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spk06: Good day, and welcome to the uCloud Link Group, Inc. fourth quarter and full year 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Jillian Zeng. Please go ahead.
spk04: Hello, everyone, and thank you for joining us on UCLawLinks' first quarter and full year 2023 earnings call. The earnings release and our earnings presentation are now available on our IR website, ir.uclawlinks.com. Joining me on today's call are Mr. Zhi Ping Peng, our co-founder and chairman of Board of Directors, Mr. Chao Hui Chen, our co-founder, director, and chief executive officer, and Mr. Yi Meng Shi, our chief financial officer. Mr. Chen will begin with an overview of our recent business highlights. Mr. Shi will then discuss our financial and operational highlights for fourth quarter and full year 2023. They will all be able to take your questions in the Q&A section that follows. 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's current expectations and observations that involve known and unknown risks. uncertainties and other factors not under the company's control, which may cause actual results, performance, or achievements of the companies to be materially different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements expressly qualify in their entity by the contrary statement, risk factors, and details of the company's filings with the SEC. The company does not issue any obligation to revise or update any forward-looking statements as a result of new information. Future events, trends in market conditions, or otherwise, except as required by law. Please also note that EuclidLink's earnings press release and this conference call include discussions of non-audited gap financial information and non-audited non-gap financial measures. EuclidLink's press release contains a reconciliation of the non-audited gap measures to the most directly comparable non-audited gap measures. I will now turn the call over to Mr. Chen. Please go ahead.
spk01: Thank you, Julian. And good morning, everyone. Thank you for joining us. We appreciate everyone taking time out of your busy days. We are very pleased to report another strong set of results in year 2023, highlighted by a 19.8% increase in full-year revenues to U.S. dollar 85.6 million. 2023 was a milestone in the turnaround of our business following the COVID-19 pandemic. With operating cash flow, cash inflow of US dollar 6.5 million and net income of US dollar 2.8 million. Our 1.0 international data connectivity services Business continue to recover in year 2023. In our major markets, China and Japan, we are seeing the early signs of a recovery in all-bound tourism and business travel following the COVID-19 pandemic. With more Chinese tourists begin to use our long-man brand services again, and the recovery in Japan gaining gaining momentum. Our market share in these major markets is growing, which will create significant growth opportunities for us going forward. With one of the most extensive 5G long-mean networks in the world that covers 55 countries and regions, our competitive local full-speed 5G long-mean solutions not only offer extensive coverage but also significantly enhance the user experience, which further expands our user space and cements our leading positions in the long mean market. While working to turn around our business over the past years, we leverage our existing research and development resources and cutting-edge technologies to explore business opportunities beyond portable Wi-Fi terminals and build an expanded array of comprehensive data connectivity solutions to satisfy a wide range of users' needs, in addition to significantly enhance the travel experience by catering to the diverse data connectivity needs of various users, we will also offer more intelligent and convenient live applications, like item tracking, pattern management, and emerging communication. Among others, through our global midlife solution business, we believe that these solutions will expand our market, reach and help us establish a broader market presence. Our Better Connections Empower Better Life mission is leading us to extend our business beyond the travel sectors to various aspects of daily life, thereby generating long-term sustainable growth. To drive this transformation, we plan to reorganize ourselves into four distinct product lines in the year 2024. Glocomi Mobile Fixed Orbit. The first. The second, Glocomi Thin. The third, Internet of Things, IoT. And the final, Glocomi Life Solutions. We believe this business reorganization will allow us to operate in a more agile fashion. take advantage of emerging opportunities and enable us to engage with a broader user base with a robust salute of our products and solutions coming in the future. So please allow me to tell you more about what's happening and what's to come at uCloud Link. Let me go into a little more detail in the new array of product lines we have planned for the future. First, we will continue to strengthen the foundation of our business, Glocomy's mobile and fixed broadband, with an expanding offering of innovation cloud-thin technology, hyper-connectivity solutions, and additional value-added services that improve the user experience. We believe that we are uniquely positioned to expand our share in the long-mean market. In addition, we plan to introduce a commercial-grade dual-band customer-premise equipment, CPE, which supports local fixed networks as well as multiple mobile networks from all major operators. It will be able to maintain connectivity even when fiber optic lines fail or are disrupted. Our 5G CPE will be a large-scale and commercial, and will unlock additional opportunity in a mobile fixed-orbital space. Second, global MISIM solutions, including our over-the-air OTA SIM and eSIM solutions, will evolve into the innovative AllSIM solutions, which will allow us to engage with a broader end user base beyond those in the portable Wi-Fi terminal market. Our pioneer AllSIM solution is promised to break out of cross-carrier restrictions and empower every smartphone. Third, our global midlife solutions This has an exciting slate of our product announcements planned in the future, which will bring seamless connectivity into various high-frequency daily life application scenarios. As I mentioned earlier, such as path management, item tracking, as well as emergent communication. Last but not least, We will also integrate these cloud-thin technology and hyper-con connectivity solutions into our IoT business, leveraging both property and the third-party smart module compatible with mainstream chipset platforms. Our IoT business will empower terminals and third-party devices, allowing them to intelligently select and dynamically switch between multiple local carrier network worldwide. This diversity array of solutions, we believe, will help expand our business beyond portable Wi-Fi terminals and drive growth in the future. Because of the changes we are making, Our customers will enjoy more intelligent and convenient lives through our high-quality data connections for a range of everyday scenarios. Finally, I would like to review our guidance of the fourth quarter and four years of year 2024. We are optimized about our future growth prospects following this business reorganization. However, we also recognize that we are only just beginning this transformative journey, and these initiatives will take time to mature. For the fourth quarter of year 2024, we expected total revenues to be between U.S. dollar 17.5 million and the U.S. 18.5 million, representing a decrease of 2.8% to an increase of 2.8% compared to the same period of year 2023. For year 2024, we expect total revenues to be between U.S. dollar 95 million and the U.S. dollar $112 million, representing an increase of 11 percent to 30 percent from last of the year 2023. I will now turn the call over to Mr. Shi.
spk02: Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights. for the first quarter and the full year of 2023. Average daily active terminus is an important operating metric for us as it measures customer usage trends over each period, which is reflective of our business performance. In the first quarter of 2023, average daily active terminus were 313,000. 16,207 of which 10,075 owned by the company and 306,132 owned by our business partners, representing an increase of 6.2% from 297,884 in the first quarter of 2022. During the first quarter of 2023, 47 of the daily active terminal were from EuclidLink 2.0 local data connectivity service and 53% of daily active terminal were from EuclidLink 1.0 international data connectivity services. Our daily data usage per terminal was 1.55 gigabytes in December 2023. Total revenue for the fourth quarter of 2023 were $21.7 million, representing an increase of 10.8% from $19.6 million in the same period of 2022. Revenue from service was $14.9 million, representing an increase of 19.1% from 12.5 million US dollars in the same period of 2022. Revenue from surveys as a percentage to the revenue was 68.7% during the first quarter of 2023, up from 63.9% during the same period of 2022. During the first quarter of 2023, as a percentage of a total revenue, Japan contributed 43.1%, North America contributed 24.3 percent, mainland China contributed 16.5 percent, and other countries and regions contributed the remaining 16.1 percent, compared to 43.7 percent, 33.9 percent, 3 percent, and 90.4 percent, respectively, for the same periods for 2022. Overall gross margin improved to 52% in the first quarter of 2023 from 51.3% for the same period of 2022, while gross margins on service increased to 60.1% in the first quarter from 59.4% for the same period of 2022. Excluding share basis compensations, total operating expenses increased to 11.6 million US dollars or 53% of total revenue in the fourth quarter of 2023 compared to 10.4 million US dollars or 53% of total revenue in the same period in 2022. Late loss was 1.8 million US dollars in the fourth quarter of 2023 compared to a late loss of 1.1 million US dollars in the same period of 2022. Adjust EBITDA was $1.5 million in the first quarter of 2023, compared to $1.6 million for the same period of 2022. Moving to 2023 full-year financial results, total revenue for 2023 rose to $85.6 million from $71.4 million in 2022. driven primarily by an increase in revenue from data connectivity services. Revenue from data connectivity services were $46.7 million, an increase of 31.7% from $35.5 million in 2022. Within data connectivity services, revenue from international data connectivity services rose to $37.9 million from $28.1 million in 2022. The recovery in international travel accelerated. Overall gross margin improved to 49 percent in 2023 from 45.5 percent in 2022. And our gross margins on service is increasing to 58.5 percent from 56 percent. This increase in gross margin on service in 2023 was primarily attributable to a more favorable business mix, with a larger proportion of revenue coming from international data connectivity services, which tend to have higher margins. For the full year 2023, excluding share basis conversations, total operating expenses decreased to $34.6 million. or 40% of total revenue in 2023, compared to US$34.4 million, or 48% of total revenue in 2022. We achieved a net income of US$2.8 million in 2023, improving from a net loss of US$19.9 million in 2022. Adjusted EBITDA was 9.8%. $8 million in 2023, compared to a loss of $2.3 million in 2022, according to the same measurement. For the full year 2023, our capital expenditures were $2.1 million, compared to $2.4 million in 2022. For the full year 2023, we achieved positive operating cash flow of $6.5 million, up from $4.4 million in 2022. Moving on to our balance sheet items, our cash and cash equivalents increased to $23.4 million as of December 31, 2023, compared to $20.3 million as of September 30, 2023. We are pleased to have strengthened the company's financial position over the course of the and are well positioned to continue growing our fairness. With that, operator, let's open up for Q&A.
spk06: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.
spk05: At this time, we will pause momentarily to assemble our roster. The first question today comes from Theodore O'Neil with Litchfield Hill Research.
spk06: Please go ahead.
spk00: Thank you very much. I have two questions this morning. My first question is about revenues from data connectivity services of $11.8 million in the quarter. That's down from $13.8 million in the third quarter. And I was wondering if you'd give us some insight into that and if it was driven by any particular geographic region that was down sequentially more so than others.
spk05: Hi, Theo.
spk02: Thanks for your question regarding this data community service for that quarterless change. You mentioned the two quarters, the third quarters compared with the fourth quarters. Yes, as you know in our disclosures, the International Roaming Service is a main grievance for our growth on service. And the seasonal reasons, the third quarter is peak time, is summer vacation. So that's peak time for the raw-means burners. And in the fall, similarly, it's a little bit down for the raw-means service. That's a part, a pattern of the seasonal change of burners.
spk00: Is it across all geographies or is it any particular geography?
spk02: That's overall seasonal change. In the fourth quarter of the year, it's only a short period like Christmas holidays. But in the third quarter, it's long summer vacations. So that's the overall seasonal change. not particularly to some particular regions.
spk00: Okay, understood. Thank you very much. My other question is about G&A expenses of $6 million in the quarter. I noticed also last year the G&A expenses rise sequentially from third quarter to the fourth quarter, and this year the same thing. It went from $3.8 million in the third quarter to $6 million in the fourth quarter, and I was wondering... what drives that change sequentially from 3Q to 4Q in G&A?
spk02: Yeah, from our understanding, that's a good incentive plan for our employees. We have, as we disclosed, we performance turnaround positions in terms of this revenue growth and also lead income tend to be positive compared with the huge loss in the year 2022. So the management decided to pay a significant increase for annual bonus for the whole company employees. So that's specifically driven by a pay rise in terms of annual bonus. So I think that's a very good motivation to our employees. And we have tight controls on the headcount numbers in the course of years of growth. And this year, our whole companies and employees have well motivated to support our growth for this year.
spk00: Thank you very much. That explains it to me. Thank you very much.
spk06: The next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.
spk03: Hello. This is Vivian Zhang with Diamond Equity. My first question would also be about the fourth quarter revenue, which didn't meet your guidance of $22 million to $26 million. So we'd like to know the reasons for not meeting these expectations for the first quarter.
spk02: This is Iman. I answer the questions first and then Mr. Chang will add some color on this first quarter's revenues. A little bit low then, this guidance. We just go the guidance is $22 million at the bottom. Yeah, just a small, we achieved $21.7 million in the first quarter of 2023, just a little bit lower than our guidance. That's still on our business patterns. We just have some hardware orders. we deferred some hardware orders to the later periods because we have some commercial terms that need to be agreed by the customers before we deliver this hardware to customers. So our business is taking into consideration this hardware's deliveries in the normal course, we will meet this guidance. So that's technically a change in the final week of the month, December.
spk01: Yeah, by the way, we have another reason to cost less than our expectation. That's because our new product is a little bit delayed. just for our R&D reason. So that's another reason that caused a little bit less than our expectation.
spk03: Okay, I understand. So the next question is that can you share more information about your newly announced Glocomy Life Solution business? Because like you mentioned, any products or services can be launched or expected to boost revenue this year in 2024.
spk01: Yes. So, you know, in the traditional, we are majorly, before year 2023, we are majorly relying on our portable Wi-Fi to create the major revenues. And from the last years, in the third quarter, we are starting to launch our new products, such as, you know, OTA SIM card, such as, you know, our Global Midnight product. So for the smaller business, early business trial. So this year we will officially launch our global mean life product. That means we are creating people who need better condition. Because better condition, one aspect we can create revenue from the data. Another aspect, we can create a better life for people. For example, if we get the best network When the old people are falling down, their SOS message can send to the rescue center. The old man normally is easy to fall down in the bathroom and the kitchen. Most of these two area signal is very poor. provide not only the local Wi-Fi connection, home Wi-Fi connection, but also cross-carrier all the signal. Then can help send out this critical, you know, SOS message, and then can enable these old people get help, get saved. And another similar product I mentioned is about a tracker. Our tracker can... can find something that the normal tracker and the LTECH could not find. Because with the GPS scenario, our tracker can send GPS location data via the marking network. Because in the rural area, in the corner of the building, normally, coverage is really poor. So marketing network, of course, can have this message sent out than just single carrier network. That's why we call our new generation tracker with the better connection can find out something that the traditional tracker and the AirTag could not find. And that's one reason. Another second reason is about, you know, Without GPS scenario, our multi-carrier, you know, our multi-carrier tracking location capability while carrier base station, we have multi-carrier base station. Normally one carrier, three base station, you can location your product, your items. But with multi-carrier we can provide maybe 20, 30, 20 base station so we can get more high-accuracy location data. And also, we have multi-network to send out these location data. And that's why our tracker can help users to find out more possibilities for these items. And the final one, our product has, you know, radar technology for the last 100 meters. It's extremely difficult for people who find out the items in the last 100 meters. But with our solution, you can rely on this 100 active radar to find out where is the device. That's why we call we are the new generation creation tracker, SuperTracker, which can find the other tracker and all tag chronophiles. A similar concept is about the healthy emerging communication I just mentioned before. So this scenario one by one, we will launch the product in the second quarter, and the fourth quarter is for pilot, and second quarter for volume business, for volume launch. So I think in the following quarter we believe this new product will create or generate more revenue for us. As you understand, we have all SIM solutions, including the OTA SIM and eSIM, these also will generate more easy selling than our traditional portable Wi-Fi, can access more customers for travel worldwide. So I believe all these new products will create, in the following quarter, more customer base and more revenue base for our business. Thank you.
spk03: Okay, I get it. Thank you. Thank you so much. That's all my questions.
spk05: This concludes our question and answer session.
spk06: I would like to turn the conference back over to Jilin Zhang for any closing remarks.
spk04: Well, thank you once again for joining us today. If you have further questions, please feel free to contact EuclidLink's investor relations through the contact information provided on our website or speak to our investor relations firm, Christensen Advisory. We look forward to speaking to you or again on our next quarterly call. Thank you. Thank you. Bye-bye.
spk06: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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