uCloudlink Group Inc. Q4 FY2024 Earnings Call

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 questions. 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 of $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, exceeded the third quarter with peak summer activity, maintaining a consistent upward growth trajectory. Year 2024 marked the 10-year anniversary since our founding. Our comprehensive connectivity services powered by CloudSIM and HyperConn solutions cover over 150 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 it internally to enhance operational efficiency and integrated it into several of our solutions to improve the user's 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 the digital experience worldwide and revolutionize connectivity for IoT, people, and pets. At MWC 2025, we showcased these new and exciting technologies that have been integrated into innovative solutions that will further strengthen the tailwinds behind our broader series of GlocalMe and GlocalMe Inside solutions. Furthermore, at CES 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 subsidiaries was among the first batch of the 13 foreign investee companies alongside affiliates of renowned multinational operations such as Deutsche Telekom, Siemens, Airbus, and HSBC to receive approval from the 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 fun, API pet interaction, safety features including the 6-tech Global Positioning, Health monitoring, AI Smart Guardian, and community engagement through the Global Pet Community. According to Morgan Stanley, annual spending growth in the pet industry could reach 7% by year 2030. This translates into total industry spending increasing to $251 billion, reflecting the enormous opportunity we are tapping into with this solution. PetPhone met with great interest alongside RoamPlug, UniCord, and KeyTrack in our portfolio. Turning to GlocalMe Internet of Things (IoT) Connectivity solutions, 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 devices with SIM card slots, such as smartphones, CPE loaders, and IoT-enabled hardware. By simply inserting the CloudSIM Kit into the SIM slot, users can unlock global connectivity without the need for additional hardware or software modifications, making 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 comprehensively address the connectivity challenges across all IoT scenarios. Whether for existing legacy devices or new incremental markets, our solution provides seamless, reliable, and scalable connectivity. This breakthrough not only enhances the versatility of IoT applications but also significantly expands the market potential for GlocalMe, positioning us as a leader in global IoT connectivity solutions. Following the successful small-scale commercial application of our CloudSIM technology with several leading manufacturers in the security camera, dashboard camera, and other related sectors, the commercial application of our GlocalMe IoT solutions scaled up significantly during the first quarter. GlocalMe IoT user numbers are growing rapidly and are expected to ramp up moving forward, allowing us to demonstrate the strength and 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 positioned as the best second SIM card you can have. It enhances both domestic and international coverage, providing consumers with a single SIM solution for seamless local and global connectivity. Additionally, it empowers Tier 2 and Tier 3 operators and mobile virtual network operators by addressing challenges such as poor network performance, limited international roaming, and the 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 connectivity across mobile network operator networks. Lastly, for our people-centric connectivity, our GlocalMe mobile fixed broadband business line, 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 delivers hyper-local and global internet access, ensuring users have high-speed connections and reliable networks wherever they go without the limitation of traditional roaming or carrier restrictions. At MWC 2025, we unveiled the revolutionary upgrade U40, capable of delivering speeds three times faster than traditional 4G devices. These groundbreaking solutions seamlessly integrate Wi-Fi networks across homes, airports, cabins, offices, cafes, and more, while also being the world's first device to support in-flight Wi-Fi connectivity. We also made breakthroughs in developing retail channels for our GlocalMe mobile fixed broadband and life solutions during the quarter by signing cooperation agreements with North America's largest airport retail channel, making them widely available across airport retail locations in North America. We are now actively negotiating to expand this partnership across Europe and are looking to replicate this process through other channels to expand 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 a global pet store chain that has initiated high-level discussions, signaling significant market expansion potential. Our goal is to aggressively promote this towards a full marketplace vision. GlocalMe Life, including the PetPhone, targets 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 these innovative business lines increasingly creating new revenue streams, we are 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 our 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% 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 terminals (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 31, 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 comprises of 391 MNOs globally as of December 31, 2024. Total revenue for the fourth quarter was $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 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 was $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 expenditures 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 position 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. 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 pets like children under seven years or similar sorts, they can use the smartphone to call other dogs 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, or they are missing their friends. So, they can use their body language. They can use their special home to express this message or call their different pets and their owners. So, we shorten the distance. So, no matter where the owner or friends are, they can contact their pets. They can express their caring for each other. So, that's quite a unique creation point. That's why at MWC 2025, we got a lot of attraction from the local media and many very famous broadcasters approached us to understand this product. It's not only just interaction with the people and the pets, but also we create, I think, a pet community. For example, if a dog with our PetPhone goes to the park, another dog approaching will have its PetPhone flash a light to give a reminder that a new friend is coming or that you have a good friend coming or a dislikes friend coming. We can make this happen. So, this is quite attractive. Also, we have security. We have 6 Positioning features. We can find many other trackers or alert functions because we have 6 Positioning Technology by UniCord, which we followed last year. Also, we have geofencing. We have sports features and we can understand their moods, and we can monitor and alert if something is wrong or improper behavior. So, that's quite unique for this product. So, we believe the pet deserves a handset. That's why we are addressing a huge market. By the way, I think we have gained a lot of interest from carriers regarding our product. So, we are not just selling this product, which will launch in April, but more importantly, we successfully attract carriers because we create revenue not only from people and IoT, but more importantly, we create a new market in the pet sector, which is a growing market where they can sell to their subscribers, which is vital in such a 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?

I believe we have gained significant recognition quickly due to the way broadcasters engaged with us and the in-depth interviews with our team. Just days after MWC, we successfully met with the largest pet channel, which would have seemed unbelievable in the past but is now a reality. This highlights the uniqueness of the PetPhone, as we are introducing a new device for a new market. Our second product, the eSIM TRIO and SIM Kit, addresses user needs by eliminating coverage, roaming, and congestion issues. This product meets the long-term need for a second SIM card, solving these three challenges. We are also attracting interest from Tier 2 and Tier 3 carriers who see the potential to save on building base stations, allowing for quicker expansion based on their needs and data. Additionally, we unveiled our UniCord product last year, and now we offer three products within the UniCord family. Our entry-level UniCord includes a cable with a 60-watt power charge and 4G capabilities for just $5 more. We have a compact model that allows the wire to be rolled into a small package, making it extremely portable for businesses, cars, and safety needs during travels. This means you can easily track your vehicle and never lose your luggage while staying connected. Furthermore, our high-end multipurpose UniCord can support high-speed connections for up to eight users, serve as a computer dock, and includes battery backup and positioning features, ensuring safety and convenience. Our final product integrates HyperConn technology and satellite connections into our traditional MiFi, providing high-speed, multi-user mobile broadband globally with 5G quality. This enhancement allows users to manage all Wi-Fi networks, including satellite and airport Wi-Fi, seamlessly switching connections for convenience. Our mobile Wi-Fi uses AI to automatically select the best network, ensuring reliable connectivity whether at home, in an office, at the airport, or on the go. This one device simplifies connectivity for various scenarios, making all four of our products increasingly appealing and distinctive. We are looking forward to MWC 2025, where we aim to demonstrate how our solutions make life easier, enhance connectivity, and improve safety.

Thank you. My last question is about international travel. In your forecast for full-year revenue, I'm curious about the assumptions you might have made regarding international travel trends. The reason I'm asking is that Delta Airlines mentioned last week that they are observing a decrease in flyers in their forecast. I would like to know what assumptions you made 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 carrying on in the year 2025. That’s the underlying assumption of 10% to 20% growth powered by the recovery of international travel. We are also factoring in the new business line growth, as Mr. Chen mentioned, so we launched attractive and innovative new solutions that attract widespread market attention. Therefore, we expect that the new business like PetPhone, CloudSIM Kit, and eSIM TRIO will expand this year from a starting point of view. So, both new business and the legacy business of international travel will provide momentum growth for the year 2025. So, that’s the background against which we disclosed the guidance this year.

Thank you very much. That answers my questions.

Thank you. We will now begin the question-and-answer session. 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 invested a lot in new business. We launched three new business initiatives in the second half of 2024. Thus, we allocated a significant budget on promotion and market exposure for the new business. In comparison with the year 2023, we invested $5 million more than last year. I believe these investments will yield returns in the year 2025, as we are discussing the guidance range for the top line forecast. We aim to deliver and grow our new business this year. I think the returns for this business will come back this year. Therefore, for this year, we will continue to invest in the new business. We expect the sales and marketing budget this year will have a growing proportion compared to the year 2025. I think that’s crucial for our long-term growth, and it is very important to invest in the future to scale our user numbers from the million level to the ten million level in the next couple of years.

Yes, I think basically, last year and this year is very important for us. We are transitioning from a major company to more of a B2B and B2C focus while increasingly emphasizing B2C. We need to build team capability. I think also B2C needs a heavier 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 revenue growth rate was nearly 100%. The main driver was the increase in Chinese outbound traveling. The more Chinese overseas travelers are booking our service. Our branding — our first brand name, Roaming Man is very famous as a leading brand for Chinese outbound travelers. We are in a leading position, and that drove our growth in Mainland China. As we also disclosed, we just received approval for pilot operations of value-added telecom service in Mainland China recently. So, that's quite a huge momentum for us to enhance our business in Mainland China domestically, not only for outbound business but also for inbound business as well. So, there is great potential to grow domestically and internationally in Mainland China.

Yes. So, I have some additional comments. You can see in China domestic travel worldwide. Our market share last year grew. For the Chinese New Year, we had very successful branding and promotion, and end users emphasized our 5G full speed and service quality compared to traditional operators like China Mobile's roaming service. Our quality and service are much better now. We are gradually building our brand — roaming brand for 5G quality, which is far superior to China Telecom and the global travel SIM. During the Chinese New Year, we saw more than a 50% increase compared to the year 2024. So we are confident we will take more market share from the traditional operators and the global SIM card roaming market. Thus, we believe we can grow by 3% to 5% to 6% this year. Our target is to grow by more than 10%, and we are quite confident we can achieve that.

Okay. Thanks for the details. That helped a lot. So, 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 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.