uCloudlink Group Inc.

Good day and welcome to the UCLoudLink second quarter 2024 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 your 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 Daniel Gao, Investor Relations Director. Please go ahead.

Okay, thank you. Hello, everyone, and thank you for joining us on Euclid's second quarter 2024 earnings call. The earnings release and our release presentation are now available on our IR website at ir.euclid.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 Meng 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 both be available 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 personal to the safe harbor privileges of the Privy Secretary's Litigation Reform Act of 1995. These forward-looking statements are based on measurements, current expectations, and observations that involve known and unknown risks, uncertainties, and other factors not under component control, which may cause actual results, performance, or treatments of the component to be massively different from the results, performance, or expectations implied by those forward-looking statements. All forward-looking statements are expressly qualified in their entirety by their contemporary statements, risk factors, and the details of the company's feelings with the SEC. The company does not assume any obligation to review 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 Please also note that Euclid's earnings press release and this conference call include the discussions of outdated GAP financial information and outdated non-GAP financial methods. Euclid's press release contents are of the audited non-GAP methods to the most directly comparable audited GAP methods. I will now turn the call over to Mr. Chen. Please go ahead.

Thank you, Daniel, and good morning or evening, everyone. Continuing the story that we had early in this year, close momentum carried into the second quarter. with the total revenue reaching U.S. dollar 22.4 million, in line with the guidance. Our financial position is improving, with net income reaching U.S. dollar 2.2 million, and the operating cash flow increasing 38.3% year-over-year to U.S. dollar 4.7 million. In the second quarter of 2024, aside from our Glocomi Mobile 6 broadband business, comprehensive data connection solutions and business lines such as Glocomi Live, Glocomi Theme, and Glocomi IoT have made consistent progress in expanding beyond the travel sector into various aspects of daily life. with an expanded array of comprehensive data connectivity solutions to satisfy a wide range of our needs. Firstly, let me start with the progress we have made in our global mean mobile fixed broadband business line. Our 1.0 international data connectivity services business continue to grow in the second quarter of the year 2024, further consolidating our leading position in the long-mean market and expanding our market share. As the widespread adoption of our full-speed 5G solutions gains momentum, supported by the recovery in international travel, our extensive 5G long-mean solutions now cover 60 countries and regions, and are generating a stable stream of revenue, creating significant growth opportunities for us going forward. According to the Mobile Economic 2024 report from the Global Systems for Mobile Communications Association, or GSMA, The global number of 5G connections is expected to rise to 5.5 billion by 2030, from 1.6 billion at the end of 2023. Second, our glocomelite solution made significant progress in the second quarter of the year 2024. We officially launched three glocomelite solutions in May. at the Viva Technology 2024 in Paris, the lineup of new solutions consisting of key tracker, long plug, Unicorp, has not only showcased our innovative capabilities, but also garnered widespread acclaim in the market, making the beginning of a promising new revenue stream going forward. With the unique multi-network, multi-base station, positioning, and active radar, reach for up to 100 meters, our key tracker is technology ahead of the competition with its six advanced positioning technologies, including GPS, ADPS, LPS, Wi-Fi, Bluetooth, and active radar. The long-mean product is more than just a universal travel adapter. It is an all-in-one device that combines smart charging technology, four charging ports, including three USB-C and one USB-A, and a built-in mobile Wi-Fi module. Unicor is a dual-head USB-C cable with built-in mobile Wi-Fi capabilities. Long plug and the Unicor create a local and global travel companion to charge and connect devices, while also providing reliable Internet connectivity without the need to carry a bucket of hardware. Global Meet Live solutions allow people to stay connected to their loved ones. seamlessly offering connectivity to various high-frequency daily life application scenarios, such as path management, item checking, as well as emerging communications. These solutions are expected to contribute more revenues in the coming quarters as we gradually expand this revenue stream with the recurring subscription and the services revenue. Third, we continue to gradually expand the availability of our global Mi SIM solutions, including over-the-air OTA SIM and eSIM solutions in more countries and regions, paving the way for more powerful all SIM solutions that will allow us to engage with a broader user base. Our all SIM solutions, which consolidate OTA SIM, eSIM, and Cloud SIM, are uniquely positioned to break cross-carrier restrictions, empower various smartphones, and set a new pioneer industry benchmark for mobile connectivity and convenience when they launch in the near future. According to the Mobile Economic 2024 report, from the GSMA, SIEM Commission, excluding licensed cellular IoT, are expected to increase from 8.6 billion in 2023 to 9.8 billion by 2030. In our LocalMe IoT business line, we are leveraging our soft cloud SIEM technology compatible with various chipset platforms to engage with a broader spectrum of partners in the security camera, dashboard camera, and the related sectors to explore additional application scenarios. This will allow us to demonstrate the strengths and the capabilities of our technology to a broader audience. According to the Mobile Economics 2024 report from the GSMA, Licensed cellular IoT connections are expected to grow from 3.5 billion in year 2023 to 5.8 billion by 2030. Finally, as we transition beyond the portable Wi-Fi terminal market, we are scaling up our user base beyond the travel sector into a various comprehensive daily life application scenarios such as every care, pet management, item checking, and daily travel. This transition will diversify our revenue stream from the primary mobile data traffic solutions to a mix of value-add services and mobile data traffic solutions. This will drive ongoing consolidation and development of our Glocomi ecosystem, positioning it as a leading global mobile data traffic sharing marketplace, while creating a long-term sustainable value for our shareholders. We firmly believe that better connection empowers better life. With the graduate commercialization of Glocomi Live, seeing an IoT business lines gaining momentum. We expect to see them contribute more meaningfully to revenue in the coming quarter through various markets and channels. We are confident that we have a right strategy in place to generate sustainable growth in the coming quarters. For the third quarter of year 2024, we expect total revenues to be between U.S. dollar 24.0 million to U.S. dollar 28 million, representing an increasing of 0.4% to 17.2%. Compare the same period of year 2023. I will now turn the call over to Mr. Hsu.

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the second quarter of 2024. Our daily active terminal is an important operating metric for us as we measure customer usage trend for each period, which is reflective of our performance. Our daily active terminal, DAT, in the second quarter 306,289, of which 62.2% were from EuclidLink 1.0 International Data Connectivity Service, representing an increase of 29% in DAT of 1.0 International Data Connectivity Service compared to the same period of 2023. Average daily data usage per terminal was 1.35 gigabytes in June As of June 30, 2024, the company served 2,699 business partners in 61 countries and regions. The company had 182 patents with 153 approvals and 29 pending approvals, with approval from 392 MNOS globally as of June 30, 2024. Total revenue were $22.4 million representing an increase of 1.7% from U.S. dollar 22 million in the second quarter of 2023. Revenue from service were $14.2 million representing an increase 0.5% from $14.1 million in the same period, 2023. Revenue from surveys as a percentage of total revenue was 63.4% during the second quarter of 2024, down from 64.1% during the same period last year. Geographically speaking, during the second quarter of 2024, Japan contributed 46.2% of our total revenue. North America contributed contributed 14.6%, mainland China contributed 23.5%, and other countries in the region contributed the remaining 15.7% compared to 43%, 29.5%, 11.6%, and 15.9% respectively in the same period of 2023. Overall gross profit was $11 million compared to $9.9 million in the same period of 2023. Overall gross margin was 49.2% in the second quarter of 2024 compared to 44.9% in the same period of 2023. Gross margin on service increased to 60.3% in the second quarter of 2024 from 58% in the same period of 2023. Gross margin on Product increased to 30% in the second quarter of 2024 from 21.5% in the same period of 2023. Excluding share-based compensation, total operating expenses were $8.7 million, or 39% of total revenue in the second quarter of 2024. Compared to $7.3 million, or 33% of the total revenue in the same period, in 2023. Net income was $2.2 million compared to a net cost of $0.9 million in the same period, 2023. Adjusted EBITDA was $3.3 million in the second quarter of 2024 compared to $2.1 million for the same period, 2023. For the second quarter of 2024, we generated operating cash inflow of $4.7 million, increasing by 38.3% from $3.4 million in the same period, 2023. For the second quarter of 2024, capital expenditure was $1.6 million, compared to $0.5 million in the same period, 2023. We maintained a solid balance sheet, with cash and cash equivalents increasing to $26.8 million as of June 30, 2024. Up from $24.7 million as of March 31, 2024. With that operator, let's open the up for Q&A.

Thank you. 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 a question has been addressed and you would like to withdraw your question, please press star then 2. The first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Thank you and congratulations on the results for the quarter. My first question is about uses for cash. You're profitable, you increase cash in the quarter, and I was wondering if you have some thoughts about how to utilize the cash balance you're growing, either acquisitions or dividends or capital expenditures of some kind?

Yeah, we have a strong cash inflow from operations as disclosed, $4.7 million generated in the second quarter. So the overall cash equivalence now is more than $26 million. It's a strong financial position indicator. We still will keep this to improve financial position in the near future, say this year and the next year. So far, we don't have a specific target for acquisitions. We don't have a full discussion on any dividends plan. So we still focus on improving our growth and improving our financial position. make the company in a safer position for long-term operations. Thank you.

Okay, my next question is about the LocalMe Life Solutions. You've highlighted the Key Tractor, Roam Plug, and Unicord here in the call. Are there additional products coming out into the LocalMe Life Solutions?

Yes, that's the first three products we launched for local meat. We have continued more products that are coming in the following quarters.

Okay, my last question is about if you could talk about the outlook Between uCloud Link 1.0 and uCloud Link 2.0, can you talk about how that look of those two over the next quarter or two?

Maybe add some column first, and the CEO will add more comments on that. Yes, as we have disclosed our guidance for the third quarter, which is – $24 million to $28 million for revenue. Yes, for this top-line growth, many driven by this international community service, especially as we discussed in the second quarter, mainland China's growth, the outbound traveler from mainland China to other countries' growth. significantly, and we think that trend where we have to keep this same high and fast growth in the third quarter of this year. So for other routes, the main driven in the third quarter, mainly from international travel growth for Chinese outbound. and other regions of the bank as well. And also we expect our new solutions like Gumi Live series products as we launch in the second quarter, which will bring more revenue stream into our account in the third quarter and more in the fourth quarter. So we believe that the growth trigger is more than just international roaming service, but also from a live series service.

Yes, I'm . So our 1.0 business, because we understand China, because we have two markets, China and Japan market, they are still on the way of recovering. So I believe in the next year from now on, still on the way of recovering from the pandemic. So we need time, okay? And also for the 2.0 business, now we have developed most high-reliable connection for fixed broadband backup. This market also gives us more advantage for this black series market for 2.0. So we can see some opportunity in 2.0 business for high reliable connection that we can bring to the customer. And for the new product, because end of the second quarter, we just newly launched the three products. And I think in the quarter three, mainly in the quarter four, will bring us generally more revenue, bring the new revenue for this new product. Of course, bring not only data, but also subscriber and the services revenue.

Thank you very much. That answers my questions.

As a reminder, if you have a question, please press star 1. The next question comes from Vivian Zhang from Diamond Equity Research. Please go ahead.

Good morning and evening everyone. So thanks for taking my questions and congrats on the strong quarter achieved. So my first question will be about the commercialization of Glaucoma Live. So how are the sales of the three newly launched products so far? Are there any other sales channels besides selling directly on your official website? Hello?

Hello, can you hear me? Yeah, yeah, yeah. So we both, and that's both from the online and offline and also for channel. We were setting all this wireless, this online and offline also channel to set our new product. We are, some is under our own brain, some we are under our core brain with our partner. So, and So far, I think the progress is very good. Our partner, and also the feedback from the partner and the end user is quite positive because we bring better connection, empower better life. Let us not only just take revenue from data connection. But more revenue will come from the services such as the PAD checking. I think in the future, also for the convenience for the traveler. Also, I think like a unicorn, not only for traveler, but also it's a daily use like a car, like also car power, and also a home IoT, you know, connections. we can bring the home IoT connections, such as the Wi-Fi camera, to the outdoor, to the worldwide. So that's our quite unique value point. So that can simplify, that can make our users more easy and more relaxed, more safety, and then more high quality for their travel life.

Okay, I see. So my next question is that the guidance for the quarter is quite strong, so any drivers behind that? Thank you.

I think for the next quarter, I think because our traditional product is I think it's very stable, but I think the big jump of our revenue will come from our new product. So because we just newly launched the product, so we needed some time to bring back the revenue. So I think the feedback is very good, but we still have some uncertainty for the period of how quickly we can bring the revenue back for this new product.

Okay, so do you think these three newly launched products will affect your growth margin next quarter, or do you think you will keep the current level?

I expect there's a The service cost margins should be in a similar range as we delivered in this year, like the second quarters. Now, the main part of revenue came from international roaming service, which is a higher gross margin service in our account. Like subscription fee related to the new GlowMe Live series product is, I believe, in other words, is the additional highest cost margins solutions. And we will see how we deliver to the market in various regions and channels. So we believe we will have a good solution. service margins in this year and the future as well.

Okay, that helps a lot. That's all my questions. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Daniel Gao for closing remarks.

Okay, thank you, Wesley Green, for joining us today. If you have further questions, please feel free to contact Joklin's investor relations through the contact information provided on our website or speak to our investor relations firm, Christensen Adversary. We look forward to speaking to you all again on our next quarterly call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.