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spk06: Good day and welcome to the uCloud Link first quarter 2023 earnings conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jillian Zhang, Investor Relations for uCloud Link. Please go ahead.
spk04: Thanks everyone for joining us on our first quarter 2023 earnings call today. The earnings release is now available on our IR website at ir.uclolink.com and via newsletter service. I will give a brief introduction to our UCLolink management team. Mr. Zhi Ping Peng is our co-founder and chairman of board of directors. Mr. Chao-Hui Chen is our co-founder, director, and chief executive officer. Mr. Yi-Meng Shi is our chief financial officer. Mr. Chao-Hui Chen, our co-founder and CEO, will begin with an overview of the company's recent business highlights, which will cover the earnings presentation posted on our IR website. Mr. Yi-Meng Shi, our CFO, will then discuss the company's operational operational highlights, and financial results. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management teams' current expectations and observations that involve known and unknown risks on certain uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entity by the contrary statements, risk factors, and details of the company's filings. with the SEC. The company does not assume any obligation to revise or update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Please also note that your callings and this press release and this conference call include discussions of the non-audited gap financial information. and the non-audited non-GAAP financial measures. Euclid Link's press release contains a reconciliation of the non-audited non-GAAP measures to the non-audited most directly comparable GAAP measures. I will now turn the call over to our co-founder and CEO, Mr. Cha-Hui Chen. Please go ahead.
spk01: Thank you, Jillian. And good morning, everyone. Thank you for joining us on our first quarter of year 2023, Earnings Court Day. We appreciate everyone's time. We are pleased to start off 2023 with strong first quarter results, which is the first time that we achieved both positive net income and the positive cash flow generated from operations with growth in revenue since the outbreak of the COVID-19 pandemic. The average daily active terminals continue to be in an upward trend and reach a historic height of over 300,000 in this quarter, as we continue to expand our global path and SaaS ecosystem, reflecting the accelerated market demand for uCloud Link services across the global market. New Clouding 1.0 is our international data connectivity services business, which tends to be a higher margin land of business and has historically been one of our key growth drivers. During the first quarter of year 2023, New Clouding 1.0 business revenues increased 38.5% year-over-year to US dollar 7.8 We are delighted that our uClouding 1.0 business demonstrates significant growth as a result of accelerated international travel recovery across our major markets, particularly in Japan. We also have observed increased demand from our 1.0 low-maintenance business in mainland China and Southeast Asia, are historically strong markets with wide coverage of non-mainstream brands. Average daily active terminals for uClouding 1.0 business increased by 55.3%, compared with the same period of year 2022, which indicates the significant growth of our business. We remain optimistic in our ability to further grow our uClouding 1.0 business, thereby solidifying our leading global position in the international data non-means solutions market. And we look forward to serving our users globally as the market continues to pick up. uClouding 2.0 is our local data connectivity services business. which focuses on local residents and solves challenges among the carriers. This business line took off during the pandemic as we see the opportunities in the local market by offering reliable local data connection services. Over the past two years, we continue to strengthen our present in local markets, including Japan and North America, where we have operator and business partner improve their data connectivity services and resolve data connection problems through our PaaS and SaaS platform, based on our patent technologies, including Cloud Theme and Hypercom technology solutions. Our uClouding 2.0 business reported US dollar 2.2 million in revenues, up by 37 percent in the first quarter of year 2023, as compared to U.S. dollar 1.6 million in the same period of year 2022. We received recognition from business partners in established markets like Japan and North America, and continue our efforts in expanding our PaaS and SaaS platform ecosystem. We expect our high-quality, reliable data connectivity services based on our innovative Hypercom technology will receive more industry recognitions and applications, especially in the mobile and fixed broadband industry. We expect to launch more innovative Hypercom products catering to the needs of a diverse set of mobile virtual operators, business partners, and individual customers in the near future. On the Internet of Things IoT side of our business, we have shared updates on multi-application scenarios supported by our IoT module. including Wi-Fi loader, IP cameras, et cetera, which have been welcomed by our customers in various markets for their competitive advantages. In Japan, we are actively working with our business partners to explore and expand application scenarios for the IoT business to further improve the data connectivity experience for their customers. At the same time, Our team continues to leverage existing resources in the research and development to develop new Cloudy 3.0 business. The one-stop mobile data traffic sharing marketplace application is planned to launch the fourth version in the near future, which leverages our efforts in building scalable users based through our new CloudLink 1.0 and 2.0 models. This marketplace enables and uses devices to connect to available networks anytime, anywhere, utilizing the global Meet app new version. We remain confident in the market conditions ahead for the month of year 2023. and we're prepared to take advantage of the peak season of international travel during the summer. We believe our track record of delivering reliable and high-quality data connectivity experience and our historic of introducing innovative products and solutions enable us to maintain a leading position in the international data connectivity services industry. We are always committed to continuous development of innovative solutions and plan to expand our cloud theme and high-tech technology solutions to more application scenarios. Our business aims to deliver value-added services to our customers by continuously improving their mobile data connectivity experience, and we will continue to execute our growth strategies with our expanding portfolio of offerings. I will now turn the call over to our CFO, Mr. Yimeng Shi.
spk02: Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the first quarter of 2023. Average daily active terminal DAP is an important operating matrix for EqualLink as it measures the trend of customer usage over the period, reflecting our ongoing business performance. In the first quarter of 2023, average daily active terminal were 304,121, of which 3,400 owned by the company and 300,638 owned by a business partner, up by 11% from 273,870 in the first quarter of 2022. The average DAT for our EuclidLink 1.0 and EuclidLink 2.0 business accounted for around 42.7% and 57.3% of the total DATs. respectively during the first quarter of 2023. Average daily data usage per terminal was 1.62 gigabytes in March 2023. Total revenue for the first quarter of the 2023 were 18 million US dollars representing an increase of 15.3 percent from 15.6 million in the same period for 2022. Revenue from service in the first quarter of 2023 were $12.9 million, an increase of 31.4% from $9.8 million in the same period of 2022. Revenue from service as a percentage of total revenue was 71.7% during the first quarter of 2023, up from 62.9% during the same period of 2022. During the first quarter of 2023, Japan contributed 43.1%, North America contributed 33.6%, mainland China contributed 5.1%, and other countries and regions contributed the remaining 18.2% of the total revenue, compared to 40.2%, 37.9%, 1.9% and 18% respectively in the first quarter of 2022. Overall gross margins improved to 47.8% in the first quarter of 2023 as compared to 37.4% in the same period of 2022. And our gross margins on surveys increased to 60.5% in the first quarter of 2023. from 49% in the same period of 2022. Excluding the share basis compensations, our total operating expenses decreased to $6.9 million, or 38% of total revenues in the first quarter of 2023, as compared to $9.3 million, or 60% of total revenue in the same period of 2022. We realized late income of $2.1 million in the first quarter of 2023, which represents a significant improvement on our bottom line results as compared to a late loss of $7.9 million in the same period, 2022. Similarly, adjusted EBITDA improved to $2.1 million during the first quarter of 2023 as compared to elective $3.9 million in the same period, 2022. We are pleased this is the first time we achieved positive net income since the outbreak of COVID-19 pandemic. And adjusted EBITDA has remained positive for three consecutive quarters. We have achieved positive operating cash flow, $1.6 million during the first quarter of 2023. which compared to elective $4.4 million during the same period of 2022. We have significantly improved our bottom line in the first quarter of 2023 and have generated positive cash flow from operation for four consecutive quarters. Our strength in financial position enabled us to execute our growth strategies. With that, operators, let's open it for Q&A.
spk06: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Theodore O'Neill with Leachfield Hills Research. Please go ahead.
spk00: Thank you very much. Can you hear me okay? Yes. Yes, good. Congratulations on the good quarter. I have three questions for you. The first on gross profit, I can see that the overall margin was better in the quarter because you had a greater mix of services, but I wanted to understand the margins got better on both products and services. Is that due to pricing, or was there some efficiencies in the products?
spk02: So we answer your questions one by one. So you just raised the first question, right? Yeah, regarding the gross profit, you will see we improve gross profit, gross margins, in the past couple of quarters. So that's a massive improvement on quarter-to-quarter basis. For the service gross margins, it's improving depending on the mix of the service categories. So that's a mixture of the three categories of main service revenues. One is the international roaming connectivity service, one is the local connectivity service, and the path and source service. So the improving gross margins will reflect the proportions of the revenue generated from international roaming service and from path source is growing, growing faster. than the low cost connected service. So that's where we get the improving result of the gross margins improving over the past couple of quarters. So we look forward in the near future this year because the border has been opened up for most countries. so the people can move cross-border more freely than before. We expect that more revenue will be generated from the international roaming connectivity service. So if the proportions of international roaming service will be improving in the future, So we expect that overall service cost margin will be improving a bit, at least keep stable in the following quarters or these years. That's my opinion.
spk00: Thank you. My next question is about the research and development expense. It says in the prepared remarks that you had a decrease of $0.2 million in testing and certification expenses. can you give me some insight into how that number for testing and certification, I would have thought it would sort of go up and down with new products, but can you give us a little more sense of how that goes up or down quarter to quarter?
spk02: Um, yeah, uh, I, I'll say, uh, the first, the first hot pot and regarding the decrease in the IMD expenses, uh, our CEO may give some colors on the new product. Yes, we report the streamlined operations since the year 2021, and that's reflecting our overall headcount. decreasing compared with the year 2022. So the number of headcount has been cut off for some certain part for improving operational efficiency. And so that's with reflecting on comparable basis. So overall expenditures have been decreases from year to year basis. And that's similar storage for the IMD functions as well. We invest a lot in the past couple years. We invest a huge investment on research and development functions. So that's a support. Every year we launch a different new product, new features. upgrade our platform as well. But we will still invest and leverage our R&D to support, to develop a new product. So regarding the new product development, our ICO will give some more color on that.
spk01: Yes, I'm . I have some comments. Because two years ago, we had a heavy invest in R&D side. You can see our loss two years ago, the heavy loss. That's because we have invested in R&D side. So tier 5G, tier the hypercom, we finished all the development. At the end of last year, we started to control the cost and control the R&D investment. But this did not impact our new product launch in these years. So in my presentation, I already told the truth. We will launch in the near future for our HyperCon product. This will meet for mobile broadband and fixed broadband. This is a huge opportunity for the mobile broadband operator market. I think in the next quarter, we are prepared to launch this. Around this time, we will launch this series of new products in the second quarter and also the third quarter. So we continue to have this Hypercom product launch to enhance high quality, reliable quality, because no matter fixed broadband or mobile operator, their network will face the failure. Once the failure happens, we can help them to improve the experience. That's a quite unique solution. We expand these hyperconnection product to expand to the different scenario for carrier and for the cable carrier, fixed broadband carrier, and mobile broadband carrier. And also we will launch some new product for 1.0 business to enhance the, you know, to meet the more convenient, more compact, and the 5G product leading tradition, and both of these two directions. And we will launch more new product to meet the 1.0 fast growth market as well. And also for IoT, so we will launch an IoT product to improve the reliable, we apply the hypercom this technology into the IoT product because we know that autopilot, you know, like a robot, you know, like this IoT technology scenario also needs a very high reliable connection. So in this high reliable connection, we do a lot of, you know, breakthrough. We hope in the coming quarter we can give this good news to everyone, you know. Once our growth and the growth of recovery from the pandemic, so I think our R&D will also keep very stable investment and also our new product, new solution because of historic investment and that after this year we will also strengthen our R&D investment. we will get more good results in the bright future for our HyperCon cloud scene.
spk00: Okay, thank you. And my last question is about accounts receivable. You've done a remarkable job at keeping receivables low relative to revenue. Is that primarily because the services are prepaid?
spk02: I think the improvements on the balance account receivable depends on a couple of factors. The first one is that we pay more attention and effort on improving our business terms. As you say, you mentioned prepaid terms. and the credit term, the short-term credit term, and the sums, we have some more, some bigger orders from this good credit customer as well. So that's the first, I think, first contributors for the improvements, a balance. And the second part, I think that we pay effort to collect the cash from some agents, account receivables. Some customers suffered this pandemic one year ago, two years ago. So now they recover gradually in terms of making profit or something, generating more cash flow from the business activities. So we have our efforts on cash collections have achieved positive results. That's helped improving the balance of the account receivables. And the third part depends that we're selling more to innovative customers. via e-commerce, via our website. So this e-commerce generates just a cache, a prepared cache at all before they use our service. So this also varies as the contributors help our improving AIR's management. So we will also take this in the future will maintain well cash positions. So I expect our operating cash flow will keep this positive trend in the following couple of years. I think we will, I believe we will achieve a better than last year, as we expect.
spk01: Yeah, by the way, you know, because our customer situation, the financial situation, also is much better compared to the, you know, during the pandemic. So they are all willing to accept our more, you know, better, you know, payment condition.
spk00: Thank you very much. That concludes my questions.
spk06: Again, if you have a question, please press star then 1. The next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.
spk03: Hello, this is Vivian Zhang with Diamond Equity. Congrats on the great quarter. Most of my questions have been answered, but I still have one left, which is regarding your new business, the mobile data traffic sharing marketplace application. Can you give us a specific update on this business and when do you expect it to be launched and generate meaningful revenue? Thank you.
spk01: Okay. Yeah. So because, you know, currently we are only majorly, I think it's not only majorly, we're selling both local and international data. And this data is high quality and reliable cross-carrier network. So that's currently how our business is majorly come from. But I know this industry, we have people, they may be not willing to carry the extra methane. We have agrocomic inside. Also, like e-thin, soft-thin, there are many kinds of technology. Even their connection quality may not be as good as our cloud-thin. but they have some advantage as well. For example, more convenient, no need, you know, extra . Then we couldn't wait for our cloud thing in the GMI, Glocomy Insights, in-better handset. Even this year, our Glocomy Insights here on the progress, but we already developed our sharing marketplace, this concept. So we will launch a marketplace This marketplace contains several technologies inside, not only including the physical SIM, cloud SIM, eSIM, and also, you know, software SIM as well. We can provide all kinds of data connectivity and different, you know, advantage and convenience and price and high quality, different, you know, competitive requirement data. connectivity quality and a convenient scenario product to meet the different users' requirements. For example, like iPhone, now you can use our MiFi solution to provide a better connection for family use and many people use a better quality network. But also, you can embed our software theme or our eSIM solution then we can provide more users and educate people to understand that the customers understand that One Stop can provide all kinds of technology. And with all kinds of technology, at least one or two can meet your requirements. Then this marketplace can help us. First, we will demonstrate in our our brand, under our brand. Then we will copy this technology and this brand, this scenario to all our business partners. Then this becomes a marketplace. And this will help us, I think, enlarge our user base because we are currently only 20 or 30 percent people know us. Another 70 percent or 80 percent haven't used our technology. With new launch of this version of the marketplace, we will cover all the technology, all the requirement of the users. This help us and help our partner to meet all the requirement of the user application, so help us acquire a huge base of the user base. That's our first version. We will launch in near term for this marketplace app. first, and then we will copy this one to our partner. That's our initial plan.
spk03: Okay, that makes sense. Thank you.
spk06: The next question comes from Safran Lee with China Great Wall Securities. Please go ahead.
spk05: Hi, yeah. I'm Safran Lee from China Great Wall Security, and can you hear me?
spk01: Yes.
spk05: Okay. I have a small question about SARs and PARs sector because like from the report of our first quarter, the revenue of PARs and SARs did not like grow much from the year on year or quarter to quarter. So what's the plan and also the outlook for the whole year on this sector? Because I feel this is also the main focus of our company, and I want to know about what's our plan for the path in the client expand or the technology development in this sector. Thank you.
spk02: Thank you. I'll first answer those questions and then I'll say we'll give some more supplementary. Yeah, for the first quarter, it seems that the past revenue is still growing compared with last year's, a small percentage growth by 3.7% growth. compared to the same periods in last year's. But underlying this figure, our daily activities terminal has achieved historical hires over 300,000. And you will see our revenue, service revenue generated from the 1.0 and the 2.0 increased massively compare last year's. For example, the international roaming service grows over 38.5% over the last year's, and Euclidean 2.0 grows 37% over the last year's. So in our business models, PowerSoft play a central platform to build up a global ecosystem. to support our global business partner to provide a better high-quality connectivity service either to roaming, international roaming, or to a local residence. So this gives us a more flexible business model with our partners. So our partners have options either to pay a pass-off service to us and they supply their data from their own resource. Or they can choose to buy from the data packet from EuclidLink, and then we provide the SaaS function to support their provider service to their customers. So we will treat this as an overall service packet in one pool to view our growth trend. So, in the future, we give this option flexibility to our business partners. So, for this, in the future, we expect that we disclose our guidance as well. So, the guidance gives us a growth, is a trend around 20-something to the guidance 85-100. 85 million to 100 million revenues. In this growth, in this guidance, I think the overall growth will give us a message. Pathos and 1.2 billion business will be growing as well in this guidance.
spk01: Okay, so I have more comment. Because, you know, initially, you know, recovery... from the international travel from the COVID-19 is step by step. So at this stage, our partner, they prefer to use our data, then immediately increase their path size capacity. So that's the reason I answer why our traffic, data traffic increase a lot, but platform no increase such, you know, significantly. That's because of the reason I mentioned first. And personally, I believe that once, you know, the second quarter or third quarter, the recovery from China, Japan, all these Southeast Asia countries for international loan business becomes stable and recovery more apparently and more significantly, I think some part of our data we are transformed to be a path size increase. So that's the reason. Personally, I believe for the path size for one point of business, following the quarter, we keep a continued increase. That's the first part. And second part, I just mentioned, because currently our new solution, we will launch this new solution for mobile broadband, fixed broadband, for HyperCon series new product in the second quarter and third quarter. This will bring a lot of the past SaaS revenue for us as well in the following quarter. And also for IoT, I think IoT, we have a lot of the bigger customers now on the way. So if this customer we acquire, I think the past SaaS will be increased as well. Finally, so I mentioned, you know, our marketplace, our first new version will be launched in the new term. And also, once we copy this new model to our partner, also we will bring, you know, the path size increase. And I think, especially for HydeCon, for the, you know, for the mobile broadband and fixed broadband carrier, this carrier majorly is operator. They are preferred, you know, our past success solution. Follow these solutions, you know, for the hyper-con, for, you know, for fixed solution. Once achieved, adopted by more and more carriers, I believe the past success, you know, our revenue will increase a lot. That's the, you know, general information.
spk04: Okay, that's very clearly, that makes sense. Thank you.
spk06: This concludes our question and answer session. I will not wait to turn the conference back over to Jillian Zhang for any closing remarks.
spk04: Thank you once again for joining us today. If you have further questions, please feel free to contact Euclid Links Investor Relations through the contact information provided on our website or contact our investor relations firm, the Equity Group. Look forward to speaking to you again on our next quarterly call. Thank you.
spk02: Thank you. Thank you. Thank you, everyone.
spk06: This conference is now concluded. Thank you for attending today's presentation.
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