uCloudlink Group Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the uCloudlink Second Quarter 2025 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Daniel Gao. Please go ahead, sir.

Hello, everyone, and thank you for joining us on uCloudlink's Second Quarter 2025 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 and 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 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, 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 audited 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 are accelerating three transformative growth areas: GlocalMe Life, led by PetPhone, GlocalMe SIM, powered by eSIM TRIO, and GlocalMe IoT. Through focused investment in R&D, go-to-market capabilities, and brand building, we aim to drive sustainable margin expansion while simultaneously strengthening our legacy GlocalMe mobile broadband business line by proactively offsetting tariff impacts through strategic supply chain adjustments. Throughout this expansion, we maintain financial health as our foundation, ensuring disciplined investments drive sustainable profitability, laying a solid foundation for long-term value creation. Our GlocalMe ecosystem continues to gain traction and growth momentum. Our business remains profitable and continues to generate a stable margin with total revenue of USD 19.4 million and net income of USD 0.7 million during the quarter. Our international data connectivity services business continues to grow with full-speed 5G network coverage across 86 countries and regions, as we continue to consolidate market share, especially in Mainland China, and strengthen our leadership position in the global roaming sector. Our substantial strategic investments focused on R&D and marketing for our next-generation products ensure they drive growth and improve our performance once launched. The development, refinement, and testing of these products progressed smoothly with several major distribution partners as we build a robust pipeline and enter the final stages of commercialization. Feedback has been overwhelmingly positive, reflecting how our solutions directly address market demand and validate our investment strategy. This has set the stage for the launch of several groundbreaking products in the near future. In this quarter's earnings release, we introduced a new metric, average monthly active terminals, or MAT. Our three new product lines, GlocalMe Life, GlocalMe SIM, and GlocalMe IoT, demonstrated remarkable MAT growth of 105.2%, 120.1%, and 791.0% year-over-year, respectively. I will now review highlights for each of our key business lines. I will start with the GlocalMe Life business line, the upcoming commercial launch of the platform, where we already have over 20 potential strategic partners lined up, and we launched the brand in several countries in the third quarter of 2025. In Hong Kong, we are collaborating with a premier telecommunications service operator to launch the platform, making a significant expansion in our global market research, and rolling out a powerful win-win cooperation model. This allows operators to monetize premium subscriptions, acquire high-value pet-owning customers, and diversify their revenue streams through our value-added services. Our technology amplifies their market research, and their infrastructure accelerates our scale. We also made substantial progress with a leading global online pet retailer to further enhance PetPhone's accessibility and market penetration within a short time. Alongside PetPhone, our industry-first UniCord Plus and UniCord Pro series, which are highly competitive, innovative, and pioneering products integrating seamless connectivity across multiple networks, six-stack global positioning and fast charging capabilities, will further strengthen our competitive edge in the travel, automotive, and secure networking markets. The commercial application of our GlocalMe IoT solutions also continues to gain strong momentum, with user adoption growing over 10x year-over-year after nearly three years of commercialization efforts. As revenue contribution increased, entering a new phase of accelerated growth, beyond core connectivity revenue, we are diversifying monetization through value-added services. We enable China's top manufacturers to accelerate their global expansion through customized IoT connectivity solutions. Strategic partnerships with more industry leaders in the battery monitoring, desk camps, vehicle infotainment, and smart security camera sectors are further solidifying IoT as a key pillar for our business. Turning to our GlocalMe SIM business line, our success isn't accidental; it is a result of a successful business evolution. We have already sold over 300,000 OTA SIM and eSIM units since 2024, outperforming competitors in the baseline segments. We achieved top ranking market share among our outbound travelers from Mainland China traveling to Hong Kong, Macau, Japan, and Korea. This operational maturity positions us distinctly from market entrants. Building on this foundation, eSIM TRIO represents our second more advantageous realization. While competitors remain focused on the legacy SIM or eSIM technologies, we have advanced to redefine industry standards through this innovation. eSIM TRIO has been recognized as a transformative solution, receiving the top MWC Innovation Award from SlashGear. Its groundbreaking capabilities have generated significant industry attention at both Mobile World Congress 2025 in Barcelona and MEMO's World Congress 2025 in Vienna. Our comprehensive marketing campaign for eSIM TRIO, executed in partnership with top media outlets, substantially increased its market visibility and exposure. We are synergistically addressing two critical pain points for the industry with this product. First, as the ultimate permanent secondary SIM for consumers, it ensures seamless global coverage by dynamically connecting to multiple networks, eliminating the need for costly international roaming and providing users with reliable high-speed connectivity across devices. Secondly, through our carrier insurance program, we solve a critical pain point for operators, especially Tier 2 and Tier 3 mobile network operators and mobile virtual operators by upgrading their network performance and global roaming capabilities without the need for infrastructure investment and funding power. With nearly 1,000 trial units distributed, strong user feedback, key breakthroughs in carrier partnership programs, and sample production and testing with multiple operators scheduled for next quarter, we are poised to begin large-scale commercial deployment during the third quarter with strong confidence. Finally, in our GlocalMe mobile fixed broadband business line, we pilot-launched the upgraded MeowGo G40 Pro late in the second quarter, which supports speeds three times faster than traditional 4G devices. It's the world's first enabled in-flight WiFi and connects to Wi-Fi networks across several applications, such as at home, airports, offices, and cafes. With MeowGo G40 Pro, we are transforming portable connectivity from an international travel-only solution to a true multi-scenario company with our patented AI HyperConn technologies, seamlessly serving users through a single intelligent device and one account regardless of their location. Furthermore, in the third quarter, we will launch the MeowGo G50 Max with Sky-to-Ground 5G satellite integration and AI-driven network switching, further solidifying our innovative leadership in the mobile fixed broadband industry. This device enhances network quality through AI-powered real-time congestion detection and network reselection. In summary, we are ideally positioned to capitalize on our strategic and operational momentum. Despite trade and macroeconomic headwinds, we remain committed to executing our strategic R&D and marketing investments for new products while sustaining healthy financial performance. These three products from our core business line, GlocalMe SIM led by eSIM TRIO, GlocalMe Life led by PetPhone, and GlocalMe IoT, have all achieved successful transformation in the second quarter, laying a solid foundation for future growth with the potential to reach multimillion users in the future. Our diversified product portfolio provides multiple pathways for us to drive growth throughout the remainder of the year as we scale up our user base and build a comprehensive global market data traffic and sharing marketplace. We are confident that we have the right strategy in place to generate sustainable growth in the coming quarters. For the third quarter of 2025, we expect total revenue to be between USD 22.0 million to USD 26 million, representing a decrease of 12.7% to a decrease of 3.2% compared to the same period in 2024. The company currently expects its revenue for the full year of 2025 to be in the range of USD 85 million to USD 95 million, as compared with a range between USD 95 million to USD 130 million as previously announced. The company is revising its guidance in light of the present macroeconomic challenges and the global trade headwinds that have had, and may continue to have, a broader impact across the industries.

Thank you, Mr. Chen. Hello, everyone. I will go over our operational and financial highlights for the second quarter of 2025. Average daily active terminals, or DAT, and average monthly active terminals, or MAT, are important operating metrics for us as they measure customer usage trends over the period and reflect our business performance. In the second quarter of 2025, average DATs were 317,957, of which 18,863 were owned by the company and 299,094 were not owned by the company, representing an increase of 3.8% from 306,289 in the second quarter of 2024. During this quarter, 55.7% of DAT were from uCloudlink 1.0 international data connectivity service, and 45.3% were from uCloudlink 2.0 local data connectivity service. In June 2025, the average daily data usage per terminal was 1.59 gigabytes. Average monthly active terminals in the second quarter were 663,197, representing an increase of 5.6% from 628,125 in the second quarter of 2024. First, average MAT in the second quarter from the GlocalMe IoT business was 42,095, reflecting a remarkable increase of 791% from 4,725 in the second quarter of 2024. Average MAT in the second quarter from the GlocalMe SIM business was 42,271, showing an increase of 120.1% from 19,208 in the second quarter of 2024. Third, average MAT in the second quarter from the GlocalMe Life business was 2,633, representing an increase of 105.2% from 1,283 in the second quarter of 2024. Finally, average MAT in the second quarter from the GlocalMe mobile fixed broadband business was 576,198, reflecting a decrease of 4.4% from 602,909 in the second quarter of 2024. As of June 30, 2025, the company had 183 patents, with 167 approved and 16 pending approval. The pool of SIM cards was sourced from 391 mobile network operators globally as of June 30, 2025. Total revenue for the second quarter of 2025 was USD 19.4 million, representing a decrease of 13.3% from USD 22.4 million in the same period of 2024. Revenue from services was USD 14.6 million in the second quarter of 2025, reflecting an increase of 3.3% from USD 14.2 million in the corresponding period of 2024. Revenue from services contributed 75.5% of the total revenue in the second quarter of 2025, compared to 63.4% in the same period last year. Geographically speaking, during the second quarter of 2025, Japan contributed 33.6%, Mainland China contributed 33.2%, North America contributed 15.3%, and other countries and regions contributed the remaining 17.9% compared to 46.2%, 23.5%, 14.6%, and 15.7%, respectively, in the same period of 2024. Our gross profit was USD 10.2 million in the second quarter of 2025, compared to USD 11 million in the same period of 2024. Overall gross margin in the second quarter of 2025 further rose to 52.8% from 49.2% in the same period of 2024. The gross margin on services was 56.6% in the second quarter of 2025, compared to 60.3% in the same period of 2024. Excluding share-based compensation, total operating expenses were USD 10.1 million or 51.9% of total revenue in the second quarter of 2025, compared to USD 8.7 million or 39.1% of total revenue in the same period of 2024. Net income in the second quarter of 2025 was USD 0.7 million compared to USD 2.2 million in the same period of 2024. Adjusted EBITDA was USD 1.4 million in the second quarter of 2025 compared to USD 3.3 million in the same period of 2024. For the second quarter of 2025, we recorded an operating cash outflow of USD 0.9 million compared to an operating cash inflow of USD 4.7 million in the same period of 2024. For the second quarter of 2025, our capital expenditure was USD 0.2 million compared to USD 1.6 million in the same period of 2024. We maintained a solid balance sheet with cash and cash equivalents of USD 30.2 million as of June 30, 2025, compared to USD 31.1 million as of March 31, 2025. Now, let's open up for Q&A.

The question is from Theodore O'Neill, Litchfield Hills Research.

My first question is about the GlocalMe ecosystem. You're seeing strong growth in the quarter. And I was wondering how much you expect that to continue in terms of growth.

I will add some context first, and then the CEO can provide further comments. In the second quarter, as we just stated in this earnings call, some new businesses like GlocalMe IoT, SIM, and Life have shown strong and rapid growth in terms of average monthly active terminals. The IoT business saw MAT increase nearly eight times year-over-year, while the SIM and Life businesses also posted MAT growth of over 100% compared to the same period last year. Although the revenue generated from these three new businesses is still a small proportion, the growth trend is massive. We expect the new business areas—IoT, SIM, and Life—to scale our user bases to millions over the next couple of years, providing us with strong growth potential.

Yes, I'd like to add some more comments on this because we have invested a lot of R&D and branding in these three new products over the past year, and for IoT, we have been investing for three years. We are now seeing the IoT segment moving into a new stage because we have finished testing with major industry leaders in IoT, and we are launching the product. Therefore, we expect faster growth in revenue and MAT. We can see the data is climbing quickly every month, and we believe that IoT will be the first area where we will see positive profits after three years of investment. Additionally, we have sold 300 thousand SIM cards, gaining valuable experience that positions us better in the market. Our new eSIM TRIO product has just launched at the end of June, and we believe it will drive fast growth as well. Our GlocalMe Life product is currently at a smaller revenue stage as we started launching it at the end of last year. We introduced our new UniCord Pro product in the second quarter, and we expect it to capture more market share. Our platform product has undergone many trials, and we are continuously improving it. The launch of our commercial platform has been moved to mid-August instead of the second quarter due to our commitment to quality, but feedback on our trials has been very positive. We anticipate significant growth after extensive investment in branding and marketing.

My next and final question is about sales of products that were below expectations. Can you provide more details on that? Was that tariff-related or specific to certain geographies?

Yes, as disclosed in the earnings report for the second quarter, we achieved revenues below the guidance of USD 23 million. The primary reason for this was delays in orders from Japan for our legacy mobile broadband business, worth a couple of million dollars. These orders are expected to be placed in the third quarter. Additionally, macroeconomic factors and trade headwinds impacted our sales performance in the U.S. market as well. The main geographical reasons were the delayed orders from Japan and the overall trade headwinds affecting our sales.

The next question is from Vivian Zhang, Diamond Equity Research.

So my question is regarding the company's upcoming products, such as the platform. Do you believe these upcoming products will be affected by industry headwinds and result in lower-than-expected sales?

Regarding this new product, I believe it represents a new concept and innovation in the industry. We have already conducted hundreds of successful commercial trials and received very positive feedback. We've incorporated consumer opinions to make the product more competitive. While it is a new concept, the feedback from users, investors, and channel partners has all been very encouraging. We are now preparing for a launch in ten countries, working with our local partners to introduce this product. However, we haven't placed large sales forecasts for our annual product revenue yet, as we believe it will take two to three quarters to ramp up from concept to volume sales. Nevertheless, we are optimistic about the future success of this product.

This concludes our Q&A session. I would like to turn the conference back to Mr. 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, Christen 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.