uCloudlink Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 15, 2023

There are 6 speakers on the call.

Operator

Hello, and welcome to the UCloudLink Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would like now to turn the conference over to Jillian Ziyang.

Operator

Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining us on UclorLink's Q3 2023 earnings call. The earnings release and our earnings presentation are now available on our IR website at ir.uclorlinx.com. Joining me on today's call are Mr. Jiping Peng, our Co Founder and Chairman Board of Directors Mr. Cao Hui Chen, our Co Founder, Director and Chief Executive Officer and Mr.

Speaker 1

Yimeng Shi, our 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 Q3 of 2023.

Speaker 1

They will all be available to take your questions in the Q and A session 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 their entity by the contrary statements, risk factors and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forward looking statements as a result of new information, future events, trends, in market conditions or otherwise, except as required by law.

Speaker 1

Please also note that Ucore Link's earnings press release and this conference call include discussions of non audited GAAP financial information and non audited non GAAP financial measures. Uco Link's press release contain a reconciliation of the non audited non GAAP measures through the most directly comparable non audited GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Speaker 2

Thank you, Jillian, and good morning, everyone. Thank you for joining us today. We appreciate everyone taking time. We delivered another strong set of results during the quarter, highlighted by a 31% year on year increase in total revenues to US20.9 million dollars and a 6 consecutive quarter of positive cash flow from operations. Average daily active terminals, our key operational metrics, increased once again to a new all time high of over 320,000.

Speaker 2

This was a well run performance across our entire business. During the quarter, we continued to consolidate and develop our Uclaring 1.0 international data connectivity services, driving an excellent performance in this segment. Total revenues from Yucharli 1.0 International Business increased 42.7 percent year on year to US11.4 million dollars The recovery of the international travel is creating significant tailwinds for this business with growth from Japan and Mainland China as significant growth drivers during the quarter. While Chinese outbound travel remains soft, Chinese international travelers during the peak summer holiday season increasingly chose to use our Longmin Main brand services and are accounting for a growing share of our international data connectivity services. Because of lag, revenues from Mainland China increased to 7.2% of our total revenues during the quarter, as compared to 2.4% during the same period last year.

Speaker 2

This strong performance was enabled by the continuous development of our technology, products and services offerings, and value add services. During the quarter, we consolidated our leading position as a 5 gs roaming solution provider as cross border travelers continue to discover our 5 gs portable Wi Fi terminals, 5 gs terminal packages and unparalleled user experience they are providing. 1 of our most popular mobile Wi Fi devices is now equipped with an artificial intelligence services assistant, especially provide for Chinese cross border travelers, means that our products are not just data traffic connectivity terminals, but also intelligent travel assistance. We launched a Gokomi SIM card, which currently offers coverage across 10 high demand travel destinations and a GPS tracker enabled portable Wi Fi terminal that we believe is currently a smallest of its kind in the world. In addition, we pilot an eSIM solution in October year 2023, which will enable us to satisfy a wider range of data connectivity needs from our customer side.

Speaker 2

Taken together, we believe our high margin Uclouling 1.0 business will remain a key driver of our business as a long term recovery of international travel continues. We are confident that our expanding and upgraded portfolio of products and services will help us and our business partners achieve further market share gains and enhance our leadership in the international data roaming business. We are working on expanding from data connection to more daily live application scenario by enriching our portfolio of business. Our Internet of Things IoT solution are key part of this strategy. And during the quarter, third party devices utilizing new clouding's cloud same technology powered by IoT solution went to the market in Japan.

Speaker 2

Besides embedding our IoT module in the 3rd party devices, we also expect to cooperate with major IoT module manufacturers on integrated cloud SIEM technology. We also continue to conduct commercial testing of our high performance 5 gs customer premise equipment, CPE, which we expect to launch in the near future. The upgraded CPE provides home and office Internet connection, led connectivity between the fixed and mobile networks, make it a reliable substitute for traditional fixed broadband offerings. We believe this new offering will bolster new clouding positions in the fast growing market for home and office Internet connectivity, helping us expand our user base and gain additional market share in the fixed broadband market. In addition, we launched retail sales of our GPS enabled portable Wi Fi terminals in Hong Kong during this quarter, which marks the beginning of our new efforts to provide more daily live services.

Speaker 2

We believe these GPS enabled devices will become an indispensable assistant in consumers' daily lives, offering an easy way to keep track of personal belongings, monitor the location of family members, including elderly relatives, kids and pets. As I mentioned before, our offering include cloud SIM products, the glocalme SIM card and an eSIM solution, and we plan to launch various hyper connectivity solutions compatible with cloud SIM, soft chip and eSIM technology in the future. To sum up, we believe our new offerings open up a new range of application scenario for our solutions and hold significant long term growth potential. Many of these solutions are designed to generate no GAAP revenue from sales products and data connectivity services, but also PaaS and SaaS revenue that recur on a monthly, quarterly and annual basis. Our team is working diligently to expand our offering to serve a broader customer base and a wider variety of user use cases.

Speaker 2

We also believe that we are well positioned to create a mobile data traffic sharing marketplace that redefines the mobile data connectivity experience. All of our efforts are geared towards reinforcing the competitive advantages that will facilitate the development of this marketplace. Our growing user base, our extensive relationship with global mobile network operators and our innovative technologies. We will continue building out our offerings and working toward our objective of enabling everyone to enjoy a more intelligent and convenient life through reliable and high quality data connections. For the Q4 of year 2003, new clouding expects total revenues to be between US22 $1,000,000 and US262 $1,000,000 representing an increase of 12.2% to 33.7% increase compared to the same period of year 2022.

Speaker 2

I will now turn the call over to Mr. Shi.

Speaker 3

Thank you, Mr. Chen. Hello, everyone. I will now walk you through our operational and financial highlights for the Q3 of 2023. Our daily active terminal, BAT, measures customer usage trends and reflects the overall performance of our business.

Speaker 3

In the Q3 of 2023, average daily active terminal was 325,078, up by 9.3% from the same period of last year and composed of approximately 12,000 owned by the company and 313,000 owned by our business partners. The Equally 1.0 and Equally 2.0 business accounted for around 50.4% 49.6 percent of total DAT, respectively, during the Q3 of 2023. Average daily data usage per terminal was 1.56 gigabytes in September 2023. Total revenue for the Q3 of 2023 were US23.9 million dollars representing an increase of 31% from US18.2 million dollars in the same period of 2022. Revenue for service were US16.6 million dollars an increase of 31.9 percent from US12.6 million dollars in the same period of 2022.

Speaker 3

Revenue from service as a percentage of total revenue was 69.7%, up from 69.2% during the same period of 2022. During the Q3 of 2023, as a percentage of our total revenue, Japan contributed 44.2%, North America contributed 26.3%, Mainland China contributed 17.2%, and other countries and regions contributed the remaining 12.3% as compared to 35.1%, 41.5%, 2.4% and 21%, respectively, in the same period of 2022. Revenue from Mainland China increased significantly, primarily driven by Chinese traveler using Romyman Brown service as a key increasingly resumed outbound international travel. Overall gross margin was 51.2% in the Q3 of 2023 as compared to 47.7% in the same period of 2022. Gross margins on service was 55.9% in the Q3 of 2023 as compared to 37.9% in the same period of 2022.

Speaker 3

Excluding share based compensation, total operating expenses were $8,700,000 or 36% of total revenue in the Q3 of 2023 as compared to US7.3 million dollars or 40% of total revenue in the same period of 2022. We record net income of US3.5 million dollars in the Q3 of 2023 as compared to a net loss of US4.6 million dollars in the Q3 of 2022. Adjusted EBITDA, non GAAP, improved to US4.1 million dollars during the Q3 of 2023 as compared to US0.9 million dollars in the same period of 2022. We achieved positive cash operating cash flow of $2,800,000 during the Q3 of 2023 as compared to $1,200,000 during the same period of 2022. We successfully achieved positive cash flow from operations for 6 consecutive quarters, accumulating operating cash flow inflow of US16.7 million dollars through the previous 6 quarters.

Speaker 3

In sum, our financial performance continued to improve during the 3rd quarters and we believe that we are well positioned to execute on our strategy's growth initiative. With that, operator, let's open up for Q and A. We

Operator

will now begin the question and answer session. The first question comes from Vivien Zhang from Diamond Equity Research. Please go ahead.

Speaker 4

Hello. This is Vivien Zhang with Diamond Equity Research. Congrats on the strong quarter. Here are my questions. First, could you elaborate on what drove the margin expansion in the quarter, particularly margin on products sold?

Speaker 4

Was it a price increase or product mix? And is this trend sustainable? Thanks.

Speaker 3

Thanks, Vivi. I'll answer your first question regarding the improvements on gross margins. As you see, the overall service margin improved a lot compared to the same period last year. The major contributions came from the sales of products, the mix of sales products. So, there's improvements on the sales products that contribute overall for this quarter's gross margins.

Speaker 3

For service, gross margins is a similar level, a little bit fluctuations compared with the same period last year. So, looking forward, as we can expect the recovery in the national travels resumes in the following years. So we and international connectivity service gross margin is one of our highest gross margins in our categories. So, we expect this service gross margins will keep this to similar high level in the Q4 of this year. And for sales products, it depends on the mix of product selling to the customer.

Speaker 3

That's within this sales product gross margins, whereas will be carry ons depends on the mix of product selling. Thank you.

Speaker 4

Okay, got it. Thank you. My second question will be about the newly launched products. Can you share with us more information about the portable Wi Fi terminal and how you expect this new product to drive the company's growth?

Speaker 2

Yes. So first, I think our it's launched 5 gs this year's 5 gs product this year in the last quarter, so in Q2. So quite successful. And this is the world leading 1st 5 gs global roaming free roaming high performance Wi Fi. This helped us achieve quite a good market share because currently, there's almost only one portable Wi Fi available in this market for global roaming.

Speaker 2

That's first. And second, we launched a smallest like a business card size portable WiFi. This portable WiFi can enhance our market position in the international business because we can combine our big WiFi and smaller WiFi together, provide more flexibility to meet the very need of the family package. For example, the family several family members, they can use one package for a big device or you can independently use the smaller device. So that means get more attractions and give users more flexibility.

Speaker 2

That's the second product we launched in the Q3. Another product, for example, we provide artificial intelligence into our WiFi. That means for Chinese traveler, they are hard to use like a channel GPT. Like a channel GPT in China is difficult and because we need a foreign number to register, etcetera. This barrier is there.

Speaker 2

With our solution, we're working with this service provider, provide artificial AI into our MiFi. And then our user travel from China to outside to the world, they can use the China GBT so freely. So I think that can enhance our service ability. By the way, so we also provide more SIM card business because I know that many people they are no even the portable WiFi can provide the best connection, but some users still want to use a simple solution, not willing to carry extra device. For this scenario, we provide a SIM card business for them, and our SIM card business can download different countries portfolio, and also combined with our cloud SIM enable these devices only with the SIM card they can free roaming in more than 10 countries.

Speaker 2

I believe in the following quarter, we were providing more countries. And this will meet more customer need for more convenience for people who are now willing to bring extra device. So I think all by the way, also our solution now can integrate more services in the future, like in our G40, integrate more like artificial, like car calling and these kinds of services can help Chinese and foreigners more easily, more convenient during their travel. So all this is a product for our 1.0 business. And also, we launched 4 gs and 5 gs CPE.

Speaker 2

4 gs already launched in the world the first high reliable CPE. This can help the fixed network become more reliable. No matter the fixed network, how reliable, there are some areas in the years, Erie, There are some broken, some drop. We can use the multi mobile network to enhance, to guarantee, provide a more strong backup or disaster recovery for fixed network. That's our quite unique solution for fixed mobile broadband.

Speaker 2

And this also help us to consolidate always the better connection brand and services. And the final one, we also launched our cloud SIM into IoT service like in Japan announced. And also, the more and more module and understand our value for the cost carrier and also the global roaming fee. And this can provide all of these smart device internationally and locally get the best reliable connection. That's basically for smart intelligent device.

Speaker 2

This market share also solutions get more and more attraction for the end users. So all these 5 new products and solutions, I believe, not only can enlarge our market share in 1.0 business. You can see we already win the market share compared with before COVID-nineteen. Our market share for Mi5 rental business in China is higher than year 2019. So even in China, the recovery of the international business is soft.

Speaker 2

It's not so it's so as quick as we expect, around 30% of recoveries so far, but we still get achieved a big market share and good result. Thank you. That's my answer.

Speaker 4

Okay, okay. That makes sense. Thank you so much for the detailed information. That's all my questions. That's all.

Operator

The next question will come from Theodore O'Neill of Litchfield Hills Research. Please go ahead, Theodore.

Speaker 5

Thank you. Thank you very much and congratulations on a strong quarter. My first question is about the growth rate of terminals versus data. So the terminal growth rate was strong at 9.3% in the quarter, but the total data consumed was less than 1%. Should those two things be related?

Speaker 5

Does it have any meaning that one is much larger than the other?

Speaker 3

Hi, thanks for the questions. Let me first explain a bit for the 2 metrics. Yes, you mentioned the metrics is daily active terminal, right? The daily active terminal, we achieved a new highest of over 320,000. Compared with last year, this figure has increased by about 9.3%.

Speaker 3

It seems not very significant growth, but our revenue generation is quite strong compared with this growth rate in terms of daily active terminal. That means, yes, daily activity is a very important operation metrics. We give our hands how whether our user, our partner use how much of the terminal to generate revenue. So, the revenue generation is quite reliant on the usage of our terminals to provide better connections. So, that's a strong indication of how revenues generation and growth in the future.

Speaker 3

So, that figures tell us in the future. In this labor, 320,000 that's the daily Epi terminal support our generated revenue in a very fast growth pace. So we are that's why we developed more new product to satisfy customers' requirement. So more products as described by our CEO, Mr. Chen.

Speaker 3

So this new product will belong to the market and will support our more active terminal in the market. So our service revenue will grow as well when we the active terminal growth.

Speaker 5

Okay. Okay, I understand. The next question is about the IoT. Okay, so in your prepared remarks, you've talked you're talking about the expanding number of 3rd party devices powered by IoT solutions in Japan during the quarter. Is there any particular end use application for those IoT or is it broad based?

Speaker 2

Yes. IoT, I think, for Japan case is achieved by a partner. They apply this solution for the end user. So for the router, try to enhance the reliable of the network connectivity. Potentially, it's big.

Speaker 2

So that's the 4th phase launch. We believe that we are launching more bigger scale in the future. And that's for the IoT, in Japan case. And also, I just mentioned, we embed our solution into the module manufacturer. That means our cloud sync technology in into the module manufacturer achieve progress.

Speaker 2

And I think as more and more module provider embed our Gokomi inside, so I believe this smart module is through a SIM card inside and we provide better connection, more network connection and worldwide connection for this smart device. And that is become more and more a strong need, I understand, for this smart device, for example, like smart car, like this smart charger, power battery, smart power battery, They are worldwide shipped to the worldwide, but they need to be monitored. They are this factor and their performance. So I think we provide this best connection and also the very competitive connection. And that's why I believe in this part and in the next year and in the following years, we will achieve the big number of connections.

Speaker 5

And my last question is about cash balance. You're building a good sized cash balance here. I wonder if you have plans for acquisitions or dividend or similar?

Speaker 3

Yes, you see as we launched, we achieved a positive cash flow from operations for 6 consecutive quarter. So, accumulating operating cash inflow of RMB 16,700,000 dollars through the previous 6 quarters. So, our cash balance now is over US20 $1,000,000 So, that's yes, we achieved in terms of gross rates is quite good. We expect we'll keep this trend to generate more cash flow from operations to further improve our financial positions. That's our we want to have enough cash balance to support the company to grow and expand in the future.

Speaker 3

So far, we don't have the target to allow us to do some acquisitions, this kind of thing. So, we still focus our performance generate more cash flows to enhance our supply chain position. That's my answer to your question.

Speaker 2

Thank you very much. Yes, I think I believe so. I think our business, 1.0 and also the following new product launch, I believe we will generate more revenue of our cash. That's a good business. So and we are first is try to make the company more stronger, more healthy, 1st step.

Speaker 2

And the second also we consider any potential opportunity in the future. So we're just in consideration, but I think the first step is make the company more stronger, more healthy. That's our preferred thinking.

Operator

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

Speaker 1

Well, thank you once again for joining us today. If you have further questions, please feel free to contact UclorLink Investor Relations through the contact information provided on our website or contact our Investor Relations firm, Christensen Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

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Earnings Conference Call
uCloudlink Group Q3 2023
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