BRQS Borqs Technologies Inc

Quarterly Revenue was $28.3 million, Net Loss of $2.2 millionNine-Month Revenue was $142.9 million, Net Income of $1.2 millionConference Call on Tuesday November 20, 2018 at 8pm ET

Borqs Technologies, Inc. (Nasdaq: BRQS) (the “Company”), a global leader in embedded software and products for the Internet of Things (IoT), today reported financial results for the quarter ended September 30, 2018.

Revenues

The Company reported net revenue of $28.3 million for the third quarter of 2018, including $22.3 million from the Connected Solutions Business Unit which is engaged in the design and manufacturing of IoT products, and $6.0 million from the MVNO Business Unit which includes mobile virtual operator and some traditional telephony services. Net revenue for the first nine months of 2018 was $142.9 million which included $121.3 million from the Connected Solutions Business Unit and $21.6 million from the MVNO BU. Revenue for the first nine months was an increase of 46.3% from $97.7 million from the same period in 2017.

The decrease and fluctuation in the third quarter of 2018 was primarily due to reduced hardware sales. Net revenue from hardware projects was recognized when delivery of products was made. Such quarterly fluctuations in hardware net revenue may not be indicative of any pattern within this business activity. We do not believe that the reduction in revenues in Q3 2018 was due to seasonality or a significant decline in orders from customers.

We expect to report a higher level of Connected Solutions Business Unit sales in the fourth quarter as evidenced by the current delivery activities; and we also anticipate modest growth in the MVNO mobile services in future periods as well.

Gross Margins

For the quarter ended September 30, 2018, gross margin for the Connected Solutions Business Unit was 5.7% compared with 14.7% from the same quarter in 2017. This decrease in gross margin for the third quarter was primarily due to periodic amortization from previously capitalized costs representing a larger proportion of costs of goods during this quarterly period when the volume of product delivery was comparatively less. 

For the quarter ended September 30, 2018, our MVNO Business Unit (which includes some traditional telephony businesses) returned a 43.1% gross margin versus 30.1% from 2017. The increase in gross margin during this quarter was primarily due to higher than usual sales of mobile phone numbers with repeating digits (“beauty numbers”). During this period, our MVNO received additional numbers for its customers to select and the availability was from new phone numbers assigned from the incumbent operator and also from the recycling of some previously expired phone numbers.

Despite a small decrease in the third quarter 2018 in our MVNO revenue to $6.0 million from $7.8 million of the same quarter last year, a healthy MVNO gross margin has been maintained since 2017 and that was attributed to our activities achieving economies of scale and also that a minimum charge by our incumbent operator, China Unicom, had been removed since October 2016.

The resulting combined gross margin for Q3 of 2018 was 13.6% versus 17.4% from a year ago. For the first nine months of 2018 our gross margin was 14.3% as compared to 18.0% from the same period of last year.

Net Income

The Company has net loss of $2.2 million and net income $1.2 million for the three and nine months ended September 30, 2018, as compared to losses of $11.6 million and $12.5 million for the respective periods of a year ago.  The larger loss in the third quarter of 2017 was due to non-cash merger transaction related expenditures in August 2017.

Adjusted EBITDA

Adjusted EBITDA was $0.8 million and $9.7 million for the three and nine months ended September 30, 2018, as compared to $4.1 million and $7.8 million for the same periods in 2017. Adjusted EBITDA excluded net interest expense, income taxes, depreciation and amortization, and other non-operational expense (income).

Guidance from the Chief Executive

The Company’s Chairman and CEO, Pat Chan, commented: “We are pleased to report that our business plans are progressing as expected.  Based on the purchase orders we have received and the business activities that have occurred so far in the fourth quarter, we reiterate that aggregate revenues for the full year of 2018 to come within a range from $195 million to $215 million, and net income (after taxes but excluding one-off expenditures, if any) to be in the range of $4 million to $6 million.”

Non-US-GAAP Reconciliation

Adjusted EBITDA is a supplemental non-GAAP financial measure exclusive of certain items to facilitate management’s review of the comparability of our core operating results on a period to period basis because such items are not related to our ongoing core operating results as viewed by management.

Adjusted EBITDA is not a measure of net income or cash flows as determined by GAAP. We define Adjusted EBITDA as Net Income plus income taxes, net interest expense, depreciation and amortization, and excluding other non-operation expense (income).

We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP, or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. In prior periods, the Company has excluded other items that it no longer excludes for purposes of its non-GAAP financial measure. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of the non-GAAP financial measures of EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial measure for the three and nine months ended September 30, 2018 and 2017:

			3 months ended 09-30						9 months ended 09-30
			2017			2018			2017			2018
			(US$ in thousands)						(US$ in thousands)
Net income (loss)			(11,565	)		(2,210	)		(12,512	)		1,185
Interest expense – net			376			989			1,509			2,343
Income tax expense			58			396			948			1,433
Depreciation and amortization			964			1,629			3,324			5,015
EBITDA			(10,167	)		804			(6,731	)		9,976
Foreign exchange loss (gain)			54			(41	)		387			(300	)
Other non-operation expense (income)			(406	)		(7	)		(484	)		(13	)
Interest expense & change in value   of warrants			134			-			134			-
Merger related non-cash non-recurring SBC			14,504			-			14,504			-
Adjusted EBITDA			4,119			756			7,810			9,663

Other Details

The Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2018 has been filed with the U.S. Securities and Exchange Commission, and is accessible on the SEC website at www.sec.gov.

Conference Call ScheduleBorqs will review the third quarter 2018 results and highlights for the remainder of the year on Tuesday, November 20, 2018 at 8:00 pm ET (5:00 pm Pacific). The dial-in numbers are +1-845-675-0437 or +1-866-519-4004 in the US and +86-400-620-8038 or +86-800-819-0121 in China; and then enter the Conference ID of 9799959.  A replay of the conference call will be available through November 28, 2018.  The replay dial-in numbers are +1-855-452-5696 in the US and +86-800-870-0206 in China; and then enter the same Conference ID.

About Borqs Technologies, Inc.

Borqs Technologies is a leading provider of 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 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”, “anticipates” 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 may include, without limitation, statements regarding the plans and objectives of management for future operations, projections of income or loss or other financial items, or our future financial performance, 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, including, without limitation, market acceptance of our products and services, competition from existing products or new products that may emerge, the implementation of our business model and strategic plans for our business and our products, estimates of our future revenue, expenses, capital requirements and our need for financing, our financial performance, and current and future government regulations, developments relating to our competitors, 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. 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.

Investor Contact:

Sandra Dou Investor Relations Sr. Manager Borqs Technologies, Inc. sandra.dou@borqs.net www.borqs.com