uCloudlink Group Inc.

Group Inc. first quarter 2025 earnings conference call. All participants will be in 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 telephone keypad and to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Daniel Gao, Director of IR for the company. Please go ahead.

Hello, everyone, and thank you for joining us on UCLoudLink's first quarter 2025 earnings call. The earnings release and our earnings presentation are now available on our IR website at ir.ucloudlink.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 convergence of the previous 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 the component's control, which may cause actual results, performance, or achievements of the component to be materially different from the results, performance, or expectations implied by these forward-looking statements. All forelooking statements are expressly qualified in their entity by their category statements, risk factors, and details of the component's feelings with the SEC. The component does not assume any obligation to reverse or update any forelooking statements as a result of new information, future events, changes in market conditions, or otherwise. except as required by law. Please also note that your CloudLinks earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non-GAAP financial measures. Your CloudLinks press release contains a reconciliation of the undaunted non-GAP measures to the most directly comparable unaudited GAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Thank you, Daniel, and good morning or evening, everyone. We kick off 2025 with a solid performance as our expanding glaucoma ecosystem continues to gain traction and be momentum. Total revenues during the quarter was US dollar 18.7 million, in line with the guidance, representing an increase of 3.4% year-over-year. Despite significant and increased investments in new product marketing and sales initiatives. We maintain a strong finance position delivering a net income of US$0.4 million and a positive operating cash flow of US$0.2 million. Our 1.0 international data connectivity services business continues its robust growth. with the full-speed 5G network coverage now available in 19 countries and regions. This expansion further strengthened our market share and reinforced our leading position in the long-wind market. A notable highlight this quarter was the showcasing of our newest innovative solutions for PayPal, IoT, TEST, at MWC Barcelona 2025, including the eSIM Trill, CloudSIM Kit, PatFone, New Goal G50 Max, and the G40 Pro. These new and exciting technologies have been integrated into our broader series of Glaucoma and Glaucoma Insight solutions, driving growth and increasing visibility and interest among consumers global operators, enterprise customers, and the business partners. With this strong tailwind, starting from the second quarter of this year, our emerging business line, Glokomi Thin, Glokomi Line, Glokomi IoT, are all projected to achieve active terminal growth. Active terminal growth rate exceeding 100%, significantly contributing to our expansion and growth going forward as we build our global market data traffic sharing marketplace. Also, we expect that our global mobile fixed broadband business line will steadily grow by approximately 10%. Starting in the third quarter, of the year 2025, we will begin regular disclosure of our key metrics, including user account numbers segmented by business lines to provide greater transparency and allow investors to carefully track our progress in user growth. Following our MWC showcase, We are already capitalizing on high-value opportunities by engaging in advanced commercial discussions with multiple major operators worldwide, with several partners expected to be finalized in the coming months. At a recent MVNO World Congress year 2025, the premier exhibition for the MVNO industry Our four latest solutions are unveiled, generating widespread recognition as again changing innovations. These solutions are scheduled for commercial launch in May and June, year 2025, with the scale production expected to begin in the third quarter. we have began deploying AI intelligence to enhance operational efficiency and embedding it into a number of our solutions to improve the user experience and ensure seamless global connectivity. Alongside AI, our proprietary HyperCon top-themed SysTech positioning technologies continue to break barriers in the connectivity, revolutionizing digital experience for IoT people and pets worldwide. At CES 2025, our unicorn was honored with the Best of CES Year 2025 Breakthrough Award by Android Authority. Underscoring our commitment to innovation, additionally, One of our subsidiaries hit a significant milestone as one of the first batch of 13 foreign-invested companies to receive approval from China MII for pilot operations of value-add telecommunication services. Our inclusion in the first batch alongside the affiliates of the renowned multinational such as Deutsche Telekom, Siemens, Airbus, and HSBC, reflects the growing impact we are having in the sector. This will enable us to provide Chinese consumers with a more diverse range of value-added telecom services and solutions to better meet growing digital lifestyle needs. This marks a significant step into expanding our global footprint and delivering cutting-edge connectivity solutions. I will now review highlights for each of our key product lines. I will start with global midlife where we just unveiled our first pet connectivity solution at MWC year 2025, Petform. a revolutionary addition to the digital ecosystem. PetPhone is the world's first smartphone for pets, offering fun AI pet interaction, six-step global positioning for safety, and AI smart guardian health monitoring. PetPhone is receiving exceptional market validation in the pet care market, indicating that it It will attract more users in the future. It enables pet owners to communicate with their pets while a local meetup, allowing them to call, send a voice message, play music, even set up routines like fading times, playing reminders. Pets can even initiate calls. track, exercise, running distance, calorie burning, and activity levels, fostering a healthy lifestyle for pets. Pet owners can also join and create a community globally to engage with others like never before. These innovative groundbreaking devices redefine the bond between pets and their owners. and we enhance MVMO and mobile network operator subscribers acquisition and revenue growth going forward. Alongside headphones, our Unicore Plus long plug solutions provide additional secure and reliable connectivity for daily life, freeing users from comparison devices while ensuring seamless and convenient experience. Turning to the global IoT business, where we introduced the CloudSync Kit, an all-in-one game-changing IoT solution. This revolutionary plug-and-play IoT solution was designed to deliver instant global full-speed 4G and 5G connectivity for IoT and smart devices. This innovative solution can be seamlessly integrated into existing devices with SIM card slots, such as smartphone, CPE, and the other IoT-enabled hardware. It is cost-effective, enterprise-grade, and offer superior network quality, ensuring the best coverage without the need for any hardware or software modifications. The plug-and-play nature of our cloud-themed technologies transform ordinary devices into enhanced connected assets. It offers globally scalable assets with flexible carrier switching, and a competitive economic. Empowering the IoT ecosystem with seamless and reliable connectivity, we have already achieved significant penetration in the automotive environment and camera markets, especially among the mainstream Chinese vehicle brands, which advancing breakthrough In specialized segments like security and dashboard cameras, daily active IoT terminals increased 12-fold year-over-year in year 2005 Q1, with positive user feedback. Our global missing business just unveiled another game-changing revolutionary leap in SIM technology. eSIM Trill, positioned as the best second SIM you can have. It enhances both domestic and international coverage by providing consumers with a single SIM solution for seamless local and global connectivity. It addresses core challenges faced by MVMO and mobile network operators, such as poor network performance and limited international roaming. and empowers Tier 2 and Tier 3 operators and NVMOs that are unable to build independent networks widely to deliver superior services and expand their market reach. eSIMTRIO offers enterprise-grade security, global coverage, and at the best price, eliminates costly international loaning, delivers reliable high-speed connectivity across multiple networks. Lastly, our people-centric local Mi Mobile fix broadband business just unveiled the MioGo G50 Max, a HyperCon 5G mobile Wi-Fi hotspot with AI-driven sky-to-ground connectivity. This device enhances network quality through AI-powered real-time congestion detection ensuring seamless connection regardless of where you are. Our advanced HyperCon technologies deliver a hyper-local global international access, ensuring that users have high-speed connections and reliable network wherever they go without the limitation of traditional roaming and all carrier restrictions. The upgraded G40 model suppose speaks three times faster than the traditional 4G device. It's the world's first enabled in-flight Wi-Fi connectivity and integrating Wi-Fi network across various environments such as homes, airports, offices, and cafes. All four business lines are now market-ready which will be commercially available in Q2, year 2025, and attracting strong interest from partners, including global pet stock chains, signaling significant market expansion potential as we engage in commercial discussions. As we innovative business lines increasingly diversify our revenue streams to a mix of value-add services and mobile data traffic solutions that fit into our marketplace, our user base is gradually diversifying and scaling up. With our expanding product portfolio, depending on partnership and AI integration, we are confident in driven growth through the remainder of the years. As the mature regular disclosures of key metrics that will begin in 2025 Q3, we better reflect the direction our business is heading and provide investors with a clear understanding of the strategic progress we are making in building comprehensive global mobile data traffic sharing marketplace. Year 2025 marks our transformation year, during which our business expanded from a single line product line to four product lines, and the user figures to be released in Q3. will be crucial indicators of this transformation. With the optimism for the future in mind, I will conclude with our guidance for the next quarter. For the second quarter of year 2025, we expect the total revenue will be between U.S. dollar 23 million to U.S. dollar 25 million, representing an increasing of 2.7% to 11.6% compared to the same period of year 2024. 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 of 2025, average daily active terminal is an important operating matrix for us, as it measures customer usage trends over the period and is reflective of our business performance. In the first quarter of 2025, average DATs were 308,863, of which 17,803 owned by the company, and 291,060 owned by our business partners, representing a decrease of 0.3% from the 309,906 in the first quarter of 2024. The average daily active terminal in the first quarter comprised 296,597 from GlobalMe Mobile and Fixed Broadband business, 621 from GlobalMe Live business, 5,219 from GlobalMe Themes business, and 6,426 from GlobalMe IoT business, compared to 343,000 and 1,375, 201, 829, and 501, respectively, in the first quarter, 2024. During the first quarter, 2025, 56.2% of DATs were from equaling 1.0 international data connectivity service. And the 43.8 will attribute to EuclidLink 2.0 local data connectivity service. In March 2025, the average daily data usage per terminal was 1.59 gigabytes. As of March 31, 2025, the company had served 2,878 business partners in 63 countries. countries and regions. The company had 183 patent applications with 169 approvals and 14 pending approvals. While the approval of the same car was from 391 MMOs globally as of March 31st, 2025. Total revenue for the first quarter of 2025 were $18.6 million, representing an increase of 3.4% from $18.1 million in the same period of 2024. Revenue from service in the first quarter of 2025 was $14.2 million, representing an increase of 4.9% from $13.5 million in the same period of 2024. Revenue from service as a percentage total revenue was 75.7% during the first quarter of 2025, slightly up from 74.7% during the same period last year. Geographically speaking, during the first quarter of 2025, Japan contributed 40.4 percent of our total revenue. Mainland China contributed 31.2 percent. North America contributed 12.9 percent, and other regions and countries contributed the remaining 15.5 percent compared to 40.9 percent, 25.3 percent, 16.8 percent, and 17% respectively in the first quarter of 2024. Overall gross profit was $9.7 million in the first quarter of 2025, representing a decrease of 3.1% from $10 million in the first quarter of 2024. Overall gross margin in the first quarter of 2025 was 51.7%, compared to 55.2% in same period of 2024. The gross margins on service was 57.3% in the first quarter of 2025, compared to 65% in the same period of 2024. The gross margins on sales of product was 34.3% in the first quarter of 2025. compared to 26.2% in same periods of 2024. Excluding share-based compensations, total operating expenses were $9.9 million, or 53% of total revenue in the first quarter of 2025, compared to $8.5 million, or 47% of total revenues in the same periods in 2024. We record an adjusted net income loan gap, $0.4 million, compared to $1.3 million in the first quarter of 2024. Adjusted EBITDA was $1.4 million in the first quarter of 2025, compared to $1.7 million in the same period of 2024. For the first quarter of 2025, we achieved an operating cash inflow of $0.2 million compared to $1.9 million in the same period of 2024. For the first quarter of 2025, our capital expenditure was $0.3 million compared to $0.6 million in the same period in 2024. We maintained a solid balance sheet with a cash equivalent of $31.1 million as of March 31st, 2025. Up from $30.1 million as of December 31st, 2024. With that, operators, let's open it 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 telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Today's first question comes from Theodore O'Neil with Litchfield Hills Research. Please go ahead.

Thank you and congratulations on the results for the quarter and your outlook. My first question is about the pet phone product. And if you could give us any highlights into the regions or the demographics of the customers you expect will be the most likely to be early adopters of this product.

Yes.

I think we will launch, in the Barcelona exhibition, we first announced we will launch the platform in its industry, so it caused a lot of interest. So we will launch this product in the end of May for commercial launch. We have many products. There are three main types of users. The first one is via the channel, via the channel, like a pet channel. So we approach a lot of the patch channel like in Europe, in Asia, and also in U.S. like a cherry. So we already on the commercial progress. So it's quite up-to-date. And I think we will be closed recently. So in Q2. That's fourth channel. The second channel is wire carrier, wire mobile watch operator or wireless. a mobile operator or a virtual operator. So we help them to promote the eSIM or SIM card into our platform and help the carrier to acquire pet users. So it can create a new... We help carrier not only just from the traditional people, IoT now expand to the pet users. So we already have several... carrier nearly finished the contract with us about reselling our platform product. This is our traditional electronic channel. So they are also interested to sell our product. So I think so far everything's progressed and testing is so good. Now waiting for our commercial version available end of this month.

That's very helpful. My second question is about sort of the tariffs that are being raised and lowered. I'm wondering if the changes in all these tariffs are having any impact on your business.

So,

The question regarding the tariff, so far we don't have implications, but there's a tariff barrier between U.S. and China. We have a stock product in U.S. as a channel, so that's available for our sale for a while. And also, we have outsourcing to the manufacturers in other, say, VLAN. We recruit the manufacturers, outsourcing our manufacturer's terminal device in VLAN and other countries. We have no tariffs between the U.S. and these countries. So, we expect that the U.S. market is a growing market for our new business lines like Petaform, like IoT solutions. So, we prepare the solutions and the place to manufacture our product to overcome the tough barriers between the U.S. and China.

Okay, thank you very much. That completes my question.

Thank you. And our next question today comes from Vivian Zong with Diamond Equity Research. Please go ahead.

Hello. Thank you so much. So firstly, can you explain in detail the reasons for the increase in the cost of services and whether you would take any measures to control this cost of extension.

Yeah, you have two relevance. One is regarding the cost of service. This is reflecting, as we discussed, the service cost margins a little bit lower than the same period last year, and that's because we mixture different sales categories across region and country. For instance, in the first quarter of this year, our outbound Roman service for our Chinese Chinese out-of-bound travelers increased significantly. These Chinese out-of-bound travelers rent our terminals, our Wi-Fi hotspot terminals, for their roaming connections that are traveling outbound. So in that case, there's a revenue of service generated by the Chinese outbound traveler of a significant weight in the overall service, so that's something impact our overall service margins a little bit lower than the same period last year. That answers your first question regarding the cost of service. And the second is regarding the expenditures related to expansion of business. Yes, as we disclosed, the first quarter of this year we spent more expenditure than the first quarter of last year. The extra expenditures are on sales amountings for the new business. So we attend quite a lot of market exhibitions across worldwide, and we invest over more than one million US dollars compared to last year's on these marketings and promotions. We believe this is expeditious on the marketings that will bring more volumes of business to our futures periods. So I think that the revenues related to the new business line will come into account later this year or next year. So one other matrix, as we disclosed, is daily active terminal. There's three new business lines, especially for IoT daily active terminal. is increased 12-thirds compared to last year's same period. So this year we expect the three new business mind IoT, SIEM, and the live series, their daily active terminus number will increase over one year time compared with last year's. So we are on the right track to deploy our strategies from one business mind MBB expansion to four business mind to grow. We believe that I think that we follow the right strategies to support growth.

Thank you. Okay, I see. That makes sense. My next question is about the partnership you mentioned. Can you please provide some information on the areas of collaboration you expect to see in the coming months?

So in the last question, I already mentioned some partners. In the past, our partnership is more like international data and the local mobile broadband. That's more our partners in the airport, in the MAMO. So since we have three new product lines, so our partner become... And the partner become more and more partner. For example, first is our carrier customer do interesting in our product line. For example, like our mobile virtual operator and tier two, tier three carrier operator, they are now very interesting our same case. And Simtrio, they think this is a killer application product because we bring the international looming to mobile watch operator that this never happened to this industry for mobile watch operator first. And the second, we have tier two, tier three carrier improve their looming bargaining power and their looming service quality. Normally, compared with the tier one carrier, tier two, tier three carrier, they are low mean quality and network and partner is very weak. Now, working with us, they can become the superior to the number one of a carrier for the quality of the low mean. And also, we can have the carrier and tier two and mobile watch operator compromise of their network coverage in local. So, normally, they... They have a few investments in the base station. They have poor coverage. With our solution, now, under their coverage, they can use their original SIM card, original SIM information. But outside their coverage, they can use our SIM card and data traffic. So let's quite help them to improve their quality for loan means and create new revenue for our... By our new product for platform, I think it's very popular no matter it's Tier 1 or Tier 2 carrier or MMO carrier. They all like this solution because we create new revenue for these partners. So that's the first product in the industry. You know, carrier promote the product much fast. than traditional other channels. So they can, for example, buy data and give a free device, et cetera. We have them to develop to get new users from the pet market. So also our Unicore, our live serial product can enhance the loyalty of the customer, can can make the retention of customers become more loyalty. So let's help the customer to get more revenue from the retention. Also, I think combining with the Origin SIM card and our live product with a bundle package, customers become more loyalty. So all these reasons, That means in the last year, we have very few of these carrier partners. And now, since the MWC and last week, MVMO World Congress, so we get a lot of interest. So recently, I think we will close some deal with this carrier. You can wait for our IR in the coming months. And finally, so we also have invested in our traditional mobile broadband product. And our traditional product majorly is used for travel, for people to travel outside. But now our new product can one device, one account, to let our users, not only for travel, but also in a home, an office, even in an airplane. They don't need to switch the account and the device. Just one device, one account, they can enjoy the best network quality worldwide for the best connection. Also, they can get the most cost effect. So, for example, like a home and office, we prefer to use the free Wi-Fi, office Wi-Fi or home Wi-Fi. But once the Wi-Fi coverage is poor or coverage is bad, we can back up by the 4G and 5G network. That means we can provide the best connection and cost effect in the world with one device and one account. So here also is more enterprise users now interested or travel users interested in working with us. So I just give this information about the new partner and the new channel working with us.

Okay. Got it. That's very helpful. Thank you. That's all my questions.

Thank you. This concludes the 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 your colleague's investor relations through the contact information provided on our website or speak to our investor relations form for assistance and advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentations. You may now disconnect your lines and have a wonderful day.