uCloudlink Group Inc. (NASDAQ:UCL) Q3 2023 Earnings Call Transcript

uCloudlink Group Inc. (NASDAQ:UCL) Q3 2023 Earnings Call Transcript November 15, 2023

uCloudlink Group Inc. beats earnings expectations. Reported EPS is $0.09, expectations were $0.02.

Operator: Hello, and welcome to the uCloudlink Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jillian Zeng. Please go ahead.

Jillian Zeng: Hello, everyone, and thank you for joining us on uCloudlink’s third quarter 2023 earnings call. The earnings release and our earnings presentation, are now available on our IR website at ir.ucloudlink.com. Joining me on today’s call are Mr. Zhiping Peng, our Co-Founder and Chairman of Board of Directors. Mr. Chaohui Chen, 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. Shi will then discuss our financial and operational highlights for the third quarter of 2023. They will all be available to take your questions in the Q&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 Security Litigation Reform Act of 1995.

These forward-looking statements are based are based on management's current expectations and automations 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 company’s 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, due to events, trends in market conditions, or otherwise, except as required by law.

Please also note that uCloudlink’s earnings press release and this conference call include discussions of the unaudited GAAP financial information and unaudited non-GAAP financial measures. uCloudlink’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Chaohui Chen: 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 $20.9 million, and sixth consecutive quarter of positive cashflow from operations. Average daily active terminals, our key operational metric, increased once again to a new all-time high of over 320,000. This was a well round performance across our entire business. During the quarter, we continued to consolidate and develop our new uCloudlink 1.0. International Data Connectivity Services, driving an excellent performance in this segment. Total revenues from uCloudlink 1.0 International Business increased 42.7% year-on-year to $11.4 million.

The recovery of the international travel is creating significant tailwinds for this business, with growth from Japan and mainland China as a 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 Roaming Man brand services, and are accounting for a growing share of our International Data Connectivity Services. Because of that, 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. This strong performance was enabled by the continuous development of our technology products and services offerings and the value-add services.

During the quarter, we consolidated our leading position as a 5G roaming solution provider as cross border travelers continue to discover our 5G portable Wi-Fi terminals, 5G terminal packages, and parallel user experience they are providing. One of our most popular mobile Wi-Fi devices is now equipped with an artificial intelligence services assistance, especially provided for Chinese cross border travelers, means that our product are not just data traffic connectivity terminals, but also intelligent travel assistants. We launched a GlocalMe SIM card, which currently offers coverage across 10 high demand travel destination and a GPS tracker-enabled portable Wi-Fi terminal. This, we believe, is currently a small list of its kind in the world.

In addition, we piloted an eSIM solution in October year 2023, which will enable us to certify a wider range of data connectivity needs from our customer side. Taken together, we believe our high margin uCloudlink 1.0 business will remain a key driver of our business as long-term recovery of international travel continues. We are confident that our expending and upgrading 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 life application scenario by enriching our portfolio offerings. Our internet of things, IoT solutions, are a key part of these strategies.

A close-up of a telecom tower amid a backdrop of urban skylines, symbolizing the growth and development of telecommunications services.

And during the quarter, third party devices utilizing uCloudlink’s CloudSIM technology powered by IoT solution, went to the market in Japan. Besides embedding our IoT module in third party devices, we also expect to cooperate with major IoT module manufacturers on integrated CloudSIM technology. We also continue to conduct commercial testing of our highest performance 5G customer premise equipment CPE, which we expect to launch in the near future. The upgraded CPE provides home and office internet connection let perfect seamless between the fixed and mobile networks, make it a reliable substitute for traditional fixed broadband offerings. We believe this new offering will bolster uCloudlink’s positions in the fast-growing market for home and office internet connectivity, helping us expand our user base and gain the additional market share in the fixed broadband market.

In addition, we launched retail sales of our GPS-enabled portable Wi-Fi terminal in Hong Kong during this quarter, which marks the beginning of our new efforts to provide more daily life services. We believe these GPS-enabled devices will become an indispensable assistance 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 pet. As I mentioned before, our offerings CloudSIM products, the GlocalMe SIM card, and an eSIM solution, and we plan to launch various hyperconnectivity solutions compatible with CloudSIM, soft SIM, and eSIM technology in the future. To sum up, we believe our new offerings open up a new range of application scenarios for our solutions and hold significant long-term growth potential.

Many of these solutions are designed to generate not just revenue from sales product and the 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 use cases. We also believe that we are well positioned to create a mobile data (tertiary) marketplace that will define the mobile data connectivity experience. All of our efforts are geared towards enforcing 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 fourth quarter of year 2023, uCloudlink expects total revenues to be between $22 million and $26.2 million, representing an increase of 12.2% to 33.7% increase, compared to the same period area of year 2022. I will now turn the call over to Mr. Shi.

Yimeng Shi: Thank you, Mr. Chen. Hello, everyone. I will now walk you through our operational and financial highlights for the third quarter of 2023. Average daily active terminal, DAT, measures customer usage trends and reflects the overall performance of our business. In the third quarter of 2023, average daily active terminals were 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 uCloudlink 1.0 and uCloudlink 2.0 business accounted for around 50.4% and 49.6% of total CAT, respectively, during third quarter of 2023. Average daily data usage per terminal was 1.56 gigabytes in September 2023. Total revenues for the third quarter of 2023 were $23.9 million, representing an increase of 31% from $18.2 million in the same period of 2022.

Revenue for service were $16.6 million, an increase of 31.9% from $12.6 million in the same period of 2022. Revenue from service as percentage of total revenue was 69.7%, up from 69.2% during same period of 2022. During the third quarter of 2023, as a percentage of 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 travelers using Roaming Man brand service as a key increasingly resumed outbound international travel. Overall gross margin was 51.2% in the third quarter of 2023 as compared to 47.7% in the same period of 2022.

Gross margin on service was 35.9% in the third quarter of 2023 as compared to 37.9% in the same period of 2022. Excluding share-based compensations, total operating expensive were 8.7% million, or 36% of total revenue in the third quarter of 2023 as compared to $7.3 million or 40% of total revenue in the same period of 2022. We recorded net income of $3.5 million in the third quarter of 2023, as compared to a net loss of $4.6 million in the third quarter of 2022. Adjusted EBITDA non-GAAP improved to $4.1 million during the third quarter of 2023, as compared to $0.9 million in the same period of 2022. We achieved positive operating cashflow of $2.8 million during the third quarter 2023, as compared to $1.2 million during the same period of 2022.

We successfully achieved positive cashflow from operation for a sixth consecutive quarters, accumulating operating cashflow inflow of $16.7 million through the previous six quarters. In summary, our financial performance continued to improve during the third quarter, and we believe that we are well positioned to execute on our strategic growth initiatives. With that, Operator, please open up for Q&A.

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