Borqs Technologies, Inc. (Nasdaq: BRQS, the “Company”), a global
leader in embedded software and products for the Internet of Things
(IoT) industry, today announces management’s preliminary unaudited
financial results for the year ended December 31, 2018.
Annual 2018 Highlights:
- Unaudited revenue for the year
ended December 31, 2018, of the Company’s Connected Solutions
Business Unit, our continuing operations, was $128.4 million as
compared to $122.2 million from the year 2017, representing an
increase of 5.0%.
- Due to the sale of the MVNO
Business Unit in the year 2019, the MVNO activities for 2018 were
presented as discontinued operations. Unaudited revenue for
the MVNO in 2018 was $27.4 million as compared to $32.1 million in
2017, representing a decrease of 14.7%.
- On US-GAAP basis, the Company’s
unaudited continuing operations had a net loss of $37.4 million in
2018 as compared to a loss of $12.8 million in 2017. On
non-GAAP basis excluding certain non-operation items, the Company
had an adjusted EBITDA of $9.3 million in 2018 and $10.0 million in
2017. Please see below GAAP reconciliation table.
Revenues and gross margins
The Company announced unaudited net revenues of
$128.4 million for the year ended December 31, 2018, which included
$9.5 million recorded for software sales and $118.9 million from
hardware sales, as compared to net revenues of $122.2 million for
2017 with $11.2 million in software and $111.0 million in hardware
sales. Gross margin in 2018 for software was 64.7% and for
hardware (excluding COGS expensed in 2018 but for revenues not yet
recognized and loss on inventory) was 4.1%; resulting in a blended
adjusted gross margin of 8.6% for the year 2018. Gross margin
in 2017 for software was $35.4% and for hardware was 13.3%;
resulting in a blended gross margin of 15.3% for 2017. The
increase in software gross margin for 2018 was due to some of our
engineering costs that were directly related to particular hardware
products were included in hardware costs. The decrease in
hardware gross margin was mainly attributed to the competitive
nature of this industry in 2018.
We expect a similar level in Connected Solutions
Business Unit sales in 2019 as compared to 2018, and anticipate
moderate improvement in gross margin for 2019.
Geographic Concentration
The following table sets forth the Company’s
Connected Solutions Business Unit unaudited net revenues from
customers, in absolute amount and as a percentage of net revenues,
based on location of the customer’s headquarters. The Company’s
MVNO net revenues, which were $35.1 million, $32.1 million and
$27.4 million in 2016, 2017 and 2018, respectively, were related to
customers in China. These figures do not take into account the
geographic location of end-users of customer products:
|
For the years ended December 31, |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
Unaudited |
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
($ in thousands) |
|
China |
|
6,076 |
|
|
|
7.1 |
% |
|
|
17,687 |
|
|
|
14.5 |
% |
|
|
4,214 |
|
|
|
3.3 |
% |
India |
|
25,126 |
|
|
|
29.4 |
% |
|
|
70,421 |
|
|
|
57.6 |
% |
|
|
96,550 |
|
|
|
75.2 |
% |
United States |
|
34,526 |
|
|
|
40.4 |
% |
|
|
23,312 |
|
|
|
19.1 |
% |
|
|
15,666 |
|
|
|
12.2 |
% |
Rest of the World |
|
19,720 |
|
|
|
23.1 |
% |
|
|
10,813 |
|
|
|
8.8 |
% |
|
|
11,925 |
|
|
|
9.3 |
% |
Net Revenues |
|
85,448 |
|
|
|
100.0 |
% |
|
|
122,233 |
|
|
|
100.0 |
% |
|
|
128,335 |
|
|
|
100.0 |
% |
The Company’s connected solutions net revenues
from customers with headquarters in the United States are
attributed to its ongoing collaboration with a prominent mobile
chipset vendor and other mobile device OEMs. From 2016 to 2018, the
Company engaged a significant customer in India during the second
half of 2016 and this customer continued to place orders with us in
2017 and 2018.
Customer Concentration for Connected
Solutions Business Unit
The Company focused on research and development
efforts for providing BorqsWare software platform solutions to
mobile device OEMs. The Company has also leveraged our deep
technology expertise to provide BorqsWare software platform
solutions to mobile chipset manufacturers. The following table sets
forth unaudited net revenues by type of customer, both in absolute
amount and as a percentage of net revenues for the periods
presented:
|
For the years ended December 31, |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
Unaudited |
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
($ in thousands) |
|
Mobile device OEMs |
|
70,536 |
|
|
|
82.5 |
% |
|
|
111,021 |
|
|
|
90.8 |
% |
|
|
118,602 |
|
|
|
92.4 |
% |
Mobile Chipset Vendors |
|
14,912 |
|
|
|
17.5 |
% |
|
|
11,212 |
|
|
|
9.2 |
% |
|
|
9,753 |
|
|
|
7.6 |
% |
Connected Solutions BU Net
Revenues |
|
85,448 |
|
|
|
100.0 |
% |
|
|
122,233 |
|
|
|
100 |
% |
|
|
128,355 |
|
|
|
100 |
% |
The Company expects its net revenues from mobile
device OEMs to continue to grow as it develops more connected
devices, especially IoT products.
Unaudited |
|
Fiscal Years Ended December 31, |
|
Consolidated Statements of Income and Comprehensive Income
Data for Connected Solutions Business Unit: |
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
|
($ in thousands) |
|
Net revenues |
|
|
85,448 |
|
|
|
122,233 |
|
|
|
128,355 |
|
Gross profit* |
|
|
20,505 |
|
|
|
18,739 |
|
|
|
(8,147 |
) |
Operating expenses** |
|
|
(15,538 |
) |
|
|
(29,262 |
) |
|
|
(26,123 |
) |
Other operating income |
|
|
3,738 |
|
|
|
2,116 |
|
|
|
180 |
|
Operating income (loss) |
|
|
8,705 |
|
|
|
(8,407 |
) |
|
|
(34,090 |
) |
Income (loss) from continuing
operations, before income taxes |
|
|
8,676 |
|
|
|
(10,448 |
) |
|
|
(36,639 |
) |
Income tax expense |
|
|
(3,244 |
) |
|
|
(2,342 |
) |
|
|
(807 |
) |
Net income (loss) from
continuing operations |
|
|
5,432 |
|
|
|
(12,790 |
) |
|
|
(37,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
discontinued operations, before income taxes |
|
|
(3,421 |
) |
|
|
408 |
|
|
|
(353 |
) |
Income tax benefit
(expense) |
|
|
585 |
|
|
|
23 |
|
|
|
(1,641 |
) |
(Loss) income from
operations of discontinued entities |
|
|
(2,836 |
) |
|
|
431 |
|
|
|
(1,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
|
2,596 |
|
|
|
(12,359 |
) |
|
|
(39,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(* |
|
Gross profit for 2018 included
$8.3 million in cost of goods for which related revenues were not
recognized in 2018, due to products delivery in transit and
extra-long payment terms.) |
(** |
|
Operating expenses for 2017
included $14.5 million in non-cash merger related expenses.) |
(** |
|
Operating expenses for 2018
included $5.3 million in arbitration loss, write-off and provision
for doubtful debt of $3.6 million, share based compensation of $1
million, and $4.3 million in stock offering expenses.) |
Unaudited |
|
Fiscal Years Ended December 31, |
|
Consolidated Balance Sheets Data for Connected Solutions
Business Unit: |
|
2017 |
|
|
2018 |
|
|
|
($ in thousands) |
|
Cash and cash equivalents |
|
|
13,009 |
|
|
|
1,931 |
|
Accounts receivable |
|
|
63,155 |
|
|
|
25,229 |
|
Inventories |
|
|
16,810 |
|
|
|
7,696 |
|
Property, plant and equipment,
net |
|
|
504 |
|
|
|
305 |
|
Total
assets |
|
|
163,011 |
|
|
|
114,343 |
|
Total
liabilities |
|
|
116,006 |
|
|
|
104,415 |
|
Total shareholders’
equity |
|
|
47,005 |
|
|
|
9,928 |
|
Held for sale assets and liabilities
(MVNO Business Unit)
Due to the pending sale of the MVNO Business
Unit via Consolidated VIEs, which operations was classified as
discontinued operations as of December 31, 2017 and 2018, the
assets and liabilities were classified as held for sale.
|
|
As of December 31, |
|
|
|
2017 |
|
|
2018 |
|
|
|
US$ |
|
|
US$ |
|
Unaudited |
|
|
|
|
|
|
Carrying amounts of
major classes of assets included as part of the assets held for
sale |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
51 |
|
|
|
336 |
|
Restricted cash |
|
|
3,459 |
|
|
|
708 |
|
Accounts receivable |
|
|
2,565 |
|
|
|
97 |
|
Receivable from MVNO
franchisees |
|
|
3,514 |
|
|
|
377 |
|
Inventories |
|
|
221 |
|
|
|
154 |
|
Prepaid expenses and other
current assets |
|
|
423 |
|
|
|
1,758 |
|
Property and equipment,
net |
|
|
- |
|
|
|
637 |
|
Intangible assets, net |
|
|
- |
|
|
|
7,175 |
|
Goodwill |
|
|
- |
|
|
|
701 |
|
Other non-current assets |
|
|
- |
|
|
|
1,908 |
|
|
|
|
|
|
|
|
|
|
Current assets held for
sale |
|
|
10,233 |
|
|
|
13,851 |
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
858 |
|
|
|
- |
|
Intangible assets, net |
|
|
8,330 |
|
|
|
- |
|
Goodwill |
|
|
736 |
|
|
|
- |
|
Deferred tax assets |
|
|
940 |
|
|
|
- |
|
Other non-current assets |
|
|
81 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Non-current assets held for
sale |
|
|
10,945 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total assets of the
Consolidated VIEs classified as held for sale in the Consolidated
Balance Sheets |
|
|
21,178 |
|
|
|
13,851 |
|
|
|
|
|
|
|
|
|
|
Unaudited Carrying
amounts of major classes of liabilities included as part of
liabilities held for sale |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
4,143 |
|
|
|
1,700 |
|
Accrued expenses and other
payables |
|
|
4,038 |
|
|
|
4,214 |
|
Amounts due to continuing
operations |
|
|
14,279 |
|
|
|
9,354 |
|
Advances from customers |
|
|
- |
|
|
|
50 |
|
Deferred revenues |
|
|
5,904 |
|
|
|
3,332 |
|
Short-term bank
borrowings |
|
|
- |
|
|
|
36 |
|
Deferred tax liabilities |
|
|
- |
|
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
Current liabilities held for
sale |
|
|
28,364 |
|
|
|
20,465 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
1,500 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities held
for sale |
|
|
1,500 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total liabilities of
the Consolidated VIEs classified as held for sale in the
Consolidated Balance Sheets |
|
|
29,864 |
|
|
|
20,465 |
|
Non-US-GAAP Adjustments
In the years 2018 and 2017, we had significant
amount of costs that were non-operational and non-recurring.
Adjusted EBITDA is presented as loss from continuing operations and
adding back interest expenses, taxes, depreciation and
amortization, and non-recurring items including loss on
arbitration, write-downs and provisions for doubtful accounts and
current assets, impairment of intangible assets due to sale of the
MVNO business unit, legal and consulting stock offering related
expenses, and certain additional charges to cost of goods sold,
stock based compensation, deferred income tax benefits, and results
of discontinued operations. Adjusted EBITDA for the
continuing operations for the years 2018 and 2017 were $9.3 million
and $10.0 million, respectively.
|
|
|
|
|
Year ended December 31, |
Unaudited |
2017 |
|
|
2018 |
|
|
|
(US$,000) |
|
|
|
|
|
Net income (loss),
including discontinued operations |
(12,359 |
) |
|
(39,440 |
) |
|
|
|
|
Interest expense - net |
1,828 |
|
|
3,066 |
|
Tax expenses |
2,342 |
|
|
2,448 |
|
Depreciation and
amortization |
4,679 |
|
|
6,753 |
|
Other non-operational
(income) |
(566 |
) |
|
(18 |
) |
EBITDA |
(4,076 |
) |
|
(27,191 |
) |
|
|
|
|
Adjusted EBITDA: |
|
|
|
Write-off and provision of doubtful accounts and current
assets |
- |
|
|
3,607 |
|
Loss on arbitration due to over payment from customer in 2012
* |
- |
|
|
5,263 |
|
Extra COGs for sales not recognized in 2018 |
- |
|
|
8,257 |
|
Loss on historical inventory due to loss & obsolescence |
- |
|
|
10,888 |
|
Impairment of intangible assets due to sale of MVNO unit |
- |
|
|
750 |
|
Stock based compensation (non-cash) |
- |
|
|
976 |
|
Deferred income tax benefits (non-cash) |
- |
|
|
1,742 |
|
Offering expenses (including merger related) ** |
- |
|
|
2,967 |
|
|
|
|
|
Discontinued operations loss (income) |
(431 |
) |
|
1,994 |
|
|
|
|
|
Non-cash 2017 merger related expenses |
|
|
|
Stock based compensation - options granted to employees |
5,727 |
|
|
- |
|
Stock based compensation - advisory fees |
8,777 |
|
|
- |
|
|
|
|
|
Adjusted EBITDA for
continuing operations |
9,997 |
|
|
9,253 |
|
|
|
|
|
(* |
|
In 2012 Samsung claimed that it had overpaid Borqs for software
royalty. The case was handed over to arbitration and in 2018
the final arbitration decision was in favor of Samsung.) |
(** |
|
A part of the expense was related to the merger with Pacific
Special Acquisition Corp in 2017.) |
About Borqs Technologies,
Inc.
Borqs Technologies is a global leader in
software and products for the IoT, providing customizable,
differentiated and scalable Android-based smart connected devices
and cloud service solutions. Borqs has achieved leadership and
customer recognition as an innovative end-to-end IoT solutions
provider leveraging its strategic chipset partner relationships as
well as its broad software and IP portfolio. The Company designs,
develops and provides turnkey solutions across device form factors
such as smartphones, tablets, smartwatches, trackers, automotive
IVI, and vertical application devices (for restaurants, payments
etc.). For more information, please visit the Company’s
website (www.borqs.com).
Forward-Looking Statements, Non-GAAP
Information and Additional Information
This press release includes “forward-looking
statements” that involve risks and uncertainties that could cause
actual results to differ materially from what is expected. Words
such as “expects”, “believes”, “anticipates”, “intends”,
“estimates”, “predicts”, “seeks”, “may”, “might”, “plan”,
“possible”, “should” and variations and similar words and
expressions are intended to identify such forward-looking
statements, but the absence of these words does not mean that a
statement is not forward-looking. Such forward-looking statements
relate to future events or future results, based on currently
available information and reflect our management’s current beliefs.
Many factors could cause actual events or results to differ
materially from the events and results discussed in the
forward-looking statements, so the reader is advised to refer to
the Risk Factors sections of the Company’s filings with the
Securities and Exchange Commission for additional information
identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking
statements. Furthermore, the financial statements and results of
operations are based on unaudited statements which may change upon
an audit. Except as expressly required by applicable securities
law, the Company disclaims any obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise.
This release includes non-GAAP
presentations. These non-GAAP measures are not in accordance
with, or an alternative for, measures prepared in accordance with
generally accepted accounting principles and may be different from
non-GAAP measures used by other companies. In addition, these
non-GAAP measures are not based on any comprehensive set of
accounting rules or principles. The Company believes that non-GAAP
measures have limitations in that they do not reflect all of the
amounts associated with the Company’s results of operations as
determined in accordance with GAAP and that these measures should
only be used to evaluate the Company’s results of operations in
conjunction with the corresponding GAAP measures.
The Company believes that the presentation of
non-GAAP measures when shown in conjunction with the corresponding
GAAP measures, provides useful information to investors and
management regarding financial and business trends relating to its
financial condition and its historical and projected results of
operations.
For its internal budgeting process, the
Company’s management uses financial statements that do not include,
when applicable, share-based compensation expense, amortization of
acquisition-related intangible assets,
acquisition-related/divestiture costs, significant asset
impairments and restructurings, significant litigation settlements
and other contingencies, significant gains and losses on
investments, the income tax effects of the foregoing and
significant tax matters. The Company’s management also uses the
foregoing non-GAAP measures, in addition to the corresponding GAAP
measures, in reviewing the financial results of the Company. In
prior periods, the Company has excluded other items that it no
longer excludes for purposes of its non-GAAP financial measures.
From time to time in the future there may be other items that the
Company may exclude for purposes of its internal budgeting process
and in reviewing its financial results.
Investor Contact:
Sandra DouDirector of FinanceBorqs Technologies,
Inc.sandra.dou@borqs.net www.borqs.com
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