Diamond Equity Research Releases Update Note on uCloudlink Group Inc. (NASDAQ: UCL)
NEW YORK, Nov. 18, 2022 (GLOBE NEWSWIRE) -- Diamond Equity Research, a leading equity research firm with a focus on small capitalization public companies, has released update note on uCloudlink Group Inc. (NASDAQ: UCL). The update note includes information on the uCloudlink Group Inc.’s financial results, management commentary, recent developments, outlook, risks, and our revised valuation estimates.
The update note is available here. Highlights from the note include:
Effective Cost Control and Improved Margin Profile Helped Drive Profitability – uCloudlink reported its financial results for Q3 2022, with total revenues of $18.2 million, down 5.7% compared to $19.3 million in the same period last year. The decrease was primarily due to a 36.7% YoY decrease in product sales revenue to $5.6 million (due to a decline in sales of certain terminals and data-related products), partially offset by an increase in revenue from services which increased by 20.5% YoY to $10.5 million as revenues from both international and local data connectivity services grew aided by the gradual recovery of international travel and the continuous development of the company’s local data connectivity business. Margin profile improved in Q3 2022 in line with our expectations: overall gross margin was approximately 47.7% compared to 28.3% in the same period of 2021, reaching record highs since FY2020. Gross margins on both services and sales of products increased primarily due to algorithm optimization and more efficient data usage, product hardware and design upgrades, as well as an increased proportion of revenue from international data connectivity service and high-end products. UCL’s operating expenses decreased from $12.7 million to $7.9 million, as the company streamlined its cost structure, leading to a positive adjusted EBITDA and a narrowed net loss of $4.6 million, or $0.15 per basic and diluted ADS in Q3 2022, which is in line with our model. We expect UCL’s profitability to improve further as the company generates more revenue from the resuming international data connectivity business with higher gross margins, while continuing to optimize its operating efficiency through certain cost control measures.
Demand Spurred Significant Growth in North American Market – With the recovery of international tourism and the popularity of remote work/learning in the post-epidemic era, the demands for both international and local data connectivity services have increased significantly, especially in the North American market, which further stimulated UCL’s growth and helped it gain market share. According to the company, Japan and mainland China contributed 35.1% and 2.4% of total revenues in Q3 2022, while other countries contributed the remaining 62.5%, compared to 46.6%, 3.7%, and 49.7%, respectively, in Q3 2021. The increase in the proportion of revenues from other countries and regions was mainly attributable to the revenue growth in North America, where we expect continued growth and additional customer acquisition.
Sustained Positive Operating Cash Flow Supporting Long-term Growth – As of September 30, 2022, uCloudlink’s cash and cash equivalents and short-term deposits were $12.5 million, compared to $12.2 million as of June 30, 2022. The company achieved a positive operating cash flow for the second consecutive quarter since Q2 2020 during the COVID-19 pandemic, demonstrating UCL’s ability to achieve financial sustainability to support its long-term operations and growth. In October 2022, UCL announced early redemption of $1 million principal amount of the convertible debentures for an aggregate redemption amount of $1,053,384, including accrued and unpaid interest, with zero outstanding amount of the convertible debentures.
Valuation – We have adjusted UCL’s valuation to $10.0, combining discounted cash flow and comparable company analysis, which is contingent on the company maintaining its successful execution.
About uCloudlink Group Inc.
uCloudlink operates as an innovative mobile technology company that offers the world’s first and leading mobile data traffic sharing marketplace to users globally. Leveraging its integral cloud SIM technology, it allows users to enjoy a smooth mobile connectivity experience without limitation to one MNO. uCloudlink was incorporated in 2014 and is headquartered in Hong Kong.
For more information, visit https://ucloudlink.gcs-web.com.
About Diamond Equity Research
Diamond Equity Research is a leading equity research and corporate access firm focused on small capitalization companies. Diamond Equity Research is an approved sell-side provider on major institutional investor platforms.
For more information, visit https://www.diamondequityresearch.com.
Diamond Equity Research LLC is being compensated by uCloudlink Group Inc. for producing research materials regarding uCloudlink Group Inc. and its securities, which is meant to subsidize the high cost of creating the report and monitoring the security, however the views in the report reflect that of Diamond Equity Research. All payments are received upfront and are billed for research engagement. As of 11/18/2022 the issuer had paid us $70,000 for our services, consisting of $20,000 for an initiation report and $15,000 for six update notes in the first year of coverage and $35,000 in the second year of coverage for update notes during the term, which commenced 06/01/2021 and is renewable annually. Diamond Equity Research LLC may be compensated for non-research related services, including presenting at Diamond Equity Research investment conferences, press releases and other additional services. The non-research related service cost is dependent on the company, but usually do not exceed $5,000. The issuer has not paid us for non-research related services as of 11/18/2022. Issuers are not required to engage us for these additional services. Additional fees may have accrued since then. Although Diamond Equity Research company sponsored reports are based on publicly available information and although no investment recommendations are made within our company sponsored research reports, given the small capitalization nature of the companies we cover we have adopted an internal trading procedure around the public companies by whom we are engaged, with investors able to find such policy on our website public disclosures page. This report and press release do not consider individual circumstances and does not take into consideration individual investor preferences. Statements within this report may constitute forward-looking statements, these statements involve many risk factors and general uncertainties around the business, industry, and macroeconomic environment. Investors need to be aware of the high degree of risk in small capitalization equities including the complete loss of their investment. Investors can find various risk factors in the initiation report and in the respective financial filings for uCloudlink Group Inc.
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