Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to uCloudlink Group Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, there will be a question and answer session. Today's conference call is being recorded. I'd now like to turn the conference call over to your host today, Ms. Jillian Zeng, Investor Relations of the company. Please go ahead.
Thanks, everyone, for joining us on our Fourth Quarter and Full Year 2021 Earnings Call today. This earnings release is now available on our IR website at ir.ucloudlink.com, as well as on newswires. I will give a brief introduction to our uCloudlink team. Zhiping Peng is our Co-founder and Chairman of the Board of Directors. Chaohui Chen is our Co-founder, Director, and Chief Executive Officer. Yimeng Shi is our Chief Financial Officer. Zhu Tan is our Vice President of Marketing and Sales. Our CEO will begin with an overview of our company and business highlights, which will cover section one of the earnings presentation posted on our IR website. Our CFO, Yimeng Shi, will then discuss our operational highlights and the financial results as presented in the sections two and three.
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 the known and unknown risks, uncertainties, and other facts 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 with the factors and details of the company 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, trends 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 the unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. uCloudlink's press release contains a reconciliation of the unaudited non-GAAP measure to the unaudited most directly comparable GAAP measures. I will now turn the call over to our Co-founder and CEO, Mr. Chaohui Chen. Please go ahead.
Yeah. Thank you. There are similar contents as the earnings presentation of the third quarter of 2021. I will focus on our technology and recent development. Let's move to page 13. uCloudlink 1.0 is our international data connectivity services business, which has had a strong track record of high growth margins and profitability with ongoing growth potential. We have established an intelligent wholesale-to-retail repackaging solution to minimize unit cost of data traffic. In that, as data packages of single operator or across mobile network operators, mobile virtual operators are priced differently. These attributes are attributable to our large SIM card pool and our ability to acquire data packages at local wholesale prices from operators and partners.
We further differentiate ourselves with our multi-network risk selection and combination technologies, which could ensure high-quality data connectivity and improve user experience. uCloudlink 1.0 business monetization model includes retail to C, rental or selling to the end user, wholesale to B business partners, and our PaaS and SaaS services such as CRM, billing management, device-based selling and rental management, et cetera. For wholesale to B, we can act as a reseller or provide commission services to our business partners. We allow our business partners to share data traffic pools through our PaaS and SaaS platform and charge a commission fee.
In 2021, we strive to accelerate the recovery of our 1.0 business, which was reflected in a positive trend in the Daily Active Terminals we call DAT of 1.0 business growth. The number of international travelers increases in various markets, and our 1.0 business revenue increased in the third quarter of 2021 year-over-year. The revenues of our 1.0 business in our North American and European markets increased during the first quarter of 2021 year-over-year. Although the total revenues from the same line of the business experienced a year-over-year decrease in the same period due to the impact of the COVID-19 virus.
Despite the impact the pandemic has had on our uCloudlink 1.0 business, it has also created opportunities for potential growth, including the demand for mobile data related to travel, checking, vaccination records, digital passports, and the COVID test report. We also anticipate that we will see fewer competitor in the post-pandemic market, but we could not assure you that uCloudlink 1.0 business will not be negatively impacted by COVID-19 pandemic in year 2022. We remain confident in the prospect for international travel with the worldwide vaccination continuing to progress and more and more countries opening their borders to tourists in year 2022 and beyond. With that, I would like to reiterate our vision for the uCloudlink 1.0 international data connectivity business.
Our plan is to not only continue providing existing high-quality 1.0 offerings, but to seize big market share with the development of more innovative products and services. Let's move to page 14. uCloudlink 2.0 is our local data connectivity services business, and has become a new driver of revenue growth since the year 2020. Its business monetization model is similar to that of the uCloudlink 1.0, with a massive potential local user base. Our new HyperConn technology contribute to the further development and the growth of our uCloudlink 2.0 business. We have expand the business scope of our local data connectivity services. Currently, our innovative HyperConn technology is widely accepted by mobile network operators and business partners in various industries with greater growth potential, such as with local partners in China, U.S., and Japan.
Our 2.0 business shows a great deal of resilience with proven high demand and growth potential during the pandemic. We help operators improve their data services and solve the data connection problems through our PaaS and SaaS platform. We provide high-quality data connection for 5G applications in response to the increased demand for better connectivity services. Furthermore, as people get used to the new normal, our product and services provide better performing solutions for remote work and learning, which require reliable connectivity as well. For example, our new tablets equipped with HyperConn and CloudSIM technology has been put to use in new industries, such as education. We have made progress through HyperConn solution with mobile and fixed broadband business. Under various application scenarios, such as home broadband.
For example, our mobile and fixed broadband business cooperation with one of our major network operator in China has been successfully launched and distributed to more provinces. We also plan to embed more GlocalMe Inside, we call GMI, in smart device by cooperating with more intelligent hardware manufacturers. In addition, we have extended our footprint into more application scenarios, including, but not limited to Internet of Things, IoT modules, industry Wi-Fi routers, IP camera, power supply, emergent services like live broadcasting, e-commerce, and autopilot, etc. We are actively exploring new business prospects to serve a broader spectrum of IoT applications. We expect our 2.0 business to grow with the support of our innovative CloudSIM and HyperConn technology as we continue to introduce our solutions, services, and products to the market and strengthen our cooperations with the local partners.
Let's move to page 15. Based on our innovative CloudSIM and HyperConn technology solution, we continue to develop and broaden our portfolio of offerings with new products and services, such as our self-developed terminals, third-party devices. For example, after we unveiled our new HyperConn technology and products in June of 2021, we launched these solutions and products to the market in the second half of 2021, such as Numen, the world's first HyperConn 5G mobile Wi-Fi, and Genie, a tablet device in third quarter of 2021, and a Mini Turbo portable Wi-Fi hotspot equipped with HyperConn in the fourth quarter of 2021. Our IP camera, IPC, has complete testing and expected to launch commercially soon.
Our HyperConn technology solution has been well received, and related products are gaining recognition, proven by growing users, user base across a wider spectrum of industry. Going forward, we plan to launch more of these types of innovative products and services. uCloudlink positions itself as a pioneer technology solution provider in the data connectivity market. In 2021, we made it a priority to invest in research and development, most notably in technologies like CloudSIM and HyperConn that are compatible with various application scenario, both of which are greatly reinforce our technology advantages. Our mature 1.0 business and newer 2.0 business will together promote the long-term development of the PaaS and SaaS ecosystems, which have been recognized by various business partners.
As stated in our earnings release, we anticipate growing total revenue for full year 2022 by 15%-35% to a range between $85 million-$100 million. Versus total revenue of $73.8 million in year 2021. The company expects to improve financial performance with the support of our commercialized HyperConn technology and related 5G products. The continuous business expansion of our existing portfolio of diverse IoT application scenario, as well as the ongoing efficient improvement strategy implementing since the quarter four of the year 2021 to reduce operating expense. We believe that from the connected to better connection, uCloudlink is a significant driving force in the transformation of the increasingly advanced information era.
We are committed to build a more connected future for more customers and users, and we strive to make a positive impact in serving the global user community. I will now turn it over to our CFO, Yimeng Shi, who will go through business and financial highlights.
Thank you, Mr. Chen. Hello, everyone. Let us turn to page 17 for our business highlights. The left-hand side of the slide shows Daily Active Terminal, DAT, as of December 31st, 2021. Average daily active terminals in the fourth quarter were 265,595, including 1,585 owned by the company, and 264,010 owned by our business partners. Representing an increase of 28.7% from the 206,400 in the fourth quarter of 2020. Our uCloudlink 2.0 service accounted for around 69% of the total DAT during the fourth quarter of 2021. Average daily data usage per terminal was 1.73 GB in December 2021.
Let's turn to page 18, which shows global diversification of our business. We had 97% of the total revenue from outside mainland China. During the first quarter of 2021, Japan contributed to 37% of the total revenue. For other countries' revenue, the U.S. market had the largest contribution to our business with further development of our U.S. business. We will continue to expand other market, such as Japan, China, Europe and Southeast Asia, et cetera. During the fourth quarter of 2020, we had 5% of total revenue coming from mainland China. 47% of the total revenue came in from Japan, and 48% of total revenue came in from other country and regions. Let's turn to page 20. I will go through our financial highlights of the first quarter of 2021.
Service related revenue as a percentage of total revenue was 54.8% during the first quarter of 2021, compared with 32.9% during the first quarter of 2020. Revenue from PaaS and SaaS service increased 43.5% from $1.9 million in the first quarter of 2020 to $2.7 million in the first quarter of 2021. This increase was primarily due to the expansion in the number of our business partner that use our PaaS and SaaS service to provide local data connectivity service. Revenue from PaaS and SaaS, a percentage of total revenue, also increased to 15.2% during the first quarter of 2021, compared with 10.9% during the first quarter of 2020.
Let's also move to page 21, which shows the revenue breakdown of our two business segments, namely revenue from service and sales of products. Our total revenue increased by 3.2% from $17 million in the first quarter of 2020 to $17.6 million in the first quarter of 2021. Revenue from service were $9.6 million, representing an increase of 6.8% from $9 million for the same period, 2020. This increase was primarily attributable to the increase in revenue from local data connectivity service and the PaaS SaaS service. Let's now turn to page 22 for the gross margins of our business.
Our service gross margin increased to 46.1% in the first quarter of 2021, compared to 41.2% in the first quarter of 2020. Our overall gross margins was 31% in the first quarter of 2021, compared to 31.4% during the same period, 2020. The increase of our service gross margin during the first quarter of 2021 was primarily due to the increase of our PaaS SaaS revenue, which has higher gross margins over other business revenue. Let's now move to page 23, which shows the breakdown of our operating expenses, excluding share-based compensation and others. Excluding share-based compensation, operating expenses as a percentage to the revenue was 62% in the first quarter of 2021, compared with 83% during the first quarter of 2020.
The past few years have been the peak time for research and development, and we will optimize that research and development cycle and continue to improve our operation efficiency of our business. Let's now turn to page 24. Operating cash flow was - $3.2 million during the first quarter of 2021, compared to - $5.5 million during the first quarter of 2020. Our cash and cash equivalents and short-term deposits were $8.8 million as at December 31st, 2021. Our CapEx was $200,000 during the first quarter of 2021, compared to $400,000 during the first quarter of 2020.
CapEx as a percentage of the revenue decreased from 2.2% during the first quarter of 2021 to 1.3% during the first quarter of 2020. Let's now move to page 25. Net loss during the first quarter of 2021 was $15.5 million, compared to $12.4 million during the first quarter of 2020. Adjusted EBITDA was -$5.1 million during the first quarter of 2021, compared to -$7.9 million during the fourth quarter of 2020. With that, let me conclude today's presentations. Thank you, and we start our Q&A session.
Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. To withdraw your questions, you may press star and two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Lisa Thompson from Zacks Investment Research. Please go ahead with your question.
Hi. Good evening. Thank you for that presentation. I have a number of questions about the quarter. First, could you just tell us the current fully diluted share count now that you have a convert?
Hi, Lisa. Can you repeat the question?
Yes. What's the current fully diluted share count? Now that you've issued a convert?
Yeah, well, we will disclose that the diluted shares take into account this convertible debenture issued in January. That figure will be disclosed in first quarter only release this year.
Okay. There's no number. All right. As far as cash burn, where are you now? Is it $1 million a month or less than that?
In the first quarter of 2021, we burned $3.2 million for operational cash flow. As of December 31st, 2020, the company had cash and cash equivalents and short-term deposits of $8.1 million, and short-term investments of $12.6 million. In January 2022, the company completed an issuance of a convertible debenture through private placement with proceeds of $4.7 million, based on the company's projected cash flow and existing balance of cash, cash equivalents, short-term deposits, and short-term investments. I think the company has sufficient funds for sustainable operations.
The company has taken measures to successfully execute its business plan, which includes increasing revenue while controlling operating expenses to generate positive operating cash flow and obtaining funds from external sources as well. We expect the cash burn rate will be improving in this year materially. We expect taken into our guidance and others, we are managing the cash flows in a healthy position for this year.
Do you think you'll get to cash flow break even by the end of the year?
That we are meeting expectations, and we will achieve. Management will make efforts to achieve that target. Yeah.
All right. As far as the income statement, could you say what was that $8.7 million in other expense? What caused that?
You mean the breakdown, this, operating expenses?
Right.
Yeah. Can you?
Are you there?
Yeah.
Yeah. What's in that number?
Sorry.
What's in the number, the $8.7 million? What's in there?
$8.1 million cash balance, right?
No. $8.7 million other income on the income statement. Under general and administrative, right? There's $8.7 million in expense.
Lisa, can we have feedback on this and the line for these figures after this call to you? Is that okay?
Okay, if it's not an easy answer, could you give an update on do you still have the education order for tablets in Japan, or has that been canceled? And when might that start?
Can I pass that question to the CEO or Chaohui Chen to answer this question?
Okay.
No, no. You're asking about the PAD contract of Japan, right?
Yes.
Can you repeat your question? Yeah. It's about PAD in Japan, right?
Yes.
Yeah. The PAD order in Japan is still, you know, going on. Because, you know, the school in Japan, you know, it's a face-to-face, you know, education, you know, restart again. The speed is a little bit slowly than our expectation, but still going on.
Okay. Is there an explanation for why revenues in Japan are declining?
Yeah, I think it's clear because, you know, when the COVID-19 happened, because local requirement is big, it is huge. Because face-to-face meeting, you know, because last year 2021, the Q2, Q3 and recovery and the Q4 is still, you know, because COVID-19 variant still become worse again. Before that, because of the, you know, the pandemic is getting better because of the vaccination, because of the, you know, the new medicine come out. Face-to-face meeting is in face-to-face education and remote working, so decrease in Japan. That let you know the domestic 2.0 a little bit decreasing.
Okay. My final question is, are there any more products you plan to launch soon?
Yes. You can see that we have, you know, GlocalMe Numen, which is the first
5G.
A 5G product, the world's first 5G with the HyperConn solution that can switch between Wi-Fi, all the 5G, 4G, all the network. This launch in the third quarter. Because the radio band only with the Asia and the Europe with radio band. We don't have the global radio band at the moment. Recently, we will launch our new product we call U50 with global radio band and a more competitive price. To accelerate the 5G you know product launch. That's one part. The second part, we have more like a CPE IoT module with the HyperConn inside.
We are launching. As I mentioned in the first quarter, we finished the testing for, you know, more IoT products such as industrial router. We launch in the fourth quarter of 2022. A new module, more competitive module will launch in 2022, the fourth quarter of 2022. We have IP camera product launched in the first quarter of 2021. That's more product come up, including the 5G, including the, you know, more IoT product. We have more HyperConn product back into our international roaming Wi-Fi as well.
All right. Great. That's something to look forward to. Thank you. That's all my questions.
Our next question comes from Vivian Zhang from Diamond Equity Research. Please go ahead with your question.
Hello, everyone. Thanks for taking my question. We see the company maintained top-line growth during the second half of last year, with strengthened partnership with business partners and the PaaS and SaaS business growing. We'd like to know why the company expects a 4%-21% year-over-year decrease in first quarter 2022 revenue. What's the main reason for the decreasing outlook?
The guidance for the first quarter of this year, 2022, that range is between $14 million- $17 million. That's a decrease compared with last year's first quarter of 2021. Yes, as we stated, there's COVID-19 has had impact on supply chain, not in this quarter, the first quarter. Some lockdowns occurred in China, in like Shenzhen and Dongguan, these kind of areas. That's given us some, you know, difficulty for our manufacture and delivery. So there's some orders at hand.
There's some reasons we are aware recently. We expect the first quarter's guidance is a little bit lower compared with last year's. There's some. Yeah. Mr. Chen, do you have some color on this first quarter's guidance decreasing?
Yeah. Mainly it's because two reasons. One is because of, you know, Omicron, you know, COVID-19 variant. The second is because of the lockdown in China in Shenzhen and in Dongguan. That's our manufacturing base. That's heavily impact our revenue, so by the fourth quarter. We believe, you know, in the second quarter, because of more countries open and COVID-19 variant impact will be decreased.
Okay, I understand. My second question is regarding your ongoing restructuring. Can you provide some additional color on why the company adjusted the value structure and the local business in China? And will this affect the company's future revenue in China as well? Thanks.
As we disclose this year, we continue to evaluate our business plan, and we have decided to adjust our business model in China. On March 17, 2022, the equities of VIE was transferred to the Shenzhen uCloudlink Technology Limited, and original VIE agreements were terminated. We believe this restructuring will not affect our uCloudlink 1.0, the international data connectivity service in China. We will transfer and carry out the PaaS SaaS platform services in China in cooperation with a local business partner, such as our invested MVNO, Beijing Huaxianglianxin Technology Co., Ltd., which has the required license to provide local data connectivity service in China.
That's we adjusted the model in China as similar as we in Japan. You can see our PaaS SaaS ecosystem and our PaaS SaaS service apply to cooperate with a local partner, business partner, either in Japan, in China, or other regions of the world. That's we adjust the business model to execute platform-centric as a business model and strategies as well. That's I think these are key reasons we adjust the VIE models in China. I think this give us more com...
more secure, a secure position in compliance and operation as well, and give us a position cooperated with the local partner to do the business in local market.
Okay. That's all my questions. Thanks.
Ladies and gentlemen, at this time, and showing no additional questions, I'd like to turn the floor back over to management for any closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact uCloudlink Investor Relations through the contact information provided on our website or Equity Group Investor Relations.
Ladies and gentlemen, I apologize. This is the conference operator. We do have a late joining question from Jacob Kurtz from Greenridge Global. Jacob, please go ahead with your question.
Hi. Daily Active Terminals continued to increase in the current quarter, but total data consumed slipped compared to the third quarter. Should we expect to see both numbers rise over the course of 2022?
This data consumption per Daily Active Terminal will be a change in terms of there's a package in the mix and different target policy, and then the customer choose. That's a change. It's a statistic, I figure. We cannot accurately forecast this data consumption per Daily Active Terminal will be increasing or something. We don't know this. We cannot give some clear color on this kind of consumption per average Daily Active Terminal.
Okay. My next question. Assuming travel restrictions stay roughly similar to what they are now in China for the remainder of 2022, what % of total revenue do you expect from 1.0 and 2.0?
You're supposed to mention there's revenues from China, mainly China.
Sorry, what was that?
Sorry, can you clarify your question?
Assuming travel restrictions stay similar to what they are currently in China for the remainder of the year, what percent of total revenue do you think 1.0 and 2.0 will account for by the end of the year?
There's COVID restrictions is still implemented in China cross city. The Chinese border has not been opened to the outside. We don't know when the Chinese border open to the outside this year. We do expect the border have been open and lift up in U.S., Europe, and some Asian country like Japan, Singapore, some other Asian country as well. As you're aware, we run a business across worldwide. We have a diversified business for more than 50 countries and the regions.
Yes, China's contributions is smaller this moment. The rest outside mainland China, when international travel has been recovering due to this open up the borders. We expect that we have the international connected service will be improving outside China this year. That will give us a growth and improve our profitability as well for this year.
Yeah. I have some more comment from Jeff. For the China market, we don't expect 1.0 business recovery because we think maybe end of this year or next year we'll start, you know, open the border of China. That's our forecast, you know, in a worst case, we don't think that will happen in China to open, you know, the whole year. That's one. In China, we are mainly focused on, you know, 2.0 business and IoT business. That's in China. For international business, we only need to very, you know, optimize data.
For example, we don't think, you know, under the COVID-19 impact, so in the worst case, we don't think the world open very quickly. We start think in Q2 some country open the you know the border of the country. Mainly of the you know the outside China countries will be start from the Q3 or Q4 to open the country. That's our assumption.
Okay. My next question. The markets outside of China and Japan have been showing strong growth recently. Are there any countries or regions driving this? Do you expect to see growth continue to be faster in these regions?
Yeah. Once we sort out the two principal challenges, one is about the you know regulatory you know challenges and also the you know for the IoT. The recovery of the economy in China, we believe we will regain the fast growth in China.
For others, the potential for fast growth, we expect Japan's market and the U.S. market and European markets will be the main growth for the business this year.
Okay, awesome. Last question. Was the settlement with SIMO Holdings Inc. completed?
Sorry, can you repeat?
Was the settlement with SIMO Holdings completed?
That was set up last year. We announced that settlement agreement last year. It's peaceful. No more litigations between uCloudlink Holdings and SIMO.
Okay. Thank you. I appreciate it. That's all.
Thank you.
Ladies and gentlemen, with that, we will conclude today's question and answer session and conference call. We do thank you for attending today's presentation. You may now disconnect your lines.
Thank you.