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spk03: Good day and welcome to the uCloudLink first quarter 2024 earnings conference call. All participants will be in the 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 touchtone telephone. 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 Liam Hsieh. Please go ahead.
spk05: Hello, everyone, and thank you for joining us on Eucalyptus first quarter 2024 earnings call. The earnings release and our earnings presentation are now available on our IR website at ir.eucalyptus.com. Joining me on today's call are Mr. Zhi Ping Peng, Co-Founder and Chairman of Board of Directors, Mr. Chao-Hui Chen, Co-Founder, Director, and Chief Executive Officer, and Mr. Yi-Men Shi, 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 the quarter. They will all be available to tell your questions in the Q&A session 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 Securities 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 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 entirety by the cautionary statement, 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 UCLin's earnings, press release, and this conference call include discussions of unaudited GAAP financial information. and unaudited non-GAAP financial measures. You calling the press release contains the reconciliation of the unaudited non-GAAP measures to the most directly compatible unaudited GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.
spk01: Thank you, Liang. And good morning or evening, everyone. we had a promising start to the year with total revenues of US dollar 18.1 million. In line with guidance, with our business now healthy and back on a growth trajectory, and we maintain the profitability we regained last year, achieving a net income of US dollar 0.4 million, and generating a net operating cash inflow of US dollar 1.9 million in the first quarter of year 2024. Revenue growth was primarily driven by the continuous recovery of our 1.0 international data connectivity services business, and in particular, our long-term membrane services which continue to rebound strongly. With coverage expanding from 55 to 60 countries and regions, our full-speed 5G long-wind network solution further solidified our leading position in this sector and has expanded our market share. According to the Mobile Economic 2024 report from the Global System for Mobile Communications Association, or GSMA, the global number of 5G connections is expected to rise to 5.5 billion by 2023, from 1.6 billion at the end of the year 2023. We also made significant progress in lowering out and expanding a range of comprehensive data connectivity solutions during the quarter to explore opportunities beyond portable Wi-Fi terminals. Let me start with the progress we have made in our Google Me Mobile and SIX 4-band business line. At the Mobile World Congress earlier this year in Barcelona, we showcased the Gas Flex Pro, our highly reliable dual broadband consumer premises equipment, or CPE. A solution which we believe will redefine industry benchmark for high-reliable connectivity and innovation. Unlike other CPE solutions on the market, the Garflex Pro supports multiple mobile networks from all available major operators in addition to standard local fixed networks. This means it is able to intelligently select and automatically switch networks to maintain the connectivity, even when the fiber optic lines fail or are disrupted. Few pilots search in remote work. Online learning streaming platform in recent years, the demand for ubiquitous and reliable wireless connectivity is policy for substantial growth. Second, our local mean life business makes significant progress during the quarter with the initial rollout of new products. That brings seamless connectivity into various high-frequency daily life application scenarios, such as pet management, item checking, as well as emerging emergency communication. We soft launch our first daily live product, a smart tracker, powered by our innovation solutions that offer far more accurate and reliable tracking, something that the other similar tech or tech products on the market are unable to. In addition, the smart tracker offers free local emergent internet access. to users for security ahead. Unlike the other similar products on the market, which only support a single network or technology such as Bluetooth to track items, our tracker is able to intelligently select and automatically switch between multiple networks and six different location technologies. GlocalMe Live has an exciting slate of easy life X-series products under development, which would enhance the daily life of smart device users, making them much easier and more convenient. We will unveil three GlocalMe Live products and upgrade GlocalMe app on May 23rd. at Aviva Technology year 2024 in Paris. Meaningful revenue generation from the SmartTracker and EasyLine X series products is anticipated to begin in the third quarter and recurring revenues from subscription and services are anticipated going forward. By offering more intelligent, convenient data-like products that satisfy a wide range of user needs, we are expanding our market research and establishing a broader market presence to diversify our revenue streams and generate long-term sustainable growth. By expanding our business beyond the travel sector, into various aspects of daily life and commercial life. Customers will enjoy a more intelligent and convenient life through our high-quality data connections for a range of everyday scenarios. Third, our newly launched Glocomy theme made a solid progress during the quarter, ranking highly on a number of e-commercial platforms for travelers heading to destinations such as Japan and Hong Kong. Our global meeting solutions, including our OTA SIM and eSIM solutions, will continue to evolve into our innovation all SIM solutions, allowing us to engage with a broader and user-based beyond those in the portable Wi-Fi terminals market. This pioneering all-SIM solution is uniquely poised to break cross-carrier restrictions and empower various smartphones. According to the Mobile Economics Year 2024 report from the GSMA, SIM connection excluding licensed cellular IoT are expected to increase from 8.6 billion in year 2023 to 9.8 billion by the end of the year 2030. Last but not least, within our IoT business line, we complete testing of our soft cloud sync technology for consumer IoT devices, which we expect to begin commercializing in the near future. This unique technology is compatible with a broader array of mainstream chipset platforms found in many IoT devices and eliminates the need for hardware redesign or redevelopment, allowing global IoT manufacturers to seamlessly deploy it through software pre-installation. This turnkey solution is expected to create significant opportunities for us in the consumer IoT market by having our technology deployed in products such as Wikitalki, security cameras, and the two-wheel electric scooters, which already have a substantial end-user base and can significantly contribute to data connectivity services revenue. According to the Mobile Economic Year 2024 report from the GSMA, licensed serial IoT connections are expected to grow from 3.5 billion in year 2023 to 5.8 billion by 2030. We believe that better connection empowers better life. We recognize ourselves. into four distinct business lines starting from year 2024 to leverage our existing R&D resource and cutting-edge technologies to explore business opportunities beyond portable Wi-Fi terminals and view an expanding array of comprehensive data connectivity solutions to satisfy a wide range of users' needs. by extending our business beyond the travel sector into various aspects of daily and commercial life. These solutions will allow us to engage with a broader end-user space by leveraging our cloud-thin and hyper-connectivity technologies, optimally build out our broader global meat ecosystem and global leading mobile data traffic sharing marketplace. Finally, I would like to review our guidance for the second quarter of year 2024. We are optimistic about our future growth prospects. For the second quarter of year 2024, we expect total revenues to be between U.S. dollar 22 million and U.S. dollar 24 million. representing an increase of 0.1% to 9.2% compared to the same period of the year 2023. We maintain our outlook for the year with total revenues expected to be between US$95 million and US$112 million, representing an increase of 11% to 30.8% from year 2023. I will now turn the call over to Mr. Si.
spk02: Thank you, Mr. Cheng. Hello, everyone. I will go over our operational and financial timelines for the first quarter of the 2024. Average daily active terminus, DAT, is an important operating metric for us as it measures customer usage trends over the period and is effective of our business performance. In the first quarter of 2024, average DAT was 309,906, of which 13,622 owned by the company and 296,284 owned by our business partners. representing an increase of 1.9 percent from 304,121 in the first quarter of 2003. During the first quarter of 2024, 57.9 percent of DAT was from EuclidLink 1.0 International Data Connectivity Service, and 42.1 percent was attributed to Ecolink 2.0 local data connectivity service. In March 2023, the average daily data usage per terminal was 1.56 GB. As of March 31st, 2024, the company had 178 patents with 141 approved and 37 pending approvals. while the pool of SIM cards are from 382 NOS globally as of March 31st, 2024. Total revenue from the first quarter of 2024 were $18.1 million, representing an increase of 0.7% from $18 million in the same period of 2023. Revenue from service in the first quarter was $13.5 million, representing an increase of 4.8% from $12.9 million in the same period of 2023. Revenue from service as a percentage of total revenue was 74.7% during the first quarter of 2024. up from 71.7 percent during the same quarter last year. Geographically speaking, during the first quarter of 2024, Japan contributed 40.9 percent of our total revenue. North America contributed 16.8 percent. Mainland China contributed 25.3 percent. And other countries and regions contributed the remaining 17 percent. compared to 43.1%, 33.6%, 5.1%, and 18.2% respectively in the first quarter of 2023. Our gross profit rose to $10 million in the first quarter of 2024, representing an increase of 60.3% from $8.6 million in the first quarter of 2023. Overall gross margin in the first quarter of 2024 further rose to 55.2 percent from 47.8 percent in the same period of 2023. The gross margin on service increased to 65 percent in the first quarter from 60.5 percent in the same period of 2023, excluding the share basis compensations, total operating were 8.5 million US dollars or 47 of total revenue in the first quarter of 2024 compared to 6.9 million or 38 percent of total revenue in the same period in 2023. Net income was 0.4 million US dollars in the first quarter of 2024 compared to 2.1 million US dollars in the same period of 2023. Adjusted EBITDA was $1.7 billion in the first quarter of 2024, compared to $2.1 million for the same period of 2023. For the first quarter of 2024, we achieved an operating cash inflow of $1.9 million, up from $1.6 million in the same period of 2023. For the first quarter of 2024, Our capital expenditure was $0.6 million compared to $0.4 million in the same period in 2023. We maintained a solid balance sheet with cash and cash equivalents, increasing to $24.7 million as of March 31, 2024, up from $23.4 million as of December 31, 2023. With that, operator, please open up for Q&A.
spk03: Certainly. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.
spk00: Thank you very much and congratulations on a good quarter. My first question is about the good profit margins in the quarter, and I was wondering if you could talk about why those numbers came in so well. Is it a pricing issue? Was it mixed? Give us some more detail on how you were successful in the gross profit margins in the quarter.
spk02: Yeah, thanks, Leo. Let me answer the first questions. Yes, as we close this webinar, service gross margins improving sick leave interlaced in the first quarter of 2024 from 64% to 65% on the service part. The main attributions for this improvement is improving the proportions of international roaming service as the proportions is the DAT of the roaming service is more than 53%. And that's the major contributions from the proven proportions roaming service. Yeah, that's a major contribution. Also, we disclose our SAAS revenue. in the first quarter improving compared with last year as well. So these two sectors have higher gross margins, which will contribute to our significant improvement in our gross margins on service. So looking forward to this year, we expect that as the recoveries are accelerated in the international travel, And our roaming service revenue will be improving as in the past couple of quarters. So we expect this higher service growth margin will be maintained in the next couple of quarters until we have more revenue from the new product service related services. for example, GlocalMe theme sales, which is a no-margin service. So overall, we expect this year the driver for this performance is the main driver is the national roaming service. So that's my answer to your questions.
spk00: Thank you. And my next question is about GlocalMe Life. I was wondering, in terms of expenses to launch that product, obviously there's going to be some expense associated with the Paris launch of it, but is there any substantial CapEx or R&D expense that we should associate with this new product line, or is this primarily unlocking features that were already existing in the systems that you're selling?
spk02: Yeah, let me answer this investment on this new product that's going to be live. And now about the opportunities for this new business, I will pass this question to our CEO, Mr. Chen. So yeah, as we disclose, we invest on this new product development. So in the first quarter of the 2024, the headcounts related to R&D is 148 headcounts, which is 10 more headcounts compared to the same period as last year's R&D. But most investment, headcount on investments is for sales and marketing departments. So for the end of the first quarter of 2024, the headcount for sales is 183 headcounts, which is 50 more than the headcounts of sales and marketing departments in the same period of 2023. So we invest the headcounts a lot on sales and marketing. We expect which will support our unveiled opportunity in our traditional Wi-Fi business and also the new business as well. We launched three new business lines this year on the top of the Wi-Fi at Dangos. So, I think I pass the question to Mr. Chen to give more callers on this opportunity for GloVee Live.
spk01: Yeah, so, you know, for GloVee Live, you know, we mentioned here, I think, like, we will, you know, launch our product in the next week. So, we have meeting, we have event, a launch event in Paris, in Avivo, 23rd. So, I think Of course, we increase R&D for the headcount, not so much, but more efficient. And also, we have used, because, you know, majorly our R&D, so we, during the COVID-19, we already do the R&D in these four product lines. Now is the time for we, for the new product. So, of course, I think we will continue to invest in this R&D, including AI in the future. We already have a lot of the research and the R&D for, not the current product, but also in the long-term product. So, we are around about 10 to 15% of our R&D cost is spending in the two or three years later business.
spk00: Thank you very much.
spk03: Thank you. The next question comes from the line of Vivian Zhang from Diamond Equity Research. Please go ahead.
spk04: Hello. Hello. This is Vivian with Diamond Equity Research. Congratulations on the quarter. Most of my questions have been answered as you have one regarding the selling expenses. So we see the company's S&M expenses increased over 38% in the quarter, while the product sales were down about 10%. So I'd like to know how you are allocating the resources to drive the product sales. Thanks.
spk07: OK.
spk02: further explain this expenditure related to the sales. Yeah, as I just mentioned in the previous questions, the sales expenses are increasing due to the headcounts. Fifty more headcounts increased compared with the same period of last year. And the second is that we invest additional $7,000. 0.7 million US dollars on promotions and marketing like exhibitions. We mentioned the Barcelona exhibitions and the CES in America and also the marketing events and promotions on e-commerce platform. So we believe this promotion is beneficiary to awareness our branding name, Gologamese, and also we prepare for launching a new product. We mentioned we have four business line and three business line will be expanding and launch and commercialize in the near future. So we expect our revenue guidance for this year is that we maintain this guidance for the whole year as mentioned by our CEO, Mr. Chen. So when our revenues increase in the next couple quarters, I believe the OPEX margin will be lower and improving. compared with the first quarter of this year.
spk01: Thank you. Let me add some comments. So I think that totally it's three points. The first point, our spending in the market and sales size increases because we recover our sales team and marketing worldwide for different countries after COVID-19. That was the second. We are preparing the resource and the campaign for the headcount and in China market for the sales and marketing. Because the summer season is coming, we need a quarter early to prepare for all this resource and preparation. Number three is we prepare for the new product and for the event and the spending also. This is a new product like eSIM, SIM card, and Grow Community Life is a more to-see business, to consumer business, and that's totally new for us in some region. So we need to prepare for this marketing campaign. Thank you.
spk04: Okay, got it. Thank you. That's all. Thank you.
spk03: Thank you. Again, if you have a question, please press star, then one. The next question is from the line of Xin Li from China Great Wall Securities. Please go ahead.
spk06: Hi, this is Xinyi from China Great Wall Securities. And many questions have also been answered before. I have a question and want to get more details. Because we got like 18 million in the first quarter, and we expected to have like the revenue between 20 to 24 million. And for the whole year, we also have a very positive expectation. So I want to know, do we have any foreseeable or stable sales orders for our new products?
spk02: Let me answer a bit first for this. the guidance for the second quarter of $22 million to $24 million. The range of outlook for the second quarter will show a small growth compared with the same period of last year's, not very significant, but the peak The peak selling time is the summer time, which is the third quarters. And also we have launched a new product in this May. We have an event in Paris where we are launching. launch this new product, Gourmet Life-related products in Paris this month. So we expect all the new product sales will generate into revenue account in third quarter and fourth quarter as well. So we maintain this over the whole year's guidance, which is $95 million. to $112 million.
spk01: Yeah, so some more comment. Our traditional portable Wi-Fi business is very stable growth because we can see in the first half years, Japan and China are major market. So I think the global travel is no growth as we expected. It's a slightly It continues to grow, but the recovery speed is lower than our expectation, so that's one of the reasons. And for the new product, so we just launched in the second quarter, and we generated revenue from the Q3, Q4. Majority, I think, comes from Q4. Because these new products, they are a big potential. So that's why we also have some uncertainty. So that's why we still keep the same forecast.
spk06: Okay, yeah. Thanks for the answer. I have no questions. Thank you.
spk03: Thank you. Ladies and gentlemen, there are no further questions at this time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
spk05: Thank you once again for joining us today. If you have further questions, please feel free to contact UCLin's Inventory Relations through the contact information provided on our website or speak to our Inventory Relations firm, Chris Tenson Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.
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