Xunlei (NASDAQ:XNET) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

Total revenue for Q1 2026 was $98.6 million, marking a significant 54.1% increase year over year, driven primarily by strong growth in subscription services and overseas audio live streaming.

Subscription revenue rose by 26.2% year over year to $45 million, attributed to user feedback-driven enhancements and partnerships with mobile manufacturers and internet platforms.

Overseas audio live streaming generated $53.6 million, an 89.3% increase, highlighting strategic focus on high-growth regions like Southeast Asia and the Middle East.

Gross profit improved by 45.1% year over year to $57.7 million, though gross margin slightly declined due to a revenue mix shift towards lower-margin live streaming.

Operating income rose to $4.3 million from a loss in the prior year, despite a net loss of $192.4 million due to net other losses linked to investments.

The company restructured its cloud computing business, excluding it from financial results, and recognized a gain from the disposal of its stake in Shenzhen Huang Xing.

Management is confident in sustaining growth through strategic restructuring, focusing on 2C operations, and adapting to market dynamics.

Full Transcript

OPERATOR

Welcome ladies and gentlemen and thank you for your patience. You've joined Xunlei's first quarter 2026 earnings conference call. At this time, all participants are in listen only mode. Please be advised that today's conference is being recorded. I would now like to turn the call over to the host Investor Relations Manager, Ms. Luhan Teng. Thank you. Please go ahead.

Luhan Teng (Investor Relations Manager)

Good morning everyone and thank you for joining Xunlei's Q1 2026 earnings conference call. With me today are Eric Zhou, CFO, and Li Li, 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 remark from Chairman and CEO Mr. Jingbo Lee on Q1 Operational Highlights, followed by CFO Eric Zhou's presentation of financial Results. Details of Q1 before we open up the floor to your questions in the Q and A session, please note that this call is recorded and can be replayed in our investor relations [email protected] 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 provisions of the U.S. private Security Litigation Reform 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 forward looking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. XINLEI assumed no obligations to update any forward looking statements except as required under applicable laws. On this call, 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 US Dollars unless otherwise stated. Now the following is the prepared statement by Mr. Kinbo Lee, Chairman and CEO of Xunlei Ltd. Good morning and good evening everyone. Thank you for joining us today. We're excited to begin 2026 with a strong first quarter, one defined by disciplined execution, strategic clarity and tangible progress in our business transformation, Q1 was a period of decisive action. We delivered robust revenue growth across our core segments, completed a successful corporate restructuring and concentrated our focus on our highest potential business area. After carefully balancing our resources and the business opportunities, Total revenue for Q1 2026 reached $98.6 million and significant 54.1% increase year over year. This growth was driven by our strategic emphasis on consumer oriented businesses, particularly our two key growth engines, subscription services and overseas audio live streaming business. Now let me share with you some insights on these two vital business spot lines for our subscription business. We remain Xunlei's stable cornerstone, delivering consistent cash flow and steady growth. In Q1, subscription revenue reached $45 million, a solid 26 point year over year increase. This performance reflects our two focused efforts. Firstly, by thoughtfully enhancing the premium subscription experience, listening closely to user feedback and refining features, we have attracted a record number of users to use our premium services. Their trust is both our motivation and our greatest reward. And secondly, through constructive long-term collaborations with leading mobile phone manufacturers and Internet platform partners, we have expanded our reach naturally and inclusively bringing our services to new communities while staying true to our mission of enriching everyday digital life. Looking ahead, we're excited to introduce new features designed to make every interaction more intuitive and joyful and personal. With your continued support, we are confident in sustaining this purposeful growth. Our overseas live streaming business and other services have emerged as a powerful growth engine, delivering results in line with our expectations. In Q1, this segment generated $53.6 million in revenue, also an 89.3% year over year increase. This exceptional growth validates our strategic focus on overseas markets, especially high growth emerging regions such as Southeast Asia and the Middle East. These markets benefit from supportive platform policies and growing user demand. We have leveraged our strength in product refinement, user engagement and monetization to enhance local operations. The diverse user base, high engagement levels and increasing willingness to pay in these regions create substantial opportunities. Our ability to adapt services to local market preference, combining geographic and cultural insights with digital entertainment consumption is a key driver for this remarkable growth. We will continue to intensify our overseas expansion, exploring new markets and optimizing service offerings to to sustain momentum. That said, given the ever changing competitive landscape, our rapid growth may experience a modest slowdown in future quarters. In conclusion, Q1 2026 was a transformative period of xinlei. We achieved strong financial results, executed on strategic restructuring to concentrate fully on QC operations, and saw our overseas live streaming business emerge as a leading growth driver. We have demonstrated our ability to make both strategic decisions, adapt to market dynamics and drive growth through focus and innovation. With a clear strategic direction, robust business momentum and optimized resource allocation, we believe we are well positioned to capture growing opportunities in the 2C markets, sustain our growth trajectory and create long term value for our shareholders. We remain committed to executing our strategy with discipline and agility and we're excited about the future ahead. I will now hand the call over to our CFO for a detailed review of our Q1 2026 financial results.

Eric Zhou (Chief Financial Officer)

Thank you Luhan. And thank you all for participating in today's conference call. I will now walk you through our financial results for the first quarter of 2026. Please note that in Q1 we restructured our cloud computing business and it's no longer consolidated in our financial statements. Hence the following financials exclude discontinued operations. For the first quarter of 2026, our total revenues came in at 98.6 million, up 54.1% year over year. This strong top line growth was mainly driven by higher revenue from our subscription business as well as solid gains from our OFC audio live streaming business. Breaking down our revenue performance, subscription revenues reached 45 million, representing a 26.2% year over year increase. This growth reflects stronger user demand for subscription offerings. Our live streaming and other services delivered 53.6 million hours in revenue, jumping 89.3% year over year. Thanks primarily to the robust expansion of our overseas audio live streaming business. Our cost of revenues were 40.4 million in the quarter, making up 41% of total revenues. For comparison, we recorded 24.1 million, or 37.8% of total revenues in the same period of 2025. The higher cost of revenues aligned closely with our live streaming revenue growth, driven mainly by increased revenue sharing expenses for our audio live streaming operations. The remaining portion of revenue costs mainly came from payment handling fees, bandwidth expenses. Moving to profitability, we generated 57.7 million in gross profit this quarter, up 45.1% year over year. Our gross margin stood at 58.5% compared to 61.9% in the prior year quarter. The gross profit improvement was fueled by both our our audio live streaming business and our subscription business. The slight margin decline was a structural mix change. Live streaming, which carries a lower gross margin than subscription, now accounts for a larger share of our total revenues, which compressed our overall gross margin modestly. On the expense front, our R and D expenses were $20.2 million in Q1 2026, representing 20.4% of total revenues. This compares with $16 million, or 25.1% of total revenues in the first quarter of 2025. The year over year increase was mainly due to higher labor costs this quarter. Sales and marketing expenses rose to $22.4 million this quarter, flat as a percentage of revenue at 22.8% compared with 14.5 million or 22.7% of our total revenues. The high absolute spending this year reflects increased marketing investments across our subscription and overseas audio live streaming business as we continued to prioritize yield acquisition. GNA expenses came in at $10.9 million, equal to 8.5% of our total revenues versus $10 million or 15.7% of total revenues in Q1 2025. The increase was primarily driven by higher share based compensation expenses. On an operating level, we delivered operating income of $4.3 million this quarter, improving from an operating loss of $1 million in the prior year period. This turnaround was largely driven by stronger gross profit across our core businesses. We recorded a NET Other loss of 195 point this quarter compared with a net Other income of $1.1 million in Q1 2025. This year over year shift was mainly attributable to the fair value changes related to our long term investment in Aurasia Vision Inc. Which completed its IPO back in June 2025. Turning to discontinued operations which relates entirely to our Simpson Wanthin business which we reorganized in March and recognized income of 17.7 million in Q1 2026 which comprised the operating loss of 1.8 million from discontinued operations and a disposal gain of $4.3 million as well as the income tax benefits related to the disposal of 15.2 million. Our net loss from continuing operations was 1 92.4 million this quarter compared with net loss of 0.2 million in Q1 2025. The large net loss was mainly due to the net other loss we just discussed, partially offset by our improved operating performance. On a non GAAP basis, we achieved solid growth in non GAAP net income from continuing operations which rose to 4.1 million up from 0.9 million in the prior year period. On a per share basis, our diluted loss per ADS from continuing operations was 3.06 for the quarter compared with a diluted EPS of 0 in Q1 2025. Our non GAAP diluted earnings per ADS from continuing operations increased to $0.10 to increase to $0.07 versus $0.02 in the same quarter last year. Finally, on the balance sheet as of March 31, 2026, our cash cash equivalents and short term investments totaled 303.6 million up from 283.5 million as of December 31, 2025. The increase was primarily driven by positive operating cash flows and proceeds from the disposal of our 50% equity stake in Shenzhen Huang Xing. These gains were partially offset by deferred consideration payments for our Hutu acquisition. This concludes our prepared remarks operate. We are now ready to take questions.

OPERATOR

Thank you. We will now begin the question and answer session. To ask a question, please press 1N1 and wait for a name to be announced. To cancel your request, please press 1 and 1 again. One moment. For the first question. You have a question from the line of George Kim. Please ask your question.

George Kim

The course question is he noticed from annual report that in November last year Hong Kong was sued for the alleged unauthorized dissemination of NBA game content and the unauthorized use of the NBA trademark and the claimed damages amounted to approximately 12.1 million US in total. And he would like us to provide more details regarding such copyright litigation and he wants to know if the if it has. If it will have any material impact on this business. Thanks for the question. And as it is an ongoing case, we can't comment on it right now. But that said, we have set aside some allowances to cover any potential expenses related to this application. And we don't expect this case will have a significant impact on our operations. Thank you. Do it. And the second question is. He mentioned that there is a 1940 Investment act that requires companies to maintain the ratio of investment income to total assets below a certain threshold and it is expected that insurance equity gains will exceed that ratio. And he would like to know if any measures the company would take to address this regulation by ACA. This is good question and you are correct. We will continue to monitor our holdings of our appreciated assets in Eurasia Vision Inc. and we've been consulting with relevant advisors and if needed, we will gradually and seek to adjust our holdings so that Xunlei will hold 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 our core 2C business. And in fact we never intend to be an investment company. Thank you.

OPERATOR

Show you. Thank you for the questions. Once again, if you like to ask question, please press star one and one. At this time. No further questions from the line. Allow me to hand the call back to Eric for closing.

Eric Zhou (Chief Financial Officer)

Thank you again for your time and participation. If you have any questions, please visit our [email protected] or send emails to our investors relations. Have a good day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.