omniture

Changyou Reports Fourth Quarter 2019 and Fiscal Year 2019 Unaudited Financial Results

2020-03-09 14:30 7135

BEIJING, March 9, 2020 /PRNewswire/ -- Changyou.com Limited ("Changyou" or the "Company") (NASDAQ: CYOU), a leading online game developer and operator in China, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2019.

Fourth Quarter 2019 Highlights[1]

  • Total revenue was US$135 million, an increase of 35% year-over-year and 22% quarter-over-quarter, in line with the Company's updated guidance.
  • Online game revenue was US$132 million, an increase of 40% year-over-year and 22% quarter-over-quarter, in line with the Company's updated guidance.
  • GAAP net income attributable to Changyou.com Limited was US$59 million[2], compared with net income of US$22 million[3] in the fourth quarter of 2018 and net income of US$34 million in the third quarter of 2019.
  • Non-GAAP[4] net income attributable to Changyou.com Limited was US$63 million[2], compared with net income of US$23 million[3] in the fourth quarter of 2018 and net income of US$34 million in the third quarter of 2019.

Fiscal Year 2019 Highlights

  • Total revenue was US$455 million, compared with US$416 million in 2018.
  • Online game revenue was US$441 million, compared with US$390 million in 2018.
  • GAAP net income attributable to Changyou.com Limited was US$178 million, compared with US$129 million in 2018.
  • Non-GAAP net income attributable to Changyou.com Limited was US$179 million, compared with US$123 million in 2018.

Mr. Chen Dewen, CEO, commented: "In 2019, we took a number of steps to build our capacity to create new, high-quality games. We prioritized R&D for mobile game development, including re-organization of roles and responsibilities to improve the R&D process and strengthen teamwork. Looking ahead, we will continue to execute our core strategy of 'Top Games' and our strategic focus will continue to be on MMORPG mobile games. We will also seek to make breakthroughs in developing casual games and strategy games, and we intend to put more effort into the international market for games. We look forward to bringing more quality game products and better game experience to players around the world as well as in China."

Mr. Wei Qing, Chief Games Development Officer, added: "We are happy to report that Legacy TLBB Mobile performed solidly in 2019. This was mainly due to improvements we made to both the content and gameplay as part of our long-term operational strategy. During the fourth quarter, the combination of a new clan, new gameplay and promotional events strengthened player engagement and willingness to pay. Going forward, we will provide more updates to game content in order to keep the franchise fresh and maximize its longevity."

Mr. Wang Yaobin, CFO of Changyou, added: "In 2019, we worked hard on our existing game portfolio, by introducing new game content and implementing a variety of operational models. The result was satisfactory in terms of player engagement, player retention, and revenues. In the fourth quarter, our online games performed well. Total revenue and non-GAAP net income are both in line with our updated guidance."

Fourth Quarter 2019 Operational Results

  • Total average monthly active accounts[5] of the Company's PC games were 2.2 million, an increase of 10% year-over-year and 5% quarter-over-quarter. The year-over-year increase was due to the improved performance of some of the Company's older games as a result of promotional activities.
  • Total average monthly active accounts of the Company's mobile games were 3.7 million, an increase of 28% year-over-year and 6% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to the contribution of TLBB Honor, which was launched during the third quarter of 2019.
  • Total quarterly aggregate active paying accounts[6] of the Company's PC games were 1.0 million, an increase of 11% year-over-year and flat quarter-over-quarter. The year-over-year increase was due to the improved performance of some of the Company's older games as a result of promotional activities.
  • Total quarterly aggregate active paying accounts of the Company's mobile games were 1.1 million, an increase of 57% year-over-year and flat quarter-over-quarter. The year-over-year increase was mainly due to the contribution of TLBB Honor, which was launched during the third quarter of 2019.

Fourth Quarter 2019 Unaudited Financial Results

Revenue

Total revenue was US$135 million, an increase of 35% year-over-year and 22% quarter-over-quarter.

Online game revenue was US$132 million, an increase of 40% year-over-year and 22% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to the contribution of TLBB Honor, as well as the improved performance of some of the Company's older games, including TLBB PC and Legacy TLBB Mobile, as a result of content updates and some promotional activities during the quarter.

Online advertising revenue was US$3 million, a decrease of 17% year-over-year and an increase of 23% quarter-over-quarter. The year-over-year decrease was mainly due to fewer PC and mobile games being marketed on the 17173.com website. The quarter-over-quarter increase was mainly due to more web games being marketed on the 17173.com website.

Gross profit

GAAP and non-GAAP gross profit were both US$101 million, an increase of 22% year-over-year and 17% quarter-over-quarter. GAAP and non-GAAP gross margin were 74% and 75%, respectively, compared with 83% for both in the fourth quarter of 2018, and 78% for both in the third quarter of 2019.

GAAP and non-GAAP gross profit of the online games business were both US$99 million, an increase of 24% year-over-year and 16% quarter-over-quarter. GAAP and non-GAAP gross margin of the online games business were both 75%, compared with 85% in the fourth quarter of 2018 and 78% in the third quarter of 2019. The decreases in gross margin were mainly a result of an increase in the revenue contribution from new mobile games, primarily TLBB Honor, which typically require larger revenue-sharing payments compared with PC games and Legacy TLBB Mobile, and as a result drive down gross margin.

GAAP and non-GAAP gross profit of the online advertising business were both US$2 million, a decrease of 29% year-over-year and an increase of 42% quarter-over-quarter. GAAP and non-GAAP gross margin of the online advertising business were both 61%, compared with 70% in the fourth quarter of 2018 and 53% in the third quarter of 2019. The year-over-year decrease and the quarter-over-quarter increase in gross margin were mainly due to changes in online advertising revenue.

Operating expenses

Total operating expenses were US$54 million, a decrease of 14% year-over-year and an increase of 4% quarter-over-quarter.

Product development expenses were US$31 million, a decrease of 4% year-over-year and an increase of 13% quarter-over-quarter. The quarter-over-quarter increase was mainly due to an increase in salary and benefit expenses as a result of an increase in bonus expenses that mainly related to TLBB PC and Legacy TLBB Mobile, as well as an increase in share-based compensation expenses as new share-based awards took effect in the fourth quarter of 2019.

Sales and marketing expenses were US$15 million, an increase of 110% year-over-year and a decrease of 14% quarter-over-quarter. The year-over-year increase was mainly due to the increase of marketing and promotional spending for TLBB Honor. The quarter-over-quarter decrease was mainly due to less marketing and promotional spending for some older games.

General and administrative expenses were US$7 million, an increase of 8% year-over-year and 23% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to an increase in share-based compensation expenses as new share-based awards took effect in the fourth quarter of 2019.

Goodwill impairment was US$0 million, compared with US$16 million in the fourth quarter of 2018 and US$0 million in the third quarter of 2019. The impairment in the fourth quarter of 2018 was mainly related to the 17173.com website business.

Operating profit

Operating profit was US$47 million, compared with an operating profit of US$20 million in the fourth quarter of 2018 and US$35 million in the third quarter of 2019.

Non-GAAP operating profit was US$50 million, compared with a non-GAAP operating profit of US$21 million in the fourth quarter of 2018 and US$35 million in the third quarter of 2019.

Other income, net

Other income was US$3 million, compared with US$3 million in the fourth quarter of 2018 and US$6 million in the third quarter of 2019.

Income tax expense/ (benefit)

Income tax benefit was US$6 million, compared with income tax expense of US$8 million in the fourth quarter of 2018 and income tax expense of US$12 million in the third quarter of 2019. The income tax benefit in the fourth quarter of 2019 was mainly due to a one-time tax benefit of US$19 million that was recognized as a result of some of the Company's subsidiaries having been granted preferential tax rates upon their receipt of 2018 Key National Software Enterprise status or 2018 Software Enterprise status.

Net income

Net income from continuing operations was US$59 million[2], compared with US$22 million[3] in the fourth quarter of 2018 and US$34 million in the third quarter of 2019.

Non-GAAP net income from continuing operations was US$62 million[2], compared with US$23 million[3] in the fourth quarter of 2018 and US$34 million in the third quarter of 2019.

Net loss attributable to non-controlling interests

GAAP and non-GAAP net loss attributable to non-controlling interests were both US$0.2 million. This compares with a GAAP and non-GAAP net loss of US$0.1 million in the fourth quarter of 2018 and US$0.03 million in the third quarter of 2019. Non-controlling interests include the non-controlling interests in RaidCall, which provides online music and entertainment services primarily in Taiwan; a joint venture that operates Korean comics online in China; and a joint venture that is engaged in intellectual property authorization, game production and distribution in China.

Net income attributable to Changyou.com Limited

Net income from continuing operations attributable to Changyou.com Limited was US$59 million[2], compared with US$22 million[3] in the fourth quarter of 2018 and US$34 million in the third quarter of 2019. Fully-diluted net income from continuing operations attributable to Changyou.com Limited per ADS[7] was US$1.10, compared with US$0.41 in the fourth quarter of 2018 and US$0.64 in the third quarter of 2019.

Non-GAAP net income from continuing operations attributable to Changyou.com Limited was US$63 million[2], compared with US$23 million[3] in the fourth quarter of 2018 and US$34 million in the third quarter of 2019. Non-GAAP fully-diluted net income from continuing operations attributable to Changyou.com Limited per ADS was US$1.11, compared with US$0.44 in the fourth quarter of 2018 and US$0.64 in the third quarter of 2019.

Liquidity

As of December 31, 2019, Changyou had net cash[8] of US$306 million, compared with US$671 million as of December 31, 2018. The decrease was mainly due to the distribution of a special cash dividend of approximately US$503 million in the second quarter of 2019.

Operating cash flow for the fourth quarter of 2019 was a net inflow of US$52 million.

Fiscal Year 2019 Unaudited Financial Results

Revenue

Total revenue in 2019 was US$455 million, representing an increase of 10% year-over-year.

Online game revenue increased 13% year-over-year to US$441 million. The increase was mainly due to the revenue contribution of TLBB Honor, which was launched in the third quarter of 2019, as well as the improved performance of some of the Company's older games in 2019, including TLBB PC.

Online advertising revenue decreased 30% year-over-year to US$14 million. The decrease was mainly due to fewer games being marketed on the 17173.com website.

IVAS revenue decreased 87% year-over-year to US$1 million, as the Company ceased its IVAS business operations in the second quarter of 2019.

Gross profit/ (loss)

GAAP and non-GAAP gross profit were both US$360 million, representing an increase of 5% year-over-year. GAAP and non-GAAP gross margin were both 79%, compared with 83% in 2018.

GAAP and non-GAAP gross profit of the online games business were both US$352 million, representing an increase of 7% year-over-year. GAAP and non-GAAP gross margin of the online games business were both 80%, compared with 84% in 2018.

GAAP and non-GAAP gross profit of the online advertising business were both US$9 million, representing a decrease of 41% year-over-year. GAAP and non-GAAP gross margin of the online advertising business were both 62%, compared with 74% in 2018. The year-over-year decrease in gross margin was mainly due to a decrease in online advertising revenue.

GAAP and non-GAAP gross loss of IVAS were both US$0 million, compared with a gross profit of US$1 million in 2018.

Operating expenses

Total operating expenses were US$193 million, representing a decrease of 3% year-over-year.

Product development expenses were US$121 million, representing a decrease of 3% year-over-year.

Sales and marketing expenses were US$49 million, representing an increase of 45% year-over-year. The increase was mainly due to a rise in marketing and promotional spending for online games, including TLBB Honor.

General and administrative expenses were US$23 million, representing a decrease of 10% year-over-year. The decrease was mainly due to a decline in salary and benefit expenses as a result of a reduction in workforce.

Goodwill impairment was US$0 million, compared with US$16 million in 2018, which was mainly related to the 17173.com website business.

Operating profit

Operating profit was US$167 million, compared with an operating profit of US$144 million in 2018.

Non-GAAP operating profit was US$169 million, compared with a non-GAAP operating profit of US$138 million in 2018.

Other income, net

Other income was US$14 million, compared with US$23 million in 2018.

Income tax expense

Income tax expense was US$20 million[9], compared with US$64 million in 2018[9]. The income tax expense for 2018 included the accrual of additional withholding income taxes of US$47 million that were recognized in relation to a change in policy for the Company's PRC subsidiaries with respect to their distribution of cash dividends.

Net income

Net income from continuing operations was US$178 million, compared with US$129 million in 2018.

Non-GAAP net income from continuing operations was US$179 million, compared with US$122 million in 2018.

Net loss attributable to non-controlling interests

Both GAAP and non-GAAP net loss attributable to non-controlling interests were US$0.5 million, compared with net loss of US$0.4 million in 2018. Non-controlling interests include the non-controlling interests in RaidCall, which provides online music and entertainment services primarily in Taiwan; a joint venture which operates Korean comics online in China; and a joint venture which operates intellectual property authorization, game production and distribution in China.

Net income attributable to Changyou.com Limited

Net income from continuing operations attributable to Changyou.com Limited was US$178 million, compared with US$129 million in 2018. Fully-diluted net income from continuing operations attributable to Changyou.com Limited per ADS was US$3.31, compared with US$2.41 in 2018.

Non-GAAP net income from continuing operations attributable to Changyou.com Limited was US$179 million, compared with US$123 million in 2018. Non-GAAP fully-diluted net income from continuing operations attributable to Changyou.com Limited per ADS was US$3.31, compared with US$2.29 in 2018.

Business Outlook

For the first quarter of 2020, Changyou expects:

  • Total revenue to be between US$123 million and US$133 million, including online game revenue of US$120 million to US$130 million;
  • Non-GAAP net income attributable to Changyou.com Limited to be between US$39 million and US$44 million, and non-GAAP net income per fully-diluted ADS to be between US$0.69 and US$0.78. Share-based compensation expense to be around US$3 million, assuming no new grants of share-based awards. Taking into account the elimination of the impact of these share-based awards, GAAP net income attributable to Changyou.com Limited to be between US$36 million and US$41 million, and GAAP net income per fully-diluted ADS to be between US$0.67 and US$0.76.

For the first quarter of 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.00 = US$1.00, which compares with the actual exchange rate of approximately RMB6.74 = US$1.00 for the first quarter of 2019, and RMB7.03 = US$1.00 for the fourth quarter of 2019.

This forecast reflects Changyou's management's current and preliminary view, which at present is subject to substantial uncertainty, particularly in view of the potential impact of the COVID-19, the effects of which are difficult to analyze and predict.

Loan Agreement and Share Pledge Agreement with Sohu.com Limited ("Sohu")

On October 24, 2016, Changyou entered into a loan agreement with a PRC subsidiary of Sohu, Changyou's parent company, pursuant to which the PRC subsidiary is entitled to borrow up to RMB1 billion (or approximately US$148.64 million) from a PRC subsidiary of Changyou from time to time, with the first advance request to occur prior to December 31, 2016 and Sohu's right to request advances continuing for one year after the first advance, subject to extension for additional years with Changyou's consent. Principal amounts outstanding under the loan agreement bear interest at an annual rate of 6%, accruing and payable on each one-year anniversary of each advance. The outstanding principal of each advance is due one year from the date of the advance, subject to extension for additional years with Changyou's consent. Advances under the loan agreement are secured by a pledge to Changyou under a share pledge agreement of an agreed-upon number of Class B ordinary shares of Changyou held by Sohu. The share pledge agreement gives Changyou the right to apply the outstanding principal and accrued interest on the loan to the repurchase of Changyou Class B ordinary shares from Sohu in the event such principal and interest are not paid when due.  Sohu has used amounts drawn down under the loan agreement to finance Sohu's operations, excluding the operations of Changyou and of Sohu's subsidiary Sogou Inc.  

As of December 31, 2019, Changyou had outstanding loans to the PRC subsidiary of Sohu in an aggregate principal amount of RMB1 billion (approximately $143.34 million), and the maturity dates for all of the outstanding loans had been extended for three successive additional years, to the third anniversary dates of the original maturity dates of the loans.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"), Changyou's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted, 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. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Changyou's management believes that excluding share-based compensation expense, 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 from its non-GAAP financial measures is useful for itself and investors. Further, the amount of share-based compensation expense, 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 cannot be anticipated by management, and these expenses and benefits are not built into the Company's annual budgets and quarterly forecasts, which generally will be the basis for information Changyou provides to analysts and investors as guidance for future operating performance. As share-based compensation expense, 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 do not involve subsequent cash outflow, Changyou does not factor these in when evaluating and approving expenditures or when determining the allocation of its resources to its business operations. As a result, in general, the monthly financial results for internal reporting and any performance measure for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense, 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.

The non-GAAP financial measures are provided to enhance investors' overall understanding of Changyou'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 Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, excluding share-based compensation expense, 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, is that the share-based compensation charge has been and will continue to be a significant recurring expense in the Company's business for the foreseeable future, 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 may recur in the future. In order to mitigate these limitations, the Company has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation of GAAP financial measures that are most directly comparable to the non-GAAP financial measures the Company has presented.

[1] As the Company's cinema advertising business ceased operations during the third quarter of 2019, its results of operations have been excluded from the Company's results from continuing operations in the condensed consolidated statements of operations and are presented in separate line items as discontinued operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent basis of comparison. Unless indicated otherwise, results presented in this release are related to continuing operations only, and exclude results from the cinema advertising business.

[2] GAAP and non-GAAP net income attributable to Changyou.com Limited for the fourth quarter of 2019 include a one-time tax benefit of US$19 million that was recognized after some of the Company's subsidiaries were granted preferential tax rates upon receipt of 2018 Key National Software Enterprise status or 2018 Software Enterprise status.

[3] GAAP and non-GAAP net income attributable to Changyou.com Limited for the fourth quarter of 2018 included an impairment charge of US$16 million on goodwill recognized in relation to the 17173.com website business.

[4] Non-GAAP results exclude share-based compensation expense/ (benefit). An 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 Operations Measures to the Nearest Comparable GAAP Measures".

[5] Monthly active accounts refers to the number of registered accounts that are logged in to these games at least once during the month.

[6] Quarterly aggregate active paying accounts refers to the number of accounts from which game points are utilized at least once during the quarter.

[7] Each ADS represents two Class A ordinary shares.

[8] Net cash is calculated as the sum of cash and cash equivalents, short-term investments, current restricted cash and non-current restricted time deposits, minus long-term bank loans.

[9] The income tax expenses in 2019 and 2018 included one-time tax benefits of US$19 million and US$23 million that were recognized in the fourth quarter of 2019 and in the third quarter of 2018, respectively, as a result of some of the Company's subsidiaries having been granted preferential tax rates upon their receipt of Key National Software Enterprise status or Software Enterprise status for 2018 and 2017, respectively.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Changyou's unaudited financial statements prepared in accordance with GAAP.

Safe Harbor Statement

It is currently expected that the Business Outlook will not be updated until the release of Changyou's next quarterly earnings announcement; however, Changyou reserves the right to update its Business Outlook at any time for any reason.

This announcement contains forward-looking statements. Statements that are not historical facts, including statements about the Company'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. The Company cautions 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, continuing volatility in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations in general and possible continued devaluation of the RMB in particular, including their potential impact on the Chinese economy and on the Company's reported U.S. dollar results; slowing growth in the Chinese economy; the uncertain regulatory landscape in the People's Republic of China; fluctuations in Changyou's quarterly operating results; the possibility that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; the possibility that the Company's margins will decline as a result of the need for revenue-sharing with mobile game platform operators; the Company's reliance on TLBB as its major revenue source; and the effects of the COVID-19 on the economy in China in general and on Changyou's business in particular. Further information regarding these and other risks is included in Changyou's Annual Report on Form 20-F filed on March 28, 2019, and other filings with the Securities and Exchange Commission.

Conference Call Information

Changyou's management team will host an earnings conference call today at 6:30 a.m. U.S. Eastern Time, March 9, 2020 (6:30 p.m. Beijing/Hong Kong, March 9, 2020).

The dial-in details for the live conference call are:

US:

+1-866-519-4004

Hong Kong:

800-906-601

China Mainland:

400-620-8038

International:

+1-845-675-0437

Passcode:

CYOU

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A telephone replay of the call will be available after the conclusion of the conference call at 9:30 a.m. U.S. Eastern Time on March 9, 2020 through March 16, 2020. The dial-in details for the telephone replay are:

International:

+61-2-8199-0299

Passcode:

1048946

The live Webcast and archive of the conference call will be available on the Investor Relations section of Changyou's Website at http://ir.changyou.com/.

About Changyou

Changyou.com Limited (NASDAQ: CYOU) is a leading developer and operator of online games in China with a diverse portfolio of popular online games, such as Tian Long Ba Bu ("TLBB"), one of the most popular PC games in China, as well as a number of mobile games. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Changyou began operations as a business unit within Sohu.com Limited (NASDAQ: SOHU) in 2003, and was carved out as a separate, stand-alone company in December 2007. It completed an initial public offering on April 7, 2009. Changyou has an advanced technology platform that includes advanced 2.5D and 3D graphics engines, a uniform game development platform, effective anti-cheating and anti-hacking technologies, proprietary cross-networking technology and advanced data protection technology. For more information, please visit http://ir.changyou.com/.

For investor and media inquiries, please contact:

In China:

Mr. Yujia Zhao
Investor Relations
Tel: +86 (10) 6192-0800
E-mail: ir@cyou-inc.com

In the United States:

Ms. Linda Bergkamp
Christensen
Phone: +1 (480) 614-3004
E-mail: lbergkamp@ChristensenIR.com


 

 

 

CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)








Three Months Ended


Twelve Months Ended



Dec. 31, 2019


Sep. 30, 2019


Dec. 31, 2018


Dec. 31, 2019


Dec. 31, 2018












Revenue:











        Online game

$

131,689

$

108,012

$

94,106

$

440,902

$

389,790

        Online advertising


3,479


2,832


4,198


13,715


19,697

        IVAS


-


-


1,550


763


6,074

                Total revenue


135,168


110,844


99,854


455,380


415,561












Cost of revenue:











        Online game (includes share-based compensation expense/
             (benefit) of $137, $0, $7, $120 and $(31), respectively)


 

33,181


 

23,285


 

14,499


 

88,991


 

60,983

        Online advertising


1,370


1,345


1,239


5,202


5,204

        IVAS


2


-


1,310


1,195


5,408

Total cost of revenue


34,553


24,630


17,048


95,388


71,595

Gross profit


100,615


86,214


82,806


359,992


343,966












Operating expenses:











Product development (includes share-based
        compensation expense/ (benefit) of $1,785, $0, 
        $492, $859 and $(2,427), respectively)


 

 

31,378


 

 

27,874


 

 

32,566


 

 

120,585


 

 

124,166

Sales and marketing (includes share-based 
        compensation expense/ (benefit) of $0, $0, 
        $121, $(283) and$(497),  respectively)


 

 

 

15,343


 

 

 

17,870


 

 

 

7,300


 

 

 

49,485


 

 

 

34,015

General and administrative (includes share-based
        compensation expense/ (benefit) of $1,246,
        $(7), $620, $609 and $(3,506),  respectively)


 

 

6,930


 

 

5,640


 

 

6,419


 

 

22,683


 

 

25,151

Goodwill impairment and impairment of
        intangible assets  acquired as part of 
        acquisition of a business


 

 

-


 

 

-


 

 

16,369


 

 

-


 

 

16,369

Total operating expenses


53,651


51,384


62,654


192,753


199,701












Operating profit


46,964


34,830


20,152


167,239


144,265

Interest income, net


3,857


3,996


6,653


14,102


24,206

Foreign currency exchange gain/ (loss)


(659)


1,375


67


1,875


1,320

Other income, net


3,074


5,914


3,172


14,477


23,436

Income before income tax expense


53,236


46,115


30,044


197,693


193,227

Income tax expense/ (benefit)


(5,935)


11,858


7,982


20,077


64,467

Net income from continuing operations


59,171


34,257


22,062


177,616


128,760

Net loss from discontinued operations, net of tax


-


(2,706)


(12,000)


(33,998)


(44,835)

Net income


59,171


31,551


10,062


143,618


83,925

      Less: Net loss from continuing operations attributable to non-
          controlling interests


(236)


(29)


(84)


(542)


(407)

   Net loss from discontinued operations attributable to
non-controlling interests


-


-


-


-


-

Net income from continuing operations attributable to
            Changyou.com Limited


59,407


34,286


22,146


178,158


129,167

Net loss from discontinued operations  attributable to
            Changyou.com Limited


-


(2,706)


(12,000)


(33,998)


(44,835)

Net income attributable to Changyou.com Limited

$

59,407

$

31,580

$

10,146

$

144,160

$

84,332

Basic net income/ (loss) attributable to Changyou.com Limited
     per ADS

$

1.11

$

0.59

$

0.19

$

2.69

$

1.59

From continuing operations


1.11


0.64


0.42


3.33


2.43

From discontinued operations


-


(0.05)


(0.23)


(0.64)


(0.84)












ADSs used in computing basic net income attributable to
     Changyou.com Limited per ADS


53,632


53,618


53,233


53,491


53,085












Diluted net income/ (loss) attributable to Changyou.com Limited
     per ADS

$

1.10

$

0.59

$

0.19

$

2.68

$

1.57

From continuing operations


1.10


0.64


0.41


3.31


2.41

From discontinued operations


-


(0.05)


(0.22)


(0.63)


(0.84)












ADSs used in computing diluted net income attributable to 
     Changyou.com Limited per ADS


53,962


53,677


53,656


53,744


53,618












 

 

 

CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)








As of Dec. 31, 2019


As of Dec. 31, 2018






ASSETS





Current assets:





Cash and cash equivalents

$

94,433

$

454,305

Restricted cash


-


2,340

Accounts receivable, net


55,829


40,627

Short-term investments


211,923


190,068

Loans between Changyou and Sohu


88,317


80,907

Prepaid and other current assets


1,128,921


697,573

Current assets associated with discontinued operations


-


34,324

Total current assets


1,579,423


1,500,144

Non-current assets:





Fixed assets, net


159,713


170,396

Goodwill


10,257


10,257

Intangible assets, net


8,056


13,856

Deferred tax assets


14,072


13,467

Restricted time deposits


-


243,910

Loans between Changyou and Sohu


71,672


72,852

Other assets, net


28,492


12,523

Non-current assets associated with discontinued operations


-


398

Total non-current assets


292,262


537,659

TOTAL ASSETS

$

1,871,685

$

2,037,803






LIABILITIES





Current liabilities:





Receipts in advance and deferred revenue

$

36,414

$

40,966

Accounts payable and accrued liabilities


1,261,061


729,158

Tax payables


18,577


17,715

Current liabilities associated with discontinued operations


-


101,105

Total current liabilities


1,316,052


888,944

Long-term liabilities:





Deferred tax liabilities


93,907


83,026

Long-term tax payable


13,220


13,438

Long-term bank loans


-


220,000

Other long-term liabilities


850


751

Total long-term liabilities


107,977


317,215

Total liabilities


1,424,029


1,206,159

SHAREHOLDERS' EQUITY





Changyou.com Limited shareholders' equity


446,289


829,735

Non-controlling interests


1,367


1,909

Total shareholders' equity


447,656


831,644

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

1,871,685

$

2,037,803

 

 

 

CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)







Three Months Ended Dec. 31, 2019






Non-GAAP adjustments (a)






GAAP


 

Share-based compensation
expense (b)


Non-GAAP


Online game gross profit

$

98,508


137


98,645


Online advertising gross profit


2,109


-


2,109


IVAS gross loss


(2)


-


(2)


Gross profit

$

100,615


137


100,752


Gross margin


74%




75%


Operating  expenses


53,651


(3,031)


50,620


Operating profit

$

46,964


3,168


50,132


Operating margin


35%




37%


Income tax benefit


(5,935)




(5,935)


Net income from continuing operations


59,171


3,168


62,339


Net loss from discontinued operations, net of tax


-


-


-


Net income

$

59,171


3,168


62,339


Less: Net loss from continuing operations attributable to non-
controlling interests


(236)


-


(236)


         Net loss from discontinued operations attributable to non-controlling interests


-


-


-


Net income from continuing operations attributable to Changyou.com
Limited


59,407


3,168


62,575


Net loss from discontinued operations attributable to Changyou.com
Limited


-


-


-


Net income attributable to Changyou.com Limited

$

59,407


3,168


62,575


Net margin from continuing operations attributable to
Changyou.com Limited


44%




46%


Diluted net income attributable to Changyou.com Limited per ADS

$

1.10




1.11


From continuing operations


1.10




1.11


From discontinued operations


-




-


ADSs used in computing diluted net income attributable to
   Changyou.com Limited per ADS


53,962




56,141



Note:

(a) The Non-GAAP adjustment does not have an impact on income tax expense.

(b) To eliminate share-based compensation expense measured using the fair value method.

 

 

 

CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Three Months Ended Sep. 30, 2019






Non-GAAP adjustments (a)






GAAP


 

Share-based compensation
expense (c)


Non-GAAP


Online game gross profit

$

84,727


-


84,727


Online advertising gross profit


1,487


-


1,487


IVAS gross loss


-


-


-


Gross profit

$

86,214


-


86,214


Gross margin


78%




78%


Operating  expenses


51,384


7


51,391


Operating profit

$

34,830


(7)


34,823


Operating margin


31%




31%


Income tax expense


11,858




11,858


Net income from continuing operations


34,257


(7)


34,250


Net loss from discontinued operations, net of tax


(2,706)


-


(2,706)


Net income

$

31,551


(7)


31,544


Less: Net loss from continuing operations attributable to non-
controlling interests


(29)


-


(29)


        Net loss from discontinued operations attributable to non-
controlling interests


-


-


-


Net income from continuing operations attributable to Changyou.com
Limited


34,286


(7)


34,279


Net loss from discontinued operations attributable to Changyou.com
Limited


(2,706)


-


(2,706)


Net income attributable to Changyou.com Limited

$

31,580


(7)


31,573


Net margin from continuing operations attributable to
Changyou.com Limited


31%




31%


Diluted net income/ (loss)  attributable to Changyou.com Limited per
ADS

$

0.59




0.59


From continuing operations


0.64




0.64


From discontinued operations


(0.05)




(0.05)


ADSs used in computing diluted net income attributable to 
   Changyou.com Limited per ADS


53,677




53,681



Note:

 (c) To eliminate share-based compensation expense measured using the fair value method. The downward adjustment of share-based compensation
expense was a result of fluctuations in the market price for the Company's ADS.

 

 

 

CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Three Months Ended Dec. 31, 2018






Non-GAAP adjustments (a)






GAAP


 

Share-based compensation

expense (b)


Non-GAAP


Online game gross profit

$

79,607


7


79,614


Online advertising gross profit


2,959


-


2,959


IVAS gross loss


240


-


240


Gross profit

$

82,806


7


82,813


Gross margin


83%




83%


Operating  expenses


62,654


(1,233)


61,421


Operating profit

$

20,152


1,240


21,392


Operating margin


20%




21%


Income tax expense


7,982




7,982


Net income from continuing operations


22,062


1,240


23,302


Net loss from discontinued operations, net of tax


(12,000)


-


(12,000)


Net income

$

10,062


1,240


11,302


Less: Net loss from continuing operations attributable to non-
controlling interests


(84)


-


(84)


Net loss from discontinued operations attributable to non-
controlling interests


-


-


-


Net income from continuing operations attributable to Changyou.com
Limited


22,146


1,240


23,386


Net loss from discontinued operations attributable to Changyou.com
Limited


(12,000)


-


(12,000)


Net income attributable to Changyou.com Limited

$

10,146


1,240


11,386


Net margin from continuing operations attributable to
Changyou.com Limited


22%




23%


Diluted net income/ (loss)  attributable to Changyou.com Limited per
ADS

$

0.19




0.21


From continuing operations


0.41




0.44


From discontinued operations


(0.22)




(0.23)


ADSs used in computing diluted net income attributable to 
  Changyou.com Limited per ADS


53,656




53,682


 

 

 

CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Twelve Months Ended Dec. 31, 2019






Non-GAAP adjustments (a)






GAAP


 

Share-based compensation
expense (b)


Non-GAAP


Online game gross profit

$

351,911


120


352,031


Online advertising gross profit


8,513


-


8,513


IVAS gross loss


(432)


-


(432)


Gross profit

$

359,992


120


360,112


Gross margin


79%




79%


Operating  expenses


192,753


(1,185)


191,568


Operating profit

$

167,239


1,305


168,544


Operating margin


37%




37%


Income tax expense


20,077




20,077


Net income from continuing operations


177,616


1,305


178,921


Net loss from discontinued operations, net of tax


(33,998)


-


(33,998)


Net income

$

143,618


1,305


144,923


Less: Net loss from continuing operations attributable to non-
controlling interests


(542)


-


(542)


        Net loss from discontinued operations attributable to non-
controlling interests


-


-


-


Net income from continuing operations attributable to Changyou.com
Limited


178,158


1,305


179,463


Net loss from discontinued operations attributable to Changyou.com
Limited


(33,998)


-


(33,998)


Net income attributable to Changyou.com Limited

$

144,160


1,305


145,465


Net margin from continuing operations attributable to
Changyou.com Limited


39%




39%


Diluted net income/ (loss)  attributable to Changyou.com Limited per
ADS

$

2.68




2.68


From continuing operations


3.31




3.31


From discontinued operations


(0.63)




(0.63)


ADSs used in computing diluted net income attributable to
   Changyou.com Limited per ADS


53,744




54,296


 

 

 

CHANGYOU.COM LIMITED

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Twelve Months Ended Dec. 31, 2018






Non-GAAP adjustments (a)






GAAP


 

Share-based compensation
expense (c)


Non-GAAP


Online game gross profit

$

328,807


(31)


328,776


Online advertising gross profit


14,493


-


14,493


IVAS gross profit


666


-


666


Gross profit

$

343,966


(31)


343,935


Gross margin


83%




83%


Operating  expenses


199,701


6,430


206,131


Operating profit

$

144,265


(6,461)


137,804


Operating margin


35%




33%


Income tax expense


64,467




64,467


Net income from continuing operations


128,760


(6,461)


122,299


Net loss from discontinued operations, net of tax


(44,835)


-


(44,835)


Net income

$

83,925


(6,461)


77,464


Less: Net loss from continuing operations attributable to non-
controlling interests


(407)


-


(407)


        Net loss from discontinued operations attributable to non-
controlling interests


-


-


-


Net income from continuing operations attributable to Changyou.com
Limited


129,167


(6,461)


122,706


Net loss from discontinued operations attributable to Changyou.com
Limited


(44,835)


-


(44,835)


Net income attributable to Changyou.com Limited

$

84,332


(6,461)


77,871


Net margin from continuing operations attributable to
Changyou.com Limited


31%




30%


Diluted net income/ (loss)  attributable to Changyou.com Limited per
ADS

$

1.57




1.45


From continuing operations


2.41




2.29


From discontinued operations


(0.84)




(0.84)


ADSs used in computing diluted net income attributable to 
  Changyou.com Limited per ADS


53,618




53,690


 

 

 


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Source: Changyou.com Limited
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