NQ Mobile Inc. Reports Unaudited Financial Results For the Quarter Ended June 30th, 2015
BEIJING and DALLAS, Aug. 26, 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 quarter ended June 30th, 2015.
Highlights for Second Quarter 2015
- Quarterly Net Revenues were $102.1 million in the second quarter of 2015, a 25.0% increase year-over-year from $81.6 million in the same period in 2014, a new record level for the Company.
- Gross Margin was 24.8% in the second quarter of 2015, compared with 21.0% in the first quarter of 2015. Non-GAAP Operating Margin was 5.1% in the second quarter of 2015, up from negative 1.8% in the first quarter of 2015.
- Net Loss attributable to NQ Mobile was $1.6 million, or a loss of $0.02 per ADS, in the second quarter of 2015, a 90.2% improvement compared with a net loss of $16.8 million, or a loss of $0.22 per ADS, in the same period in 2014.
- Non-GAAP Net Income attributable to NQ Mobile was $7.0 million, or $0.08 per ADS in the second quarter of 2015, compared with Non-GAAP net income of $14.8 million, or $0.20 per ADS, in the same period in 2014.
- Total Share Based Compensation Expenses fell to $1.1 million, a 95.6% decline year-over-year from $25.4 million in the same period in 2014.
Operating Metrics as of June 30, 2015
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 all the related business segments. As such, the MAUs presented herein should only be compared to operating metrics in the third quarter of 2014 and thereafter and not be compared to operating metrics in earlier 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 June 30, 2015: 188.2 million.
"We are encouraged to see solid improvement in the second quarter of 2015," said Mr. Zemin Xu, CEO of NQ Mobile, "The management team remains committed to executing our business strategies, with great efforts in the monetization of our traffic-based mobile entertainment businesses, in order to achieve sustainable growth."
"Our topline growth remains strong and we, by executing our business strategies, started to see improvement in our profitability this past quarter. We are confident about our future growth and will maintain our focus on executing and delivering results." commented Mr. Roland Wu, CFO of NQ Mobile.
Second Quarter 2015 Results
Revenues
Net revenues in the second quarter of 2015 increased 25.0% year-over-year to $102.1 million from $81.6 million in the same period in 2014.
Mobile value added service revenues increased 8.2% year-over-year to $31.7 million from $29.2 million in the same period in 2014. The increase in mobile value added service revenues was primarily attributable to the growth in live mobile social video platform revenues and mobile gaming revenues. The significant increase in social video platform revenues was driven by the rapid growth of the business of Showself. And the increase in mobile gaming revenues was primarily the result of the continuing expansion of FL Mobile's business in both domestic and overseas markets, which grew 10.0% year-over-year from the same period in 2014. Meanwhile, consumer mobile security revenues decreased mainly because the Company has been moving its focus away from premium security services and focusing more on mobile applications and services.
Advertising revenues increased 6.1% year-over-year to $16.2 million from $15.3 million in the same period in 2014. The growth was primarily 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 48.1% year-over-year to $52.8 million from $35.6 million in the same period in 2014. The growth was primarily driven by the significant demand for Apple products, along with an increase in the sales of enterprise mobility software with more distribution channels which were being developed in the second quarter of 2015.
Other revenues decreased 2.5% year-over-year to $1.4 million from $1.5 million in the same period in 2014. 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 second quarter of 2015 increased 41.0% year-over-year to $76.8 million from $54.5 million in the same period in 2014. The year-over-year increase was primarily due to higher cost of products sold for the enterprise mobility business, which totaled $46.1 million in the second quarter of 2015 compared to $32.7 million in the same period last year. In addition, the cost of revenue sharing, which is incurred mainly for the Company's mobile game business and live mobile social video platform, increased to $10.8 million in the second quarter of 2015 compared to $4.6 million in the same period last year.
Gross Profit and Gross Margin
Gross profit in the second quarter of 2015 decreased 6.9% to $25.3 million from $27.2 million in the same period in 2014. Gross margin, or gross profit as a percentage of net revenues, was 24.8% in the second quarter of 2015, compared with 33.3% in the same period in 2014. Excluding the impact from hardware sales of the enterprise mobility business and associated costs, gross margin was 44.6% in the second quarter of 2015, down from 55.2% in the same period in 2014.
Operating Expenses
Total operating expenses in the second quarter of 2015 decreased 52.2% year-over-year to $23.9 million from $49.9 million in the same period in 2014. Non-GAAP operating expenses, which exclude share-based compensation, the expenses incurred for the handling of short seller allegations and the amortization of intangible assets arising from acquisitions, decreased by 2.9 % year-over-year to $21.9 million from $22.5 million in the same period in 2014.
Selling and marketing expenses in the second quarter of 2015 decreased 17.1% year-over-year to $6.7 million from $8.1 million in the same period in 2014. Non-GAAP selling and marketing expenses, which exclude share-based compensation, decreased 18.8% year-over-year to $6.3 million from $7.8 million in the same period in 2014. The year-over-year decrease in selling and marketing expenses mainly resulted from the decrease in spending on the promotional channels for mobile games due to later launch of games in this quarter, as well as less expenditure on the consumer mobile security business.
General and administrative expenses in the second quarter of 2015 decreased 70.6% year-over-year to $10.6 million from $35.9 million in the same period in 2014. Non-GAAP general and administrative expenses, which exclude share-based compensation, the expenses incurred for the handling of short seller allegations and amortization of intangible assets arising from acquisitions, decreased 6.9% year-over-year to $8.5 million from $9.1 million in the same period in 2014. The year-over-year decrease in general and administrative expenses under GAAP was mainly from a significant $23.6 million decrease in compensation expenses, as well as a large decrease in the provision of bad debt expenses.
Research and development expenses in the second quarter of 2015 increased 11.6% year-over-year to $6.6 million from $5.9 million in the same period in 2014. Non-GAAP research and development expenses, which exclude share-based compensation and amortization of intangible assets arising from acquisitions, increased 25.5% to $7.1 million from $5.6 million in the same period in 2014. The year-over-year increase in research and development expenses was primarily due to the increase in the expenditures on software development, mainly including staff costs, as a result of business expansion.
Share-based compensation expenses
Share-based compensation expenses, which were allocated to related operating cost and expenses line items, declined to $1.1 million in the second quarter of 2015, a decrease of 95.6% from $25.4 million in the corresponding period in 2014. The significant decrease in share-based compensation expenses was primarily due to the one-off reversal of the unvested share options related to the departure of a former executive and less equity incentives issued to the Company's acquirees.
Income/Loss from Operations and Operating Margin
Income from operations in the second quarter of 2015 was $1.4 million, compared with an operating loss of $22.8 million in the same period in 2014.
Non-GAAP income from operations, which excludes share-based compensation, the expenses incurred for the handling of short seller allegations and amortization of intangible assets arising from acquisitions, was $5.2 million in the second quarter of 2015, compared with an income of $6.5 million in the same period in 2014. Non-GAAP operating margin, or non-GAAP income from operations as a percentage of net revenues, was 5.1% in the second quarter of 2015, compared with 8.0% in the same quarter in 2014. The decrease in non-GAAP operating margin was mainly due to the decline in gross margin, which was the result of the rapid market growth of the enterprise mobility business with lower gross margin.
Foreign Exchange Gain/Loss, Interest Expenses and Other Income
Foreign exchange gain was $0.7 million in the second quarter of 2015, compared with a loss of $0.04 million in the same quarter of the previous year, which was affected by a fluctuation in foreign exchange rates. Interest expenses were $1.1 million in the second quarter of 2015, compared with $1.4 million in the same quarter of the previous year. Interest expenses were primarily derived from interest expense related to convertible debt, offset by the interest income from certain term deposits.
Income Tax
Income tax expense was $0.4 million in the second quarter of 2015, compared with an income tax expense of $1.7 million in the same period in 2014.
Net Loss/Income
Net Loss attributable to NQ Mobile was $1.6 million in the second quarter of 2015, compared with net loss of $16.8 million in the same period in 2014. Non-GAAP net income attributable to NQ Mobile, which excludes share-based compensation, the expenses incurred for the handling of short seller allegations, interest expenses related to convertible debt, amortization of intangible assets arising from acquisition and impairment loss arising from acquisitions, was $7.0 million in the second quarter of 2015, compared with net income of $14.8 million in the same period in 2014.
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 $239.4 million as of June 30, 2015.
Cash Flow
Net Cash used in operations in the second quarter of 2015 was $14.7 million.
Other Significant Events
Below please find a summary of certain significant events that took place during the period from May 19, 2015, the date of the Company's last earnings release, through August 26, 2015.
Appointment of Mr. Roland Wu as Chief Financial Officer
As previously announced, on June 1, 2015, the Company appointed Mr. Roland Wu as its Chief Financial Officer, effective as of that date. With Mr. Wu's appointment, Dr. Vincent Shi stepped down as the acting Chief Financial Officer of NQ Mobile and is now focusing on his responsibilities as Chairman of the board of directors and Chief Operating Officer of the Company.
NQ Mobile enters into a binding agreement to sell FL Mobile
In a press release on August 26, 2015, the Company announced that it entered into a legally binding framework agreement (the "FL Framework Agreement") with Beijing Jinxing Ronda Investment Management Co. Ltd. ("Beijing Jinxing"), a subsidiary of Tsinghua Holdings Co., Ltd and an independent third party, to sell the Company's entire stake in FL Mobile Inc., NQ Mobile's majority owned Cayman Islands subsidiary (the "FL Divestment"). The Company and other existing shareholders of FL Mobile Inc. have agreed to sell to Beijing Jinxing the entire stake in FL Mobile Inc. that they currently hold for no less than RMB 4 billion (or approximately no less than US $626 million).
NQ Mobile Inc. enters into a binding agreement to sell NationSky
In a press release on August 26, 2015, the Company announced that it entered into legally binding share purchase agreements, which provide for the sale of all of NQ Mobile's interests in the NationSky business (the "NationSky Divestment"), including the entire interest in Beijing NationSky Network Technology Co., Ltd. ("Beijing NationSky") to Mr. Hou Shuli, a founder and senior management member of Beijing NationSky, for an aggregate consideration of US $80 million cash.
NQ Mobile Share Repurchase
As previously announced, 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 $12.6 million worth of shares on the open market, or a total ofapproximately 2.9 million ADSs. As of August 26, 2015, $67.4 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 $455.0 million to $460.0 million for the full year 2015, representing a 36.9% to 38.4% year-over-year increase. Net revenues for the third quarter of 2015 are expected to be in the range of $110.0 million to $112.0 million, representing a 35.5% to 37.9% year-over-year increase. This outlook includes net revenue expectations for FL Mobile and NationSky and is subject to change based upon the timing of the closing of the announced FL Divestment and NationSky Divestment.
Conference Call Information
NQ Mobile's management team will hold an earnings conference call to discuss its results and outlook at 8:30 PM U.S. Eastern Time on Wednesday, August 26, 2015, (8:30 AM Beijing/Hong Kong Time on Thursday, August 27, 2015).
The dial-in details for the conference call are:
U.S. Toll Free: +1-866-519-4004
International: +1-845-675-0437
Hong Kong: +852-3018-6771
United Kingdom: +44 203-059-8139
China Mainland: 4006208038 or 8008190121
Conference ID: 12130777
Please dial in 10 minutes before the call is scheduled to begin and provide the conference ID to join the call.
A replay of the call will be available after the conclusion of the conference call at 11:30 p.m. U.S. Eastern Time on August 26 through September 2, 2015. The dial-in details for the replay are:
U.S. Toll Free: 1-855-452-5696
International: +1- 646-254-3697
Conference ID: 12130777
Additionally, a live and archived webcast of this call will be available on the Investor Relations section of NQ Mobile's website at http://ir.nq.com.
Follow us on Twitter @NQMobileIR.