Good morning and thank you for standing by for Xunlei's Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in listen-only-mode. After Management's prepared remarks there will be a question-and-answer-session. Today's conference call is being recorded. I would now like to turn the call over to your host today Mr. Chen Yuanyuan, IR Director of Xunlei.

Thank you. Good morning and good evening. Welcome to Xunlei's fourth quarter 2014 earnings call. With me today on the call are Mr. Sean Zou, our Chairman and CEO; and Mr. Tom Wu, our CFO. Today's conference call is being broadcasted live via webcast. In addition, a replay of the call will be available on our Web site following the call. Our earnings release was distributed earlier today and is now available on the Investor Relations section of Xunlei's Web site as well as Newswire service. Before we get started, please note that the discussion today will contain certain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Please refer to our SEC filings for more detailed discussion of risk factors that may affect our results. We do not assume any obligations to update any forward-looking statements except as required under applicable law. During this call we will be referring to both GAAP and non-GAAP financial measures and the non-GAAP measures are reconciled to the most recent directly comparable to GAAP measures in this table attached to our earnings release, which can be found again on our Investor Relations Web site. Please note that all numbers are in US dollars unless otherwise stated. Now I would give the floor to our CEO Sean. Sean, please.

Thank you, Chen. Good morning and good evening everyone. Thank you for joining us today for our third earnings call since our IPO. Let me start by briefly commenting on our financial results. For the fourth quarter last year, our revenues of 46.7 million were within the guidance range we provided to the street. The results were again impacted by the current operating environment, but we were pleased that we were able to achieve near the high-end of the guidance range. Tom will provide more details on the financial results in his section. Given this is the first earnings call for 2015, I would like to take this opportunity to share with you the outlook for the year and Xunlei's core strategies for 2015, which is no doubt a critical year for Xunlei in its continued transition to mobile Internet. But first, I would like to again articulate the position of Xunlei in today's mobile Internet. Xunlei positions itself as a crowd sourced content delivery company by/and [4K] users across devices, including increasing popular Xiaomi phones. Xunlei will continue to focus on the user experience of content delivery in terms of speed, success rate and cost efficiency via Project Crystal. We feel that positioning with attributes will continue to increase its value and especially now that mobile devices have bigger screens and accommodate bigger storage. New users’ behavior on bigger screen mobile devices will increasingly resemble that of the PC. And in short we will focus on three initiatives to execute our strategies for 2015 to ensure our transition to mobile Internet. Mobility strategy is our first and foremost focus in 2015. Transforming Xunlei from a primary PC based company to that of a mobile Internet. The anchor of our mobility strategy is no doubt our cooperation with Xiaomi. As…

Thank you Sean, good morning and good evening everyone. Before we delve into the numbers I would like to just highlight a couple of points. First of all our user base, our user base as of the end of September was roughly about 306 million, this is according to iResearch, that continues to rank Xunlei as one of the top Internet platforms in terms of user traffic in China. Second, as Sean pointed out we’re clearly focused on executing three initiatives for 2015; mobility, Crystal and focused approach to managing our existing businesses. I am also particularly excited that our mobile traffic on Xiaomi phones and mobile Xunlei which is the mobile app that Sean mentioned has surged even though they have not produced revenues yet. In terms of financials all the growth rates and comparisons that I’m reciting will be on a year-over-year basis and less indicative otherwise. For the fourth quarter our revenues were 46.7 million which as Sean pointed out is towards the high end of our own guidance range. The current operating environment clearly is impacting our results but on a year-over-year basis we were able to generate revenue growth by 7.1%. Let me now go through each of the segments. Subscription revenues continue to be the most important segment for us representing about 50% of our total revenues. This segment declined both on a sequential basis and on a year-over-year basis. Number of subscribers at the end of the quarter was 4.9 million down from 5.1 million at the end of the previous quarter, roughly about 4% decline sequentially. And ARPU was RMB28.2 for the quarter lower on a sequential basis. We've continued to offer [suspension] of services to roughly about 350,000 subscribers up from about 300,000 at the end of last quarter. As mentioned…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Ella Ji from Oppenheimer. Please ask your question.

I have three questions if I may. First question is, within your total installment as well as daily active users, how many of them are coming from Xiaomi smartphones? And then also could you talk about what are the scenarios that you are seeing, the users are using your mobile products -- what do they use, what kind of activities are they engaged in when they use your mobile products? Are they very similar to PC? So that's my first question. And secondarily, could you also provide us a little bit more colors regarding the monetization strategy of your mobile products? Is it going to be similar to PC which is mostly subscription based? And then last question is regarding your margin outlook. I think you are going to accelerate investment in R&D and sales and marketing which make sense. With that in mind, could you comment on the 2015 margin spend? Thank you very much.

[Foreign Language] Maybe I can just translate that. Answer for the first question; thanks Ella for your questions first of all. The short answer for your first question is yes. Most if not all of our installed base of 55 million comes from Xiaomi phones, but as we mentioned part of our milestone for this year is to develop other strategic relationships with smartphone makers other than Xiaomi, so we expect that toward the end of the year our installed base will come from the growth of Xiaomi, but also other smartphone makers. Your second question about scenarios that users will use our mobile acceleration products, the first one is the acceleration product incorporated in Xiaomi's operating system. There are number of scenarios where users will actually use or benefit from acceleration, that is when they use the game center to download a game, when they use the app store and when they use system upgrade which is probably one of the biggest data usages if you will. So that is sort of the typical scenario for using our mobility products in Xiaomi phones. Now the second product that I mentioned [indiscernible] Xunlei -- which is the Xunlei Mobile which recently surpassed 6 million in DAU. This is kind of a search and download function, almost like what you do on a PC and as I mentioned user behavior is changing or appears to be changing as phones get bigger. So phones increasingly act almost like the PC whereby users would search and download content onto their smartphones. So that’s essentially the functionality or the usage scenario you asked about for the two primary mobility products that we currently have. And now I will move out to the second question. [Foreign Language] Let me perhaps translate the answer first for…

Certainly. Your next question comes from the line of Alex Yao from JP Morgan. Please ask your question.

I want to follow up regarding Sean's comment of streamlining and the potential restructuring of existing business. Sean you have laid out the framework in relation to how to think about this business and how good is the rationale behind these stream-linings. So if I apply the framework you just discussed in the prepared remark to the existing free business, I believe the subscription business is a direct monetization of your core technology so that fits very well into the framework and that will continue to grow especially on the mobile, as the mobile monetization picks up, but when Web gains which is more of a concurrent sourcing and gain operation I see very little relevancy to the core competency and technology advancement. And then regarding the [vital] parts which is mostly driven by capital which has a very little to do with your core competence as well, so can you comment -- am I in the right if I think about how this business is feeding to your framework and also if there are some restructuring in relation to these two business segments what could be the financial impact to the P&L in 2015? Thank you.

[Foreign Language] Thanks Alex for your question. I guess just two or three points that I want to share with you. One is that sort of the background of the possibility of streamlining our existing business portfolio and this would have to start with what we wanted to achieve for 2015 and as I try to articulate and articulate several times that the key focus for Xunlei for 2015 and possibly beyond would be on the mobile side and would be on Project Crystal side. So we think that both in terms of focus, both in terms of management bandwidth, let alone financial implications, we ought to take a hard look to focus if not refocus our effort on our businesses. Now the second point is that I wanted to reiterate that the guiding principles if you will of how we will look at our existing portfolio, you are correct in a number of ways that you commented on. First and foremost is Xunlei sees itself as a technology driven company so any products, existing products or future product would have to be driven by our technology core competencies or actually the prowess of the whole technology platform. So that would be the first priority so -- and second is profitability and you're aware that a couple of products not only generally lost, but sizeable losses and that it would be up to management to finalize its reviews to ascertain, to assess the near-term to mid-term likelihood for us to achieve profitability let alone the sustainability of profitability. Those are the two guiding principles criteria if you will that we'll be applying over the next three, four months when we evaluate our existing portfolio. But like I said the purpose of this exercise is to focus the company, is to make sure that we can deliver and execute the milestones that we have placed for ourselves and let along to make sure that financially it will be a more profitable company going forward. But we're not going to comment on it specifically right now and obviously upon finalization of our analysis will be informing the marketplace in a timely and hopefully insightful manner as well.

The second question is about the monetization of Project Crystal. Sean you mentioned that skill is probably the most important milestone for the monetization. Can you share with us how far away is your current scale, should -- ideal scale for monetization. And then secondly, the timing might be a little uncertain for this. Can you help us to understand the magnitude of the monetization or the potential distinct model from this business and how to think about ’16 financial contribution from Project Crystal?

[Foreign Language] Thanks Alex and thanks for your appreciation of the importance of Crystal to Xunlei. I have just a couple of thoughts to share. One is that, as I pointed out the two key milestones for this year number one is we need to increase the scale, the amount of bandwidth we can crowd source, and on that front clearly we've made very meaningful progress almost on a daily basis and we're 50% more compared to where we were two or three months ago, when we spoke last. So that clearly has to continue to go up, number one. And second milestone is sales revenues and again let me just clarify who will be buying potentially this kind of technology of services from Xunlei. It will be anybody with bandwidth needs, so your gain companies, your video streaming companies and you probably realize that it's a secular growth story directly in the function of online consumption in China. So we think it's a good business to get into, let alone that we think we're uniquely positioned in that business. Now in terms of timing of revenues, it is baked in for 2015 as far as management's budget is concerned. Most likely we think revenues will be realized probably towards the middle of this year. And that will be a milestone that will be a true testimony of not only the scalabilities, the viability of the product but market demand of this product. And finally, I would just provide some color, we are testing already with a third party company right now and hopefully that will be turned into first sale force in the near future, but that clearly is one of the most important strategic target for us this year.

Thank you. And your next question comes from the line of [Chungbo Yeng].

Actually could you please elaborate more about the gaming business of Xunlei in the fourth quarter?

Yes, I'd be happy to do that. Are there any specific question you have about gaming or I can give you some broad parameters about what the performance is of our gaming business.

Yes the broader gaming will be fine and could you please name three, the best cash generating games of Xunlei in the fourth quarter?

Let me just make two points there. First of all gaming as I pointed out in my script contributed to the growth of our IVAS revenues this past quarter. And broadly speaking we've run two types of games, web games and client games. Now both games benefited from user behavior changes this past quarter, whereby I guess it's sort of two sided coin, on the one hand, it helped our revenues, but on the other hand the useful life of some of the games that we ran were shortened. And the second point that I would make for you is the types of games that we make and the portfolio that we have, so on the web game side, it's a very steady growth kind of business. Not as much volatility, the types of games for us. And partly because of the diversity that we have, we have probably close to, if not over a 100 we games. So it's not a concentration issue, let alone the dependency on a particular game. Now that same cannot be said on the client game side. As you'd probably appreciate that client game requires much bigger investment and there is a lack of diversity as far as portfolio is concerned. We have less than 10, probably close to half a dozen games that are online right now. Now I wouldn’t want to get into too much details about the cash flow profile, but let me just say this, on a combined basis, gaming is that is including client games and web games, the cash flow is good is positive, but obviously it depends on you have to dig deeper to segregate client games versus web games and I'm not prepared to share that with you on this call.

Okay, is there are plans for Xunlei to -- if you are going to launch any mobile games recently?

The short answer is yes, but still in a very timid fashion. We do have a team -- a small team focusing on mobile games. I think internally it's very strategic for us to evaluate how much resources we want to dedicate to it, but I think it's fair to say we have wasted that [indiscernible] trying to articulate what is our focus this year. And I'm just -- I know what it means to work here, the first focus is our mobility strategy, broadly speaking the Xiaomi products acceleration and Xunlei Mobile. And second strategic prerogative is on Crystal. I think mobile products -- mobile games is something that's on the horizon, but I think it will not be a high conviction item for Xunlei and that fits within our sort of third strategic prerogative which is really to focus and refocus on our existing businesses. And we would consider mobile games part of our existing business even though from a revenue standpoint or from a scale standpoint, it's really at the minimal. Operator, next question please.

Thank you. And your next question comes from the line of Peter Penn from Huatai Asset Management. Please ask your question.

Hello, Sean and Tom. I just speak in Mandarin. [Foreign Language] First of all let me translate the question. It's from Peter Penn from Huatai Asset Management. The first question totally agree with the overall strategy in terms of mobile products and appreciate the magnitude or significance of the magnitude of 55 million installed base, I think the question is it's part of the operating system and how do you gain a user interface with users. And that's the first question. And second question is that, is there any timetable or revenue model in relationship with other smartphone makers?

[Foreign Language] And the answer is I guess first reiterating our strategy, which as first and foremost to continue to expand our installed base which as you rightfully pointed out has reached 55 million and will probably reach 100 million by the end of the year. And our active user base has also increased dramatically to 8.5 million on a daily basis. So these are the good news and second is that we will -- we are in discussions with other smartphone makers, there are ongoing discussions in terms of installing our products in their smartphones. Now the second point is that how to gain that user interface that is also ongoing in terms of product development, design, how we negotiate with phone makers in terms of the presentation of our value adds. And in terms of revenue model, it's -- obviously it will be driven by demand from users and we are still focusing on the product and the distribution strategy as we speak, but we're hopeful that if we continue to focus on the core aspect of our mobile strategy, it should be a successful strategy. [Foreign Language] Just one more comment from Sean. Just an observation or sharing of data. It's the trend that continues. It looks like Xunlei mobile traffic by the end of 2015 will probably exceed our PC traffic by the end of this year.

[Foreign Language] Let me translate the question again. It's from Peter Penn from Investment or Asset Management. The question is on Project Crystal and I guess the question is; how is Crystal different from traditional, if you will CDN provider?

[Foreign Language] There are three points; one is that the sourcing is very different. Traditional CDN providers they buy bandwidth from carriers whereby -- we are buying bandwidth if you will crowd source type bandwidth from user base. So it's all about like Uber would not invest in bandwidth. So that's a first point. Sourcing is very different. Now in terms of users, they are very similar, anybody with content provider will be using this kind of bandwidth whether it'd be a game company or streaming companies. In fact you could argue that some of these CDN providers could be potentially distributors from Xunlei's crowd source bandwidth, essentially they will be a channel and we will be a supplier of the bandwidth through them. So we're not exactly in competition in that respect. And finally just reiteration of the milestones that we have in place, really to scale and really to develop sales and marketing product development to make sure that the revenues that we had baked in for 2015 can be realized.

There are no further questions at this moment. [Operator Instructions]. Yes there are no further questions at this time. I will like to hand the call back to the management for closing remarks.

Thank you again for joining us. We believe it was a very important call as we articulated our strategies and milestones and last but not least our conviction to execute our strategy. So thank you and have a good evening and good morning. Look forward to speaking to you soon. Thank you very much.

Ladies and gentlemen that does conclude the conference for today. Thank you for your participation. You may now disconnect the lines.