NetQin Releases 2017 Q1, Q2 and Q3 Financial Reports

BEIJING, December 15, 2017 – NetQin Inc. (“NetQin” or the “Company”) (NYSE: NQ), a leading global mobile Internet service company, announced its unaudited financial results for the first, second and third quarters of 2017 ended March 31, 2017, June 30, 2017 and September 30, 2017, respectively.

During the period when the company released its financial results for the first, second and third quarters of 2017, the live broadcasting business of Feiliu Mobile and Xiuse Show was recorded as an asset to be disposed of by the company. At the same time, NetQin divides its operating income into the following two categories: income from individual users and income from corporate users. Revenue from individual users includes advertising revenue and other revenue (including mobile security revenue, excluding revenue from Feiliu Mobile and Xiuse Show to be disposed of). Revenue from corporate users includes product and service revenue. Product revenue comes from revenue from hardware sales to corporate users. Service revenue comes from revenue from technology and software development services for corporate users.

As of September 30, 2017, NetQin's net revenue for the first three quarters of 2017 was US$44.2 million, an increase from US$43.2 million in the same period last year. Under non-GAAP, the net profit attributable to NetQin for the first three quarters was US$15.1 million, or US$0.15 per ADS after full dilution.

"We look forward to the company's future development in the field of smart cars," said Xu Zemin, CEO of NetQin. "The company is financially and strategically ready to participate in the huge market of smart cars."

"After completing the disposal of the Feiliu Mobile and Xiuse Show businesses, we will focus on the future growth of the company's business and new business opportunities," said Wu Jiang, CFO of NetQin. "The company has actively deployed its organization around future business opportunities and achieved corresponding results. We look forward to making more progress in the new year."

The financial report shows that in terms of operating income, the net revenue in the first quarter of 2017 was US$12 million, the net revenue in the second quarter increased by 15.3% year-on-year to US$14.7 million, and the net revenue in the third quarter increased by 23.7% year-on-year to US$17.5 million. Among them, the net revenue in the third quarter increased by 19% over the second quarter, and the second quarter increased by 22.5% over the first quarter, showing an annual growth trend. The enterprise product revenue in the revenue structure increased by 96.4% year-on-year to US$11.1 million in the second quarter, and increased by 71.4% year-on-year to US$13.8 million in the third quarter, both due to the increase in overall hardware sales in Zhengding.

In terms of gross profit and gross margin, the total loss in the first quarter of 2017 decreased by 23.0% year-on-year to -900,000 US dollars. The gross profit in the second quarter was -700,000 US dollars, and the gross margin was -4.5%. The gross profit in the third quarter was 600,000 US dollars, a significant increase compared to -300,000 US dollars in the same period of 2016, and the gross margin in the third quarter was 3.3%. The data showed an overall upward trend.

During the period when the Company released its financial results for the first, second and third quarters of 2017, the live broadcasting businesses of Feiliu Mobile and Xiuse Show were recorded as assets to be disposed of by the Company. In the first quarter, Feiliu Mobile's total net revenue was US$35.9 million, and its net profit attributable to NetQin was US$3.9 million; Xiuse Show's net revenue was US$27.7 million, and its net profit attributable to NetQin was US$3 million. In the second quarter, Feiliu Mobile's total net revenue was US$42.2 million, and its net profit attributable to NetQin was US$2.3 million; Xiuse Show's total net revenue was US$29.3 million, and its net profit attributable to NetQin was US$3.3 million. In the third quarter, Feiliu Mobile's total net revenue was US$43.5 million, and its net profit attributable to NetQin was US$2 million; Xiuse Show's total net revenue was US$32.8 million, and its net profit attributable to NetQin was US$4.6 million.

In terms of cash, cash equivalents and time deposits, as of the first and second quarters, NetQin held cash, cash equivalents and time deposits totaling US$270.4 million and US$243.6 million respectively. As of the third quarter, NetQin held cash and cash equivalents, time deposits and restricted cash totaling US$248.8 million.

In addition, NetQin announced other major events from the first quarter to the third quarter of 2017. NetQin issued an announcement on the disposal of Feiliu Mobile and Xiuse Show on December 15, 2017. The company received a total of approximately RMB 3.32 billion in consideration, including approximately RMB 1.55 billion in cash and RMB 1.77 billion in senior secured notes. This amount is the consideration agreed upon in the purchase agreement between Tongfang Investment Fund (hereinafter referred to as the "Investor"), an affiliate of Tongfang Securities Co., Ltd. under Tsinghua Tongfang, and the company. The main terms of the senior secured notes include an annualized interest rate of 8% and a term of 12 months, with the company having the option to extend the term for another 12 months. After paying the principal and related interest, the investor may redeem part or all of the senior secured notes in advance at any time.

At the same time, NetQin issued an announcement on November 13, 2017, in which the board of directors approved the company to carry out a repurchase plan with a total amount of no more than US$150 million in the next 12 months, which will be used to purchase the company's shares or redeem some of the convertible notes issued by the company in advance. After the announcement, the company announced the progress of the repurchase plan. On November 20, 2017, the company negotiated and reached an agreement with Zhongzhi Hi-Tech Overseas Investment Co., Ltd. (hereinafter referred to as "Zhongzhi") on the early redemption of some convertible notes. The company redeemed US$88 million of convertible notes purchased by Zhongzhi in October 2016 in advance. In addition, the company and Zhongzhi reached a further agreement that if Zhongzhi converts its US$132 million convertible notes into the company's American depositary receipts (hereinafter referred to as "ADS") before March 31, 2018, the conversion price of ADS will be US$5/ADS; if the conversion is made after March 31, 2018, the conversion price will remain US$6/ADS.