Total Revenues Reach a Record US$68.7 million, Up 3%
Quarter-over-Quarter; BEIJING, Oct. 26 /PRNewswire-Asia/ --
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 third quarter
ended September 30, 2009. (Logo:
http://www.newscom.com/cgi-bin/prnh/20090402/CNTH020 ) Third
Quarter 2009 Highlights -- Total revenues reached a record US$68.7
million, an increase of 3% quarter-over-quarter and 26%
year-over-year, within the Company's guidance. -- Net income
reached a record US$37.8 million, or US$0.71 per fully diluted
ADS(1). Net income increased by 9% quarter-over-quarter and 18%
year-over-year. -- Non-GAAP(2) net income (i.e. excluding
share-based compensation expenses) reached a record US$41.3
million, or US$0.77 per fully diluted ADS, exceeding the high end
of the Company's guidance -- Non-GAAP net income increased by 3%
quarter-over-quarter and 24% year- over-year. -- Aggregate
registered accounts for the Company's games(3) grew 9%
quarter-over-quarter and 46% year-over-year to 75.1 million. --
Aggregate active paying accounts ("APA") for the Company's games
grew 1% quarter-over-quarter and 20% year-over-year to 2.4 million.
-- Average revenue per active paying account ("ARPU") for the
Company's games increased 2% quarter-over-quarter and 7%
year-over-year to RMB190. (1) Each American depositary share
("ADS") represents two Class A ordinary shares. (2) 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 to
Unaudited Condensed Consolidated Statements of Operations." (3)
Comprised of Tian Long Ba Bu ("TLBB"), Blade Online, and Blade Hero
2 "Our solid financial and operational results once again
demonstrate the strength of our game development and operation
capabilities," said Mr. Tao Wang, Changyou's chief executive
officer. "Our relentless focus on the in-game user experience will
continue to attract new users and extend the lifecycle of our
existing games. In addition, our recent technological acquisitions
and newly licensed game will better position us for the future by
enabling us to begin in-house development of 3D games and further
enriching our game pipeline. In the coming quarters, Changyou will
launch a number of differentiated products with various graphic
styles and themes that will firmly establish Changyou in a range of
sub-segments outside of 2.5D, a space that we continue to lead and
dominate. I am confident that these initiatives will further
augment our brand, solidify our industry leadership position and
deliver future success." Mr. Alex Ho, Changyou's chief financial
officer, added, "Changyou has delivered solid results by
continually setting new financial records and maintaining upward
trends in our key operational metrics. Our focus on the in-game
experience of our users and the timely launch of expansion packs
based on user feedback continues to increase the momentum of our
existing games, creating a highly profitable business with rich
cash flows that will enable Changyou to make investments in future
technologies and high-quality games for long-term growth and
increased shareholders' value." Third Quarter 2009 Operational
Results Aggregate registered accounts for the Company's games as of
September 30, 2009 increased 9% quarter-over-quarter and 46%
year-over-year to 75.1 million. Aggregate APA for the Company's
games increased 1% quarter-over-quarter and 20% year-over-year to
2.4 million. ARPU for the Company's games increased 2%
quarter-over-quarter and 7% year-over-year to RMB190, which the
Company believes is within a range that is affordable for the
majority of Chinese game players. Aggregate peak concurrent users
("PCU") for the Company's games was approximately 910,000, a
decrease of 4% quarter-over-quarter and an increase of 18%
year-over-year. Third Quarter 2009 Unaudited Financial Results
Revenues Total revenues for the third quarter of 2009 increased 3%
quarter-over-quarter and 26% year-over-year to US$68.7 million.
Revenues from game operations for the third quarter of 2009
increased 3% quarter-over-quarter and 29% year-over-year to US$66.9
million. The increases were mainly due to increased popularity of
the Company's flagship game, TLBB. Overseas licensing revenues for
the third quarter of 2009 increased 9% quarter-over-quarter and
decreased 33% year-over-year to US$1.8 million. The sequential
increase was mainly due to increased momentum of TLBB in Vietnam
and Malaysia. The year-over-year decrease was largely the result of
greater competition in mature online game markets abroad. Gross
Profit Gross profit for the third quarter of 2009 increased 2%
quarter-over-quarter and 25% year-over-year to US$64.0 million.
Non-GAAP gross profit for the third quarter of 2009 increased 2%
quarter-over-quarter and 26% year-over-year to US$64.1 million.
Both gross margin and non-GAAP gross margin in the third quarter of
2009 were 93%, compared to 94% for both in the second quarter of
2009 and the third quarter of 2008. Operating Expenses For the
third quarter of 2009, total operating expenses decreased 7%
quarter-over-quarter and increased 16% year-over-year to US$21.7
million. Non-GAAP operating expenses totaled US$18.3 million, up 4%
quarter-over-quarter and up 5% year-over-year. Non-GAAP product
development expenses increased 8% sequentially and decreased 5%
year-over-year to US$4.9 million. The sequential increase was
primarily attributable to an increase in salaries and benefits due
to hiring of more game engineers. The year-over-year decrease was
primarily the result of a change in the Company's bonus program for
management and key engineers, for whom the Company lessened cash
bonuses after share-based awards previously granted increased in
value after the Company's IPO. Non-GAAP sales and marketing
expenses decreased 10% sequentially and 15% year-over-year to
US$9.2 million. The decreases were primarily a result of savings in
marketing and promotional spending due to the Company's
optimization of marketing campaigns. Non-GAAP general and
administrative expenses increased 46% sequentially and tripled
year-over-year to US$4.1 million. The increases were primarily due
to the expansion of back-office headcount and an increase in legal
expenses to enforce the Company's intellectual property rights.
Operating Profit Operating profit for the third quarter of 2009
increased 7% quarter-over-quarter and 30% year-over-year to US$42.3
million. Operating margin in the third quarter of 2009 was 62%, up
from 59% in both the second quarter of 2009 and the third quarter
of 2008. Non-GAAP operating profit for the third quarter of 2009
increased 2% quarter-over-quarter and 36% year-over-year to US$45.8
million. Non-GAAP operating margin in the third quarter of 2009 was
67%, compared to 68% in the second quarter of 2009 and up from 62%
in the third quarter of 2008. Net Income For the third quarter of
2009, net income increased 9% quarter-over-quarter and 18%
year-over-year to US$37.8 million. Non-GAAP net income increased 3%
quarter-over-quarter and 24% year-over-year to US$41.3 million.
Fully diluted earnings per ADS were US$0.71, up from US$0.66 in the
second quarter of 2009 and US$0.68 in the third quarter of 2008.
Non-GAAP fully diluted earnings per ADS were US$0.77, up from
US$0.75 in the second quarter of 2009 and US$0.70 in the third
quarter of 2008. Net margin for the third quarter of 2009 was 55%,
up from 52% in the second quarter of 2009 and compared to 59% in
the third quarter of 2008. Non-GAAP net margin for the third
quarter was 60%, unchanged from the previous quarter and compared
to 61% in the third quarter of 2008. Cash Balances As of September
30, 2009, Changyou had a net cash balance of US$312.9 million, up
from US$275.9 million as of June 30, 2009. Operating cash flow for
the quarter was a net inflow of US$46.2 million. As described in
the Company's IPO prospectus, Changyou declared on April 1, 2009,
prior to the Company's IPO, a US$96.8 million cash dividend payable
to Sohu.com (Game) Limited, an indirect, wholly-owned subsidiary of
Sohu. Changyou received required PRC approvals in the third quarter
of 2009, and expects to pay this dividend in the fourth quarter of
2009. Other Business Developments 3D Game Engines The Company
licensed two industry leading proprietary 3D game engines, BigWorld
Technology Suite, from BigWorld, and CryENGINE 3, from Crytek.
Featuring cutting edge technology, these top-of-the-line game
engines will allow the Company to begin in-house development of
high-quality 3D games with good atmospheric visuals, intuitive user
interfaces and innovative gameplay. Newly Licensed Game The Company
licensed Zhong Hua Ying Xiong from Chinese Gamer International
Corporation, a leading game developer in Taiwan, and received the
exclusive operation rights for the game in China. Zhong Hua Ying
Xiong is a 3D martial-arts MMORPG that currently ranks as one of
the top 3 games in Taiwan. It is the best performing game in Taiwan
this year to-date, reaching a PCU of over 150,000 within one month
of open beta testing. The game is based on a popular story from a
widely read Hong Kong comic book about the challenges of life for a
Chinese expatriate outside his home land. Business Outlook Changyou
estimates total revenues for the fourth quarter of 2009 to be
between US$69.0 million and US$71.0 million. Changyou estimates
non-GAAP net income for the fourth quarter of 2009 to be between
US$41.5 million and US$42.5 million. Changyou estimates non-GAAP
fully diluted earnings per ADS for the fourth quarter of 2009 to be
between US$0.78 and US$0.80. Assuming no new grants of share-based
awards, Changyou estimates share-based compensation expense for the
fourth quarter of 2009 to be between US$3.0 million and US$3.5
million, reducing fully diluted earnings per ADS by US$0.06 to
US$0.07. Non-GAAP Disclosure To supplement the unaudited
consolidated financial information prepared in accordance with
United States Generally Accepted Accounting Principles ("GAAP"),
Changyou's management uses non-GAAP measures of cost of revenues,
operating expenses, net income and net income per ADS, which are
adjusted from results based on GAAP to exclude the compensation
cost of share-based awards granted to employees. 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 the share-based compensation expense from its non-GAAP
financial measure is useful for itself and investors. Further, the
amount of share-based compensation expense cannot be anticipated by
management, and these expenses 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 does not involve any upfront or subsequent
cash outflow, Changyou does not factor this in when evaluating and
approving expenditures or when determining the allocation of its
resources to its business operations. As a result, 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. 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 cost
of revenues, operating expenses, net income and net income per ADS,
excluding share-based compensation expense, 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. 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. Notes to Financial Information Financial information
in this press release other than the information indicated as being
non-GAAP is extracted from Changyou's unaudited interim 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, the current global
financial and credit markets crisis and its potential impact on the
Chinese economy, the slower growth the Chinese economy experienced
during the latter half of 2008 and the first nine months of 2009,
which could continue through the remainder of 2009, the uncertain
regulatory landscape in the People's Republic of China,
fluctuations in Changyou's quarterly operating results, Changyou's
historical and possible future losses and limited operating
history, and the Company's reliance on Tian Long Ba Bu as its major
revenue source. Further information regarding these and other risks
is included in Changyou's Registration Statement on Form F-1
originally filed on March 17, 2009 as amended through March 31,
2009, and other filings with the Securities and Exchange
Commission. Conference Call Information Changyou's management team
will host an earnings conference call today at 7 a.m. U.S. Eastern
Daylight Time, October 26, 2009 (or 7 p.m. Beijing/Hong Kong time,
October 26, 2009). To listen to the conference call, please use the
dial in numbers below: US: +1-866-314-5050 Hong Kong:
+852-3002-1672 International: +1-617-213-8051 Please dial in 10
minutes before the call is scheduled to begin and provide the
passcode to join the call. The passcode is "CYOU." A replay of the
conference call may be accessed by phone at the following number
until November 2, 2009: International: +1-617-801-6888 Passcode:
58929515 The conference call will be available on webcast live and
available for replay at: http://www.changyou.com/ir/ . About
Changyou Changyou.com Limited's ("Changyou") (NASDAQ:CYOU)
massively multi-player online role-playing games ("MMORPG")
business began operations as a business unit within Sohu.com Inc.
(NASDAQ:SOHU) in 2003. Changyou was carved out as a separate,
stand-alone company in December 2007 and is now a leading developer
and operator of online games in China and completed an initial
public offering on April 7, 2009. Changyou currently operates three
online games, including the in-house developed Tian Long Ba Bu, one
of the most popular online games in China, and the licensed Blade
Online and Blade Hero 2. Changyou has a diversified pipeline of
games with various graphic styles and themes, including the
licensed Immortal Faith, Legend of the Ancient World, Zhong Hua
Ying Xiong, and the in-house developed Duke of Mount Deer, which
received an award as one of China's most anticipated online games.
Changyou's leading technology platform includes an advanced 2.5D
graphics engine, a uniform game development platform, effective
anti-cheating and anti-hacking technologies, proprietary
cross-networking technology and advanced data protection
technology. For more information about Changyou, please visit
http://www.changyou.com/en/ . CHANGYOU.COM LIMITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS
EXCEPT PER ADS AMOUNTS) Three Months Ended Nine Months Ended Sep.
30, Jun. 30, Sep. 30, Sep. 30, Sep. 30, 2009 2009 2008 2009 2008
Revenues: Game operation revenues $66,880 $64,936 $51,893 $191,162
$138,197 Overseas licensing revenues 1,804 1,660 2,711 5,725 5,258
Total revenues 68,684 66,596 54,604 196,887 143,455 Cost of
revenues (includes share-based compensation expense of $169, $90,
$nil, $267 and $10, respectively) 4,714 3,943 3,505 12,098 10,253
Gross profit 63,970 62,653 51,099 184,789 133,202 Operating
expenses: Product development (includes share-based compensation
expense of $1,885, $2,989, $1,175, $5,641 and $3,764, respectively)
6,788 7,510 6,344 20,465 16,897 Sales and marketing (includes
share-based compensation expense of $68, $112, $nil, $184 and $8,
respectively) 9,280 10,381 10,857 30,497 28,968 General and
administrative (includes share-based compensation expense of
$1,432, $2,481, $76, $3,980 and $347, respectively) 5,614 5,309
1,424 14,203 5,800 Total operating expenses 21,682 23,200 18,625
65,165 51,665 Operating profit 42,288 39,453 32,474 119,624 81,537
Interest expense -- -- (60) (104) (178) Interest income and foreign
currency exchange gain/loss 966 871 377 2,617 637 Other income
(expense) 34 -- -- 33 (291) Income before income tax expense 43,288
40,324 32,791 122,170 81,705 Income tax (expense) benefit (5,494)
(5,796) 707 (16,344) (2,791) Net income $37,794 $34,528 $32,084
$105,826 $78,914 Basic net income per ADS $0.74 $0.67 $0.68 $2.12
$1.66 ADSs used in computing basic net income per ADS 51,251 51,209
47,500 49,987 47,500 Diluted net income per ADS $0.71 $0.66 $0.68
$2.07 $1.66 ADSs used in computing diluted net income per ADS
53,001 52,590 47,500 51,034 47,500 CHANGYOU.COM LIMITED CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS) As of Sep.
30, As of Dec. 31, 2009 2008 ASSETS Current assets: Cash and bank
deposits $312,933 $134,439 Accounts receivable, net 3,860 1,019
Prepaid and other current assets 12,324 22,187 Due from Sohu 378
8,535 Total current assets 329,495 166,180 Non-current assets:
Fixed assets, net 10,731 9,260 Intangible assets, net 92 57 Other
assets, net 1,996 1,159 TOTAL ASSETS $342,314 $176,656 LIABILITIES
AND SHAREHOLDERS' EQUITY Receipts in advance and deferred revenue
$29,181 $20,703 Accrued liabilities 25,189 22,834 Tax payables
7,636 9,163 Short-term loan from Sohu -- 8,450 Dividend payable
96,800 -- Due to Sohu 4,861 10,812 Total liabilities 163,667 71,962
Total shareholders' equity 178,647 104,694 TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $342,314 $176,656 CHANGYOU.COM LIMITED
RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (IN THOUSANDS EXCEPT PER ADS AMOUNTS) Three Months Ended
Sep. 30, 2009 Non-GAAP GAAP Adjustments Non-GAAP Total revenues
$68,684 $-- $68,684 Less: Cost of revenues 4,714 (169) (a) 4,545
Gross profit $63,970 $169 $64,139 Gross margin 93% 93% Operating
expenses $21,682 $(3,385) (a) $18,297 Product development expenses
$6,788 $(1,885) (a) $4,903 Sales and marketing expenses $9,280
$(68) (a) $9,212 General and administrative expenses $5,614
$(1,432) (a) $4,182 Operating profit $42,288 $3,554 $45,842
Operating margin 62% 67% Net income $37,794 $3,554 $41,348 Net
margin 55% 60% Diluted net income per ADS $0.71 $0.77 ADSs used in
computing diluted net income per ADS 53,001 53,436 Three Months
Ended Jun. 30, 2009 Non-GAAP GAAP Adjustments Non-GAAP Total
revenues $66,596 $-- $66,596 Less: Cost of revenues 3,943 (90) (a)
3,853 Gross profit $62,653 $90 $62,743 Gross margin 94% 94%
Operating expenses $23,200 $(5,582) (a) $17,618 Product development
expenses $7,510 $(2,989) (a) $4,521 Sales and marketing expenses
$10,381 $(112) (a) $10,269 General and administrative expenses
$5,309 $(2,481) (a) $2,828 Operating profit $39,453 $5,672 $45,125
Operating margin 59% 68% Net income $34,528 $5,672 $40,200 Net
margin 52% 60% Diluted net income per ADS $0.66 $0.75 ADSs used in
computing diluted net income per ADS 52,590 53,251 Three Months
Ended Sep. 30, 2008 Non-GAAP GAAP Adjustments Non-GAAP Total
revenues $54,604 -- $54,604 Less: Cost of revenues 3,505 -- (a)
3,505 Gross profit $51,099 -- $51,099 Gross margin $94% $94%
Operating expenses $18,625 (1,251) (a) $17,374 Product development
expenses $6,344 (1,175) (a) $5,169 Sales and marketing expenses
$10,857 -- (a) $10,857 General and administrative expenses $1,424
(76) (a) $1,348 Operating profit $32,474 1,251 $33,725 Operating
margin 59% 62% Net income $32,084 1,251 $33,335 Net margin 59% 61%
Diluted net income per ADS $0.68 $0.70 ADSs used in computing
diluted net income per ADS 47,500 47,500 Note: (a) To eliminate
share-based compensation expense as measured using the fair value
method. CHANGYOU.COM LIMITED RECONCILIATIONS TO UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER ADS
AMOUNTS) Nine Months Ended Sep. 30, 2009 Non-GAAP GAAP Adjustments
Non-GAAP Total revenues $196,887 $-- $196,887 Less: Cost of
revenues 12,098 (267) (a) 11,831 Gross profit $184,789 $267
$185,056 Gross margin 94% 94% Operating expenses $65,165 $(9,805)
(a) $55,360 Product development expenses $20,465 $(5,641) (a)
$14,824 Sales and marketing expenses $30,497 $(184) (a) $30,313
General and administrative expenses $14,203 (3,980) (a) $10,223
Operating profit $119,624 $10,072 $129,696 Operating margin 61% 66%
Net income $105,826 $10,072 $115,898 Net margin 54% 59% Diluted net
income per ADS $2.07 $2.25 ADSs used in computing diluted net
income per ADS 51,034 51,400 Nine Months Ended Sep. 30, 2008
Non-GAAP GAAP Adjustments Non-GAAP Total revenues $143,455 $--
$143,455 Less: Cost of revenues 10,253 (10)(a) 10,243 Gross profit
$133,202 $10 $133,212 Gross margin 93% 93% Operating expenses
$51,665 $(4,119)(a) $47,546 Product development expenses $16,897
$(3,764)(a) $13,133 Sales and marketing expenses $28,968 $(8)(a)
$28,960 General and administrative expenses $5,800 $(347)(a) $5,453
Operating profit $81,537 $4,129 $85,666 Operating margin 57% 60%
Net income $78,914 $4,129 $83,043 Net margin 55% 58% Diluted net
income per ADS $1.66 $1.75 ADSs used in computing diluted net
income per ADS 47,500 47,500 Note: (a) To eliminate share-based
compensation expense as measured using the fair value method. For
investor and media inquiries, please contact: In China: Ms. Angie
Chang Investors Relations Manager Changyou.com Limited Tel:
+86-10-5956-3358 Email: Ms. Cathy Li Ogilvy Financial, Beijing Tel:
+86-10-8520-6104 Email: In the United States: Ms. Jessica Barist
Cohen Ogilvy Financial, New York Tel: +1-646-460-9989 Email:
http://www.newscom.com/cgi-bin/prnh/20090402/CNTH020DATASOURCE:
Changyou.com Limited CONTACT: In China, Ms. Angie Chang, Investors
Relations Manager of Changyou.com Limited, +86-10-5956-3358, or ,
or Ms. Cathy Li of Ogilvy Financial, Beijing, +86-10-8520-6104, or
, or in the United States, Ms. Jessica Barist Cohen of Ogilvy
Financial, New York, +1-646- 460-9989, or Web Site:
http://www.changyou.com/en http://www.changyou.com/ir
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