Welcome ladies and gentlemen, and thank you for your patience. You’ve joined Xunlei’s Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in the listen-only mode. Please be advised that today’s conference is being recorded. I would now like to turn the call over to your host, Investor Relations Manager, Ms.

[indiscernible].

Thank you. Thank you, everyone and good day, everyone. And thank you for joining Xunlei’s fourth quarter and fiscal year 2021 earning conference call. As of now, our earnings release is available on our IR website, which is intended to supplement our prepared remarks during today’s call.

On the call with me today are, Eric Zhou, Chief Financial Officer; and [indiscernible] Senior Vice President of Finance. Our today’s agenda, I will first read a prepared remark by our Chairman and CEO, Mr. Jinbo Li on the highlight of our fourth quarter operations and strategies for 2022. Then, Mr.

Eric Zhou, our CFO will walk you through the details on the financial results and wrap up with our guidance for the first quarter of 2022. I would like to welcome any questions from you after the management’s remarks.

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 provision of the U.S. Private Security 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 statement.

Please refer to our SEC filings for more detailed description of the risk factors that may affect our results. Xunlei assumes no obligation to update any forward-looking statements except as required under applicable rules. 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.S. dollars unless otherwise stated. Now, the following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited..

Thank you for joining us today. In 2021, we make some important progress in our major business segment. Our total revenue grew 28.3% to $239.6 million and achieved a net profit of approximately $1.1 million, a dramatic improvement over a net loss of $14.1 million in 2020.

Even though, we coped with challenges due to the COVID-19 and the evolving government of regulations that affected our operating environment, we were able to contact our business effectively and remarkably improved our performance as compared with last year.

I’d like to take this opportunity to thank our employees for their diligence and dedication to serve our customers during a trying period of time. Because of their agility, resilience and dedication, we are able to start fiscal year 2022 with a solid foundation.

In particular, I’d like to express my gratitude to the team responsible for our membership subscription business, which generated significant cash flows to fund our innovation effort. I’m also appreciative and proud of the outstanding performance our cloud computing colleagues achieved during 2021.

And lastly, I’d like to thank our employees in the corporate development and innovation department for their outstanding effort that created new growth opportunities that are to expected to produce potentially exciting results in a day to come.

Back to our fourth quarter of 2021, the total revenues for the fourth quarter reached $71.1 million, an increase of 18.6% from previous quarter, exceeding the revenue guidance we provided in a third quarter. The performance was driven primarily by the sequential growth of our cloud computing products and other internet value added services.

Now I’d like to provide some details on operating results. Starting with our largest revenue growth driver. Cloud computing and other internet value-added services contributed $44.7 million in revenue, which accounted for approximately 62.9% of total revenue, representing 26.9% quarter-over-quarter growth in the fourth quarter.

Cloud computing revenue alone reached $28.2 million, representing a 12.8% quarter-over-quarter increase, driven by increased customer demand and bandwidth capacity expenses.

Xunlei has a unique competitive edge in its shared cloud computing business, which enjoyed uninterrupted growth for a number of years, and the growth was driven by rising demand for the bandwidth for short-lead and live streaming products. And we are optimistic that high demand for live streaming products may persist into 2022.

In the second half of 2021, we began to explore new markets for our live streaming services, and we are pleased to see our efforts begin to yield encouraging results.

For the fourth quarter of 2021, revenue from our other Internet value-added services, which mainly consists of live streaming services reached $16.4 million, and grew 61.6% as compared with the third quarter of 2021. And we expect the growth momentum will continue into 2022. Now turning to our subscription business.

Membership subscription contributed $23.7 million in revenue, accounting for approximately 33.3% of total revenue. Subscription revenue grew 4.3% from the previous quarter. The increase was mainly due to the newly added cloud storage function, which helped user retention as well as year-end marketing activities.

At the end of the fourth quarter of 2021, the number of subscribers reached 4.39 million and was up approximately 5.8% as compared with that at the end of the third quarter. Further, it’s encouraging that our premium membership subscription continues to gain popularity. Now turning to our online advertising.

Even though the online advertising went through a challenging time due to competition and involving governmental regulations, we still saw a 33.1% sequential growth in revenue last quarter.

This was partially attributable to our efforts to enrich user experiences and improve operations and partly to a recovery from an especially hit hard third quarter. Going forward, we’ll continue to follow regulations on Internet advertising and try to mitigate their impact by delivering more user-friendly features and increasing customer loyalty.

Before I conclude my remarks, I’d like to say that despite the ebb and flow of the capital market, we intend to remain focused and do what we are good at and I trust our efforts will be rewarded. With that, I will hand the call over to Mr. Eric Zhou, our Chief Financial Officer. Eric will cover our financial results in detail and share our outlook..

Thank you, Jinbo, and hello, everyone, and thank you again for joining Xunlei’s fourth quarter and year 2021 earnings conference call. I will now go through the details of our financial results and wrap up with our revenue guidance for the first quarter of 2022.

For the fourth quarter of 2021 total revenues were $71.1 million, representing an increase of 18.6% from the previous quarter. The increase in total revenues was mainly attributable to increased revenue from cloud computing and other IVAS business.

Revenues from cloud computing and other IVAS were $44.7 million, representing an increase of 26.9% from the previous quarter. The cloud computing revenues was $28.2 million, representing a 12.8% sequential increase. The live streaming revenue was $14.5 million compared with $8.35 million in the previous quarter.

The increase of cloud computing and other IVAS revenues was mainly driven by increased demand for cloud computing and new live streaming products we launched in the second half of 2021. Revenues from subscription were $23.7 million, an increase of 4.3% from the previous quarter.

The number of subscribers was 4.39 million as of December 31, 2021, compared with 4.15 million as of September 30, 2021. The average revenue per subscriber for the fourth quarter of 2021 was RMB34.3, compared with RMB35.4 for the previous quarter.

Revenues from online advertising were $2.8 million, representing an increase of 33.1% from the previous quarter. The increase of online advertising revenues was largely due to business recovery and our marketing efforts during the fourth quarter.

Cost of revenues was $37.6 million, representing 52.8% of our total revenues, compared with $30.4 million or 50.7% of the total revenues in the previous quarter. The increased cost of revenues was mainly attributable to increased sales of our cloud computing and other IVAS services.

Bandwidth costs as included in cost of revenues were $22.8 million, representing 32.1% of our total revenues, compared with $21.7 million or 36.2% of the total revenues in the previous quarter.

The increased bandwidth costs were mainly due to increased demand for our cloud computing products, which were consistent with the increased cloud computing revenue. The remaining cost of revenues mainly consisted of costs related to the revenue-sharing costs for our live streaming products and in depreciation of servers and other equipment.

Gross profit for the fourth quarter was $33.3 million, representing an increase of 13.3% from the previous quarter. Gross margin was 46.7% in the fourth quarter, compared with 48.9% in the previous quarter. The increase in gross profit was mainly due to increased cloud computing and other IVAS revenues.

The decrease in gross profit margin was mainly due to decreased portion of subscription revenues to total revenues, which has a high gross profit margin, and increased portion of live streaming revenues to total revenues, which has a lower gross margin.

Research and development expenses for the fourth quarter were $16.6 million, representing 23.3% of our total revenues, compared with $16.8 million or 28% of our total revenues in the previous quarter.

Sales and marketing expenses for the fourth quarter were $6.6 million, representing 9.3% of our total revenues, compared with $6.8 million or 11.3% of our total revenues in the previous quarter.

General and administrative expenses for the fourth quarter were $11.1 million, representing 15.6% of our total revenues, compared with $11.4 million or 19% of our total revenues in the previous quarter. The decrease was primarily due to the decreased legal and consulting expenses.

Operating loss was $1.7 million, compared with an operating loss of $5.7 million in the previous quarter. The decrease in operating loss was primarily due to increased gross profit as discussed above. Other income was $1 million, compared with other income of $0.5 million in the previous quarter.

Net loss was $0.5 million, compared with a net loss of $5.1 million in the previous quarter. Non-GAAP net income was $1.7 million in the fourth quarter of 2021, compared with a net loss of $3.1 million in the previous quarter.

The decreased net loss and increased non-GAAP net income were primarily due to the increase in revenues of each business lines and improved gross profit as discussed above. Diluted loss per ADS in the fourth quarter of 2021 was approximately $0.01 as compared with a loss of $0.08 in the third quarter of 2021.

As of December 31, 2021, the company had cash, cash equivalents and short-term investments of $239 million, compared with $228.3 million as of September 30, 2021. Now, I’d like to walk you through the financial results of fiscal year 2021. Total revenues were $239.6 million, representing an increase of 28.3% on a year-over-year basis.

The increase in total revenues was mainly attributable to an increase in revenues from our cloud computing and live streaming business. Revenues from cloud computing and other IVAS were $136.2 million, representing an increase of 52.7% on a year-over-year basis.

The revenues of cloud computing business were $94.8 million, representing a 47.4% 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 capabilities and increased demand from our customers.

Revenues from subscriptions were $91.2 million, representing an increase of 8.2% on a year-over-year basis. The increase is mainly due to the number of subscribers increased from 3.83 million in 2020 to 4.39 million in 2021. Revenues from online advertising were $12.3 million, representing a decrease of 7.1% on a year-over-year basis.

The reduction was primarily due to lower advertising placements starting the second quarter of 2021 as a result of evolving regulations of the Chinese internet industry that negatively affected our adverting business.

Cost of revenues was $118.6 million, representing 49.5% of our total revenues in 2021, as compared with $92.6 million and 49.6% of the total revenues in 2020. The increase was mainly due to increased sales of our cloud computing products and revenue-sharing costs for our live streaming business.

Bandwidth costs as included in cost of revenues were $80.7 million, representing 33.7% of our total revenues, compared with $62.4 million or 33.4% of the total revenues 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 equipments and depreciation of servers and other equipment. Gross profit for the year was $120.2 million, representing an increase of 28.2% on the year-over-year basis. Gross margin was 50.2%, same as the one in the previous year.

The increase of gross profit was mainly due to increased revenues from cloud computing and live streaming business. Research and development expenses for the year were $61.9 million, representing 25.8% of our total revenues, compared with $55.5 million or 29.7% of our total revenues in the previous year.

The increase was primarily due to the increased employee related costs. Sales and marketing expenses for the year were $24.6 million, representing 10.3% of our total revenues, compared with $18.1 million or 9.7% of our total revenues in the previous year.

The increase was primarily due to increased marketing and promotional activities incurred for Mobile Xunlei and new live streaming business during this year. General and administrative expenses for the year were $36.9 million, representing 15.4% of our total revenues, compared with $33.9 million or 18.2% of our total revenues in the previous year.

The increase was mainly due to increased amortization expenses regarding newly awarded restricted share units under the company’s 2020 share incentive plan.

Impairment of assets, net of recoveries for the year was $1.2 million, comprising a one-time write-off of certain receivables and prepayments based on impairment assessment, compared with $5.1 million in the previous year.

The decrease was largely due to a one-time write-off of certain receivables and prepayments in relation to our cloud computing business accrued in the previous year. Operating loss was $4.3 million, compared with an operating loss of $18.8 million in the previous year.

The decrease was mainly due to increased gross profit from cloud computing, subscription business and live streaming business as discussed above. Net income was $1.1 million in 2021, compared with a net loss of $14.1 million in the previous year. Non-GAAP net income was $7.3 million in 2021, compared with a loss of $11.8 million in the previous year.

Diluted earnings per ADS in 2021 was $0.02 as compared with a loss of $0.21 in the previous year. Turning to our revenue guidance, for the first quarter of 2022, Xunlei estimates total revenues to be between $77 million and $80 million, and the midpoint of the range represents a quarter-on-quarter increase of approximately 10.4%.

This estimate represents management’s preliminary view as of the date of this release, which is subject to change and any change could be material. Operator we are now ready to take questions..

[Operator Instructions] First question comes from George Pang with Private Investor..

[Foreign language].

Basically, his question is the management of the company, please share with us Xunlei's future growth strategies and priorities of business development. Let me try to explain to you.

In the short term, through our position efforts, we have made some progress, narrowing our net loss to $0.5 million in the fourth quarter of last year and achieving a net profit of $1.1 million for the full year of 2021.

Furthermore, most of our business were improving and we are seeing continued momentum, and we will strive for greater improvement by increasing operating efficiency, optimizing expenses and exploring and focusing on areas of significant growth potential.

And in the long term, we will maintain Xunlei's competitive edge, while seeking more long-term and sustainable growth opportunities as well as exploring more exciting products and services.

Our strategic acquisitions and expansion of our live streaming business last year have shown initial and encouraging signs of progress, which contributed to a significant portion of total revenues in 2021. And we expect that momentum of growth will continue. Thank you for your question..

[Foreign language].

And his question is, we saw a net loss in the fourth quarter declined significantly as compared with the third quarter and what – and what is your profit forecast for the coming quarters? Thanks for the question.

The significant reduction in net loss in the fourth quarter is a result of rapid business growth and expense optimization, but we usually do not provide guidance on net income or losses for the coming quarters. That being said, we are hopeful that we will improve both top line and bottom line in the coming quarters.

By the way, in the fourth quarter earnings release, we provided a guidance of our anticipated total revenue for the first quarter of 2022, which is in the range of between 77 million and 80 million, which represents a sequential quarter-over-quarter increase of about 10%. Thanks for your question..

[Foreign Language].

Our next question is from Sidney Fong with private investor. Your line is open..

[Foreign Language].

His question is truly invested in a country code in innovation technology company and the company is applying for IPO, and he wants to know the status of the IPO, and also he wants to know the investment we made and what would be the expected rate of return on investments? And we invested approximately RMB60 million in innovation technology company limited in around 2016.

The company is also known Insta360. Xunlei has about 8.73% equity ownership in the company.

Insta360 submitted application for IPO at the [indiscernible] or Science Technology Innovation Board at Shanghai Stock Exchange last year, and the Stock Exchange has approved the application and now [Foreign Language] China Securities Regulatory Commission is reviewing the case. That's all we know today.

And it's really hard to predict the rate of return on investment at this time. If the IPO is approved, and the company's performance remains strong and the stock market will be in a bull market in the next couple of years, our return on investment would be substantial. Thank you..

[Foreign Language].

Thank you. [Operator Instructions] And our next question comes from Bill Anten with private investor. Your line is open..

Hi, hello..

Hi, hello, yes..

Sorry. Hi. That was a great presentation. Thank you. And I have some questions about the Xunlei headquarters building.

So first of all, what's the total investment of this building so far? And when do you expect to move in? And another question would be that will Xunlei built out some office space for rental income? And that's it for my question and thank you..

In Xunlei Tower, we have spent approximately RMB300 million and the total budget for the building is approximately RMB450 million, all about U.S. $70 million. The construction area of building pass about 65,000 square meters and the building has 26 stories.

We have completed the construction of the Xunlei headquarter buildings, and we anticipate to move in around June this year. If the impact of the COVID-19 won't last long, people probably know and right now, we are facing some challenges again due to COVID-19.

And we expect the completion of the headquarters building will not only reduce our operating costs, but also generate some rental income. Because the building has not started operations, the rental income information is not available now. I'd like to see the building is mainly for self use. Thank you for your question..

[Foreign Language].

Thank you. And I'm showing no further questions. I'd like to turn the call back to Eric Zhou for closing remarks..

Well, thank you, again, for your time and participation. And if you have any questions, please visit our website at irxunlei.com or send us e-mail to our Investor Relations. Have a good day. Operator, we conclude today's conference call. Thank you..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..