Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to uCloudlink Group Incorporated 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 would 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 via newswire services. I will give a brief introduction to our uCloudlink team. Zhiping Peng is our Co-Founder and Chairman of Board of the 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 the Marketing and Sales. Our CEO will begin with an overview of our Company and business highlights, which will cover Section 1 of the earnings presentation posted on our IR website. Our CFO, Yimeng Shi will then discuss our operation highlights and financial results as presented in Sections 2 and 3. 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, 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 as well as unaudited non-GAAP financial measures. uCloudlink's press release contains a reconciliation of the unaudited non-GAAP measures 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.

Yes, thank you. There are similar content as the earnings presentation of the third quarter of year 2021. I will focus on our technology and recent development. Let's move to the Page 13. uCloudlink 1.0 is our international data connectivity services business, which has had a strong track record of high gross 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 package of single operator or across mobile network operators, mobile virtual operators are priced differently. This is 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 reselection 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, devices 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 allowed our business partners to share data traffic pools through our PaaS and SaaS platform and charge a commission fee. In year 2021, we strive to accelerate the recovery of our 1.0 business, which was reflected in the positive trends in the daily active terminals called DAT of 1.0 business growth, as the number of international travelers increased in various markets and our 1.0 business revenue increased in the third quarter of year 2021 year-over-year. The revenues of our 1.0 business in our North American and Europe market increased during the first quarter of year 2021 year-over-year. Although the total revenues from the same…

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 Terminals, DAT, as of December 31, 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 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 gigabytes in December 2021. Let us turn to Page 18 which shows global diversification of our business. We had 97% of the total revenue from outside Mainland China. During the fourth quarter 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 and we will continue to expand other markets such as Japan, China, Europe and South East Asia, et cetera. During the fourth quarter of 2020, we had 5% of total revenue coming from Mainland China, 47% of the total revenue coming from Japan and 48% of total revenue coming from other countries and regions. Let us turn to Page 20. I will go through our financial highlights of the fourth quarter 2021. Service-related revenue as a percentage of total revenue was 54.8% during the fourth quarter of 2021 compared with 52.9% during the fourth quarter of 2020. Revenues from PaaS and SaaS services increased 43.5% from US$1.9 million in the fourth quarter of 2020 to US$2.7 million in the fourth quarter of 2021. This increase was primarily due to the expansion in the number of our business partners that use our PaaS and SaaS…

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] And 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. So I have a number of questions about the quarter. First, could you just tell us what's 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?

Yes, we will disclose that convert – that diluted shares taking into account this convertible debenture issues in this January. So that figure will be disclosed in the first quarter only released this year.

Okay. So this is the number. All right, as far as cash burn, where are you now? Is it $1 million a month or less than that?

In the fourth quarter of 2021, we bond US$3.2 million for operational cash flow. As of December 31, 2020, the company had cash and cash equivalent and short-term deposits, US$8.1 million and short-term investment at US$12.6 million. So in January 2022, the company completed an insurance of a convertible debenture through private placement with proceeds of US$4.7 million based on the company's projection of cash flow and the existing balance cash, cash equivalents, short-term deposits and short-term investment. I think the company's – companies have a sufficient fund for sustainable operations. And the company has – this take measures to successfully execute its business plan, which includes increasing revenue while controlling operating expenses to generate positive operating cash flow and obtaining from external sources as well. So we expect the cash burn rate will be improving this year materially. And so we expect into our guidance and others, we were managing the cash flows in healthy position for this year.

So do you think you'll get to cash flow breakeven by the end of the year?

That's what we are expecting, and we will achieve – management will be – take efforts to achieve that target.

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 of the operating expenses?

Right.

Hi, Lisa. Can you repeat?

Yes. What's in that number? 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 [indiscernible] for these figures after this call. Is that okay?

Okay. It's not an easy answer. So also 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 the question to Mr. Yeo, or Chaohui Chen to answer the question?

Okay.

You asked about the pad contract in Japan, right?

So can you repeat your question? Yes, it's about pad in Japan, right?

Yes.

Yes. The pad order in Japan is still going on. But because the school in Japan, it's a face-to-face education, restart again. So the speed is a little bit slowly than our expectation, but still going on.

Okay. And is there an explanation for why revenues in Japan are declining?

Yes, I think it's clear because – of course, when the COVID-19 happened, because local requirement is huge. But because face-to-face meeting, because in year 2021, the Q2, Q3 and recovery, and the Q4 because COVID-19 virus, still become worse again. But before that because of the pandemic getting [indiscernible] because of the vaccination, because of the new medicine come out. So face-to-face meeting and face-to-face education and remote working. So decrease in Japan that, that domestic 2.0 a little bit decreasing.

Okay. And my final question is, are there any more products you plan to launch soon?

Yes. Yes, you can see that we have – we have [indiscernible], Numen, which is the fourth – 5G product, the workforce 5G with the HyperConn solution, that can switch between Wi-Fi, all the 5G, 4G order network. So this launch in the third quarter. And because the [radio band] only with Asia and the Europe radio band, we don't have global radio band at the moment. And recently, we launched our new product, we call U 5.0 with global radio band and a more competitive price and to accelerate the 5G key product launch. That's one part. And the second part we have more, like a CPE IoT module with HyperConn inside. So we are launching – as I mentioned in the fourth quarter, we finished testing for more IoT products such as industry router. So we launched in the fourth quarter of year 2022. And a new module, more competitive module we launched in the year 2000 – the fourth quarter of year 2022. And also, we have IP camera product launched in the fourth quarter of year 2021. That’s more product come up, including the 5G, including more IoT products. And also, we have more HyperConn product 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.

And our next question comes from Vivian Zhang from Diamond Equity.

Hello, everyone. Thanks for taking my questions. So we see the company maintained topline growth during the second half of last year, with [indiscernible] partnership, with business partners and the PaaS and SaaS business growing. So we'd like to know why the company instead of 4% to 21% year-over-year decrease in first quarter 2022 revenue. What's the main reason for the decrease in outlook?

The guidance for the first quarter of this year, 2022, that range is between $40 million to $17 million. That's a decrease compared with the last year's – the first quarter of 2021. Yes, as we said it, there's the COVID-19 have an impact on the supply chain, not in this quarter, the first quarter's, some lockdown occurred in China, in Shenzhen and Dongguan, on these kind of areas. And that gives us some difficulty for manufacture and delivery with some orders at hand. And that's some reason that we're aware recently. So we have – we expect the first quarter – the first quarter guidance a little bit dropping compared with last years. Yes, that's. Mr. Chen, do you have some color on this first quarter guidance decreasing?

Yes. So mainly is because of two reasons. One is because of Omicron, COVID-19 virus. And the second is because of the lockdown in China, in Shenzhen and in Dongguan, that's our manufacturer base. That's heavily impacted our revenue. So by the fourth quarter, but we believe in the second quarter because of more country open and variant – COVID-19 variant impact will be decreasing.

Okay. I understand. So my second question is regarding your ongoing restructuring. Can you provide some additional color on why the company adjusted the revenue structure and the local business in China? And will this affect the company's future revenue in China as well? Thanks.

Yes. As we disclosed this year out, we continue to evaluate our business plan, and we have decided to adjust our business model in China, yes. So on March 17, 2022, the equities of the AE was transferred to the Shenzhen uCloudlink Technology Limited. An original agreement were terminated. So we believe this restructuring will not affect our uCloudlink 1.0 international data connectivity service in China. So we will transfer and carry out the PaaS and SaaS platform service China in cooperation with the local business partner such as we invested Beijing Huaxiang Lianxin Technology, which have the required license to provide local data connectivity service in China. So that's – we adjusted the model in China as similar as we, in Japan. So you can see our PaaS/SaaS ecosystem and our PaaS/SaaS service apply to corporate, with a local partner as either in Japan, in China, other regions of the world. So that's – we adjusted this model to execute PaaS/SaaS platform-centric with a business model and strategies as well. So that's – I think this is a key reason. We adjust the varying models in China. I think this gives us more secure position in compliance and operation as well. And it give us position incorporated with a local partner to do the business in local market.

Okay. That's all my questions. Thanks.

And ladies and gentlemen, at this time I'm 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 our contact information provided on our webcast or Equity Group Investor Relations.

And ladies and gentlemen, I apologize. This is the conference operator. We do have a late joining question from Jakob Kurtz from Greenridge Global. Jakob, please go ahead with your question.

Hi. So 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 consumers per daily active terminal will be a change in terms of this package selling the mix and different target policy that the customers choose. So that's a change in its statistic figure. So we cannot accurately expect forecast, this data consumers per daily active terminal will be increasing somehow. We don't know this – we cannot give this – the clear color on this – with this kind of consumption, this average daily terminal.

Okay. And then my next question, assuming travel restrictions stay roughly similar to what they are now in China for the remainder of 2022, what percent of total revenue do you expect from 1.0 and 2.0?

Specifically you mentioned these revenues from China, Mainland China?

Sorry, what was that?

All right. 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?

Yes, this COVID restrictions is still implemented in China, across city and something. So the Chinese – the border has not been open to the outside. We don't know when the Chinese will open to the outside this year. But we do expect there's – the border has been opened and lift up in U.S., European and some Asian countries like Japan, Singapore, some other Asian countries as well. So as you're aware, we run our business as across worldwide, we have a diversification business for more than 50 countries and the regions. So yes, China's contributions is smaller at this moment. The risk outside the China Mainland is – when there's international travel has been recovered due to this opening up the borders. So we expect that we have the international connected service will be improving outside of China this year. Yes, that will give us a growth and improve our profitability as well for this year.

Yes. I have some more comment from the [indiscernible]. So for – in the China market, so we don't expect 1.0 business recovery because we think maybe end of this year or next year, we started – opened the border of China. That's our forecast in the worst case. We don't think that will happen in China for – open the whole year. So that's one. So in China, we are mainly focused on – 2.0 business and IoT business. So that's in China. So for international business, so we only know – not very opportune data. For example, we don't think under the COVID-19 impact – so what case, we don't think we'll open really quickly. We start to think in Q2, some countries opened the border of the country. But majorly of the outside China countries will be starting on the Q3 or Q4 to open the country. That's our assumption.

Okay. And then my next question, the markets outside of China and Japan have been showing strong growth recently. Are there any countries or regions driving this? And do you expect to see growth continue to be faster in these regions?

Yes. So once we sought in the two pronged challenges, one is about the regulation challenge and also for the IoT. And also the recovery of 1.0 in China, we believe we will regain the fast growth in China.

For others, the potential to fast growth, we expect that Japan's market and the U.S. market and European markets is – will be the main growth in the business for this year.

Okay, awesome. And then last question. Was the settlement with CMO Holdings completed?

Sorry, can you repeat?

Was the settlement with CMO Holdings completed?

That was – yes, that was last year. So we launched the agreement last year. And so it's peaceful, no more mediations between [indiscernible].

Okay. Thank you. I appreciate it. That's all.

Thank you.

And 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.

Thank you.