uCloudlink Group Inc.

Good day and welcome to the UCloud Link Group, Inc. fourth quarter and full year 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 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 Daniel Gao. Please go ahead.

Hello, everyone, and thank you for joining us on Euclid's fourth quarter and four-year 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 the 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 all 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 pursuant to the safe harbor provisions of the Privy Secretary's Litigation Reform Act of 1995. These forward-looking statements are based on measurements expectations and observations that involve known and unknown risks, uncertainties, and other factors not under company's control, which may cause actual results, performance, or treatments of the company 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 contemporary statements, risk factors, and the details of the company's feelings with the SEC. The company does not assume any obligation to reverse or update any forward-looking statements as a result of new information, future events, change in market conditions or otherwise accept as required by law. Please also note that Euclid's earning press release and this conference call include discussions of undoubted GAAP financial information and undoubted non-GAAP financial matters. Euclid's press release contents are recalculation of the un-audited non-GAAP measures to the most directly comparable un-audited GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Thank you, Daniel, and good morning or evening, everyone. We close out the year with a solid performance as our expanding global meat ecosystem continues to gain growth momentum. Revenues in year 2024 increased 7.1% year-over-year to US$91.6 million, with net income US$4.6 million and net cash flow from operations of US$9.2 million. representing a significant 41.2% increase from the last year. Total revenue during the year from the mainland China region in particular increased 97.4% year-over-year, indicating that Our uClouding 1.0 international data connectivity solutions have been more widely adopted by Chinese consumers and strengthening our leading position in the long-wind market. Total revenue during the first quarter, which is typically impacted by seasonality, exceeds the third quarter with peak summer activity. maintaining a consistent upward growth trajectory. Year 2024 marked the 10-year anniversary since our founding. Our comprehensive connectivity services, powered by CloudThin and the HyperCon solutions, cover over 160 more countries across six continents. We have served 2,080 at 818 business partners in 62 countries and regions, indicating a growing ecosystem of global meat solutions for daily use. While this is impressive, we have much more in store for year 2025. Our global meat ecosystem continues to thrive as we broaden our portfolio of solutions to service a wider variety of user needs. As artificial intelligent AI becomes more widespread, we have begun deploying it internally to enhance operational efficiency and integrated it into a number of our solutions to improve the user's experience. ensuring seamless connectivity for users globally. In addition to AI, we're leveraging our proprietary HyperCon, Cloud Theme, and SysTech positioning technologies to break barriers in connectivity, creating innovative solutions that enhance digital experience worldwide. and revolutionize connectivity for IoT, people, and pets. At MWC 2025, we showcase these new and exciting technologies that have been integrated into innovative solutions that will further strengthen the tailwinds behind our broader series of glaucoma and glaucoma insight solutions. Furthermore, at the CES year 2025, our Unicorp was honored with the Best of the CES 2025 Breakthrough Award by Android Authority. Underscoring our commitment to innovation, In a significant milestone, one of UCloud Link's subsidiaries was among the first batch of the 13 foreign-invested companies, alongside affiliates of renowned multinational corporations such as Deutsche Telekom, Siemens, Airbus, and HSBC, to receive approval from China's Ministry of industry and information technology, MIIT, for pilot operations of telecommunication services. These grants ask the ability to provide internet access and information services in China, making a pivotal step in expanding our global footprint and delivering cutting-edge connectivity solutions. First, let me start with our Glaucoma Live and PET connectivity solutions where we just unveiled PETphone at MWC 2025, a revolutionary addition to the digital ecosystem. The world's first smartphone for PET offers funds API pet interaction, safety, including the six tech global positioning, health, AI smart guardians, and the community engagement, global pet community. According to Morgan Stanley, annual spending growth in the pet industry could reach 7% by year 2030, year by year, I think so. Translating into the total industry spending will increase to $261 billion, reflecting the enormous opportunity we are tapping into with this solution. PatFone makes a great addition alongside Loan Park, Unicor, KeyTrack into our portfolio. Turning to global Internet of Things IoT connectivity solutions, where we unveil the CloudThinkKit all-in-one IoT solution at MWC year 2025. Our CloudThinkKit is a revolutionary plug-and-play IoT solution designed to deliver instant global full-speed 4G and 5G connectivity for IoT and smart devices. These innovative solutions can seamlessly integrate into existing devices with SIM card slots, such as smartphone, CPE loader, and IoT-enabled hardware. By simplifying insert cloud SIM kit into the SIM slot, users can unlock global connectivity without the need for additional hardware or software modifications. modifications make it an ideal solution for a wide range of applications and scenarios. With the combination of the cloud theme kit, our pioneering software cloud theme technology, and our innovative theme car solutions, GloCoMeans IoT offerings now comprehensively address the connectivity challenges across all IoT scenarios. Whether for the existing legacy devices or new incremental markets, our solution provides seamless, reliable, and scalable connectivity. This breakthrough not only enhances the versatility of IoT applications, but also significantly expands the market potential for global meat. positioning us as a leader in global IoT connectivity solutions. Following the success of small-scale commercial applications of our soft cloud technology with several leading manufacturers in the security camera, dashboard camera, other related sectors, The commercial application of our Glocomi IoT solutions scaled up significantly during the first quarter. Glocomi IoT user numbers are growing rapidly and are expected to ramp up going forward, allowing us to demonstrate the strengths and the capabilities of our solutions to an even broader audience across the IoT sectors. For our global meat theme business, we just unveiled eTheme Trio at NWC year 2025, a revolutionary leap in theme technology, positioned as the best second theme car you can have. It enhanced both domestic and international car ages, providing consumers with a single theme solution for seamless local and global connectivity. Additionally, it empowers Tier 2, Tier 3 operators and mobile watch operators by addressing challenges such as poor network performance, limited international domain, and inability to build independent networks, enabling them to deliver superior services and expand their market reach. This eliminates the need for costly international looming and provides users with reliable high-speed connectivity across mobile network operator networks. Lastly, for our people-centric connectivity, our GlocalMe Mobile Flix broadband business line, where we just unveiled the new goal G50 Max has a HyperCon 5G mobile Wi-Fi hotspot with AI-driven sky-to-ground connectivity at NWC 2025. This mobile Wi-Fi hotspot improves network quality with AI-powered real-time congestion detection offering a seamless and better connection experience regardless of where you are. Our advanced HyperCon technology delivers hyper-local and global internet access, ensuring users have high-speed connections and reliable networks wherever they go, without the limitation of the traditional roaming or carrier restrictions. At NWC in 2025, we unveiled the revolutionary upgrade U40. capable of delivery speed three times faster than traditional 4G device. These groundbreaking solutions seamlessly integrate Wi-Fi networks across home, airport, cabin, office, cafe, and mall, while also being the world's first device to support in-flight Wi-Fi connectivities. We also make breakthrough in developing retail channel for our GlobalMe mobile fixed broadband and life solution during the quarter by signing cooperation agreements with North American largest airport retail channel and making them widely available across airport retail located in North America. We are now actively negotiating to expand this partnership across Europe soon and looking to replicate this process through other channels to expand their exposures to a broader audience. Following our successful launch at MWC25, all four product lines are now market-ready with strong interest from partners including global pet store chain who had initiated high-level discussion, signaling significant market expansion potential. Our goal is to aggressively promote this line toward a full marketplace vision. Glocomi Live, including the platform, arms for tens of millions of users. GlocalMe themes and IoT target hundreds of millions, and GlocalMe mobile broadband strives for millions of users, driving impactful growth across all business lines. With these innovative business lines increasingly creating new revenue streams fading into our marketplace. Our user base is diversifying and scaling up. We have an exciting year 2025 ahead of us with many more solutions in the pipeline where we will further consolidate the convenient, secure, and premium connectivity between mobile internet, fixed broadband, Wi-Fi, and satellite communications with centralized AI management. With all these innovative solutions increasingly contributing to new revenue streams and further scaling up our user base, I'm confident we are on the right track to build an integrated and comprehensive global mobile data traffic sharing marketplace that will create long-term sustainable value for the shareholders. With the optimism for the future in mind, I will conclude with our guidance for the next quarter and the year. For the first quarter of year 2025, we expect total revenue to be between U.S. dollar 80.2 million and U.S. dollar 90.5 million, representing an increase of 0.6 percent to 7.7 percent compared to the same period of the year 2004. For the year 2005, we expect total revenue to be between U.S. dollar 95 million and U.S. dollar 130 million, representing an increase of 3.7 percent. 100% and to 41.9% from year 2004. I will now turn the call over to Mr. Si.

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the first quarter and four years of 2024. Average daily active terminus is an important operating metrics for us as it measures customer usage trends over each period, which is reflective of our business performance. Average daily active terminal, DAT, in the fourth quarter were 308,386, of which 54.3% were from the EqualLink 1.0 international data connectivity service. and 45.7% were from EuclidLink 2.0 local data connectivity service. Average daily data usage per terminal was 1.55 gigabytes in December of 2024. As of December 31st, 2024, the company has served 2,818 business partners in 62 countries and regions. The company had 185 patents with 165 approved and 20 pending approvals, while the pool of SIM cards are from 391 M&Ls globally as of December 31, 2024. Total revenue for the fourth quarter was $26 million, representing an increase of 19.5% $21.7 million in the fourth quarter of 2023. Revenue from service was $15 million, representing an increase of 0.6% from $14.9 million in the same period of 2023. Revenue from service as a percentage of total revenue was 57.8% during the fourth quarter of 2024. compared to 68.7% during the same period of 2023. Geographically speaking, during the fourth quarter of 2024, Japan contributed 33.6%, mainland China contributed 20%, North America contributed 12.1%, and other countries and regions contributed the remaining 14.3% compared to 43.1%, 16.5%, 21.3%, and 61% respectively in the same period of 2023. Overall gross profit was $11.2 million in the first quarter of 2024, relatively stable when compared to $11.3 million in the same period of 2023. Overall gross margins was 43% in the first quarter of 2024 compared to 52% in the same period, 2023. Gross margin on service was 58.6% in the first quarter of 2024 compared to 60.1% in the same period, 2023. Gross margins on sales of products decreased to 21.7% in the first quarter of 2024. from 34.2% in the same period of 2023. Excluding share-based compensations, total operating expenses in the first quarter of 2024 were $13.9 million, or 53% of total revenue, compared to $11.6 million, or 53% of the total revenue in the same period in 2023. Late loss was $1.5 million in the first quarter of 2024, compared to $1.8 million in the same period, 2023. Adjusted EBITDA was negative $2.3 million in the first quarter of 2024, compared to positive $1.5 million for the same period, 2023. Moving on to 2024 full-year financial results. Total revenue for 2024 increased by 7.1% to $91.6 million from $85.6 million in 2023, given primarily by the revenue increase from data connectivity service and the past source service. Revenue from data connectivity service were $47.6 million representing an increase of 1.9% from 46.6 million US dollar in 2023. Within data connectivity service, revenue from international data connectivity service rose to 39.5 million US dollar in 2024 from 37.1 million US dollar in 2023. Driven primarily by the continuous recovery of international covers, which was partially offset by a decrease in revenue from local data connectivity to service to $8.1 million in 2024 from $8.8 million in 2023. Overall gross margins was 48.4% in 2024, stable when compared to 49% in 2023. And our gross margins on service increased to 60.8% in 2024 from 58.5% in 2023. Excluding share basis compensations, total operating expenses in 2024 were $40.8 million or 45% of total revenue, compared to $34.6 million or 40% of total revenue in 2023. We achieved a net income of $4.6 million in up from $2.8 million in 2023. Adjusted EBITDA was $7.1 million compared to $9.8 million in 2023. For the full year 2024, our capital expenditure was $4 million compared to $2.1 million in 2023. For the full year 2024, we achieved positive operating cash flow of $9.2 million compared to $6.5 million in 2023. Moving on to balance sheet items, our cash and cash equivalent increased to $30.1 million as of December 31, 2024, compared to $27.7 million as of September 30, 2024. We remain committed to enhancing the company's financial positions over the course of the years and are well positioned to continue growing our business. With that, operator, let's open up for Q&A.

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 two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Theodore O'Neil with Litchfield Hills Research. Please go ahead.

Yes, thank you very much. My first question is about the pet phone. And what I'd like to know is what's the benefit of the pet phone and what will it allow me to do?

Yes, and the pet phone, I think, will enable pets, you know, like children under seven years old, similar smart. They can use the smartphone to call the other dog or other pets or their pet. their owners to express their needs, their mood, such as, for example, they are hungry, they are thirsty, they want to go outside, they are missing their friends, so they can use their body languages. They can use their spatial tone. to express this message or calling to their different friends, different pets, and their owners. So we shorten the distance so that no matter the owner or friends, where they are, so they can contact their pets. they can express their caring to each other. So that's quite unique. So a creation point. That's why in the NWC 2025, we get many, many attractions from the local seven, I don't remember, seven TV, and a lot of, you know, very famous, like this famous broadcaster. I think, approaching us to understand this product. It's not only just interaction with the people and the pets, but also we create, I think, pets community, social. For example, if the dog with a pet phone go to the park, so if another dog is approaching, so the pet phone, the light will flash and the tone will give a reminding, oh, you have a new friend coming, or you have a good friend come in, or you have a bad friend, you dislike friend come in. So we can make this happen. So it's quite attractive. Also, we have security. We have six positioning. We can find any other tracking tracker or L-TAC chrono-file because we have six positioning technology by UNIQLO. We already proved in last years. So finally, we have also the geo-fencing. We have, you know, sports, and we can understand they are moody, and we can monitor them. We can alert if something's wrong or improper behavior. So it's quite unique for this product. So we believe the pet deserves a handset. So that's why we bring out a huge market. By the way, I think that we get a lot of the carrier products I like our product, so we are not just selling this product we launched in April, but we are not just launching this product in the open market, but more important, we successfully carrier because we help the carrier create the revenue not only from people and IoT, but more important, we create a new market, like patent market. It's a growing market, so they can sell out their subscriber. They can sell the same car. That's quite important to the carrier in such a competitive market.

That's very interesting. You may have inadvertently answered my next question, but of the items you've introduced at MWC, the PetPhone, eSIM, TRIO, Cloud SimKit, and HyperCon, do you think the PetPhone is going to have the biggest impact in 2025 of those?

Yes. That's why I think we have become very famous in Spain because there are seven TV broadcasts approaching us and a long time interview with our guys. That's why recently we just about after the NWC several days later, we already had a successful meeting with the biggest pad channel in Spain. So in the past, that's unbelievable, but now it do happen. So that's why platform is quite unique. We create this new device and for the new market. So that's first. Also, our second start product is the eSIM Trail and the SIM Kit. because we enable from the user, from the subscriber side, if the end user use our eSIM trial or our SIM case, that means they will no more coverage issue, roaming issue, congestion issue. So that's why, in this case, it's a long-term issue. I think people will need a second SIM card for permanent use because we can solve such three problems. That fourth SIM card, we are facing these three challenges. Also more important, we enable a Tier 2, Tier 3 carrier. They no longer have this looming issue. congestion issue, coverage issue. That means they can use our eSIM trill and the cloud SIM kit to solve, to use the other carriers network to build their, to gain their business and service. So without our technology, I don't think in a domestic they can use the other carrier network to build their business without coverage, without revenue. But now we change this situation. We can have a tier two, tier three carrier, so use the other carrier network for looming and for domestic looming and international looming, for congestion and for coverage as well. So that's quite a unique part. So also a lot of tier two, tier three carriers approaching us They are quite interesting because we can see their spending in the base station building. They no longer need to immediately to build a local and a domestic coverage. So there are no these power pressure anymore. They can quickly expand their business to the future. They can build their own base station based on their need and their data. So by the way, also we have the third product. Last year, we just showed our Unicore product. So now we have three products for the Unicore, this family. We are offering a cable with a power charge of 61, but also with a 4G capability in this cable, just $5 more. That's for our Unicore entry level. We have a middle tier level that's very compact, we call it a compact model, you can screw up your wire in a very small extreme portable. So for battery inside, for MiFi inside, for GPS, for fixed partitioning inside, with this unicore we call, I think, this extreme portable. So it's very good for your business and your car. And at safety, because you're never missing the car, you can find your car always. You're never losing your luggage. Also, you get the data. And anyway, It's good for your portable, extreme portable for your cable. You need a cable for power. So also we have another we call multi-purpose, multi-functions unicore. This is high end. They can provide high speed for a people use or five people use internet, data charge, and also can be a computer dock. So we are not occupied with Type C. It's also with the battery and with the partitioning. So you never lost your goods, your property. So just one cable, we can solve the safety, convenient, and easy trip and your safety, your product, your property. So that's the third product. The final product is about our, we provide HyperCon technology and satellite connection into our traditional MiFi product, mobile hotspot worldwide. So that means our traditional, our mobile Wi-Fi only be applied into the unit people travel outside. So to provide a multi-user mobile broadband worldwide at a high speed, at a high quality, at high 5G. That's our quite unique position. But now with expansion, This function, not only 4G, 5G, but also we can manage all the Wi-Fi network. This Wi-Fi network including the satellite Wi-Fi or the airport Wi-Fi, Starbucks Wi-Fi, or I think the flight cabin Wi-Fi. Also, even your home office, you still need this device because one device, you never need to change the connection. For example, if normally our handset go to the outside, you need to connect to 4G, 5G. Go to the airport, you need to connect to airport Wi-Fi. Go to home, you go to your home Wi-Fi. That is extremely inconvenient. So for our mobile Wi-Fi, can smartly AI enable to choose the suitable network for you at home, at office. you still have enjoyed serving with Wi-Fi high speed and free, but also we guarantee the reliability for 4G and 5G backup to robust your network. So in the airport, in the flight cabling Wi-Fi, you don't need to scan and connection to the cabling Wi-Fi again. So we can automatically switch to the cabling Wi-Fi for you. So one device for every scenario, not at home or outside. It's extremely convenient. So that's why all our full products become more and more attractive and quite unique in MWC year 2025. We are quite unique. We have made life more easily, more convenient, and connection more better and more safety.

Okay. Well, thank you. My last question is about international travel. In your forecast for full-year revenue, I'm wondering what assumptions you may have made about international travel going up or down. And the reason I'm asking is because, and it may be too soon to tell, is that Delta Airlines last week said they're seeing a drop-off in flyers in their forecast. And I was wondering if you've made any assumptions about international travel in your full year 2025 forecast.

Yes, of course. The guidance for the year 2025 is the range of $95 million to $130 million. We factor in the recoverings of international travel carried on in the year 2025. So that's underlying assumptions 10% to 20% of the growth powered by the recovery of the international travel and also we factor in the new business lines growth as Mr. Chen mentions that we launched so attractive and innovative new solutions and attract widespread market attentions. So we expect the new business like platform, CloudThinkKey and eThinkChill will expand in this year from the starting point of view. So both new business and the legacy business, international traveling, will provide momentum growth for the year 2025. So that's the background we disclose the guidance this year.

Thank you very much. That answers my questions.

Once again, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.

Hello, everyone. Thank you so much. Most of my questions have been answered, but I still have two. The first one is that can you elaborate on the trends in your cost structure? Because we have seen a significant increase in sales and marketing expenses over the past year. Will this trend continue this year?

Yes, as you've seen with our disclosures for the year 2024, last year we invested a lot on new business. So we have three new business launched in the second half of the year of 2024, so we a large budget, spend a larger budget on promotion and market exposure for the new vendors. So that's compared with the year of 2003. We invested $5 million more than last year. I think these investments will gain return in the year 2025. As we just talked about the guidance range for the top lines of the forecast, we try to deliver our new business and grow our new business from this year. I think the return of this business will be come back for this year. So for this year, we will continue carry on investments on the new business. So we expect that the sales and marketing budget this year will have a growing proportion compared to the year 2025. So I think that's very important for our long-term growth and very important we invest on future to gain our use number from now is millions, millions level to 10 million level in the next couple of years. So investments from now, we're going forward to invest on our future. Thank you.

Yeah, I think basically last year and this year is our very important year. So we are starting from the beginning major company become to be a 2C and also more focused on 2C company. That's why we need team capability. I think also 2C need more heavy investment in promotion and branding.

Okay, got it. I see. So my last question is that what were the key drivers of revenue growth from mainland China last year, and how do you expect this to evolve in the coming quarters?

Yeah, for last year, 2024, the revenues growth rate was nearly 100%. So the main driven factors by the Chinese out-of-bounds traveling. So more Chinese overseas travelers, they're booking our service. So our service is very famous. as a leading branding lane for Chinese outbound travelers. We are in leading positions, so that's driven our growth for mainland China. As we also disclosed, we just got approval of pilot operations of a value-added telecom service in mainland China recently. That's quite a huge momentum for our business to expand in mainland China domestically, not only for outbound business, but also for inbound business as well. So that's a great potential for our grow our business. in mainland China domestically and internationally?

I have some more comments. You can see in China domestic travel to the worldwide. Our market share last year is growing. And also the last year we have for the Chinese New Year we have very successful branding and promotion and user emphasize our 5G full speed and our service quality compared with China traditional operator, like a China mobile loan me service. So our quality and our service is much better. So now we are gradually build our brand, loan me brand for 5G, high quality service is exceeding, is far more better than China telecom and also the global travel scene. So this becomes very successful. In the Chinese New Year, we are almost more than 50% increase compared to the year 2024. So we are confident. We will take more market share from traditional operator and global SIM card long-meet market. So we believe we can from 3% to 5% to 6% this year. So, no, with our target, we can go more than 10%. So, with confidence, we can achieve that.

Okay. Thanks for the details. That helped a lot. So, that's all my questions. Thank you. That's all.

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

Thank you once again 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 form for this anniversary. 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.