Sogou Announces First Quarter 2020 Results

BEIJING, May 18, 2020 /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 first quarter, ended March 31, 2020.

First Quarter 2020 Highlights

    --  Total revenues([1] )were $257.3 million, a 2% increase year-over-year,
        or a 5% increase in RMB terms.
    --  Net loss attributable to Sogou Inc. was $31.6 million. Non-GAAP([2]) net
        loss attributable to Sogou Inc. was $31.1 million.
    --  Sogou Mobile Keyboard had 482 million DAUs (daily average users), up 9%
        year-over-year. As China's largest voice recognition app, it processed
        up to 1.4 billion daily voice requests.

"We started 2020 with smooth operations across our core businesses despite the challenging environment during COVID-19," said Xiaochuan Wang, CEO of Sogou. "In particular, our core Search business continued to outperform the industry in the first quarter. Thanks to the surge of user demand for reliable information and high efficiency during the pandemic, our Search and Mobile Keyboard recorded new highs in terms of traffic and user base, respectively."

Mr. Wang added, "On top of that, we carried out a comprehensive AI-driven upgrade across our core businesses to capture the opportunities that emerged during COVID-19. In particular, our voice AI has equipped Mobile Keyboard with industry-leading voice recognition functions and further evolves it into an AI communication assistant, while also facilitated sales growth of our AI recorders despite the dampening market. With steady implementation of our strategy, we believe we will effectively navigate through the pandemic, and our long-term growth prospects remain intact."

Joe Zhou, CFO of Sogou, said, "In the first quarter of 2020, we continued to deliver steady top-line growth despite challenges during the pandemic, while our profitability was impacted by the situation as a result of increased traffic acquisition cost. Going forward, we foresee ongoing pressure on our overall results in the second quarter as the impact of the pandemic lingers. We expect our business to resume healthy growth when the external environment normalizes post the pandemic."

First Quarter 2020 Financial Results

Total revenues were $257.3 million, a 2% increase year-over-year.

    --  Search and search-related revenues were $237.6 million, a 1% increase
        year-over-year. Auction-based pay-for-click services continued to
        increase year-over-year, accounting for 91.0% of search and
        search-related revenues, compared to 87.2% in the corresponding period
        in 2019.
    --  Other revenues were $19.7 million, a 6% increase year-over-year. The
        increase was primarily due to increased revenues from sales of smart
        hardware products.

Cost of revenues was $217.0 million, an 18% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $181.3 million, a 27% increase year-over-year, representing 70.5% of total revenues, compared to 56.6% in the corresponding period in 2019. The increase was driven by increased traffic acquisition from third parties as users confined to their homes spent more time online during the COVID-19 outbreak.

Gross profit and non-GAAP gross profit were both $40.3 million, both a 41% decrease year-over-year.

Total operating expenses were $82.6 million, a 3% increase year-over-year.

    --  Research and development expenses were $47.0 million, a 15% increase
        year-over-year, representing 18.3% of total revenues, compared to 16.2%
        in the corresponding period in 2019. The increase was primarily
        attributable to an increase in personnel-related expenses.
    --  Sales and marketing expenses were $28.6 million, a 2% decrease
        year-over-year, representing 11.1% of total revenues, largely flat with
        the corresponding period in 2019.
    --  General and administrative expenses were $7.0 million, a 29% decrease
        year-over-year, representing 2.7% of total revenues, compared to 3.9% in
        the corresponding period in 2019. The decrease was primarily due to a
        decrease in expenses related to the Company's non-core businesses.

Operating loss was $42.4 million, a 254% increase year-over-year, compared to a loss of $12.0 million in the corresponding period in 2019. Non-GAAP operating loss was $41.9 million, a 288% increase year-over-year, compared to a loss of $10.8 million in the corresponding period in 2019.

Other income, net was $7.2 million, compared to $8.7 million in the corresponding period in 2019. The decrease was primarily due to charitable donations of $1.9 million associated with the COVID-19 outbreak.

Income tax benefit was $1.0 million, compared to an income tax benefit of $0.2 million in the corresponding period of 2019.

Net loss attributable to Sogou Inc. was $31.6 million, compared to a net loss of $3.9 million in the corresponding period in 2019. Non-GAAP net loss attributable to Sogou Inc. was $31.1 million, compared to a net loss of $2.7 million in the corresponding period in 2019.

Both GAAP and non-GAAP basic and diluted loss per ADS was $0.08.

As of March 31, 2020, the Company had cash and cash equivalents and short-term investments of $1.2 billion, compared to $1.1 billion as of December 31, 2019. Net operating cash inflow for the first quarter of 2020 was $26.0 million. Capital expenditures for the first quarter of 2020 were $3.8 million.

                        [1] On a constant currency (non-GAAP)
                         basis, if the exchange rate in the
                         first quarter of 2020 had been the
                         same as it was in the first quarter
                         of 2019, or RMB 6.74=$1.00, total
                         revenues in the first quarter of 2020
                         would have been 266.2 million, or
                         $9.0 million more than GAAP total
                         revenues, and up 5% 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 second quarter of 2020, Sogou expects total revenues to be in the range of $260 million to $280 million, representing a decrease of 8% to 14% year-over-year, or a decrease of 4% to 11% year-over-year in RMB terms. In developing this guidance, the Company has considered the expected continued impact of the COVID-19 outbreak and resulting contraction of the Chinese economy, as well as other challenges in the macro environment and the online advertising industry. The guidance represents the Company's current and preliminary view, which is subject to substantial uncertainty, particularly as to the status and impact of the COVID-19 pandemic in China and worldwide.

For the second quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.07 = $1.00, as compared with the actual exchange rate of approximately RMB6.82 = $1.00 for the second quarter of 2019, and RMB6.98 = $1.00 for the first quarter of 2020.

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; uncertainty regarding the extent and reach of PRC governmental regulation of sponsored search; and the effects of the COVID-19 virus on the economy in China generally and on our business in particular. Further information regarding these and other risks is included in Sogou's Annual Report on Form 20-F for the year ended December 31, 2019 filed with the Securities and Exchange Commission on April 21, 2020, 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 6:30 am U.S. Eastern Time, (6:30 pm Beijing/Hong Kong time) on May 18, 2020, following this quarterly results announcement.

The dial-in details for the live conference call are:

              U.S. Toll Free:                         +1-888-317-6003

               Mainland China Toll Free:    

              Hong Kong Toll Free:         

              Hong Kong Local Toll:                   +852-580-81995

              International:                          +1-412-317-6061

              Passcode:                                       0996007

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 May 25, 2020:


              Passcode:                                   10143626

A live webcast and archive of the conference call will be available on the Investor Relations section of Sogou's website at

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

For media enquiries, please contact:

Yadan Ouyang
Brunswick Group
Tel: +86 10 5960-8600

                SOGOU INC.



                Three Months Ended

                                                                                                                                     Mar. 31, 2020                                         Dec. 31, 2019                                 Mar. 31, 2019


                Search and search?related advertising                                                                                                             $
              237,610                                  $
           274,610                    $

                Other revenues                                                                                                                                               19,674                                            26,413                                 18,545

                Total revenues                                                                                                                                   257,284                                           301,023                                252,722

              Cost of revenues(1)                                                                                                                                           217,024                                           168,657                                184,654

                Gross profit                                                                                                                                      40,260                                           132,366                                 68,068

                Operating expenses:

                Research and development(1)                                                                                                                                  47,023                                            48,725                                 41,037

                Sales and marketing(1)                                                                                                                                       28,597                                            34,926                                 29,196

                General and administrative(1)                                                                                                                                 6,997                                            11,300                                  9,816

                Total operating expenses                                                                                                                          82,617                                            94,951                                 80,049

                Operating (loss)/income                                                                                                                         (42,357)                                           37,415                               (11,981)

              Interest income                                                                                                                                                   744                                               540                                  1,371

              Foreign currency exchange gain/(loss)(2)                                                                                                                        1,730                                           (1,540)                               (2,196)

              Other income, net                                                                                                                                               7,212                                               527                                  8,735

                (loss)/Income before income tax expenses                                                                                                        (32,671)                                           36,942                                (4,071)

              Income tax (benefits)/expenses                                                                                                                                  (962)                                            1,953                                  (213)

                Net (loss)/income                                                                                                                               (31,709)                                           34,989                                (3,858)

                Less:Net loss attributable to non-controlling                                                                     (93)
    interest shareholders

                Net (loss)/income attributable to Sogou                                                                                  $
                (31,616)                     $
             34,989                $

                Weighted average number of ordinary shares                                                                                                       382,141                                           385,586                                391,379

              Weighted average number of ordinary shares                                                                                                                    382,141                                           391,356                                391,379

              Net (loss)/income per ordinary share-basic                                                                                                           $
              (0.08)                                    $
           0.09                     $

              Net (loss)/income per ordinary share-diluted                                                                                                         $
              (0.08)                                    $
           0.09                     $

              Net (loss)/income per ADS-basic                                                                                                                      $
              (0.08)                                    $
           0.09                     $

              Net (loss)/income per ADS-diluted                                                                                                                    $
              (0.08)                                    $
           0.09                     $

                (1) Share?based compensation expense
    included in:

                Cost of revenues                                                                                                                                       $
              77                                      $
           255                         $

                  Research and development                                                                                                                           613                                             2,602                                    858

                Sales and marketing                                                                                                                                           (379)                                              797                                    168

                General and administrative                                                                                                                                      166                                               383                                    141

              477                                    $
           4,037                      $

                (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.



                As of  Mar. 31, 2020                        
     As of Dec. 31, 2019


                Current assets:

     Cash and cash equivalents                                                                                           $
         263,500                                 $

     Short-term investments                                                                                                   886,865                                        995,350

     Restricted cash                                                                                                            5,705                                          5,370

     Account and financing receivables, net                                                                                   119,035                                        131,813

     Prepaid and other current assets                                                                                          32,405                                         26,888

     Due from related parties                                                                                                   2,132                                          2,837

     Total current assets                                                                                                   1,309,642                                      1,304,722

     Long?term investments, net                                                                                                72,117                                         63,345

     Fixed assets, net                                                                                                        100,016                                        110,006

     Goodwill                                                                                                                   6,011                                          5,534

     Intangible assets, net                                                                                                     1,337                                          1,514

     Deferred tax assets, net                                                                                                  16,055                                         16,306

     Other assets                                                                                                              44,110                                         20,975

                Total assets                                                                                   $
           1,549,288                         $


                Current liabilities:

     Accounts payable                                                                                                    $
         176,629                                 $

     Accrued and other short-term liabilities                                                                                 152,690                                        150,275

     Receipts in advance                                                                                                       64,439                                         67,902

     Accrued salary and benefits                                                                                               13,493                                         24,167

     Taxes payable                                                                                                             69,995                                         76,688

     Due to related parties                                                                                                    37,567                                         22,594

     Total current liabilities                                                                                                514,813                                        453,213

     Long-term liabilities                                                                                                     19,161                                          5,686

                Total liabilities                                                                                $
           533,974                           $

                SHAREHOLDERS' EQUITY

     Sogou Inc. shareholders' equity                                                                                        1,014,857                                      1,063,503

     Non-controlling interest                                                                                                     457

                Total shareholders' equity                                                                                1,015,314                                      1,063,503

                Total liabilities and shareholders' equity                                                     $
           1,549,288                         $

                SOGOU INC.



                                                                                                                                                                     Three Months Ended Mar. 31, 2020                                                                        Three Months Ended Dec. 31, 2019                           Three Months Ended Mar. 31, 2019

                                                                                                                                                                                                                                                                                                              ---                                                           ---

                                                                                                                                                           GAAP                        Non-GAAP             Non-GAAP                           GAAP                           Non-GAAP                         Non-GAAP   GAAP     Non-GAAP                           Non-GAAP


                                                                                 Adjustments (1)                                                     Adjustments (1)               Adjustments (1)

                                                                           ---                                                                                   ---                           ---

              Gross profit                                                                                                                                                     $
              40,260                                    $
              77                                                     $
            40,337       $
         132,366                                      $
          255       $
       132,621         $
         68,068         $
            27          $

              Gross margin                                                                                                                                      16%                                                                                                               16%                                     44%                                                                  44%                27%                                        27%

              Operating expenses                                                                                                                                               $
              82,617                                 $
              (400)                                                    $
            82,217        $
         94,951                                   $
         (3,782)       $
       91,169         $
         80,049       $
         (1,167)         $

              Operating (loss)/income                                                                                                                                        $
              (42,357)                                  $
              477                                                   $
            (41,880)       $
         37,415                                     $
         4,037        $
       41,452       $
         (11,981)        $
         1,194        $

              Operating margin                                                                                                                                 -16%                                                                                                              -16%                                     12%                                                                  14%                -5%                                        -4%

              Income tax (benefits)/expenses                                                                                                                                    $
              $                                                                                    $
            (962)        $
              $                     $
       1,953          $
     $                      $

              Net (loss)/income before non-                                                                                                                                  $
              (31,709)                                  $
              477                                                   $
            (31,232)       $
         34,989                                     $
         4,037        $
       39,026        $
         (3,858)        $
         1,194         $
    controlling interest

              Net (loss)/income attributable to                                                                                                                              $
              (31,616)                                  $
              477                                                   $
            (31,139)       $
         34,989                                     $
         4,037        $
       39,026        $
         (3,858)        $
         1,194         $
    Sogou Inc.

              Net margin attributable to Sogou Inc.                                                                                                            -12%                                                                                                              -12%                                     12%                                                                  13%                -2%                                        -1%

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

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