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Qihoo 360 Reports Second Quarter 2012 Unaudited Financial Results
Aug 21, 2012 (06:08 PM EDT)
BEIJING, Aug. 21, 2012 /PRNewswire-Asia/ -- Qihoo 360 Technology Co. Ltd. ("Qihoo 360" or the "Company") (NYSE: QIHU), a leading Internet company in China, today reported its unaudited financial results for the second quarter ended June 30, 2012.
Second Quarter Financial Highlights(1)
"We are very pleased to report another strong quarter of triple-digit year-over-year growth in what continues to be a challenging macro environment," said Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360. "Monthly active users of our PC-based products and services grew to a record 425 million, covering 94% of the Chinese PC Internet population. While we maintain a leadership position in PC Internet, we are particularly pleased to have made significant progress in the fast growing mobile Internet market during the quarter. The number of smartphone users of our mobile security products already reached 120 million, representing almost 70% of the total market share, according to third party data. We believe our success has largely been driven by our Company-wide focus on product and technology innovation and customer satisfaction. Recently, we introduced our personalized recommendation and comprehensive search engine to the market to provide viable and friendly alternatives for users to access various web services and destinations. These initiatives are transformational to our business model in the long run. As a leader in China's Internet industry, we have demonstrated strong capabilities to effectively execute our open platform strategy. We are confident that the products and services we launched earlier this year will substantially enhance our monetization capabilities in the coming quarters, despite the uncertainty in the Chinese economy," concluded Mr. Zhou.
Mr. Xiangdong Qi, President of Qihoo 360, added, "Despite the ongoing macro headwinds in the second quarter, we are pleased to report that we achieved our revenue guidance and internal profitability targets. Our online advertising business delivered solid growth, supported by our continued robust user activity increases on our Personal Start-up Page. Web game operations continued to outpace the industry with a 189% year-over-year increase in revenue, despite seasonally slow trends across the industry. As we continue to deliver solid results in the near term, we have also allocated significant resources to make proactive investments in product and technology development, particularly in areas of mobile Internet, cloud based services, and search engine. We believe these initiatives will support long term, sustainable growth for our Company and drive long-term shareholder value."
Second Quarter 2012 Results
Revenues were $72.8 million, representing an increase of 107.3% from $35.1 million in the second quarter of 2011 and an increase of 5.0% from $69.3 million in the first quarter of 2012. The solid year-over-year increase in revenues was mainly due to strong performance in both online advertising and Internet value-added services, driven by continued robust user and traffic growth.
Online advertising revenues were $50.8 million, representing an increase of 89.9% from the same period last year and 11.9% from the prior quarter. The modest quarter-over-quarter growth primarily reflected the challenging macro environment and subdued advertising demand.
Internet value-added service revenues, which are mainly derived from web game operations, were $21.7 million, representing an increase of 167.2% from the same period last year and 3.5% from the prior quarter. The strong year-over-year growth was mainly driven by solid expansion of the Company's web game paying user base. The relatively modest quarter-over-quarter growth was primarily due to the absence of fee-based Remote Technical Support service and somewhat soft seasonal trends across the web game industry.
Cost of Revenues
Cost of revenues was $6.6 million, compared with $3.7 million in the second quarter of 2011 and $7.6 million in the prior quarter. Gross margin was 90.9%, compared with 89.5% in the second quarter of 2011 and 89.0% in the prior quarter.
Operating expenses were $56.4 million, compared with $18.7 million in the second quarter of 2011 and $47.2 million in the first quarter of 2012. Operating expenses excluding share-based compensation (non-GAAP) were $42.7 million, compared with $16.6 million in the second quarter of 2011 and $35.5 million in the prior quarter. The year-over-year and quarter-over-quarter increases in non-GAAP operating expenses were mainly driven by continued expansion of the Company's talent base and infrastructure build related to new service offerings.
Operating income was $9.9 million, compared with $12.8 million in the second quarter of 2011 and $14.4 million in the prior quarter.
Operating income excluding share-based compensation (non-GAAP) was $23.6 million, compared with $14.8 million in the second quarter 2011 and $26.1 million in the prior quarter.
Operating margin was 13.6%, compared with 36.3% in the second quarter of 2011 and 20.9% in the prior quarter.
Operating margin excluding share-based compensation (non-GAAP) was 32.4%, compared with 42.2% in the second quarter of 2011 and 37.7% in the prior quarter.
The year-over-year decline in non-GAAP operating margin was due to increased headcount and infrastructure costs as the Company introduced new products and services rapidly. The quarter-over-quarter decline in non-GAAP operating margin mainly reflected the lack of high-margin security project revenue and the absence of fee-based Remote Technical Support service in the second quarter.
Net income was $7.0 million, compared with $11.1 million in the second quarter of 2011 and $14.1 million in the prior quarter.
Net income excluding share-based compensation (non-GAAP) was $20.6 million, compared with $13.2 million in the second quarter of 2011 and $25.7 million in the prior quarter.
Net margin was 9.6%, compared with 31.6% in the same period last year, and 20.3% in the prior quarter.
Net margin excluding share-based compensation (non-GAAP) was 28.4%, compared with 37.6% in the same period last year and 37.2% in the prior quarter.
The year-over-year decline in non-GAAP net margin was primarily due to increased headcount and infrastructure costs and foreign exchange losses. The quarter-over-quarter decline in non-GAAP net margin reflected the combined impact of foreign exchange losses, the lack of high-margin security project revenue, the absence of a divestiture gain, and termination of fee-based Remote Technical Support service in the second quarter.
Diluted Earnings per ADS
Diluted EPADS for the second quarter of 2012 were $0.06, and diluted EPADS for the second quarter of 2012 excluding share-based compensation (non-GAAP) were $0.17. Both GAAP and non-GAAP weighted average ADSs used in computing diluted EPADS were 122.3 million.
Cash Flows and Cash Balance
Net cash provided by operations in the second quarter of 2012 was $18.1 million. As of June 30, 2012, the Company had cash and cash equivalents of $358.9 million.
For the third quarter of 2012, the Company expects revenues to be between $81 million and $82 million, representing a year-over-year increase of 71% to 73%. These estimates reflect the Company's current and preliminary views on its operations and macro environment, which are subject to possible material changes.
Qihoo 360's management will host a conference call to discuss the results at 8:30 p.m. Eastern Time on August 21, 2012 (8:30 a.m. Beijing time on August 22, 2012).
The dial-in details for the live conference call are:
A telephone replay of the call will be available after the conclusion of the conference call at 11:30 p.m. Eastern Time on August 21, 2012 through 5:30 p.m. Eastern Time on August 29, 2012. The dial-in details for the replay are:
A live webcast of the conference call will be available on the investor relations section of Qihoo 360's website at: http://corp.360.cn
About Qihoo 360
Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) is a leading Internet company in China. The Company is also the number one provider of Internet and mobile security products in China as measured by its user base, according to iResearch. Qihoo 360 also provides users with secure access points to the Internet via its market leading web browsers and application stores. The Company has built one of the largest open Internet platforms in China and monetizes its massive user base primarily through online advertising and through Internet value-added services on its open platforms.
This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward- looking statements by terminology such as "will," "expects," "believes," "anticipates," "intends," "estimates" and similar statements. Among other things, the management's quotations and the "Business Outlook" section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about Qihoo 360 and the industry. Potential risks and uncertainties include, but are not limited to: the Company's ability to continue to innovate and provide attractive products and services to attract and retain users; the Company's ability to keep up with rapid changes in technologies and Internet-enabled devices; the Company's ability to leverage its user base to attract customers for our revenue-generating services; and the Company's dependence on online advertising for a substantial portion of our revenues; and the Company's ability to compete effectively. All information provided in this press release is as of the date of the press release, and Qihoo 360 undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although Qihoo 360 believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by Qihoo 360 is included in Qihoo 360's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F dated April 19, 2012.
About Non-GAAP Financial Measures
To supplement our financial results presented in accordance with U.S. GAAP, we use non-GAAP financial measure, which is adjusted from results based on U.S. GAAP to exclude share-based compensation expenses. Reconciliations of our non-GAAP financial measures to our U.S. GAAP financial measures are set forth in tables at the end of this earnings release, which provide more details on the non-GAAP financial measures.
Our non-GAAP financial information is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of the historical and current financial performance of our continuing operations and our prospects for the future. Our non-GAAP financial information should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to U.S. GAAP results. In addition, our calculation of this non-GAAP financial information may be different from the calculation used by other companies, and therefore comparability may be limited.
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SOURCE Qihoo 360 Technology Co. Ltd.