uCloudlink Group Inc. (UCL) Q4 2024 Earnings Report, Transcript and Summary

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. After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Daniel Gao. Please go ahead.

Hello everyone and 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 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 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 reverse 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 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.

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 are being more widely adopted by Chinese consumers and strengthening our leading position in the roaming market. Total revenue during the fourth quarter, which is typically impacted by seasonality, exceed the third quarter with peak summer activity, maintaining a consistent upward growth trajectory. Year 2024 marked the 10 years anniversary since our founding. Our comprehensive connectivity services powered by CloudSIM and HyperConn solutions cover over 150 more 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 ecosystem continues 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 internally to enhance operational efficiency and integrated it into a number of our solutions to improve the users' experience, ensuring seamless connectivity for users globally. In addition to AI, we're leveraging our proprietary HyperConn, CloudSIM and 6-tech Positioning Technologies to break barriers in connectivity, creating innovative solutions that enhance digital experience worldwide and revolutionize connectivity for IoT, people, and pets. At MWC 2025, we showcased these new and exciting technologies that has 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 UniCord 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 subsidiary was among the first batch of the 13 foreign investee companies alongside affiliate of renowned multinational operations such as Deutsche Telekom, Siemens, Airbus, and HSBC to receive approval from 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 a pivotal step 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 6-tech Global Positioning, Health, AI Smart Guardian, and the 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 $251 billion, reflecting the enormous opportunity we are tapping into with this solution. PetPhone met a great addition alongside RoamPlug, UniCord, KeyTrack into our portfolio. Turning to GlocalMe Internet of Things, IoT, Connectivity solutions, where we unveiled the CloudSIM Kit all-in-one IoT solution at MWC 2025. Our CloudSIM kit is a revolutionary plug-and-play IoT solution designed to deliver instant global full-speed 4G and 5G connectivity for IoT and smart devices. These innovative solutions can seamlessly integrate into existing device with SIM card slots, such as smartphone, CPE loader, and IoT-enabled hardware. By simplify insert CloudSIM Kit into the SIM slot, users can unlock global connectivity without the need for additional hardware or software modifications, make it an ideal solution for a wide range of applications and scenarios. With the combination of the CloudSIM Kit, our pioneering software CloudSIM technology and our innovative SIM card solutions, GlocalMe's IoT offerings now comprehensively address the connectivity challenges across all IoT scenarios. Whether for the existing legacy devices or new incremental markets, our solution provide seamless, reliable, and scalable connectivity. This breakthrough not only enhance the versatility of IoT application, but also significantly expand the market potential for GlocalMe, positioning us as a leader in global IoT connectivity solutions. Following the success small-scale commercial application of our CloudSIM technology with several leading manufacturers in the security camera, dashboard camera, other related sectors. The commercial application of our GlocalMe IoT solutions scale 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 IoT sectors. For our GlocalMe SIM business, we just unveiled eSIM TRIO at MWC 2025, a revolutionary leap in SIM technology position as the Best Second SIM Card you can have. It enhanced both domestic and international coverages, providing consumers with a single SIM solution for seamless local and global connectivity. Additionally, it empower Tier 2, Tier 3 operator and mobile watch operator by addressing challenges such as poor network performance, limited international roaming, and 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 connectivities 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 congestion detection offering a seamless and better connection experience regardless of where you are. Our advanced HyperConn technology delivery hyper local and global internet access, ensuring users have high-speed connections and reliable network wherever they go without the limitation of the traditional roaming or carrier restriction. At MWC 2025, we unveiled the revolutionary upgrade U40, capable of delivering speed 3 times faster than traditional 4G device. These groundbreaking solutions seamlessly integrate Wi-Fi networks across home, airport, cabin, office, cafes, and more, while also being the world's first device to support in-flight Wi-Fi connectivities. We also made breakthrough in developing retail channel for our GlocalMe mobile fixed broadband and life solution during the quarter by signing cooperation agreements with North American 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 exposure to a broader audience. Following our successful launch at MWC 2025, all four product lines are now market ready with strong interest from partners including global pet store chain who have initiated high-level discussion, signaling significant market expansion potential. Our goal is to aggressively promote this towards a full marketplace vision. GlocalMe Life, including the PetPhone 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 this innovative business lines increasingly creating new revenue streams, fairly into our marketplace. Our user base is diversified and scaling up. We have an exciting year 2025 ahead of us with many more solutions in the pipeline where we are -- 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 fourth quarter of year 2025, we expect total revenue to be between $80.2 million and $90.5 million, representing an increase of 0.6% to 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% and to 41.9% from year 2024. I will now turn the call over to Mr. Shi.

Thank you, Mr. Chen. Hello everyone. I will go over our operational and financial highlights for the fourth 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 the 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 gigabytes 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 approved and 20 pending approvals, while the pool of SIM cards are from 391 MNOs globally as of December 31st, 2024. Total revenue for the fourth quarter were $26 million, representing an increase of 19.5% from $21.7 million in the fourth quarter of 2023. Revenue from service was $50 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 fourth quarter of 2024 compared to 68.7% during the same period of 2023. Geographically speaking, during the fourth 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%, 27.3%, and 61%, respectively, in the same period of 2023. Overall, gross profit was $11.2 million in the fourth quarter of 2024, relatively stable when compared to $11.3 million in the same period of 2023. Overall, gross margin was 43% in the fourth quarter of 2024 compared to 52% in the same period of 2023. Gross margin on service was 58.6% in the fourth 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 fourth quarter of 2024 from 34.2% in the same period of 2023. Excluding share-based compensation, total operating expenses in the fourth 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 fourth quarter of 2024 compared to $1.8 million in the same period of 2023. Adjusted EBITDA was negative $2.3 million in the fourth quarter of 2024 compared to positive $1.5 million for the same period of 2023. Moving on to 2024 full year 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 PaaS/SaaS service. Revenue from data connectivity service were $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 million in 2023 driven primarily by the continued 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 margin was 48.4% in 2024, stable when compared to 49% in 2023 and our gross margins on service increased to 60.8% in 2024 from 58.5% in 2023. Excluding share-based compensation, 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 were $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 equivalents 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, let's open up for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Yes, thank you very much. My first question is about the PetPhone. And what I'd like to know is what's the benefit of the PetPhone? And what will it allow me to do?

Yes. So, the PetPhone, I think will enable pet like children under seven years or similar sort, they can use the smartphone to call the other dog or other pets or their owners to express their needs, they are moody, such as, for example, they are hungry, they are fussy, they want to go outside, they are missing their friends. So, they can use their body languages. They can use their special home to express this message or calling to their different pets and their owners. So, we shorten the distance. So, no matter the owner or friends where they are, so they can contact their pets. They can express their caring each other. So, that's quite unique creation point. That's why in the MWC 2025, we get many, many attraction from the local 7 -- I don't remember it's 7TV and a lot of the very famous like this famous broadcaster, I think approached us to understand this product. It's not only just interaction with the people and the pets, but also, we create, I think pet's community, social. For example, if the dog with our PetPhone go to the park. So, if another door is approaching, so the PetPhone, the light will flash and the phone will give a reminder, your new friend coming or you have a good friend coming or you have a bad friend -- dislike friend coming. So, we can make this happen. So, this is quite attractive. Also, we have security. We have 6 Positioning. We can find many other tracking -- tracker or air tech could notify because we have 6 Positioning Technology by UniCord, we already follow [ph] in last years. So, finally, we have also the geofencing. We have sports and we can understand they are moody and we can monitor, we can alert this if something wrong or improper behavior. So, that's quite unique for this product. So, we believe the pet deserve a handset. So, that's quite -- we bring out -- a huge market. By the way, I think we get very -- a lot of the carrier like our product. So, we are not just selling our -- this product will launch in April. But we are not just launching this product in the open market. But more important, we successfully attract carrier because we bring -- we have a carrier create the revenue not only from people and IoT, but more important, we create a new market like pet market is a growing market so they can sell -- their subscriber, they can sell the SIM card. That's quite important to the carrier in such competitive market.

Very interesting. You may have inadvertently answered my next question. But of the items you've introduced at MWC, the PetPhone, eSIM TRIO, CloudSIM Kit, and HyperConn, do you think the PetPhone is going to have the biggest impact in 2025 of those?

Yes, that's why I think we have become very famous instant because the way broadcasters approaching us and a long-time interview with our guys. That's why recently, we just about after the MWC several days later, we already had a successful meeting with a biggest pet channel instead. So, in the past, that's unbelievable, but now it will happen. So, that's why PetPhone is quite unique. We create this new device and for the new market. So, that's first. Also, our second product is the eSIM TRIO and SIM Kit because we enable from the user subscriber side if the end user use our eSIM TRIO or our SIM Kit that means there is no more coverage issue, roaming issue, congestion issue. So, that's why in this case -- a very unique. It's a long-term, I think people will need a second SIM card for permanent I think use because we can solve such three problems. That fourth SIM card, we have faced these three challenges. And also, also more important, we enable the Tier 2, Tier 3 carrier they no longer have this roaming issue, congestion issue and coverage issue. That means they can use our eSIM TRIO and the SIM Kits to solve -- to use other carriers' network to build -- to gain their business and service. So, without our technology, I don't think in the domestic, they can use the other carrier network to build their business without coverage, without revenue, but now we changed this situation. We can have a Tier 2, Tier 3 carrier so use the other carrier network for roaming and for domestic roaming and international roaming for congestion and for coverage as well. So, that's quite unique. So, also a lot of Tier 2, Tier 3 carrier approaching us, they are quite interesting because we can save their spending in the base station building. They are no longer need immediately to build local and domestic coverage. So, they no need to pile pressure anymore. They can quickly expand their business for the future. They can build their own base station based on their needs and their data. So, by the way, also, we have the third product. Last year, we just showed our UniCord product. So, now we have three products for the UniCord, this family. We are offering so a cable with a power charge 60 watts, but also with 4G capability in this cable, just $5 more for our UniCord entry level. We have middle tier network that very compact -- we call compact model. You can screw up your wire in very smaller extreme portable. So, for battery inside, for MiFi inside, for GPS -- for fixed positioning inside with this UniCord, we call, I think this extremely portable. So, extremely good for your business and your car and as safety because positioning always and you never missing the car, you can find your car always. You're never losing your luggage, also you get the data. And anyway, it's good for your portable -- extremely portable for your cable for -- you need a cable for power. So, also, we have another we call multipurpose multifunction UniCord. This is high end. They can provide high speed for eight people use or five people use Internet, data charge and also can be a computer dock. So, -- and we are not occupied Type C. It's also with the battery and with the positioning. So, you never lose your goods, your property. So, just one cable, we can solve the safety, convenience and easy your trip and your safety, your product -- your property. So, that's the third product. The final product is about our -- we provide HyperConn technology and satellite connection into our traditional MiFi product, mobile hotspot worldwide. So, that means our traditional -- our mobile Wi-Fi only be applied into the -- if any people travel outside. So, to provide a multiuser mobile broadband worldwide at a high speed at a high quality at high 5G. That's our quite unique position. But now we expansion this function, not only 4G, 5G, but also, we can manage all the Wi-Fi network. This Wi-Fi, including the satellite Wi-Fi or the airport Wi-Fi, separate Wi-Fi or I think the flight cabin Wi-Fi. So, -- and also even your home office so you still need the device because one device, you never need to change the connection. But -- for example, if normally our handset go to the outside, you need to connect 4G, 5G, go to the airport, you need to go to connect the airport Wi-Fi. Go to home, you go to your home Wi-Fi. That is extremely inconvenient. So, 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, but also with guarantee reliability for 4G and 5G backup to robust your network. So, in the airport, in the flight cabin Wi-Fi, you don't need to scan and connection to the cabin Wi-Fi again. So, we can automatically switch to the cabin Wi-Fi for you. So, one device for every scenario, both at home or outside is extremely convenient. So, that's why all our four products become more and more attractive and quite unique in MWC 2025, we are quite unique. We have made life more easily, more convenient, and connect better and more safety.

Okay. Well, 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? And 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. And I was wondering what you -- if you made any assumptions about international travel in your full year 2025 forecast?

Yes, of course. The guidance for the year 2025 is the range of $95 million to $130 million. We factor in the recovery of international travel carry on in the year 2025. So, that's underlying assumptions 10% to 20% of the growth powered by the recovery of the international travel. And also, we are factoring the new business lines growth, as Mr. Chen mentioned so we launched so attractive and innovative new solutions and attract a widespread market attention. So, we expect the new business-like PetPhone, CloudSIM Kit, and eSIM TRIO will be expanding this year from starting point of view. So, both new business and the legacy business international travel will provide momentum growth for the year 2025. So, that's a background we disclosed the guidance this year.

Thank you very much. That answers my questions.

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

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?

Yes. As you've seen our disclosures for the year 2024. Last year, we invest a lot on new business, so we have three new business launched in the second half year of 2024. So, we invest a large budget -- spend a large budget on promotion, and market exposure for the new business. So, that's compared with the year of 2023, we invested $5 million more than last year. I think these investments will gain return in the year 2025 as we just talking about the guidance range for the top line 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 be come back for this year. So, that's -- for this year, we will carry on investments on the new business. So, we expect the sales and marketing budget this year will have the growing proportion compared to the year 2025. So, I think that's very important for our long-term growth and very important, we invest on future to gain our user number from now is million level to 10 million level in the next couple of years. So, investments from now we're going forward to invest on our future. Thank you.

Yes, I think basically, last year and this year is our very important year. So, we start from a major company become 2B and 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.

Okay, got it. I see. So, my last question is that what were the key drivers of revenue growth from Mainland China last year? And how do you expect this to evolve in the coming quarters?

Yes, for last year 2024, the growth -- the revenue growth rate was nearly 100%. So, the main is driven by the Chinese outbound traveling. So, the more Chinese overseas travelers, they are booking our service. So, our branding -- our first brand name Roaming Man is very famous as a leading branding lane for Chinese outbound travelers. We are in a leading position. So, that's driven our growth for the Mainland China. As we also disclosed, we just got approval of pilot operations of value-added telecom service in Mainland China recently. So, that's 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. So, that's a great potential to grow our business in Mainland China, domestically and internationally.

Yes. So, I have some more comment. You can see in China domestic travel to the worldwide. So, our market share last year is growing. And also last year, we have -- for the Chinese New Year, we have very successful branding and promotion and end user emphasized our 5G full speed and our service quality compared with China traditional operator like China Mobile roaming service. So, our quality and our service is much better. So, now we are gradually building our brand -- roaming brand for 5G quality -- high-quality service is exceeding far more better than China Telecom and also the telecom -- the global travel SIM. So, these are becoming very successful. In the Chinese New Year, we are almost more than 50% increase compared to the year 2024. So, we are confident we will take more market share from the traditional operator and global SIM card roaming market. So, we believe we can grow to 3% to 5% to 6% this year. So, our target we can grow more than 10%. So, we're quite confident we can achieve that.

Okay. Thanks for the details. That helped a lot. So, that’s all my questions. Thank you. That’s all.

This concludes our question-and-answer session. I would like to turn the conference back over to Daniel Gao 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 speak to our Investor Relations' firm, Christensen Advisory. We look forward to speaking to you all again on our next quarterly call. Thank you.

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