Sogou Announces Third Quarter 2019 Results

BEIJING, Nov. 4, 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 third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

    --  Total revenues([1] )were $314.9 million, a 14% increase year-over-year,
        or a 17% increase in RMB terms.
    --  Net income attributable to Sogou Inc. was $36.6 million, a 53% increase
        year-over-year. Non-GAAP([2]) net income attributable to Sogou Inc. was
        $40.9 million, a 46% increase year-over-year.
    --  Sogou Mobile Keyboard had 464 million DAUs (daily average users), up 14%
        year-over-year. As China's largest voice app, it processed up to 830
        million daily voice requests.

"During the third quarter we achieved healthy top- and bottom-line growth despite the headwinds in the macro environment and the online advertising industry," said Xiaochuan Wang, CEO of Sogou. "Search revenue continued to grow faster than the industry average, while the Recommendation Service that leverages Mobile Keyboard has maintained robust growth. Our language-centric AI technologies play an essential role across our core businesses. Of note, driven by the new AI-enabled products, our Smart Hardware business returned to a growth trajectory in the quarter."

Mr. Wang added, "In the rest of 2019, we expect the slowing macro and online advertising sentiment to continue, as well as the ongoing tightening regulation in the Internet sector. While we are confident in our long-term trajectory, we anticipate short-term softness as the external challenges weigh in. To navigate the environment, we will focus on building our high-quality search platform and driving organic traffic growth, as well as delivering positive momentum in our new growth drivers, including Recommendation Service and Smart Hardware. "

Joe Zhou, CFO of Sogou, said, "In the third quarter, our total revenues increased to $315 million. Non-GAAP net income grew by 46% year-over-year of $41 million. Margins improved across the board, as we generated increasing contribution from organic traffic, which helped us well contain the traffic acquisition cost, and at the same time prudently managed expenses and improved operational efficiency."

Third Quarter 2019 Financial Results

Total revenues were $314.9 million, a 14% increase year-over-year.

    --  Search and search-related revenues were $288.2 million, a 13% increase
        year-over-year. The increase was primarily due to growth in
        auction-based pay-for-click services. Auction-based pay-for-click
        services accounted for 88.7% of search and search-related revenues,
        compared to 82.7% in the corresponding period in 2018.
    --  Other revenues were $26.7 million, a 25% increase year-over-year. The
        increase was primarily due to increased revenues from sales of smart
        hardware products.

Cost of revenues was $189.3 million, a 9% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $143.7 million, a 6% increase year-over-year, representing 45.6% of total revenues, compared to 48.9% in the corresponding period in 2018.

Gross profit was $125.6 million, a 22% increase year-over-year. Non-GAAP gross profit was $125.7 million, a 22% increase year-over-year.

Total operating expenses were $98.2 million, a 10% decrease year-over-year.

    --  Research and development expenses were $50.0 million, relatively stable
        year-over-year, representing 15.9% of total revenues, compared to 18.3%
        in the corresponding period in 2018.
    --  Sales and marketing expenses were $37.5 million, a 14% decrease
        year-over-year, representing 11.9% of total revenues, compared to 15.8%
        in the corresponding period in 2018. The decrease was primarily
        attributable to a decrease in marketing and promotional spending.
    --  General and administrative expenses were $10.7 million, a 31% decrease
        year-over-year, representing 3.4% of total revenues, compared to 5.6% in
        the corresponding period in 2018. The decrease was primarily due to a
        decrease in expenses related to non-core business initiatives.

Operating income was $27.4 million, compared to an operating loss of $6.8 million in the corresponding period in 2018. Non-GAAP operating income was $31.6 million, compared to non-GAAP operating loss of $2.7 million in the corresponding period in 2018.

Other income, net was $7.6 million, compared to $24.0 million in the corresponding period in 2018. The decrease was primarily due to a $17.8 million gain from one of the Company's equity investments recognized in the corresponding period in 2018.

Income tax expense was $2.4 million, compared to an income tax benefit of $0.4 million in the corresponding period of 2018.

Net income attributable to Sogou Inc. was $36.6 million, a 53% increase year-over-year, compared to net income of $23.9 million in the corresponding period in 2018. Non-GAAP net income attributable to Sogou Inc. was $40.9 million, a 46% increase year-over-year, compared to net income of $28.0 million in the corresponding period in 2018.

Basic and diluted earnings per ADS were $0.09. Non-GAAP basic and diluted earnings per ADS were $0.10.

As of September 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 third quarter of 2019 was $19.6 million. Capital expenditures for the third quarter of 2019 were $0.7 million.


                        [1] On a constant currency (non-GAAP)
                         basis, if the exchange rate in the
                         third quarter of 2019 had been the
                         same as it was in the third quarter of
                         2018, or RMB 6.81=$1.00, total
                         revenues in the third quarter of 2019
                         would have been 323.5 million, or $8.6
                         million more than GAAP total revenues,
                         and up 17% 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."

Business Outlook

For the fourth quarter of 2019, Sogou expects total revenues to be in the range $290 million to $310 million, representing a 3% decrease to 4% increase year-over-year, or a 0% to 7% increase year-over-year in RMB terms. The guidance takes into account the potential impact of the challenges in the macroeconomy and the online advertising industry, as well as the ongoing tightening regulatory environment in the Internet sector.

For the fourth quarter 2019 guidance, the Company has adopted a presumed exchange rate of RMB7.10 = $1.00, as compared with the actual exchange rate of approximately RMB6.91 = $1.00 for the fourth quarter of 2018, and RMB6.99 = $1.00 for the third 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, (8:30 pm Beijing/Hong Kong time) on November 4, 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:                                       0197774

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 11, 2019:



              International:                     
              +1-412-317-0088



              Passcode:                                             10136108

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, 2019                                        Jun. 30, 2019                                 Sep. 30, 2018




              
                Revenues:



                Search and search?related advertising                                                                                                         $
              288,234                                   $
           276,152                  $
           255,312
      revenues



                Other revenues                                                                                                                                           26,657                                             27,464                            21,255



              
                Total revenues                                                                                                                               314,891                                            303,616                           276,567




              Cost of revenues (1)                                                                                                                                      189,280                                            195,863                           173,622



              
                Gross profit                                                                                                                                 125,611                                            107,753                           102,945




              
                Operating expenses:



                Research and development (1)                                                                                                                             50,031                                             50,609                            50,598



                Sales and marketing (1)                                                                                                                                  37,505                                             36,664                            43,592



                General and administrative (1)                                                                                                                           10,705                                              8,849                            15,548



              
                Total operating expenses                                                                                                                      98,241                                             96,122                           109,738




              
                Operating income/(loss)                                                                                                                       27,370                                             11,631                           (6,793)




              Interest income                                                                                                                                               793                                              1,739                             1,732



              Foreign currency exchange gain(2)                                                                                                                           3,198                                              2,387                             4,521



              Other income, net                                                                                                                                           7,648                                              4,216                            24,049



              
                Income before income tax expenses                                                                                                             39,009                                             19,973                            23,509



              Income tax expenses/(benefit)                                                                                                                               2,365                                            (1,357)                            (409)



              
                Net income                                                                                                                                    36,644                                             21,330                            23,918




              
                Net income attributable to Sogou Inc.                                                                                  $
              
                36,644                       $
              
             21,330               $
     
             23,918




              
                Net income attributable to ordinary                                                                                    $
              
                36,644                       $
              
             21,330               $
     
             23,918
    shareholders




              Weighted average number of ordinary shares                                                                                                                390,788                                            391,490                           389,566
    outstanding-basic



              Weighted average number of ordinary shares                                                                                                                396,319                                            396,632                           396,354
    outstanding-diluted



              Net income per ordinary share-basic                                                                                                                $
              0.09                                      $
           0.05                     $
           0.06



              Net income per ordinary share-diluted                                                                                                              $
              0.09                                      $
           0.05                     $
           0.06



              Net income per ADS-basic                                                                                                                           $
              0.09                                      $
           0.05                     $
           0.06



              Net income per ADS-diluted                                                                                                                         $
              0.09                                      $
           0.05                     $
           0.06





              
                (1)  Share?based compensation expense
    included in:



                Cost of revenues                                                                                                                                   $
              64                                       $
           127                      $
           234



                Research and development                                                                                                                                  2,767                                              4,470                             3,008



                Sales and marketing                                                                                                                                       1,091                                              1,670                               373



                General and administrative                                                                                                                                  294                                                187                               514


                                                                                                                                                                 $
              4,216                                     $
           6,454                    $
           4,129






              
                (2)  Foreign currency exchange gain/(loss), mainly arising from our cross-border RMB-denominated intragroup
    loans, is a result of depreciation or appreciation of the RMB, respectively.


                                                                                                              
              
                SOGOU INC.


                                                                                                
              
                CONDENSED CONSOLIDATED BALANCE SHEETS


                                                                                                      
              
                (UNAUDITED, IN THOUSANDS)




                                                                                                                                 
              
                As of Sep. 30, 2019                        
     
     As of Dec. 31, 2018




              
                ASSETS



              
                Current assets:



                Cash and cash equivalents                                                                                                                                           $
         111,523                                 $
         185,175



                Short-term investments                                                                                                                                                   972,029                                        851,327



                Account and financing receivables, net                                                                                                                                   157,927                                        142,886



                Prepaid and other current assets                                                                                                                                          32,743                                         40,122



                Due from related parties                                                                                                                                                   3,290                                          2,608



              Total current assets                                                                                                                                                     1,277,512                                      1,222,118




              Restricted cash                                                                                                                                                              1,414



              Long?term investments, net                                                                                                                                                  67,479                                         63,305



              Fixed assets, net                                                                                                                                                          122,413                                        147,495



              Goodwill                                                                                                                                                                     5,458                                          5,625



              Intangible assets, net                                                                                                                                                       1,244                                          1,349



              Deferred tax assets, net                                                                                                                                                    13,929                                         13,793



              Other assets (1)                                                                                                                                                            24,153                                          9,159



              
                Total assets                                                                                                                                     $
       
           1,513,602                         $
       
           1,462,844




              
                LIABILITIES



              
                Current liabilities:



              Accounts payable                                                                                                                                                      $
         130,909                                 $
         108,679



              Accrued and other short term liabilities (1)                                                                                                                               146,271                                        151,399



              Receipts in advance                                                                                                                                                         74,454                                         65,324



              Accrued salary and benefits                                                                                                                                                 22,588                                         32,079



              Taxes payable                                                                                                                                                               66,850                                         60,433



              Due to related parties (1)                                                                                                                                                  22,005                                         38,425



              Total current liabilities                                                                                                                                                  463,077                                        456,339




              Long-term liabilities (1)                                                                                                                                                    7,030




              
                Total liabilities                                                                                                                                  $
       
           470,107                           $
       
           456,339






              
                SHAREHOLDERS' EQUITY



              Sogou Inc. shareholders' equity                                                                                                                                          1,043,495                                      1,006,505



              
                Total shareholders' equity                                                                                                                                  1,043,495                                      1,006,505




              
                Total liabilities and shareholders' equity                                                                                                       $
       
           1,513,602                         $
       
           1,462,844






              (1) The Company has adopted ASU No. 2016-02, ''Leases" beginning January 1, 2019.  The only major impact of the standard is


              that assets and liabilities for leased office space with terms of more than 12 months are recognized beginning January 1, 2019.


              The impact as of September 30, 2019 is approximately $16.4 million for right-of-use assets, $7.4 million for current lease liabilities
    and $7.0 million for long-term lease liabilities.


                                                                                                                                                                                                                       
              
                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, 2019                                                                                   Three Months Ended Jun. 30, 2019                      Three Months Ended Sep. 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                                                                                                                                         $
              125,611                                                 $
              64                                                    $
              125,675       $
          107,753                                        $
          127        $
         107,880       $
        102,945         $
           234        $
         103,179






     Gross margin                                                                                                                                     40%                                                                                                                  40%                                       35%                                                                     36%                   37%                                      37%





      Operating
       expenses                                                                                                                                             $
              98,241                                            $
              (4,152)                                                    $
              94,089        $
          96,122                                    $
          (6,327)        $
         89,795       $
        109,738      $
          (3,895)       $
         105,843





      Operating
       income/
       (loss)                                                                                                                                               $
              27,370                                              $
              4,216                                                     $
              31,586        $
          11,631                                      $
          6,454         $
         18,085        $
        -6,793       $
           4,129         $
         -2,664






     Operating margin                                                                                                                                  9%                                                                                                                  10%                                        4%                                                                      6%                   -2%                                      -1%





      Income tax
       expenses/
       (benefit)                                                                                                                                             $
              2,365                    
              $                                                                                    $
              2,365       $
          (1,357)                       
              $                      $
         (1,357)         $
        -409    
     $                        $
         -409





      Net income                                                                                                                                            $
              36,644                                              $
              4,216                                                     $
              40,860        $
          21,330                                      $
          6,454         $
         27,784        $
        23,918       $
           4,129         $
         28,047





      Net income
       attributable
       to Sogou Inc.                                                                                                                                        $
              36,644                                              $
              4,216                                                     $
              40,860        $
          21,330                                      $
          6,454         $
         27,784        $
        23,918       $
           4,129         $
         28,047





      Net margin attributable to
       Sogou Inc.                                                                                                                                      12%                                                                                                                  13%                                        7%                                                                      9%                    9%                                      10%








     
                (1) To exclude share-based compensation expense. This non-GAAP adjustment does not have an impact on income tax expense.

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SOURCE Sogou Inc.