Sogou Announces Second Quarter 2020 Results

BEIJING, Aug. 10, 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 second quarter, ended June 30, 2020.

Second Quarter 2020 Highlights

    --  Total revenues([1] )were $261.2 million, a 14% decrease year-over-year,
        or an 11% decrease in RMB terms.
    --  Net loss attributable to Sogou Inc. was $8.5 million. Non-GAAP([2]) net
        loss attributable to Sogou Inc. was $5.5 million.
    --  Sogou Mobile Keyboard had 484 million DAUs (daily average users), up 6%
        year-over-year. As China's largest voice recognition app, it processed
        up to 1.4 billion daily voice requests.

"We delivered overall in-line results in the second quarter, with Search maintaining a steady share of traffic and Mobile Keyboard further expanding its DAU base. Moreover, our AI Hardware business recorded solid growth in the quarter," said Xiaochuan Wang, CEO of Sogou. "Amidst the external headwinds from the pandemic, Sogou has been proactively upgrading its development strategy to focus on generating more user value and building out a business that is oriented towards long-term value and growth. We will further boost AI empowerment and synergies across our businesses while we continually drive technological advances."

Fion Zhou, CFO of Sogou, said, "In the second quarter, while our top-line performance came under pressure due to prolonged impact from the pandemic, we are pleased that we narrowed the net loss on a sequential basis, partially due to gradually normalized TAC growth. As we move forward, we will stringently manage our costs and expenses as we implement our strategy upgrade."

Second Quarter 2020 Financial Results

Total revenues were $261.2 million, a 14% decrease year-over-year.

    --  Search and search-related revenues were $240.6 million, a 13% decrease
        year-over-year. Auction-based pay-for-click services decreased
        year-over-year, accounting for 86.9% of search and search-related
        revenues, compared to 88.2% in the corresponding period in 2019.
    --  Other revenues were $20.6 million, a 25% decrease year-over-year. The
        decrease was primarily due to decreased revenues from non-core
        businesses, partially offset by a 20% year-over-year increase in
        AI-enabled hardware.

Cost of revenues was $196.9 million, a 1% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $159.1 million, a 9% increase year-over-year, representing 60.9% of total revenues, compared to 48.2% 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 was $64.2 million and non-GAAP gross profit was $64.3 million, both a 40% decrease year-over-year.

Total operating expenses were $90.3 million, a 6% decrease year-over-year.

    --  Research and development expenses were $48.7 million, a 4% decrease
        year-over-year, representing 18.6% of total revenues, compared to 16.7%
        in the corresponding period in 2019. The decrease was primarily
        attributable to a decrease in share-based compensation expense.
    --  Sales and marketing expenses were $32.0 million, a 13% decrease
        year-over-year, representing 12.2% of total revenues, largely flat with
        the corresponding period in 2019. The decrease was primarily due to a
        decrease in personnel-related expenses.
    --  General and administrative expenses were $9.7 million, a 9% increase
        year-over-year, representing 3.7% of total revenues, compared to 2.9% in
        the corresponding period in 2019.

Operating loss was $26.1 million, compared to operating income of $11.6 million in the corresponding period in 2019. Non-GAAP operating loss was $23.2 million, compared to operating income of $18.1million in the corresponding period in 2019.

Other income, net was $15.5 million, compared to $4.2 million in the corresponding period in 2019. The increase was primarily due to a tax refund that was part of the Chinese government's initiatives taken in response to COVID-19 and other tax exemptions.

Income tax benefit was $1.1 million, compared to $1.4 million in the corresponding period of 2019.

Net loss attributable to Sogou Inc. was $8.5 million, compared to net income of $21.3 million in the corresponding period in 2019. Non-GAAP net loss attributable to Sogou Inc. was $5.5 million, compared to net income of $27.8 million in the corresponding period in 2019.

GAAP basic and diluted loss per ADS was $0.02. Non-GAAP basic and diluted loss per ADS was $0.01.

As of June 30, 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 second quarter of 2020 was $49.2 million. Capital expenditures for the second quarter of 2020 were $5.8 million.


                        [1] On a constant currency (non-GAAP)
                         basis, if the exchange rate in the
                         second quarter of 2020 had been the
                         same as it was in the second quarter
                         of 2019, or RMB 6.82=$1.00, total
                         revenues in the second quarter of 2020
                         would have been 271.4 million, or
                         $10.2 million more than GAAP total
                         revenues, and down 11% 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."

Recent Development

On July 27, 2020, the Company announced that its board of directors (the "Sogou Board") received a letter containing a preliminary non-binding proposal (the "Proposal") from Tencent Holdings Limited (including its affiliates, "Tencent") for Tencent to acquire all of the outstanding ordinary shares, including ordinary shares represented by ADSs, of the Company that are not already owned by Tencent for US$9.00 in cash per ordinary share or ADS (as the same may be amended from time to time, a "Proposed Transaction"). A Proposed Transaction based on the Proposal, if completed, would result in the Company becoming a privately-held, indirect wholly-owned subsidiary of Tencent, and Sogou ADSs would be delisted from the New York Stock Exchange.

On July 31, 2020, the Sogou Board established a special committee (the "Special Committee") of the Sogou Board, composed solely of independent directors, to consider the Proposal.

The Company cautions its shareholders and others considering trading in the Company's securities that neither the Sogou Board nor the Special Committee has made any decision with respect to the Company's response to the Proposal. There can be no assurance that Tencent will make a definitive offer to the Company, that a definitive agreement relating to the Proposal will be entered into between the Company and Tencent, or that a Proposed Transaction or any other similar transaction will be approved or consummated.

The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.

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 may contain forward-looking statements. Statements that are not historical facts, including statements about Sogou's and Sogou management's beliefs and expectations, are forward-looking statements. Any such 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; the effects of the COVID-19 virus on the economy in China generally and on our business in particular; and the fact that there is no assurance that Tencent will make a definitive offer to acquire the Company, that a definitive agreement relating to the Proposal will be entered into between Tencent and the Company, or that a Proposed Transaction or any other similar transaction between Tencent and the Company will be approved or consummated. 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 August 10, 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:    
              4001-206115



              Hong Kong Toll Free:         
              800-963976



              Hong Kong Local Toll:                   +852-580-81995



              International:                          +1-412-317-6061



              Passcode:                                       9971291

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 17, 2020:



              International:            
              +1-412-317-0088



              Passcode:                                    10146698

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:

Serena Liu
Sogou Public Relations
Tel: +86 10 5689 9999 (61958)
Email: press@sogou-inc.com


                                                                                                                 
              SOGOU INC.

                                                                                              
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                             
              (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)




                                                                                                                                                           Three Months Ended



                                                                                      Jun. 30, 2020                                                              Mar. 31, 2020                         Jun. 30, 2019




              
                Revenues:


               Search and
                search-related
                advertising                                                                                        $
              240,602                                              $
             237,610                    $
             276,152
    revenues



              Other revenues                                                                                                 20,581                                                          19,674                                27,464


                            Total revenues                                                                                   261,183                                                         257,284                               303,616




              Cost of revenues (1)                                                                                          196,939                                                         217,024                               195,863


                            Gross profit                                                                                      64,244                                                          40,260                               107,753



                            Operating expenses:


               Research and development (1)                                                                                   48,683                                                          47,023                                50,609


               Sales and marketing (1)                                                                                        31,981                                                          28,597                                36,664


               General and administrative (1)                                                                                  9,682                                                           6,997                                 8,849


                            Total operating expenses                                                                          90,346                                                          82,617                                96,122



                            Operating
                             (loss)/income                                                                                  (26,102)                                                       (42,357)                               11,631




              Interest income                                                                                                   813                                                             744                                 1,739


               Foreign currency exchange
                (loss)/gain (2)                                                                                                 (89)                                                          1,730                                 2,387



              Other income, net                                                                                              15,542                                                           7,212                                 4,216


                            (loss)/Income before income tax                                                                  (9,836)                                                       (32,671)                               19,973
    expenses



              Income tax benefit                                                                                            (1,143)                                                          (962)                              (1,357)


                            Net 
                (loss)/income                                                                   (8,693)                                                       (31,709)                               21,330



               Less: Net loss attributable to                                                                                  (233)                                                           (93)
    noncontrolling interest
     shareholders



                            Net
                             (loss)/income
                             attributable to                                                          $
              
                (8,460)                                         $
     
              (31,616)                $
     
               21,330
    Sogou Inc.



               Net (loss)/income per share/ADS



              Basic                                                                                                $
              (0.02)                                              $
             (0.08)                      $
             0.05



              Diluted                                                                                              $
              (0.02)                                              $
             (0.08)                      $
             0.05


               Weighted average number of
    shares/ADSs outstanding



              Basic                                                                                                         383,066                                                         382,141                               391,490



              Diluted                                                                                                       383,066                                                         382,141                               396,632




                            (1)  Share-based compensation
    expense included in:


               Cost of revenues                                                                                         $
              45                                                  $
              77                        $
             127


               Research and development                                                                                        2,095                                                             613                                 4,470



              Sales and marketing                                                                                               702                                                           (379)                                1,670


               General and administrative                                                                                         72                                                             166                                   187


                                                                                                                     $
              2,914                                                 $
              477                      $
             6,454





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


                                                     
              SOGOU INC.

                                              
       CONDENSED CONSOLIDATED BALANCE SHEETS

                                                
           (UNAUDITED, IN THOUSANDS)




                                                    As of Jun. 30, 2020                                 As of Dec. 31, 2019




     
                ASSETS



     
                Current assets:


      Cash and cash equivalents                                                          $
         257,055                         $
         142,464



     Short-term investments                                                                  920,993                                995,350



     Restricted cash                                                                           6,177                                  5,370


      Account and financing receivables, net                                                  111,366                                131,813


      Prepaid and other current assets                                                         34,409                                 26,888



     Due from related parties                                                                  2,495                           $
         2,837



     Total current assets                                                                  1,332,495                              1,304,722




     Long-term investments, net                                                               71,080                          $
         63,345



     Fixed assets, net                                                                        88,797                                110,006



     Goodwill                                                                                  6,016                                  5,534



     Intangible assets, net                                                                    1,346                                  1,514



     Deferred tax assets, net                                                                 15,095                                 16,306



     Other assets                                                                             40,967                          $
         20,975


                   Total assets                                           $
              
           1,555,796                              1,522,402




     
                LIABILITIES


                   Current liabilities:



     Accounts payable                                                                   $
         209,078                         $
         111,587


      Accrued and other short-term
       liabilities                                                                            137,932                                150,275



     Receipts in advance                                                                      69,041                                 67,902



     Accrued salary and benefits                                                              17,525                                 24,167



     Taxes payable                                                                            63,460                                 76,688



     Due to related parties                                                                   32,055                                 22,594



     Total current liabilities                                                               529,091                                453,213




     Long-term liabilities                                                                    15,963                                  5,686



                   Total liabilities                                        $
              
           545,054                     $
     
           458,899





                   SHAREHOLDERS' EQUITY


      Sogou Inc. shareholders' equity                                                       1,010,517                              1,063,503



     Non-controlling interest                                                                    225


                   Total shareholders' equity                                               1,010,742                              1,063,503



                   Total liabilities and
                    shareholders' equity                                  $
              
           1,555,796                              1,522,402


                                                                                                                                                                                                                  
              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, 2020                                                      Three Months Ended Mar. 31, 2020                                                Three Months Ended Jun 30, 2019

                                                                                                                                                                                                                                                                                                       ---

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

                                                                                                                                                                                                                                                                                                                                        ---

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

                                    ---                                                                       ---                                      ---


              Gross profit                                                                                                             $
              64,244                     $
            45                                                     $
              64,289                           $
          40,260                                    $
         77           $
          40,337           $
           107,753      $
           127           $
             107,880




              Gross margin                                                                                   25%                                                                                                         25%                                                        16%                                                                  16%                     35%                                          36%






              Operating expenses                                                                                                       $
              90,346                 $
           (2,869)                                                    $
              87,477                           $
          82,617                                  $
        (400)          $
          82,217            $
           96,122     $
        (6,327)           $
             89,795






              Operating (loss)/income                                                                                                $
              (26,102)                  $
           2,914                                                   $
              (23,188)                        $
          (42,357)                                   $
        477         $
          (41,880)           $
           11,631       $
        6,454            $
             18,085




              Operating margin                                                                              -10%                                                                                                         -9%                                                       -16%                                                                 -16%                      4%                                           6%






              Income tax benefit                                                                                                      $
              (1,143)     
            $                                                                    $
              (1,143)                           $
          (962)                       
              $                    $
          (962)          $
           (1,357)    
      $                     $
           (1,357)






              Net (loss)/income before non-                                                                                           $
              (8,693)                  $
           2,914                                                    $
              (5,779)                        $
          (31,709)                                   $
        477         $
          (31,232)           $
           21,330       $
        6,454            $
             27,784
    controlling interest




              Net (loss)/income attributable                                                                                          $
              (8,460)                  $
           2,914                                                    $
              (5,546)                        $
          (31,616)                                   $
        477         $
          (31,139)           $
           21,330       $
        6,454            $
             27,784
    to Sogou Inc.




              Net margin attributable to                                                                     -3%                                                                                                         -2%                                                       -12%                                                                 -12%                      7%                                           9%
    Sogou Inc.






              (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.