uCloudlink Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 18, 2023

There are 5 speakers on the call.

Operator

Good day, and welcome to the UCloudLink First Quarter 2023 Earnings Conference Call. All participants are in a listen only mode. Mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Jillian Zhang, Investor Relations for Ucloud Link. Please go ahead.

Speaker 1

Thanks, everyone, for joining us on our Q3 2023 earnings call today. The earnings release is now available on our IR website at ir.uplrolinx.com and via newswire service. I will give a brief introduction to our Uplrolinx management team. Mr. Zhipin Peng is our Co Founder and Chairman of Board of Directors.

Speaker 1

Mr. Cao Hui Chen is our Co Founder, Director and Chief Executive Officer. Mr. Yiman Xu is our Chief Financial Officer. Mr.

Speaker 1

Chaohui Chen, our Co Founder and CEO, will begin with an overview of the company's recent business highlights, which will cover the earnings presentation posted on our IR website. Mr. Yimeng Shi, our CFO, will then discuss the company's operational highlights and financial results. 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 team'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.

Speaker 1

Also, forward looking statements are expressly qualified in their entity by the customary 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, as such as required by law. Please also note that Newclor Link's earnings press release and this conference call include discussions of non audited GAAP financial information and non audited non GAAP financial measures. Uclor Link's press release contains a reconciliation of the non audited non GAAP measures to the non audited most directly comparable GAAP measures. I will now turn the call over to our Co Founder and CEO, Mr.

Speaker 1

Chahui Chen. Please go ahead.

Speaker 2

Thank you, Jillian, and good morning, everyone. Thank you for joining us on our Q1 of year 2023 Earnings Call today. We appreciate everyone's time. We are pleased to start off 2023 with strong first quarter results, which is the first time that we achieved both positive net income and the positive cash flow generated from operations with growth in revenue since the outbreak of the COVID-nineteen pandemic. The average daily active terminals continue to be in an upward trend and reached a historic height of over 300,000 in this quarter as we continue to expand our global PaaS and SaaS ecosystem, reflecting the accelerated market demand for UCLARELYN's services across the global market.

Speaker 2

UCLARELYN 1.0 is our international data connectivity services business, which tends to be a higher margin NAND of business and has historically been one of our key growth drivers. During the Q1 of year 2023, new Clouding 1.0 business revenues increased 38.5% year over year to US7.8 million dollars We are delighted that our U Cloudy 1.0 business demonstrates significant growth as a result of accelerated international travel recovery across our major markets, particularly in Japan. We also have observed increased demand from our 1.0 Nonmi Main Business in Mainland China and Southeast Asia, which are historically strong markets with wide coverage of Nonmi Man brand. Average daily active terminals for U Clouding 1.0 business increased by 55.3% compared with the same period of year 2022, which indicates the significant growth of our business. We remain optimistic in our ability to further grow our uCloudy1.0 business, thereby solidifying our leading global position in the international data roaming solutions market, and we look forward to serving our users globally as the market continues to pick up.

Speaker 2

UClouding 2.0 is our local data connectivity services business, which focuses on local residents and solve challenges among the carrier. This business took off during the pandemic as we seize the opportunities in the local market by offering reliable local data connection services. Over the past 2 years, we continue to strengthen our presence in local markets, including Japan and North America, where we have operator and business partner improve their data connectivity services and resolve data connection problems through our past SaaS platform based on our patent technologies, including cloud and system and hypercom technology solutions. Our Uclouding 2.0 business reported US2.2 million dollars in revenues, up by 37% in the Q4 of year 2023 as compared to US1.6 million dollars in the same period of year 2022. We received recognition from business partners in established markets like Japan and North America and continue our efforts in expanding our PaaS and SaaS platform ecosystem.

Speaker 2

We expect our high quality reliable data connectivity services based on our innovative high current technology will receive more industry recognitions and applications, especially in the mobile and fixed broadband industry. We expect to launch more innovative, high count products, catering to the needs of a diverse set of mobile virtual operator and virtual mobile operators, business partners and individual customers in the near future. On the IoT on the Internet of Things IoT side of our business, we have shared updates on market application scenario support by our IoT module, including Wi Fi loader, IP cameras, etcetera, which have been welcomed by our customers in various markets for their competitive advantages. In Japan, we are actively working with our business partners to explore and expand application scenarios for the IoT business to further improve the data connectivity experience for their customers. At the same time, our team continues to leverage existing resources in the research and development to develop new Cloudy 3.0 business.

Speaker 2

The 1 stop mobile data traffic sharing marketplace application is planned to launch the first version in the near future, which leverages our assets in building scalable users based through our new Cloudy 1.0 and 2.0 models. This marketplace enable end users' devices to connect to available network anytime, anywhere, utilizing the Global Meet app new version. We remain confident in the market conditions ahead for the remainder of year 2023, And we're prepared to take advantage of the peak season of international travel during the summer. We believe our track record of delivering reliable and high quality data connectivity experience and our historic of introducing innovative products and solutions enable us to maintain a leading position in the international data connectivity services industry. We are always committed to continuous development of innovative solutions and plan to expand our cloud SIEM and high comm technology solutions to more application scenario.

Speaker 2

Our business aims to deliver value add services to our customers by continuously improving their mobile data connectivity experience, and we will continue to execute our growth strategies with our expanding portfolio of offerings. I will now hand the call over to our CFO, Mr. Yim Sheng.

Speaker 3

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the first quarter of 2023. Average daily active terminal DAP is an important operating metric for Equinix as it measures the trend of customer usage over the period, reflecting our ongoing business performance.

Speaker 3

In the Q1 of 2023, average daily active terminal were 304,000 and 121, of which 3,483 owned by the company and 300,638 owned by our business partner, up by 11% from 273,870 in the Q1 of 2022. The average DAT for our EucoLink 1.0 and EucoLink 2.0 business accounted for around 42.7% 57.3% of the total DATs, respectively, during the Q1 of 2023. Average daily data usage per terminal was 1.62 gigabytes in March 2023. Total revenue for the Q1 of 2023 were US18 $1,000,000 representing an increase of 15.3% from $15,600,000 in the same period for 2022. Revenue from service in the Q1 of 2023 were US12.9 million dollars an increase of 31.4 percent from US9.8 million dollars in the same period of 2022.

Speaker 3

Revenue from service as a percentage of total revenue was 71.7% during the Q1 of 2023, up from 62.9% during the same period of 2022. During the Q1 of 2023, Japan contributed 43.1%, North America contributed 33.6%, Mainland China contributed 5.1% and other countries and regions contributed the remaining 18.2% of the total revenue compared to 40.2%, 37.9%, 1.9% and 18%, respectively, in the Q1 of 2022. Overall gross margins improved to 47.8% in the Q1 of 2023 as compared to 37.4% in the same period of 2022. And our gross margins on service increased to 60.5% in the Q1 of 2023 from 49% in the same period of 2022. Excluding the share based compensation, our total operating expenses decreased to US6.9 million dollars or 38 percent of total revenues in the Q1 of 2023 as compared to US9.3 million dollars or 60% of total revenue in the same period of 2022.

Speaker 3

We realized net income of US2.1 million dollars in the Q1 of 2023, which represent a significant improvement on our bottom line results as compared to a late loss of US7.9 million dollars in the same period 2022. Similarly, adjusted EBITDA improved to US2.1 million dollars during the Q1 of 2023 as compared to negative $3,900,000 in the same period of 2022. We are pleased as this is the first time we achieved positive net income since the outbreak of COVID-nineteen pandemic, and adjusted EBITDA has remained positive for 3 consecutive quarters. We have achieved positive operating cash flow of US1.6 million dollars during the Q1 of 2023, which compared to USD4.4 million during the same period of 2022. We have significantly improved our bottom line in the Q1 of 2023 and have generated positive cash flow from operations for 4 consecutive quarters.

Speaker 3

Our strength in financial position enable us to execute our growth strategies. With that, operator, let's open it for Q and A.

Operator

Thank you. We will now begin the question and answer session. The first question today comes from Theodore O'Neill with Leachfield Hills Research. Please go ahead.

Speaker 4

Thank you very much. Can you hear me okay?

Speaker 3

Yes.

Speaker 4

Yes, good. Congratulations on the good quarter. I have three questions for you. The first on gross profit. I can see that the overall margin was better in the quarter because you had a greater mix of services.

Speaker 4

But I wanted to understand the margins got better on both products and services. Is that due to pricing? Or was there some efficiencies in the products?

Speaker 3

So we answer your questions 1 by 1. So you just raised the first question, right? Yes, regarding the gross profit, you will see we improved gross profit gross margins in the past quarters. So that's a massive improvement on quarter to quarter basis. For the service gross margins, it's improving depending on this mix of the service categories.

Speaker 3

So that's a mixture of the 3 categories, the main service revenues. 1 is the international roaming connectivity service, 1 is the local connectivity service and the pass and SaaS service. So the improving gross margins will reflect the proportions of the revenue generating from international roaming service and from past SaaS is growing faster than the low cost connected service. So that's where we get this the improving result of the gross margins improving over the past couple of quarters. So we look forward in the near future this year because the border has been opened up and is for most countries.

Speaker 3

So the people can move in cross border more freely than before. We expect there's more revenue will generate it from the nice and roaming connectivity service. So if roaming the proportions of international roaming service, it will be improving in the future. So we expect that overall service gross margin will be improving a bit at the least keep stables in the following quarters or this year. That's my opinion.

Speaker 4

Thank you. My next question is about the research and development expense. It says that in the prepared remarks that you had a decrease of $200,000 in testing and certification expenses. Can you give me some insight into how that number for testing and certification? I would have thought it would sort of go up and down with new products, but can you give us a little more sense of how that goes up or down quarter to quarter?

Speaker 3

Yes. I'll say the first half part regarding the decrease in R and D expenses. Our CEO may give some colors on the new product. Yes, it's a very we report that streamlines our operations the year 2021. And that's reflecting our overall headcount is decreasing compared with the year 2022.

Speaker 3

So the number of headcount has been cut off for some certain part for improving our operational efficiency. And so that's with reflecting on comparable basis. So our overall expenses expenditures have been decreases on year to year basis. And that's the similar story for this R and D functions as well. We invest a lot in the past couple of years.

Speaker 3

We invested a huge investment on research and development functions. So that supports our every year, we launch a different new product, new features and upgrade our platform as well. And so but we will still invest or leverage our R and Ds to support to develop a new product. So regarding the new product developments, our CEO will give some more color on that.

Speaker 2

Yes. And Tao Wei Chen. I'll add some comment because 2 years ago we have invested in R and D side. You can see we are lost 2 years ago, the heavy loss that's because we have invested in R and D side. So tier 5 gs, tier the headcount we finished all the development.

Speaker 2

Then we end of last year we start to control the cost and control R and D investment, but this did not impact our new product launch in these years. So in my presentation, I already tell some the truth. We will launch in near future for our Hypercom product. This will meet for mobile broadband and fixed broadband. This is a huge opportunity for the mobile broadband operator market.

Speaker 2

I think in the next quarter, we are prepared to launch this or around this time, we will launch this new series of new product in the Q2 and also the quarter. So we continue to have this high powered product launch to enhance high quality reliable quality because no matter physical bank or mobile operator, their network will face the failure. Once the failure happen, we can help them to improve the experience. That's a quite unique solution. We expand these hypercom connection product to expand to the different scenario for carrier and for cable carrier, fixed broadband carrier and mobile broadband carrier.

Speaker 2

And also we will launch some new product for 1 point of business to enhance the to meet a more convenient, more compact and the more compact and the 5 gs product leading tradition and both of these two directions and we will launch more new product to meet 1.0 fast growth market as well. And 4th, for IoT. So we will launch an IoT product to improve the reliable with a prior to high count this technology into an IoT product because we know that autopilot like a robot like this IoT technology scenario also need very high reliable connection. So in this high reliable connection, we do a lot of rescue. We hope in the coming quarter, we can give this good news to everyone.

Speaker 2

So basically, once the our growth of recovery from the pandemic, so I think our R and D will also keep very stable investment and also our new product, new solution because of historic investment and after this year, we will keep also strengthen our R and D investment. I believe we will get more good result and bright future for our hypercom cloud team.

Speaker 4

Okay. Thank you. And my last question is about accounts receivable. You've done a remarkable job of keeping receivables low relative to revenue. Is that primarily because the services are prepaid?

Speaker 3

Yes. I think the improvements on the balance account receivable depends on the coverage factors. Yes, we the first one is we pay more attention and effort on improving our business term as you say, mentions the prepay term and the credit term the short term credit term and some we have some more some bigger orders from this good credit customer as well. So that's the first I think the first contributor for the improving balance. And the second part, I think that we pay effort to collect the cash from some agents account receivables, some customers suffered this pandemic 1 years ago, 2 years ago.

Speaker 3

So now they recover gradually in terms of making profit or something, generate more cash flow from the business activities. So we have our efforts on cash collections have achieved a positive result that's helped reducing the improving the balance of the account receivables. And the third part is depends that we're selling more to individual customers via e commerce, via some our website. So this e commerce generate just a cash, prepare cash at all before they use our service. So this always varies as the contributors have our improving IR management.

Speaker 3

So we will also take this management in the futures. We'll maintain our maintain well cash positions. So we I expect our operating cash flow will be keep this positive trend in the following covers as of year. I think we will I believe we will achieve a better than last year's, not we expect, Yes.

Speaker 2

Yes. By the way, because our customer situation, the finance situation also is much better compared to during the pandemic. So they are all willing to assess our more better payment condition.

Speaker 4

Thank you very much. That concludes my questions.

Operator

The next question comes from Vivien Tsang with Diamond Equity Research. Please go ahead.

Speaker 1

Hello. This is Vivien Jiang with Diamond Equity. Congrats on the great quarter. Most of my questions have been answered, but I still have one left, which is regarding your new business, the mobile data traffic sharing marketplace application. Can you give us a specific update on this business and when do you expect it to be launched and generate meaningful revenue?

Speaker 1

Thank you.

Speaker 2

Okay. Yes. So because currently we are only majorly I think it's not only majorly we're selling both local international data. And this data is high quality and reliable cross carrier network. So that's currently our business majorly come from.

Speaker 2

But I know this industry we have people, they may be not willing to carry the extra MiFi. We have a glaucoma inside and also like eSIM, soft SIM. There are many kinds of technology, even their connection quality may not as good as our cloud SIM, but they have some advantage as well. For example, more convenient, no need extra MiFi. Then we couldn't wait for our cloud thing in the GMI gloComic inside in back to the handset.

Speaker 2

Even this year, our glaucoma Insights here on the progress, but we already developed our sharing marketplace this concept. So we will launch a marketplace. This marketplace contain several technology inside, not only including the physical SIM, cloud SIM, e SIM and also seeing the software SIM as well. Now we can provide all kinds of data connectivity and different advantage and the convenience and the price and high quality different competitive requirement data connectivity quality and convenient scenario product to meet the different users' requirement. For example, it's like iPhone.

Speaker 2

Now you can use our MiFi solution to provide a better connection for family use, smart people use and best quality network. But also you can embed our SoftSIM or our eSIM solution, then we can provide more users and we educate some people understand that the customer understand all their one stop can providing all kinds of technology. And this all kind of technology, at least 1 or 2 can meet your requirement. Then we can at least marketplace can help us. First, we will show demonstrate in our brand and our brand.

Speaker 2

Then we will copy this technology and this brand, this scenario to all our business partner. Then this become a marketplace and this will help us, I think, enlarge our user base because we are currently only 20% or 30% people know us, another 70% or 80% haven't used our technology. With new launch of this version of the marketplace, we will cover all the requirement of the users. This help us and help our partner to meet all the requirement of the user application. So help us acquire a huge base of the user base.

Speaker 2

That's our first version of we will launch in near term for this marketplace app, Glaucoma app first and then we will copy this one to our partner. That's our initial plan.

Speaker 1

Okay. That makes sense. Thank you.

Operator

The next question comes from Saffin Li with China Great Wealth Securities. Please go ahead.

Speaker 1

Hi. Yes. I'm Safeng Li from China Great Wealth Securities. And can you hear me?

Speaker 2

Yes.

Speaker 1

Okay. I have a small question about SaaS and parts sector because like from the report of our Q1, the revenue of parts and SaaS did not like grow much from the year on year or quarter to quarter. So what's the plan and also the outlook for the whole year on this sector? Because I feel this is also the main focus of our company and I want to know about what's our plan for the path in the like the clients expand or the technology development in this sector? Thank you.

Speaker 3

Okay. Thank you. I first answer these questions and then I may say, also you will give some more supplementary. Yes, for the Q1, there's ERS, we it seems that the past half revenue is still growing compared with last year's small percentage growth by 3.7% growth compared with the same period last year's. But underlying this figure, our daily activities terminal has achieved historical highest over 300,000.

Speaker 3

And you will see our revenue service revenue generated from 1.0 to 2.0 increased massively compared last year's For example, the international roaming service growth over 38.5% over the last years and ukulele 2.0 grows 37% over the last years. So in our business models, our PASOST play a central platform to build out a global ecosystem to support our global business partner to provide a better high quality connectivity service either to roaming, international roaming or to a local wristbands. So this gives us more flexible business model with our partners. So our partners have options either to pay a pass up service to us and they supply their data from their own resource. Or they can choose buy from the data packet from Eucole Link and then we provide the SaaS function to support their provider service to their customers.

Speaker 3

So we will treat this overall service package in the one pool to view our growth trend. So in the future, we give this option flexibility to our business partners. So for this, in the futures, we expect we disclose our guidance as well. So that guidance give us a growth, it trends around 20 something to the guidance $85,000,000 to 100,000,000 dollars of revenues. In this guidance, I think the overall growth will give us a message, pass us and in a 1.2.0 business will be growing as well in this guidance.

Speaker 2

Yes. Okay. So I have more comment because initially recovery from the international travel from the COVID-nineteen is step by step. So at this stage, our partner, they prefer to use our data then immediately increase their past SaaS capacity. So that's the reason I answer why our traffic, data traffic increase a lot, but platform no increase such frequently that's because of the reason I mentioned first.

Speaker 2

And personally I believe that once the Q2 or Q3 the recovery from China, Japan, all these Southeastern Asia countries for international loan business become stable and recovery more apparently and more significantly. I think some part of our data we are transferred to be a past SaaS increase. So that's the reason. Personally, I believe for the past SaaS for 1.0 business, Following the quarter we keep continued increase. That's the 4th part.

Speaker 2

And second part I just mentioned because currently our new solution we will launch this new solution for mobile broadband, fixed broadband for high series new product in the Q2 and Q3. This will bring a lot of the past SaaS revenue for us as well in the following quarter. And also for IoT, I think IoT we have some a lot of the bigger customer now on the way. So if this customer we acquire, I think the past SaaS will be increased as well. Finally, so I mentioned our marketplace our first new version we have been launching in near term.

Speaker 2

And also once we copy this new model to our partner also we bring the past size increase. And I think especially for high comp for mobile and fixed broadband carrier, this carrier majorly is operator. They are preferring our pass SaaS solution. Follow these solution for the Hypercom for fixed solution once achieved adopt by more and more carrier, I believe the pass and SaaS in our revenue will increase a lot. That's the general information.

Speaker 1

Okay. That's very clearly that makes sense.

Operator

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

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact UclorLink's Investor Relations through the contact information provided on our website or contact our Investor Relations firm, The SG Group. Look forward to speaking to you again on our next quarterly call. Thank you.

Speaker 3

Thank you. Thank you.

Speaker 2

Thank you, everyone.

Operator

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker 3

Thank you. Bye bye.

Powered by Quartr
Earnings Conference Call
uCloudlink Group Q1 2023
00:00 / 00:00