Xunlei Ltd (XNET) Q2 2026 Earnings Call Transcript

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Lu Xin's second quarter 2026 earnings conference call. At this time, all participants are in a 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. Lu Han Teng.

Good morning and good evening, everyone, and thank you for joining Shinlei's Q2 2020 36 earnings conference call with me today are Eric Joe CFO and Lily vice president of finance our IR website has our earnings press release to supplement our prepared remarks during the call today's agenda includes a prepared opening remarks from chairman and CEO mr. Tim Woi on Q2 operational highlights followed by CFO Eric Joe's presentation of financial results details of Q2 before we'll open up the floor to your questions in the Q&A session. Please note that this call is recorded and can be replayed on our investor relations website at iod.shinlight.com. Before we get started, I'd like to take this opportunity to remind you that the discussion today will contain certain full-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reforms Act of 1995. Such statements are based on our management's current expectations under existing market conditions that are subject to risks and uncertainties that are difficult to predict, which may cause actual results to differ materially from those made in the following statements. Please refer to our FTC filings for a more detailed description of the risk factors that may affect our results. Should we assume no obligations to update any for loop statements except as required under applicable law? On this call, while we'll 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 the U.S. dollars unless otherwise stated. Now, the following is a prepared statement by Mr. Jin Buo Li, Chairman and CEO of Xunlei Limited. Good morning and good evening, everyone. Thank you for joining our Q2-2026 earnings call. We're pleased to report continued top-line growth this quarter, building on the solid consumer-focused growth foundations we established in Q1. These results serve as clear validation that our strategic pivot towards a consumer-centric business model is delivering tangible results. Our two primary growth drivers, subscription services and overseas audio live streaming, each posted steady year-over-year increase in revenue. Let me walk you through the performance of these core consumer-facing businesses individually. First, our subscription business remains our stable cash flow foundation and reliable growth anchor. Q2's subscription revenue reached $44.5 million, up 22.6% year-over-year, while the growth rate softened marginally on a sequential basis. This segment maintained resilient user retention and steady monetization performance. During the quarter, we continue upgrading premium user experiences by rolling out new AI-powered features, optimizing existing functionality, stapening long-term cooperation with leading domestic smartphone partners, and scaling our ecosystem user acquisition channels as planned. Looking ahead, we will continue refining our differentiated member perks to boost user penetration and expand and devise corporation coverage, capturing incremental user acquisition and revenue growth in the second half of the year. Second, our overseas audio live streaming business once again emerged as our primary growth engine. In Q2, this segment generated $58.2 million in revenue, representing a significant 54.8% year-over-year increase. We continued deploying targeted investments in high-potential emerging markets, including Southeast Asia, the Middle East, Turkey, and further expansion into Latin America. Concurrently, we enhanced localized product iteration and operational capabilities, optimizing our product metrics across one-on-one social interaction scenarios and multi-person chat rooms. Additionally, we saw notable quarterly momentum for our Hufu business, which contributed $9.1 million in Q2 revenue, benefiting from the peak advertising season and the slate of major global sporting events. User discussion activity across the platform reached new highs. Our newly rolled out AI-powered features also meaningfully boosted user engagement and deepened interactive activities, creating an additional stream of incremental revenue across our consumer ecosystem. As we communicated in our previous quarterly reports, competition in the overseas entertainment market remains intense. Accordingly, we will stick to our long-term localized operational and marketing strategies instead of chasing near-term scale expansion, fostering sustainable business growth across all our core consumer verticals. Beyond operational performance, to further reinforce market confidence and deliver long-term shareholder returns, we announced a new $20 million share repurchase program at end of June. We believe that this initiative demonstrates our unwavering confidence in the company's solid fundamentals and long-term growth potential. We will maintain disciplined capital allocation, prioritizing investment in core consumer product innovation, the international market expansion, while attorney access capital to shareholders when appropriate. Looking ahead, we will stay firmly committed to our user-centric development strategy. we will further accelerate feature iteration for our subscription offerings, different market penetration within our established overseas markets, selectively pursue new regional growth opportunities, and uphold strict cost discipline to expand profit margins across all these lines. By balancing growth with profitability and through rigorous capital and operational management, we aim to promote balanced and sustainable corporate development. Against the backdrop of an evolving global market landscape, our targeted consumer positioning, few core business structures, advanced technological strengths, and localized operations serve as our key competitive edges. We are optimistic about delivering sustained long-term value to our users and shareholders alike. With that overview, I will now turn the call over to our CFO, Eric Zhou, who will walk you through our Q2 financial metrics in detail.

Thank you, Wuhan, and thank you all for participating in this conference call. I will now walk you through our financial results for the second quarter of 2026. For Q2, 2026, total revenues came in at $102.7 million, up 38.9% year-over-year. This steady top-line growth was primarily driven by rising revenues from our subscription business and our overseas audio live streaming business, as well as improved through boost advertising units. Weekly down our revenue performance. Subscription revenues reached 44.5 million, a 22.6% year-over-year increase. This performance reflected the spent user demand for a full suite of premium product offerings. Revenue from large streaming and other services totaled 58.2 million, representing a 54.8% year-over-year increase. This strong performance was driven chiefly by rapid expansion of our overseas audio live streaming operations, alongside the growth in aspiring revenue from our Huku sports community during the peak sports season. Cost of revenues was $44.8 million during the quarter, accounting for 43.6% of total revenues. By comparison, in KO2 2025, cost of revenues came to 27 million or 36.6% of total revenues. The uptick in our core space largely aligned with the expansion of our live streaming revenue, driven mainly by increased revenue sharing expansions for our overseas audio live streaming operations. Turning to profitability, we generated $57.3 million in gross profit during the second quarter of 2026, up 23.1% year-over-year. Gross margin stood at 55.8% compared with 63% in the prior year period. The gross profit improvement was filled by both our subscription business and the Huco advertising revenue. The notable margin decline stems from a structural revenue mix shift since live streaming carries a lower growth margin than subscription and advertising business. Its larger share of total revenue mix modestly compressed our overall growth margin. On the expense front, R&D expenses were $21.4 million in K02 2026, representing 20.8% of total revenues, compared with 16.6 million or 22.4% of total revenues in K02 2025. The year-over-year increase was mainly due to higher labor costs. Sales and marketing expenses rose to $27.9 million during the second quarter of 2026, representing 27.2% of the revenue, compared with 20.7 million or 28% of total revenues in K02, 2025. The increase in absolute market expanding reflected ramp-up promotional investment across our subscription and OCS audio live streaming operations as we continued to proactively prioritize acquisition and brand visibility. GNA expenses came in at 12.7 million equal to 12.4% of total revenues versus 8.5 million or 11.6% of total revenues in K02 2025. The increase was primarily driven by provisions for ongoing legal litigation and higher employee related costs year over year. At the operating level, we posed an operating loss of $4.8 million this quarter, a reversal from operating income of $0.3 million in the same period last year. This swing would largely go to the sequential and year-over-year rise in our selling marketing and general administrative expenses outlined above. We posted a less other loss of $213.8 million for the quarter versus less income of $721.5 million in K02 2025. The dramatic swing was mainly driven by fair value volatility on a long-term investment in a Russian Beijing Inc., which is accounted for on a mark-to-market basis using public stock prices after the company's IPO in June 2025. Unlike K1, there were no discontinued operations to report for K2 2026, following the disposal of our Shenzhen Wang Xin business last quarter. Our net loss from continuing operations was 218.5 million dollars this quarter, compared with net income of 726.4 million dollars in K02 2025. The net loss was mainly due to the material net other loss just mentioned, partially offset by positive growth in our core consumer-facing business. On a non-GAAP basis, we posted a non-GAAP net loss from continuing operations of of $2.1 million, down from non-GAAP net income of $7.2 million in the prior year period. On a per-shell basis, diluted loss per ADS from continuing operations was $3.43 for the quarter, compared with diluted EPS of $11.47 in K02 2025. All non-gap diluted loss per year from continuing operations came to $0.03 versus non-gap diluted earnings of $0.12 per year in the same period last year. Finally, on our balance sheet, as of June 30, 2026, cash, cash equivalents, and short-term investment totaled $276.9 million, down from $303.6 million as of March 31, 2026. The sequential decrease was primarily driven by net operating cash outflows, bank loan repayments, disbursements related to our newly announced share repurchase program, and deferred consideration payments related to our report acquisition. This concludes our prepared remarks. Hopefully, we are now ready to open the line for questions.

Thank you very much. We will now conduct Sun Lee's question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please give a moment. Just a moment of our first question, please. First question comes from the lines of Zoe Zhang, retail investor. Please go ahead.

Zoe Zhang, please go ahead. 管理层好。 我想问一下你们六月底宣布了股票回购的计划, 但是这次的财报中没有任何的披露,所以想请问一下你们有在回购吗? 然后大概是什么情况呢?

The question is, the company announced a shared purchase program at the end of June, but she didn't see any share the purchase information in our press release and she allowed to know what's going on with the buy-back program. Thanks for asking. The board of directors of company approved a new share the purchase program of $20 million dollars at the end of June and the purchase officially commenced on July 1st and as of August 12th we bought back approximately 1.07 million shares of ADS, and spent approximately 5.9 million dollars, and the recruitment program remains ongoing, and more details will be discussed in our third quarter financial report.

Thank you. 我想翻译一下 我们公司是在六月底的时候 经博士会审计通过了 2000万美元的新一轮股票回购计划 那这次的回购是从7月1号正式启动的 那截至于昨天8月12号的话 我们已经回购了大概107万股的ADS 总共花费了大概590万美元左右 然后呢我们会把更多的一些披露情况 在第三季度的财报中进行披露 谢谢您的问题 好的谢谢 Thank you.

Just a moment for our next question. As a reminder, to ask a question, please press star 11 on your telephone keypad.

Next, we have XJ, Individual Shareholder. 管理层,你们好 我想问一下 饮食创新已经在六月份解禁了 那么在上一个季度的业绩会里面 公司说会在解禁的前后 对于这部分的一个股票 后续怎么去处理 做出一个公告 还有提升股东的一个回报 那我想问一下 公司接下来这一部分的计划是怎么样的 Okay, basically, his question is surrounding

our stakeholder in is the operation region Inc and he'd like to know you know our progress in reducing our stake in this investment and what our plans for the proceeds for the future and thanks thank you for the question on them and currently and we hold more than eight more than 5% of shareholders or exactly 7.8% of interest interest equity stake and we need to follow certain regulatory rules and regulations when we begin to sell the stock and let's do it in an ordinary manner and make timely disclosure. And for the time being we are going through certain procedures to get ready to reduce our stake in the in the company but at this time we have no specific plans for the shale disposal for the time being and he also asked you know the a question regarding the 1940 investment company act and according to that in the 1940 Exporting Investment Act, a listed company needs to follow certain regulations to be in compliance with the requirements of the Investment Act. We will continue to monitor our holdings of our appreciated assets and we've been consulting with relevant advisors and if needed we will gradually seek to adjust our holdings so that Shunless holds investment securities with a value not exceeding 45% of the company's total assets, excluding government securities and cash items, in line with the company's intention to mainly engage in the core business which which is a consumer-facing business, 2C business, we never intend to be an investment company. Thank you.

And now we have no further ado, but it's already in the process. The 1940 plan, we will continue to monitor and monitor and monitor and maintain. If needed, we will continue to monitor and monitor and monitor. 然后确保公司持有的这个投资资产价值不超过公司总资产的45% 这也是公司专注于核心2C业务的这个发展目标相符的这个目标 然后我们也从未打算成为一家投资公司 然后谢谢您的问题 Thank you.

I see no further questions at this time. I will now turn the conference back to Eric for closing remarks.

Thank you for your time and participation. For any follow-up inquiries, please visit our website at ir.finley.com or contact our Invest Relations team. Have a good day. Hopefully we conclude this conference call. Thank you.

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