uCloudlink Group Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 14, 2024

There are 6 speakers on the call.

Operator

Good day, and welcome to the UCloud Link Group, Inc. 4th Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a 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. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining us on UclorLink's Q4 and full year 2023 earnings call. The earnings release and our earnings presentation are now available on our IR website, ir. Yuplorlinx.com. Joining me on today's call are Mr. Zhipin Peng, our Co Founder and Chairman of Board of Directors Mr.

Speaker 1

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

Speaker 1

Shi will then discuss our financial and operational highlights for Q4 and full year 2023. They will all be able to take your questions in the Q and 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 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 expressly qualify in the entity by the customary statements, risk factors and details of the company's filings with the SEC.

Speaker 1

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

Speaker 1

Please go ahead.

Speaker 2

Thank you, Julian, and good morning, everyone. Thank you for joining us. We appreciate everyone taking time out of your busy days. We are very pleased to report another strong set of results in year 2023, highlighted by a 19.8% increase in full year's revenues to US85.6 million dollars 2023 was a milestone in the turnaround of our business following the COVID-nineteen pandemic, with operating cash flow, cash inflow of US6.5 million dollars and net income of US2.8 million dollars Our 1.0 International Data Connectivity Services business continued to recover in year 2023. In our major markets, China and Japan, we are seeing the early signs of a recovery in outbound tourism and business travel following the COVID-nineteen pandemic.

Speaker 2

With more Chinese tourists begin to use our Longmei Men brand services again and the recovery in Japan gaining momentum, our market share in these major markets is growing, which will create a significant growth opportunities for us going forward. With one of the most extensive 5 gs roaming network in the world that cover 55 countries and regions, our competitive local food speed 5 gs roaming solutions not only offer extensive coverage, but also significantly enhance the user experience, which further expands our user space and cement our leading positions in the long lead market. While working to turnaround our business over the past years, we leverage our existing research and development resources and cutting edge technologies to explore business opportunities beyond portable Wi Fi terminals and build an expanding array of comprehensive data connectivity solutions to satisfy a wide range of users' needs. In addition to significantly enhance the travel experience by catering to the diverse data connectivity needs of various users, we will also offer more intelligent and convenient live applications like item tracking, pet management and emergent communication, among others, through our Glocomid Life Solutions business. We believe that these solutions will expand our market reach and help us establish a broader market presence.

Speaker 2

Our Better Nation Empower Better Life mission is leading us to extend our business beyond the travel sectors to various aspects of daily life, thereby generating long term sustainable growth. To drive this transformation, we plan to reorganize ourselves into 4 distinct product lines in year 2024: Glocomi Mobile Fixed Broadband the first second, Glocomi SIM the third, Internet of Things IoT and the final, local midlife solutions. We believe this business reorganization will allow us to operate in a more agile fashion, Take advantage of emerging opportunities and enable us to engage with a broader user base with a robust solution of our products and solutions coming in the future. So please allow me to tell you more about what's happening and what's to come at the Upscaling. Let me go into a little more detail in the new array of product NAND we have planned for the future.

Speaker 2

1st, we will continue to strengthen the foundation of our business, Glocomid's mobile and fixed broadband with an expanding offering of innovation cloud SIEM technology, high connectivity solutions and additional value added services that improve the user experience. We believe that we are uniquely positioned to expand our share in the long run market. In addition, we plan to introduce a commercial grade dual band customer premise equipment, CPE, which supports local fixed network as well as multiple mobile networks from all major operators. It will be able to maintain connectivity even when fiber optic lines fail or are disrupting. Our 5 gs CPU will be a large scale and commercial and will unlock additional opportunity in a more biophysics broadband space.

Speaker 2

2nd, glocalme SIM solutions, including our over the air OTA SIM and eSIM solutions, we are evolved into the innovative All SIM solution, which will allow us to engage with a broader end user base beyond those in the portable Wi Fi terminal market. Our Pioneer All SIM solution is promised to break out of cross carrier restrictions and empower every smartphone. 3rd, our Glocomid Life Solutions business has an exciting slate of our product announcements planned in the future, which will bring seamless connectivity into various high frequency daily live application scenarios, as I mentioned earlier, such as pet management, item tracking, as well as emergency communication. Last but not least, we will also integrate this cloud SIEM technology and high pump connectivity solutions into our IoT business, leveraging both property and the 3rd party smart module compatible with mainstream chipset platforms. Our IoT business will empower terminals and third party devices, allowing them to intelligently select and dynamically switch between multiple local carrier network worldwide.

Speaker 2

This diverse array of solutions, we believe, will help expand our business beyond portable WiFi terminals and drive growth in the future. Because of the changes we have making, our customers will enjoy more intelligent and convenient life through our high quality data connections for a range of everyday scenarios. Finally, I would like to review our guidance of the Q4 and full year of year 2024. We are optimized about our future growth prospects following this business reorganization. However, we also recognize that we are only just beginning this transformative journey, and these initiatives will take time to mature.

Speaker 2

For the Q4 of year 2024, we expected total revenues to between $17,500,000 and $18,500,000 representing a decrease of 2.8% to an increase of 2.8% compared to the same period of year 2023. For year 2024, we expect total revenues to be between US95 million dollars and US112 $1,000,000 representing an increase of 11% to 30% from late of the year 2023. I will now turn the call over to Mr. Sheng.

Speaker 3

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the Q4 and full year of 2023. Average daily active terminals is an important operating metric for us as it measures customer usage trends over each period, which is reflective of our business performance.

Speaker 3

In the Q4 of 2023, average day active terminals were 116,207, of which 10,075 owned by the company and 306,132 owned by our business partners, representing an increase of 6.2% from 297,884 in the Q4 of 2022. During the Q1 of 2023, 47% of the daily active terminal were from UclaLink 2.0 local data connectivity service and 53% of daily active terminal were from UclaLink 1.0 International Data Connectivity Services. Average daily data usage per terminal was 1.55 gigabytes in December 2023. Total revenue for the Q4 of 2023 were US21.7 million dollars representing an increase of 10.8% from US19.6 million dollars in the same period of 2022. Revenue from service was US14.9 million dollars representing an increase of 19.1 percent from US12.5 million dollars in the same period of 2022.

Speaker 3

Revenue from service as a percentage to the revenue was 68.7% during the Q4 of 2023, up from 63.9% during the same period of 2022. During the Q4 of 2023, as a percentage of our total revenue, Japan contributed 43.1%, North America contributed 24.3 percent, Mainland China contributed 16.5 percent, and other countries and regions contributed the remaining 16.1% compared to 43.7%, 33.9%, 3% and 90.4%, respectively, for the same periods for 2022. Overall gross margin improved to 52% in the Q4 of 2023 from 51.3% for the same period of 2022, while gross margins on service increased to 50.1% in the Q4 from 59.4% for the same period of 2022. Excluding share basis compensations, total operating expenses increased to US11.6 million dollars or 53 percent of total revenue in the Q4 of 2023 compared to US10.4 million dollars or 53 percent of total revenue in the same period in 2022. Late loss was US1.8 million dollars in the Q4 of 2023 compared to a late loss of US1.1 million dollars in the same period of 2022.

Speaker 3

Adjusted EBITDA was US1.5 million dollars in the Q4 of 2023 compared to US1.6 million dollars for the same period of 2022. Moving to 2023 full year's financial results. Total revenue for 2023 rose to US85.6 million dollars from US71.4 million dollars in 2022, driven primarily by an increase in revenue from data connectivity services. Revenue from data connectivity services were $46,700,000 an increase of 31.7 percent from US35.5 million dollars in 2022. Within data connectivity services, revenue from international data connectivity services rose to US37.9 million dollars from US28.1 million dollars in 2022, as the recovery in international travel accelerated.

Speaker 3

Overall, gross margin improved to 49% in 2023 from 45.5% in 2023, and our gross margin on service is increasing to 58.5% from 56%. This increase in gross margin on service in 2023 was primarily attributable to a more favorable business mix with a larger proportion of revenue coming from international data connectivity services, which tend to have higher margins. For the full year 2023, excluding share based compensation, total operating expenses decreased to US34.6 million dollars or 40 percent of total revenue in 2023 compared to US34.4 million dollars or 48 percent of total revenue in 2022. We achieved a net income of US2.8 million dollars in 2023, improving from a net loss of US19.9 million dollars in 2022. Adjusted EBITDA was US9.8 million dollars in 2023 compared to a loss of US2.3 million dollars in 2022 according to the same measurement.

Speaker 3

For the full year 2023, our capital expenditures were US2.1 million dollars compared to US0.4 million dollars in 2022. For the full year 2023, we achieved positive operating cash flow of US6.5 $1,000,000 up from US4.4 million dollars in 2022. Moving on to our balance sheet items. Our cash and cash equivalents increased to US23.4 million dollars as of December 31, 2023, compared to US20.3 million dollars as of September 30, 2023. We are pleased to have strengthened the company's financial position over the course of the years and are well positioned to continue growing our business.

Speaker 3

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

Operator

We will now begin the question and answer The first question today comes from Theodore O'Neill with Litchfield Hill Research. Please go ahead.

Speaker 4

Thank you very much. I have two questions this morning. My first question is about revenues from data connectivity services of $11,800,000 in the quarter. That's down from 13 $13,800,000 in the Q3. And I was wondering if you could give us some insight into that and if it was driven by any particular geographic region that was down sequentially more so than others?

Speaker 3

Hi, Seo. Thanks for your question regarding this data clinic service for this quarterless change. Yes, you mentioned that 2 quarters, the 3rd quarters compared with the 4th quarters. Yes, as you know in our disclosures, we the international roaming service is the main difference for our growth in service. And the seasonal reasons, the Q3 is peak time, is summer vacation.

Speaker 3

So that's a peak time for the Romin's business. And in the 4th, similarly, it's a little bit down for this Romin's service. That's a part patterns of the seasonal change business.

Speaker 4

And is it across all geographies or is it any particular geography?

Speaker 3

No, that's overall seasonal change. In the Q4 of the year, it's only a short period like Christmas holidays. But in the Q3 is a long summer vacations. So that's the overall seasonal change, not particularly to some particular regions.

Speaker 4

Okay. Understood. Thank you very much. My other question is about G and A expenses of 6 $1,000,000 in the quarter. I noticed also last year the G and A expenses rise sequentially from Q3 to Q4 and this year the same thing it went from $3,800,000 in the Q3 to $6,000,000 in the Q4.

Speaker 4

And I was wondering what drives that change sequentially from 3Q to 4Q in G and A?

Speaker 3

Yes. That's from our understanding, that's a good incentive plan

Speaker 2

for our employees.

Speaker 3

We have as we disclosed, we performance turnarounds of the positions in terms of the revenues growth and also a net income turn to a positive compared with a huge loss in the year 2022. So we the management decided to pay significant increase for annual bonus for the whole company's employees. So that's specifically driven by a pay rise in terms of earnings bonus. So I think that's a very good motivations to our employees. And we have a tight controls on the headcount numbers in the course of years growth.

Speaker 3

And this year, our whole company's employees have well motivated to support our growth for this year.

Speaker 4

Thank you very much. That explains it to me. Thank you very much.

Operator

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

Speaker 5

Hello. This is Vivien Jiang with Diamond Lockey. My first question would also be about the 4th quarter revenue, which didn't meet your guidance of $22,000,000 to $26,000,000 So we'd like to know the reason for not meeting these expectations for the Q1.

Speaker 3

This is Yimeng. I answered your questions first and then Mr. Chang will add some color on this 4th quarter's revenues. A little bit lower than this guidance. We disclosed the guidance is US22 $1,000,000 at the bottoms, yes, just a small we achieved US21.7 million dollars in the Q4 of 2023, just a little bit lower than our guidance.

Speaker 3

That's still on this our business patents. We just have some hardware orders. We defer some hardware orders to a later period because we have some commercial terms is need agreed by the customers before we deliver this hardware to customers. So that our business, if we take into consideration this hardware deliveries in the normal course, we will meet this guidance. Yes, so that's typically a change in the final week of the month, December.

Speaker 2

Yes. By the way, we have another reason to cause less than our expectation. That's because our new product is a little bit delayed just for our R and D reason. So that's another reason that caused a slow a little bit slow a little bit less than our expectation.

Speaker 5

Okay, understand. So the next question is that can you share more information about your newly announced Glocalme Live Solutions business? Because any like you mentioned, like any products or services can be launched or expected to boost revenue this year in 2024?

Speaker 2

Yes. So in the traditional, we are majorly before year 2023, we are majorly reliant on our portable WiFi to create the major revenue. And from the last year's Q3, we are start to launch our new product such as OTA SIM card, such as our Globe Mean Life product. So for the smaller business as early business trial. So this year we will officially launch our Glocomin Live product.

Speaker 2

That means we are create people who need a better connection because better connection, one aspect we can create revenue from the data. Another expectation another aspect we can create a better life for people. For example, if we get the best network, when the old people they falling down, they can their SOS message can send to the rescue center. The Omen normally is easy to falling down in the bathroom and the kitchen. Most of these two area signal is very poor.

Speaker 2

Our product can provide not only the local Wi Fi connection, home Wi Fi connection, but also cross carrier all the signal. Then can help send out this critical SOS message and then can enable these old people get help get set. And another similar product I mentioned is about a tracker. Our tracker can find something that the normal tracker and the air tech could not find because our with GPS scenario, our tracker can send GPS location data via the market network because in the rural area in the corner of the building, normally, coverage is really poor. So market network, of course, can help this message send out than just single carrier network.

Speaker 2

That's why we call our new generation tracker with the better connection can find out something that the traditional tracker and the AirTag cannot find. And that's one reason. Another second reason is about without GPS scenario, our multi carrier tracking location capability, while carrier base station, we have multi carrier base station. Normally, one carrier, 3 base station you can location your product your items. But with multi carrier, we can provide maybe 20, 30, no 20 base station, so we can get a more high accuracy location data.

Speaker 2

And also, we have market network consent all these location data. And that's why our tracker can help users find out more possibility for these items. And final one, our product has laser technology for the last 100 meter. It's extremely difficult for people who find out the items in the last 100 matters. But with our solution, and you can rely on this 100 active radar to find out where is the device.

Speaker 2

That's why we call we are the new creation generation new generation creation tracker, SuperTrak, which can find the other tracker and Ortek, Chronofi. A similar concept is about the healthy emerging communication, I just mentioned before. So this scenario 1 by 1, we will launch the product in the Q2 and the Q4 is for pilot, second quarter for volume business for volume launch. So I think in the following quarter, we believe this new product will create or generate more revenue for us. As you understand, we have all SIM solution including OTA SIM and e SIM.

Speaker 2

This also will generate just more easy selling than our traditional portable WiFi can assess more customer for travel worldwide. So I believe all these new products will create in the following quarter more customer base and more revenue base for our business. Thank you.

Speaker 5

Okay, I got it. Thank you. Thank you so much. That's all my questions.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jilin Zhang 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 Uclorin'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 again on our next quarterly call. Thank you. Thank you.

Speaker 1

Bye bye.

Operator

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

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Earnings Conference Call
uCloudlink Group Q4 2023
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