uCloudlink Group - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good day, and welcome to the uCloudlink Group First Quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Daniel Gao, Director of IR for the company. Please go ahead.

Daniel Gao (Director of Investor Relations)

Hello, everyone. Thank you for joining us on uCloudlink's fourth quarter 2025 earnings call. The earnings release and our earnings presentation are now available on our IR website at irw.ucloudlink.com. Joining me on today's call are Mr. Zhiping Peng, Co-founder and Chairman of the Board of Directors; Mr. Chaohui Chen, 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 operational highlights for the quarter. They will all 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 the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectation 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 expectation implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by their cautionary 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, 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 unaudited GAAP financial information and unaudited non-GAAP financial matters.

uCloudlink's press release contains a reconciliation of the unaudited non-GAAP matters to the most directly comparable unaudited GAAP matters. I will now turn the call over to Mr. Chen. Please go ahead.

Chaohui Chen (CEO)

Thank you, Daniel, and good morning or evening, everyone. We kick off 2025 with a solid performance as our expanding global ecosystem continues to gain traction and build momentum. Total revenues during the quarter was $18.7 million, in line with the guidance, representing an increase of 3.4% year-over-year. Despite significant and increased investments in new product marketing and sales initiatives, we maintain a strong finance position, delivering adjusted net income of $0.4 million and a positive operating cash flow of $0.2 million. Our 1.0 international data connectivity services business continues its robust growth, with the full-speed 5G network coverage now available in 90 countries and regions. This expansion further strengthens our market share and reinforces our leading position in the loan market.

A notable highlight this quarter was the showcasing of our newest innovative solutions for PayPal, IoT, TES, at MWC Barcelona 2025, including the eSIM Trail, Cloud SIM Kit, platform, new GoG50 Max, and the G40 Pro. These new and exciting technologies have been integrated into our broader series of GlocalMe and GlocalMe Insight solutions, driving growth and increasing visibility and interest among consumers, global operators, enterprise customers, and business partners. With this strong tailwind starting from the second quarter of this year, our emerging business line, GlocalMe, GlocalMe Life, GlocalMe IoT, are all projected to achieve active terminal growth, active terminal growth rate exceeding 100%, significantly contributing to our expansion and growth going forward as we build our global market data traffic sharing marketplace. Also, we expect that our GlocalMe mobile fixed broadband business line will steadily grow by approximately 10%.

Starting in the third quarter of the year 2025, we will begin regular disclosure of our key metrics, including user account numbers segmented by business lines, to provide greater transparency and allow investors to carefully track our progress in user growth. Following our MWC showcase, we are already capitalizing on high-value opportunities by engaging in advanced commercial discussions with multiple major operators worldwide, with several partners expected to be finalized in the coming months. At the recent MVNO World Congress year 2025, the premier exhibition for the MVNO industry, our four latest solutions are unveiled, generating widespread recognition as again changing innovations. These solutions are scheduled for commercial launch in May and June year 2025, with the scale production expected to begin in the third quarter.

In parallel, we have begun deploying AI intelligence to enhance operational efficiency and embedding it into a number of our solutions to improve the user experience and ensure seamless global connectivities. Alongside AI, our proprietary Hypercon top-tier six-tech positioning technologies continue to break barriers in the connectivity, revolutionizing digital experience for IoT, people, and tech worldwide. At CES 2025, our UniCord was honored with the Best of CES year 2025 Breakthrough Award by Android Authority. Underscoring our commitment to innovation, additionally, one of our subsidiaries hit a significant milestone as one of the first batch of 13 fully invested companies to receive approval from China MII for pilot operations of value-add telecommunication services. Our inclusion in the first batch, alongside affiliates of the renowned multinational cooperation, such as Deutsche Telekom, Siemens, Airbus, and HSBC, reflects the growing impact we are having in the sector.

This will enable us to provide Chinese consumers with a more diverse range of value-add telecom services and solutions to better meet growing digital lifestyle needs. This marks a significant step into expanding our global footprint and delivering cutting-edge connectivity solutions. I will now review highlights for each of our key product lines. I will start with GlocalMe line, where we just unveiled our first pet connectivity solution at MWC 2025 platform, a revolutionary addition to the digital ecosystem. PetPhone is the world's first smartphone for pets, offering fun AI pet interaction, six-tech global positioning for safety, and AI smart guardian health monitoring. PetPhone is receiving exceptional market validation in the pet care market, indicating that it will attract more users in the future.

It enables pet owners to communicate with their pets via a GlocalMe app, allowing them to call, send a voice message, play music, even set routines like feeding times, playing reminders. Pets can even initiate calls. This device tracks exercise, running distance, calorie burning, and activity levels, fostering a healthy lifestyle for pets. Pet owners can also join and create a community globally to engage with others like never before. These innovative groundbreaking devices redefine the bond between pets and their owners, and will enhance MVNO and mobile network operator subscribers' acquisition and revenue growth going forward. Alongside PetPhone, our UniCord plus loan plug solutions provide additional secure and reliable connectivity for daily life, freeing users from cumbersome devices while ensuring seamless and convenient experience. Turning to the GlocalMe IoT business, where we introduced the Cloud SIM Kit and all-in-one game-changing IoT solution.

This revolutionary plug-and-play IoT solution was designed to deliver instant global full-speed 4G and 5G connectivity for IoT and smart devices. This innovative solution can be seamlessly integrated into existing devices with SIM card slots, such as smartphone, CPE, and other IoT-enabled hardware. It is cost-effective, enterprise-grade, and offers superior network quality, ensuring the best coverage without the need for any hardware or software modifications. The plug-and-play nature of our CloudSIM technology transforms ordinary devices into enhanced connected assets. It offers globally scalable assets with flexible carrier switching and a competitive economy, empowering the IoT ecosystem with seamless and reliable connectivity. We have already achieved significant penetration in the automotive infotainment and camera markets, especially among the mainstream Chinese vehicle brands, which advance in breakthrough in specialized segments like security and dashboard cameras. Daily active IoT terminals increased 12-fold year-over-year in year 2025 Q1, with positive user feedback.

Our GlocalMe SIM business just unveiled another game-changing revolutionary leap in SIM technology, eSIM Trail, positioned as the best second SIM you can have. It enhances both domestic and international coverages by providing consumers with single SIM solutions for seamless local and global connectivity. It addresses core challenges faced by MVNO and mobile network operators, such as poor network performance and limited international roaming, and empowers tier two and tier three operators and MVNO that are unable to build independent network widely to deliver superior services and expand their market reach. eSIM Trail offers enterprise-grade security, global coverage, and at the best price, eliminates costly international roaming, delivering reliable high-speed connectivity across multiple networks. Lastly, our people-centric GlocalMe mobile fixed broadband business just unveiled the new GoG50 Max, a HyperConn 5G mobile Wi-Fi hotspot with AI-driven sky-to-ground connectivity.

This device enhances network quality through AI-powered real-time congestion detection, ensuring seamless connection regardless of where you are. Our advanced HyperConn technology delivers hyper-local global international assets, ensuring that users have high-speed connections and reliable network wherever they go, without the limitation of traditional roaming and/or carrier restrictions. The upgraded G40 Pro model supports speed three times faster than the traditional 4G device. It's the world-first enabled in flight Wi-Fi connectivity and integrating Wi-Fi network across various environments, such as homes, airports, offices, and cafes. All four business lines are now market-ready, which will be commercially available in Q2 year 2025, and attracting strong interest from partners, including global pet store chains, signaling significant market expansion potential as we engage in commercial discussions. As we innovate business lines, increasingly diversify our revenue streams to a mix of value-add services and mobile data traffic solutions that fit into our marketplace.

Our user base is gradually diversifying and scaling up. With our expanding product portfolio, deepening partnerships, and AI integration, we are confident in driven growth through the remainder of the years. As the mature regular disclosures of key metrics later will begin in 2025 Q3, we are better reflecting the direction our business is heading and provide investors with a clear understanding of the strategic progress we are making in building comprehensive global mobile data traffic sharing marketplace. Year 2025 marks our transformation year, during which our business expanded from a single line product line to four product lines, and the user figures to be released in Q3 will be crucial indicators of this transformation. With the optimism for the future in mind, I will conclude with our guidance for the next quarter.

For the second quarter of year 2025, we expect total revenue will be between $23 million-$25 million, representing an increase of 2.7%-11.6% compared to the same period of year 2024. I will now turn the call over to Mr. Shi.

Yimeng Shi (CFO)

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the first quarter of 2025. Average daily active terminal is an important operating metric for us, as it measures customer usage trends over the period and is reflective of our business performance. In the first quarter of 2025, average DATs were 308,863, of which 17,803 owned by the company and 291,060 owned by our business partners, representing a decrease of 0.3% from the 309,906 in the first quarter of 2024.

The average daily active terminal in the first quarter comprised 296,597 from GlocalMe mobile and fixed broadband business, 621 from GlocalMe Life business, 5,219 from GlocalMe SIM business, and 6,426 from GlocalMe IoT business, compared to 308,375, 201,829, and 501, respectively, in the first quarter of 2024. During the first quarter of 2025, 56.2% of DAT were from uCloudlink 1.0 International Data Connectivity Service, and 43.8% were attributed to uCloudlink 2.0 Local Data Connectivity Service. In March 2025, the average daily data usage per terminal was 1.59 gigabytes. As of March 31, 2025, the company had served 2,878 business partners in 63 countries and regions. The company had 183 patent applications with 169 approved and 14 pending approval. Wide approvals of the SIM card were from 391 MVNOs globally as of March 31, 2025.

Total revenue for the first quarter of 2025 was $18.6 million, representing an increase of 3.4% from $18.1 million in the same period of 2024. Revenue from service in the first quarter of 2025 was $14.2 million, representing an increase of 4.9% from $13.5 million in the same period of 2024. Revenue from service as a percentage of total revenue was 75.7% during the first quarter of 2025, slightly up from 74.7% during the same period last year. Geographically speaking, during the first quarter of 2025, Japan contributed 40.4% of our total revenue, China contributed 31.2%, North America contributed 12.9%, and other regions and countries contributed the remaining 15.5%, compared to 40.9%, 25.3%, 16.8%, and 17%, respectively, in the first quarter of 2024.

Overall gross profit was $9.7 million in the first quarter of 2025, representing a decrease of 3.1% from $10 million in the first quarter of 2024. Overall gross margin in the first quarter of 2025 was 51.7%, compared to 55.2% in the same period of 2024. The gross margins on service were 57.3% in the first quarter of 2025, compared to 65% in the same period of 2024. The gross margins on sales of product were 34.3% in the first quarter of 2025, compared to 26.2% in the same period of 2024. Excluding share-based compensations, total operating expenses were $9.9 million, or 53% of total revenue in the first quarter of 2025, compared to $8.5 million, or 47% of total revenues in the same period in 2024.

We record an adjusted net income lump gap of $0.4 million, compared to $1.3 million in the first quarter of 2024. Adjusted EBITDA was $1.4 million in the first quarter of 2025, compared to $1.7 million in the same period of 2024. For the first quarter of 2025, we achieved an operating cash inflow of $0.2 million, compared to $1.9 million in the same period of 2024. For the first quarter of 2025, our capital expenditure was $0.3 million, compared to $0.6 million in the same period in 2024. We maintained a solid balance sheet with a cash equivalent of $31.1 million as of March 31, 2025, up from $30.1 million as of December 31, 2024. With that, operators, let's open it up for Q&A.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Today's first question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Theodore O’Neill (CEO)

Thank you. Congratulations on the results for the quarter and your outlook. My first question is about the PetPhone product. If you could give us any highlights into the regions or the demographics of the customers you expect will be the most likely to be early adopters of this product.

Chaohui Chen (CEO)

Yes. I think we will launch in about another exhibition. We first announced we will launch the PetPhone in this industry. It caused a lot of interesting. Since we will launch this product at the end of May for commercial launch, we have many products. There are three main types of users. The fourth one is wired channel, wired channel, or pipe channel, like a pet channel. We approach a lot of the pet channel in Europe, in Asia, and also in the U.S., like a Cherry. We already own the commercial progress. It is quite attracting. I think we will be closed recently, in Q2. That is the fourth channel. The second channel is wired carrier, wired mobile virtual operator, or mobile operator or virtual operator. We help them to promote eSIM or SIM card into our PetPhone and help the carrier to acquire pet users. It creates a new, we are help carrier not only just from the traditional people IoT, now expand to the pet users.

We already have several carriers nearly finished the contract with us about reselling our Petphone product. The third is our traditional electronic channel. They are also interested in selling our product. I think so far everything's progress and testing is so good. Now waiting for our commercial version available end of this month.

Theodore O’Neill (CEO)

That's very helpful. My second question is about sort of the tariffs that are being raised and lowered. I'm wondering if the changes in all these tariffs are having any impact on your business.

Yimeng Shi (CFO)

Sorry. The question regarding the tariffs, so far we don't have implications by the tariff barriers between the U.S. and China. We have a stock product in the U.S. as a channel. That's available for our sale for a while. Also, we have outsourcing manufacturers in other sites that we learn.

We recruit manufacturers, outsourcing our manufacturers' terminal device in mainland and other countries. We have no tariffs between the U.S. and these countries. We expect the U.S. market is a growing market for our new business lines, like a pet phone, like IoT solutions. We prepare these solutions and the place to manufacture our product to overcome the tariff barriers between the U.S. and China.

Theodore O’Neill (CEO)

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

Operator (participant)

Thank you. Our next question today comes from Vivian Zhang with Diamond Equity Research. Please go ahead.

Vivian Zhang (Equity Research Analyst)

Hello. Thank you so much. Firstly, can you explain in detail the reasons for the increase in the cost of services and whether you will take any measures to control this cost extension?

Yimeng Shi (CFO)

Yeah. You have two relevants. One is regarding the cost of service.

That's reflecting, as we disclosed, the service cost margins are a little bit lower than the same period last year. That's because we mixed different sales categories across region and country. For instance, in the first quarter of this year, our outbound roaming service for our Chinese outbound travelers increased significantly. And these Chinese outbound travelers rent our terminals, our Wi-Fi hotspot terminals, for their roaming connections traveling outbound. In that case, this revenue of service generated by the Chinese outbound traveler has a significant weight in the overall service. That's something that impacts our overall service margins a little bit lower than the same period last year. This answers your first questions regarding the cost of service. The second is regarding the expenditures related to expansion and bonus.

Yes, as we disclosed, the first quarter of this year, we spent more expenditure than the first quarter of last year. The extra expenditures on sales and marketing for this new bonus. We attend quite a lot of market exhibitions worldwide. We invest over more than $1 million compared to last year on these marketings and promotions. We believe these expenditures on the marketings will bring more volumes of bonus to our futures periods. I think the revenues related to the new business line will come into account late this year or next years. One other matrix, as we disclosed, is daily active terminal related to these three new business lines, especially for IoT daily active terminal, is increased 12% compared to last year's same period.

This year, we expect the three new business lines, IoT, SIM, and Life series, their daily active terminal number will increase over one year's time compared with last year. We are on the right track to deploy our strategies from one business line MBB expansion to four business lines to grow. We believe that I think we followed the right strategies to support growth. Thank you.

Vivian Zhang (Equity Research Analyst)

Okay. I see. That makes sense. My next question is about the partnership you mentioned. Can you please share, can you please provide some information on the areas of collaboration you expect to see in the coming months?

Daniel Gao (Director of Investor Relations)

In the last question, I already mentioned some partnership. In the past, our partnership is more like international data and the local mobile broadband. That's how our partner is in the airport, in the airport, in the MAMO.

Since we have three new product lines, our partner become more and more partners. For example, first is our carrier customer do interesting in our product line. For example, our mobile virtual operator and tier two, tier three carrier operator, they are now very interesting in our SIM kits and SIM Trail. They think this is a killer application product because we bring international roaming to mobile virtual operator. That means never happened to this industry for mobile virtual operator first. The second, we help tier two, tier three carrier improve their roaming binding power and their roaming service quality. Normally, compared with the tier one carrier, tier two, tier three carrier, their roaming quality and network and partner is very weak. Now, working with us, they can become the superior to the number one of a carrier for the quality of the roaming.

We can help the carrier and tier two and mobile virtual operator compromise of their network coverage in local. Normally, they have a few investments in the base station. They have poor coverage. With our solution, under their coverage, they can use their original SIM card, original SIM information. Outside their coverage, they can use our SIM card and data traffic. That helps them to improve their quality for roaming and create new revenue for our SIM and SIM trail. Our new product for PetPhone, I think it's very popular no matter tier one or tier two carrier or MVNO carrier. They all like this solution because we create new revenue for these partners. That is the fourth product in the industry. Carrier promoter product is much faster than traditional other channels.

They can, for example, buy data and give free device, etc. We help them to develop to get the new users from the pet market. Also, our UniCord, our Life serial product can enhance the loyalty of the customer, can make the retention of customer become more loyalty. That helps the customer to get more revenue from the retention. I think combining with the original SIM card and our Life product with a bundle package, customer become more loyalty. All these reasons mean in the last year, we have very few of these carrier partners. Now, since the MWC and last week, Mobile World Congress, we get a lot of interesting. Recently, I think we will close some deal with this carrier. You can wait for our IR in the coming months.

Finally, we also have invested in our traditional mobile broadband product. Our traditional product majorly is used for travel, for people travel outside. Now, our new product can, one device, one account, let our users not only for travel, but also in a home, at office, even in airflight. They do not need to switch the account and the device. Just one device, one account, they can enjoy the best network quality worldwide for the best connection. Also, they can get the most cost effect. For example, at home, at office, we prefer use the free office Wi-Fi or home Wi-Fi. Once the Wi-Fi coverage is poor or coverage is bad, we can back up by the 4G and 5G network. That means we can provide the best connection and cost effect in the world with one device and one account.

Here, also, it's more enterprise user now, travel users interested in working with us. I just give this information about the new partner and the new channel working with us.

Vivian Zhang (Equity Research Analyst)

Okay. Got it. That's very helpful. Thank you. That's all my questions.

Operator (participant)

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

Daniel Gao (Director of Investor Relations)

Thank you, Wen Shi Jian, 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 firm, Great Intention Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

Operator (participant)

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.