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

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.

Thank you, Daniel. And good morning or evening, everyone. Continuing with the growth momentum we started early this year, we have carried it into the second quarter with total revenue reaching USD 22.4 million, in line with the guidance. Our financial position is improving with net income reaching USD 2.2 million and operating cash flow increasing 38.3% year-over-year to USD 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 made consistent progress in expanding beyond the travel sector into various aspects of daily life with an expanded array of comprehensive data connectivity solutions to satisfy a wider range of 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 continues to grow in the second quarter of 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 solutions 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 USD 5.5 billion by 2030 from USD 1.6 billion at the end of 2023. Secondly, our GlocalMe Life solution made significant progress in the second quarter of 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, and 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-based station positioning an active radar reaching for up to 100 meters, our KeyTracker is technologically ahead of the competition with its six-in-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 an all-in-one device that combines smart charging technology with 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 UniCord make great local and global travel companions to charge and connect devices. We are also providing reliable internet connectivity without the need to carry bulky hardware. GlocalMe Life 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 OTA SIM and eSIM solutions in more countries and regions, powering away with more powerful ALL SIM solutions that will allow us to engage with a broader user base. Our ALL SIM solutions, which consolidate OTA SIM, eSIM, and Cloud SIM, are uniquely positioned to break cross-carrier restrictions in powering various smartphones and set a new 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 connections excluding licensed cellular IoT are expected to increase from USD 8.6 billion in 2023 to USD 9.8 billion by 2030. In our GlocalMe IoT business plan, we are leveraging our soft Cloud SIM technology compatible with various chipset platforms to engage with a broader spectrum of partners in the security terminal, dashboard terminal, and related sectors to explore additional application scenarios. This will allow us to demonstrate the strengths and 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 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 revenue 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 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 2024, we expect total revenues to be between USD 24.0 million to USD 28 million, representing an increase of 0.4% to 17.2% compared to the same period in 2023. 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 second quarter of 2024. Average daily active terminals are 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 was 306,289, of which 62.2% were from uCloudlink 1.0 international data connectivity service, representing an increase of 29% in DAT of the 1.0 international data connectivity service compared to the same period of 2023. Average daily data usage for terminals 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 was USD 22.4 million, representing an increase of 1.7% from USD 22 million in the second quarter of 2023. Revenue from services was USD 14.2 million, representing an increase of 0.5% from USD 14.1 million in the same period of 2023. Revenue from services 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 USD 11 million, compared to USD 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 services 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 USD 8.7 million or 39% of total revenue in the second quarter of 2024, compared to USD 7.3 million or 33% of the total revenue in the same period in 2023. Net income was USD 2.2 million compared to a net loss of USD 0.9 million in the same period of 2023. Adjusted EBITDA was USD 3.3 million in the second quarter of 2024, compared to USD 2.1 million for the same period of 2023. For the second quarter of 2024, we generated operating cash inflow of USD 4.7 million, increasing by 38.3% from USD 3.4 million in the same period of 2023. For the second quarter of 2024, capital expenditures were USD 1.6 million compared to USD 0.5 million in the same period of 2023. We maintained a solid balance sheet with cash and cash equivalents increasing to USD 26.8 million as of June 30, 2024, up from USD 24.7 million as of March 31, 2024. With that, Operator, let's open it up for Q&A.

Thank you. The first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Thank you and congratulations on the results for the quarter. My first question is about uses for cash. You're profitable, you increased 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, dividends, or capital expenditures of some kind.

Yes, we have a strong cash inflow from operations. It's close to USD 4.7 million generated in the second quarter. The overall cash equivalent now is more than USD 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, and we don't have a full discussion on any dividends planned. We still focus on improving our growth and financial position. We want to improve our financial position to make the company safer for long-term operations. Thank you.

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?

Yes, those are the first three products we launched for GlocalMe. We have more products coming in the following quarters.

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?

Maybe I’ll add some color first and then the CEO will add more comments on that. Yes, as we have disclosed our guidance for the third quarter, which is USD 24 million to USD 28 million for revenue. Yes, for this growth, many are driven by this international community service, especially as we disclosed in the second quarter. The Mainland China's growth, the outbound traveler from Mainland China to other countries, has grown significantly. We think that trend will keep the same high and fast growth in the third quarter of this year. The main driver in the third quarter will come from international travel growth for Chinese outbound and other regions outbound as well. Also, we expect our new solutions like GlocalMe Life Series products that we launched in the second quarter will bring a more revenue stream into our camps in the third quarter and more in the fourth quarters. We believe that the growth driver is more than just international roaming service but also from Life services.

Yes, I'm Chaohui Chen. For our 1.0 business, we understand that China and Japan's market are still on the way to recovery. I believe that over the next year, they are still on track in recovering from the pandemic. Also, for the 2.0 business, we are developing the most reliable connections for fixed broadband backup. This market also gives us more advantages to break into this market for 2.0, so we can see some opportunities in the 2.0 business for highly reliable connections that we can bring to customers. As for new products, since we are at the end of the second quarter, we have just newly launched three products. I believe that many in the third quarter, and mainly in the fourth quarter will generate more revenue for our new products. I believe we will not only bring data but also subscriber and service revenue.

Thank you very much for answering my questions.

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

Good morning, and I am Anri Lan. Thanks for taking my questions and congrats on the strong quarter achieved. My first question will be about the commercialization of GlocalME Life. 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?

Yes. We sell both online and offline, as well as through various channels. Some products are sold under our own brand, and some under our brand with our partners. So far, I think the progress is very good. The feedback from our partners and users has been quite positive because we provide better connections that empower better lives. The revenue is not only from data connection but also increasingly from services such as pad checking. In the future, also for the convenience for travelers, I think like UniCord, it is not only for travelers but also for daily use such as car power and home IoT connections. We can bring home IoT connections, such as the Wi-Fi camera to the outdoor, worldwide. That's our unique value point, simplifying and enhancing user experience.

Okay, I see. So, my next question is that the guidance for the quarter is quite strong. So, are there drivers behind that? Thank you.

Yes, I think for the next quarter, our traditional product is stable. However, I believe the substantial increase in our revenue will come from our new products. We have just newly launched the products, and we need some time to see revenue from them. The feedback is very good, but there is still some uncertainty regarding how quickly we can generate revenue from these new products.

Okay, do you think these three newly launched products will affect your gross margin next quarter, or do you think you will keep the current level?

I expect that service cost margins should remain in a similar range as we delivered in this year, like in the second quarter. As of now, the primary source of revenue is from international roaming service, which has a higher gross margin. The subsequent fees related to the new GlocalMe Life series products hold the potential for the highest gross margin. We will monitor how we deliver these to the market in various regions and channels. We believe we will have solid service margins this year and in the future as well.

Okay, that helps a lot. That's all my questions. Thank you.

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

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.

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