Hello, and welcome to the uCloudlink Group Inc. Second 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 today’s event is being recorded. I now would like to turn the conference over to Jillian Zeng, Investor Relations. Ms. Zeng, please go ahead.

Thanks, everyone, for joining us on our second quarter 2022 earnings call today. The 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 the 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 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 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, Jillian. Page 4 to Page 12 are similar contents, as the earnings presentation of the first quarter of year 2022. We still encourage you to review in the second quarter of year 2022 earnings presentation uploaded to our Investor Relations website with some latest updates. Hence, I will now elaborate on the past similar with the [first quarter] [ph] of year 2022 earnings release, but we are still focused on our most recent development in the second quarter. Let's move to our 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. During the second quarter of year 2022, our 1.0 business revenues have increased by 40.1%, compared to the same period in year 2021. As international [travel] [ph] restriction around the world continue to abate over time. The number of average daily active terminal for the 1.0 business has increased during the second quarter of the year 2022, compared to the second quarter of the year 2021, average daily [active] [ph] terminal has increased by 23.6%, a testament to the faster recovery of our 1.0 business, which indicates that more and more customers are using our products and services. With our innovative global 5G roaming solutions, we hope to strengthen our leading technology addition in providing reliable high quality international data connectivity services in more than 140 countries, powered by our PaaS and SaaS platform enabling single operator entry point to assess more than 300 global mobile network operators, a web network. We remain positive about ongoing recovery and growth of global tourism demand and expect revenue from 1.0 business to [steadily grow] [ph] and [indiscernible] level in the future. Let's move to the Page 14. uCloudlink 2.0 is…

Thank you, Mr. Chen. Hello, everyone. I will quickly go over our business highlights for the quarter ended June 30, 2022. Average daily active terminal for the second quarter were 292,432, including 1,223 owned by the company and 291,209 owned by our business partners, representing an increase of 23.6% from 236,553 in the second quarter of 2021. Our uCloudlink 2.0 service accounted for around 68% of total DAT during the second quarter of 2021. Average daily data usage per terminal was 1.58 gigabyte in June 2022. Next, I'll turn to Page 18, which show global diversification of our business. We had around 99% of total revenue from outside Mainland, China. During the second quarter of 2022, Japan contributed to around 38.1% 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 other markets such as Europe and Southeast Asia, etcetera. During the second quarter of 2021, we had 8.3% of the total revenue coming from Mainland, China. 32.6% of total revenue came in from Japan and 39.1% of total revenue came in from other country and the regions. Next, I’ll turn to Page 20. So, I will go through our financial highlights of the second quarter of 2022. Service-related revenue as a percentage of total revenue was 62.5% during the second quarter of 2022, compared with 48.5% during the second quarter of 2021. Revenue from international data connectivity service and local data connected service increased by 48.1% and 52.6% year-over-year respectively. This increase in revenues from data connectivity service was mainly attributable to our gradual recovery of international travel and the continuous development of our local data connectivity service business. Next let’s move to Page 21, which shows the revenue…

Yes, thank you. [Operator Instructions] And today's first question comes from Vivian Zhang with Diamond Equity.

Good evening. This is Vivian Zhang from Diamond Equity. Thanks for taking my question and congrats on the progress you made this quarter. So, my first question will be about the gross margin. We saw the gross margin on both services and sales of products increasing this quarter, so, I would like to know what's the reason for the increase? Will you continue to maintain the gross margin at this level in future quarters? Thank you.

Yes. Thanks, Vivian. Yes, regarding the gross margins improvement in the second quarters, first of all, there's a gross margin on service. That's a massive improvement, compared with the same period last year. As we explained in the earnings release, our revenue generated from the national data connectivity service increased a lot, compared with the last years. The gross margins related to the international data connectivity service is much higher than like a local data connectivity service, and that's the major contributions to an improvement of service gross margins. We expect the international travel is in the recovery and the most countries, more and more countries open the door to that to the traveler. So, we expect in the future, we have generated more revenue from international data connected service. So, we expect our service gross margin will keep this similar level and it will be [improved] [ph] in the future, once we have more revenue come from international data connectivity service. And also, the second contribution related to the product, yes, our product gross margin is improving as well, mainly due to the mix of product sales related to high-end product selling like 5G's [relative] [ph] products to the market. Yes, this year, this is a quarter, we delivered massive product – 5G-related product to the market. And we expect this trend will carry on in the following quarter and years? Thanks.

Yes. So, I have some more comments about – sorry, I have more comments about this point, because –in the R&D side, we also put a lot of effort to improve our margin, improve our [operations] [ph], and the efficient of our data usage and the combination. And this also increased our margin capability. Another factor is, we are now some new design and some replacement of the – to optimize the hardware to improve our, more the profitability of our hardware and data connection together.

Okay. I see. Thanks for that. So, my second question is that can you elaborate on the partnership you published in the second quarter and how shareholders should build this development? I mean, the partnership with [indiscernible]?

So, which two partner? Yes.

Yes, for partnership with [indiscernible] you published.

Okay. Yes. Last year, we have signed [indiscernible] values our technology to improve efficient and connected quality in the IoT area. So it's just [a friend – a contract] [ph] and it's just a starting point. We believe, in the future, we have more partner because – to recognize our technology because our headcount technology not only in full coverage of IoT device, but also lower cost of operation cost because market network [indiscernible] reliability of IoT network connectivity. That's very useful to the IoT area. So, we hope in the future with [more this] [ph] kind of partner can – working with us. For example, as you understand in our presentation, so we already imbed our service into the IP camera, IP loader, so – and also now apply into autopilot. So, we believe the [indiscernible] for better condition and lower operation cost is the [baseline] [ph] of our IoT application, less for cooperation partner similar like [indiscernible], this kind of partner. That's just a start point. And now we have more partner in this area. That’s for first one. For second one, we're working with the Ctrip because you can see now that global [tours and travel] [ph] is recovering. Before the COVID-19, we are already a big partner working with Ctrip. So, because we are the biggest channel and for mobile WiFi hotspot rental in China wireless channel. So, now we are prepared for recovery of COVID-19. So, now we are not only prepared for [recovery] [ph] in China, but in U.S. in the Southeast Asia, we have more [deep cooperation] [ph] to prepare for the people recovering from the global travel this scenario.

Okay. Got it. That helps. Thank you. Okay. That's all my questions. Again, congrats on the quarter.

Thank you. [Operator Instructions] All right. At this time, I would like to return the conference to Jillian Zeng for any closing comments.

Okay. There are no further questions. Okay. Thank you once again for joining us. If you have further questions, please contact our Investor Relations or contact our Investor Relations firm, The Equity Group.

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

Thank you.

Thank you.