Ucloudlink Group Inc

NASDAQ:UCL

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the uCloudlink Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.



I would now like to turn the conference over to Daniel Gao, Investor Relations Director. Please go ahead.

[Daniel Gao, executive]

Okay. Thank you. Hello, everyone, and thank you for joining us on [indiscernible] Second Quarter 2024 Earnings Call. The earnings release and our release presentation are now available on our IR website at ir.uCloudlink.com.



Joining me on today's call are Mr. Zhiping, Co-Founder and the Chairman of Board of Directors, Mr. Chaohui, Co-Founder, Director and Chief Executive Officer; and Mr. Yimeng Shi, Chief Financial Officer.



Mr. Chen will begin with an overview of our recent business highlights. Mr. Shi will then discuss our financial and regional highlights for the quarter. They will both be available to take your questions in the Q&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 their previous 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 treatments of the company to be materially different from the results, performance or expectations implied by those forward-looking statements.



All forward-looking statements are expressly qualified in their part by the contrary statements, risk factors, and the details of the components filing 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, changes 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that uCloudlink's earnings press release and this conference call include discussions of GAAP financial information and outdated non-GAAP financial measures, [indiscernible] press release contents, or elations of their allocated non-GAAP measures to the most directly comparable audited GAAP measures.



I will now turn the call over to Mr. Chen. Please go ahead.

[Chaohui Chen, executive]

Thank you, Denise, and good morning or evening, everyone. Continuing the solid start we had early in this year, growth momentum carried into the second quarter with the total revenue reaching USD 22.4 million, in line with the guidance. Our financial position is improving with net income reaching USD 3.2 million and operating cash flow increasing 38.3% year-over-year to USD 4.7 million.



In the second quarter of 2024, aside from our global e-mobile fixed broadband business, comprehensive data connection solutions and business lines such as GlocalMe Life, GlocalMe SIM, and GlocalMe IoT have made consistent progress in expanding beyond the travel sector into various aspects of daily life with an expanded array of the comprehensive data connectivity solutions to satisfy a wide range of our needs.



Firstly, let me start with the progress we have made in our GlocalMe mobile fixed broadband business line. Our 1.0 international data connectivity services business continued to grow in the second quarter of year 2024, further consolidating our leading position in the [ long ] midmarket and expanding our market share. As the widespread adoption of our full-speed 5G solutions can momentum, supported by the recovery in international travel. Our extensive fancy GlocalMe solution now covers 50 countries and are generating a stable stream of revenue, creating significant growth opportunities for us going forward.



According to the Mobile Economy 2024 report from the Global System for Mobile Communication Association, or GSMA. The global number of 5G connections is expected to rise to 5.5 billion by 2030 from $1.6 billion at the end of 2023. Second, our GlocalMe Life solution made significant progress in the second quarter of the year 2024. We officially launched 3 GlocalMe Life solutions in May at the Viva Technology 2024 in Paris. The lineup of new solutions consisting of KeyTracker, RoamPlug, Unicord, has not only showcased our innovative capabilities but also widespread acclaim in the market, making the beginning of a promising new revenue stream going forward with the unit market network market base station, positioning, and active radar reached for up to 100 meters.



Our KeyTracker is technology ahead of the competition with its 6 advanced positioning technologies, including GPS, AGPS, ALPS, Wi-Fi, Bluetooth, and active radar. The [indiscernible] is more than just a universal travel adapter. It is an all-in-one device that combines smart charging technology, four charging ports including 3 USBC and 1 USDA, and a built-in mobile WiFi module. Unicord is a 2.5 USBC cable with billing mobile WiFi capabilities. [indiscernible] and the Unicord make greater local and global travel companions to charge and the connected devices while also providing reliable Internet connectivity without the need to carry bulky hardware. GlocalMe Life solutions allow people to stay connected to their loved ones, seamlessly offering connectivity to various high-frequency daily life application scenarios such as test management, item checking as well as emerging communications. These solutions are expected to contribute more revenues in the coming quarters as we gradually expand this revenue stream with the recurring subscription and services revenue.



Third, we continue to gradually expand the availability of our GlocalMe SIM solutions, including our OTA and eSIM solutions in more countries and regions, powering the way for more powerful all-sim solutions that will allow us to engage with a broader user base. Our All-sim solutions, which consolidate OTA, eSIM, and cloudSIM are uniquely positioned to read across carrier restrictions, empower various smartphones, and set a new Pioneer industry benchmark for mobile connectivities and convenience when they launch in the near future.



According to the mobile economic 2024 report from the GSMA, SIM connections, excluding license cellular IoT are expected to increase from CNY 8.6 billion in 2023 to 9.8 billion by 2030. In our GlocalMe IoT business line, we are leveraging our software cloud SIM technology compatible with various chip platforms to engage with a broader spectrum of partners in the security camera, export camera, and related sectors to explore additional application scenarios. This will allow us to demonstrate the strength and the capabilities of our technology to a broader audience. According to the mobile economic 2024 report from the GSMA, licensed cellular IoT commissions are expected to grow from CNY 3.5 billion in year 2023 to CNY 5.8 billion by 2030.



Finally, as we transition beyond the portable WiFi terminal market, we are scaling up our user base beyond the travel sector into various comprehensive daily life application scenarios such as [indiscernible] management, item checking, and daily travel. This transition will diversify our revenue stream from the primary mobile data traffic solutions to a mix of value-added services and mobile data traffic solutions. This will drive ongoing consolidation and development of our GlocalMe ecosystem, positioning it as a leading global mobile data traffic-sharing marketplace while creating long-term sustainable value for our shareholders.



We firmly believe that better connection empowers baseline. With the regular commercialization of GlocalMe Life, SIM, and IoT business lines gaining momentum, we expect to see them contribute more meaningfully to revenue in the coming quarters through various market channels. We are confident that we have the right strategy in place to generate sustainable growth in the coming quarters. For the third quarter of the year 2024, we expect total revenues to be between USD 24.0 million to USD 28 million, representing an increase of 0.4% to 17.2% compared to the same period of year 2023.



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

[Yimeng Shi, executive]

Thank you, Mr. Chen.



Hello, everyone. I will go over our operational and financial highlights for the second quarter of 2024. Our pay active terminal is an important operating metric for us as the major customer usage train for its period, which is reflective of our business performance. Our daily active terminal, DAT in the second quarter were 306,289, of which 62.2% were from Ukraine 1.0 International Data Connectivity service, representing an increase of 29% in DAT of 1.0 International Data anti service compared to the same period of 2023. The average daily data usage per terminal was 1.35 gigawatts in June 2024. As of June 30, 2024, the company serves 2,699 business tones in 61 countries and regions. The company had 182 patents with 133 approved and 290 pending approval with Posima from 392 MOS globally as of June 30, 2024.



Total revenue was USD 22.4 million, representing an increase of 1.7% from USD 22 million in the second quarter of 2023. Revenue from service was USD 14.2 million, representing an increase of 0.5% from USD 14.1 million in the same period of 2023. Revenue from service as a percentage to the revenue was 63.4% during the second quarter of 2024, down from 64.1% during the same period last year. Geographically speaking, during the second quarter of 2024, Japan cane 46.2% of our total revenue. Both America contributed 14.6%. Mainland China contributed 23.5% and other countries in the region contributed the remaining 15.7% compared to 43%, 29.5%, 11.6%, and 15.9%, respectively, in the same period of 2023.



Overall gross profit was USD 11 million compared to $9.9 million in the same period of 2023. Overall gross margin was 49.2% in the second quarter of 2024 compared to 44.9% in the same period of 2023. Gross margin on service increased to 16.3% in the second quarter of 2024 from 8% in the same period of 2023. Gross margin on product increased to 30% in the second quarter of 2024 from 21.5% in the same period of 2023. Excluding share-based compensation, total operating expenses were USD 8.7 million or 39% of total revenue in the second quarter of 2023, '24 compared to USD 7.3 million or 33% of the total revenue in the same period in 2023.



Net income was USD 2.2 million compared to ecos USD 0.9 million in the same period 2023. Adjusted EBITDA was USD 3.3 million in the second quarter of 2024 compared to USD 2.1 million for the same period 2023. For the second quarter 2024, we generated operating cash inflow of USD 4.7 million, increasing by 38.3% from USD 3.4 million in the same period 2023. For the second quarter of 2024, capital expenditures were USD 1.6 million compared to USD 0.5 million in the same period 2013. We maintained a solid balance sheet with cash and adjusted equivalents increasing to USD 26.8 million as at June 30, 2020. up from TWD 24.7 million as of March 31, 2020.



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

[Operator]

[Operator Instructions] The first question comes from Theodore O'Neill from Litchfield Hills Research.

[Theodore O'Neill, analyst]

Congratulations on the results for the quarter. My first question is about uses for cash. You're profitable, you increased cash in the quarter. And I was wondering if you have some thoughts about how to utilize the cash balance you're growing, either acquisitions, dividends, or capital expenditures of some kind?

[Chaohui Chen, executive]

Yes, we have a strong cash inflow from operations as disclosed is $4.7 million generated in the second quarter. So the overall cash equivalents now is more than USD 26 million. It's a strong trend position indicator. We still will keep this to improve and position in the near future, say, this year and the next year. So far, we don't have a specific target for acquisitions. We don't have a full discussion on any dividends planned. So we still focus on improving our growth and improving our finance position and we want to improve our filing position to put the company in a safer position for long-term operations. Thank you.

[Theodore O'Neill, analyst]

Okay. My next question is about the GlocalMe Life solutions. You've highlighted the KeyTracker, RoamPlug, and Unicord here in the call. Are there additional products coming out into the GlocalMe Life solutions?

[Chaohui Chen, executive]

Yes, that's the 3 put-down we launched for GlocalMe. We have a continued more product we are coming in the following quarters.

[Theodore O'Neill, analyst]

Okay. My last question is about if you could talk about the outlook between uCloudlink 1.0 and uCloudlink 2.0. Can you talk about how the outlook of those 2 over the next quarter or 2?

[Yimeng Shi, executive]

Maybe add some color first and the CEO will add more comments on that. Yes, as we have disclosed our guidance for the third quarter, which is $24 million to USD 28 million of revenue. Yes, for this top-line growth and many driving but there's in national connected service, especially as we disclosed in the second quarter, Mainland China's growth, the outbound travelers from Mainland China to other countries grow significantly. And we think that, that trend where we have to keep this same high and fast growth in the third quarter of this year. So for other look, the main drive in the third quarter, mainly from international travel growth for Chinese outbound and other regions outbound as well. And also, we expect our new solutions like GlocalMe Life Service products as we launched in the second quarter, which will bring more revenue stream into our accounts in the third quarter and more in the fourth quarter. So we believe there's a growth driver is more than just international roaming service but also from life series service.

[Chaohui Chen, executive]

Yes, then our 1.0 business because we understand China because we have to market China and Japan market, they are still on the way of the recovery. So I believe in the next year from now on, still on the way of recovering from the pandemic, so they need time, okay? And also for the 2.0 business, now we have developed the most high-reliable connection for fixed broadband backup. This market also gives us more advantage for 2.0. So we can see some opportunity in 2.0 business for highly reliable connection that we can bring to the customer. And for the new product, because of end of the second quarter, we just newly launched 3 products, and I think in the quarter 3, and mainly in the quarter 4, we bring us -- generate more revenue, bring a new revenue for this new product, not only data, but also the subscriber and services revenue.

[Operator]

[Operator Instructions] The next question comes from Vivian Zhang from Diamond Equity Research.

[Wei Zhang, analyst]

Good morning and evening, everyone. So congrats on the strong quarter achieved. So my first question will be about the commercialization of GlocalMe Life. So how are the sales of the 3 newly launched products so far? Are there any other sales channels easing directly on your official website?

[Chaohui Chen, executive]

Yes. So we both -- and that's both from the offline and also for the channel. We were selling all these online, offline also channel to sell our new product. Some is under our own brand, some were under our core brand with our partner. So far, I think the progress is very good. So it's our partner there and also the fee-based on the partner and the end user is quite positive because we bring the better connection in power baseline. Let us not only just take revenue from data cognition. We are more come from the more revenue we control services such as the pad checking. I think in the future also for the convenience, for the traveler, also, I think, like Unicord not only for travelers, but also it's a daily use like a car, like also a power and also home IoT clinicians. We can bring the home IoT clinicians such as Wi-Fi camera to the outdoor to the worldwide. So that's our quite unique value point. So that can simplify -- that can make our users more easy and more relaxed, more safety and then more high quality for the travel line.

[Wei Zhang, analyst]

Okay. I see. So my next question is that the guidance for the quarter is quite strong. So any drivers behind that? Thank you.

[Chaohui Chen, executive]

Yes, I think for the next quarter, I think because our traditional product is growing, I think, is very stable. But I think the big jump of our revenue will come from our new products. So because we just newly launched product, so we needed some time to reset revenue. So I think that the fleet base is very good, but we still have some uncertainty for the period of how quick we can bring the revenue back for this new product.

[Wei Zhang, analyst]

Okay. So do you think that these newly launched products will affect your margin gross margin next quarter? Or do you think you will keep the current level?

[Chaohui Chen, executive]

I expect that the service gross margins should be in a similar range as we delivered in this year, like the second quarter. as now the main driver, the main part of revenue came from international roaming service, which is a higher gross margin service in our account. Like a subsequent fee related to the new GlocalMe Life service product is I believe that there are additional highest gross margin solutions, and we will see how we deliver to the market in various regions and channels. So we believe we have this good service margins in this year and the future as well.

[Operator]

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

[Daniel Gao, executive]

Okay. Thank you, once again, for joining us today. If you have further questions, please feel free to contact uCloudlink's Investor Relations through the contact information provided on our website, or speak to our Investor Relations form, Christensen anniversary. We look forward to speaking to you all again on our next quarterly call. Thank you.

[Operator]

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

[Chaohui Chen, executive]

Thank you.