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Sohu.com Reports Third Quarter 2020 Unaudited Financial Results
Third Quarter Highlights
As previously announced, on
- Total revenues were
US$158 million , down 6% year-over-year and 1% quarter-over-quarter. - Brand advertising revenues were
US$41 million , down 11% year-over-year and up 8% quarter-over-quarter. - Online game revenues were
US$101 million , down 6% year-over-year and 4% quarter-over-quarter. - GAAP net loss from continuing operations attributable to
Sohu.com Limited wasUS$15 million , compared with a net loss ofUS$33 million in the third quarter of 2019 and a net loss ofUS$77 million in the second quarter of 2020. - Non-GAAP net loss from continuing operations attributable to
Sohu.com Limited wasUS$7 million , compared with a net loss ofUS$30 million in the third quarter of 2019 and a net loss ofUS$75 million in the second quarter of 2020.
Dr.
Third Quarter Financial Results
Revenues
Total revenues for the third quarter of 2020 were
Brand advertising revenues for the third quarter of 2020 totaled
Online game revenues for the third quarter of 2020 were
Gross Margin
Both GAAP and non-GAAP[1] gross margin was 66% for the third quarter of 2020, compared with 63% in the third quarter of 2019 and 67% in the second quarter of 2020.
Both GAAP and non-GAAP gross margin for the brand advertising business in the third quarter of 2020 was 31%, compared with 31% in the third quarter of 2019 and 40% in the second quarter of 2020. The quarter-over-quarter margin decrease was mainly due to increased video content cost as a result of resumption of original content shooting with the easing of restrictions related to COVID-19 in
GAAP gross margin for online games in the third quarter of 2020 was 80%, compared with 78% in the third quarter of 2019 and 77% in the second quarter of 2020. Non-GAAP gross margin for online games in the third quarter of 2020 was 80%, compared with 78% in the third quarter of 2019 and 78% in the second quarter of 2020.
[1] Non-GAAP results exclude share-based compensation expense; non-cash tax benefits from excess tax deductions related to share-based awards; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; impairment charge recognized for investments unrelated to the Company's core businesses; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; and interest accrued in relation to the previously unrecognized tax benefit. Explanation of the Company's non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and "Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures." |
Operating Expenses
For the third quarter of 2020, GAAP operating expenses totaled
Operating Profit/(Loss)
GAAP operating loss for the third quarter of 2020 was
Non-GAAP operating loss for the third quarter of 2020 was US$5 million, compared with an operating loss of US$17 million in the third quarter of 2019 and an operating profit of
Income Tax Expense
GAAP income tax expense was
Net Loss
GAAP net loss from continuing operations attributable to
Non-GAAP net loss from continuing operations attributable to
Liquidity
As of
Supplementary Information for Changyou Results
Third Quarter 2020 Operational Results
- For PC games, total average monthly active accounts[2] were 2.0 million, a decrease of 5% year-over-year and an increase of 5% quarter-over-quarter. Total quarterly aggregate active paying accounts[3] were 1.0 million, flat year-over-year and an increase of 11% quarter-over-quarter. The quarter-over-quarter increase was mainly due to improved performance of some of Changyou's older games, including TLBB PC, as a result of promotional activities.
- For mobile games, total average monthly active accounts were 3.8 million, an increase of 9% year-over-year and 23% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to the launch of Illusion Connect in
South Korea in the third quarter of 2020. Total quarterly aggregate active paying accounts were 0.6 million, a decrease of 45% year-over-year and flat quarter-over-quarter. The year-over-year decrease reflected the natural declining life cycles of Changyou's older games, including Legacy TLBB Mobile and TLBB Honor.
[2] Monthly active accounts refers to the number of registered accounts that are logged in to these games at least once during the month. |
[3] Quarterly aggregate active paying accounts refers to the number of accounts from which game points are utilized at least once during the quarter. |
Third Quarter 2020 Unaudited Financial Results
Total revenues for the third quarter of 2020 were
GAAP gross profit for the third quarter of 2020 was
GAAP operating expenses for the third quarter of 2020 were
Non-GAAP operating expenses for the third quarter of 2020 were
GAAP operating profit for the third quarter of 2020 was
Non-GAAP operating profit for the third quarter of 2020 was
Recent Developments
On
Business Outlook
For the fourth quarter of 2020, Sohu estimates:
- Brand advertising revenues to be between US$37 million and
US$42 million ; this implies an annual decrease of 11% to an annual increase of 1% and a sequential decrease of 10% to a sequential increase of 2%. - Online game revenues to be between
US$140 million andUS$150 million ; this implies an annual increase of 6% to 14% and a sequential increase of 38% to 48%. - Non-GAAP net income from continuing operations attributable to
Sohu.com Limited to be betweenUS$15 million andUS$25 million ; and GAAP net income from continuing operations attributable toSohu.com Limited to be betweenUS$10 million andUS$20 million .
For the fourth quarter 2020 guidance, the Company has adopted a presumed exchange rate of
This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty, particularly in view of the potential ongoing impact of the worldwide COVID-19 pandemic, which remains difficult to predict.
Non-GAAP Disclosure
To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in
Sohu's management believes excluding share-based compensation expense, changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; impairment charge recognized for investments unrelated to the Company's core businesses; non-cash tax benefits from excess tax deductions related to share-based awards; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; and income tax expense, income tax benefit, uncertain tax position, and interest recognized in relation to the Toll Charge from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values; impairment charge recognized for investments unrelated to the Company's core businesses; non-cash tax benefits from excess tax deductions related to share-based awards; income/expense from the adjustment of contingent consideration previously recorded for acquisitions; and interest expense recognized in connection with the Toll Charge cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts that have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As the impact of share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, impairment charge recognized for investments unrelated to the Company's core businesses, non-cash tax benefits from excess tax deductions related to share-based awards, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions does not involve subsequent cash outflow or is reflected in the cash flows at the equity transaction level, Sohu does not factor this impact in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, impairment charge recognized for investments unrelated to the Company's core businesses, non-cash tax benefits from excess tax deductions related to share-based awards, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and also excluded the interest expense recognized in connection with the Toll Charge.
The non-GAAP financial measures are provided to enhance investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to
Notes to Financial Information
Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu's unaudited financial statements prepared in accordance with GAAP.
Safe Harbor Statement
This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, instability in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu's reported US dollar results; recent slow-downs in the growth of the Chinese economy; the uncertain regulatory landscape in
Conference Call and Webcast
Sohu's management team will host a conference call at
To join the conference, please dial the number you receive, enter the event passcode followed by your unique registrant ID, and you will be joined to the conference instantly. Please dial in 10 minutes before the call is scheduled to begin.
A telephone replay of the call will be available after the conclusion of the conference call at
International: |
+1-646-254-3697 |
Passcode: |
7562279 |
The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's Website at http://investors.sohu.com/.
About
Sohu's corporate services consist of online brand advertising on Sohu's matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information services on mobile platforms, including Sohu News App and the mobile news portal m.sohu.com. Sohu's online game subsidiary Changyou develops and operates a diverse portfolio of PC and mobile games, such as
For investor and media inquiries, please contact:
In
Ms. |
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Tel: |
+86 (10) 6272-6645 |
E-mail: |
In
Ms. |
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Christensen |
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Tel: |
+1 (480) 614-3004 |
E-mail: |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) |
|||||||
Three Months Ended |
|||||||
|
|
|
|||||
Revenues: |
|||||||
Brand advertising |
$ |
41,094 |
$ |
38,001 |
$ |
46,366 |
|
Online games |
101,324 |
105,937 |
108,012 |
||||
Others |
15,476 |
16,023 |
13,121 |
||||
Total revenues |
157,894 |
159,961 |
167,499 |
||||
Cost of revenues: |
|||||||
Brand advertising (includes stock-based |
28,459 |
22,790 |
31,992 |
||||
Online games (includes stock-based compensation |
20,024 |
23,959 |
23,286 |
||||
Others |
5,075 |
6,348 |
6,746 |
||||
Total cost of revenues |
53,558 |
53,097 |
62,024 |
||||
Gross profit |
104,336 |
106,864 |
105,475 |
||||
Operating expenses: |
|||||||
Product development (includes stock-based |
59,532 |
58,325 |
55,734 |
||||
Sales and marketing (includes stock-based |
40,250 |
32,969 |
54,261 |
||||
General and administrative (includes stock-based |
15,176 |
14,302 |
12,967 |
||||
Total operating expenses |
114,958 |
105,596 |
122,962 |
||||
Operating profit/(loss) |
(10,622) |
1,268 |
(17,487) |
||||
Other income, net |
7,859 |
10,720 |
9,944 |
||||
Interest income |
1,933 |
1,383 |
1,166 |
||||
Interest expense |
(1,352) |
(1,431) |
(2,631) |
||||
Exchange difference |
(2,043) |
(171) |
1,516 |
||||
Income/(loss) before income tax expense |
(4,225) |
11,769 |
(7,492) |
||||
Income tax expense[4] |
11,082 |
86,166 |
14,646 |
||||
Net loss from continuing operations |
(15,307) |
(74,397) |
(22,138) |
||||
Net income/(loss) from discontinued operations, net of |
(42,181) |
(8,692) |
33,938 |
||||
Net income/(loss) |
(57,488) |
(83,089) |
11,800 |
||||
Less: Net income/(loss) from continuing operations |
(50) |
2,640 |
11,320 |
||||
Less: Net income/(loss) from discontinued |
(27,874) |
(5,799) |
23,399 |
||||
Net loss from continuing operations attributable to |
(15,257) |
(77,037) |
(33,458) |
||||
Net income/(loss) from discontinued operations |
(14,307) |
(2,893) |
10,539 |
||||
Net loss attributable to |
(29,564) |
(79,930) |
(22,919) |
||||
Basic net loss from continuing operations per ADS |
$ |
(0.39) |
$ |
(1.96) |
$ |
(0.85) |
|
Basic net income/(loss) from discontinued operations |
$ |
(0.36) |
$ |
(0.07) |
$ |
0.27 |
|
Basic net loss per ADS attributable to |
$ |
(0.75) |
$ |
(2.04) |
$ |
(0.58) |
|
ADS used in computing basic net income/(loss) per |
39,286 |
39,271 |
39,254 |
||||
Diluted net loss from continuing operations per ADS |
$ |
(0.39) |
$ |
(1.96) |
$ |
(0.85) |
|
Diluted net income/(loss) from discontinued |
$ |
(0.36) |
$ |
(0.07) |
$ |
0.26 |
|
Diluted net loss per ADS attributable to |
$ |
(0.75) |
$ |
(2.04) |
$ |
(0.59) |
|
ADS used in computing diluted net income/(loss) per |
39,286 |
39,271 |
39,254 |
||||
[4] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash |
|||||||
[5] On |
|
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CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||
(UNAUDITED, IN THOUSANDS) |
|||||
As of |
As of |
||||
ASSETS |
|||||
Current assets: |
|||||
Cash and cash equivalents |
$ |
191,913 |
$ |
162,662 |
|
Restricted cash |
111,210 |
3,290 |
|||
Short-term investments[6] |
- |
321,483 |
|||
Account and financing receivables, net |
122,613 |
126,081 |
|||
Prepaid and other current assets |
102,619 |
97,531 |
|||
Held for sale assets (current)[7] |
1,433,171 |
1,304,621 |
|||
Total current assets |
1,961,526 |
2,015,668 |
|||
Long-term investments, net |
35,294 |
30,987 |
|||
Fixed assets, net |
328,390 |
337,682 |
|||
Goodwill |
47,758 |
47,390 |
|||
Intangible assets, net |
5,640 |
9,922 |
|||
Restricted time deposits[6] |
97,267 |
240 |
|||
Prepaid non-current assets |
1,205 |
1,882 |
|||
Other assets |
34,979 |
30,413 |
|||
Held for sale assets (non-current)[7] |
- |
217,680 |
|||
Total assets |
$ |
2,512,059 |
$ |
2,691,864 |
|
LIABILITIES |
|||||
Current liabilities: |
|||||
Accounts payable |
$ |
111,303 |
$ |
121,318 |
|
Accrued liabilities |
147,751 |
157,861 |
|||
Receipts in advance and deferred revenue |
49,388 |
50,321 |
|||
Accrued salary and benefits |
85,065 |
86,666 |
|||
Taxes payable |
18,618 |
25,997 |
|||
Short-term bank loans |
100,000 |
114,528 |
|||
Other short-term liabilities |
113,212 |
91,065 |
|||
Held for sale liabilities (current)[7] |
446,005 |
453,111 |
|||
Total current liabilities |
$ |
1,071,342 |
$ |
1,100,867 |
|
Long-term accounts payable |
785 |
767 |
|||
Long-term bank loans |
92,000 |
0 |
|||
Long-term tax liabilities[8] |
387,523 |
277,544 |
|||
Other long-term liabilities |
828 |
83 |
|||
Held for sale liabilities (non-current)[7] |
- |
5,686 |
|||
Total long-term liabilities |
$ |
481,136 |
$ |
284,080 |
|
Total liabilities |
$ |
1,552,478 |
$ |
1,384,947 |
|
SHAREHOLDERS' EQUITY: |
|||||
|
283,941 |
428,454 |
|||
Noncontrolling interest |
675,640 |
878,463 |
|||
Total shareholders' equity |
$ |
959,581 |
$ |
1,306,917 |
|
Total liabilities and shareholders' equity |
$ |
2,512,059 |
$ |
2,691,864 |
|
[6] During the third quarter of 2020, Changyou redeemed its short-term financial products to support the company's operation, partly as the restricted time |
|||||
[7] On |
|||||
[8] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As |
|
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RECONCILIATIONS OF NON-GAAP RESULTS OFOPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES |
|||||||||||||||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) |
|||||||||||||||||||
Three Months Ended |
Three Months Ended |
Three Months Ended |
|||||||||||||||||
GAAP |
Non-GAAP |
Non- |
GAAP |
Non-GAAP |
Non- |
GAAP |
Non-GAAP |
Non- |
|||||||||||
240 |
(a) |
36 |
(a) |
4 |
(a) |
||||||||||||||
Brand advertising gross profit |
$ |
12,635 |
$ |
240 |
$ |
12,875 |
$ |
15,211 |
$ |
36 |
$ |
15,247 |
$ |
14,374 |
$ |
4 |
$ |
14,378 |
|
Brand advertising gross |
31% |
31% |
40% |
40% |
31% |
31% |
|||||||||||||
151 |
(a) |
152 |
(a) |
0 |
(a) |
||||||||||||||
Online games gross profit |
$ |
81,300 |
$ |
151 |
$ |
81,451 |
$ |
81,978 |
$ |
152 |
$ |
82,130 |
$ |
84,726 |
$ |
0 |
$ |
84,726 |
|
Online games gross margin |
80% |
80% |
77% |
78% |
78% |
78% |
|||||||||||||
0 |
(a) |
0 |
(a) |
0 |
(a) |
||||||||||||||
Others gross profit |
$ |
10,401 |
$ |
0 |
$ |
10,401 |
$ |
9,675 |
$ |
0 |
$ |
9,675 |
$ |
6,375 |
$ |
0 |
$ |
6,375 |
|
Others gross margin |
67% |
67% |
60% |
60% |
49% |
49% |
|||||||||||||
391 |
(a) |
188 |
(a) |
4 |
(a) |
||||||||||||||
Gross profit |
$ |
104,336 |
$ |
391 |
$ |
104,727 |
$ |
106,864 |
$ |
188 |
$ |
107,052 |
$ |
105,475 |
$ |
4 |
$ |
105,479 |
|
Gross margin |
66% |
66% |
67% |
67% |
63% |
63% |
|||||||||||||
Operating expenses |
$ |
114,958 |
$ |
(5,481) |
(a) $ |
109,477 |
$ |
105,596 |
$ |
(3,774) |
(a) $ |
101,822 |
$ |
122,962 |
$ |
(154) |
(a) $ |
122,808 |
|
5,872 |
(a) |
3,962 |
(a) |
158 |
(a) |
||||||||||||||
Operating profit/(loss) |
$ |
(10,622) |
$ |
5,872 |
$ |
(4,750) |
$ |
1,268 |
$ |
3,962 |
$ |
5,230 |
$ |
(17,487) |
$ |
158 |
$ |
(17,329) |
|
Operating margin |
-7% |
-3% |
1% |
3% |
-10% |
-10% |
|||||||||||||
Income tax expense[9] |
$ |
11,082 |
$ |
(642) |
(c,d)$ |
10,440 |
$ |
86,166 |
$ |
(3,140) |
(c,d)$ |
83,026 |
$ |
14,646 |
$ |
(2,468) |
(c,d)$ |
12,178 |
|
5,872 |
(a) |
3,962 |
(a) |
158 |
(a) |
||||||||||||||
1,587 |
(c) |
(3,619) |
(c) |
448 |
(c) |
||||||||||||||
1,171 |
(d) |
1,934 |
(d) |
2,618 |
(d) |
||||||||||||||
Net loss before non- |
$ |
(15,307) |
$ |
8,630 |
$ |
(6,677) |
$ |
(74,397) |
$ |
2,277 |
$ |
(72,120) |
$ |
(22,138) |
$ |
3,224 |
$ |
(18,914) |
|
5,872 |
(a) |
3,962 |
(a) |
158 |
(a) |
||||||||||||||
- |
(b) |
(421) |
(b) |
2 |
(b) |
||||||||||||||
1,587 |
(c) |
(3,619) |
(c) |
448 |
(c) |
||||||||||||||
1,171 |
(d) |
1,934 |
(d) |
2,618 |
(d) |
||||||||||||||
Net loss from continuing |
$ |
(15,257) |
$ |
8,630 |
$ |
(6,627) |
$ |
(77,092) |
$ |
1,856 |
$ |
(75,236) |
$ |
(33,492) |
$ |
3,226 |
$ |
(30,266) |
|
Net income/(loss) from |
$ |
(14,307) |
$ |
1,462 |
$ |
(12,845) |
$ |
(2,894) |
$ |
997 |
$ |
(1,897) |
$ |
10,285 |
$ |
1,351 |
$ |
11,636 |
|
Net loss attributable to |
$ |
(29,564) |
$ |
10,092 |
$ |
(19,472) |
$ |
(79,986) |
$ |
2,853 |
$ |
(77,133) |
$ |
(23,207) |
$ |
4,577 |
$ |
(18,630) |
|
Diluted net loss from |
$ |
(0.39) |
$ |
(0.17) |
$ |
(1.96) |
$ |
(1.92) |
$ |
(0.85) |
$ |
(0.77) |
|||||||
Diluted net income/(loss) from |
$ |
(0.36) |
$ |
(0.33) |
$ |
(0.07) |
$ |
(0.05) |
$ |
0.26 |
$ |
0.30 |
|||||||
Diluted net loss per ADS |
$ |
(0.75) |
$ |
(0.50) |
$ |
(2.04) |
$ |
(1.96) |
$ |
(0.59) |
$ |
(0.47) |
|||||||
Shares used in computing |
39,286 |
39,286 |
39,271 |
39,271 |
39,254 |
39,254 |
|||||||||||||
Note: |
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(a) To eliminate the impact of share-based awards as measured using the fair value method. This adjustment does not have an impact on income tax expense. |
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(b) To adjust Sohu's economic interests in Changyou attributable to the above non-GAAP adjustments. This adjustment does not have an impact on income tax expense. |
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(c) To adjust for a change in the fair value of the Company's investment in Hylink and the income tax effect. |
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(d) To adjust for the effect of the |
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[9] Following completion of the Changyou privatization, Changyou changed its policy for its PRC subsidiaries with respect to distribution of cash dividends. As a result, Changyou recognized an |
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[10] On |
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