uCloudlink Group Q1 2024 Earnings Call Transcript

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May 15, 2024

There are 6 speakers on the call.

Operator

Good day, and welcome to the UCloud Link First Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Liam Hsieh. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining us on Yucharlin's Q1 2024 Earnings Call. The earnings release and our earnings presentation are now available on our IR website at ir. Yucharlin.com. Joining me on today's call are Mr. Ziping Peng, Co Founder and Chairman of Board of Directors Mr.

Speaker 1

Cao Hui Chen, Co Founder, Director and Chief Executive Officer and Mr. Yimen Shi, Chief Financial Officer. Mr. Chen will begin with an overview of our recent business highlights. Mr.

Speaker 1

Shi will then discuss our financial and operational highlights for the quarter. They will all be available to take your questions in the Q and A question that follows. Before we proceed, please note that this call may contain forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward looking statements. All forward looking statements are expressly qualified in the entirety by the cautionary statements, risk factors and details of the company's filings with the SEC.

Speaker 1

The company does not assume any obligation to revise or update any forward looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. Please also note that Yucharlin's earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non GAAP financial measures. Yucharlin's press release contains a reconciliation of the unaudited non GAAP measures to the most directly compatible unaudited GAAP measures. I will now turn the call over to Mr. Chen.

Speaker 1

Please go ahead.

Speaker 2

Thank you, Liang, and good morning or evening, everyone. We had a promising start to the year with total revenues of US18.1 million dollars in line with guidance. With our business now healthy and back on a growth trajectory and we maintained the profitability we regained last year, achieving a net income of $400,000 and generating a net operating cash inflow of US1.9 million dollars in the Q4 of year 2024. Revenue growth was primarily driven by the continuous recovery of our 1.0 International Data Connectivity Services business, and in particular, our roaming main brand services, which continue to rebound strongly, with coverage expanding from 55 to 50 countries and regions, our full speed 5 gs roaming network solution further solidifies our leading position in this sector and has expanded our market share. According to the Mobile Economic 20 24 report from the Global System for Mobile Communications Association or the GSMA.

Speaker 2

The global number of 5 gs connections is expected to rise to 5,500,000,000 by 2027 from RMB1.6 billion at the end of the year 2023. We also made significant progress in rolling out and expanding a rate of comprehensive data connectivity solutions during the quarter to explore opportunities beyond portable WiFi customers. Let me start with the progress we have made in our GoCo Mi Mobile and 6 ball based business lines. At the Mobile World Congress, earlier this year in Barcelona, we showcased the GasFlex Pro, our highly reliable dual brand dual broadband consumer premises equipment or CPE, a solution which we believe will redefine industry benchmark for high reliable connectivity and innovation. Unlike other CPE solutions on the market, the GaFlex Pro supports multiple mobile networks from all available major operators in addition to stand local fixed network.

Speaker 2

This means it is able to intelligently select and automatically switch networks to maintain the connectivity even when the fiber optic lines fail or are disrupted. Few pilots search in remote work, online learning, streaming platform in recent years, the demand for ubiquitous and reliable wireless connectivity is poised for substantial growth. 2nd, our global midlife business made significant progress during the quarter with the initial rollout of new products that brings seamless connectivity into various high frequency daily live application scenarios, such as pet management, item tracking, as well as emergency communication. We software launched our first daily live product, a smart check powered by our innovation solutions that offer far more accurate and reliable tracking, something that the other similar tech or track products on the market are unable to. In addition, the Smart Tracker offers free local emerging Internet access to users for security ahead.

Speaker 2

Unlike the other similar products on the market, which only support a single network or technology such as Bluetooth to check items, our checker is able to intelligently select and automatically switch between multiple networks and 6 different location technologies. Additionally, Glocomid Light has an exciting slate of Easy Light X Series products under development, which would enhance the daily life of smart device users, making them much easier and more convenient. We will unveil 3 GlocalMe Live products and upgraded Glocomi app on May 23 at Viva Technology Year 2024 in Paris. Meaningful revenue generation from the SmartChecker and Easyline X Series products is anticipated to begin in the Q3 and recurring revenues from subscription and services are anticipated going forward. By offering more intelligent, convenient data like products that satisfy a wide range of user needs, we are expanding our market research and establishing a broader market presence to diversify our revenue streams and generate long term sustainable growth.

Speaker 2

By expanding our business beyond the travel sector into various aspects of daily life and commercial life, customers will enjoy a more intelligent and convenient life through our high quality data connections for a range of everyday scenarios. 3rd, our newly launched Glocomi SIM made solid progress during the quarter, ranking highly on a number of e commercial platforms for travelers heading to destinations such as Japan and Hong Kong. Our GoProMe SIM solutions, including our OVA SIM and eSIM solutions, will continue to evolve into our innovation all SIM solution allowing us to engage with a broader end user base beyond those in the portable WiFi terminals market. This pioneering All SIM solution is uniquely poised to break cross carrier restrictions and empower various smartphones. According to the Mobile Economic Year 20 24 report from the TSMA, SIM connections, excluding licensed cellular IoT, are expected to increase from RMB8.6 billion in year 2023 to RMB9.8 billion by the end of the year 2030.

Speaker 2

Last but not least, within our IoT business line, we complete testing of our soft cloud SIEM technology for consumer IoT devices, which we expect to begin commercializing in the near future. This unique technology is compatible with a broader array of mainstream chipset platform found in many IoT devices and eliminate the need for hardware redesign or redevelopment, allowing global IoT manufacturers to seamlessly deploy it through software pre installation. This turnkey solution is expected to create significant opportunities for us in the consumer IoT market by having our technology deployed in products such as WikiTalk, security camera and the 2 wheel electric scooters, which already have a substantial end user base and can significantly contribute to data connectivity services revenue. According to the Mobile Economic Year 2024 report from the GSMA, licensed cellular IoT connections are expected to close from RMB3.5 billion in year 2023 to CNY5.8 billion by 2,030. We believe that better connection in power specialized.

Speaker 2

We recognize ourselves into 4 distinct business lines starting from year 2024 to leverage our existing R and D resource and cutting edge technologies to explore business opportunities beyond portable Wi Fi terminals and we are expanding a range of comprehensive data connectivity solutions to satisfy a wide range of users' needs. By extending our business beyond the travel sector into various aspects of daily and commercial life, These solutions will allow us to engage with a broader end user base by leveraging our cloud SIEM and hyper connectivity technologies, optimistically build out our broader Glocomi ecosystem and global leading mobile data traffic sharing marketplace. Finally, I would like to review our guidance for the Q2 of year 2024. We are optimistic about our future growth prospects. For the Q2 of year 2024, we expect total revenues to be between US22 $1,000,000 US24 $1,000,000 representing an increase 0.1 percent to 9.2% compared to the same period of year 2023.

Speaker 2

We maintained our outlook for the year, with total revenues expected to be between US95 $1,000,000 and US112 $1,000,000 representing an increase of 11% to 30.8% from year 2023. I will now turn the call over to Mr. Si.

Speaker 3

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial timelines for the Q1 of 2024. Average daily active terminals, DAT, is an important operating metric for us as it measure customer usage trends over the period and is effective of our business performance.

Speaker 3

In the Q1 of 2024, average DAP was 309,906, of which 13,622 owned by the company and 296,000 and 284 owned by our business partners, representing an increase of 1.9% from 304,121 in the Q1 of 2023. During the Q1 of 2024, 57.9% of DAT was from EucalyLink 1.0 International Data Connectivity Service and 42.1 point 1 percent was attributed to Eucalypt2.0 local data connectivity service. In March 2023, the average daily data usage per terminal was 1.56 gigabytes. As of March 31, 2024, the company had 178 patents with 141 approved and 37 pending approval. While the pool of same costs are from 382 in NOS globally as of March 31, 2021.

Speaker 3

Total revenue from the Q1 of 2024 were US18.1 million dollars representing an increase of 0.7% from US18 $1,000,000 in the same period of 2023. Revenue from service in the Q1 was US13.5 million dollars representing an increase of 4.8% from US12.9 million dollars in the same period of 2023. Revenue from service as a percentage of total revenue was 74.7% during the Q1 of 2024, half from 71.7% during the same quarter last year. Geographically speaking, during the Q1 of 2024, Japan contributed 40.9% of our total revenue, North America contributed 16.8%, Mainland China contributed 25.3% and other countries and regions contributed the remaining 17% compared to 43.1%, 33.6%, 5.1% and 18.2% respectively in the Q1 of 2023. Our gross profit rose to US10 $1,000,000 in the Q1 of 2024, representing an increase of 60.3% from RMB8.6 million in the Q1 of 2023.

Speaker 3

Overall gross margin in the Q1 of 2024 further rose to 55.2 percent from 47.8% in the same period of 2023. The gross margin on service increased to 65% in the first quarter from 60.5% in the same period of 2023. Excluding share based compensation, total operating expenses were $8,500,000 or $47,000,000 of total revenue in the Q1 of 2024 compared to $6,900,000 or 38 percent of total revenue in the same period in 2023. Net income was US0.4 million

Speaker 2

dollars in

Speaker 3

the Q1 of 2024 compared to US2.1 million dollars in the same period of 2023. Adjusted EBITDA was US1.7 billion dollars in the Q1 of 2024 compared to US2.1 million dollars for the same period of 2023. For the Q1 2024, we achieved an operating cash inflow of US1.9 million dollars up from US1.6 million dollars in the same period of 2023. For the Q1 of 2024, our capital expenditures were US0.6 million dollars compared to US0.4 million dollars in the same period in 2023. We maintained a solid balance sheet with cash and cash equivalents increasing to CNY24,700,000 as of March 31, 2024, up from US23.4 million dollars as of December 31, 2023.

Speaker 3

With that, operator, let's open it up for Q and A.

Operator

Certainly. Thank you.

Speaker 3

We will

Operator

now begin the question and answer session. The first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Speaker 4

Thank you very much and congratulations on a good quarter. My first question is about the good profit margins in the quarter and I was wondering if you could talk about why those numbers came in so well. Is it a pricing issue? Was it mix? Give us some more detail on how you were successful in the gross profit margins in the quarter.

Speaker 3

Yes. Thanks, Leo. Let me answer the first question. Yes, as we disclosed, service gross margins are improving in sickleventories in the Q1 of 2024 from 64% to 65% on the service part. The main attributions for this improvement is improving the proportion of international roaming service as we these proportions is the DAT of the roaming service is more than 53%.

Speaker 3

So and that's the major contributions from improving the proportion roaming service. Yes, that's a major contribution. Also, we disclosed our our SaaS revenue in the Q1 improving compared with last year as well. So, there's 2 sectors has higher gross margins, so which will contribute our significant improvement in our gross margins on service. So looking forward to this year, we expect that as recoveries accelerated in international roaming travelers and our roaming service revenue will be improving as in the past couple of quarters.

Speaker 3

So we expect this higher service gross margin will be maintained in the next couple of quarters. And here we have more revenue from the new product service related for example, the GloomiSeen sales which is a no margin service. So overall, we expect this year the driver for this performance is the main driver is the margin roaming service. So that's my answer to your questions.

Speaker 4

Thank you. And my next question is about Glocal Meat Life. I was wondering is there in terms of expenses to launch that product, obviously, there's going to be some expense associated with the Paris launch of it. But is there any substantial CapEx or R and D expense that we should associate with this new product line? Or is this primarily unlocking features that were already existing in the systems that you're selling?

Speaker 3

Yes, let me answer this investment on this new product, Gomi Life and now about opportunities for this news business, I will pass this question to our CEO, Mr. Chen. So, yes, as we disclosed and we invest on this new product development. So in the Q1 of 2024, the headcounts related to R and D is 148 headcounts, which is almost 10 more headcounts compared to the same period as last year's R and D. But the most headcount on investments is for sales and marketing departments.

Speaker 3

So for the end of the Q1 of 2024, the headcount for sales is 183 headcount which is 50 more than the headcounts, sales and marketing departments in the same period of 2023. So that's we invest headcounts a lot on sales and marketing. We expect which will support our Anvay opportunity in our traditional WiFi business and also the new business as well. We launched 3 new business lines this year on the top of the WiFi dongos. So I think I'll pass the question to Mr.

Speaker 3

Chen to give more colors on this opportunity for Glomi Live.

Speaker 2

Yes. So for GloWine Live, we mentioned here, I think like we will launch our product in the next week. So we have a meeting, we have event, a launch event in Paris and Weibo 23. So I think, of course, we increased R and D for the headcount, not so much, but more efficient. And also, we have used because majorly our R and D, so we during the COVID-nineteen, we already do the R and D in this 4 product lines.

Speaker 2

Now is the time for we fruitful for the new product. So of course, I think we will continue to invest in this R and D including AI in the future. We already have a lot of research and R and D for not the current product, but also in the long term product. So we are around about 10% to 50% of our R and D cost expanding in the 2 or 3 years laser business.

Operator

Thank you. The next question comes from the line of Vivien Jiang from Diamond Equity Research. Please go ahead.

Speaker 5

Hello. This is Vivien with Diamond Equity Research. Congratulations on the quarter. Most of my questions have been answered as you have won regarding the selling expenses. So we see the company's S and M expenses increased over 38% in the quarter, while the product sales was down about 10%.

Speaker 5

So I'd like to know how you are allocating like resources to drive the product sales? Thanks.

Speaker 3

Okay. Let's further explain this expenditures related to the sales. Yes, as I just mentioned in the previous questions, the sales expenses are increasing due to the headcounts, 50 more headcounts increase compared with the same periods of last year. And the second is we invested additional US700 million dollars on promotions and marketing like exhibitions, we mentioned Barcelona Exhibitions and CES in America and also the marketing events promotions on e commerce platform. So we believe these promotions is beneficial to awareness our branding's name, Glocomids and also we prepare for launching the new product.

Speaker 3

We mentioned we have 4 business 9 and 3 business 9 will be spending and launch and commercialize in the near futures. So we expect our revenue guidance for this year is we'll maintain this guidance for the whole year as I mentioned by our CEO, Mr. Chen. So when our revenues increase in the next couple of quarters, I believe the OpEx margin will be lower and improving in compared with the Q1 of this year.

Speaker 2

Thank you. Yes, let me add some color. So I think that totally is 3 points. The first point, our spending in the marketing and sales side increases because we're recovering worldwide our sales team and marketing worldwide for different countries after COVID-nineteen. The second, we are preparing the resource and the campaign for the headcount and in China market for the sales and marketing because the summer season is coming.

Speaker 2

We need a quarter early to prepare for all these resource and preparation. Number 3 is we prepare for the new product and for the event and spending also this is a new product like e SIM SIM Card and Groucho Min Life is a more 2C business to consumer business and that's totally new for us in some region. So we need to prepare for this marketing campaign. Yes. Thank you.

Speaker 5

Okay. Got it. Thank you. That's all. Thank you.

Operator

Thank The next question is from the line of Xin Li from China Great Wall Securities. Please go ahead.

Speaker 1

Hi. This is Xinyi from China Great Wall Securities. And many questions have also been answered before. I have a question and want to get more details because we got like RMB18 1,000,000 in the Q1 and we expect it to have like the revenue between $22,000,000 to $24,000,000 And for the whole year, we also have a very like positive expectation. So I want to know, do you have any like a foreseeable or stable sales orders for the like our new products?

Speaker 3

Let me answer a bit first. For this, the guidance for the Q2 of RMB22 1,000,000 to RMB24 1,000,000. Yes, the range of outlook for the Q2 will show a small growth compared with the same period last year and not very significant. But the peak selling time is summertime, which is the 3rd quarters. And also we have launched new product in this May and we have an event in Paris where we'll launch these new products, Gumi Life related products in Paris this month.

Speaker 3

So, we expect that all the new product sales will generate it into revenue accounts in Q3 and Q4 as well. So, we maintain this over the whole year's guidance, which is US95 $1,000,000 to US112

Speaker 2

$1,000,000 Yes. So, I'll add some more comment. Our traditional portable WiFi business is very stable growth because we consider in the first half years Japan and China are major market. So I think the travel global travel is no growth as we expected. It is slightly growth.

Speaker 2

It's continued growth, but recovery speed is lower than our expectation. So that's one of the reasons. And for the new product, so we just launched in the second quarter and we generated revenue from the Q3, Q4, majorly, I think it comes from Q4. Because of this new product, they have a big potential. So that's why we also there has some uncertainty.

Speaker 2

So that's why we still keep the same forecast.

Speaker 1

Okay. Yes. Thanks for the answer. I have no questions. Thank you.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact Yuchao Lin's Investor Relations through the contact information provided on our website or speak to our Investor Relations firm, Quinte Henson Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

Operator

Thank you.

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uCloudlink Group Q1 2024
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