Good morning, and welcome to the uCloudlink Group Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jillian Zeng of Investor Relations. Please go ahead.

Thanks, everyone for joining us on our fourth quarter and full year 2022 earnings call today. The earnings release is now available on our IR website at ir.ucloudlink.com as well as our newswire surveys. I will give a brief introduction to our uCloudlink management team. Zhiping Peng is our Co-Founder and Chairman of Board of Directors; Chaohui Chen is our Co-Founder, Director and Chief Executive Officer. Yimeng Shi is our Chief Financial Officer; Zhu Tan is our Vice President of Marketing and Sales. Our CEO, Chaohui Chen will begin with an overview of the company’s recent business highlights and uCloudlink’s 2023 business outlook, which will cover the earnings presentation posted on our IR website. Our CFO, Yimeng Shi, will then discuss company’s operation highlights and financial results. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and observations that involve known and unknown risks uncertainties and other factors not under the company’s control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entity by the company’s statement with effective 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, change in market conditions or otherwise, except as required by law. Please also note that uCloudlink’s earnings press release and this conference call includes discussions of the an unaudited GAAP financial information as well as an unaudited non-GAAP measures. UCloudlink’s press release contains a reconciliation of unaudited non-GAAP measures to an unaudited most directly comparable GAAP measures. I will now turn the call over to our Co-Founder and CEO, Mr. Chaohui Chen. Please go ahead.

Thank you, Jillian and good morning, everyone. Thank you for joining us on our year-end 2022 earnings call today. We appreciate everyone’s time. Year 2022 was truly a period/year [ph] for uCloudlink characterized by achieving great success and overcoming tremendous challenges. We are pleased to have achieved positive operating cash flow of US$4.4 million for the year-end December 31, 2022, a significant milestone for our company. As this is the first time we have done since the COVID-19 pandemic. Having overcome the difficulty we faced during the COVID-19 pandemic and working to strengthen the diversity of our business as well as increasing its resilience with new growth opportunities. We are excited about the company’s long-term growth prospects, and believe we are well positioned to be an industry leader. uCloudlink 1.0 is our international data connectivity services business, which tends to be a higher margin lines of business, and the one, which we believe will continue to be a key growth driver for the company. During the fourth quarter of year 2022, uCloudlink 1.0 business, revenues increased 48.2% year-over-year to US$7.7 million. For 2022, uCloudlink 1.0 business revenues increased 29.6% year-over-year to US$28.1 million. This improvement is a reflection of international traveler recovering across our major markets over the course of the year. This was accompanied by an increase in average daily active terminals for uCloudlink 1.0 business during the fourth quarter and full year, year 2022. Average daily active terminal increased 20.5% year-over-year in 2022. In 2022, we have become a leading 5G roaming solution provider in the wireless network industry and have continued to provide reliable and high-quality international data connectivity services in more than 140 countries enabling single operator entry point to assess more than 300 global mobile network operators available networks. uCloudlink 2.0 is our local data…

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the fourth quarter and the full year of 2022. Average daily active terminal, DAT, is an important operating metrics for uCloudlink as a measure trend [ph] – customer usage trend for each of the period, which is a reflective of [indiscernible] environments. In the fourth quarter of 2022, average daily active terminal were 297,884 of which 2,299 owned by the company and 295,585 owned by our business partners, up 12.2% from 265,595 in the fourth quarter of 2021. uCloudlink 2.0 service accounted for around 62.1% of the total DAT during the fourth quarter of 2022. Average daily data usage per terminal was 1.68 gigabytes in December 2022. Total revenue for the fourth quarter of 2022 were US$19.6 million, representing an increase of 11.6% from US$17.6 million in the same period of 2021. Revenue from services in the fourth quarter of 2022 were US$12.5 million, an increase of 30.3% from US$9.6 million in the same period of 2021. Revenue from services as a percentage of total revenue was 63.9% during the fourth quarter of 2022, up from 54.8% during the same period of 2021. During the fourth quarter of 2022, Japan contributed approximately 43.7%. Mainland China contributed 3%, and other country and regions contributed 53.3% of total revenue, compared to 37.4%, 3.1% and 59.5%, respectively in the same period of 2021. Overall gross margin improved to 51.3% in the fourth quarter of 2022, compared to 31.0% in the same period of 2021. And our gross margin on service increased to 59.4% in the fourth quarter of 2022, compared to 46.1% in the same period of 2021. Excluding share-based compensation our total operating expenses decreased to US$10.4 million, or 33% of total revenue. In the fourth…

[Operator Instructions] And our first question will come from Theodore O'Neill of Litchfield Hills Research. Please go ahead.

Thank you very much. My first question is about the gross profit. You're showing improvement year-over-year and sequentially in gross profit margin, and I was wondering if you could give us some insight into why that's improving so nicely here?

Yes. Thanks Theo. Yes this is Yimeng Shi, I will give more colors on improvements gross profit – gross margins. Yes generally the improvements it came from a service mixture as we disclosed in this statement, and we have a more international connectivity service in our total service portion and the international connectivity service have a higher gross margins than locals connectivity service. And also in our service mix, we have a significant portions of PaaS and SaaS revenue, so this is the highest gross margin as well. So this and also we have in the past years and we have put offers on research and developments to control this data consumption usage. And also we can put the controls on commercial site and keep these commercials pricings on some stable levels. So that's the whole year give us improving gross margins compare with the year 2021 and the service gross margin is coming back to the history with whole years labors 2019 and the service group margins, let's pick-up to a 59% overall in the whole year. We expect this trend for this higher gross margin for service. We will keep this trend in this year of 2023 as we expect the revenue portions from international connectivity service will increase materially, and we have this same trends compares with last year as well.

Thank you. And my next question is about the balance sheet. You're showing a year-over-year large decline in accounts receivable. Can you explain what's going on there?

Yes. That's correct, yes. In 2022, we put significant efforts on cash collections from the account receivable from the current year 2022 selling. And also, we put AFS [ph] on the agent’s account receivables backward from the years 2021 savings. So this account receivables, the balance accounts receivables decreasing significance because we put quite a lot of effort on cash collections from the customer side. So this year, we will also keep this same AFS on selling and to collect cash quickly from the customers’ side as well. And I think we have a good customer pools from the Japan’s market from the U.S. market as well. So this – the cash collections cycle is very important for us to have a quick cash inflow to support our operations and business growth. Thank you.

Thank you very much.

The next question comes from Vivian Zhang of Diamond Research. Please go ahead.

Good morning. This is Vivian Zhang from Diamond Equity. Thanks for taking my questions and congrats on achievements you made last year. So my first question is that China lifted a zero-COVID policy and pandemic travel restrictions in December last year. It’s expected that international travel will further recover and rebound as well. So, how do you think this will affect your company’s business and your revenue in 2023 and beyond?

Yes. I’m Chaohui Chen, CEO of uCloudlink. So yes, so we can see the whole world, including China to open the border. So, we can see a smaller rebound from the China spring festival to Chinese New Year. But I think the make – the fourth wave of rebound of the – from [indiscernible] COVID-19, I think will be the Labor Day is in the May 1. This – May 1, we have the fourth wave of rebounds from the COVID-19. So the whole year, we think in China, because everything recovery needs some period. So including the passport, visa everything, they did already, we believe that this year may be in China, only 40 – around 40% recovery. And the next year, year 2014 [ph], I think full recovery of that China will happen. So this year, around 40%. So that’s our forecast based on our – based on this and our year 2023 forecast is based on this assumption. And we believe maybe since will go more better – so if the things go more better and we will get more better result. So that’s from the China and Southeast Asia, like Japan and Korea, they are open as early as like in Europe, in the United States. I think this year, major from East Asia and China, we get at least 40% to 50% recovery. And next year, we are fully recovered. That’s our expectation.

Okay. Thank you, Mr. Chen. My next question will be about product. Are there any products the company plans to launch or update in 2023? If so, can you briefly introduce them?

Yes. So, we have – even last year, we create a challenging year, but our R&D is the highway investment in the R&D side. So you can see these years, we will not only launch the 5G product less leading in the industry. Currently, almost – it’s the only one product can roaming all the 5G network in the world. This will build our leading position for commercial business traveler. So that’s – we believe that’s the best connection experience for international market. That’s one side. Another side, we were in near term, we will – in next month, we will launch a world’s small product, just more creative product. So we call [indiscernible]. So this will be around in near term. So that’s another creative product. It’s very – smaller than just a credit card. So it’s really – it’s a smallest in the world. So that’s another creative product. It’s easy for caring for the international and the local improvement for the network and roaming. Also we have some other new products for mobile broadband and fixed broadband convergence product and 5G and CPE and the high cap CPE, these were another more viable network for fixed and mobile convergence. And also this year, we will launch one – marketplace of 1.0 solution marketplace up for 1.0 app. And this app were launched in near term also. Then we can meet the different requirements of the user for roaming, not only just for CloudSIM. So also we find – so we can meet almost various all kinds of the customer need for travel. So then we can attract more customers and provide a more – attach more customers’ catalog and segment. So this will increase our customer appointment and also our influence for the roaming solution. So that’s another new product, we will launch, that’s for software and hardware as well. So basically, also as we have some other new products we launched at the end of the year, so that’s a near term, I can show to you for the product we launched in the year 2023. Yes. By the way, so for the IoT side, we have a lot of new product launches like IP camera, like industry motor and also more product impact into the like a power supply a solar power systems, et cetera. The more and more IoT sense product will embed our CloudSIM solution, which can provide the better courage and reliable network connection, and we save the cost and statement cost and also launch costs and also the maintenance costs that are an advantage and also enhance the reliability of the IoT network. So that’s some – there’s quite a lot of the new solutions, especially our marketplace and we gained some software launch in these years.

Okay. Got it. Thank you for detailed information. Just to make sure these projects and hardware updates will be launched to global markets, right, not just some certain markets like Japan or USA or something right?

Yes. So yes, I think – by the way, we will – our technology will be more recognition by Chinese government. So – and also by more application like in Japan market, I think more and more user and partner recognize our technology for IoT for this new product. We believe we can get, I think more wider on the growth of year 2023.

Go ahead.

Yes. You asked the question is whether the new product will launch to the global market that, it will go along the global market, but we will deliver to the Japan’s market and U.S. market as well. So that’s the target for the global market.

Okay, thank you. So that’s all my questions. That’s all. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Jillian Zeng for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact uCloudlink’s Investor Relations through the contact information provided on our website or contact of the Investor Relations firm, The Equity Group. We look forward to speaking to you again on our next quarterly call. Thank you.

Thank you.

The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.