Ucloudlink Group Inc (UCL) 2024 Q3 法說會逐字稿

Hello, and welcome to the UCLOUDLINK Group Inc. third-quarter 2024 earnings conference call.

(Operator Instructions) 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 uCloudlink's third quarter 2024 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. Zhiping Peng, Co-Founder and the Chairman of Board of Directors; Mr. Chaohui Chen, Co-Founder, Director and Chief Executive Officer; and Mr. Yimeng Shi, Chief Financial Officer.

Mr. Chen will begin with an overview of our recent business highlights.

Mr. Shi then discuss our financial and operational highlights for the quarter.

They will both be available to take your questions in the Q&A section that follows.

Before we proceed, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions of the previous 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 company's control, which may cause actual results, performance and 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 their entirety by their cautionary statements, risk factors and detail of the company's filings 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, changes in market conditions, or otherwise, except as required by law.

Please also note that uCloudlink's earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non-GAAP financial measures. uCloudlink's press release contains a reconciliation of the unaudited non-GAAP measures to their most directly comparable unaudited 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 continued to gain growth momentum during the quarter with revenue increasing 5.6% year over year to USD25.2 million, in line with our expectations.

Our financial position remains solid, with net income reached USD3.4 million and a positive net cash inflow from operations of USD2.0 million.

During the quarter, we actively enhanced our market presence.

Our GlocalMe ecosystem continues to strive, offering comprehensive data connection solutions in diverse business lines, including GlocalMe Life, GlocalMe SIM, and GlocalMe 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 roaming market through GlocalMe 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 met in our GlocalMe mobile/fixed broadband business line.

Our 1.0 international data connectivity services business continued to grow with full speed 5G network coverage increasing from 75 countries and regions from 60 in the second quarter of 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 roaming market and expanded 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 an expanding segment of our international data connectivity services.

Our next-generation portable Mi-Fi product integrated with HyperConn solutions will be launched in the near future.

According to the Mobile Economincrease 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 of three GlocalMe Life solutions, which include KeyTracker, Unicord, and RoamPlug made significant progress during the quarter.

We roll out our extensive market content and actively developed 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 GlocalMe Life product series at the Viva Technology in May, the serious commercial launch in July 2024, we further enhanced our market exposure by attending other leading global expos such as Travel Meet Asia, Pet & Vet Expo, and the IFA Berlin 2024, et cetera.

Additionally, we made breakthroughs in developing retail channels, signing with one of American largest airport retail channels to make Unicord, RoamPlug, and KeyTracker, among other products, available at airports across the US.

We will develop strategic partnerships with other key channel partners across the US 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 GlocalMe SIM business, we continue to expand the market presence of the over-the-air SIM as more users resubscribed to our data plan service, which is paving the way for our innovative ALL SIM solution.

This solution, which consolidates OTA SIM, eSIM, and our pioneer cloud SIM technology is under commercial testing and expected to commercially launch in the near future.

Our ALL SIM 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 GlocalMe IoT business line continued to advance with several products embedded 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 soft cloud SIM technology compatible with various IoT device chipset platform.

We are exploring additional application scenarios as we engage with several leading manufacturers in the security IP camera, dashboard camera, and related sectors.

We believe that better conditions empower better life.

We will continue to leverage GlocalMe Life, GlocalMe SIM, GlocalMe IoT, and their integrated innovative core HyperConn and cloud SIM solutions to expand our global presence through the business partner and channel globally.

Over the past 10 years, the GlocalMe mobile broadband business has accumulated millions of user base which leverage daily active terminal, DAT, in the third quarter over 320,000.

We expect the GlocalMe Life business will accumulate a broader user base to over 10 million.

Furthermore, both of the GlocalMe SIM and GlocalMe IoT business have the potential to bring us a user base of 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 quarter of year 2024, we expect total revenue to be between USD25 million and USD30 million, representing an increase 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, and 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 a period which is reflective of our business performance.

Average daily active terminal, or DAT, in the third quarter was 320,452, of which 55.4% were from uCloudlink 1.0 international data connectivity service and 44.6% from uCloudlink 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 approval, while the pool of SIM cards was from 389 MNOs globally as of September 30, 2024.

Total revenue was USD25.2 million, representing an increase of 5.6% from USD23.9 million in the third quarter of 2023.

Revenue from service was USD17.3 million, representing an increase of 3.9% from USD16.6 million in the same period of 2023.

Revenue from service as a percentage of total revenue was 68.6% during the third quarter 2024, remain 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 to 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 USD12.19 million compared to USD12.21 million in the same period 2023.

Overall gross margin was 48.4% in the third quarter of 2024, compared to 51.2% in the same period 2023.

Gross margins on service increased to 60% in the third quarter of 2024 from 55.9% in the same period 2023.

Gross margins on product decreased to 23.1% in the third quarter of 2024 from 40.1% in same period of 2023.

Excluding share-based compensation, total operating expenses were USD9.7 million or 39% of total revenue in the third quarter 2024, compared to USD8.7 million or 36% of total revenue the same period in 2023.

Net income was USD3.4 million, compared to USD3.5 million in the same period of 2023.

Adjusted EBITDA was USD4.4 million in the third quarter of 2024, compared to USD4.1 million for the same period 2023.

For the third quarter of 2024, we generated operating cash inflow of USD2 million, compared to USD2.8 million in the same period of 2023.

For the third quarter of 2024, capital expenditures were USD1.1 million compared to USD0.8 million in the same period 2023.

We maintained a solid balance sheet with cash and cash equivalents increasing to USD27.7 million as of September 30, 2024, up from USD26.8 million as of June 30, 2024.

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

(Operator Instructions) Theodore O'Neill, Litchfield Hills Research.

Thank you and congratulations on the results in the quarter.

I just have a couple of questions.

My first question is about the ALL SIM 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, Chaohui Chen, CEO uCloudlink.

So about ALL SIM, first, at the beginning of this year, we already get experience from the SIM card business.

We already said around nearly 300,000 OTA SIM cards.

So we now understand how to play in this industry.

So our ALL SIM solution, also another name is eSIM [Trio] is official name and will be launched at the end of the quarter.

So that's the first milestone.

So we will launch the product.

And this product, I think, is we call -- currently is best your second SIM card, for the people who have original SIM card, and we are the best SIM card for choice because we overcome the first SIM card limitation for roaming, also for domestic data connectivity for the congestion and coverage issue.

Also we overcome the primary SIM card for the flexibility of the data package.

So also, we are fully solved the eSIM challenge about the handset.

So eSIM has a bigger challenge for adapt to the old handset or some handsets.

So we can -- our ALL SIM can adapt to all the handsets.

Also, we can support eSIM in all handsets, not only just a new style handset, which can support eSIM handset that need a new handset can support that.

I think that's our advantage.

So we call our ALL SIM is compatible with the OTA SIM, physical SIM, cloud SIM, and eSIM.

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 -- like the market understand, we can working with the partner in the worldwide local and carrier with a second tier or third tier carrier and mobile virtual operator.

So we will, I think, attend MWC 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 quarters -- 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 your -- you could come in at near the higher end of the range for Q4?

Yeah.

Your attention is our guidance for the fourth quarter this year, which is a range is between USD25 million to USD30 million.

Yeah, in the past years, you say that the fourth quarter revenue is normally lower than the third quarter revenue.

That's the past pattern of revenues in legacy revenue stream 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 products like GlocalMe Life series product has been launched to the market.

And gain some revenues in fourth quarter as well.

And also there's a chance we growth with more than just portable Wi-Fi terminal.

I think this trend will -- these trends as various revenue streams more than portable Wi-Fi will be significant in the next years.

So that shows our strategy grow from one business line to four business lines, that will be -- come to our account from this fourth 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 spend more-- we will invest more on marketing and the different countries like the US market, and Japan market and European market.

And as we disclosed, we have a cooperate with one biggest airport retail channel.

And we will also have a cooperate with more the top channel in US and European.

So also, we will have enhanced our marketing exposure for our new product like GlocalMe Life.

And when GlocalMe SIM, the ALL SIM 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 value to the market.

So we will invest more on market expenditures, and that's absolutely we 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 -- maintain gross profit and positive operating cash flow.

Thank you.

Thank you very much that completes my questions.

Thank you.

Vivian Zhang, Diamond Equity Research.

Hello, good morning and evening.

This is Vivian Zhang with Diamond Equity Research, and congratulations on another strong quarter.

So my first question will be about the partnership you just mentioned with the US airport retail channel.

So can you provide us some more color on this cooperation and how it will impact the future product sales?

Yes.

We -- the progress in the second quarter, we -- in May, we just -- in the Viva exhibition, we announced we will launch the GlocalMe Life product.

And we launched three new products in July.

And after a quarter effort, so end of the Q3, we signed a contract with one of the largest US airport channel partners.

So I think you already can see in the 38 US airports, in the shop.

So in airport shop, you can find our three products for Unicord, RoamPlug, and our advanced tracker, KeyTracker.

So you can see these three products.

So I think they just -- they launched this product in November -- mid of November.

So you can see the product.

We've signed the contract end of the Q3 and the product reached 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 US airport with all coverage.

And the second one will be -- we already contract in the Q4, and we list the product in the next Q1.

That's the progress for our -- progress in the US airport channel, two biggest.

I think in the following quarter, we will continue our efforts in the other US big top three channel, we continue our efforts to be accepted by these channel buyers.

Also, we had some breakthrough in Q4.

So in Europe, some big channels.

So we already successfully to sign a contract, and that's the progress.

Just in three or six months, I think we can break through some top-tier channel in airports.

So I hope next year, we can break through more top-tier channel with the consumer of past channel in the next few years.

Okay.

Got it.

So my next question is that, can you elaborate on why -- like why PaaS and SaaS services revenues increased 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 PaaS/SaaS revenues, this model PaaS/SaaS revenues have -- can you hear me?

Yes.

Yes.

The third quarter PaaS revenues increased significantly because some business partners willing to pay more a platform fee for the future operation efficiencies improvement.

So that's our business partner's choice, you 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 uCloudlink's Investor Relations through the contact information provided on our website, or speak to our Investor Relations firm, Christensen Advisory.

We look forward to speaking to you all again on our next quarterly call.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.