instructions] Please announce your first and last name and the company you’re calling from. Your line is now open.

[Operator Instructions] Your next question comes from the line of Steve Chen of Stellar Chain Capital. Please ask your questions..

Thanks for taking my call. And my question is given the current the feasibility, do you project a profitability or turnaround of the full year fiscal year 2020/2021..

[Foreign Language] As we mentioned in a press release, we have higher expectations for 2021, and we were continued to improve operating efficiency. And at the same time, explore growth and explore growth opportunities, but we do not provide an annual guidance. But we anticipate that this year will be a year of progress and accomplishments.

Thank you for your question..

Thank you. And also a follow-up question regarding the progresses on the blockchain side, so previously you mentioned that there’s a few projects like collaborations with certain university in Guangdong and also some progresses on those like security side.

So do you expected you – the company will continue in investing on the blockchain side and to echoing the current progresses of the blockchain and the cryptocurrency as a general..

What’s your last question, Steve?.

Yes. Would you expected to keep investing in the blockchain business and to actually echoing to stay in – stay actually in line with the current upbeat trend of the blockchain and the cryptocurrency as a general..

[Foreign Language] Okay, yes.

Probably, some of us may know and assume this targeted to develop blockchain products in around 2017 and over the years, it’s a blockchain technology and as soon as some of that have been used for a number of applications, including shared cloud computing, media products, charity fund, copyright publication, supply chain, et cetera.

Last year, we launched a blockchain as a service platform with us.

To further facilitating blockchain technology to serve the real economy, our best platform is a high performance blockchain technology platform based on our in structure of our some of the chain and with one stop blockchain service solutions, it is designed to free developers from complicated technical issues when deploying and deploying blockchain applications.

And we believe there are still a lot need to be done to improve blockchain technology and it will easier to serve our real economy.

A couple of months ago at Xunlei and several leading Chinese universities and institutions were awarded a research project on Blockchain and Fintech technology, which was sponsored by the Department of Science and Technology of Guangdong Province.

The research project seeks to address a number of technical issues such as data security and user privacy protection in the application of blockchain. We will continue to invest in blockchain technology, research and capability. We also plan to explore other activities in the blockchain space.

And we will be happy to share with you our progress in the coming days. Thank you for your question..

Thank you..

[Operator Instructions] There are no further questions. I will now turn the call over to the management for the closing remarks..

All right. Operator, we conclude today’s conference call and please feel free to contact us if you have any questions. Have a good day..

Thank you for your participation in today’s conference. You may now disconnect. Good day..