BEIJING, Aug. 5, 2019 /PRNewswire/ -- Sogou Inc. (NYSE: SOGO) ("Sogou" or "the Company"), an innovator in search and a leader in China's internet industry, today announced its unaudited financial results for the second quarter ended June 30, 2019.
Second Quarter 2019 Highlights
"During the second quarter, our business maintained steady growth and we made important progress in key areas," said Xiaochuan Wang, CEO of Sogou. "Search revenues continued to grow faster than the industry average. At the same time, by leveraging the large user bases for both Search and Mobile Keyboard, we have gradually built up our big data and recommendation service at a company level and are focusing on unlocking its commercial value."
Mr. Wang added, "We also geared up our efforts to drive innovation in language-centric AI technologies and continued to advance our leadership in voice and computer vision. Moreover, leveraging our core AI capabilities, we made significant progress in upgrading the smart hardware business, with new AI-enabled products launched and more in the pipeline. Going forward, we believe the steady growth in our core search business, coupled with the solid progress in the big data and recommendation service and smart hardware, will support sustainable expansion across our businesses."
Joe Zhou, CFO of Sogou, said, "We continued to drive top line growth during the second quarter. Notably, revenues generated from the big data and recommendation service ramped up quickly year-over-year. Although we anticipate the external environment will remain challenging in the second half of 2019, we expect to experience positive momentum from our new growth drivers."
Second Quarter 2019 Financial Results
Total revenues were $303.6 million, a 1% increase year-over-year.
Cost of revenues was $195.9 million, a 9% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $146.3 million, an 8% increase year-over-year, representing 48.2% of total revenues, compared to 45.0% in the corresponding period in 2018. The increase was driven by price inflation.
Gross profit was $107.8 million, an 11% decrease year-over-year. Non-GAAP gross profit was $107.9 million, a 12% decrease year-over-year.
Total operating expenses were $96.1 million, largely flat year-over-year.
Operating income was $11.6 million, compared to operating income of $24.8 million in the corresponding period in 2018. Non-GAAP operating income was $18.1 million, compared to non-GAAP operating income of $29.9 million in the corresponding period in 2018.
Other income, net was $4.2 million, compared to $3.4 million in the corresponding period in 2018.
Income tax benefit was $1.4 million, compared to income tax expense of $3.0 million in the corresponding period of 2018. The income tax benefit resulted from a tax filing adjustment of income tax expense previously recognized, which was due to a reduction in taxable income related to Chinese government initiatives to encourage investment in R&D.
Net income attributable to Sogou Inc. was $21.3 million, compared to net income of $33.2 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $27.8 million, compared to net income of $38.2 million in the corresponding period in 2018.
Basic and diluted earnings per ADS were $0.05. Non-GAAP basic and diluted earnings per ADS were $0.07.
As of June 30, 2019, the Company had cash and cash equivalents and short-term investments of $1.1 billion, compared with $1.0 billion as of December 31, 2018. Net operating cash inflow for the second quarter of 2019 was $56.2 million. Capital expenditures for the second quarter of 2019 were $12.1 million.
[1] On a constant currency (non-GAAP) basis, if the exchange rate in the second quarter of 2019 had been the same as it was in the second quarter of 2018, or RMB 6.38=$1.00, total revenues in the second quarter of 2019 would have been 324.3 million, or $20.7 million more than GAAP total revenues, and up 8% year-over-year. |
[2] Non-GAAP results exclude share-based compensation expense. 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." |
Recent Development
Sogou today announced that on August 3, 2019, its Board of Directors authorized a share repurchase program of up to US$50 million of the outstanding American depositary shares, or ADSs, of Sogou over the next twelve months. The ADSs may be purchased from time to time at management's discretion at prevailing market prices in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934. Sogou's management will determine the timing and amount of any purchases of Sogou ADSs based on their evaluation of market conditions, the trading price of Sogou's ADSs and other factors. The purchase program may be suspended or discontinued at any time. The Company plans to fund repurchases from its existing cash balance.
Business Outlook
For the third quarter of 2019, Sogou expects total revenues to be in the range $304 million to $314 million, representing a 10% to 14% increase year-over-year, or an 11% to 15% increase year-over-year in RMB terms.
For the third quarter 2019 guidance, the Company has adopted a presumed exchange rate of RMB6.90 = $1.00, as compared with the actual exchange rate of approximately RMB6.81 = $1.00 for the third quarter of 2018, and RMB6.82 = $1.00 for the second quarter of 2019.
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"), Sogou's management uses non-GAAP measures of gross profit, gross margin, and net income that are adjusted from results based on GAAP to exclude the impact of share-based awards. 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.
Sogou's management believes that excluding share-based compensation expense is useful for management's internal operating purposes and for investors. The amount of share-based compensation expense cannot be anticipated by management, and this is not built into the Company's annual budgets and quarterly forecasts, which generally will be the basis for information Sogou provides to analysts and investors as guidance for future operating performance. As share-based compensation expense does not involve subsequent cash outflow, Sogou does not factor in this expense when evaluating and approving expenditures or when determining the allocation of its resources to its business operations. As a result, in general, the Company's monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on these non-GAAP financial measures that exclude share-based compensation expense.
The non-GAAP financial measures are provided to enhance investors' overall understanding of Sogou's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, gross margin, and net income measures that exclude share-based compensation expense is that share-based compensation expense has been and is likely to continue to be a significant recurring expense in the Company's business. 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 between GAAP financial measures that are most directly comparable to the non-GAAP financial measures the Company has presented.
Safe Harbor Statement
This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sogou's next quarterly earnings announcement. However, Sogou reserves the right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sogou's and Sogou management's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates, and projections, which 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, intense competition in the market for search and search-related services; our need to continually innovate and adapt in order to grow our business; our reliance on Tencent platforms for a significant portion of our user traffic; and uncertainty regarding the extent and reach of PRC governmental regulation of sponsored search. Further information regarding these and other risks is included in Sogou's Annual Report on Form 20-F for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 28, 2019, and other documents Sogou files with or submits to the Securities and Exchange Commission.
Conference Call and Webcast
Sogou's management team will host a conference call at 7:30 am U.S. Eastern Time, (7:30 pm Beijing/Hong Kong time) on August 5, 2019, following this announcement of quarterly results.
The dial-in details for the live conference call are:
U.S. Toll Free: |
+1-888-317-6003 |
Mainland China Toll Free: |
4001-206115 |
Hong Kong Toll Free: |
800-963976 |
Hong Kong Local Toll: |
+852-580-81995 |
International: |
+1-412-317-6061 |
Passcode: |
9898839 |
Please dial in 10 minutes before the call is scheduled to begin. When prompted, ask to be connected to the Sogou Inc. call and provide the passcode.
A replay of the conference call may be accessed by phone at the following number until August 12, 2019:
International: |
+1-412-317-0088 |
Passcode: |
10133541 |
A live webcast and archive of the conference call will be available on the Investor Relations section of Sogou's website at http://ir.sogou.com.
About Sogou
Sogou Inc. (NYSE: SOGO) is an innovator in search and a leader in China's internet industry. With a mission to make it easy to communicate and get information, Sogou has grown to become the second largest search engine by mobile queries and the fourth largest internet company by MAU in China. Sogou has a wide range of innovative products and services including the Sogou Input Method, which is the largest Chinese language input software for both mobile and PC. Sogou is also at the forefront of AI development and has made significant breakthroughs in voice and image technologies, machine translation, and Q&A, which have been successfully integrated into our products and services.
For investor enquiries, please contact:
Jessie Zheng
Sogou Investor Relations
Tel: +86 10 5689 8068
Email: ir@sogou-inc.com
For media enquiries, please contact:
Rachael Layfield
Brunswick Group
Tel: +86 10 5960-8600
Email: sogou@brunswickgroup.com
SOGOU INC. |
||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) |
||||||
Three Months Ended |
||||||
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2018 |
||||
Revenues: |
||||||
Search and search‑related advertising revenues |
$ |
276,152 |
$ |
234,177 |
$ |
270,622 |
Other revenues |
27,464 |
18,545 |
30,794 |
|||
Total revenues |
303,616 |
252,722 |
301,416 |
|||
Cost of revenues (1) |
195,863 |
184,654 |
179,749 |
|||
Gross profit |
107,753 |
68,068 |
121,667 |
|||
Operating expenses: |
||||||
Research and development (1) |
50,609 |
41,037 |
56,223 |
|||
Sales and marketing (1) |
36,664 |
29,196 |
33,865 |
|||
General and administrative (1) |
8,849 |
9,816 |
6,748 |
|||
Total operating expenses |
96,122 |
80,049 |
96,836 |
|||
Operating income/(loss) |
11,631 |
(11,981) |
24,831 |
|||
Interest income |
1,739 |
1,371 |
1,763 |
|||
Foreign currency exchange gain/(loss)(2) |
2,387 |
(2,196) |
6,136 |
|||
Other income, net |
4,216 |
8,735 |
3,427 |
|||
Income/(loss) before income tax expenses |
19,973 |
(4,071) |
36,157 |
|||
Income tax (benefit)/expenses |
(1,357) |
(213) |
2,997 |
|||
Net income/(loss) |
21,330 |
(3,858) |
33,160 |
|||
Net income/(loss) attributable to Sogou |
$ |
21,330 |
$ |
(3,858) |
$ |
33,160 |
Net income/(loss) attributable to ordinary |
$ |
21,330 |
$ |
(3,858) |
$ |
33,160 |
Weighted average number of ordinary shares |
391,490 |
391,379 |
388,409 |
|||
Weighted average number of ordinary shares |
396,632 |
391,379 |
395,163 |
|||
Net income/(loss) per ordinary share--basic |
$ |
0.05 |
$ |
(0.01) |
$ |
0.09 |
Net income/(loss) per ordinary share--diluted |
$ |
0.05 |
$ |
(0.01) |
$ |
0.08 |
Net income/(loss) per ADS--basic |
$ |
0.05 |
$ |
(0.01) |
$ |
0.09 |
Net income/(loss) per ADS--diluted |
$ |
0.05 |
$ |
(0.01) |
$ |
0.08 |
(1) Share‑based compensation expense |
||||||
Cost of revenues |
$ |
127 |
$ |
27 |
$ |
263 |
Research and development |
4,470 |
858 |
3,637 |
|||
Sales and marketing |
1,670 |
168 |
427 |
|||
General and administrative |
187 |
141 |
720 |
|||
$ |
6,454 |
$ |
1,194 |
$ |
5,047 |
|
(2) Foreign currency exchange gain/(loss), mainly arising from our cross-border RMB-denominated intragroup loans, is a result of |
||||||
SOGOU INC. |
||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||
(UNAUDITED, IN THOUSANDS) |
||||
As of Jun. 30, 2019 |
As of Dec. 31, 2018 |
|||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$ |
184,427 |
$ |
185,175 |
Short-term investments |
948,289 |
851,327 |
||
Account and financing receivables, net |
122,920 |
142,886 |
||
Prepaid and other current assets |
24,552 |
40,122 |
||
Due from related parties |
1,604 |
2,608 |
||
Total current assets |
1,281,792 |
1,222,118 |
||
Long‑term investments, net |
66,025 |
63,305 |
||
Fixed assets, net |
134,124 |
147,495 |
||
Goodwill |
5,615 |
5,625 |
||
Intangible assets, net |
1,379 |
1,349 |
||
Deferred tax assets, net |
14,331 |
13,793 |
||
Other assets (1) |
28,703 |
9,159 |
||
Total assets |
$ |
1,531,969 |
$ |
1,462,844 |
LIABILITIES |
||||
Current liabilities: |
||||
Accounts payable |
$ |
176,765 |
$ |
108,679 |
Accrued and other short term liabilities (1) |
142,925 |
151,399 |
||
Receipts in advance |
66,928 |
65,324 |
||
Accrued salary and benefits |
21,649 |
32,079 |
||
Taxes payable |
60,737 |
60,433 |
||
Due to related parties (1) |
23,418 |
38,425 |
||
Total current liabilities |
492,422 |
456,339 |
||
Long-term liabilities (1) |
8,621 |
- |
||
Total liabilities |
$ |
501,043 |
$ |
456,339 |
SHAREHOLDERS' EQUITY |
||||
Sogou Inc. shareholders' equity |
1,030,926 |
1,006,505 |
||
Total shareholders' equity |
1,030,926 |
1,006,505 |
||
Total liabilities and shareholders' equity |
$ |
1,531,969 |
$ |
1,462,844 |
(1) The Company has adopted ASU No. 2016-02, ''Leases" beginning January 1, 2019. The only major impact |
||||
SOGOU INC. |
||||||||||||||||||
RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES |
||||||||||||||||||
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) |
||||||||||||||||||
Three Months Ended Jun. 30, 2019 |
Three Months Ended Mar. 31, 2019 |
Three Months Ended Jun. 30, 2018 |
||||||||||||||||
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
||||||||||
Adjustments (1) |
Adjustments (1) |
Adjustments (1) |
||||||||||||||||
Gross profit |
$ |
107,753 |
$ |
127 |
$ |
107,880 |
$ |
68,068 |
$ |
27 |
$ |
68,095 |
$ |
121,667 |
$ |
263 |
$ |
121,930 |
Gross margin |
35% |
36% |
27% |
27% |
40% |
40% |
||||||||||||
Operating expenses |
$ |
96,122 |
$ |
(6,327) |
$ |
89,795 |
$ |
80,049 |
$ |
(1,167) |
$ |
78,882 |
$ |
96,836 |
$ |
(4,784) |
$ |
92,052 |
Operating income/(loss) |
$ |
11,631 |
$ |
6,454 |
$ |
18,085 |
$ |
(11,981) |
$ |
1,194 |
$ |
(10,787) |
$ |
24,831 |
$ |
5,047 |
$ |
29,878 |
Operating margin |
4% |
6% |
-5% |
-4% |
8% |
10% |
||||||||||||
Income tax (benefit)/expenses |
$ |
(1,357) |
$ |
$ |
(1,357) |
$ |
(213) |
$ |
$ |
(213) |
$ |
2,997 |
$ |
$ |
2,997 |
|||
Net income/(loss) |
$ |
21,330 |
$ |
6,454 |
$ |
27,784 |
$ |
(3,858) |
$ |
1,194 |
$ |
(2,664) |
$ |
33,160 |
$ |
5,047 |
$ |
38,207 |
Net income/(loss) attributable to Sogou Inc. |
$ |
21,330 |
$ |
6,454 |
$ |
27,784 |
$ |
(3,858) |
$ |
1,194 |
$ |
(2,664) |
$ |
33,160 |
$ |
5,047 |
$ |
38,207 |
Net margin attributable to Sogou Inc. |
7% |
9% |
-2% |
-1% |
11% |
13% |
||||||||||||
(1) To exclude share-based compensation expense. This non-GAAP adjustment does not have an impact on income tax expense. |
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