Ucloudlink Group Inc

NASDAQ:UCL

Earnings Call Analysis

Company Posts Strong Revenue Growth

In 2023, the company's total revenue surged to $85.6 million, a significant rise from $31.4 million the previous year. This boost was largely due to a 31.7% increase in data connectivity service revenues, reaching $46.7 million. The company's recovery was bolstered by improved international data connectivity services, up to $37.9 million, as international travel picked up pace. Overall gross margins rose to 49%, helped by favorable service mixes with higher margins, like international data services. Operating expenses dropped as a percentage of total revenue, from 48% to 40%, and net income turned positive at $2.8 million, a stark contrast to 2022's $19.9 million loss. Moreover, adjusted EBITDA jumped to $9.8 million from a $2.3 million loss, operating cash flow increased to $6.5 million, and cash reserves grew to $23.4 million. Despite a strong finish, the fourth quarter fell slightly short of the $22-26 million forecast, with $21.7 million in revenue due to final-week adjustments and deferred hardware orders.

Strong Performance and Strategic Turnaround in 2023

The company made a robust turnaround in 2023 with revenues soaring by 19.8% to $85.6 million. This performance marks a period of recovery post-COVID, with an operating cash inflow of $6.5 million and a net income of $2.8 million, signifying financial resilience and growth after a challenging period.

Expansion in International Data Connectivity

A rebound in travel and tourism in 2023 led to the resurgence of international data connectivity services, particularly in China and Japan. The company bolstered its market share in these regions, creating new growth opportunities. Their competitive 5G roaming solutions achieved sector leadership by offering expansive coverage for a superior user experience.

Innovative R&D and GlocalMe Solutions

The company leveraged its R&D capabilities to innovate beyond Wi-Fi terminals. It expanded its data connectivity solutions through intelligent and convenient life applications, such as item tracking and pet management, thereby broadening the scope and reach of its GlocalMe solution business.

Organizational Restructuring for Growth

In 2024, the company is set to undergo a strategic reorganization into four distinct product lines: GlocalMe Mobile/Fixed Broadband, GlocalMe SIM, IoT, and GlocalMe Life, aligning its structure towards future growth trajectories.

Guidance for 2024 Reveals Sustained Growth

For the fourth quarter of 2024, revenue is projected to range between $17.5 million and $18.5 million, showing potential quarterly fluctuations but an annual forecast of $95 million to $112 million indicates an ambitious 11% to 30% growth.

Operational and Financial Highlights of Q4 2023

The fourth quarter of 2023 saw a 10.8% rise in total revenue to $21.7 million, fueled by a robust uptick in service revenues which grew by 19.1% to $14.9 million, indicating a healthy demand for the company’s services.

Geographical Revenue Contributions and Gross Margins

Revenue contributions varied with Japan leading at 43.1%, North America at 24.3%, followed by Mainland China and others. The company also improved its gross margin to 52% in Q4 2023 from 51.3% in Q4 2022. Service gross margins increased to 61% showcasing efficient operations.

Net Profitability and Operational Efficiency

The company witnessed a stellar financial transformation with a net income of $2.8 million for 2023, which was a significant recovery from a previous net loss, attributable to favorable revenue mix and increased gross margins on international data connectivity services.

Future Products Delay and Positive Cash Flow

Despite a delay in new product launches due to R&D factors, the company achieved a positive operating cash flow of $6.5 million in 2023. The GlocalMe Life product line, set to enhance data connectivity and improve quality of life, will be officially launched, with technology that assists in critical situations and provides high-accuracy tracking.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to the uCloudlink Group Inc. Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. This event is being recorded. I would now like to turn the conference over to Jillian Zeng. Please go ahead.

[Jillian Zeng, executive]

Hello, everyone, and thank you for joining us on uCloudlink Fourth Quarter and Full Year 2023 Earnings Call. The earnings release and our earnings presentation are now available on our IR website, 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 fourth quarter and full year 2023. They will all be able 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 pursue 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 active 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 constantly statements, risk factors and details of the company's filings with the SEC. The company does not pursue any obligation to revise or update any forward-looking statements as a result of new information, future events, change in market conditions or otherwise, except as required by law. Please also note that uCloudlink earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non-GAAP financial measures. uCloudlink 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. Please go ahead.

[Chaohui Chen, executive]

Thank you, Jillian, 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 USD 85.6 million. 2023 was a milestone in the turnaround of our business following the COVID-19 pandemic with operating cash inflow of USD 6.5 million and net income of USD 2.8 million. 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-19 pandemic with more Chinese tourists beginning to use our Roamingman 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 5G roaming network in the world that covers 55 countries and regions. Our competitive local full-speed 5G roaming solutions not only offer extensive coverage but also significantly enhanced user experience, which further expands our user base and cement our leading positions in the roaming market. While working to turnaround our business over the past years, we leverage our efficient research and development resources and cutting-edge technologies to explore business opportunities beyond possible Wi-Fi terminals and build and expanded 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 life applications like item tracking, pet management and emerging communication, among others, through our GlocalMe solution business. We believe that these solutions will expand our market reach and help us interpret a broader market presence. Our better condition empower best life mission is leading us to extend our business beyond the travel sectors to various aspects of daily life, whereby generating long-term sustainable growth. To drive this transformation, we plan to reorganize ourselves into 4 distinct product lines in year 2024. GlocalMe Mobile/Fixed Broadband, the first, second GlocalMe SIM, the third Internet of Things, IoT and the final GlocalMe Life. We believe this business new organization 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 [indiscernible] out of our product and solutions coming in the future. So please allow me to tell you more about what's happening and what's to come at uCloudlink. Let me go into a little more detail in the new array of product lines we have planned for the future. First, we will continue to strengthen the foundation of our business, GlocalMe Mobile/Fixed Broadband with an expanding offering of innovation cloud in technology, hyperconnectivity solutions and additional value-added services led to improve the user experience. We believe that we are uniquely addition to expand our share in the roaming market. In addition, we plan to introduce commercial grade 5G 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 5G CPE will be large scale and commercial and will unlock additional opportunity in the mobile fixed broadband space. Second, GlobalMe SIM, including our over-the-air OTA SIM and eSIM solutions were involved into the innovative ALL SIM solution, which will allow us to engage with a broader and user base beyond those in the portable Wi-Fi terminal market. Our Pioneer all-in solution is permit to break out of cross-carrier restrictions and empower are smartphones. Third, our GlocalMe Life solutions business has an exciting slate of our product announcements planned in the future, which will bring seamless connectivity into various high-efficacy daily life application scenarios. As I mentioned earlier, such as pet management, item tracking as well as emerging communications, thus bundle list. We will also integrate these cloud technology and [indiscernible] band connectivity solutions into our IoT business, leveraging both property and third-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 networks worldwide. This diverse array of solutions, we believe we have had, expand our business beyond portable Wi-Fi terminals and drive growth in the future. Because of the changes we are making, our customers will enjoy more intelligent and convenient lives through our high-quality data connections for a range of everyday scenarios. Finally, I would like to review our guidance of the fourth quarter and full year of year 2024. We are optimized about our future growth prospects flowing this business reorganization. However, we also recognize that we are only just beginning this transformative journey. And these initiatives will take time to mature. For the fourth quarter of year 2024, we expect total revenues to between USD 17.5 million and USD 18.5 million, 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 USD 95 million and USD 112 million, representing an increase of 11% to 30% from last of the 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 fourth quarter 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. In the fourth quarter of 2023, average day active terminals were 316,207, of which 10,075 owned by the company and 306,000 and 132 owned by our business partners, representing an increase of 6.2% from $27,884 in the fourth quarter of 22. During the first quarter of '23, 47 of the daily active terminal were from uCloudlink 2.0 local data connectivity service and 33% of daily active terminals were from uCloudlink 1.0 international data connectivity services. Our steady data usage per terminal was 1.55 gigabytes in December 2023. Total revenue for the fourth quarter of 2023 were USD 21.7 million, representing an increase of 10.8% from USD 19.6 million in the same period of 2022. Revenue from service was USD 14.9 million, representing an increase of 19.1% from USD 12.5 million in the same period of 2022. Revenue from service as a percentage to the revenue was 68.7% during the fourth quarter of 2023, up from 63.9% during the same period of 2022. During the first quarter of 2023, as a percentage of total revenue, Japan contributed 43.1%, North America contributed 24.3%, Mainland China contributed 16.5% and other country and regions contributed the remaining 16.1% compared to 43.7%, 33.9%, 3% and 9.4%, respectively, for the same period for 2022. Overall gross margin improved to 52% in the fourth quarter of 2023 from 51.3% for the same period 2022, while gross margins on service increased to 6.1% in the fourth quarter from 59.4% for the same period 2022. Excluding share-based compensation, total operating expenses increased to USD 11.6 million or 53% of total revenue in the fourth quarter of '23 compared to USD 10.4 million or 53% of total revenue in the same period in 2022. Net loss was USD 1.8 million in the fourth quarter of 23% compared to a net loss of USD 1.1 million in the same period of 2022. Adjusted EBITDA was USD 1.5 million in the fourth quarter of 2023 compared to USD 1.6 million for the same tires of 2022. Moving to 2023 full year's financial results. Total revenue for 2023 rose to USD 85.6 million from USD 31.4 million in 2022, driven primarily by an increase in revenue from data connectivity services. Revenue from data connectivity services were USD 46.7 million, an increase of 31.7% from USD 35.5 million in 2022. Within data connectivity services, revenue from international data connectivity services rose to USD 37.9 million from USD 28.1 million in 2022 as the recovery in international travel accelerated. Overall gross margin improved to 49% in 2023 from 45.5% in 2022. 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 [Indiscernible] mix, with a larger proportion of revenue came in from international data connectivity services, which tend to have higher margins. For the full year 2023, excluding share-based compensations, total operating expenses decreased to USD 34.6 million or 40% of total revenue in 2023 compared to USD 34.4 million or 48% of total revenue in 2022. We achieved a net income of USD 2.8 million in 2023, improving from a net loss of $19.9 million in 2023. Adjusted EBITDA was USD 9.8 million in 2023 compared to a loss of USD 2.3 million in 2022 according to the same measurement. For the full year 2023, our capital expenditure were USD 2.1 million compared to USD 0.4 million in 2022. For the full year 2023, we achieved positive operating cash flow of USD 6.5 million, up from USD 4.4 million in 2022. Moving on to our balance sheet items. Our cash and cash equivalents increased to USD 23.4 million as of December 31, 2023 compared to USD 20.3 million 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. With that, operator let's open up for Q&A.

[Operator]

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

[Theodore O'Neill, analyst]

I have 2 questions this morning. My first question is about revenues from data connectivity services of $11.8 million in the quarter. That's down from $13.8 million in the third quarter. 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.

[Chaohui Chen, executive]

You mentioned the 2 quarters, the third quarter compared with the fourth quarter. As you know in our disclosures, the international roaming service is a main driver for our growth on service. And the seasonal reasons the third quarter is big time is a summer location, so that's a peak time for the roaming and [indiscernible]. And in the fourth, similarly, it's a little bit down for this roaming service. That's a pattern of the seasonal change business.

[Theodore O'Neill, analyst]

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

[Chaohui Chen, executive]

That's overall seasons change. In the fourth quarter of the year, it's only the short period like Christmas holidays. But in the third quarter, is a long summer vacations. So that's the overall seasonal change, not particularly to some particular regions.

[Theodore O'Neill, analyst]

My other question is about G&A expenses of $6 million in the quarter. I noticed also last year, the G&A expenses rise sequentially from third quarter to the fourth quarter and this year, the same thing, it went from $3.8 million in the third quarter to $6 million in the fourth quarter. And I was wondering what drives that change sequentially from 3Q to 4Q in G&A?

[Chaohui Chen, executive]

From our understanding, that's a good incentive plan for our employees. As we disclosed, we performance turnaround positions in terms of the revenue growth and also leading income tend to positive compared with the huge loss in the year 2022. So the management decide to pay a significant increase for [indiscernible] for the whole company employees. So that's specifically driven by a pay rise in terms of [indiscernible]. So I think that's a very good motivation to our employees, and we have tight controls on the headcount numbers in the course of years growth. And this year, our whole companies and employees are well motivated to support our growth for this year.

[Operator]

The next question comes from Wei Zhang with Diamond Equity Research.

[Wei Zhang, analyst]

My first question would also be about the fourth quarter revenue, which did meet your guidance of $22 million to $26 million. So we'd like to know the reasons for not meeting these expectations for the first quarter.

[Yimeng Shi, executive]

This is Yimeng Shi. I'll answer the questions first and then Mr. Chen will add some color. On this fourth quarter's revenues a little bit low now than this guidance that we disclosed guidance is 22 million. We achieved USD 21.7 million in the fourth quarter of '23, just a little bit lower than our guidance. It's still on this our business patterns. We just had some hardware orders. We deform hardware orders to the later periods because we have some commercial terms as agreed by the customers before we deliver this hardware to customers. Our business is taking into consideration these hardware deliveries in the normal cost, we will mix this guidance. So let's take as a change in the final week of the month of December.

[Chaohui Chen, executive]

But we have another reason to cause less than our expectation. That's because our new product a little bit delayed just for our R&D reason. So that's another reason that caused a little bit less than our expectation.

[Wei Zhang, analyst]

So the next question is that can you share more information about your newly announced GlobalMe solution business? Like you mentioned, like any products or services can be launched or expected to boost the revenue this year in 2024?

[Chaohui Chen, executive]

So in the traditional before year 2023, we are majorly on our portable Wi-Fi to create the major revenue. And from the last year in the third quarter, we start to launch our new products such as OTA SIM card, such as our GlocalMe Life product so for the smaller early business trial. So this year, we will officially launch our GlocalMe Life product. That means we are create people who need a better condition because better condition, that aspect we can create revenue from the data. Another aspect, we can create a better life for people. For example, if we get the best network when the old people they're falling down, their SOS message can send to the rescue center. Normally it is easy to fall in down in the bathroom and kitchen, most of these 2 area signals is very poor. Our product can provide not only the local Wi-Fi home recognition, but also across carrier or the signal then can help send out these critical SOS message and then can enable these all people get set. And another similar product, I mentioned it's about a tracker. Our tracker can find something that as a normal tracker and IoT because with the 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 carriage is really poor. So marketing network, of course, can help this message sent out than just single carrier network. That's why we call our new generation tracker with the better connection can fly out something that the traditional tracker and the IoT, that's one reason. And the second reason is about without GPS scenario, our multi-carrier checking location capability, while carrier base station -- we have market carrier base station, not only one carrier, 3 base stations, you can location your items. But with multi carrier, we can provide maybe 2000-basestation so we can get a more high accurate location data. And also we have marketing network contained in these location data. And that's why our tracker can help users to fire out the more possibility for these items. And final one, our product has laid out technology for the last 100 meter. It's very difficult for people who fit out the items in the last 100 meter. But with our solution, and you can rely on this 100 active radar to fire out where it's the device. That's what we call we added new generation creation super tracker, which can find the other tracker and tech [indiscernible]. A similar concept is about the healthy emerging communication as just mentioned before. So this scenario one by one, we were launching the product in the second quarter and the fourth quarter is for a pilot and fourth quarter 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, eSIM. These also we generate that is more easy selling than our traditional portable Wi-Fi, can assess more customers 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.

[Operator]

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

[Jillian Zeng, executive]

Well, thank you, once again, for joining us today. If you have further questions, please feel free to contact uCloudlink 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 or 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.