BEIJING, July 30, 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
second quarter 2018, ended June 30,
2018.
Second Quarter 2018 Highlights
- Total revenues[1] were $301.4
million, a 43% increase year-over-year.
- Net income attributable to Sogou Inc. was $33.2 million, a 41% increase year-over-year.
Non-GAAP[2] net income attributable to Sogou Inc. was
$38.2 million, a 58% increase
year-over-year.
"We continued to develop our twin growth engines – search and
mobile keyboard – in the second quarter," said Xiaochuan Wang, CEO of Sogou. "In search, we
bolstered our differentiated services in key verticals, such as
healthcare, where we added more authoritative content, leading to a
solid increase in related search queries and click through rate. We
also deepened our partnership with WeChat by providing more search
services such as our encyclopedia and interactive Q&A platform.
Overall, our core search business maintained solid growth with
revenues increasing by 45% year-over-year. During the quarter, we
enhanced functionality of the Sogou Mobile Keyboard to better meet
user needs for smart interaction and expression. Our AI-powered
innovations drove broader adoption of the Sogou Mobile Keyboard,
with DAU increasing by 36% year-on-year to 380 million in the
second quarter."
Mr. Wang added, "Going forward, we remain committed to
developing language-centered AI technologies in voice, translation
and Q&A, which are well positioned to empower our search,
mobile keyboard and smart hardware products. Sogou Search
continuously improved its content quality and user experience with
the ongoing refinement of our translation and Q&A technologies.
In the month of June, Sogou Mobile Keyboard handled approximately
300 million voice inputs on average per day, up 54% year-on-year,
and remained China's largest voice
mobile application. We have also applied our AI capabilities to
greatly enhance the competitiveness of our recently launched
hardware products, such as Sogou Travel Translator and Sogou Smart
Recording Translator."
Joe Zhou, CFO of Sogou, said, "We
achieved solid results in the second quarter with revenue
increasing 43% year-over-year and non-GAAP net income up by 58%.
Looking forward, we expect that our third quarter revenues will be
lower than anticipated due to the one-time impact of a regulatory
investigation and steps taken to ensure our advertising practices
are compliant with relevant regulations, and the adjustment of our
smart hardware strategy. We are confident that our twin growth
engines and AI-focused strategy will lead to sustainable growth
over the long term."
Second Quarter 2018 Financial Results
Total revenues were $301.4
million, a 43% increase year-over-year.
- Search and search-related revenues[3]
were $270.6 million, a 45% increase
year-over-year. The increase was primarily due to strong growth in
auction-based pay-for-click services, driven by improved
monetization and continued traffic growth in mobile search.
Auction-based pay-for-click services accounted for 84.7% of search
and search-related revenues, compared to 83.0% in the corresponding
period in 2017.
- Other revenues were $30.8
million, a 27% increase year-over-year. The growth was
primarily due to increased revenues from sales of smart hardware
products and Internet value-added services (or "IVAS").
Cost of revenues was $179.7
million, a 70% increase year-over-year. Traffic
acquisition cost, a primary driver of cost of revenues, was
$135.7 million, a 91% increase
year-over-year, representing 45.0% of total revenues, compared to
33.7% in the corresponding period in 2017. The increase was driven
by price inflation as a result of increased competition.
Gross profit was $121.7
million, a 15% increase year-over-year. Non-GAAP gross
profit was $121.9 million, a 16%
increase year-over-year.
Total operating expenses were $96.8 million, a 21% increase year-over-year.
- Research and development expenses were
$56.2 million, a 48% increase
year-over-year, representing 18.7% of total revenues, compared to
18.1% in the corresponding period in 2017. The increase was
primarily due to an increase in salary and benefits expenses,
outsourced product development fees as well as share based
compensation expense, reflecting our continued efforts to
strengthen our AI capabilities.
- Sales and marketing expenses were $33.9 million, an 8% decrease year-over-year,
representing 11.2% of total revenues, compared to 17.4% in the
corresponding period in 2017. The decrease was primarily
attributable to a decrease in marketing and promotional spending
for our mobile products.
- General and administrative expenses were
$6.7 million, a 27% increase
year-over-year, representing 2.2% of total revenues, compared to
2.5% in the corresponding period in 2017. The increase was
primarily due to an increase in share based compensation expense
and salary and benefit expenses.
Operating income was $24.8
million, a 2% decrease year-over-year. Non-GAAP operating
income was $29.9 million, a 14%
increase year-over-year.
Income tax expense was $3.0
million, compared to income tax expense of $2.0 million in the corresponding quarter of
2017.
Net income attributable to Sogou Inc. was $33.2 million, a 41% increase year-over-year.
Non-GAAP net income attributable to Sogou Inc. was
$38.2 million, a 58% increase
year-over-year.
Basic earnings per ADS were $0.09. Diluted earnings per ADS were
$0.08. Non-GAAP basic and diluted
earnings per ADS were $0.10 and
$0.09 respectively.
As of June 30, 2018, the Company
had cash and cash equivalents and short-term investments of
$1.0 billion, compared with
$1.1 billion as of March 31, 2018. Net loans receivable in the
amount of $13.0 million represented
amounts receivable under small consumer loans extended through the
Company's recently launched internet finance platform. Net
operating cash inflow for the second quarter of 2018 was
$12.5 million. Capital
expenditures for the second quarter of 2018 were $20.2 million.
Recent Developments
- Chinese regulatory authorities, including the Beijing Office of
the Cyberspace Administration of China and the Beijing Administration for
Industry and Commerce, initiated an investigation of Sogou after
certain advertisements involving content that the authorities
believed insulted a national hero were displayed on its platform.
The advertisements were developed and reviewed by Douyin, a Chinese
short-form video platform, and displayed on Sogou Search in
June 2018. Following the
investigation, the regulatory authorities instructed Sogou to amend
its advertising practices. Sogou fully cooperated with the
authorities in their investigation and the Company has taken steps
to revise its advertising policies and audit procedures to ensure
compliance with relevant regulations. In connection with
implementing such remedial measures, Sogou suspended part of its
advertising business for ten days commencing July 1, 2018. This is expected to result in a
one-time reduction in revenues in the third quarter of 2018.
- Sogou recently adjusted its smart hardware strategy to better
leverage the Company's AI capabilities to improve product
competitiveness. The adjustment followed the recent launch of two
translation devices that were well-received in the market due to
Sogou's industry-leading translation technologies. As a result of
the change in strategy, Sogou will phase out hardware products that
are not AI-enabled, such as some legacy models of Teemo Smart
Watch, and transition to products that integrate the Company's
leading AI technologies. Sogou expects that this will result in a
reduction in hardware revenues in the second half of 2018.
Business Outlook
For the third quarter of 2018, Sogou expects total revenues to
range from $275 million to
$285 million, representing a 7% to
11% increase year-over-year. The guidance for the third quarter
takes into account the one-time impact of the regulatory
investigation, lower hardware sales following the adjustment of the
smart hardware strategy, and the depreciation of the RMB.
For the third quarter 2018 guidance, the Company has adopted a
presumed exchange rate of RMB 6.80 =
$1.00, as compared with the actual
exchange rate of approximately RMB6.66 = $1.00 for
the third quarter of 2017, and RMB
6.38 = $1.00 for the second
quarter of 2018.
[1] On a
constant currency (non-GAAP) basis, if the exchange rate in the
second quarter of 2018 had been the same as it was in the second
quarter of 2017, or RMB 6.85=$1.00, total revenues in the second
quarter of 2018 would have been $280.7 million, or $20.7 million
less than GAAP total revenues, and up 33%
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."
|
[3] The
Company has adopted ASU No. 2014-09, ''Revenue from Contracts with
Customers" beginning January 1, 2018. The only major impact of the
standard is that revenues and expenses related to advertising
barter transactions are recognized beginning January 1, 2018. The
impact for this quarter is approximately $5.6 million for both
revenues, and cost of revenues and expenses.
|
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 these expenses are
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,
(7:30 pm Beijing/Hong
Kong time) on July 30, 2018,
following the quarterly results announcement.
The dial-in details for the live conference call are:
U.S. Toll
Free:
|
1-888-346-8982
|
Mainland
China:
|
4001-201203 (Toll
Free)
|
Hong Kong:
|
800-905945 (Toll
Free); +852-301-84992 (Local Toll)
|
International:
|
+1-412-902-4272
|
Passcode:
|
8781674
|
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 6,
2018:
International:
|
+1-412-317-0088
|
Passcode:
|
10122131
|
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: zhengyan@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,
2018
|
|
Mar. 31,
2018
|
|
Jun. 30,
2017
|
Revenues:
|
|
|
|
|
|
|
Search and
search‑related advertising revenues
|
$
|
270,622
|
$
|
220,374
|
$
|
186,771
|
Other
revenues
|
|
30,794
|
|
28,010
|
|
24,172
|
Total
revenues
|
|
301,416
|
|
248,384
|
|
210,943
|
Cost of revenues
(1)
|
|
179,749
|
|
154,023
|
|
105,462
|
Gross
profit
|
|
121,667
|
|
94,361
|
|
105,481
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development (1)
|
|
56,223
|
|
46,634
|
|
38,114
|
Sales and marketing
(1)
|
|
33,865
|
|
27,060
|
|
36,616
|
General and
administrative (1)
|
|
6,748
|
|
6,400
|
|
5,305
|
Total operating
expenses
|
|
96,836
|
|
80,094
|
|
80,035
|
Operating
income
|
|
24,831
|
|
14,267
|
|
25,446
|
Interest
income
|
|
1,763
|
|
3,467
|
|
2,139
|
Foreign currency
exchange gain/(loss)(2)
|
|
6,136
|
|
(4,666)
|
|
(2,163)
|
Other income,
net
|
|
3,427
|
|
4,386
|
|
131
|
Income before
income tax expenses
|
|
36,157
|
|
17,454
|
|
25,553
|
Income tax
expenses
|
|
2,997
|
|
2,144
|
|
2,027
|
Net
income
|
|
33,160
|
|
15,310
|
|
23,526
|
Net income
attributable to Sogou Inc.
|
$
|
33,160
|
$
|
15,310
|
$
|
23,526
|
Less: Dividends
attributable to preferred
shareholders
|
|
-
|
|
-
|
|
7,023
|
Net income
attributable to ordinary
shareholders
|
$
|
33,160
|
$
|
15,310
|
$
|
16,503
|
Weighted average
number of ordinary shares
outstanding - basic
|
|
388,409
|
|
386,840
|
|
237,772
|
Weighted average
number of ordinary shares
outstanding - diluted
|
|
395,163
|
|
395,698
|
|
270,104
|
Net income per
ordinary share - basic
|
$
|
0.09
|
$
|
0.04
|
$
|
0.07
|
Net income per
ordinary share - diluted
|
$
|
0.08
|
$
|
0.04
|
$
|
0.06
|
Net income per ADS -
basic
|
$
|
0.09
|
$
|
0.04
|
$
|
0.07
|
Net income per ADS -
diluted
|
$
|
0.08
|
$
|
0.04
|
$
|
0.06
|
|
|
|
|
|
|
|
(1)
Share-based compensation expense
included in:
|
|
|
|
|
|
|
Cost of
revenues
|
$
|
263
|
$
|
219
|
$
|
2
|
Research and
development
|
|
3,637
|
|
3,186
|
|
628
|
Sales and
marketing
|
|
427
|
|
353
|
|
25
|
General and
administrative
|
|
720
|
|
521
|
|
4
|
|
$
|
5,047
|
$
|
4,279
|
$
|
659
|
|
|
|
|
|
|
|
(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 Jun.
30, 2018
|
|
As of Dec.
31, 2017
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
$
|
177,276
|
$
|
694,207
|
Short-term
investments
|
|
866,611
|
|
339,006
|
Accounts receivable,
net
|
|
79,714
|
|
69,967
|
Loans receivable,
net
|
|
13,039
|
|
-
|
Prepaid and other
current assets
|
|
35,714
|
|
15,091
|
Due from related
parties
|
|
5,380
|
|
2,971
|
Total current
assets
|
|
1,177,734
|
|
1,121,242
|
Long‑term
investments
|
|
43,451
|
|
30,152
|
Fixed assets,
net
|
|
142,336
|
|
139,209
|
Goodwill
|
|
5,834
|
|
5,908
|
Intangible assets,
net
|
|
861
|
|
1,328
|
Deferred tax assets,
net
|
|
11,733
|
|
15,006
|
Other
assets
|
|
9,277
|
|
8,191
|
Total
assets
|
$
|
1,391,226
|
$
|
1,321,036
|
LIABILITIES
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$
|
80,060
|
$
|
73,018
|
Accrued and other
short term liabilities
|
|
152,436
|
|
164,269
|
Receipts in
advance
|
|
73,816
|
|
66,199
|
Accrued salary and
benefits
|
|
25,151
|
|
29,719
|
Taxes
payable
|
|
50,903
|
|
56,481
|
Due to related
parties
|
|
46,882
|
|
23,109
|
Total current
liabilities
|
|
429,248
|
|
412,795
|
Total
liabilities
|
$
|
429,248
|
$
|
412,795
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
Sogou Inc.
shareholders' equity
|
|
961,978
|
|
908,241
|
Total
shareholders' equity
|
|
961,978
|
|
908,241
|
Total liabilities
and shareholders' equity
|
$
|
1,391,226
|
$
|
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
Jun. 30, 2018
|
Three Months Ended
Mar. 31, 2018
|
Three Months Ended
Jun. 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
|
$
|
121,667
|
$
|
263
|
$
|
121,930
|
$
|
94,361
|
$
|
219
|
$
|
94,580
|
$
|
105,481
|
$
|
2
|
$
|
105,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
40%
|
|
|
|
40%
|
|
38%
|
|
|
|
38%
|
|
50%
|
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
$
|
96,836
|
$
|
(4,784)
|
$
|
92,052
|
$
|
80,094
|
$
|
(4,060)
|
$
|
76,034
|
$
|
80,035
|
$
|
(657)
|
$
|
79,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit
|
$
|
24,831
|
$
|
5,047
|
$
|
29,878
|
$
|
14,267
|
$
|
4,279
|
$
|
18,546
|
$
|
25,446
|
$
|
659
|
$
|
26,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
8%
|
|
|
|
10%
|
|
6%
|
|
|
|
7%
|
|
12%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expenses
|
$
|
2,997
|
$
|
|
$
|
2,997
|
$
|
2,144
|
$
|
|
$
|
2,144
|
$
|
2,027
|
$
|
|
$
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
33,160
|
$
|
5,047
|
$
|
38,207
|
$
|
15,310
|
$
|
4,279
|
$
|
19,589
|
$
|
23,526
|
$
|
659
|
$
|
24,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Sogou Inc.
|
$
|
33,160
|
$
|
5,047
|
$
|
38,207
|
$
|
15,310
|
$
|
4,279
|
$
|
19,589
|
$
|
23,526
|
$
|
659
|
$
|
24,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin
attributable to Sogou Inc.
|
|
11%
|
|
|
|
13%
|
|
6%
|
|
|
|
8%
|
|
11%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) To
exclude share-based compensation expense. This non-GAAP adjustment
does not have an impact on income tax expense.
|
|
|
|
|
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/sogou-announces-second-quarter-2018-results-300688280.html
SOURCE Sogou Inc.