uCloudlink Group - Q2 2023
August 16, 2023
Transcript
Operator (participant)
Good day, welcome to the uCloudlink Group Inc. second quarter 2023 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 1 on your touch-tone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Jillian Zhang, Investor Relations. Please go ahead.
Jillian Zhang (Director of Investor Relations)
Thanks, everyone, for joining us on our second quarter 2023 earning call today. The earnings release is now available on our IR website at ir.ucloudlink.com and via Newswire services. I will give a brief introduction to our uCloudlink management team. Mr. Zhiping Peng is our Co-founder and Chairman of Board of Directors. Mr. Chaohui Chen is our Co-founder, Director, and Chief Executive Officer. Mr. Yimeng Shi is our Chief Financial Officer. Mr. Chaohui Chen, our Co-founder and CEO, will begin with an overview of the company's recent business highlights, which will cover the earnings presentation posted on our IR website. Mr. Yimeng Shi, our CFO, will discuss company's operational highlights and financial results. 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 are expressly qualified in their entirety by the cautionary statements, which factors and details of the company's filings with the SEC. The company does not assume any obligation or 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 earning press release and this conference call include discussions of the unaudited GAAP financial information and an 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 our Co-founder and CEO, Mr. Chaohui Chen. Please go ahead.
Chaohui Chen (CEO)
Thank you, Jillian, good morning, everyone. Thank you for joining us on our second quarter 2023 earnings call today. We appreciate everyone's time. We were pleased to have achieved positive cash flow from operations for a fifth consecutive quarter. During the quarter, we reported strong top-line growth, with total revenues of $22 million, at a 21.9% increase from the prior year period, and the average daily active terminals continues to increase and once again reached a record high over 310,000. During the second quarter of 2023, revenues from uCloudlink 1.0 international data connectivity services business, and we call uCloudlink 1.0 business, increased by 32.5% year-over-year to $9 million.
The average daily active terminals from uCloudlink 1.0 business increased by 57.7% year-over-year, primarily as a result of the recovery in international travel. While outbound travel from China remains somewhat limited in the first half of 2023, Chinese tourists utilizing GlocalMe brand services still have contribute an increasingly considerable amount to our international data connectivity services. Our unique 5G portable Wi-Fi terminals and the various data traffic packages from 4G to 5G are widely recognized by the market for the ability to elevate user's experience across a broader audience, which will enable us to maintain our leading positions in the global roaming market. I'm pleased to share a few recent developments in our 1.0 business. In July 2023, we launched the GlocalMe SIM card.
This SIM card is backed by our patent CloudSIM technology, which allows our customers to freely purchase and use multiple global data plans as needed. As of launch, this global eSIM cover ten major destination countries, including Japan, the United States, Australia, and we expect to gradually expand its availability to additional countries and regions. In addition, we are launching a pilot sales of a GPS tracking-enabled roaming portable Wi-Fi terminals that we believe will be the smallest one in the world. The innovative product range cover portable Wi-Fi, GPS tracking-enabled roaming terminals, and the global eSIM card.
Add to our ever-expanding uCloudlink 1.0 business portfolio of offerings, through which we help our global users base achieve a leading zero roaming experience in various application scenarios to satisfy their cross-border data demands, driving comprehensive competitive advantages that enhance our business performance. We remain optimistic about the prospect of uCloudlink 1.0 business. We believe that this higher margin business will continue to serve as a key growth drive into the future. uCloudlink 2.0 local connectivity services business, we call uCloudlink 2.0 business, maintain continuous development, which report $2.2 million in revenues, up by 23.1% from $1.8 million in the second quarter of 2022. During this quarter, our upgraded customer premises equipment
This product enables a seamless transition between fixed and mobile network, serving as a substitute for traditional fixed line broadband, suitable for home and office internet connection use. We are confident that the upgraded CPE will allow us to further gain the market share in the fixed broadband, we call FBB market. What I discussed just now outlines our data connectivity services business. I would like to highlight uCloudlink's PaaS and SaaS solutions, which is a line of business where we see great potential. On the IoT side, uCloudlink's IoT module will begin to be commercially embedded into the devices of a major mobile network operators in Japan within year 2023, making a significant expansion into IoT application scenarios. Adding to the embed IoT module, the GPS tracking-enabled roaming portable Wi-Fi terminals and upgraded CPE.
This offering will generate recurring PaaS and SaaS services revenues, apart from data connectivity services revenue and sales of products. We look forward to applying our PaaS and SaaS solution to provide additional services, including customer management services, emergency and security communication services, and the GPS tracking services. Among the others, expanding our user base and application scenario, and are contributing to the growth of our revenues. During the quarter, we continued to prepare for the full initiation of our one-stop comprehensive marketplace app, a centralized platform application that allows users, users to access our full portfolio of services. We believe that we are approaching the launch of one-stop marketplace app, which will enable us to attract more users and customers beyond their users, beyond the users, users of portable Wi-Fi step by step.
We remain confident in our team's capabilities to launch the app in the near term. In conclusion, we were pleased with the progress we have made in our growth initiatives, as well as the improved financial results we have achieved in the first half of the year. We are pleased to be at the forefront of the innovation, and expect to continue expanding our portfolio of offerings based on our innovative CloudSIM technology and the HyperConn solutions, which demonstrates our strong research and development capability, laying a solid foundation for future growth. For the third quarter of 2023, uCloudlink expects total revenues to be between $...
$23.5 million-$24.5 million, representing an increase of 29.1%-34.6% compared to the same period of 2022. We will continue playing a significant part in integrating high-quality data connectivity experience into various life scenarios. We believe that our solutions truly enable our customers and users to live a more convenient and intelligent life, from connected to be better connected. I will now turn the call over to our CFO, Mr. Yimeng Shi.
Yimeng Shi (CFO)
Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the second quarter of 2023. Average daily active terminal, DAT, measure the trend of customer usage over the period, reflecting our ongoing business performance. In the second quarter of 2023, average daily active terminal was 318,778, of which 7,386 owned by the company, and 311,392 owned by our business partners, up by 9% from 292,432 in the second quarter of 2022.
The average DAT for our uCloudlink 1.0 and uCloudlink 2.0 business account for around 46.4% and 53.6% of total DAT, respectively, during the second quarter of 2023. Average daily data usage per terminal was 1.59 GB in June 2023. Total revenue for the second quarter of 2023 were $22 million, representing an increase of 21.9% from $18 million in the same period of 2022. Revenues from service were $14.1 million, an increase of 25.2% from $11.2 million in the same period of 2022. Revenue from service, as a percentage of total revenue, was 64.1%, up from 62.5% during the same period of 2022.
During the second quarter of 2023, as a percentage of our total revenue, Japan contributed 43%, North America contributed 29.5%, Mainland China contributed 11.6%, and other countries and the region contributed the remaining 15.9%, as compared to 38.1%, 39.2%, 1.4%, and 21.3% in the same period of 2022, respectively. The revenue from Mainland China increased significantly, primarily due to the recovery of international travel from the Chinese tourists utilizing Roamingman brand service. Overall, gross margins was 44.9% in the second quarter of 2023, as compared to 44.1% in the same period of 2022.
Gross margins on service was 58% in the second quarter of 2023, as compared to 56.2% in the same period of 2022. Excluding share-based compensations, total operating expenses were $3.3 million, or 33% of total revenue in the second quarter of 2023, as compared to $7.6 million, or 41% of the total revenue in the same period of 2022. We narrowed net loss significantly to $0.9 million in the second quarter of 2023, compared to a net loss of $6.3 million in the second quarter of 2022. Adjusted EBITDA non-GAAP improved to $2.1 million during the second quarter of 2023, as compared to negative $1 million in the same period of 2022.
We achieved positive operating cash flow, $3.4 million, during the second quarter of 2023, as compared to $2.5 million during the same period of 2022. We successfully achieved positive cash flow from operation for a three consecutive quarter, accumulating operating cash flow of $13.9 million through the five periods. In the second quarter of 2023, we continued to improve our financial performance, and we believe that we are well positioned to execute on our growth initiatives. With that, operator, let's open 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 one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
Theodore O'Neill (Research Analyst)
Thank you very much. My first question is about product sales in the quarter. They were up, sequentially from the first quarter, quite a bit. Is there a particular reason for that, strength in Q2 versus Q1?
Chaohui Chen (CEO)
You, a question regarding the 2Q revenues, compare with the 1Q of this 2023? That's your-
Theodore O'Neill (Research Analyst)
Yes, only for products, not, not services. Just the, the product strength, growth was strong in the, in Q2 versus Q1. I was just wondering if there was something going on in Q2 for products that was different from Q1.
Chaohui Chen (CEO)
Yeah. I think the two reason made this happen. One is because of, you know, the, as not, is the, you know, because COVID-19 is over all over the world, including China, Japan, Southeast Asia. The first quarter just for China, the first quarter just opening. Everything still in, so there is no fast growth. That is why, the first reason because COVID-19 is over. The second is now, the worldwide of our customer prepare for the, you know, summer season. These two reason made, you know, the equipment, you know, growth.
Theodore O'Neill (Research Analyst)
Okay. My next question is about the GPS tracker-enabled portable terminal. Is that, having a GPS tracker inside the terminal, is that to prevent theft, or does the GPS info feed into the SIM card selection, or?
Chaohui Chen (CEO)
Sorry, can you repeat your question?
Theodore O'Neill (Research Analyst)
Yeah. On the GPS tracker-enabled portable terminals, if you, there's a GPS tracker in there, is that to prevent the terminal from being stolen, or does the GPS, the information from the GPS feed into the, to the SIM card selection?
Chaohui Chen (CEO)
Yes, let me answer. Well, we just newly launched a new product in the second quarter, so I think it's a smaller volume, smaller volume, smaller volume launch. It's very small, very tiny, about 40 gram. The weight is around 40, like, smaller than a business card, smaller, smaller than business card. It's convenient. It's smallest, you know, portable Wi-Fi and a multi-function with the GPS tracking, SOS, function. Why we launched this kind of product? That's because we try to let the people understand not only for connection, because our multi-network CloudSIM technology and the HyperConn will enable people get a better coverage.
These technology, not only we can apply into the connection for better connection, but also because of better connection, we can enable people to find a lost goods much easier because we get a better coverage. All the lost, all the GPS information is easily to be via our 4G sent back to the server and let the people can find the loose material or the people who lost. Easy to SOS for, you know, get a ask help. That's the reason we are now expanding our business from a connection to be that the people who need a better coverage and need this, like, tracking and help requirement.
Theodore O'Neill (Research Analyst)
Oh, thank you very much. That completes my questions. Thank you.
Operator (participant)
Again, if you'd like to ask a question, please press star then one. Our next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.
Vivian Zhang (Analyst)
Hello, this is Vivian with Diamond Equity Research. Congratulations on the nice quarter. I have two questions for you. First, first one is about the operating expenses, because in the quarter, the research and development expenses decreased by, like, over 36%, while sales and marketing expenses increased over 40%. Can you explain why this happened? Does this mean that the company's spending will be focused more on the marketing side?
Chaohui Chen (CEO)
Yes. Yeah, you, you have, the figures tells, how we are managing our headcount, relevant cost, and also the other business-driven, expenses as well. Yes, for R&Ds, we, we managing tightly on the increased headcount. Even this year, we, we expect the, the business-
Yimeng Shi (CFO)
... activities is increasing and the revenue will growth. We managing, we're managing this program under the tight cost control measures. There's R&D's headcount is not increasing as we revenue growth expectations. On other side, as you saw, our sales, as the market sectors expenses compared with the last year period increasing. This came from two driver. One is the sales guide, the headcount sales guide increasing increases compared to last year's. As we explained in the IR, and Roamingman brand service contributes a lot of revenue for a Chinese outbound tourists. Our headcounts for the China mainland this business increase.
All this headcount increase is under our budget. That's, that's reflecting our growth, and we control our budget in line with the growth activities.
Chaohui Chen (CEO)
Yeah, let me add more 2 more comment. I think at our Q2, the major revenue still come from our traditional product, but especially for our 5G product. That's quite popular, because we are the only 1 currently launching the 5G worldwide, 5G worldwide connection. This quite popular and generate a good revenue. More than the traditional product, in the second quarter, we launched 3 new product. That means our R&D capabilities is very stronger. We can in 1 quarter launch the 3 new product, and this new product just end of the second quarter. I think in the next 2 quarter and, and the, and the, next year will help us win the more, you know, revenue and, and the, and the users.
These three product, I think, you can see is about our GlocalMe first. Second is our high reliable CPE, upgraded CPE, that then can enable the enterprise, office, and home to get a high reliable network to secure their fixed network, no in, no drop, for disaster recovery. Then, the last one, we just launched smallest car size, you know, tracking and Wi-Fi product. This product can go to the daily life of people. All these three new products, I think, demonstrate our R&D has a very strong capability.
Even during the last painful years, we still can launch our new product in the second quarter. I believe this new product I just mentioned, can, in the following quarter and the next year, will generate more revenue and users for us. Thank you.
Vivian Zhang (Analyst)
Okay, okay, understand. Next question is that could you elaborate on the like, what drove the company's revenue growth in China, and your products and growth strategy there? Because I see the proportion of revenue from China increased a lot this quarter. Can we expect this growth momentum to continue? Thank you.
Yimeng Shi (CFO)
Yes, we, as we disclose the third quarter's guidance, the growth rate will be go to 30% around compares the same period of 2022. We expect this a peak season for summer holiday and, and yet same for Chinese, Chinese outbound tourists. This, this summer, the summer holiday is the, is peak, peak time for, for our years, for this years. We expect the growth momentum came from the international travel.
It's a pick-up time, so that, that, that's, that's the main still a driver for our growth revenue in the third quarters, and also will contribute our improving our service gross margins, and contribute to our strongest financial position in terms of operating cash flow and this adjusted late income.
Chaohui Chen (CEO)
Yeah, so, I, I, I still add more to comment. The first, because, yeah, we can see the, you know, report from the government. The first half years of China outbound tourists only recover 30%. So you can see the smaller per compare years without, before COVID-19, only 30% recovery. So people, the government forecast, during the next holiday, like National Day, will be go to the 50% around this figure, almost another big growth.
Yimeng Shi (CFO)
... another reasons we understand, because of the visa and a visa issue and the passport issue during the COVID-19. We haven't seen a big increase from the Chinese people. Even this smaller percentage already give us a good revenue. We believe that once the visa problem and the passport problem and the opening of the boundary become more. I think this barrier was overcome, I believe, in the third quarter and fourth quarter, we will get a much better, you know, revenue from the China market for Roamingman.
Jillian Zhang (Director of Investor Relations)
Okay, that helps. Thank you. That's all my questions.
Operator (participant)
Our next question comes from Zhenni Li with Great Wall Securities. Please go ahead.
Stefan (Analyst)
Yeah. Hi, this is Stefan from Great Wall Securities. I have a question about the PaaS and SaaS services, because we see the revenue of this part, like, doesn't have a obviously increased compared to the first quarter. I want to know the, maybe the, the process of this, so, PaaS and SaaS service development, at this time. Yeah.
Yimeng Shi (CFO)
Yeah, yes. You, you see, we in the second quarter 2023, our service revenue segment increased significantly, it with a mix of the three main types service revenues. International roaming connectivity service, a local connectivity service, and a PaaS, SaaS service. Among the three categories, roaming service is the increase number 1 in terms of growth rate. PaaS, SaaS is in 3rd place in terms of growth rate. It's, it's growth. As we report our daily active terminal in the second quarter, reach a historical record high, and more over 310,000. That's our, our foundation to, foundation to reflect our growth foundation and activity is growing.
Why is this PaaS, SaaS revenue's growth rate is, is, is in a third place? It depends our monetized business models. We have three main business models. One is the B2C retail business model, and the second is B2B2C wholesale business model, and the third one is PaaS, SaaS platform. It depends if the our business partners choose which, which business models is, is suitable for them. You would people to choose the B2B2C wholesale business model in a roaming, roaming sectors. We will have a more roaming service generated from this commercial term. We sometimes, we don't double charge wholesale, wholesales package to the partner and PaaS, SaaS platform. That's the...
Overall, our activity is growing in line of the growth growth total. As we disclose as well, the, we launch 3 products in the in the in this quarter. Globally, SIM card and this smallest Wi-Fi, portable Wi-Fi, with the GPS track function and IoT modules delivers to a main main operator of the mobile network operator in Japan. This IoT modules, IoT module deliveries, most will generate more PaaS, SaaS service in the future to our account. For this others function, like GPS, GPS tracker, will also generate platform service, PaaS, SaaS service to account as well in the future. The momentum for PaaS, SaaS revenue growth is still strong.
We managing our performance in terms of overall of three main categories of service sector.
Chaohui Chen (CEO)
Yeah, I think, because we launched new product and a new service, I think we are expansion our PaaS, SaaS revenue, not only traditionally come from the connection services and the data, data volume, but now we expansion to the new area, like, I just mentioned, as GPS tracking, high resolution and high availability tracking. That's our unique services. Also in the future about the SOS in the high, you know, % for emergency services. All these type of the. Also, like, high reliable CPE. High reliable CPE, high reliable, high reliable router. Even the data, data usage is quite smaller, but people buy for, you know, you know, buy for emergency.
the, like, buy for, I think, like
Yimeng Shi (CFO)
Insurance.
Chaohui Chen (CEO)
Insurance. Like, buy, like, buy insurance, for the high quality connection. I think this kind of the services, more, more be aware by the people, more, more easy understanding rather than the connection. This type of the services will generate more, you know, PaaS and SaaS services revenue in the future.
Stefan (Analyst)
Oh, yes. Yeah, I got it. Okay, thank you very much.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Jillian Zhang for closing remarks.
Jillian Zhang (Director of Investor Relations)
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 contact our IR relations firm, The Piacente Group. We look forward to speaking to you again on our next quarter. Thank you.
Yimeng Shi (CFO)
Thank you.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.