BEIJING, Nov. 5, 2018 /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 third quarter 2018, ended September 30, 2018.
Third Quarter 2018 Highlights
"In the third quarter, we recorded healthy growth in our core businesses," said Xiaochuan Wang, CEO of Sogou. "As the second largest search engine by mobile queries in China, we continued to grow our core search revenues faster than the industry average. Driven by our commitment to providing users with reliable, trustworthy information to help them address their key problems, we further enriched our search platform with high-quality content for popular verticals such as healthcare. This drove a significant year-over-year increase in mobile healthcare queries."
"For our mobile keyboard business, we continued to leverage AI-driven innovation to make it more efficient for users to communicate. These AI initiatives enabled us to achieve solid growth in both our user base and market share. In the third quarter, Sogou Mobile Keyboard continued to cement its position as both the leading mobile keyboard as well as China's largest and most popular voice app. According to iResearch, Sogou Mobile Keyboard remained the third largest mobile app in China."
Mr. Wang added, "During the quarter, we increased our investments in the development of our industry-leading AI technologies and continued to integrate them into Sogou Search, Sogou Mobile Keyboard and our smart hardware products. We are committed to driving the development of language-centric AI technology and are confident this will enable us to fuel the sustainable growth of our platform."
Joe Zhou, CFO of Sogou, said, "Our third-quarter revenues reached $276.6 million, in line with expectations, with core search revenues up 13% year-over-year. Going forward, we expect to see long-term, sustainable growth in our search business as we continue to deliver on our strategy of differentiation. We are also confident that, while near term smart hardware sales will be impacted, our upgraded smart hardware strategy will better position us to create more competitive products and drive long term growth in this segment."
Third Quarter 2018 Financial Results
Total revenues were $276.6 million, a 7% increase year-over-year.
Cost of revenues was $173.6 million, a 33% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $135.2 million, a 58% increase year-over-year, representing 48.9% of total revenues, compared to 33.3% in the corresponding period in 2017. The increase was driven by price inflation as a result of increased competition.
Gross profit was $102.9 million, a 19% decrease year-over-year. Non-GAAP gross profit was $103.2 million, a 19% decrease year-over-year.
Total operating expenses were $109.7 million, a 20% increase year-over-year.
Operating loss was $6.8 million, compared to operating income of $35.7 million in the corresponding period in 2017. Non-GAAP operating loss was $2.7 million, compared to non-GAAP operating income of $36.0 million in the corresponding period in 2017.
Other income, net was $24.0 million, compared with zero in the corresponding period in 2017. The increase was primarily due to a $17.8 million gain from one of the Company's equity investments recognized under a new accounting standard (ASC321) that became effective on January 1, 2018.
Income tax benefit was $0.4 million, compared to income tax expense of $4.6 million in the corresponding quarter of 2017. The income tax benefit resulted from a new tax incentive to encourage R&D investments. Under new PRC regulations issued in September 2018 and applicable retroactively beginning January 1, 2018, more R&D expenses become eligible for further deduction from taxable income.
Net income attributable to Sogou Inc. was $23.9 million, a 23% decrease year-over-year. Non-GAAP net income attributable to Sogou Inc. was $28.0 million, a 10% decrease year-over-year.
Basic earnings per ADS and diluted earnings per ADS were $0.06. Non-GAAP basic and diluted earnings per ADS were $0.07.
As of September 30, 2018, the Company had cash and cash equivalents and short-term investments of $1.1 billion, compared with $1.0 billion as of December 31, 2017. Net loans receivable in the amount of $33.9 million represented amounts receivable under small consumer loans extended through the Company's internet finance platform. Net operating cash inflow for the third quarter of 2018 was $85.3 million. Capital expenditures for the third quarter of 2018 were $22.2 million.
Recent developments
On October 19, 2018, Mr. Joseph Chen resigned as a member of the board of directors of the Company (the "Board") and as a member of the audit committee of the Board (the "Audit Committee") for personal reasons. Ms. Jinmei He was appointed by the Company's controlling shareholder Sohu.com Limited ("Sohu") to serve on the Board as a Sohu designee pursuant to the Company's articles of association, effective October 19, 2018, and was appointed by the Board to be a member of the Audit Committee, effective November 3, 2018.
Ms. He joined Sohu in 1997 and served as a Vice President in charge of the online gaming business from 2002 to 2005. She has been a self-employed investor in the public equity markets and in real estate in the United States since 2005. Ms. He received a Bachelor of Civil Engineering from Southwest Jiaotong University.
Business Outlook
For the fourth quarter of 2018, Sogou expects total revenues to be in the range $292 million to $307 million, representing a 5% to 11% increase year-over-year, or an 11% to 17% increase year-over-year in RMB terms.
For the fourth quarter 2018 guidance, the Company has adopted a presumed exchange rate of RMB 7.00 = $1.00, as compared with the actual exchange rate of approximately RMB6.61 = $1.00 for the fourth quarter of 2017, and RMB 6.81 = $1.00 for the third quarter of 2018.
1 On a constant currency (non-GAAP) basis, if the exchange rate in the third quarter of 2018 had been |
2 Non-GAAP results exclude share-based compensation expense. Explanation of the Company's non- |
3 The Company has adopted ASU No. 2014-09, ''Revenue from Contracts with Customers" beginning |
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 Amendment No. 2 to Sogou's Registration Statement on Form F‑1 (Registration No. 333-220928) filed with the Securities and Exchange Commission on November 6, 2017, 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, (8:30 pm Beijing/Hong Kong time) on November 5, 2018, following the quarterly results announcement.
The dial-in details for the live conference call are:
U.S. Toll Free: |
+1-888-317-6003 |
Mainland China: |
4001-206115 (Toll Free) |
Hong Kong: |
800-963976 (Toll Free); +852-580-81995 (Local Toll) |
International: |
+1-412-317-6061 |
Passcode: |
7311232 |
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 November 12, 2018:
International: |
+1-412-317-0088 |
Passcode: |
10125635 |
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 |
|||||||||||||
Sep. 30, 2018 |
Jun. 30, 2018 |
Sep. 30, 2017 |
|||||||||||
Revenues: |
|||||||||||||
Search and search‑related advertising |
$ |
255,312 |
$ |
270,622 |
$ |
225,590 |
|||||||
Other revenues |
21,255 |
30,794 |
31,755 |
||||||||||
Total revenues |
276,567 |
301,416 |
257,345 |
||||||||||
Cost of revenues (1) |
173,622 |
179,749 |
130,299 |
||||||||||
Gross profit |
102,945 |
121,667 |
127,046 |
||||||||||
Operating expenses: |
|||||||||||||
Research and development (1) |
50,598 |
56,223 |
40,309 |
||||||||||
Sales and marketing (1) |
43,592 |
33,865 |
44,798 |
||||||||||
General and administrative (1) |
15,548 |
6,748 |
6,246 |
||||||||||
Total operating expenses |
109,738 |
96,836 |
91,353 |
||||||||||
Operating (loss)/income |
(6,793) |
24,831 |
35,693 |
||||||||||
Interest income |
1,732 |
1,763 |
2,390 |
||||||||||
Foreign currency exchange gain/(loss)(2) |
4,521 |
6,136 |
(2,475) |
||||||||||
Other income/(expenses), net |
24,049 |
3,427 |
(42) |
||||||||||
Income before income tax expenses |
23,509 |
36,157 |
35,566 |
||||||||||
Income tax (benefit)/expenses |
(409) |
2,997 |
4,593 |
||||||||||
Net income |
23,918 |
33,160 |
30,973 |
||||||||||
Net income attributable to Sogou Inc. |
$ |
23,918 |
$ |
33,160 |
$ |
30,973 |
|||||||
Less: Dividends attributable to preferred |
- |
- |
7,023 |
||||||||||
Net income attributable to ordinary shareholders |
$ |
23,918 |
$ |
33,160 |
$ |
23,950 |
|||||||
Weighted average number of ordinary shares |
389,566 |
388,409 |
238,691 |
||||||||||
Weighted average number of ordinary shares |
396,354 |
395,163 |
271,540 |
||||||||||
Net income per ordinary share—basic |
$ |
0.06 |
$ |
0.09 |
$ |
0.10 |
|||||||
Net income per ordinary share—diluted |
$ |
0.06 |
$ |
0.08 |
$ |
0.09 |
|||||||
Net income per ADS—basic |
$ |
0.06 |
$ |
0.09 |
$ |
0.10 |
|||||||
Net income per ADS—diluted |
$ |
0.06 |
$ |
0.08 |
$ |
0.09 |
|||||||
(1) Share‑based compensation expense |
|||||||||||||
Cost of revenues |
$ |
234 |
$ |
263 |
$ |
- |
|||||||
Research and development |
3,008 |
3,637 |
309 |
||||||||||
Sales and marketing |
373 |
427 |
7 |
||||||||||
General and administrative |
514 |
720 |
- |
||||||||||
$ |
4,129 |
$ |
5,047 |
$ |
316 |
||||||||
(2) Foreign currency exchange gain/(loss), mainly arising from our cross-border RMB-denominated intragroup loans, is a result of depreciation or appreciation of RMB, respectively |
SOGOU INC. |
||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||
(UNAUDITED, IN THOUSANDS) |
||||
As of Sep. 30, 2018 |
As of Dec. 31, 2017 |
|||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents |
$ |
229,704 |
$ |
694,207 |
Short-term investments |
846,743 |
339,006 |
||
Accounts receivable, net |
96,862 |
69,967 |
||
Loans receivables, net |
33,930 |
- |
||
Prepaid and other current assets |
38,106 |
15,091 |
||
Due from related parties |
2,273 |
2,971 |
||
Total current assets |
1,247,618 |
1,121,242 |
||
Long‑term investments |
60,831 |
30,152 |
||
Fixed assets, net |
139,368 |
139,209 |
||
Goodwill |
5,612 |
5,908 |
||
Intangible assets, net |
736 |
1,328 |
||
Deferred tax assets, net |
11,285 |
15,006 |
||
Other assets |
8,967 |
8,191 |
||
Total assets |
$ |
1,474,417 |
$ |
1,321,036 |
LIABILITIES |
||||
Current liabilities: |
||||
Accounts payable |
$ |
116,523 |
$ |
73,018 |
Accrued and other short term liabilities |
154,362 |
164,269 |
||
Receipts in advance |
81,161 |
66,199 |
||
Accrued salary and benefits |
27,387 |
29,719 |
||
Taxes payable |
52,507 |
56,481 |
||
Due to related parties |
65,000 |
23,109 |
||
Total current liabilities |
496,940 |
412,795 |
||
Total liabilities |
$ |
496,940 |
$ |
412,795 |
SHAREHOLDERS' EQUITY |
||||
Sogou Inc. shareholders' equity |
977,477 |
908,241 |
||
Total shareholders' equity |
977,477 |
908,241 |
||
Total liabilities and shareholders' equity |
$ |
1,474,417 |
$ |
1,321,036 |
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 Sep. 30, 2018 |
Three Months Ended Jun. 30, 2018 |
Three Months Ended Sep. 30, 2017 |
||||||||||||||||
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
GAAP |
Non-GAAP |
Non-GAAP |
||||||||||
Adjustments (1) |
Adjustments (1) |
Adjustments (1) |
||||||||||||||||
Gross profit |
$ |
102,945 |
$ |
234 |
$ |
103,179 |
$ |
121,667 |
$ |
263 |
$ |
121,930 |
$ |
127,046 |
$ |
- |
$ |
127,046 |
Gross margin |
37% |
37% |
40% |
40% |
49% |
49% |
||||||||||||
Operating expenses |
$ |
109,738 |
$ |
(3,895) |
$ |
105,843 |
$ |
96,836 |
$ |
(4,784) |
$ |
92,052 |
$ |
91,353 |
$ |
(316) |
$ |
91,037 |
Operating Profit |
$ |
(6,793) |
$ |
4,129 |
$ |
(2,664) |
$ |
24,831 |
$ |
5,047 |
$ |
29,878 |
$ |
35,693 |
$ |
316 |
$ |
36,009 |
Operating margin |
-2% |
-1% |
8% |
10% |
14% |
14% |
||||||||||||
Income tax (benefit)/expenses |
$ |
(409) |
$ |
$ |
(409) |
$ |
2,997 |
$ |
$ |
2,997 |
$ |
4,593 |
$ |
$ |
4,593 |
|||
Net income |
$ |
23,918 |
$ |
4,129 |
$ |
28,047 |
$ |
33,160 |
$ |
5,047 |
$ |
38,207 |
$ |
30,973 |
$ |
316 |
$ |
31,289 |
Net income attributable to Sogou Inc. |
$ |
23,918 |
$ |
4,129 |
$ |
28,047 |
$ |
33,160 |
$ |
5,047 |
$ |
38,207 |
$ |
30,973 |
$ |
316 |
$ |
31,289 |
Net margin attributable to Sogou Inc. |
9% |
10% |
11% |
13% |
12% |
12% |
||||||||||||
(1) To exclude share-based compensation expense. This non-GAAP adjustment does not have an impact on income tax expense. |
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