EX-99.1 2 v353820_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1  

 

Qihoo 360 First Quarter 2013 Unaudited Financial Results

  

First Quarter Financial Highlights(1)

 

·Revenues were $109.9 million, a 58.6% increase from $69.3 million in the first quarter of 2012.

 

·Net income attributable to Qihoo 360 was $5.6 million, compared to $14.1 million in the first quarter of 2012.

 

·Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) was $17.5 million, compared to $25.7 million in the first quarter of 2012.

 

·Diluted earnings per ADS(2) (“EPADS”) attributable to Qihoo 360 was $0.04, compared to $0.12 in the same period last year.

 

·Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) was $0.14, compared to $0.21 in the same period last year.

 

First Quarter Operating Metrics

 

·Total monthly active users of Qihoo 360’s products and services reached a record 457 million in March 2013, compared to 411 million in March 2012(3).

 

·User penetration of Qihoo 360’s products was 95.8% in March 2013, compared to 93.4% in March 2012 (3).

 

·Total smartphone users of Qihoo 360’s primary mobile security product (4) reached approximately 275 million in March 2013, compared to 74 million in March 2012.

 

·Monthly active users of Qihoo 360’s browsers reached a record 332 million in March 2013, compared to 273 million in March 2012 (3).

 

·User penetration of Qihoo 360’s browsers reached a record 69.6% in March 2013, compared to 62% in March 2012 (3).

 

·Average daily unique visitors to the 360 Personal Start-up Page and its sub-pages were 94 million in the first quarter of 2013, compared to 77 million in the first quarter of 2012.

 

 

 

(1) Non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections titled "About Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end of the press release.

 

(2) American Depositary Shares, which are traded on the NYSE. Every two ADSs represent three Class A ordinary shares of the Company.

 

(3) User and market penetration data is based on data from iResearch as of March 2013.

 

(4) Referring to 360 Mobile Safe, the Company’s primary mobile security product.

 

 
 

 

·Average daily clicks on Qihoo 360’s Personal Start-up Page and its sub-pages were approximately 489 million in the first quarter of 2013, compared to 295 million in the first quarter of 2012.

 

·Paying users of Qihoo 360’s web game platform were approximately 281,000 in March 2013, compared to 139,000 in March 2012.

 

First Quarter 2013 Results

 

Revenues

 

Revenues were $109.9 million, representing an increase of 58.6% from $69.3 million in the first quarter of 2012 and an increase of 6.7% from $103.0 million in the fourth quarter of 2012. The strong year-over-year growth in revenues was mainly due to continued momentum in both online advertising and Internet value-added services.

 

Online advertising revenues were $63.4 million, representing an increase of 39.6% from the same period last year and a decrease of 5% from the prior quarter. The healthy year-over-year increase was primarily driven by increased monetization of user activities among the Company’s key products, such as the 360 browsers and Personalized Start-up Pages, despite a soft macro environment. The quarter-over-quarter decline in online advertising reflected normal seasonal trends in certain business verticals.

 

Internet value-added service revenues, which are mainly derived from web game operations, were $45.8 million, up 118.9% from the same period last year and 30.4% from the prior quarter. The strong year-over-year and quarter-over-quarter increases were mainly driven by solid growth in the Company’s paying game user base and expanded game portfolio.

 

Cost of Revenues

 

Cost of revenues were $13.9 million, compared to $7.6 million in the first quarter of 2012 and $10.6 million in the fourth quarter of 2012, representing increases of 82.7% and 30.6%, respectively.

 

Operating Expenses

 

Operating expenses were $89.2 million, compared to $47.2 million in the first quarter of 2012 and $82.6 million in the fourth quarter of 2012. Operating expenses excluding share-based compensation (non-GAAP) were $77.2 million, compared to $35.5 million in the first quarter of 2012 and $68.6 million in the prior quarter.

 

The year-over-year and sequential increases in non-GAAP operating expenses were mainly driven by increased marketing expenses, personnel-related costs, professional fees, and bandwidth and equipment depreciation expenses, as the Company continued to enhance its technology and product development capabilities, strengthen its brand in mobile Internet and expand its business initiatives.

 

 
 

 

Operating Income

 

Operating income was $6.8 million, compared to $14.4 million in the first quarter of 2012 and $12.1 million in the prior quarter.

 

Operating income excluding share-based compensation (non-GAAP) was $18.8 million, compared to $26.1 million in the first quarter of 2012 and $26.1 million in the prior quarter.

 

Operating margin was 6.2%, compared to 20.9% in the fourth quarter of 2012 and 11.8% in the prior quarter.

 

Operating margin excluding share-based compensation (non-GAAP) was 17.1%, compared to 37.7% in the first quarter of 2012 and 25.4% in the prior quarter.

 

The year-over-year and sequential decline in non-GAAP operating margin was due to increased expenses in the abovementioned areas related to new business initiatives in search and mobile Internet.

 

Net Income attributable to Qihoo 360

 

Net income attributable to Qihoo 360 was $5.6 million, compared to $14.1 million in the first quarter of 2012 and $12.8 million in the prior quarter.

 

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was $17.5 million, compared to $25.7 million in the first quarter of 2012 and $26.7 million in the prior quarter.

 

Net Margin

 

Net margin was 5.1%, compared to 20.3% in the same period last year, and 12.4% in the prior quarter.

 

Net margin excluding share-based compensation (non-GAAP) was 15.9%, compared to 37.2% in the same period last year and 26.0% in the prior quarter. The year-over-year and sequential decline in non-GAAP net margin was also due to increased expenses in the abovementioned areas related to new business initiatives in search and mobile Internet.

 

Diluted Earnings per ADS

 

Diluted EPADS for the first quarter of 2013 was $0.04, and diluted EPADS for the first quarter of 2013 excluding share-based compensation (non-GAAP) was $0.14. Both GAAP and non-GAAP weighted average ADS used in computing diluted EPADS was 125.8 million.

 

Cash Flows and Balance Sheet

 

Net cash outflow from operations in the first quarter of 2013 was $27.9 million, compared to net operating cash inflow of $25.8 million in the same period last year and $53.1 million in the prior quarter. Cash capital expenditures were $57.1 million. The operating cash outflow and the increase in capital expenditures during the quarter were mainly due to the second installment payment of the Company’s new headquarters. As of March 31, 2013, the Company had cash and cash equivalents of $300.9 million.

 

 
 

 

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.

 

 
 

 

Qihoo 360 Technology Co. Ltd.

Condensed Consolidated Balance Sheets

(U.S. dollars in thousands, except for shares and per share data)

(Unaudited)  

 

  December 31,    March 31, 
   2012   2013 
ASSETS        
Current assets:        
Cash and cash equivalents   380,664    300,935 
Restricted Cash   1,905    1,910 
Trading securities   179    202 
Accounts receivable (net of allowance for doubtful accounts of $213 and $197 as
of December 31, 2012 and March 31, 2013, respectively)		   23,591    37,580 
Prepaid expenses and other current assets   26,802    23,654 
Amount due from related party   -    1,503 
Deferred tax assets – current   2,131    2,153 
Total current assets   435,272    367,937 
Property and equipment, net   126,035    130,240 
Land use rights, net   73,645    73,454 
Acquired intangible assets, net   12,310    11,464 
Goodwill   4,628    4,642 
Long-term investments   27,559    28,689 
Other noncurrent assets   9,335    9,677 
Deferred tax assets – noncurrent   745    1,003 
TOTAL ASSETS   689,529    627,106 
LIABILITIES          
Current liabilities:          
Accounts payable (including accounts payable of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $7,109 and $13,425 as of December 31, 2012 and March 31, 2013, respectively)   7,109    13,464 
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $41,636 and $42,153 as of December 31, 2012 and March 31, 2013, respectively)   168,694    72,308 
Deferred revenue-current (including deferred revenue-current of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $17,520 and $25,628 as of December 31, 2012 and March 31, 2013, respectively)   21,049    30,869 
Income tax payable (including income tax payable of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $2,710 and $1,466 as of December 31, 2012 and March 31, 2013, respectively)   6,862    6,686 
Total current liabilities   203,714    123,327 
Deferred tax liabilities – noncurrent   790    780 
Deferred revenue-noncurrent (including deferred revenue-noncurrent of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $3,242 and $522 as of December 31, 2012 and March 31, 2013, respectively)   6,762    3,807 
           
TOTAL LIABILITIES   211,266    127,914 
           
EQUITY          
Total Qihoo 360 Technology Co. Ltd. Shareholders’ equity   478,096    499,014 
Noncontrolling interest   167    178 
Total equity   478,263    499,192 
TOTAL LIABILITIES AND EQUITY   689,529    627,106 

 

 
 

 

  Qihoo 360 Technology Co. Ltd.

  Condensed Consolidated Statements of operations

  (U.S. dollars in thousands, except for shares and per share data)

  (Unaudited)  

 

   Three Months Ended 
   March 31, 2012   December 31, 2012   March 31, 2013 
Revenues:               
  Internet services   69,152    102,951    109,877 
  Sales of third party anti-virus software   124    -    - 
Total revenues   69,276    102,951    109,877 
Cost of revenues:               
  Internet services   7,583    10,649    13,906 
  Sales of third party anti-virus software   29    -    - 
Total cost of revenues   7,612    10,649    13,906 
Subsidy income   7    2,428    3 
Operating expenses:               
  Selling and marketing   11,854    18,616    27,062 
  General and administrative   7,629    10,450    11,895 
  Product development   27,742    52,169    50,211 
  Impairment loss on intangible assets   -    1,348    - 
Total operating expenses   47,225    82,583    89,168 
                
Income from operations   14,446    12,147    6,806 
Interest income, net   1,512    1,658    1,437 
Other  income (expense)   334    773    (1)
Exchange (loss) gain   (99)   966    361 
Impairment loss on long-term investments   -    (2,145)   - 
Changes on fair value of trading securities   54    6    23 
Dividend income from a cost method investee   -    -    174 
Gain on disposal of  subsidiaries and long-term investments   3,566    2,024    - 
Income before income tax expense and loss from equity method investments   19,813    15,429    8,800 
                
Income tax expense   (5,043)   (1,439)   (2,217)
Loss from equity method investments   (680)   (1,355)   (1,021)
                
Net income   14,090    12,635    5,562 
                
Add: Net (Income) loss attributable to noncontrolling interest   (24)   117    (11)
Net income attributable to               
Qihoo 360 Technology Co. Ltd.   14,066    12,752    5,551 
Net income   per ordinary share-basic   0.08    0.07    0.03 
Net income  per ordinary share-diluted   0.08    0.07    0.03 
                
Weighted average shares used in calculating net income per ordinary share- basic (in millions)(a)   176    177    178 
Weighted average shares used in calculating net income per ordinary share-diluted (in millions)(a)   182    185    189 

 

(a): 3 Ordinary Shares = 2 ADSs

 

 
 

 

Qihoo 360 Technology Co. Ltd.

Condensed Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

(Unaudited)

 

  Three-month period ended 
　　  　March 31, 2012   March 31, 2013 
Cash flows from operating activities:        
Net income   14,090    5,562 
Share-based compensation   11,683    11,967 
Depreciation and amortization   2,046    8,847 
Amortization of land use rights   -    420 
Loss on disposal of fixed assets   -    212 
Loss on equity method investments   680    1,021 
Gain on disposal of subsidiaries and long-term investments   (3,566)   - 
Unrealized holding gain on trading securities   (54)   (23)
Provision of allowance for doubtful accounts   81    - 
Dividend income from a cost method investee   -    (174)
Changes in operating assets and liabilities   848    (55,769)
Net cash provided by/(used in) operating activities   25,808    (27,937)
Cash flows from investing activities:          
Purchase of property and equipment and intangible assets   (5,877)   (57,074)
Payment for the purchase of other assets   (459)   - 
Consideration paid in connection with business acquisition   -    (921)
Payment for long-term investments   (4,565)   (828)
Cash collected from sale of a subsidiary   4,141    - 
Proceeds from disposal of property and equipment and intangible assets   -    1 
Net cash used in by investing activities   (6,760)   (58,822)
　          
Cash flows from financing activities:          
Proceeds from exercise of stock option   512    6,624 
Net cash provided by financing activities   512    6,624 
　   　      
Effect of exchange rate changes   (27)   406 
INCREASE  IN CASH   19,533    (79,729)
CASH, BEGINNING OF PERIOD   343,731    380,664 
CASH, END OF PERIOD   363,264    300,935 

 

 
 

  

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

 

   Three Months Ended March 31, 2012   Three Months Ended December 30, 2012   Three Months Ended March 31, 2013 
    GAAP    Adjustment(c)    Non-GAAP    GAAP    Adjustment(c)    Non-GAAP    GAAP    Adjustment(c)    Non-GAAP 
                                              
Operating expenses  $47,225   $(11,679)  $35,546   $82,583   $(13,976)  $68,607   $89,168   $(11,967)  $77,201 
                                              
Income from operations  $14,446   $11,683   $26,129   $12,147   $13,976   $26,123   $6,806   $11,967   $18,773 
Operating margin   20.9%        37.7%   11.8%        25.4%   6.2%        17.1%
                                              
Net income attributable to Qihoo 360 Technology Co. Ltd.  $14,066   $11,683   $25,749   $12,752   $13,976   $26,728   $5,551   $11,967   $17,518 
Net margin   20.3%        37.2%   12.4%        26.0%   5.1%        15.9%
Diluted earnings per ADS  $0.12        $0.21   $0.10        $0.22   $0.04        $0.14 

 

(c): Adjustment to exclude the share-based compensation expense of each period.