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.

 

 

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:

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:

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: [email protected]

For media enquiries, please contact:

Rachael Layfield

Brunswick Group
Tel: +86 10 5960-8600
Email: [email protected]

 

 

 

 

 

 

 

 

 

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SOURCE Sogou Inc.