Hello, and welcome to the uCloudlink Group Inc. First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jillian Zeng, Investor Relations of the Company. Please go ahead.

Thanks, everyone, for joining us on our first quarter 2022 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 management team. Zhiping Peng is our Co-Founder and Chairman of 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 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 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 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.

Thank you. Page 4 to Page 12 are similar contents, as the earnings presentation of the first quarter of year 2021. We still encourage you to review the quarter one year 2022 earnings presentation uploaded to our Investor Relations website with some latest updates. Hence, I will now elaborate on the past similar with quarter four earnings result, but we are still focused on our most recent development in the fourth quarter. Please turn to 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 packaging solution to minimize unit cost of data traffic, in that as data package of single operator or across mobile network operators, mobile virtual network operators are priced differently. This is attributable to our large SIM card pool and our ability to acquire data packages and local wholesale pricing from operators and partners. We further differentiate ourselves with our market 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 for 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. During the first quarter of year 2022, our 1.0 business revenues has slightly increased by 2.2% compared to the same period in year 2021. As international travel restriction around the world continue to abate over time, the…

Thank you, Mr. Chen, and 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 March 31, 2022. Average daily active terminals in the first quarter were 273,870 of which 1,430 owned by the Company and the 272,442 owned by our business partner, representing an increase of 33.5% from 205,082 in the first quarter of 2021. Our uCloudlink 2.0 service accounted for around 69.5% of the total DAT during the first quarter of 2022. Average daily data usage per terminal was 1.74 gigabyte in March 2022. Let's all turn to Page 18, which shows global diversification of our business. We had around 26% of total revenue from outside Mainland China. During the first quarter of 2022, Japan contributed to around 40% of 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 all the markets such as Europe, and Southeast Asia, et cetera. During the first quarter of 2021, we had 6% of total revenue came in from Mainland China, 58% of the total revenue came in from Japan, and 36% of total revenue came in from other countries and regions. Let’s all turn to Page 20. I will go through our financial highlights for the first quarter of 2022. Service-related revenue as a percentage of total revenue was 62.9% during the first quarter of 2022 compared with 47.4% during the first quarter of 2021. Revenue from local data connectivity service and PaaS and SaaS service increased 185.4% and 7.8% year-over-year, respectively. This increase was primarily due to the expansion in the number of our business partner that use our PaaS and SaaS services to…

We will now begin the Q&A session. [Operator Instructions] The first question comes from Vivian Zhang with Diamond Equity Research. Please go ahead.

Good evening. This is Vivian Zhang from Diamond Equity Research. Thanks for taking my questions. So my first question is that can you give us some additional color on your Internet of Things solutions and its market opportunity?

Mr. Chen, can you answer the question?

Yes. For international business, we believe that we can see the stronger DAT, we can see – the first quarter of year 2022, we can see the data recovery. So DAT has increased. So that’s the data performance. From our product side, we know that only normal cloud SIM solution, now we have HyperConn solution. HyperConn means that we can provide much better experience for multi-network handover from the – more than ten second now can go to the millisecond, that's wonder of the new product, new service. And now is for 5G, we provide the 5G product. So we are now – already few vendors almost is only one vendor who can provide a global 5G network roaming. So because our 5G product with almost all countries, 5G radio band and also the 5G roaming capability that’s very rare in the industry. So all these preparations let us in a good position in a recovery of COVID-19 – after COVID-19, so I think we are in a good position.

Okay. I see. So my second question is regarding the COVID-19 impact because we've seen some Chinese cities like Shenzhen reopening in the second quarter after the lockdown, but there's some controls may still be in place in the cities. So do you think there will be some recovery in revenues from sales of products in the second quarter, or those controls continue to affect your launch and manufacturing of 5G products given that your main manufacturers are based in Guangdong China?

Yes. It is impacted in the first quarter, especially, both Shenzhen and Shanghai because this supply chain is not the part of our supply chain based in the Shenzhen. And some part of our partner is based in Shanghai. It is impacted by the lockdown during the COVID-19 in China. But I think we consider in Guangdong, it’s early recovery. I think the second quarter, it's not any problem from a current scenario. Also we removed some of our supply chain from Shanghai to Shenzhen. So in the second quarter, we believe impact from the COVID-19 will be almost disappear. I think average impact by the quarter one, quarter two we can see is much, much better, so that's one of the situation. Another is because our first quarter, our new device product delivery, it is impact because lockdown in the first quarter for manufacturer and also is come because this quarter, the first quarter of the revenue and delivery and the source order has come from the last quarter, quarter four. Quarter four has heavy impact by the Omicron variant COVID-19. So I think second quarter will be much better.

Okay. That's all. Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jillian Zeng for any closing remarks.

Okay. Thank you once again for joining us today. If you have any further questions, please feel free to contact uCloudlink Investor Relations through the contact information provided on our website or contact our Investor Relations firm, The Equity Group.

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