Xunlei Limited (XNET) Earnings

Management highlights

- Business Transformation and Restructuring * Completed a successful corporate restructuring in the prior year, concentrating resources and focus on the highest potential 2C consumer-oriented business areas * Discontinued and deconsolidated the cloud computing business in Q1 2026, with disposal of non-core assets contributing to balance sheet strength - Strategic Growth Priorities * The company's two core growth engines are the stable subscription business (cornerstone for consistent cash flow) and the high-growth overseas audio live streaming business * For subscription services: Growth was driven by premium feature refinement based on user feedback, and expanded reach through long-term collaborations with leading mobile manufacturers and internet platforms; new personalized, intuitive features are planned for future rollout * For overseas live streaming: The company prioritizes high-growth emerging regions including Southeast Asia and the Middle East, where growth is supported by favorable platform policies and rising user demand. Strong performance is driven by adaptation of offerings to local cultural and market preferences, plus strengths in product development, user engagement, and monetization - Financial Performance * Gross profit totaled $57.7 million, up 45.1% year-over-year, with an overall gross margin of 58.5% (down 340 basis points from 61.9% year-over-year, due to the mix shift toward the lower-margin live streaming segment) * Operating income reached $4.3 million, a turnaround from a $1 million operating loss in the prior year quarter, driven by improved core business profitability * Non-GAAP net income from continuing operations grew to $4.1 million, up from $0.9 million year-over-year; non-GAAP diluted EPS increased to 7 cents from 2 cents year-over-year * The $192.4 million net loss from continuing operations was entirely driven by a $195.1 million fair value loss on the company's long-term investment in Eurasia Vision Inc, which completed its IPO in June 2025 * As of March 31, 2026, total cash, cash equivalents, and short-term investments stood at $303.6 million, up from $283.5 million at the end of 2025

Guidance

- Management expects that the rapid 89.3% year-over-year growth in the overseas audio live streaming business will see a modest slowdown in future quarters, due to the intensifying competitive landscape in global markets - The company maintains its strategic focus on driving sustained growth in core 2C consumer businesses, with plans to continue investment in user acquisition for both subscription and overseas live streaming operations - Management confirms confidence in sustaining steady growth for the subscription business as new user-centric features are rolled out - The company intends to adjust its investment holdings to remain compliant with U.S. regulatory requirements, aligning with its core focus on operating 2C digital entertainment businesses rather than acting as an investment company

Segment performance

After completing a corporate restructuring that removed the cloud computing business (now classified as discontinued operations), Shunlei reported total Q1 2026 revenue of $98.6 million, representing a 54.1% year-over-year increase. 1. Subscription Services: Revenue reached $45 million, a 26.2% year-over-year increase, contributing 45.6% of total Q1 2026 revenue. This segment has a higher gross margin than the company's other core segment. 2. Overseas Audio Live Streaming and Other Services: Revenue reached $53.6 million, an 89.3% year-over-year increase, contributing 54.4% of total Q1 2026 revenue. This segment carries a lower gross margin than subscription services, and its expanded share of total revenue drove a modest overall company gross margin decline.

Risks & headwinds

- Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations, with detailed risk factors available in the company's SEC filings - The company faces an ongoing copyright litigation related to subsidiary Huqin, over alleged unauthorized dissemination of NBA game content and unauthorized trademark use, with total claimed damages of approximately $12.1 million - The appreciated fair value of the company's holding in Eurasia Vision Inc. may cause the company to exceed regulatory thresholds under the 1940 Investment Act, requiring adjustment of investment holdings to maintain compliance - The shift in revenue mix toward the lower-margin overseas live streaming segment has created modest downward pressure on the company's overall gross margin - Intensifying competition in overseas emerging markets is expected to moderate future growth for the live streaming segment

Analyst Q&A

• Q: Can you provide more details on the ongoing copyright lawsuit against Huqin, which alleges unauthorized use of NBA content and trademarks with $12.1 million in claimed damages, and will this have a material impact on the business? /

  A: The case is currently ongoing, so management cannot provide further public comment on the details of the litigation. The company has already set aside reserve funds to cover any potential expenses related to the case. Management currently does not expect the lawsuit to have a significant material impact on Huqin's operations or the company's overall performance.

• Q: If gains from the Eurasia Vision Inc. investment cause the company to exceed the 1940 Investment Act's threshold for investment holdings relative to total assets, what measures will the company take to address this regulatory requirement? /

  A: Management confirms the regulatory concern, and will continue to closely monitor the value of the appreciated Eurasia Vision holding while consulting with legal and regulatory advisors. If needed, the company will gradually adjust its holdings to ensure investment securities do not exceed the 45% threshold (excluding cash and government securities), which aligns with the company's core strategic focus on operating 2C consumer businesses rather than acting as an investment company.