uCloudlink Group Inc.

Hello and welcome to the UCLoudLink Group, Inc. Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 of uCloudLink. Please go ahead.

Hello, everyone, and thank you for joining us on Euclid's third quarter 2024 earnings call. The earnings release and our earnings 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 QA section that follows. Before we proceed, please note that this code may contain forward-looking statements made pursuant to the safe harbor provisions of the previous Securities Legislation 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 the component's control, which may cause actual results, performance, and the achievements of the component to be massively different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by their quotationary statements, risk factors, and detail of the company's feelings with SEC. The company does not assume any obligation to reverse 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 annotated GAP financial information and annotated non-GAP financial methods. UCLIN's press release counts a recommendation of the annotated non-GAP methods to their most directly comparable annotated GAP methods. I will now turn the call over to Mr. Chen. Please go ahead.

Thank you, Daniel, and good morning or evening, everyone. We continue to gain growth momentum during the quarter with revenue increasing 5.6% year-over-year to U.S. dollar 25.2 million. In line with our expectations, our financial position remains solid with a net income reaching U.S. dollar 3.4 million and a positive net cash inflow from the operations of U.S. dollar 2.0 million. During the quarter, we actively enhance our market presence. Our global ecosystem continues to thrive, offering comprehensive data connection solutions and diverse business lines. including Glocomy Live, Glocomy Theme, and Glocomy IoT that are driving our expansion beyond the travel sector into various aspects of daily life, supported by the further consolidation of our leading position in the non-main market through Glocomy mobile fixed broadband. This expanding ecosystem is broadening our portfolio of solutions, and allowing us to cater to a wider variety of user needs. First, let me start with the progress we have made in our Glocomi mobile fixed-orbital business line. Our 1.0 international data connectivity services business continues to grow with full-speed 5G network coverage increasing from 75 countries and regions from 50 in the second quarter of the year 2024, fueled by the recovery of international travel and the increasing demand across the key markets. We further consolidate our leading position in the long-wind market and expanding our market share in mainland China and Japan. This growth highlights the strong performance of Chinese travelers from our service during the peak summer travel season, reflecting and expanding segments of our international data connectivity services. Our next-generation portable MiFi product, integrated with HyperCon solutions, will be launched in the near future. According to the Mobile Economics a 2024 report from the Global System for Mobile Communication Association, or the GSMA. The global number of 5G connections is expected to rise to 5.5 billion by year 2030, from 1.6 billion at the end of the year 2023. Second, the first three global midline solutions, which include key tracker, unicorn, and long plug make significant progress during the quarter. We know our extensive market campaigns and actively develop new distribution channels to support their launch. Building what we believe will be a promising new revenue stream going forward. Following the introduction of our Procom in Live products series, at the Weaver Technology in Maine. The serious commercial launch in July in 2024 will further enhance our market exposure by attending other leading global expos such as Trevor Meet Asia, Pet and Vet Exports, and the IFA Berlin 2024, etc. We make breakthroughs in developing retail channels, signing with one of America's largest airport retail channels to make unicorn, long plug, and key track, among other products available at airports across the U.S. We will develop strategy partnerships with other key channel partners across the U.S. and Europe in the coming quarters. With the other solutions already in development, we're looking forward to launching more new products in the coming quarters. The third, within our global missing business, we continue to expand the market presence of the over-the-air thing as more users resubscribe to our data plan service. which is paving the way for our innovative all-seam solution. This solution, which consolidates OTA seam, e-seam, and our pioneer cloud seam technology, is under commercial testing and expected to commercially launch in the near future. Our all-seam solution is uniquely positioned to break cross-carrier restrictions empower various smartphones, and set a new pioneer industry benchmark for mobile connectivity and convenience. Lastly, our Glaucoma IoT business line continues to advance, with several products embedding our technology already in a smaller scale commercial application, demonstrating the strengths and capabilities of our solutions to a broader audience in the IoT of things industry. Leveraging our software cloud scheme technology compatible with various IoT device chipset platform, we are exploring additional application scenarios as we engage with several reading manufacturers in the security IP camera, dashboard camera, and related sectors. We believe that better conditions empower better life. We will continue to leverage Glokomi Live, Glokomi Theme, Glokomi IoT, and their integrated innovative HyperCon and Cloud Theme solutions to expand our global presence through the business partner and channel globally. Over the past 10 years, the Glokomi mobile broadband business has accumulated millions of user bases, with an average daily active terminal, DAT, in the third quarter over 3,200,000. We expect the Glokomi live business will accumulate a broader user base to over 10 million. Furthermore, both of the Glokomi teams and global IoT business have the potential to bring us a user base over 100 million in the future, which will allow us to transition from a provider of mobile data traffic solutions to an integrated and comprehensive marketplace, with each of these business lines fading into this full marketplace. we expect our user base to diversify beyond the travel sector and grow substantially going forward. We are confident that we have the right strategy in place to generate sustainable growth in the coming quarters. For the first quarter of the year 2024, we expect total revenue to be between US dollar 25 million and US dollar 30 million, representing an increasing of 15.2% to 38.2% compared to the same period of year 2023. I will now turn the call over to Mr. Shi.

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the third quarter of 2024. Average daily active terminal is an important operating metric for us as we measure customer usage trends over its periods, which is reflective of our business performance. Average daily active terminal, or DAP, in the third quarter was 320,452, of which 55.4% were from EuclidLink 1.0 International Data Connectivity Service, and 44.6% were from EuclidLink 2.0 Local Data Connectivity Service. Average daily data usage per terminal were 1.52 gigabytes. in September 2024. As of September 30, 2024, the company had served 2,759 business partners in 61 countries and regions. The company had 183 patents with 158 approved and 25 pending approvals. While the pool of SIM cards was from 389 MNOs globally as of September 30, 2024. Total revenue was $25.2 million, representing an increase of 5.6% from $23.9 million in the third quarter of 2023. Revenue from surveys was $17.3 million, representing an increase of 3.9% from $16.6 million in the same period of 2023. Revenue from surveys as a percentage of total revenue was 68.6% during the third quarter of 2024, remained relatively stable when compared to 69.7% during the same period of last year. Geographically speaking, during the third quarter of 2024, Japan contributed 46.6%, mainland China contributed 27.8%, North America contributed 12.8%, and other countries and regions contributed the remaining 12.8%, compared to 44.2%, 17.2%, 26.3% and 12.3% respectively in the same period, 2023. Overall gross profit was $12.19 million compared to $12.21 million in the same period, 2023. Overall gross margins was 48.4% in third quarter of 2024 compared to 51.2% in same period, 2023. Gross margins on service increased to 60% in the third quarter of 2024 from 55.9% in the same period of 2023. Gross margins on products decreased to 23.1% in the third quarter of 2024 from 40.1% in the same period of 2023. Excluding share basis compensations, total operating expenses were $9.7 million, or 39% of total revenue, in the third quarter, 2024, compared to $8.7 million, or 36% of total revenue, in the same period, in 2023. Their income was $3.4 million, compared to $3.5 million in the same period of 2023. Adjusted EBITDA was $4.4 million in the third quarter of 2024, compared to $4.1 million for the same period, 2023. For the third quarter of 2024, we generated operating cash inflow of $2 million, compared to $2.8 million in the same period, 2023. For the third quarter of 2024, capital expenditures were $1.1 million compared to $0.8 million in the same period, 2023. We maintained a solid balance sheet with cash and cash equivalents, increasing to $27.7 million as of September 30, 2024, up from $26.8 million as of June 30, 2024. With that, operator, let's open it up for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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 with Litchfield Hills Research. Please go ahead.

Theodore O' Thank you, and congratulations on the results in the quarter. I just have a couple of questions. My first question is about the AllSim solution. and your expectation that it will launch, commercially launch in the near future. Can you give us an idea of what sort of milestones you have to meet in order to get to the commercial launch stage?

Yes. So I'm Chao-Hui Chen, CEO of YourCloud, Inc. So about all themes, first, at the beginning of these years, we already get experience from the theme car business. We already set around nearly 300,000 OTA SIM cards. So we now understand how to play in this industry. So our all SIM solutions, also another name is eSIM Trail. It's official name. And we will be launched at the end of the fourth quarter. So that's the first milestone. So we will launch the product. And this product, I think, is currently is best your second SIM card for the people who has original SIM card. And we are the best SIM card for the choice because we overcome the first SIM card limitation for roaming. for domestic data connectivity for the congestion and the coverage issue. Also, we overcome the primary SIM card for the flexibility of the data package. Also, we are fully software eSIM challenger about handset. So eSIM has a bigger challenger for adapt to the old handset or some handset, so we can our OSIM can adapt to all handsets. Also, we can support eSIM in all handsets, not only just a new style handset which can support eSIM handsets. That needs a new handset to support that. I think that's our advantage. So we call our OSIM is compatible with the OTA SIM, physical SIM, So that's our solution, quite unique in this industry. So I think quite in a leading position in this industry. So we hope next year we will get more promotion and more, you know, let the market understand we can working with the partner in the worldwide local and the carrier with second-tier or third-tier carrier and the mobile watch operator. So we will, I think, attend the NWC to announce this news about this new solution. Okay, that's around the progress we will have in the future.

Okay, and in regards to your guidance into Q4, Your sequential revenue from Q3 to Q4, historically, some of the Q4 quarters have been lower than Q3. And your guidance here at the high end of the range is that the Q4 will come in much better than sequentially have that growth, higher growth than you've had in the past. What gives you confidence that you could come in near the higher end of the range and for Q4?

Your attention is our guidance for the first quarter this year, which is a range between 25 million US dollars to 30 million US dollars. In the past years, you say the first quarter's revenue is normally lower than the third quarter revenue. That's the past patterns of revenues in legacy revenue streams from portable Wi-Fi. But this year, the fourth quarter, the guidance is a little bit higher than the third quarter's revenue, we think our new product, like Gloomy Life series product, has been launched to the market and gained some revenue in the fourth quarter as well. And also, that's a trend we growth with more than just portable Wi-Fi terminal. I think this trend will – this trend as a various revenue streams more than a portable Wi-Fi will be significant in the next years. So that shows our strategies to – strategy to grow from one business line to four business line. That will be – come to our account from this first quarter and the following quarters next year.

Okay, that makes sense. Understood. My last question is about the sales and marketing expenses in the quarter. I understand there were some expenses for trade shows and product launch. Can you talk about whether or not you expect the expense is in the Q3 sales and marketing expense will continue at that level or will that come down somewhat going forward?

Yeah, we will spend more. We will invest more on marketing and the different countries like the U.S. market and Japan market and European market. And as we disclose, we have a corporate with... one of the biggest airport retail channels. We will also have a corporate with more top channels in the U.S. and Europe. So also we will have enhanced our marketing exposure for our new products like Globally And when Gloomy's theme, the old theme solutions will be launched to the market, that solution is innovative to the market. So we need to invest more on the market and to get awareness of our product, our values to the market. So we will invest more on market expenditures. And that's absolutely that we will need to do that. But at the same time, we will balance the financial positions when we support and invest on growth. So maybe the marketing expenditures will be increased with the balance. We have still maintained growth with the profit and positive operating cash flow.

Thank you very much. That completes my questions. Thank you.

The next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.

Hello. Good morning and evening. This is Vivian Zhang with Diamond Equity Research and congratulations on another strong quarter. My first question will be about the partnership you just mentioned with the U.S. airport retail channel. So can you provide us some more color on this cooperation and how it will impact the future product sales?

Yes. You know, the progress in the second quarter, in May, we just announced In the VIVA exhibition, we announced we would launch the Glocomi Live product. And we launched three new products in July. So after a quarter effort, so end of the Q3, we signed a contract with one of the largest U.S. airport companies. partner, a channel partner. So I think you already can see in the 38 U.S. airport in the shop. So in the airport shop, you can find our three products for unicorn, for long plug, and our quite advanced tracker, so key tracker. So you can see these three products. I think they launched this product in the middle of November. So you can see the product. We signed the contract end of the Q3, and the product is in the shop in the middle of November. So I can also give some guidance. And in the Q4, we already signed another American big channel. So that's the total two big channels in the U.S. airport with all coverage. And the second one will be, we already finished contract in the Q4. And then we'll list the product in the next Q1. That's the progress for our progress in the U.S. airport channel, two biggest, I think, In the following quarter, we will continue to put our effort in the other U.S. big top three channels. We continue effort to be accepted by these channel buyers. Also, we have some breakthrough in Q4. So in Europe, some big channels. So we already successfully signed a contract, and that's the progress. Just in three or six months, I think we can breakthrough some top tier channel in Apple. So I hope next year we can breakthrough more top tier channel with the consumer or pet channel. So in the next years.

Okay, got it, got it. So my next question is that can you elaborate on why, like why past and past services revenues increase significantly, like over 29% in the third quarter, and is this growth sustainable? Thank you.

Yeah, we cooperate with our global business partners in various ways, and our past revenue the business model of PowerStars Revenues have a different way. Hi, can you hear me?

Oh, yes.

Okay, yeah. Yeah, the third quarter, PowerStars Revenues increased significantly because some business partners are willing to pay more platform fee for the future operations efficiencies improvement. So that's our business partner's choice. They can buy different package for our platform service.

Okay, got it. Okay, that makes sense. That's all my questions. Thank you.

Thank you.

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

Okay, thank you once again for joining us today. If you have further questions, please feel free to contact Euclid's Investor Relations through the contact information provided on our website or speak to our Investor Relations form, Chris Simpson Adversary. We look forward to speaking to you all again our next quarterly call. Thank you.

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