NQ Mobile Inc. Reports Unaudited Financial Results for the Fourth Quarter and Fiscal Year 2014
BEIJING and DALLAS, March 18, 2015 /PRNewswire/ - NQ Mobile Inc. ("NQ Mobile" or the "Company"
(NYSE: NQ), a leading global provider of mobile internet services, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2014.
Highlights For Fourth Quarter 2014
- Record Quarterly Net Revenues of $89.7 million, a 32.2% increase year-over-year from $67.9 million in the same period in 2013.
- Gross profit for the fourth quarter of 2014 was $26.5 million, a 19.9% decrease from $33.1 million in the same period in 2013.
- Gross margin or gross profit as a percentage of net revenues was 29.6%, up sequentially from 27.8% in the previous quarter and indicative of the stabilization of the profitability outlook.
- Non-GAAP income from operation for the fourth quarter of 2014 was $2.1 million, a 83.2% decrease from $12.6 million in the same period in 2013.
- Non-GAAP operating margin, or non-GAAP income from operations as a percentage of net revenues, was 2.4% in the fourth quarter of 2014, up sequentially from a slightly negative operating margin in the previous quarter and also indicative of the stability of the profitability outlook.
- Non-GAAP net income attributable to NQ Mobile for the fourth quarter of 2014, which excludes share-based compensations, expenses incurred for the handling of short seller allegations and interest expenses related to convertible debts, was $3.2 million or $0.03 per ADS, basic.
Highlights For The Fiscal Year 2014
- Record Annual Net Revenues of $332.3 million, a 68.9% increase year-over-year from $196.7 million in 2013.
- Gross profit for fiscal year 2014 was $105.7 million, a 8.7% decrease from $115.8 million in 2013.
- Non-GAAP income from operation for the fiscal year 2014 was $12.4 million, a 76.7% decrease from $53.3 million in 2013.
- Non-GAAP net income attributable to NQ Mobile for the fiscal year2014, which excludes share-based compensations, expenses incurred for the handling of short seller allegations and interest expenses related to convertible debts, was $26.2 million or $0.32 per ADS, basic.
Operating Metrics as of December 31, 2014
As a reminder, beginning in the third quarter of 2014, the Company began presenting the operating metrics of average monthly active user accounts ("MAUs" as redefined to include many emerging businesses previously not included in the Company's user account metrics. The MAUs presented herein include the user accounts in NQ Live, Music Radar and more recent investments such as Yipai and Showself, among others. As such, the MAUs presented herein should only be compared to the third quarter of 2014 and not be compared to operating metrics previously reported in historical periods because there is not a way to accurately compare such results. The MAUs for the period presented herein and going forward are expected to be better aligned with the key underlying trends of a mobile internet platform company focused on driving mobile consumer traffic and engagement that can be monetized. The MAU statistics do not include the users addressed by the installation of the Company's advertising SDK into third-party applications. These indirect users generate impressions and search traffic that the Company can monetize outside of the user accounts generated directly by the Company's own portfolio of products and applications.
Average Monthly Active User Accounts as of December 31, 2014: 160.8 million
"We are pleased to report record revenues both for the fourth quarter and the full fiscal year of 2014, as we continued our transition toward the traffic-based mobile entertainment business," said Dr. Vincent Wenyong Shi, Chairman, Chief Operating Officer and Acting Chief Financial Officer of NQ Mobile. "With the challenging year of 2014 now behind us, our transition is in full swing as we firmly further execute our various strategic initiatives. In addition to our top-line growth, we were also encouraged to see sequential improvement for our margins that indicates stabilization of profitability. We believe we are well-positioned to capture the growth opportunities in the mobile internet landscape."
Fourth Quarter 2014 Results
Revenues
Net revenues in the fourth quarter of 2014 increased 32.2% year-over-year to $89.7 million from $67.9 million in the same period in 2013.
Mobile value added service revenues decreased 9.9% year-over-year to $24.4 million from $27.1 million in the same period in 2013. The decrease in mobile value added service revenues was due to the decrease in consumer mobile security revenues, which in turn was primarily due to the Company's moving its focus away from premium security services and focusing more on mobile applications and services. This decrease was offset partially by the growth in mobile gaming revenues and the inclusion of live mobile social video platform revenues. The increase in mobile gaming revenues was primarily the result of the rapid growth of FL Mobile's game platform and the launch of new games in the fourth quarter of 2014. The inclusion of live mobile social video platform revenues is the result of the consolidation of Showself.
Advertising revenues increased 22.2% year-over-year to $20.4 million from $16.7 million in the same period in 2013.The growth was due to increased monetization through advertising and successful third party application referrals resulting mainly from WAPS and Fanyue, the Company's online and offline advertising networks.
Enterprise mobility revenues increased 87.2% year-over-year to $44.0 million from $23.5 million in the same period in 2013.This increase is mainly due to the fast growth of the enterprise mobility business as a result of obtaining a premium distributor agreement with Apple Inc. as well as the acquisition of Trustek, which is also a premium distributor for Apple Inc. In addition, the growth of the services and software component of Enterprise Mobility also reached a record level in the fourth quarter and showed sequential improvement throughout 2014.
Other revenues increased 60.4% year-over-year to $0.9 million from $0.5 million in the same period in 2013. Other revenues are generated primarily by providing technical contract services to third parties and fluctuate as such business is driven by individual projects.
Cost of Revenues
Cost of revenues in the fourth quarter of 2014 increased 81.8% year-over-year to $63.1 million from $34.7 million in the same period in 2013. The year-over-year increase was primarily due to higher cost of products for the enterprise mobility business, which totaled $34.4 million in the fourth quarter of 2014 compared to $17.8 million in the same period last year. Customer acquisition costs, including advertising inventory costs, or the cost that the Company pays developers and other partners for advertising space (inventory), increased to $12.3 million in the fourth quarter of 2014 compared to $6.8 million in the same period in 2013. The cost of additional revenue sharing, which is incurred mainly for the Company's mobile game business increased to $4.6 million in the fourth quarter of 2014 compared to $2.1 million in the same period last year.
Gross Profit and Gross Margin
Gross profit in the fourth quarter of 2014 decreased 19.9% to $26.5 million from $33.1 million in the same period in 2013. Gross margin, or gross profit as a percentage of net revenues, was 29.6% in the fourth quarter of 2014, compared with 48.8% in the same period in 2013. Excluding the impact from the enterprise mobility business, gross margin was 42.2% in the fourth quarter of 2014, down from 63.6% in the same period in 2013.The primary reason for the decline in gross profit and gross margin is the expansion of the enterprise mobility business which has a lower margin compared with other business of the Company as well as the increase of cost of revenues detailed above.
Operating Expenses
Total operating expenses in the fourth quarter of 2014 increased 22.9% year-over-year to $46.5 million from $37.8 million in the same period in 2013.Non-GAAP operating expenses, which exclude share-based compensation and expenses incurred for the handling of short seller allegations, increased 19.1% year-over-year to $24.5 million from $20.5 million in the same period in 2013.
Selling and marketing expenses in the fourth quarter of 2014 decreased 14.8% year-over-year to $6.6 million from $7.8 million in the same period in 2013. Non-GAAP selling and marketing expenses, which exclude share-based compensation, decreased 14.3% year-over-year to $6.4 million from $7.5 million in the same period in 2013. The year-over-year decrease was mainly due to the decrease in overseas promotional channels associated with the consumer mobile security business.
General and administrative expenses in the fourth quarter of 2014 increased 31.1% year-over-year to $31.4 million from $24.0 million in the same period in 2013. Non-GAAP general and administrative expenses, which excludes share-based compensation and the expenses incurred for the handling of short seller allegations, increased 33.7% year-over-year to $9.8 million, up from $7.3 million in the same period in 2013. The year-over-year increase was mainly due to higher staff costs associated with headcount growth, partially offset by decreased bad debt expenses.
Research and development expenses in the fourth quarter of 2014 increased 39.0% year-over-year to $8.4 million from $6.0 million in the same period in 2013. Non-GAAP research and development expenses, which exclude share-based compensation, increased 44.1% to $8.3 million from $5.7 million in the same period in 2013. The year-over-year increase was primarily due to higher product development expenses associated with higher staff costs associated with headcount growth.
Share-based compensation expenses
Share-based compensation expenses, which were allocated to related operating cost and expenses line items, amounted to $19.3 million in the fourth quarter of 2014, compared to $14.9million in the corresponding period in 2013. The increase in share-based compensation expenses was mainly due to performance-based share options granted in relation to the Company's acquisitions.
Loss /Income from Operations and Operating Margin
Loss from operations in the fourth quarter of 2014 was $19.9 million, compared with an operating loss of $4.7 million in the same period in 2013.
Non-GAAP income from operations, which excludes share-based compensation and expenses incurred for the handling of short seller allegations, decreased 83.2% year-over-year to $2.1millionfrom $12.6 million in the same period in 2013. Non-GAAP operating margin, or non-GAAP income from operations as a percentage of net revenues, was 2.4% in the fourth quarter of 2014, compared with18.6% in the same quarter in 2013. Excluding the impact from the enterprise mobility business, non-GAAP operating margin was 3.9% in the fourth quarter of 2014, compared to 22.0% in the same period in 2013.
Foreign Exchange Gain, Interest Expenses and Other Income
Foreign exchange gain was $0.5 million in the fourth quarter of 2014, compared with a gain of $0.6 million in the same quarter a year ago. The gain in foreign exchange was primarily attributable to the revaluation of the net monetary assets denominated in functional currency other than US$ and the fluctuation is in line with the fluctuation of the trend of the foreign exchange rates. Interest expenses were $1.1 million in the fourth quarter of 2014, compared with $2.2 million in the same quarter a year ago. Interest expenses were primarily derived from interest expense related to convertible debts, offset by the interest income from certain term deposits.
Income Tax
Income tax expense was $3.4 million in the fourth quarter of 2014, compared with an income tax benefit of $0.2 million in the same period in 2013.
Net Loss
Net loss attributable to NQ Mobile was $21.2 million in the fourth quarter of 2014, compared with net loss of $4.3 million in the same period in 2013. Non-GAAP net income attributable to NQ Mobile, which excludes share-based compensation, expenses incurred for the handling of short sellers and interest expenses related to convertible debts, was $3.2 million in the fourth quarter of 2014, compared with $14.9 million in the same period in 2013.
Cash and C ash E quivalents, T erm D eposits and R estricted C ash
Cash and cash equivalents, term deposits and restricted cash together amounted to $273.0 million as of December 31, 2014.
Cash Flow
Net cash flow used in operations for the fourth quarter of 2014 was $8.5 million.
Fiscal Year 2014 Results
Revenues
Net revenues for the fiscal year 2014 increased 68.9% year-over-year to $332.3 million from $196.7 million in 2013.
Mobile value added service revenues for the fiscal year 2014 increased 2.5% year-over-year to $106.1 million from $103.5 million in 2013. The increase in mobile value added service revenues was primarily due to the increase in mobile game revenues and the inclusion of live mobile social video platform revenues, partially offset by the decrease in consumer mobile security revenues. The increase in mobile game revenues was primarily due to the rapid growth of FL Mobile's game platform and the launch of new games in the fiscal year of 2014. The inclusion of live mobile social video platform revenues is the result of the consolidation of Showself. The decrease in consumer mobile security revenues was primarily due to the Company's moving its focus away from premium security subscription-based revenues and focusing more on mobile applications and services that can be monetized.
Advertising revenues for the fiscal year 2014increased 99.1% year-over-year to $72.9 million from $36.6 million in 2013.Such robust growth was due to increased monetization through advertising and successful third party application referrals resulting mainly from the acquisitions of WAPS and Fanyue, the Company's online and offline advertising networks.
Enterprise mobility revenues for the fiscal year 2014 increased 180.5% year-over-year to $148.7 million from $53.0 million in 2013.This increase is mainly due to the fast growth of the enterprise mobility business as a result of obtaining a premium distributor agreement with Apple Inc. as well as the acquisition of Trustek, which is also a premium distributor for Apple Inc. In addition, the growth of the services and software component of Enterprise Mobility also reached a record level during the fiscal year.
Other revenues for the fiscal year 2014 increased 30.4% year-over-year to $4.6 million from $3.6 million in 2013. Other revenues are generated primarily by providing technical contract services to third parties and fluctuate as such business is driven by individual projects.
Cost of Revenues
Cost of revenues for the fiscal year 2014 increased 180.1% year-over-year to $226.7 million from $80.9 million in 2013. The year-over-year increase was primarily due to higher cost of products for the enterprise mobility business, which totaled $128.5 million for the fiscal year 2014 compared to $37.4 million in 2013.Customer acquisition costs, including advertising inventory costs, or the cost that the Company pays developers and other partners for advertising space (inventory) increased to an aggregate of $40.8 million for the fiscal year 2014 compared to $13.0 million in 2013. The cost of revenue sharing, which is incurred mainly in relation to the Company's mobile game business increased to $18.1million for the fiscal year 2014 compared to $3.4 million in 2013.
Gross Profit and Gross Margin
Gross profit for the fiscal year 2014 decreased 8.7% to $105.7 million from $115.8 million in 2013. Gross margin, or gross profit as a percentage of net revenues, was 31.8% for the fiscal year 2014, compared with 58.9% in 2013. Excluding the impact from the enterprise mobility business, gross margin was 49.9% for the fiscal year 2014, down from 71.2% in 2013. The primary reasons for the decline in gross profit and gross margin are the expansion of enterprise mobility business which has a lower margin compared with other business of the Company as well as the increase of cost of revenues.
Operating Expenses
Total operating expenses for the fiscal year 2014 increased 55.2% year-over-year to $186.6 million from$120.3 million in 2013. Non-GAAP operating expenses, which exclude share-based compensation expenses and expenses incurred for the handling of short seller allegations, increased 48.8% year-over year to $93.5 million from $62.9 million in 2013.
Selling and marketing expenses for the fiscal year 2014 increased 16.1% year-over-year to $30.0 million from $25.8 million in 2013. Non-GAAP selling and marketing expenses for the fiscal year 2014, which exclude share-based compensation, increased 21.4% year-over-year to $28.5 million from $23.5 million in 2013. The year-over-year increase was mainly due to higher staff costs associated with headcount growth, partially offset by the decrease in overseas promotional channels associated with the consumer mobile security business.
General and administrative expenses for the fiscal year 2014 increased 70.1% year-over-year to $131.0 million from $77.0 million in 2013. Non-GAAP general and administrative expenses for the fiscal year 2014, which exclude share-based compensation and the expenses incurred for the handling of short seller allegations, increased 68.5% year-over-year to $40.3 million from $23.9 million in 2013. The year-over-year increase was mainly due to higher staff costs associated with headcount growth and increased intangible assets amortization expenses in relation to business acquisitions.
Research and development expenses for the fiscal year 2014 increased 47.2% year-over-year to $25.7 million from $17.4 million in 2013. Non-GAAP research and development expenses for the fiscal year 2014, which exclude share-based compensation, increased 59.8% to $24.6 million from $15.4 million in 2013.The year-over-year increase was primarily due to higher product development expenses and higher staff costs associated with headcount growth.
Share-based compensation expenses
Share-based compensation expenses, which were allocated to related operating cost and expenses line items, amounted to $83.8 million for the fiscal year 2014, compared to $55.4 million in 2013. The increase in share-based compensation expenses was mainly due to performance-based share options granted in relation to the Company's acquisitions.
Loss /Income from Operations and Operating Margin
Loss from operations for the fiscal year 2014was $81.0 million, compared with an operating loss of $4.5 million in fiscal year 2013
Non-GAAP income from operation for the fiscal year 2014, which excludes share-based compensation and expenses incurred for the handling of short seller allegations, decreased 76.7% year-over-year to $12.4 million from $53.3 million in 2013. Non-GAAP operating margin, or non-GAAP income from operations a percentage of net revenues, was 3.7% for the fiscal year 2014, compared with 27.1% in 2013.Excluding the impact from the enterprise mobility business, non-GAAP operating margin was 8.2% for the fiscal year 2014, compared with 32.5% in 2013.
Foreign Exchange Loss, Interest Expenses/Income
Foreign exchange loss was $0.4 million for the fiscal year 2014, compared with a gain of $1.8 million in 2013. The loss in foreign exchange was primarily attributable to the revaluation of the net monetary assets denominated in functional currency other than US$ and the fluctuation is in line with the fluctuation of the trend of the foreign exchange rates. Interest expenses were $5.4 million for the fiscal year 2014, compared with interest income of $0.4 million in 2013.Interest expenses were primarily derived from interest expense related to convertible debts, offset by the interest income from certain term deposits.
Income Tax
Income tax expense was $5.5 million for the fiscal year 2014, compared with $1.1 million in 2013.
Net Loss Income
Net loss attributable to NQ Mobile was $76.7 million for the fiscal year 2014, compared with net loss of $1.9 million in 2013. Non-GAAP net income attributable to NQ Mobile, which excludes share-based compensation, expenses incurred for the handling of short seller allegations and interest expenses related to convertible debts, was $26.2 million for the fiscal year 2014, compared with $57.8 million in 2013.
Cash Flow
Net cash provided by operating activities for the fiscal year 2014 was $6.2 million.
Other Significant Events
Other than previously announced events, below please find certain significant events that took place during the fourth quarter of 2014.
NQ Mobile Share Repurchase
On December 23, 2014, the Board authorized the Company to repurchase up to $80 million of its shares on the open market, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulation, over the next 12 months. To date, NQ Mobile has repurchased $11.3million worth of shares on the open market, or a total ofapproximately 2.6million ADSs. As of March 18, 2015, $68.7 million remains available for further repurchases under the $80 million authorized share repurchase program.
Business Outlook
The Company expects net revenues to be in the range of $450.0 million to $455.0 million for the full year 2015, representing a 36% to 37% year-over-year increase. Net revenues for the first quarter of 2015 are expected to be in the range of $85.0 million to 86.0 million, representing a 7% to 8% year-over-year increase.
