uCloudlink Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 16, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the UCloud Link Group, Inc. 2nd 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.

Operator

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

Speaker 1

Thanks, everyone, for joining us on our Q2 2023 earnings call today. The earnings release is now available on our IR website at ir.uflorlinx.com and via news web services. I will give a brief introduction to our UCLAR Link management team. Mr. Jiping Peng is our Co Founder and Chairman of Board of Directors Mr.

Speaker 1

Chaohui Chen is our Co Founder, Director and Chief Executive Officer. Mr. Yimeng Xu is our Chief Financial Officer. Mr. 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 iHeart website.

Speaker 1

Mr. Yimeng Shi, our CFO, will then discuss company's operational highlights and the 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'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 customary statements with factors and the details of the company's filings with the SEC.

Speaker 1

The company does not assume any obligation or 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. Please also note that uclor Link's earnings press release and this conference call include distortions of the non audited GAAP financial information and non audited non GAAP financial measures. UcoLink'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. Chahui Chen. Please go ahead.

Speaker 2

Thank you, Julien, and good morning, everyone. Thank you for joining us on our Q2 year 2023 earnings call today. We appreciate everyone's time. We were pleased to have achieved positive cash flow from operations for our 5th consecutive quarter. During the quarter, we reported strong top line growth with total revenues of $22,000,000 a 21.9% increase from the prior year period and average daily activity active terminals continues to increase and once again reached a record high over 310,000.

Speaker 2

During the Q2 of year 2023, revenues from UCLOUDING 1.0 International Data Connectivity Services business, we call UCLOUDING 1.0 Business, increased by 32.5 percent year over year to US9 $1,000,000 and average daily active terminals from new Cloudy 1.0 business increased by 57.7% year over year, primarily as a result of the recovery in international travel, while outbound travel from China remained somewhat limited in the first half of year twenty twenty three. Chinese tourists utilizing Longin Main brand services still have contributed an increasingly considerable amount to our international data connectivity services. Our unique 5 gs portable Wi Fi terminals and the various data traffic packages from 4 gs to 5 gs are widely recognized by the market for the ability to elevate the users' experience across a broader audience, which will enable us to maintain our leading positions in the global roaming market. I'm pleased to share a few recent developments in our 1.0 business. In July year 2023, we launched the Glocomi SIM Card.

Speaker 2

This SIM card is backed by our patent Cloud SIM technology, which allows our customers to freely purchase and use multiple global data plans as needed. As of launch, this global midstream cover 10 major destination countries, including Japan, the United States, Australia, and we expect to gradually expand its availability to additional countries and regions. In addition, we are launching a pilot sales of a GPS tracking enabled roaming portable WiFi terminals that we believe will be the smallest one in the world. The innovative product range cover, portable WiFi, GPS tracking enabled roaming terminals and the glucomi SIM card add to our ever expanding ukali 1.0 business portfolio of operators, through which we have a global user base achieve a leading 0 roaming experience in various application scenarios to satisfy their cross border data demands, driving comprehensive competitive advantages that enhance our business performance. We remain optimistic about the prospects of Ucloulin 1.0 business and believe that this higher margin business will continue to serve as a key growth drive into the future.

Speaker 2

Uclouin 2.0 local connectivity services business, we call Uclouin 2.0 business, maintained continuous development, which report US2.2 $1,000,000 in revenues, up by 23.1 percent from US1.8 million dollars in the Q2 of the year 2002. During this quarter, our upgraded customer, premise equipment, CPE, was healthy commercially. This product enabled a seamless transition between fixed and mobile network 7.7 as a substitute for traditional fixed line broadband, substitutable for home and office Internet connection use. We are confident that the upgraded CPE will allow us to further gain the market share in the fixed broadband we call FPD market. What I discussed just now outlines our data connectivity services business.

Speaker 2

I would like to highlight Ucloud Link's PaaS and SaaS solutions, which is a line of business where we see great potential. On the IoT side, UCloudLink's IoT module will begin to be commercially embedded into the devices of a major mobile network operator in Japan within year 2023, making a significant expansion into IoT application scenarios. Adding to the embedded IoT module, the GPS embedded IoT module, the GPS tracking enabled roaming portable Wi Fi terminals and upgraded CPE. This offering will generate recurring PaaS and SaaS services revenues apart from data connectivity services revenue and sales of products. We look forward to applying our PaaS and SaaS solution to provide additional services, including customer management services, emergency and security communication services and the CPS tracking services, among the others, expanding our user base and application scenario and are contributing to the growth of our revenues.

Speaker 2

During the quarter, we continued to prepare for the full initiation of our 1 stop comprehensive marketplace app, a centralized platform application that allows users to assess our full portfolio of services. We believe that we are approaching the launch of 1 step marketplace app, which will enable us to attract more users and customers beyond their users beyond the users of portable WiFi step by step. We remain confident in our team's capabilities to launch the APP in the near term. In conclusion, we were pleased with the progress we have made in our growth initiatives as well as the improved financial results we have achieved in the first half of the year. We are pleased to be at the forefront of the innovation and expect to continue expanding our portfolio of offerings based on our innovative cloudSIM technology and the high power solutions, which demonstrates our strong research and development capability, laying a solid foundation for future growth.

Speaker 2

For the Q3 of year 2023, U Clariant expects total revenues to be between $23,500,000 to $24,500,000 representing an increase of 29.1 percent to 34.6% compared to the same period of year 2022. We will continue playing a significant part in integrating high quality data connectivity experience into various life scenario. And we believe that our solutions truly enable our customers and users to live a more convenient and intelligent life from connected to the better connection. I will now turn the call over to our CFO, Mr. Yimun Shen.

Speaker 3

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the Q2 of 2023. Average daily active terminal, DAT, measured the trend of customer usage over the period, reflecting our ongoing business performance.

Speaker 3

In the Q2 of 2023, average daily active terminal was 318 1,778, of which 7,386 owned by the company and 311,000 and 392 owned by our business partners, up by 9% from 292,432 in the Q2 of 2022. The average DAT for our Yupalik 1.0 and Yupalik 2.0 business accounted for around 46.4% and 53.6% of total DAT, respectively, during the Q2 of 2023. Average daily data usage per terminal was 1.59 gigabytes in June 2023. Total revenue for the Q2 of 2023 were US22 $1,000,000 representing an increase of 21.9 percent from US18 $1,000,000 in the same period of 2022. Revenues from service were US14.1 million dollars an increase of 25.2 percent from US11.2 million dollars in the same period of 2022.

Speaker 3

Revenue from service as a percentage of total revenue was 64.1%, up from 62.5% during the same period of 2022. During the Q2 of 2023, as a percentage of our total revenue, Japan contributed 43%, North America contributed 29.5%, Mainland China contributed 11.6% and other countries and the region contributed the remaining 15.9% as compared to 38.1%, 39.2%, 1.4% and 21.3% in the same period of 2022, respectively. The revenue from Mainland China increased significantly, primarily due to the recovery of international travel from the Chinese tourists uniting Romimeng brand service. Overall gross margins was 44.9% in the Q2 of 2023 as compared to 44.1% in same period of 2022. Gross margins on service was 58 percent in Q2 of 2023 as compared to 56.2% in the same period of 2022.

Speaker 3

Excluding share based compensation, total operating expenses were US7.3 million dollars or 33 percent of total revenue in the Q2 of 2023 as compared to US7.3 million dollars or 41 percent of the total revenue in the same period of 2022. We largely lost significantly to US0.9 million dollars in the Q2 of 2023 compared to a net loss of US6.3 million dollars in the Q2 of 2022. Adjusted EBITDA, non GAAP, improved to US2.1 million dollars during the Q2 of 2023 as compared to negative $1,000,000 in the same period of 2022. We achieved positive operating cash flow of $3,400,000 during the Q2 of 2023 as compared to US2.5 million dollars during the same period of 2022. We successfully achieved positive cash flow from operations for a 3 consecutive quarter, accumulating operating cash flow of US13.9 million dollars through the five periods.

Speaker 3

In the Q2 of 2023, we continued to improve our financial performance, and we believe that we are well positioned to be executed on our growth initiative. With that operator, let's open up for Q and A.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Theo O'Neill with Litchfield Hill Research. Please go ahead.

Speaker 4

Thank you very much. My first question is about product sales in the quarter. They were up sequentially from the Q1 quite a bit. Is there a particular reason for that strength in Q2 versus Q1?

Speaker 3

So your question regarding the 2nd quarter revenues compared with the Q1 of this 2023, that's your

Speaker 4

Yes, but only for products, not services. Just the product strength growth was strong in Q2 versus Q1. I was just wondering if there was something going on in Q2 for products that was different from Q1?

Speaker 2

Yes. So I think two reasons this happened. 1 is because of COVID-nineteen is over all over the world, including China, Japan, Southeast Asia. So the Q1 just for China, the Q4 just opening. So everything still is now a fast growth.

Speaker 2

And that's why the first reason is because COVID-nineteen is over. And the second is the worldwide of our customer prepare for summer season. So these two reasons met the equipment

Speaker 3

growth.

Speaker 4

Okay. My next question is about the GPS tracker enabled portable terminal. Is that having a GPS tracker inside the terminal, is that to prevent theft? Or does it does the GPS info feed into the SIM card selection?

Speaker 2

Sorry, can you repeat your question?

Speaker 4

Yes. The GPS tracker enabled portable terminals. If you is a GPS tracker in there, is that to prevent the terminal from being stolen? Or does the GPS the information from the GPS feed into the SIM card selection?

Speaker 2

Yes. Let me answer. We just newly launched a new product in the Q2. So I think it's a smaller volume launch. And you can it's very small, tiny, about 40 gram.

Speaker 2

Weight, around 40 ks like smaller than business cards, smaller than business cards. So it's convenient, the smallest portable WiFi and the multi function with the GPS tracking, SOS function. Why we launched this kind of product, that's because we try to let people understand not only for connection, because our marketing network cloud same technology and the hypercom will enable people get a better coverage. So these technology not only we can apply into the connection for better connection, but also because of better connection, we can enable people to find lost goods much easier because we get a better coverage. All the lost all the GPS information is easily to be via our 4 gs send back to the server and let the people can find those material or the people who lost and easy to SOS for get upset get ask ahead.

Speaker 2

So that's the reason we are now expanding our business from connection to be that the people who need better courage and need this tracking and health requirement.

Speaker 4

Thank you very much. That completes my questions. Thank you.

Operator

Our next question comes from Vivien Tseng with Diamond Equity Research. Please go ahead.

Speaker 5

Hello. This is Vivien with Diamond Equity Research. Congratulations on the nice quarter. I have two questions for you. First one is about operating expenses because in the quarter, the research and development expenses decreased by like over 36 percent, while sales and marketing expenses increased over 40%.

Speaker 5

So can you explain why this happened? Does this mean that the company spending will be focused more on the marketing side?

Speaker 3

Yes. Yes. You have the figures tells how we manage our headcount relevant cost and also the other business driven expenses as well. Yes, for R and Ds, we're managing tightly on the increased headcount. Even this year, we expect the business activities increasing and the revenue will grow.

Speaker 3

We're managing this program under the tight cost of control measures. So R and Ds, the headcount is not increasing as we revenue growth expectations. But on other side, as you saw, our sales at the Matthews sectors expensive compared with last year period increasing. This came from 2 drivers. 1 is the sales guide, the headcount sales guide increases compared to last year's.

Speaker 3

As we explained in the ER, Romimans brand service contributes a lot of revenue for Chinese other bond tourists. So our headcounts for the China maintenance business increased. But all this headcount increase is under our budget. And so that's reflecting our growth and we control our budget in line with our growth activities.

Speaker 2

Yes. Let me add more 2 more comments. I think our Q2 major revenue still come from our traditional product, but especially for our 5 gs product. That's quite popular because we are the only one currently launched 5 gs worldwide connection. This is quite popular and generate good revenue.

Speaker 2

But more than the traditional product, in the Q2, we launched 3 new products. That means our R and D capabilities is very stronger. So we can in 1 quarter launch 3 new products and this new product just end of the second quarter. And I think in the next two quarters and the next year, we have us win more revenue and the users. These three products, I think, you can see is about our global mixing, 1st.

Speaker 2

And second is our high reliable CPE, upgrading CPE and then can enable enterprise office and home to get a high reliable network to secure their fixed network no drop for disaster recovery. So and then the last one we just launched, smallest car size tracking and the Wi Fi product. And this product can go to the daily life of people. So all these 3 new products I think demonstrate our R and D has a very strong capability even during the last painful years we still can launch our new product in the Q2. So I believe this new product I just mentioned can in the following quarter and the next year, we are generating more revenue and users for us.

Speaker 2

Thank you.

Speaker 5

Okay. Okay. Understand. So next question is that could you elaborate on the like what drove the company's revenue growth in China and your products and growth strategy there, because I see the proportion of our revenue from China increased a lot this quarter. Can we expect this growth momentum to continue?

Speaker 5

Thank you.

Speaker 3

Yes. We as we disclosed the 3rd quarter's guidance, the growth rate is will be go to 30% around compared to same period of 2022. We expect this peak season for some holiday and same for Chinese outbound tourists. So there's some holiday is peak time for our years for this year. So we expect the growth momentum came from the international travel, this pickup time.

Speaker 3

So that's the main still a driver for our gross revenue in the 3rd quarters. And also, we'll contribute our improving our service gross margins and contribute to our stronger financial position in terms of operating cash flow and this adjusted net income.

Speaker 2

Yes. So I still add more to comment. The first, we can see the report from the government. The first half years of China outbound tourists only recover 30%. So you can see the smaller compared years before COVID-nineteen, only 30% recovery.

Speaker 2

So people the government forecast during the next holiday like National Day, we'll be go to the 50% around this figure, almost another bigger growth. Another reason we understand because of the visa issue and passport issue during the COVID-nineteen. So we haven't seen a big increase from the Chinese people. Even these smaller percentage already give us a good revenue. We believe that once the visa program and passport program and opening of the foundry become more I think this barrier was overcome, I believe in the Q3 and Q4, we will get a much better revenue from the China market for non main brand.

Speaker 5

Okay. That helps. Thank you. That's all my questions.

Operator

Our next question comes from Zunmi Lee with Great Wall Securities. Please go ahead.

Speaker 6

Hi, this is Sifang from Great Wall Securities. And I have a question about the parts and parts services because we see the revenue of this part like doesn't have obviously increased compared to the Q1. So I want to know the maybe the process of this partner and staff service development at this time, yes?

Speaker 3

Yes. So you see, we are in the Q2 of 2023, our service revenue segment increased significantly with a mix of 3 main types of revenues: international roaming connectivity service, local connectivity service and a hot sauce service. Among the 3 categories, raw meat service is increased number 1 in terms of growth rate. And parts of us is 3rd place in terms of growth rate is growth. As we report, our daily terminal in the second quarter reached historical recall highs and more over 300 and 10,000.

Speaker 3

So that's our foundation to reflect our growth foundation activity is growing. Why is this post office revenues growth rate is in 3rd place? It depends our monetized business models. We have 3 main business models. 1 is the B2C retail business model and the 2nd is B2B2C wholesale business model and the third one is PopSox platform.

Speaker 3

So it depends as our business partners choose which business model is suitable for them. So you will people choose B2B2C wholesale business model in roaming sectors. So we will have a more roaming service generated from this commercial term. We don't we sometimes we don't double charge wholesale package to the partner and our POP SOPs platform. So that's but overall, our activity is growing in line of the gross total.

Speaker 3

And as we disclosed as well, we launched 3 products in this quarter, and Gollummi SIM Car and this smallest Wi Fi, portable Wi Fi with the GBC truck function and IoT modules delivers to a main operator of the mobile network operator in Japan. So this IoT modules IoT module deliveries most will generate more pops up service in the future to our account. And for this, the others function like GPS tracker will also generate platform service, Pass Off service to account as well in the future. So the momentous for Pass Off's revenue growth is still strong. So but we manage our performance in terms overall of 3 main categories of service sector.

Speaker 2

Yes. I think because we launched new product and new service, I think we are expansion our past revenue, not only we are traditionally come from connection services and data volume. But now we expansion to the new area like I just mentioned GPS tracking, hybrid solution and high availability tracking. So that's our unique services. Also in the future about the SOS in the high percentage for emergence services.

Speaker 2

So all these type of also like high reliable CPE, high reliable CPE, high reliable loader. Even the data usage is quite small, but people buy for emergence. So like buy for I think

Speaker 3

like

Speaker 2

insurance for high quality commission. And I think this kind of services more be aware by the people, more easy understanding rather than the connection. And this type of services will generate more PaaS and SaaS services revenue in the future.

Speaker 5

Yes.

Speaker 6

I got it. Okay. Thank you very much.

Operator

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

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact Eunsoo Link's Investor Relations through the contact information provided on our website or contact our IR Relations firm, the Epti Group. We look forward to speaking to you again on our next quarter. Thank you.

Speaker 3

Thank you.

Operator

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

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uCloudlink Group Q2 2023
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