Operator: Good day, and welcome to the uCloudlink Second Quarter 2024 Earnings Conference Call. All participants will be in the listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Daniel Gao. Please go ahead.

Daniel Gao: Okay, thank you. Hello everyone, and thank you for joining us on uCloudlink’s second quarter 2024 earnings call. The earnings release and our release 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 the Chairman of Board of directors, Mr. Chaohui Chen, co-Founder, Director, and the 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 both be available to take your questions in the Q&A section that follows. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management’s current 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 those 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 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 contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead.

Chaohui Chen: Thank you, Daniel. And good morning or evening, everyone. Continuing the story start, we have early in this year, growth momentum carried into the second quarter with the total revenue reaching U.S$22.4 million in line with the guidance. Our financial position is improving with net income reaching U.S$2.2 million and the operating cash flow increasing 38.3% year-over-year to US$4.7 million. In the second quarter of 2024, aside from our GlocalMe Mobile/Fixed Broadband business, comprehensive data connection solutions and business lines such as GlocalMe Life, GlocalMe SIM and GlocalMe IoT have met consistent progress in expanding beyond the travel sector into various aspects of daily life with an expanded array of the comprehensive data connectivity solutions to satisfy a wider range of our needs.

Firstly, let me start with the progress we have made in our GlocalMe Mobile/Fixed Broadband business. Our 1.0 international data connectivity services business continue to grow in the second quarter of year 2024, further consolidating our leading position in the long-term market and expanding our market share as the widespread adoption of our full-speed 5G solutions gains momentum supported by the recovery in international travel. Our extensive 5G domain solution now cover 50 countries and regions and are generating a stable stream of revenue, creating significant opportunities for us going forward. According to the Mobile Economic 2024 report from the Global System for Mobile Communication Association or GSMA, the global number of 5G connections is expected to rise to US$5.5 billion by 2030 from US$1.6 billion at the end of 2023.

Second, our GlocalMe Life solution made significant progress in the second quarter of year 2024. We officially launched three GlocalMe Life solutions in May at the Viva Technology 2024 in Paris. The lineup of new solutions consisting of KeyTracker, RoamPlug, UniCord, has not only showcased our innovative capabilities, but also garnered widespread acclaim in the market, marking the beginning of a promising new revenue stream going forward. With the UniCord market network, market base station positioning an active radar reaching for up to 100 meters, our KeyTracker is technology ahead of the competition with its six-at-one positioning technology including GPS, ACTS, LBS, Wi-Fi, Bluetooth and active radar. The long-term plan is more than just a universal travel adapter.

It is all in one device that combines smart charging technology. Four charging ports including three USB-C and one USB-A and a built-in mobile Wi-Fi module. UniCord is a built-in USB-C cable with built-in mobile Wi-Fi capabilities. RoamPlug and the UniCord make great local and global travel companion to charge and connect devices. We are also providing reliable internet connectivity without the need to carry a bucket [ph] hardware. GlocalMe Like solutions allow people to stay connected to their loved ones, seamlessly offering connectivity to various high-frequency daily life application scenarios, such as Pet Management, Item Checking as well as Emerging Communications. These solutions are expected to contribute more revenues in the coming quarters as we gradually expand this revenue stream with recurring subscription and services revenue.

Third, we continue to gradually expand the availability of our GlocalMe SIM solutions including ALL SIM [ph], OTA SIM and the eSIM solutions in more countries and regions, powering away from more powerful ALL SIM solutions that will allow us to engage with a broader and user base. Our ALL SIM solutions which consolidate OTA SIM, eSIM and Cloud SIM are uniquely positioned to break cross-carrier restrictions in power various smartphones and set a new pioneer industry benchmark for mobile connectivity and convenience when they launch in the near future. According to the Mobile Economic 2024 report from the GSMA, SIM connection excluding licensed cellular IoT are expected to increase from US$8.6 billion in 2023 to US$9.8 billion by 2030. In our GlocalMe IoT business plan, we are leveraging our soft Cloud SIM technology compatible with various chipset platform to engage with a broader spectrum of partners in the security terminal, dashboard terminal and the related sectors to explore additional application scenarios.

This will allow us to demonstrate the strengths and the capabilities of our technology to a broader audience. According to the Mobile Economics 2024 report from the GSMA, Licensed Cellular IoT connections are expected to grow from 3.5 billion in year 2023 to 5.8 billion by 2030. Finally, as we transition beyond the Portable Wi-Fi terminal market, we are scaling up our user base beyond the travel sector into various comprehensive daily life application scenarios such as elderly care, pet management, item tracking, and daily travel. This transition will diversify our revenues streams from primarily mobile data traffic solutions to a mix of value-added services and mobile data traffic solutions. This will drive the ongoing consolidation and development of our GlocalMe Ecosystem, positioning it as a leading global mobile data traffic sharing marketplace while creating long-term sustainable value for our shareholders We firmly believe that better connections empower better lives.

With the gradual commercialization of GlocalMe Life SIM and IoT business lines are gaining momentum. We expect to see them contribute more meaningfully to revenue in the coming quarter through various markets and channels. We are confident that we have the right strategy in place to generate sustainable growth in the coming quarters. For the third quarter of year 2024, we expect total revenues to be between US$24.0 million to US$28 million, representing an increase of 0.4% to 17.2%, compared to the same period of year 2023. I will now turn the call over to Mr. Shi.

Yimeng Shi: Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the second quarter of 2024. Average daily active terminals is an important operating metric for us as it measures customer usage trends over the period which is reflective of our business performance. Average daily active terminal DAT in the second quarter were 306,289, of which 62.2% were from uCloudlink 1.0 international data connectivity service, representing an increase of 29% in DAT of 1.0 international data connectivity service, compared to the same period of 2023. Average daily data usage for terminal was 1.35 gigabytes in June 2024. As of June 30, 2024, the company served 2,699 business partners in 61 countries and regions.

The company had 182 patents with 153 approved and 29 pending approval, with a pool of SIM cards from 392 MNOs globally as of June 30, 2024. Total revenue were US$22.4 million, representing an increase of 1.7% from US$22 million in the second quarter of 2023. Revenue from service were US$14.2 million, representing an increase 0.5% from US$14.1 million in the same period of 2023. Revenue from service as a percentage of total revenue was 63.4% during the second quarter of 2024, down from 64.1% during the same period last year. Geographically speaking, during the second quarter of 2024, Japan contributed 46.2% of our total revenue. North America contributed 14.6%. Mainland China contributed 23.5% and other countries in the region contributed the remaining 15.7% compared to 43%, 29.5%, 11.6%, and 15.9% respectively in the same period of 2023.

Overall gross profit was US$11 million, compared to US$9.9 million in the same period of 2023. Overall gross margin was 49.2% in the second quarter of 2024, compared to 44.9% in the same period of 2023. Gross margin on service increased to 60.3% in the second quarter of 2024 from 58% in the same period of 2023. Gross margin on product increased to 30% in the second quarter of 2024 from 21.5% in the same period of 2023. Excluding share-based compensation, total operating expenses were US$8.7 million or 39% of total revenue in the same second quarter of 2023, compared to UD$7.3 million or 33% of the total revenue in the same period in 2023. Net income was UD$2.2 million compared to a net cost of UD$0.9 million in the same period of 2023. Adjusted EBITDA was US$3.3 million in the second quarter of 2024, compared to US$2.1 million for the same period of 2023.

For the second quarter of 2024, we generated operating cash inflow of US$4.7 million, increasing by 38.3% from US$3.4 million in the same period of 2023. For the second quarter of 2024, capital expenditure were US$1.6 million compared to US$0.5 million in the same period of 2023. We maintained solid balance sheet with cash and cash equivalent increasing to US$26.8 million as of June 30, 2024, up from US$24.7 million as of March 31, 2024. With that operator, let’s open it up for Q&A.

Operator: Thank you. [Operator Instructions] The first question comes from Theodore O’Neill from Litchfield Hills Research. Please go ahead.

Theodore O’Neill: Thank you and congratulations on the results for the quarter. My first question is about uses for cash. You’re profitable, you increase cash in the quarter, and I was wondering if you have some thoughts about how to utilize the cash balance you’re growing other acquisitions or dividends or capital expenditures of some kind.

Yimeng Shi: Yes, we have a strong cash inflow from operations. It’s close to US$4.7 million generated in the second quarter. The overall cash equivalent now is more than US$26 million. It’s a strong financial position indicator. We still will keep this to improve financial position in the near future, say this year and next year. So far we don’t have a specific target for acquisitions. We don’t have a full discussion on any dividends planned. We still focus on improving our growth and improving financial position. We want to improve our financial position to make the company in safer positions for long-term operations. Thank you.

Theodore O’Neill: Okay, my next question is about the GlocalMe Life solutions. You’ve highlighted the KeyTracker, RoamPlug and UniCord here in the call. Are there additional products coming out into the GlocalMe Life solutions?

Yimeng Shi: Yes, that’s the first three products we launched for GlocalMe. We have a continued more product coming in the following quarters.

Theodore O’Neill: Okay, my last question is about, if you could talk about the outlook between UCloud Link 1.0 and UCloud Link 2.0, can you talk about how that outlook of those two over the next quarter or two?

Yimeng Shi: Maybe I’ll add some color first and then CEO will add more comments on that. Yes, as we have disclosed our guidance for the third quarter, which is US$24 million to US$28 million for revenue. Yes, for this top-notch growth, many are driven by this international community service, especially as we disclosed in the second quarters. The Mainland China’s growth, the outbound traveler from Mainland China to other countries, grows significantly. We think that trend will have to keep this same high and fast growth in the third quarter of this year. For [Indiscernible], the main driver in the third quarter, many from international travels growth for Chinese outbound and other regions outbound as well. Also, we expect our new solutions like GlocalMe Life Series products as we launch in the second quarters, which will bring a more revenue stream into our camps in the third quarter and more in the fourth quarters.

We believe that the growth driven is more than just international roaming service, but also from Life service.

Chaohui Chen: Yes, I’m Chaohui Chen. For our 1.0 business, we understand that China and Japan market are still on the way of the recovery. I believe that in the next year, from now on, they are still on the way of the recovery from the pandemic. Also, for the 2.0 business, now we are developing the most reliable connections for fixed broadband backup. This market also gives us more advantages to break through this market for 2.0, so we can see some opportunities in 2.0 business for high reliable connections that we can bring to the customer. For the new product, because we are at the end of the second quarter, we just newly launched the three products. I think many in the quarter three and mainly in the quarter four will bring us generally more revenue, bring new revenue for this new product. I believe that we are not only bringing data, but also the subscriber and the service revenue.

Theodore O’Neill: Thank you very much for answering my questions.

Operator: [Operator Instructions] The next question comes from Vivian Zhang from Diamond Equity Research. Please go ahead.

Unidentified Analyst: Good morning, and I am Anri [ph] Lan. Thanks for taking my questions and congrats on the strong quarter achieved. My first question will be about the commercialization of GlocalME Life. So how are the sales of the three newly launched products so far? Are there any other sales channels besides selling directly on your official website? Hello, Yimeng Shi, can you hear me?

Yimeng Shi: Yes. So, yes. So, we both, and that’s both from the online and offline and also for channel. We were setting all this wireless, this online and offline, also channel to sell our new product. We are, some is under our own brand, some we are under our core brand with our partner. So, and so far, I think the progress is very good. So, it’s, and our partner, they are, and also the feedback from the partner and user is quite positive because we bring the better connection in power, better life. That are not only just tech revenue from data connection, but we are more come from, more revenue, we are come from the services such as the pad checking. I think in the future, also for the convenience for the traveler, also I think like a UniCord, not only for traveler, but also it’s a daily use like a car, like also car power and also a home IoT connections.

We can bring the home IoT connections, such as the Wi-Fi camera to the outdoor, to the worldwide. So, that’s our quite unique value point. So, that can simplify, that can make our users more easy and more relaxed, more safety and more high quality for the traveler.

Unidentified Analyst: Okay, I see. So, my next question is that the guidance for the quarter is quite strong. So, any drivers behind that? Thank you.

Chaohui Chen: Yes, I think for the next quarter, I think because our, for us, a traditional product is, is close, I think it’s very stable. But I think the big jump of our revenue will come from our new product. So, because we just newly launched the product, so we needed some time to bring back the revenue. So, I think that the feedback is very good, but we still have some uncertainty for the period of how quick we can bring the revenue back for this new product.

Unidentified Analyst: Okay, so do you think this, like this three new, newly launched products, they will affect your margin, gross margin next quarter, or you think you will keep the current level?

Chaohui Chen: I expect this, the service cost margins should be in a similar range as we deliver in this year, like the second quarters. As of now, the main driven, the main part of revenue is, came from international roaming service, which is a higher gross margin service in our account. And like, subsequent fee related to the new GlocalMe Life series product is, I believe, that is where the additional highest gross margin solutions. And we will see how we deliver to the market in various regions and channels. So, we believe we will have this good service margins in this year and the future as well.

Unidentified Analyst: Okay, that helps a lot. That’s all my questions. Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Daniel Gao for closing remarks.

Daniel Gao: Okay, 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 speak to our Investor Relations firm, Christensen Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Q2 2024

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