Xunlei (XNET) Q2 2026 earnings call transcript

Good morning and good evening, everyone, and thank you for joining Xunlei's Q2 2023 earnings conference call. With me today are F. Joe CFO and Lili 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 Woy on Q2 operational highlights, followed by CFO Eric Jo's presentation of financial results details of Q2 before we 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 ioddashunlei. com. Before we get started, I'd like to take this opportunity to remind you that the discussion today will contain certain follow-up statements made under the safe harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Such statements are based on our management's current expectations under existing market conditions that are subject to risk and uncertainty that are difficult to predict, which may cause actual results to differ materially from those made in the foreloom statement.

Please refer to our FTC filings for a more detailed description of the risk factors that may affect our results. Xunlei Ltd no obligations to update any for loop statements except as required under applicable law. 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 the US dollars unless otherwise stated. Now, the following is prepared statement by Minister 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 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, staining 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 Hupu 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 different 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 shareholder returns we announced a new million share repurchase program at end of June We believe that this initiative demonstrates our unwegrowing 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 and 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 or boosted advertising business. We keep down our revenue performance. Subscription revenues reached 44.5 million, a 22.6% year-over-year increase. This performance reflected the spend user demand for a full suite of premium product offerings. Rememnios from large streaming and other services totaled 58.2 million, representing a 54.8% year-over-year increase. This strong performance was driven deeply by rapid expansion of our overseas audio large streaming operations, alongside the growth in ad-pandem revenue from our group sports community during the peak sports season.

Cost of revenues was 44.8 million dollars 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 call 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 dollars in gross profit during the second quarter of The growth of the year of the year, the growth margin stood at 55.8% compared with 63% in the prior year period. The growth profit improvement was fueled by both our subscription business and the Hutto advertising revenue. The notable margin decline stems from the structural revenue mix shift since live streaming carries a lower growth margin than subscription and as a patent 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 32.4% 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 of promotional investment across our subscription and OCS audio live streaming operations as we continued to proactively prioritize acquisition and brand visibility. GNA expansion 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 post an operating loss of 4 million this quarter a reversal from operating income of 0 million in the same period last year This swing would largely go to the sequential and 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 our long-term investment in a Russia-Vijing Inc. , which is accounted for on a mark-to-market basis using public stock prices after the company's I feel in June 2025. Unlike Q1, there were no continued operations to report for Q2 2026, following the disposal of our Shenzhen Wangxing business last quarter. Our net loss from continuing operations was $218.5 million this quarter, compared with net income of $726.4 million 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 $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 alias from continuing operations was $3.43 for the quarter compared with diluted EPS of $11.47 in K02 2025. All non-GAAP diluted losses per year from continuing operations came to 3 cents versus non-GAAP diluted earnings of 12 cents per year in the same period last year.

Finally, on our balance sheet, as of June 30, 2026, cash, cash equivalents, and short-term investments 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.

Okay, we are now ready to open the line for questions. Thank you very much.

Hello. Hello. Guanyin Chen, how? I want to ask you, you have announced the plan of return for the 6th of August. But in the news, there is no any of the highlights. So I would like to ask you, are you in return for return for the next month? And what is the case?

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'd love to know what's going on with the buy back program.

Thanks for asking. The board of directors of the company approved a new share the purchase program of $20 million 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 over eight years, and spent approximately 5.9 million dollars. And the reproaches program remains ongoing, and more details will be discussed in our third quarter financial report.

Thank you. And from last week, we have purchased about 107 million of ADS, and we have spent about 590 million USD.

Next, we have XJ, individual shareholder.

Thank you. I will now turn the call over to management for the Xunlei Ltd. I will now turn the call over to management for the Xunlei Ltd. I will now turn the call over to management for the Xunlei Ltd. Thank you.

Okay, basically, his question is surrounding all stakeholders in Xunlei Ltd. And he'd like to know our progress in reducing our stake in this investment, and what are plans for the proceeds for the future? And thank you for the question. And currently, and we hold more than 5% of shareholders, or exactly 7.8% of interest equity stake. And we need to follow certain regulatory rules and regulations when we begin to sell the stock and 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 company. But at this time we have no specific plans for the shale disposal for the time being.

And he also asked a question regarding the 1940 Investment Company Act. And according to that in the 1940 investment in the Act, a listed company needs to follow certain regulations to be in compliance with the requirements of the Investment Act. And 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 Xunlei's holds investment securities with a value not exceeding Thank you.

Thank you. We will continue to monitor the tax of the stock market and the other company and the other company. If you need it, we will continue to monitor the tax of the stock market and ensure that the stock market is not over the company's total income. This is a company that is interested in the main focus of the QC business development. We will also be able to become a private company. Thank you.

Thank you.

Thank you, V, for your time and participation. For any follow-up inquiries, please visit our website at ir-shunlei. com or contact our Invest Relations team. Have a good day.