GlobeNewswire Inc | Aug 17, 2020 06:43AM EDT

August 17, 2020

HONG KONG, Aug. 17, 2020 (GLOBE NEWSWIRE) -- UCLOUDLINK GROUP INC. (UCLOUDLINK or the Company) (NASDAQ: UCL), the worlds first and leading mobile data traffic sharing marketplace, today announced its unaudited financial results for the three months ended June 30, 2020.

Financial Highlights for the Second Quarter of 2020

-- Total revenues were US$21.0 million, representing a decrease of 41.5% from US$35.9 million in the second quarter of 2019. -- Gross profit was US$5.5 million, representing a decrease of 63.8% from US$15.2 million in the second quarter of 2019. -- Loss from operations was US$41.5 million, compared with income from operations US$0.2 million in the second quarter of 2019. -- Net loss was US$41.6 million, compared with net income of US$0.3 million in the second quarter of 2019. -- Adjusted net loss (non-GAAP) was US$4.8 million, compared with an adjusted net income US$0.3 million in the second quarter of 2019. -- Adjusted EBITDA (non-GAAP) was negative US$3.1 million, compared with positive US$1.2 million in the second quarter of 2019.

Operational Highlights for the Second Quarter of 2020

-- Total data consumed through the Companys platform was 52,297 terabytes, including 4,553 terabytes the Company procured and 47,744 terabytes our business partners procured, representing an increase of 267.0% from 14,249 terabytes in the second quarter of 2019. -- Average daily active terminals were 250,669, including 4,606 owned by the Company and 246,063 not owned by the Company, representing an increase of 63.4% from 153,388 in the second quarter of 2019. 74% of daily active terminals was from uCloudlink 2.0 local data connectivity services and 26% of daily active terminals was from uCloudlink 1.0 international data connectivity services during the second quarter of 2020. Average daily data usage per terminal was 2.16 GB in June 2020. -- As of June 30, 2020, we had served 2,047 business partners in 49 countries and regions. We had 119 patents with 54 approved and 65 pending approval, while our pool of SIM cards was from 220 MNOs globally as of June 30, 2020.

Despite COVID-19 and global economic headwinds, we achieved solid second quarter performance in our business, especially in our uCloudlink 2.0 local data connectivity services. Our 2.0 business revenue increased approximately 14 times from US$0.2 million in the second quarter of 2019 to US$3.1 million in the second quarter of 2020, demonstrating its high growth potential. We will continue to expand to more countries and regions such as Asia, the United States, Europe, etc., which have high growth potential. As far as uCloudlink 1.0 international data connectivity services business, we believe it will steadily recover and eventually exceed the performance before COVID-19 after international travel resumes, said Chaohui Chen, Director and CEO of UCLOUDLINK. Looking ahead, we are dedicated to R&D investment on several fronts in order to keep our leading position and core competitiveness in the global connectivity service market and to enable the first global 5G connectivity platform. We will focus our R&D investments on services and product development related to 5G as the advent of 5G brings faster data connectivity speeds and more business opportunities. Our series of 5G products such as MiFi, CPE and GMI are expected to launch in the near term. In addition, we are channeling our R&D efforts towards the further development and update of our PaaS/SaaS platform optimizing the utilization efficiency of SIM card pool and improving the algorithms for better network quality, which has been not only providing innovative and advanced platform services and functions to our business partners, but also has been effective in facilitating customer and business partner acquisitions globally and contributing to our high potential for growth. We formed an alliance with one of the largest MNOs in Japan and will continue to expand our business and alliances with our partners globally. We are also focused on building out our Cloud SIM technology ecosystem with our business partners in various countries and regions such as Japan, South East Asia, the United States, Europe, etc., aiming to further develop the worlds first and leading mobile data traffic sharing marketplace.

The impact of the COVID-19 pandemic continued to rapidly evolve worldwide during the second quarter of 2020. We applied mitigation measures in cost control, liquidity management and uCloudlink 2.0 business development to offset the impact of the pandemic. We had internationally diversified revenue generated from more than 40 countries and regions. Further, we have started our 2.0 local connectivity service in China and Japan, featuring a faster growth rate of uCloudlink 2.0 business in Japan. These measuresenabled the second quarter financial performance to be in line with our quarterly budget. We also continued to invest in R&D to keep our core competitiveness in the long run. Our R&D expense accounted for around 28.7% of overall operating expense during the second quarter of 2020, said Yimeng Shi, CFO of UCLOUDLINK, We believe that our innovative Cloud SIM technology and architecture will redefine the mobile data connectivity experience and we have adopted growth strategies to fully capitalize on the massive opportunities in the 5G Era.

Second Quarter 2020 Financial Results

Revenues

Total Revenues were $US21.0 million, representing a decrease of 41.5% from US$35.9 million in the same period of 2019.

-- Revenues from services were US$9.9 million, representing a decrease of 53.5% from US$21.3 million in the same period of 2019. This decrease was primarily attributable to the decrease in revenues from data connectivity services.Revenues from data connectivity services were US$9.4 million, representing a decrease of 51.3% from US$19.3 million in the same period of 2019. The decrease was primarily attributable to the decrease in revenues from international data connectivity services from US$19.1 million in the second quarter of 2019 to US$6.3 million in the second quarter of 2020, partially offset by the increase in revenues from local data connectivity services from US$0.2 million in the second quarter of 2019 to US$3.1 million in the second quarter of 2020. The decrease in revenues from international data connectivity services was mainly due to the decline of global travel as a result of the COVID-19 pandemic.Revenues from PaaS and SaaS services were US$0.5 million, representing a decrease of 72.2% from US$1.8 million in the same period of 2019. This decrease was primarily due to international travel ban due to COVID-19, but our local data connectivity services demand was strong. -- Revenues from sales of products were US$11.1 million, representing a decrease of 24.0% from US$14.6 million in the same period of 2019, primarily due to the decrease of international data connectivity business due to COVID-19 pandemic. -- Geographic DistributionDuring the second quarter of 2020, we had 7.6% of total revenue coming from Mainland China, 55.7% of total revenue coming from Japan and 36.7% of total revenue coming from other countries and regions.

Cost of Revenues

Cost of revenues was US$15.5 million, representing a decrease of 25.1% from US$20.7 million in the same period of 2019. The decrease was attributable to decrease of both cost of revenues from services and cost of sales of products due to the decline of global travels as a result of the COVID-19 pandemic.

-- Cost of services was US$6.4 million, representing a decrease of 28.1% from US$8.9 million in the same period of 2019. -- Cost of products sold was US$9.1 million, representing a decrease of 22.9% from US$11.8 million in the same period of 2019.

Gross Profit

Overall gross profit was $US5.5 million, or 26.2% overall gross margin, compared to US$15.2 million, or 42.3% in the same period of 2019.

Our gross profit on services was $US3.5million, or 35.4% gross margin related to services, compared to US$12.4 million, or 58.2% in the same period of 2019.

Our gross profit on sales of products was $US2.0million, or 18.0% gross margin related to sales of products, compared to US$2.8 million, or 19.2% in the same period of 2019.

Operating Expenses

Total operating expenses were $US47.1 million, compared to US$15.3 million in the same period of 2019.

-- Research and development expenses were US$13.5 million, representing an increase of 237.5% from US$4.0 million in the same period of 2019. The increase was primarily due to an increase of US$10.6 million in share-based compensation expenses, partly offset by a decrease of US$1.0 million in staff costs related to cost control measures and policies for social security benefits. -- Sales and marketing expenses were US$13.6 million, representing an increase of 130.5% from US$5.9 million in the same period of 2019. The increase was primarily due to an increase of US$10.4 million in share-based compensation expenses, partly offset by a decrease of US$1.1 million in staff costs related to cost control measures and policies for social security benefits, and by a decrease of US$1.0 million in promotion fees due to the impact of COVID-19 pandemic. -- General and administrative expenses were US$20.0 million, representing an increase of 270.4% from US$5.4 million in the same period of 2019. The increase was primarily due to an increase of US$15.9 million in share-based compensation expenses, partly offset by the decrease of US$1.0 million in legal counsel charge.

Loss from Operations

Loss from operations was US$41.5 million, compared with income from operations of US$0.2 million in the same period of 2019.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITDA (Non-GAAP), which excludes the impact of fair value loss in other investment, net of tax, interest expense, depreciation and amortization, and share-based compensation, was negative US$3.1 million, compared to US$1.2 million in the same period of 2019.

Net Interest Expenses

Net interest expenses were US$0.1 million, compared to US$0.1 million net interest income in the same period of 2019.

Net Loss

Net loss was US$41.6 million including share-based compensation of US$36.9 million that were recognized upon the completion of the initial public offering, compared with net income of US$0.3 million in the same period of 2019.

Adjusted Net Loss (Non-GAAP)

Adjusted net loss, which excludes the impact of share-based compensation, was US$4.8 million, compared with an adjusted net income US$0.3 million in the same period of 2019.

Basic and Diluted Loss per ADS

Basic and diluted loss per ADS attributable to ordinary shareholders were US$1.73 and US$1.73, respectively.

Cash and Cash Equivalents, Restricted Cash and Short-Term Deposits

As of June 30, 2020, the Company had cash and cash equivalents, restricted cash and short-term deposits of US$37.3 million, compared to US$45.6 million as of March 31, 2020. The decrease was primarily due to outflow of US$2.2 million in borrowing repayment, US$33.1 million relating to investments for cash management purposes and US$2.8 million for operations, partially offset by US$29.9 million collected from initial public offering of the Company in June 2020.

Capital Expenditures (CAPEX)

CAPEX was US$0.2 million compared to US$0.4 million in the same period of 2019.

Business Outlook

For the third quarter of 2020, UCLOUDLINK expects total revenues to be between US$21.0 million and US$22.0 million, representing a 50.1% to 52.4% decrease from the same period of 2019. The above outlook is based on current market conditions and reflects the Companys preliminary estimates of market and operating conditions and customer demand, particularly in light of the potential impact of the COVID-19. The global outbreak of COVID-19 presents various global risks and the full impact of the outbreak continues to evolve, the effects of which are difficult to analyze and predict, which are all subject to change.

Non-GAAPFinancial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States, or GAAP, this press release presents, adjusted net (loss)/income and adjusted EBITDA, as supplemental measures to review and assess the Companys operating performance. The presentation of thesenon-GAAPfinancial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. Adjusted net (loss)/income is defined as net (loss)/income excluding share-based compensation. Adjusted EBITDA is defined as net (loss)/income excluding fair value loss in other investment, net of tax, interest expense, depreciation and amortization, and share-based compensation.

The Company believes that adjusted net (loss)/income and adjusted EBITDA help identify underlying trends in its business that could otherwise be distorted by the effect of certain expenses that are included in (loss)/income from operations and net (loss)/income. The Company believes that adjusted net (loss)/income and adjusted EBITDA provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.

Thenon-GAAPfinancial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Thenon-GAAP financial measures have limitations as analytical tools. One of the key limitations of using adjusted net (loss)/income and adjusted EBITDA is that they do not reflect all items of income and expense that affect the Companys operations. Share-based compensation has been and may continue to be incurred in the Companys business and is not reflected in the presentation of adjusted net (loss)/income. Further, thenon-GAAPfinancial measures may differ from thenon-GAAPinformation used by other companies, including peer companies, and therefore their comparability may be limited.

The Company compensate for these limitations by reconciling thenon-GAAPfinancial measure to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating its performance. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.

Reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure is set forth at the end of this release.

Conference Call

UCLOUDLINK will hold a conference call at 8:00 a.m. Eastern Time on August 17, 2020 (8:00 p.m. Beijing Time on the same day) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

International: +1-412-902-4272US (Toll Free): +1-888-346-8982UK (Toll Free) 0-800-279-9489UK (Local Toll): 0-207-544-1375Mainland China (Toll Free): 400-120-1203Hong Kong (Toll Free): 800-905-945Hong Kong (Local Toll): +852-3018-4992Singapore (Toll Free): 800-120-6157

Participants should dial in at least 10 minutes before the scheduled start time and provide the Conference ID to the operator to be connected to the conference. Due to conditions surrounding the outbreak of COVID-19, participants may experience longer than normal hold period before being assisted to join the call. The Company thanks everyone in advance for their patience and understanding.

A telephone replay will be available approximately two hours after the call until 09:59 a.m. Eastern Time on August 24, 2020 by dialing:

US (Toll Free): +1-877-344-7529International: +1-412-317-0088Replay Passcode: 10146997

A live and archived webcast of the conference call will be available at http://ir.ucloudlink.com

About UCLOUDLINK GROUP INC.

UCLOUDLINK is the worlds first and leading mobile data traffic sharing marketplace, pioneering the sharing economy business model for the telecommunications industry. The Companys products and services deliver unique value propositions to mobile data users, handset and smart-hardware companies, mobile virtual network operators (MVNOs) and mobile network operators (MNOs). Leveraging its innovative cloud SIM technology and architecture, the Company has redefined the mobile data connectivity experience by allowing users to gain access to mobile data traffic allowance shared by network operators on its marketplace, all while providing reliable connectivity, high speeds and competitive pricing.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, confident and similar statements. Among other things, the financial guidance and quotations from management in this announcement, as well as UCLOUDLINKs strategic and operational plans, contain forward-looking statements. UCLOUDLINK may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about UCLOUDLINKs beliefs and expectations, are forward-looking statements. Forward looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: UCLOUDLINKs strategies; UCLOUDLINKs future business development, financial condition and results of operations; UCLOUDLINKs ability to increase its user base and usage of its mobile data connectivity services, and improve operational efficiency; competition in the global mobile data connectivity service industry; changes in UCLOUDLINKs revenues, costs or expenditures; governmental policies and regulations relating to the global mobile data connectivity service industry, general economic and business conditions globally and in China; the impact of the COVID-19 pandemic to UCLOUDLINKs business operations and the economy in China and elsewhere generally; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Companys filings with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release, and UCLOUDLINK undertakes no duty to update such information, except as required under applicable law.

For more information, please contact:

In China:

UCLOUDLINK GROUP INC.Bob ShenTel: +852-2180-6111E-mail: ir@UCLOUDLINK.com

The Piacente Group, Inc.Yang SongTel: +86 (10) 6508-0677E-mail: UCL@tpg-ir.com

In the United States:

The Piacente Group, Inc.Brandi PiacenteTel: +1-212-481-2050E-mail: UCL@tpg-ir.com



UCLOUDLINK GROUP INC.UNAUDITED CONSOLIDATED BALANCE SHEETS(In thousands of US$, except for share and per share data) As of December As of June 31, 30, 2019 2020 ASSETS Current assets Cash and cash equivalents 37,320 27,447 Restricted cash 2,954 9,689 Short-term deposit 193 196 Accounts receivable, net 25,767 12,874 Inventories 10,518 6,739 Prepayments and other current assets 7,828 10,136 Other investments - 14,004 Amounts due from related party 692 669 Total current assets 85,272 81,754 Non-current assets Prepayments ? 684 Long-term investment 430 424 Other investments ? 17,100 Property and equipment, net 3,793 3,805 Intangible assets, net 602 576 Total non-current assets 4,825 22,589 TOTAL ASSETS 90,097 104,343 LIABILITIES Current liabilities Short term borrowings 6,659 4,218 Accrued expenses and other liabilities 21,319 21,596 Accounts payables 16,728 10,529 Amounts due to related party 1,022 1,003 Contract liabilities 1,925 1,614 Total current liabilities 47,653 38,960 TOTAL LIABILITIES 47,653 38,960 MEZZANINE EQUITY Series A redeemable convertible preferred 22,977 ? sharesTOTAL MEZZANINE EQUITY 22,977 ? SHAREHOLDERS? EQUITY Pre-IPO ordinary shares 11 ? Class A ordinary shares ? 8 Class B ordinary shares ? 6 Additional paid-in capital 118,818 206,251 Accumulated other comprehensive income 706 554 Accumulated losses (100,068) (141,436) TOTAL SHAREHOLDERS? EQUITY 19,467 65,383 TOTAL LIABILITIES, MEZZANINE EQUITY AND 90,097 104,343 SHAREHOLDERS? EQUITY



UCLOUDLINK GROUP INC.UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME(In thousands of US$, except for share and per share data)

For the three months ended For the six months ended June 30, June 30, June 30, June 30, 2019 2020 2019 2020Revenues 35,927 21,026 60,582 54,547 Revenues from 21,359 9,868 41,488 27,298 servicesSales of 14,568 11,158 19,094 27,249 productsCost of (20,760) (15,539) (33,430) (37,218) revenuesCost of (8,911) (6,400) (17,929) (14,858) servicesCost of (11,849) (9,139) (15,501) (22,360) products soldGross profits 15,167 5,487 27,152 17,329 Research anddevelopment (3,955) (13,544) (8,019) (16,560) expensesSales andmarketing (5,902) (13,550) (11,058) (18,087) expensesGeneral andadministrative (5,431) (19,967) (9,745) (24,464) expensesOther income, 337 54 1,049 653 net(Loss)/income 216 (41,520) (621) (41,129) from operationsInterest income 150 15 159 26 Interest (114) (106) (195) (228) expenses(Loss)/income 252 (41,611) (657) (41,331) from income taxIncome tax - (6) - (37) expenseNet (loss)/ 252 (41,617) (657) (41,368) incomeAccretion ofSeries A (635) (604) (1,269) (1,293) PreferredSharesAttributable to:Equity holders (383) (42,221) (1,926) (42,661) of the CompanyNon-controlling - - - - interests Loss per sharefor Class A and Class Bordinary sharesBasic (0.00) (0.17) (0.01) (0.18) Diluted (0.00) (0.17) (0.01) (0.18) Loss per ADS(10 Class A shares equal to1 ADS)Basic (1.73) (1.79) Diluted (1.73) (1.79) Shares used inearnings perClass A and Class Bordinary sharecomputation:Basic 231,341,233 243,363,011 232,451,900 237,907,456 Diluted 231,341,233 243,363,011 232,451,900 237,907,456 Net (loss)/ 252 (41,617) (657) (41,368) incomeOthercomprehensive income, net oftaxForeigncurrency 623 (413) 68 (152) translationadjustmentTotalcomprehensive 875 (42,030) (589) (41,520) (loss)/income



UCLOUDLINK GROUP INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of US$)

For the three months ended For the six months ended June 30, June 30, June 30, June 30, 2019 2020 2019 2020Net cashgeneratedfrom/(used 6,261 (2,773 ) 4,403 3,921 in)operatingactivitiesNet cashused in (639) (33,330) (1,209) (34,351) investingactivitiesNet cashgeneratedfrom 1,851 27,712 1,516 27,463 financingactivitiesIncrease/(decrease)in cash,cash 7,473 (8,391) 4,710 (2,967) equivalentsandrestrictedcashCash, cashequivalentsandrestricted 34,165 45,450 36,627 40,274 cash atbeginningof theperiodEffect ofexchangerates oncash, cash (256) 77 45 (171) equivalentsandrestrictedcashCash, cashequivalentsandrestricted 41,382 37,136 41,382 37,136 cash at endof theperiod



UCLOUDLINK GROUP INC.UNAUDITED RECONCILIATIONS OF NON-GAAP AND GAAP RESULTS(In thousands of US$)

For the three months For the six months ended ended June June 30, June 30, June 30, 30, 2020 2019 2020 2019Reconciliation ofNet Income/(Loss) to Adjusted NetIncome/(Loss)Net income/(loss) 252 (41,617) (657) (41,368) Add: share-based - 36,854 169 36,854 compensationAdjusted net 252 (4,763) (488) (4,514) income/(loss)

For the three months ended For the six months ended June 30, June 30, June 30, June 30, 2019 2020 2019 2020Reconciliationof Net Income/ (Loss) toAdjusted EBITDANet income/ 252 (41,617) (657) (41,368) (loss)Add: Interest expense 114 106 195 228 Income tax - 6 - 37 expensesDepreciation and 821 553 1,646 1,162 amortizationEBITDA 1,187 (40,952) 1,184 (39,941) Add: Share-based - 36,854 169 36,854 compensationFair value lossin other - 996 - 996 investmentsAdjusted EBITDA 1,187 (3,102) 1,353 (2,091)