Q3 2021 Ucloudlink Group Inc Earnings Call
Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to the you Cloud Link group incorporated third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After prepared remarks by the management team there will be a question and answer session to ask a question you May Press Star then one on your telephone keep.
[noise] pad and to withdraw your question. Please press Star then to today's conference call is being recorded I would now like to turn the conference over to your host today, Mr. Bob Xing Deputy Investor Relations Director of the company. Please go ahead.
Thanks, everyone for joining us on our third quarter climbed to 21 earnings call today.
He said that he is now available on our IR website.
I opt out you're calling cause outcome as well as via Newswire services.
I will give a brief introduction to our your colleague NAFTA can use C L King.
Sure. The team pen is our co founder and chairman of board of directors.
How each of them is our co founder director and Chief Executive Officer.
Membership is our chief financial Officer.
<unk> is our vice president of marketing and sales.
Our CEO will begin with an overview of our company and business highlights, which will cover section a lot of the earnings presentation posted on our IR website.
C F O E M I sure without a doubt and discuss our operation highlights and financial results as presented in section two three.
Before we proceed. Please note that this call may contain forward looking statements made pursuant to the safe Harbor provisions of the <unk>.
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.
Certainties and other factors not under the complex control, which may cause actual results performance or achievements of the company to be materially different from the others out perform at our expectations implied by these forward looking statements.
All forward looking statements are expressly qualified in their entirety by the cautionary statements.
Risk factors and details of the company's filings with the S E T.
The company does not assume any obligation to revise or update any forward looking statements.
Others out of new information future events changes in market conditions or otherwise, except as required by law.
Also note that you crowding earnings press release, and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.
Crowding press release contains a reconciliation of the unaudited non-GAAP measures.
At its most directly comparable GAAP measures.
I will now turn the call over to our co founder and CEO, Mr. Cao Fei Chen. Please go ahead.
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Uh huh.
Yeah similar content.
A presentation of the second quarter of 2021, and the earnings call. We have outlined the major reason he brought him on and highlights.
Let's move to the page a survey.
You're calling one point, though.
In a nation of data kind of Teva taste, I always say and.
So the track record of high gross margins and profitability with ongoing growth potential.
Long term.
Travel restrictions continue to abate overtime and gradual recovery of international travel benefit our inclination of states are connected with him busy.
He went for a new challenge of the COVID-19 pandemic recently with the competent in our postpaid churn in a nation of travel because more and more of the magazine and vesting coming to us.
We used a gradual recovery in the nation of tourism, we saw increase of one point to one business revenue in the third quarter 2021 year over year, and a quarter over quarter with continuous user demand in various of the Rockies.
Example, our U S market.
Year over year increase of 13 months of one point to one business during the third quarter of 2000 punting, what what do you expect all at one point the old business, where no. It's just a simple recovery.
I'll close with new era.
With innovative technology and product we saw positive development.
Well, one part of the whole business. So our theory T time at all.
International travel users increase quickly in various market.
We intelligently repackage to minimize data traffic unit cost data that you caught all single operator, all cross mobile operators mobile virtual operator.
Larger price difference and the will repackage it from wholesale to retail.
We have the largest car pool and we acquire data packages at the wholesale local price from operator to partners. Further we provide high quality data collection services and anyway user experience I'll use this.
Partners through marketing networks.
<unk> in combination which shows.
Different.
One point to one person.
Monetization model include retail with Harry to C.
Rental selling to end user Jose ought to be for a business partner and a partner in SaaS I would say such as CRM, but you Didnt management device setting and then how many of them are central for wholesale would be we can't be a reset of all provide commission somebody sees.
Our business partners.
Allowed our basic partners shared data traffic of course through our pasta and sauce headphone unchanged Commission fee.
We believe the COVID-19 pandemic has negative.
Negatively impact all at one point basically it.
It does create opportunity for potential growth.
Including increasing demand for our mobile data such as travelling.
Taking question they shouldn't take that help hospitals and the COVID-19 testing at no cost.
So we see he will competitor in the market after COVID-19 pandemic.
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You called them a coupon to obesity is low code data connectivity as I always say and become a new driver of growth during year 2020.
Our new hyper com technology country.
Further development and growth.
You called in coupon to obesity.
And we expanded the scope of our local data.
So we see.
Our hyper contact knowledge is widely accepted by mobile network operators.
Its partners in various industries with close attention such as with a local partner in China U S and Japan.
Our coupons basically shows greater visit is with proven high demand and close attention during the pandemic.
That negative impact.
You'll recall in two pond to obesity is the monetization model is similar.
Accounting one on one business with a must be brief potential local user base.
[laughter] operators improved subway and soft data.
Punishing Copeland.
Part of it and the soft pretzel.
Alliance with mobile network operators and mobile handset manufacturers.
Wish you'll be able to embed more glaucoma insight, yeah, hi in smartphones such as fighting smartphone.
We would have set of rates.
Five Q cloud Tayloe.
Applications, such as AR, VR cloud computing and the autopilot is et cetera.
The high quality of life that she application.
Appreciation data collection, we are also supporting us as high requirement.
These data connectivity of quality.
We make progress through hyper connectivity solution with the mobile and fixed broadband.
Most N V.
V.
Various applications scenario, such as home broadband, especially our mobile and fixed broadband business cooperation with one of our major mobile operator in China.
<unk> been successful and expanding to more proactively.
The increase in total revenues is a strong indication that you'll cloudy is with addition to close in the short term due to due to our continue wherever he is.
Our pet concept.
And in a long time.
We believe that international temporary restriction with elite in the future.
We have increase in revenue from a 1.0 and to fund our business in the third quarter year 2021, compared to second quarter of year 2021, and we saw faster.
Sure.
And channel in our U S market.
We launched a new printing technology.
<unk>, which allow for us to target Iot opportunities.
Average insights team morbidity.
She was superior Ned to walk up till now.
Our strategy is to use these technologies to introduce innovative products and services into the market.
Such a new product, we have a set of rate.
A few photos and then all our coupon business.
Our newest pepperidge equipped with hyper com and cloud the same technology.
<unk> been promote in new industries, such as education.
Our strategy to expand our network and strengthen our Cogs operation with a local partner.
Our new Fab T hypocotyl protest to enter a very a new industry, which require.
Reliable.
High quality data connections, including education.
Emergency services.
Life Broadcasting E commercials.
We could talk he and other Iot applications.
Our hyper pump related products and services.
Being distributed by <unk>.
A lot of non retail channel and E commercial high school and our product.
We see positive feedback and well recognize and value by increasing number of users and business partners across a wide spectrum of industries.
Let's move to the page 15.
Based on our innovative cloud and hybrid technology, we continued to develop and broaden our scope with new products and services.
Such as all of us that do better Temenos and third party device.
For example, after we unveil our new have come technology and products in June 2021, we launched our Hypersound technology solution in protest to the market in the third quarter of the year 2021, such as the human.
First the hyper compact achieve Wi Fi device.
And the Genie a tightly.
Bye.
We had positive feedback.
For our in human and Jeannie and we continue to cooperate with more business partners.
All of our IP camera I P C.
[laughter] comfort testing and expect to launch for commercial in the near future.
Going for.
We'll launch more and more innovative product and services with a hot concept wishes.
Through the embedding our glaucoma inside here, but we continue to further expand our pasta and sauce ecosystem with the users and business partners CRO Barry.
Our Hypersound technology, which is highly compatible with various applications scenario and smart hardware such as five at T. Mobile phone type rate C. P E cetera, our hot technology solution.
So the 30th taste.
As to enter new industry, requiring high quality and reliable data connection such as all 92 patient emergency response.
Yeah, that's electric power industrial et cetera.
We believe our pasta and sauce ecosystem, we have continued to expand as we keep investing in R&D and launching innovative protest instead with phase two marquee and the elevate data connected with your services such as data connection for Internet of everything.
I will now take over to our CFO.
Who will go through the business and financial highlights in a section.
Thank you Mr. Chang, how would I be ones tend.
Turning to page 17.
At that time for the second quarter.
Q1 shows that impacts from COVID-19 is becoming stable at.
And they've kind of side of the smile, She was chief terminus Ts.
September 30, 2021.
Average daily active terminals in the quarter were 256000 and 124.
Representing an increase of one 5% from 250 twos content and a 206 five so quarter of 2020.
Oh, you can link to service company for around 67% of total D. A team doing it.
Quarter I'm trying to do you want.
I would read studies that are used to tell me that was a 1.5 gigabyte in September 2021.
Please turn to page 18, which shows global diversification goodness, we had 96% of the total revenue from outside mainland China. During the third quarter of 2021 Japan contributed to 47% of total revenue and it continues to be.
The single largest market for all goodness.
All the countries revenue the U S market has the largest contribution to Oh goodness with the further development of our U S business and we will continue to expand order.
Such as Japan, China, Europe, and South East Asia etcetera.
During the third quarter of 2020.
5% to the revenue can be from mainland China Covid.
6% of total revenue can be from Japan, and a 39% total revenue came in from all of the country and the regions.
This does tend to pinch it trending.
We'll go through our financial highlights of the sup quarter of 2021.
Service related revenue as a percentage of total revenue was 54, 2% during the third quarter 2021 compared with 48, 5% during second quarter about 10 21.
Revenue from POS and it's also nice increase 81, 6% from $1 5 million you saw that in the script.
Quarter I'm trying to 20 227 million you saw that in second quarter of Tucson 'twenty one.
This increase was primarily due to the expansion in the number of goodness partner use a pause in our self service.
Provide local data connectivity service.
From pasta sauce or the percentage of the revenue also increased to 13.8% excuse me third quarter.
One compared with eight 1% during the third quarter 2020.
Yeah.
Move to page 21.
Which just shows the revenue breakdown of our two business segments.
Revenue from service and a sales upfront.
Our total revenue increased by eight 4% from 18 meeting installer in fourth quarter of 2022 19 points read me that your stomach.
With that I'll turn 21.
Food service was $10 5 million you saw that represent an increase of six 4% from 9.8 million dollar for the same period 10 to 20 minutes.
This increase was primarily due to higher revenue from pasta sauce service, partially offset by a decrease in revenue from data connectivity service.
Let's turn to page 22 for.
Gross margins all goodness.
Service gross margin increased to 43, 5%.
Overall gross margin decreased to 28, 3% in the third quarter attendance in 'twenty one.
We're at 236, 6% and 31, 3% during the quarter of 2020.
Yeah.
Degrees overall gross margin is mainly because of product mix and the rising material cost due to global supply chain constraints.
During the quarter I couldn't tell you what.
The increase of our service gross margin during the quarter absent any one is primarily due to increase.
Pause us revenue.
Our highest gross margin on that revenue.
Yeah.
Lets us move to page 23, which shows the breakdown of our operating expenses, excluding share based compensation and all that.
Couldn't share based compensations.
As a percentage of total revenue maintaining 61% in the third quarter have turned 21 compared with 65%.
In the third quarter of 'twenty 'twenty.
We will continue to improve operation efficiency, Oh goodness in the future.
Please turn to page 24.
Oh Capex was <unk> 3 million dollar, giving so quarter turned to new one compared to <unk> 40 million you saw that during the Covid.
Quarter of 'twenty 'twenty.
Capex as a percentage of total revenue increased from <unk> eight.
8% doing so quarter of 'twenty 'twenty, 214% during the quarter.
The new one.
Move to page 25.
Most here in the third quarter 2021 was <unk> 7 million compared to $9 7 billion installer, giving you so quarter 2020, adjusted EBITDA was negative $5 4 million.
During the quarter accounted to one compared to negative five minute you saw that doing so quarter of 2020.
We've not made me conclude today's presentations. Thank you and we start our Q&A session.
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 youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two for the benefit of all participants on today's call. If you wish to ask a question too.
Management in Chinese please immediately repeat your question in English at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Vivien Jiang with Diamond equity. Please go ahead.
Oh Hello, good evening.
They then from Diamond equity research.
With the nation on the results I have two questions.
So first thing is that we now know technology high Brooklyn, long and it related projects, including the tablets, but a long well launched like several months ago. So my question is how does that impact the <unk>.
Neil can you provide any data related related to the sale of this part.
The second question is regarding the pass and stuff that they said we see the revenue increased a lot. This call here. So can you provide color on how you develop new business partners and keep extending use this area. Thanks.
Yeah.
[noise].
So evan so not that I'm, Jeff So let me answer the first question for you in the ER.
Tablet so tightly so we launched a table in the third quarter. So you know hyper kind of you know we are not pulled out in.
September.
Mr. None should put out in September so actually I think that I think is one of the.
The actual number is oh.
With delivery alone are totally in the third quarter.
How many how many people actually.
Uh huh.
Yeah.
Yeah.
Oh, Yes, Oh Wow what.
You bet.
So you want that.
Sure.
Oh, Yeah, Yeah, yeah, yeah, yeah.
They were you know it seems without a September wait till they really are.
<unk> thousand a day.
Faithful tapering so although we continue to have a more order in the ER.
The first quarter.
Tiffany.
Many of us in a in a in a in Japan and the United States.
[noise] so far second question.
Can you answer for the Paas and SaaS revenue.
Yes.
Yes regarding this.
Pasta sauce revenues that that Oh by the.
The weight of evidence.
So revenue that has been improving and things things that it seems that compared with last year's this this related.
Our platform centric strategies.
Strategies in your colleagues no code low code connectivity as a service so.
When we are when we deliver some more moves told me not a device to the to our opinion Palmer at worldwide and that they might that precludes a better package from the local carriers.
You still need to rely on our platform our system part sales platform to provide hyper comb on the cloud Siem solution and service to the users. So that's a plus of sorts that service is our coal our strategies for all goodness.
In the past the one year that also in the future as well, we expect that the weight of pop sauce, I service, well be increasing will be increasing.
We said we'd deliver more.
Tell me not to our partner and the more and more daily active determined huh.
Okay and are used by our users as well so that's that's a very important for all our goodness.
This south South service.
Higher gross margins and the more sources of revenue come into account when we have a lot to improve our profitability and also helped a lot.
This cash flow as well thank you.
Hi, Vivian this is Bob.
And I want you out of some points for our new tablet yeah as you know.
Our new tablet all comes equipped with our innovative technology.
NATO it to seamlessly connect to a bad available that's work.
Our mobile broadband and D P plus a fixed broadband networks at all times.
For example in the Japanese market.
Our new tablet facilitate us to enter and to cooperate.
With our business partners and the education.
And that's true for chess Hardy ally invest online.
I don't like education, Okay.
Is it just a one example of our recent.
Recent development of our hyper call it a technology solution and our new products and as I said.
We always measure that that's our new technology.
Technology, such as hybrid Kong.
Technology solutions paved the way for our Florida.
And a quick development of all of that 1.2 0.0 business.
Okay.
No that makes sense. Thank you Bob Thank you Chang and she.
Yeah.
Again, if you have a question. Please press Star then one our next question will come from Lisa Thompson with Zacks investment Research. Please go ahead.
Hello, and congratulations on returning to revenue growth, it's great to see.
Well. Thank you My first question Yeah. My first question goes to the last sentence in the press release only because we had this conversation you said, there's no way you would settle with female so now that you've settled placebo.
How much money do you think that we'll see you next year.
As far as expenses of not having any more litigation.
Oh yeah.
This you man.
Let me answer your question, Yes, we are we disclose our settlement agreements are with the weakness FEMA related litigations.
And now that's that's Oh, yeah from from this a sentiment that we have we see this.
You must be cause reductions dedication expensive no quota.
2021 and we will see that this.
There's a C.
<unk>, Oh litigation expensive would it be.
Quite insignificant.
You May you may know in the past Oh.
Yes, it seems that Tucson, 18th we will have this oh.
Alone dedication protection with the CMO.
That's the that's what can you do in a very significant and litigation expenses.
More than more than 15 15 million you saw this in the past.
Three yes, I'm more than three years.
So that that's a that's a I think we will.
It will be we don't we don't think we will have this there is no kind of 60 cause expenditure.
In litigation.
And futures. So that's that's I think that's a big that'd be good improvements in terms of expenditure.
Control in that in the future.
Well this will be reflected to our performance in our in the following periods.
This year or next year. So thank you.
Okay.
So this is my question so how much less would you have to spend next year. Then you spent this year.
So I can have it in my model somehow.
For comparable base.
Basically it's a we we we can't discuss the specifics that's a.
Projections for this asset basis.
Category expense. After this cool yeah, we will we will have this.
Additional discussion I mean, that's a pretty good okay.
So but is it in the millions of dollars for this year.
Yes, yes.
This year, it's even more than we spend on litigation expenses for more than a million couple of millions yes.
Yes, Don that's related to litigation expenses.
Yeah.
Okay, and then out of curiosity did any money change hands in your settlement agreement.
And just a was a first party withdrawals as a okay. So no no no.
That's a that's a expensive the cows are related to someone's Joe Okay.
So they didn't pay you anything and you didn't pay them anything no no no no.
You just take a minute sentiments that the withdrawal or the case.
Okay alright good.
And.
In your guidance that you gave your guidance to be sequentially down in revenues from this quarter to next quarter, where is that coming from what do you think will be less next cogs this quarter.
Yeah.
We just close with guidance for fourth quarter 75 million to 18 million.
That's that's it from the reason those the reason those are expectations are in that in that.
The assumptions are that the supply chain, what I'd chance global supply chain constraint you still carry AUM.
And we when you would need to prepare to deliver do you do that Oh does in this in this.
It's a terrorist global supply chance constraints. So we we.
We are we we just put out that guidance, we're cheap enough that I would try to cheat in that guidance.
And so it.
By the way, we believe we believe that the orders are.
A scale steels are coming in for that for the next years and we thought it would be the money management, there's a risk of supply chain constraints yeah. So.
Mr. Chen do you have some.
Comment.
Yeah.
The probiotics products will go down and so.
The rest of the business will still grow.
Yeah.
There are lots of ways. It doesn't really expectation, yes, no chance to go after some comment on that.
Yeah. So yeah I have to come and you want to say you know Oh.
Indications. So we are in a good position.
I don't think it's a valuable who asked to you know a waste of money in the dislocation. That's a major consideration. So that's the first question of chicken. So because of that you know kind of spin off of the supply chain. So we have more order Oh volume.
We can't get heavily so that's the challenge.
In the next quarter.
And is that for all the products or any particular ones.
I think so all our product so it can cause a major you can see you know you know all of you know our supply chain, including the chipset.
Even though you know are the PCP everything and nowhere is heightened.
Our supply chain.
Okay, and so are you now thinking in 2022 let's say your tablet delivery is going to be lower than you thought because of this.
I don't think so because you know table as going up.
I think.
It depend on that you know are you know are dependent on COVID-19, So if COVID-19 here you know.
Syria, and I think the take rate, we are going up so oh.
Because we have more product launch it you know we had a hard comp we had more five keep hold that.
Yeah.
You'll have zero and with more product come up so included in the middle and Oh. So you can see on my flights, even though we have more global meat you saw you know.
Nick joined Brenda you know a product such as closer to the Hawk and and Oh. So if the ITC I P. I I've to Canada. We have more of these are you know.
<unk> product I think.
Here with.
We will launch more product and we are putting more water.
Alright, and that reminds me of the other question that could you talk a little bit about the IP camera I don't think that's been mentioned or you're going to be working with partners to sell that who are you selling it to and what countries.
You know because you know Oh, you know hyper constitution with us.
There's more and more and more accepted by that you know at least one P. M. P. Sand type he can a company. So we have a Nielsen released a month ago, we had the walking with us want to bake in the ODM I'd take Pamela.
Oh company, Natalie said to Ann who has a bit of market share in China and worldwide. So you hate to hold.
Yeah, Yeah. He's company, we really like our solution because Oh my God.
Because it would embed our software into their handler for the outdoor Pamela Sony's, although time and I don't need you know if in fact, you know same caught all of them when they are thinking no change.
And use that to Oh, no need to you know come up to the war in Tianjin.
What are your challenges for the users so well and we can get the best of courage in the past.
Avoid us happy.
Talking to so Paulo for the data that's why we have more and more and more cooperation for at least I O T. A company like US I became now you know people talk and all sorts of parlor tricks.
How are you.
Smart monitoring.
Only a tiny company.
Okay. So if you're just gonna be selling them software.
Isn't there just going to put it in their cameras with their name on it.
Joanne Yeah, Yeah I think.
They said is our solution. This solution in many in many brain. So we we are bringing a joint plan to sell our I can't see that.
That's one of their choice and we will bring our Elisa joined printing Oh, Oh no I'm.
Sure by all sorts of weird embed our software.
Software into their camera to the other partners.
We didn't get them, all revenue and revenue share and share and that takes us off for a while are popping up that definition for us.
So would revenues show up in product sales or end.
Pass S or another.
Oh, Oh Oh.
Oh, Oh Oh.
John joined printing, we said you know I cannot name weekend, you know a hardware and a and a data revenue.
Yes partner all that customer you know sir.
We only get pneumonia potato and pasta sauce.
All right great that sounds good. The interested this is there are you going to release a product anytime soon with the press release.
Yeah our family.
That's cool yeah, that's quota we'd be we'd be up because third.
Quarters are finished testing first quarter, we are available our lunch.
Okay, Great look forward to seeing it. Thank you that's all my questions.
Okay.
Again, if you have a question. Please press Star then one.
As there are no further questions I would like to turn the conference back over to the management team for any closing remarks. Please go ahead.
Thank you once again for joining US today. If you have further questions. Please feel free to contact you crowding investor relations through the contact information provided on our website all equity group Investor Relations.
Yeah.
The conference call has concluded you may now disconnect. Your line. Thank you.
Thank you.
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