Q2 2022 Ucloudlink Group Inc Earnings Call

I.

Hello and welcome to the UCloud Inc. Group Inc. 2nd Quarter 2022 Earnings Conference Call.

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Now I would like to turn the conference over to Jilin Zhang, Investor Relations. Zhang, please go ahead.

Thanks everyone for joining us on our Step-in-Quarter 2022 earnings call today. The earnings release is now available on our IR website at ir.ucloninx.com as well as via Newswell surveys. I will give a brief introduction to our Ucloninx Management Key.

Zhi Xinteng is our co-founder and the chairman of the board of directors. Zhao Huichen is our co-founder, director and chief executive officer. Yimeng Xu is our chief financial officer. Zhu Tian is our vice president of marketing and sales.

Our CDO will begin with an overview of our company and business highlights, which will cover Section 1 of the earnings presentation posted on our IR website. Our CFO Yimeng Xu will then discuss our operation highlights and financial results as presented in Section 2 and 3.

Before we proceed, please note that this quorum is contained forward looking statement made pursuit to the State Harbor provision of the private security litigation reform act of 1995. This forward looking statement are based on measurements of current expectations and observations that involve the known and unknown race, 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 this forward-looking statement.

All forward-looking statements expressly qualify in their entity by the customary statement, risk factors, and details of the company's findings 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, changing the market conditions, or otherwise expect as required by law.

Please also note that UCLOTLINK?s earnings press release and this conference call include discussions of the non-audited GAAP financial information as well as non-audited non-GAAP financial measures. UCLOTLINK?s press release contains a recalculation of the non-audited non-GAAP measures to the non-audited most directly comparable GAAP measures. I will now turn the call over to our co-founder and CEO .

Mr. Chia-Wei Chen, please go ahead. Yes, thank you, Julian. Page 4 to page 12 are similar contents as the ending presentation of the fourth quarter of year 2022.

We still encourage you to review in the second quarter of year 2022 earning presentation upload to our investor relationship website with some latest updates.

Hence, I will now elaborate on the past seminar with the fourth quarter of year 2022 earnings release.

But we instead focus on our most recent developments in the second quarter.

Let's move to the patient's heartbeat.

UCLoning 1.0 is our international data connectivity services business.

which has had a strong trade record of high growth margins and profitability with ongoing growth potential. During the second quarter of year 2022, our 1.0 business revenue has increased by 40.1% compared to the same period in year 2021.

As international terror restrictions around the world continue to abate over time, the number of average daily active terminals for the 1.0 business has increased during the second quarter of year 2022. Compared to the second quarter of the year 2021, average daily device terminal has increased during the second quarter of year 2022.

increased by 23.6%.

testament to the faster recovery of our 1.0 business, which indicates that more and more customers are using our products and services.

With our innovative global 5G long-link solution, we hope.

to strengthen our living technology.

in providing reliable high quality international data connectivity services in more than 140 countries powered by our PaaS and SaaS platform, enabling single operator entry points to access more than 300 global mobile network operators available to network.

We remain positive.

about the ongoing recovery and growth of global tourism demands and expect revenue from one point of business to steadily growth and exist pre-COVID-19 level in the future.

Let's move to page 14.

2.0 is our local data connectivity services business and has become a new drive of revenue growth since the year 2020.

Its growth is built upon our efforts in exploring market opportunities such as the post-pandemic and new normal lifestyle that people are getting more and more used to.

The development of 5G applications in the IoT area, our ability to improve network convergence, data connections, cooperation with intelligent hardware manufacturers to implement local meet-ins, etc.

In the past quarters, we have continued to strengthen our presence in our existing markets, including Japan, North America, Southeast Asia, where we help operators and business partners improve their data connectivity services and solve data connection problems through our past SaaS platforms based on our patent technologies.

including Cloud and Hypercom technology solution. We adapt ourselves to the evolving market by introducing and upgrading innovative products to address various 2.0 business application scenarios.

During the second quarter of year 2022, our various IoT solutions, such as industry Wi-Fi loader, IP camera,

has gained increasing recognition in various markets.

activity extending our footprint into more industries including power, emergency services, autopilot, etc.

This is reflected by a 52.6% increase in the two-point of revenue during the second quarter of 2022 compared to the same period in the previous years.

Our customers were able to realize we used the operating costs and included the connectivity experience through these cutting edge IoT solutions. And we continue to focus on exploring new business prospects to serve a broader spectrum of partners with IoT needs.

We expect our two-point-of-business to grow with the support of our innovative cloud thin and hyper-con technologies.

As we continue to introduce our solutions, services and products to the market and strengthen our collaborations with local partners.

Let's move to page 15.

Based on our innovative cloud theme and the HyperCon technology solution, we continue to develop and broaden our portfolio of offerings with new products and services.

such as our self-developed terminals and third-party devices.

In the second quarter of year 2022, we continue to promote our existing portfolio of innovative 5G products in countries and regions such as the US, Japan and Europe .

We are now one of the few companies that could provide 5G products with a global radio band.

In terms of the IoT side, the IP camera which was applied with our GMI solution that we launched commercially in the fourth quarter of year 2022 has now been promoted in the international market and received global recognition with innovative technologies that ensure a reliable, high-quality, innovative mobile data connection for the devices.

Going forward, we plan to launch and provide more of this type of innovative products and services.

New Clouding conditions is set as the pioneer technology solution provider in the data connectivity matrix.

Based on the mature 1.0 business and newer 2.0 business, we promote a long-term development of our PaaS and SaaS ecosystem, which has been recognized by various business partners. We remain confident in our business development team to empower the building of our PaaS and SaaS ecosystem in our research and development teams to address the needs of our customers.

diversify needs our customers pose to us. In the coming quarters, we expect past and such platform revenues to grow into a more significant drive of our business and continue to enlarge its marginal effects and improve margin profiles.

We are more than pleased to announce that our total revenue reached US dollar 18 million.

during the second quarter of the year 2002, which has slightly above our previous projection range due to a faster than expected recovery of international data connectivity services and development of local data connectivity services.

We successfully achieved a positive operating cash flow for the fourth quarter since the second quarter of 2020 during the COVID-19 pandemic.

We are confident in our financial and operation position to see a better result in the future.

We believe that from connecting to better connection, e-coupling is a significant driving force in the transformation of the increasing advanced information error.

We are committed to building a more connected future and for more customers and users, we are striving to make a positive impact.

in the serving and global user community.

I will now turn it over to our staff of Yimeng Shi, who will go through the business and financial highlights.

Thank you, Mr. Chen. Hello, everyone. I will quickly go over our business highlights for the quarter ending June 30, 2022.

Average daily active terminal for the second quarter would

292,432 including 1,223 owned by the company and 291,209 owned by our business partners.

representing an increase of 23.6% from 236,553 in the second quarter of 2021.

You can link 2.0 service coming for around 68% of total DAP during the second quarter of 2022.

Average daily data used per terminal was 1.58 GB

in June 2022.

These are 10 to page 18 which show global diversification about business.

We had around 99% of total revenue from outside mainland China. During the second quarter of 2022, Japan contributed to around 38.1% of total revenue. For all the countries' revenue, the US market had the largest contribution to our business with further development of our US business. And we will continue to expand other markets such as Europe .

and Southeast Asia, etc. During the second quarter of 2021, we had 8.3% of the total revenue coming from mainland China.

52.6% of total revenue came in from Japan and 39.1% of total revenue came in from other countries and regions.

Please attend to page 20.

So I will go through our financial highlights of the second quarter of 2022.

Service-related revenue as a percentage of total revenue was 62.5%.

during the second quarter of 2022, compared with 48.5% during the second quarter of 2021.

Revenue from International Data Connectivity Service and Local Data Connectivity Service increased by 40.1% and 52.6% years over year, respectively. This increase in revenue from Data Connectivity Service was mainly attributable to our gradual recovery of international travel and continuous development of our Local Data Connectivity Service business.

Let's move to page 21 which shows the revenue breakdown of our two business segments, namely revenue from service and sales products. Our total revenue decreased by 6.3% from $2 million in the second quarter 2021 to $18 million in the second quarter 2022.

primarily due to decrease in sales of data related products and others.

Revenue from service were 11.2 million US dollar representing an increase of 20.7% from 9.3 million with the same periods of 2021. The increase was primarily attributable to the increase in revenue from international data connectivity service and local data connectivity service.

This is 10.22 page 22 for gross margins of our bonus.

Our service gross margin increased to 56.2% in the second quarter of 2022 compared to 45.4% in the same period of 2021. And our overall gross margins was 44.1% in the second quarter of 2022, which increased from 28.1% during the same period of 2021.

The increase of service gross margins during the second quarter of 2002 was primarily attributable to highest margin profile from International Data Connectivity Service.

This move to page 23 will show the breakdown of our operating expenses, excluding shared business conversations and others.

excluding share-based conversation, operating expenses of a percentage of total revenue was 41% in the second quarter of 2022, compared with 61% during the same period of 2021. We had further streamline our bonus operation including optimizing labor costs, and our total of reading expenses, excluding share-based conversation, decreased to $7.3 million in the second quarter of 2022.

compared to 11.8 million US dollars in the same period of 2021.

This obtained to page 24. Operating cash flow turned positive during the second quarter of 2022 and was 2.5 million USD compared to elective 6.1 million USD during the same period of 2021. This primarily a result of our ongoing efforts to improve margins profile and control operating expenses.

Our cash and cash equivalents and short-term deposits were 12.2 million US dollar as at June 30, 2022.

Our CapEx was 0.2 million US dollar compared to 0.3 million US dollar in the same period of 2021.

I'll leave it to page 25.

The late loss during the second quarter of 2022 was $6.3 million compared to $8.2 million during the second quarter of 2021. Adjusted EBITDA was negative $1.1 million during the second quarter of 2022 compared to the negative $5.5 million during the second quarter of 2021. As mentioned above, the company is working towards improving its bottom line results and financials.

Position.

With that, let me conclude today's presentation. Thank you and we start our Q&A session.

Yes, thank you. As mentioned, at this time we will begin the question-and-answer session.

To ask a question, you may press star then 1 on your touch tone phone.

If you are using a speakerphone, please pick up your handset before pressing the keys.

To answer another question, press star and 2.

At this time we will pause momentarily to assemble the roster.

And today's first question comes from Vivian Zhang with Diamond Equity.

Good evening. This is Vivian Zhang from Diamond Equity. Thanks for taking my questions and congrats on the progress you made this quarter. So my first question will be about the growth margin. We saw the growth margin on both services and sales of products increased significantly this quarter. So I would like to know what's the reason for the increase. Will you continue to maintain the growth margin at this level in future quarters?

Thank you. Yeah, thanks Vivian. Yeah, regarding the gross margins improvement in the seeking quarters, first of all there's a gross margin on service. That's a massive improvement compared with the same period of the last years. As we explained in the early release, our revenue generated from the international data connectivity service.

increase a lot compared with last year's. The gross margins related to the international data connected service is much higher than like a local data connected service. And that's a major contribution to our improvement across service across margins.

As we expect, the international travel is in the recovery and the most countries, more and more countries open the door to the traveler. So we expect in the future, we have to generate more revenue from international data community service. So we expect our service across margin.

we'll keep this labor and it will be improved in the future once we have more revenue came from International Data Community Service. And also, the chickens.

contribution related to the product. Yes, our products gross margins are improving as well as mainly due to the mixed product selling related to high end product selling like 5G's related products sold to the market. And yeah, this year, this quarter, we deliver massive products, 5G related products to the market.

and we expect the trend will carry on in the following quarter this year.

Thanks.

So I have some more comments about this point because in the R&D side we also put a lot of effort to improve our margin, improve our algorithm and the efficiency of our data usage and combination and this part also increased our margin capability. Another event is we are now have some new design and

replacement of the, you know, to optimize the hardware to improve our, the profitability of our hardware and data connection together.

Okay, I see. Thanks for.

For that, my second question is can you elaborate on the partnership you published in the second quarter and how shareholders should view this development, I mean the partnership with Tuya, Sungrove and Citrix.

So which two partners?

Yeah.

Yes, the partnership with the GASM group on eTrip you published.

Okay, yeah. So the second point. Yeah. Yeah. Last year we have signed a friend contract with Tuya about use our technology to improve the efficient and the connected quality in the IoT area. So it's just a friend contract and it's just a starting point. I would believe in the future.

we have more partner to recognize our technology because our HyperCon technology not only include the coverage of the IoT device, but also lower the cost of operation cost because market network can enhance the reliability of the IoT network connectivity. That's very useful to IoT area. So we hope in the future we have more kind of partner.

can working with us. For example, as you understand in our presentation, so we already embed our service into the IP camera, IP loader, and also now apply into the autopilot. So we believe the basic need for better connection and lower the operation cost is the basic need of IoT applications.

that's for cooperation partners similar like Tuya, these kind of partner. That's just a start point. And now we have more partner in this area.

For the second one, we're working with Ctrip because you can see now the global tourism travel is recovering. Before COVID-19, we already had a big pattern of working with Ctrip. So because we are their biggest channel and for mobile Wi-Fi hotspot rental in China, we are their channel.

So now we are prepared for, you know, recovery of COVID-19. So now we are not only prepared for recovery in China, but in the U.S., in the Southeast of Asia, we have more deep cooperation to prepare for the people recovering from the global travel, this scenario.

Okay, got it. That helps. Thank you. Okay, that's all my questions. Again, congrats on the quarter.

Thank you. And once again, please press star and then 1 if you would like to ask a question.

All right, at this time I would like to return to Conference Dilling and Zhang for any closing comments.

Okay.

There are no further questions? Okay, thank you once again for joining us. If you have further questions...

please contact our investor relations or contact our investor relation firm or F2 Group.

Thank you. The conference has now concluded. Thank you for attending today's presentation. We now disconnect your lines.

Thank you.

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