Xunlei (NASDAQ:XNET) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

Xunlei reported Q2 2026 total revenues of $102.7 million, marking a 38.9% year-over-year increase driven by growth in subscription services and overseas audio live streaming.

Subscription revenue reached $44.5 million, a 22.6% increase year-over-year, with continued enhancements in AI-powered features and smartphone partnerships.

Overseas audio live streaming business generated $58.2 million, a 54.8% increase, with expansion in emerging markets and enhanced localized product features.

Gross profit for Q2 2026 was $57.3 million, up 23.1% year-over-year, but gross margin declined to 55.8% due to a revenue mix shift towards lower-margin live streaming.

The company announced a $20 million share repurchase program, demonstrating confidence in long-term growth potential.

Xunlei experienced a net loss from continuing operations of $218.5 million, a significant change from net income of $726.4 million in Q2 2025, primarily due to investment-related losses.

The company is committed to further accelerating feature iteration, market penetration, and maintaining cost discipline for sustainable growth.

Full Transcript

OPERATOR

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei'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. Luhan Tang.

Luhan Tang, Investor Relations Manager

Good morning and good evening, everyone, and thank you for joining Xunlei's Q2 2026 earnings conference call. With me today are Eric Zhou, 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 prepared opening remarks from Chairman and CEO Mr. Jingbo Li on Q2 operational highlights, followed by CFO Eric Zhou's presentation of financial results 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 iaud.shinlight.com. Before we get started, I'd like to remind you that the 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 our management's current expectations under existing 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 following statements.

Please refer to our SEC filings for a 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 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 U.S. dollars unless otherwise stated.

Now, the following is a prepared statement by Mr. Jingbo Li, Chairman and CEO of Xunlei.

Jingbo Li, Chairman and CEO

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 a solid consumer-focused growth foundation we established in Q1. These results serve as clear validation that our strategic pivot toward a consumer-centric business model is delivering tangible results. Our two primary growth drivers, subscription services and overseas audio live streaming, each posted a steady year-over-year increase in revenue.

Let me walk you through the performance of these core customer-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 continued upgrading premium user experiences by rolling out new AI-powered features, optimizing existing functionality, deepening 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 device cooperation 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, Mexico, the Middle East, Turkey, and further expansion into Latin America. Concurrently, we enhanced localized product iteration and operational capabilities, optimizing our product matrix across one-on-one social interaction scenarios and multi-person chat rooms. Additionally, we saw notable quarterly momentum for our Hoku business, which contributed $9.1 million in Q2 revenue, benefiting from the peak advertising season and a 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 activity, 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 the end of June. We believe that this initiative demonstrates our unwavering confidence in the company's solid fundamentals and long-term growth potential. We'll maintain disciplined capital allocation, prioritizing investment in core consumer product innovation and international market expansion while returning excess 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, deepen market penetration within our established overseas markets, selectively pursue new regional growth opportunities, and uphold strict cost discipline to expand profit margins across all business 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, focused core business structure, advanced technological strength, and localized operations serve as our key competitive edges. We're 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.

Eric Zhou, CFO

Thank you, Luhan, and thank you all for participating in today's conference call. I will now walk you through 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 Hoku advertising business. Breaking down our revenue performance, subscription revenues reached $44.5 million, a 22.6% year-over-year increase.

This performance reflected sustained user demand for our full suite of premium product offerings. Revenue from live 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 streaming operations, alongside the growth in advertising revenue from our Hoku 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 Q2 2025, cost of revenues came to $27.0 million, or 36.6% of total revenues. The uptick in our cost base largely aligned with expansion of our live streaming revenue, driven mainly by increased revenue-sharing expenses 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 63.0% in the prior-year period.

The gross profit improvement was fueled by both our subscription business and Hoku advertising revenue. The notable margin decline stems from a structural revenue mix shift. Since live streaming carries a lower gross margin than subscription and advertising business, its larger share of total revenue mix modestly compressed our overall gross margin. On the expense front, R&D expenses were $21.4 million in Q2 2026, representing 20.8% of total revenues, compared with $16.6 million, or 32.4% of total revenues, in Q2 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 total revenues, compared with $20.7 million, or 28.0% of total revenues, in Q2 2025. The increase in absolute marketing spending reflected promotional investment across our subscription and overseas audio live streaming operations as we continue to proactively prioritize acquisition and brand visibility.

G&A 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 Q2 2025. The increase was primarily driven by provisions for ongoing legal litigations and higher employee-related costs year over year. At the operating level, we posted 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 was largely due to the sequential and year-over-year rise in our selling, marketing, and general administrative expenses outlined above.

We posted a net other loss of $213.8 million for the quarter versus net income of $721.5 million in Q2 2025. The dramatic swing was mainly driven by fair value volatility on our long-term investment in A Russia Vision Inc., which is accounted for on a mark-to-market basis using public stock prices after the company's IPO in June 2025. Unlike Q1, there were no discontinued 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 Q2 2025. The net loss was mainly due to the material net other loss just mentioned, partially offset by positive gross profit 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-share basis, diluted loss per ADS from continuing operations was $3.43 for the quarter, compared with diluted EPS of $11.47 in Q2 2025. Non-GAAP diluted loss per ADS from continuing operations came to $0.03, versus non-GAAP diluted earnings of $0.12 per ADS 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 acquisition. This concludes our prepared remarks. Operator, we are now ready to open the line for questions.

OPERATOR

Thank you very much. We will now conduct Xunlei's question and answer session. To ask a question, please press star on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please give us a moment for our first question. First question comes from the line of Zoe Zhang, retail investor. Please go ahead. Zoe Zhang, please go ahead.

Zoe Zhang, Retail Investor

Hello. The question is, the company announced a share repurchase program at the end of June, but she didn't see any share repurchase information in your press release and she'd like to know what's going on with the buyback program.

Eric Zhou, CFO

Thanks for asking. The Board of Directors approved a new share repurchase program of $20 million at the end of June, and the repurchase officially commenced on July 1st. As of August 12th, we bought back approximately 1.07 million ADS shares and spent approximately $5.9 million. The repurchase program remains ongoing, and more details will be disclosed in our third quarter financial report. Thank you.

OPERATOR

Thank you. Just a moment for our next question. As a reminder, to ask a question, please press 11 on your telephone keypad. Next, we have XJ, individual shareholder.

XJ, Individual Shareholder

Okay. Basically, his question is regarding your stakeholding in Gusang or AirAsia Vision Inc., and he'd like to know your progress in reducing your stakes in this investment and what your plans are for the proceeds in the future.

Eric Zhou, CFO

Thank you for the question. Currently, we hold more than 5%—specifically, a 7.8% equity stake—in the company. We need to follow certain regulatory rules and regulations when we begin to sell the stock, do it in an orderly manner, and make timely disclosure. 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 share disposal. He also asked a question regarding the 1940 Investment Company Act.

According to the 1940 Investment Company Act, a listed company needs to follow certain regulations to be in compliance with the requirements of the Act. We will continue to monitor our holdings of our appreciated assets, and we've been consulting with relevant advisors. If needed, we will gradually seek to adjust our holdings so that Xunlei 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 is consumer-facing business—2C business.

We never intend to be an investment company. Thank you.

OPERATOR

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

Eric Zhou, CFO

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

OPERATOR

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

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.