uCloudlink Group - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good day and welcome to the uCloudlink Group Inc. Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in a 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 a 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 Daniel Gao. Please go ahead.

Daniel Gao (Director of Investor Relations)

Hello, everyone. Thank you for joining us on uCloudlink's Fourth Quarter and Full Year 2024 Earnings Call. The earnings release and our earnings presentation are now available on our IR website at ir.ucloudlink.com. Joining me on today's call are Mr. Zhiping Peng, 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 provision 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 massively 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 the 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 measures.

uCloudlink's press release contents are reclassification of the undoubted non-GAAP measures to the most directly comparable undoubted GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Chaohui Chen (Co-founder, Director, and CEO)

Thank you, Daniel, and good morning or evening, everyone. We closed out the year with a solid performance as our expanding GlocalMe ecosystem continues to gain growth momentum. Revenues in year 2024 increased 7.1% year-over-year to $91.6 million, with net income $4.6 million and net cash flow from operations of $9.2 million, representing a significant 41.2% increase from the last year. Total revenue during the year from the mainland China region, in particular, increased 97.4% year-over-year, indicating that our uCloudlink 1.0 international data connectivity solutions have been more widely adopted by Chinese consumers and strengthening our leading position in the global MiFi market. Total revenue during the fourth quarter, which is typically impacted by seasonality, exceeded the third quarter with peak summer activity, maintaining a consistent upward growth trajectory. Year 2024 marked the 10-year anniversary since our founding.

Our comprehensive connectivity services, powered by Cloud SIM and the HyperConn solutions, cover over 160 countries across six continents. We have served 2,818 business partners in 62 countries and regions, indicating a growing ecosystem of GlocalMe solutions for daily use. While this is impressive, we have much more in store for year 2025. Our GlocalMe ecosystems continue to thrive as we broaden our portfolio of solutions to service a wider variety of user needs. As artificial intelligence (AI) becomes more widespread, we have begun deploying it internally to enhance operational efficiency and integrated it into a number of our solutions to improve the user's experience, ensuring seamless connectivity for users globally. In addition to AI, we are leveraging our proprietary HyperConn, Cloud SIM, and six tech positioning technologies to break barriers in connectivity, creating innovative solutions that enhance digital experience worldwide.

The revolution lies in connectivity for IoT, people, and pets. At MWC 2025, we showcased these new and exciting technologies that have been integrated into innovative solutions that will further strengthen the tailwinds behind our broader series of GlocalMe and GlocalMe Inside solutions. Furthermore, at the CES year 2025, our UniCore was honored with the Best of the CES 2025 Breakthrough Award by Android Authority, underscoring our commitment to innovation. In a significant milestone, one of uCloudlink's subsidiaries was among the first batch of the 13 foreign investing companies, alongside affiliates of renowned multinational corporations such as Deutsche Telekom, Siemens, Airbus, and HSBC, to receive approval from the China Ministry of Industry and Information Technology (MIIT) for pilot operations of value-added telecommunication services.

This approval grants us the ability to provide internet access and information services in China, making pivotal steps in expanding our global footprint and delivering cutting-edge connectivity solutions. First, let me start with our GlocalMe life and pet connectivity solutions, where we just unveiled PetPhone at MWC 2025, a revolutionary addition to the digital ecosystem. The world's first smartphone for pets offers funds, API pet interaction, safety, including the six tech global positioning, health, AI smart guardians, and community engagement, global pet community. According to Morgan Stanley, annual spending growth in the pet industry could reach 7% by year 2030, year-by-year, I think, translating into the total industry spending will increase to $261 billion, reflecting the enormous opportunity we are tapping into with this solution. PetPhone makes a great addition alongside long-plugged UniCore key track into our portfolio.

Turning to GlocalMe Internet of Things IoT connectivity solutions, where we unveil the Cloud SIM Kit all-in-one IoT solution at MWC year 2025, our Cloud SIM Kit is a revolutionary plug-and-play IoT solution designed to deliver instant global full-spec 4G and 5G connectivity for IoT and smart devices. These innovative solutions can seamlessly integrate into existing devices with SIM card slots, such as smartphone, CPE router, and IoT-enabled hardware. By simplifying inside the Cloud SIM Kit into the SIM slot, users can unlock global connectivity without the need for additional hardware or software modifications, making it an ideal solution for a wide range of applications and scenarios.

With the combination of the Cloud SIM Kit, our pioneering software Cloud SIM technology, and our innovative SIM card solutions, GlocalMe IoT offerings now comprehensively address the connectivity challenges across all IoT scenarios, whether for the existing legacy devices or new incremental markets. Our solution provides seamless, reliable, and scalable connectivity. This breakthrough not only enhances the versatility of IoT applications but also significantly expands the market potential for GlocalMe, positioning us as a leader in global IoT connectivity solutions. Following the success of small-scale commercial applications of our soft Cloud SIM technology with several leading manufacturers in the security camera, dashboard camera, and other related sectors, the commercial application of our GlocalMe IoT solutions scaled up significantly during the first quarter.

GlocalMe IoT user numbers are growing rapidly and are expected to ramp up going forward, allowing us to demonstrate the strength and the capabilities of our solutions to an even broader audience across the IoT sectors. For our GlocalMe SIM business, we just unveiled eSIM Trio at MWC year 2025, a revolutionary leap in SIM technology, positioned as the best second SIM card you can have. It enhances both domestic and international coverages, providing consumers with a single SIM solution for seamless local and global connectivity. Additionally, it empowers tier-two, tier-three operators and mobile virtual operators by addressing challenges such as poor network performance, limited international roaming, and the inability to build independent networks, enabling them to deliver superior services and expand their market reach. This eliminates the need for costly international roaming and provides users with reliable, high-speed connectivity across mobile network operator networks.

Lastly, for our people-centric connectivity, our GlocalMe mobile fixed broadband business line, where we just unveiled the MeowGo G50 Max, a HyperConn 5G mobile Wi-Fi hotspot with AI-driven sky-to-ground connectivity at MWC 2025. This mobile Wi-Fi hotspot improves network quality with AI-powered real-time transition detection, offering a seamless and better connection experience regardless of where you are. Our advanced HyperConn technology delivers local and global internet access, ensuring users have high-speed connections and reliable networks wherever they go, without the limitation of the traditional GlocalMe or carrier restrictions. At MWC year 2025, we unveiled the revolutionary Upgrade U40, capable of delivering speed three times faster than traditional 4G devices. These groundbreaking solutions seamlessly integrate Wi-Fi networks across home, airport, cabin, office, café, and more, while also being the world's first device to support in-flight Wi-Fi connectivities.

We also made breakthroughs in developing retail channels for our GlocalMe mobile fixed broadband and Life solution during the quarter by signing cooperation agreements with North America's largest airport retail channel and making them widely available across airport retail located in North America. We are now actively negotiating to expand this partnership across Europe soon and looking to replicate this process through other channels to expand their exposures to a broader audience. Following our successful launch at MWC 2025, all four product lines are now market-ready. We strongly interest from partners, including global pet store chain, who have initiated high-level discussions signaling significant market expansion potential. Our goal is to aggressively promote these lines toward a full marketplace vision. GlocalMe Life, including the PetPhone, aims for tens of millions of users.

GlocalMe SIMs and IoT target hundreds of millions, and GlocalMe mobile broadband strives for millions of users, driving impactful growth across all business lines. With these innovative business lines increasingly creating new revenue streams fading into our marketplace, our user base is diversifying and scaling up. We have an exciting year 2025 ahead of us with many more solutions in the pipeline, where we will further consolidate the convenient, secure, and premium connectivity between mobile internet, fixed broadband, Wi-Fi, and satellite communications with centralized AI management. With all these innovative solutions increasingly contributing to new revenue streams and further scaling up our user base, I'm confident we are on the right track to build an integrated and comprehensive global mobile data traffic sharing marketplace that will create long-term sustainable value for the shareholders.

With the optimism for the future in mind, I will conclude with our guidance for the next quarter and the year. For the first quarter of year 2025, we expect total revenue to be between $80.2 million and $90.5 million, representing an increase of 0.6%-7.7% compared to the same period of year 2024. For the year 2025, we expect total revenue to be between $95 million and $130 million, representing an increase of 3.7%-41.9% from year 2024. I will now turn the call over to Mr. Shi.

Yimeng Shi (CFO)

Thank you, Mr. Chen. Hello, everyone. We'll go over our operational and financial highlights for the first quarter and full year of 2024. 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.

Average Daily Active Terminal (DAT) in fourth quarter were 308,386, of which 54.3% were from uCloudlink 1.0 international data connectivity service, and 45.7% were from uCloudlink 2.0 local data connectivity service. Average daily data usage per terminal was 1.55 GB in December of 2024. As of December 31st, 2024, the company has served 2,818 business partners in 62 countries and regions. The company had 185 patents with 165 proof and 20 pending approval, while the pool of SIM cards are from 391 MNOs globally as of December 31st, 2024. Total revenue for the first quarter were $26 million, representing an increase of 19.5% from $21.7 million in the first quarter of 2023. Revenue from service was $15 million, representing an increase of 0.6% from $14.9 million in the same period of 2023.

Revenue from service as a percentage of total revenue was 57.8% during the first quarter of 2024, compared to 68.7% during the same period of 2023. Geographically speaking, during the first quarter of 2024, Japan contributed 53.6%, mainland China contributed 20%, North America contributed 12.1%, and other countries and regions contributed the remaining 14.3%, compared to 43.1%, 16.5%, 21.3%, and 19.1% respectively in the same period of 2023. Overall gross profit was $11.2 million in the first quarter of 2024, relatively stable when compared to $11.3 million in the same period of 2023. Overall gross margins were 43% in the first quarter of 2024, compared to 52% in the same period of 2023. Gross margin on service was 58.6% in the first quarter of 2024, compared to 60.1% in the same period of 2023.

Gross margins on sales of products decreased to 21.7% in the first quarter of 2024 from 34.2% in the same period of 2023. Excluding share-based compensations, total operating expenses in the first quarter of 2024 were $13.9 million, or 53% of total revenue, compared to $11.6 million, or 53% of the total revenue in the same period in 2023. Net loss was $1.5 million in the first quarter of 2024, compared to $1.8 million in the same period of 2023. Adjusted EBITDA was negative $2.3 million in the first quarter of 2024, compared to positive $1.5 million for the same period of 2023. Moving on to 2024 full year's financial results.

Total revenue for 2024 increased by 7.1% to $91.6 million from $85.6 million in 2023, driven primarily by the revenue increase from data connectivity service and the PaaS and SaaS service. Revenue from data connectivity service was $47.6 million, representing an increase of 1.9% from $46.6 million in 2023. Within data connectivity service, revenue from international data connectivity service rose to $39.5 million in 2024 from $37.8 million in 2023, driven primarily by the continuous recovery of international travel, which was partially offset by a decrease in revenue from local data connectivity service to $8.1 million in 2024 from $8.8 million in 2023. Overall gross margins were 48.4% in 2024, stable when compared to 49% in 2023. Our gross margins on service increased to 60.8% in 2024 from 58.5% in 2023.

Excluding share-based compensations, total operating expenses in 2024 were $40.8 million, or 45% of total revenue, compared to $34.6 million, or 40% of total revenue in 2023. We achieved a net income of $4.6 million in 2024, up from $2.8 million in 2023. Adjusted EBITDA was $7.1 million, compared to $9.8 million in 2023. For the full year 2024, our capital expenditure was $4 million, compared to $2.1 million in 2023. For the full year 2024, we achieved positive operating cash flow of $9.2 million, compared to $6.5 million in 2023. Moving on to balance sheet items, our cash and cash equivalent increased to $30.1 million as of December 31, 2024, compared to $27.7 million as of September 30, 2024.

We remain committed to enhancing the company's financial positions over the course of the years and are well-positioned to continue growing our business. With that, operator, please 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, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Theodore O'Neill (CEO)

Yes, thank you very much. My first question is about the PetPhone.

What I'd like to know is, what's the benefit of the PetPhone and what will it allow me to do?

Chaohui Chen (Co-founder, Director, and CEO)

Yes. On the PetPhone, I think we enable pets, like children under seven years old, similar smart. They can use the smartphone to call their other dog or other pets or their owners to express their needs, their moody, such as, for example, they are hungry, they are thirsty, they want to go outside, and they are missing their friends. They can use their body languages. They can use their spatial tone to express this message or calling to their different friends, different pets, and their owners. They are with shortened distance. No matter the owner or friends, where they are, they can contact their pets. They can express their caring for each other. That's quite unique, a creation point.

That's why in the MWC 2025, we get many, many attractions from the local seven, I remember, seven TV, and a lot of the very famous, like this famous broadcaster, I think, is approaching us to understand this product. It's not only just interaction with the people and the pets, but also we create, I think, a pet community, social. For example, if the dog with our PetPhone goes to the park, if another dog is approaching, the PetPhone, the light will flash, and the tone will give a reminding, "Oh, you have a new friend coming," or "You have a good friend coming," or "You have a bad friend, your disliked friend coming." We can make this happen. This is quite attractive. Also, we have security. We have six positioning.

We can find any other tracking tracker or AirTag can notify because we have six positioning technology, quite unique. We already proved in last years. Finally, we have also the geofencing. We have spots, and we can understand their moody, and we can monitor. We can alert this if something's wrong or improper behavior. That's quite unique for this product. We believe the pet deserves a handset. That's quite a bright, huge market. By the way, I think that we get a lot of the carrier like our product. We are not just selling our this product we launched in April, but we are not just launching this product in the open market. More important, we successfully attract carrier because we help carrier create revenue not only from people and IoT, but more important, we create a new market, like pet market.

It's a growing market. They can sell out their subscriber. They can sell a SIM card. That's quite important to the carrier in such a competitive market.

Theodore O'Neill (CEO)

That's very interesting. You may have inadvertently answered my next question, but of the items you've introduced at MWC, the PetPhone, eSIM Trio, Cloud SIM Kit, and HyperConn, do you think the PetPhone is going to have the biggest impact in 2025 of those?

Chaohui Chen (Co-founder, Director, and CEO)

Yes. That's why I think we have become very famous in Spain because there are seven TV broadcasts approaching us and a long-time interview with our guys. That's why recently, just about after the MWC, several days later, we already had a successful meeting with the biggest pet channel in Spain. In the past, that's unbelievable, but now it does happen. That's why PetPhone is quite unique. We create this new device for the new market.

That's first. Also, our second starter product is the eSIM Trio and the SIM Kit because we enable from the subscriber side, if the end user uses our eSIM Trio or our SIM Kit, that means there will be no more carriage issue, roaming issue, congestion issue. In this case, it becomes very unique. It's a long-term, I think people will need a second SIM slot, a second SIM card for permanent use, because we can solve such three problems that force the SIM card. We are faced with these three challenges. Also, we are more important. We enable tier two, tier three carrier. They no longer have this roaming issue, congestion issue, carriage issue. That means they can use our eSIM Trio and the SIM Kit, CloudSIM Kit, to use other carriers' network to build their business and service.

Without our technology, I don't think in the domestic, they can use the other carrier network to build their business without carriage, without revenue. Now we changed this situation. We can have a tier two, tier three carrier, so use the other carrier network for roaming and for domestic roaming and international roaming, for congestion and for carriage as well. That's quite a unique part. We also have a lot of tier two, tier three carrier approaching us. They are quite interesting because we can save their spending in the base station building. They no longer need to immediately build a local and a domestic carriage. They have no dispatch anymore. They can quickly expand their business to the future. They can build their own base station based on their needs and their data. By the way, also, we have the third product.

Last year, we just showed our UniCore product. Now we have three products for the UniCore, this family. We are offering a cable with a power charge of 60 W, but also with 4G capability in this cable, just $5 more. That's for our UniCore entry level. We have a middle-tier level, that's a very compact, we call a compact model. You can screw up your wire in a very small, extremely portable. For battery inside, for Wi-Fi inside, for positioning inside, with this UniCore, we call, I think, this is extremely portable. Extremely good for your business and your car and add safety because positioning will always you're never missing the car. You can find your car always. You're never losing your luggage. Also, you get the data. Anyway, it's good for your portable, extremely portable for your cable. You need a cable for power.

We have another we call multipurpose, multifunctions UniCore. This is high-end. They can provide high speed for eight people use or five people use the internet data charge. It can be a computer dock. We are not occupied with Type-C. It is also with the battery and with the positioning. You never lose your goods, your property. Just one cable, we can solve the safety, convenience, and easy your trip and your safety, your property. That is the third product. The final product is about our we provide HyperConn technology and satellite connection into our traditional MiFi product, mobile hotspot worldwide. That means our traditional, our mobile Wi-Fi only be applied into the. You need people travel outside. To provide a multi-user mobile broadband worldwide at a high speed, at a high quality, at high 5G. That is our quite unique position.

Now we expand this function, not only 4G, 5G, but also we can manage all the Wi-Fi network. This Wi-Fi network, including the satellite Wi-Fi or the airport Wi-Fi, Starbucks Wi-Fi, or I think the flight cabin Wi-Fi. Also, even you are at home, at office, you still need this device because one device, you never need to change the connection. For example, if normally our handset go to the outside, you need to connect to 4G, 5G. Go to the airport, you need to connect to airport Wi-Fi. Go to home, you go to your home Wi-Fi. That's extremely inconvenient. For our mobile Wi-Fi, can smartly AI enable to choose the suitable network for you. At home, at office, you still have serving with Wi-Fi high speed and free. Also, we guarantee the reliability for 4G and 5G backup to robust your network.

In the airport, in the flight cabin Wi-Fi, you don't need to scan and connect to the cabin Wi-Fi again. We can automatically switch to the cabin Wi-Fi for you. One device for every scenario, not at home or the outside. It's extremely convenient. That's why all our four products become more and more attractive and quite unique in MWC year 2025. We are quite unique. We have made life more easily, more convenient, and connection more better and more safety.

Theodore O'Neill (CEO)

Okay. Thank you. My last question is about international travel. In your forecast for full-year revenue, I'm wondering what assumptions you may have made about international travel going up or down. The reason I'm asking is because, and it may be too soon to tell, is that Delta Airlines last week said they're seeing a drop-off in flyers in their forecast.

I was wondering if you've made any assumptions about international travel in your full-year 2025 forecast.

Chaohui Chen (Co-founder, Director, and CEO)

Yes, of course. The guidance for the year 2025 is the range is $95 million-$130 million. We factor in the recovery of international travel in carry-on in the year 2025. That's an underlying assumption, 10%-20% of the growth powered by the recovery of the international travel. We also factor in the new business lines growth. As Mr. Chen mentioned, we launch so attractive and innovative new solutions and attract a widespread market attention. We expect the new business like PetPhone, CloudSIM Kit, and eSIM Trio will expand this year from the starting point of view. Both new business and the legacy business, international traveling, will provide momentum growth for the year 2025. That's the background. We disclose the guidance this year.

Theodore O'Neill (CEO)

Thank you very much. That answers my questions.

Operator (participant)

Once again, if you would like to ask a question, please press star, then one to join the question queue. The next question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.

Vivian Zhang (Equity Research Analyst)

Hello, everyone. Thank you so much. Most of my questions have been answered, but I still have two. The first one is that, can you elaborate on the trends in your cost structure? Because we have seen a significant increase in sales and marketing expenses over the past year. Will this trend continue this year?

Chaohui Chen (Co-founder, Director, and CEO)

Yes. As you've seen this, our disclosures for the year 2024. Last year, we invested a lot on new business. So we have three new businesses launched in the second half of the year of 2024.

We invested a large budget, spent a large budget on promotion and market exposure for the new businesses. That's compared with the year 2023. We invested $5 million more than last year. I think this investment will gain return in the year 2025, as we just talked about the guidance range for the top lines of the forecast. We try to deliver our new business and grow our new business from this year. I think the return of this business will come back for this year. For this year, we will carry on investments on the new business. We expect the sales and marketing budget this year will have a growing proportion compared to the year 2025. I think that's very important for our long-term growth and very important.

We invest on future to gaining our user number from now is millions level to 10 million level in the next couple of years. Investments from now will going forward to invest on our future. Thank you.

Yimeng Shi (CFO)

Yeah. I think basically last year and this year is our very important year. We are start from a major company to be a 2C and also more focus on 2C company. That's why we need to build team capability. I think also 2C need more heavy investment in promotion and branding.

Vivian Zhang (Equity Research Analyst)

Okay. Got it. I see. My last question is that, what were the key drivers of revenue growth from mainland China last year? How do you expect this to evolve in the coming quarters?

Chaohui Chen (Co-founder, Director, and CEO)

Yeah. For last year, 2024, the revenue growth rate was nearly 1%. The main is driven by the Chinese outbound traveling.

More Chinese overseas travelers, they're booking our service. Our service branding name, Roamingman, is very famous as a leading branding name for Chinese outbound travelers. We are in the leading positions. That has driven our growth for the mainland and China. As we also disclosed, we just got approval of pilot operations of a value-added telecom service in mainland China recently. That is quite a huge momentum for our business to expand in mainland China domestically, not only for outbound business, but also for inbound business as well. That is a great potential for our growth, our business in mainland China domestically and internationally.

Yimeng Shi (CFO)

Yeah. I have some more comment. You can see in China, domestic travel to the worldwide. Our market share last year is growing.

Last year, for the Chinese New Year, we had very successful branding and promotion and gave end users emphasis on our 5G full speed and our service quality compared with China traditional operators like China Mobile and roaming service. Our quality and our service is much better. Now we are gradually building our brand, roaming brand for 5G quality. High-quality service is exceeding. It is far more better than China Telecom and also the telephone, the global travel scene. This becomes very successful. In the Chinese New Year, we are almost more than 50% increase compared to the year 2024. We are confident we will attack more market share from the traditional operator and the global SIM card travel roaming market. We believe we can from 3% to 5-6% this year.

We are target we can go more than 10%. We are quite confident we can achieve that.

Vivian Zhang (Equity Research Analyst)

Okay. Thanks for the details. That helped a lot. That is all my questions. Thank you. That is all.

Operator (participant)

This concludes our 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, 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 again on our next quarterly call. Thank you.

Operator (participant)

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

Daniel Gao (Director of Investor Relations)

Thank you.