Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 1, 2016

 

 

SOHU.COM INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   0-30961   98-0204667

(State or other jurisdiction

Of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

Level 18, SOHU.com Media Plaza

Block 3, No. 2 Kexueyuan South Road, Haidian District

Beijing 100190

People’s Republic of China

(011) 8610-6272-6666

(Address, including zip code, of registrant’s principal executive offices and registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On February 1, 2016, the registrant announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2015. A copy of the press release issued by the registrant regarding the foregoing is filed herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

99.1    Press Release dated February 1, 2016

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

DATED: February 2, 2016     SOHU.COM INC.
    By:  

/s/    Carol Yu        

      Carol Yu
      President and Chief Financial Officer

 

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EX-99.1

Exhibit 99.1

SOHU.COM REPORTS FOURTH QUARTER AND FISCAL YEAR 2015 UNAUDITED FINANCIAL RESULTS

BEIJING, CHINA, February 1, 2016 – Sohu.com Inc. (NASDAQ: SOHU), China’s leading online media, search, gaming, community and mobile service group, today reported unaudited financial results for the fourth quarter and fiscal year ended December 31, 2015.

Fourth Quarter Highlights

 

    Total revenues were US$466 million1, down 2% year-over-year and 11% quarter-over-quarter.

 

    Brand advertising revenues were US$141 million, down 5% year-over-year and 7% quarter-over-quarter. Of this, revenues of Sohu Media Portal, or Sohu.com excluding Sohu Video, were US$49 million, flat year-over-year and down 4% quarter-over-quarter. Revenues of Sohu Video were US$51 million, up 1% year-over-year and down 8% quarter-over-quarter.

 

    Sogou2 revenues were US$166 million, up 39% year-over-year and 2% quarter-over-quarter.

 

    Online game revenues were US$127 million, down 31% year-over-year and 17% quarter-over-quarter.

 

    GAAP net loss attributable to Sohu.com Inc. was US$31 million, or US$0.80 loss per fully-diluted share.

Non-GAAP3 net loss attributable to Sohu.com Inc. was US$13 million, or US$0.34 loss per fully-diluted share.

Fiscal Year 2015 Highlights

 

    Total revenues were US$1.9 billion, up 16% compared with 2014, a new high in Sohu’s operating history.

 

    Brand advertising revenues were US$577 million, up 7% compared with 2014. Of this, revenues of Sohu Media Portal, or Sohu.com excluding Sohu Video, were US$198 million, flattish as compared with 2014. Revenues of Sohu Video were US$213 million, up 21% compared with 2014.

 

    Sogou revenues were US$592 million, up 53% compared with 2014.

 

    Online game revenues were US$637 million, down 2% compared with 2014.

 

    GAAP net loss attributable to Sohu.com Inc. was US$51 million, or US$1.32 loss per fully-diluted share.

Non-GAAP net loss attributable to Sohu.com Inc. was US$4 million, or US9 cents loss per fully-diluted share.

Dr. Charles Zhang, Chairman and CEO of Sohu.com Inc., commented, “We ended 2015 with a solid quarter as both top-line and bottom-line results were better than our prior expectation. For the full year of 2015, despite the weak macro condition and adverse foreign exchange impact, we managed to deliver steady growth. Total revenues set a new record at $1.9 billion, up 16% from 2014. For Sohu Media Portal, while the slowdown of the economy shrank the budget of traditional brand advertisers, the rapid growth of revenues from Small & Medium Enterprises (“SME”) customers helped offset the impact. Sohu Video’s 2015 total revenues rose 33% from 2014 as non-advertising business gained encouraging traction. Sogou grew annual revenue to a new record high while achieving a sizeable profit. Changyou’s full year revenues reached $762 million, the highest in its history, and its profit rebounded substantially as a result of effective cost control measures.”

 

1  In the fourth quarter of 2015, depreciation of the RMB against the U.S. dollar had an impact on our reported financial results. Excluding the effect of foreign exchange rate changes, total revenues in the fourth quarter of 2015 would have been US$19 million higher, representing an annual growth rate of 2% and a sequential decrease of 7%.
2  Sogou operates the search and search-related business and offers Internet value-added services (“IVAS”) with respect to Web games developed by third-party developers. In the statements of operations, revenues from search and search-related services are recorded as “Search and search-related” revenue, and revenues from IVAS are recorded as “Others” revenue.
3 

Non-GAAP results exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions and dividend and deemed dividend to non-controlling preferred shareholders of Sogou. 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.”

 

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Dr. Zhang added, “On the business side, we are pleased to see the strong momentum across our key products. Benefiting from improved product design and enriched content, in 2015, Sohu News App’s daily active users rose about 50%. Sohu Video invested heavily in developing professionally-generated content or PGC, a more cost effective category, where the traffic almost doubled during the year in terms of video views. In 2015, Sogou’s operating metrics set new records across the board. In particular, the aggregate search traffic increased by 34%, mainly attributable to triple-digit growth in mobile search traffic. Sogou’s mobile keyboard App solidified its No.1 position in the Chinese language input market and ranked No.3 among all mobile apps in China in terms of daily active users, according to iResearch.”

Mr. Xiaochuan Wang, CEO of Sogou, commented, “In 2015, Sogou further reinforced its competitive position through differentiation. On top of exclusive access to Weixin and QQ Group content, we recently became the exclusive search partner of Zhihu, the largest online knowledge sharing platform in China. The variety of unique and premium content helped boost the Sogou Search brand and enhance search experience among users.”

Fourth Quarter Financial Results

Revenues

Total revenues for the fourth quarter of 2015 were US$466 million, down 2% year-over-year and 11% quarter-over-quarter.

Total online advertising revenues, which include revenues from the brand advertising and search and search-related businesses, for the fourth quarter of 2015 were US$292 million, up 13% year-over-year and down 2% quarter-over-quarter.

Brand advertising revenues for the fourth quarter of 2015 totaled US$141 million, down 5% year-over-year and 7% quarter-over-quarter. The year-over-year decrease was mainly due to decreases in revenues from the real estate and 17173 advertising businesses. The quarter-over-quarter decrease was mainly due to decreases in revenues from the online video and 17173 advertising businesses. Revenues of Sohu Media Portal, or Sohu.com excluding Sohu Video, were US$49 million, flat year-over-year and down 4% quarter-over-quarter. Revenues of Sohu Video were US$51 million, up 1% year-over-year and down 8% quarter-over-quarter.

Search and search-related revenues for the fourth quarter of 2015 were US$151 million, up 37% year-over-year and 2% quarter-over-quarter. The year-over-year increase was mainly driven by the search business as a result of increases in the number of paid clicks.

Online game revenues for the fourth quarter of 2015 were US$127 million, down 31% year-over-year and 17% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly due to the natural decline in revenues of older games, such as TLBB 3D and TLBB, and a decrease in Web game revenue as a result of the sale of the 7Road business in the third quarter of 2015.

Gross Margin

Both GAAP and non-GAAP gross margin was 57% for the fourth quarter of 2015, compared with 59% in the fourth quarter of 2014 and 59% in the third quarter of 2015.

GAAP gross margin for the online advertising business for the fourth quarter of 2015 was 47%, compared with 52% in the fourth quarter of 2014 and 49% in the third quarter of 2015. Non-GAAP gross margin for the online advertising business for the fourth quarter of 2015 was 47%, compared with 53% in the fourth quarter of 2014 and 49% in the third quarter of 2015.

Both GAAP and non-GAAP gross margin for the brand advertising business in the fourth quarter of 2015 was 38%, compared with 48% in the fourth quarter of 2014 and 40% in the third quarter of 2015. The year-over-year decrease was primarily due to an increase in video content costs.

Both GAAP and non-GAAP gross margin for the search and search-related business in the fourth quarter of 2015 was 55%, compared with 59% in the fourth quarter of 2014 and 58% in the third quarter of 2015. The year-over-year and quarter-over-quarter decreases in gross margin were mainly due to higher traffic acquisition costs as a percentage of search and search-related revenues.

Both GAAP and non-GAAP gross margin for online games in the fourth quarter of 2015 was 78%, compared with 72% in the fourth quarter of 2014 and 77% in the third quarter of 2015. The year-over-year increase in gross margin was due to a change in our revenue mix, where mobile games, which typically incur higher revenue-sharing costs compared to PC games, contributed less revenue.

 

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Operating Expenses

For the fourth quarter of 2015, GAAP operating expenses totaled US$246 million, down 22% year-over-year and 7% quarter-over-quarter. Non-GAAP operating expenses were US$221 million, down 23% year-over-year and 17% quarter-over-quarter. We recognized US$52 million of goodwill impairment and impairment of intangibles via acquisitions of businesses, largely related to Changyou’s Raidcall business in the fourth quarter of 2014 and US$40 million of impairments to goodwill and intangibles via acquisitions of businesses, largely related to Changyou’s Dolphin Browser business in the third quarter of 2015. Excluding the non-recurring items, non-GAAP operating expenses were down 6% year-over-year and 3% quarter-over-quarter.

Operating Profit

GAAP operating profit for the fourth quarter of 2015 was US$19 million, compared with an operating loss of US$34 million in the fourth quarter of 2014 and an operating profit of US$43 million in the third quarter of 2015.

Non-GAAP operating profit for the fourth quarter of 2015 was US$44 million, compared with an operating loss of US$6 million in the fourth quarter of 2014 and an operating profit of US$41 million in the third quarter of 2015.

Income Tax Expense

Both GAAP and non-GAAP income tax expense was US$20 million for the fourth quarter of 2015, compared with income tax expense of US$9 million in the fourth quarter of 2014.

Net Income

Before deducting the share of net income pertaining to non-controlling interest, GAAP net income for the fourth quarter of 2015 was US$9 million, compared with a net loss of US$33 million in the fourth quarter of 2014 and net income of US$93 million in the third quarter of 2015. Before deducting the share of net income pertaining to non-controlling interest, non-GAAP net income for the fourth quarter of 2015 was US$34 million, compared with a net loss of US$5 million in the fourth quarter of 2014 and net income of US$91 million in the third quarter of 2015.

GAAP net loss attributable to Sohu.com Inc. for the fourth quarter of 2015 was US$31 million, or US$0.80 loss per fully-diluted share, compared with a net loss of US$20 million in the fourth quarter of 2014 and net income of US$39 million in the third quarter of 2015. Non-GAAP net loss attributable to Sohu.com Inc. for the fourth quarter of 2015 was US$13 million, or US$0.34 loss per fully-diluted share, compared with a net loss of US$14 million in the fourth quarter of 2014 and net income of US$49 million in the third quarter of 2015.

Liquidity

As of December 31, 2015, the Sohu Group had net cash and cash equivalents and short-term investments of US$1.42 billion, compared with US$1.07 billion as of December 31, 2014.

Fiscal Year 2015 Financial Results

Revenues

Total revenues for 2015 were US$1.9 billion, up 16% compared with 2014.

Total online advertising revenues, which include revenues from the brand advertising and search and search-related businesses, for 2015 were US$1.1 billion, up 24% compared with 2014.

Brand advertising revenues for 2015 were US$577 million, up 7% compared with 2014, mainly driven by the online video business. Revenues of Sohu Media Portal, or Sohu.com excluding Sohu Video, were US$198 million, flattish as compared with 2014. Revenues of Sohu Video were US$213 million, up 21% compared with 2014.

Search and search-related revenues for 2015 were US$540 million, up 51% compared with 2014. The increase was mainly driven by the search business as a result of increases in the number of paid clicks and higher average cost per click.

Online game revenues for 2015 were US$637 million, down 2% compared with 2014.

 

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Gross Margin

Both GAAP and non-GAAP gross margin was 56% for 2015, compared with 59% in 2014.

Both GAAP and non-GAAP gross margin for the online advertising business for 2015 was 44%, compared with 48% in 2014.

Both GAAP and non-GAAP gross margin for the brand advertising business for 2015 was 34%, compared with 43% in 2014. The decrease was primarily due to an increase in video content costs.

Both GAAP and non-GAAP gross margin for the search and search-related business for 2015 was 56%, compared with 54% in 2014. The increase in gross margin was mainly due to growing revenues, combined with lower costs as a percentage of search and search-related revenues.

Both GAAP and non-GAAP gross margin for online games for 2015 was 75%, compared with 78% in 2014.

Operating Expenses

For 2015, GAAP operating expenses totaled US$996 million, down 17% compared with 2014. Non-GAAP operating expenses were US$944 million, down 16% compared with 2014. The decreases were primarily due to decreases in salary and compensation expenses and marketing and promotional spending for mobile internet products of Changyou.

Operating Profit

GAAP operating profit for 2015 was US$82 million, compared with an operating loss of US$205 million in 2014.

Non-GAAP operating profit for 2015 was US$136 million, compared with an operating loss of US$131 million in 2014.

Other Income

Other income for 2015 was US$75 million, compared with other income of US$10 million in 2014. The increase in other income for 2015 included gain recognized from the divestment of 7Road, a Web game business of Changyou in the third quarter of 2015.

Income Tax Expense

Both GAAP and non-GAAP income tax expense for 2015 was US$77 million, compared with income tax expense of US$6 million in 2014. The increase was mainly due to an increase of US$52 million in income tax expense incurred by Changyou.

Net Income

Before deducting the share of net income pertaining to non-controlling interest and deemed dividend to non-controlling Sogou Series A Preferred shareholders, GAAP net income for 2015 was US$109 million, compared with a net loss of US$171 million in 2014. Before deducting the share of net income pertaining to non-controlling interest, non-GAAP net income for 2015 was US$162 million, compared with a net loss of US$97 million in 2014.

GAAP net loss attributable to Sohu.com Inc. for 2015 was US$51 million, or US$1.32 loss per fully-diluted share, compared with a net loss of US$171 million in 2014. Non-GAAP net loss attributable to Sohu.com Inc. for 2015 was US$4 million, or US9 cents loss per fully-diluted share, compared with a net loss of US$120 million in 2014.

Ms. Carol Yu, President and CFO of Sohu.com Inc. commented, “For 2015, I am pleased to see our key business lines largely achieved our financial goals set at the beginning of the year. More importantly, it is our privilege to work with the teams of capable managers at each of our business lines. When today we face challenges in the light of rapid changes in our industry, I believe that our cohesive team will be able to ensure our success in the years to come.”

 

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Business Outlook

For the first quarter of 2016, Sohu estimates:

 

    Total revenues to be between US$390 million and US$420 million.

 

    Brand advertising revenues to be between US$125 million and US$135 million; this implies a sequential decrease of 4% to 11% and an annual decrease of 7% to an annual increase of 1%. Sohu Media Portal revenues to be between 35% and 37% of total brand advertising revenues. Sohu Video revenues to be between 31% and 33% of total brand advertising revenues.

 

    Sogou revenues to be between US$135 million and US$145 million; this implies a sequential decrease of 12% to 19% and an annual growth of 16% to 25%.

 

    Online game revenues to be between US$95 million and US$105 million; this implies a sequential decrease of 17% to 25% and an annual decrease of 43% to 49%.

 

    Before deducting the share of non-GAAP net income pertaining to non-controlling interest, non-GAAP net income to be between nil and US$10 million.

 

    Non-GAAP net loss attributable to Sohu.com Inc. to be between US$15 million and US$25 million, and non-GAAP loss per fully-diluted share to be between US$0.40 and US$0.65.

 

    Assuming no new grants of share-based awards and that the market price of our shares is unchanged; we estimate that compensation expense relating to share-based awards will be around US$9.5 million to US$10.5 million.

 

    GAAP net loss attributable to Sohu.com Inc. to be between US$25 million and US$35 million, and GAAP loss per fully-diluted share to be between US$0.65 and US$0.90.

Non-GAAP Disclosure

Revision of Non-GAAP Reporting

Prior to the fourth quarter of 2014, the Company’s determined its non-GAAP results excluding share-based compensation expense, goodwill impairment, impairment of intangibles via acquisitions of businesses and related tax impact, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions and dividend and deemed dividend to non-controlling preferred shareholders of Sogou.

In the fourth quarter of 2014, we reassessed our definition of non-GAAP to better reflect the economic substance and performance of the Group. With the consideration that goodwill impairment and impairment of intangibles via acquisitions of businesses can be an indicator of the economic substance of the acquired businesses, we revised the definition of non-GAAP that we use, and excluded only share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from adjustments of contingent consideration previously recorded for acquisitions, and deemed dividend to non-controlling preferred shareholders of Sogou. Our results for the fourth quarter and fiscal year ended December 31, 2015 are presented using this revised definition of non-GAAP.

Revised Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), Sohu’s management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Sohu.com Inc. and diluted net income attributable to Sohu.com Inc. per share, which are adjusted from results based on GAAP to exclude the impact of the share-based awards, which consist mainly of share-based compensation expenses and non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders. 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.

 

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Sohu’s management believes excluding the share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions and dividend and deemed dividend to non-controlling preferred shareholders from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts, which have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As the impact of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders does not involve subsequent cash outflow or is reflected in the cash flows at the equity transaction level, Sohu does not factor this impact in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude the share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders.

The non-GAAP financial measures are provided to enhance investors’ overall understanding of Sohu’s current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to Sohu.com Inc. and diluted net income attributable to Sohu.com Inc. per share, excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards, income/expense from the adjustment of contingent consideration previously recorded for acquisitions, and dividend and deemed dividend to non-controlling preferred shareholders is that the impact of share-based awards and non-cash tax benefits from excess tax deductions related to share-based awards has been and will continue to be a significant recurring expense in Sohu’s business for the foreseeable future, income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future, and dividend and deemed dividend to non-controlling preferred shareholders may recur when Sohu and its affiliates enter into equity transactions. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu’s unaudited interim financial statements prepared in accordance with GAAP.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu’s next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu’s beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements 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, instability in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu’s reported US dollar results; recent slow-downs in the growth of the Chinese economy; the uncertain regulatory landscape in the People’s Republic of China; fluctuations in Sohu’s quarterly operating results; Sohu’s current and projected future losses due to increased spending by Sohu for video content; the possibilities that Sohu will be unable to recoup its investment in video content and that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; and Sohu’s reliance on online advertising sales, online games and mobile services for its revenues. Further information regarding these and other risks is included in Sohu’s annual report on Form 10-K for the year ended December 31, 2014, and other filings with the Securities and Exchange Commission.

Conference Call and Webcast

Sohu’s management team will host a conference call at 8:30 a.m. U.S. Eastern Time, February 1, 2016 (9:30 p.m. Beijing/Hong Kong time, February 1, 2016) following the quarterly and fiscal year results announcement.

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

 

US Toll-Free:   +1-866-519-4004
International:   +65-6713-5090
Hong Kong:   +852-3018-6771
China Mainland   +86-800-819-0121 / +86-400-620-8038
Passcode:   SOHU

 

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Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A telephone replay of the call will be available after the conclusion of the conference call at 11:30 a.m. Eastern Time on February 1 through February 7, 2016. The dial-in details for the telephone replay are:

 

International:    +1-646-254-3697
Passcode:    26859474

The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu’s Website at http://investors.sohu.com/.

About Sohu.com

Sohu.com Inc. (NASDAQ: SOHU) is China’s premier online brand and indispensable to the daily life of millions of Chinese, providing a network of Web properties and community based/Web 2.0 products which offer the vast Sohu user community a broad array of choices regarding information, entertainment and communication. Sohu has built one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and leading online media destination www.sohu.com; the interactive search engine www.sogou.com; the developer and operator of online games www.changyou.com/en/ and the leading online video Website tv.sohu.com.

Sohu corporate services consist of online brand advertising on its matrix of websites as well as bid listing and home page on its in-house developed search directory and engine. Sohu also provides multiple news and information service on mobile platforms, including Sohu News App and mobile news portal m.sohu.com. Sohu’s online game subsidiary, Changyou.com (NASDAQ: CYOU) has a diverse portfolio of popular online games, such as Tian Long Ba Bu (“TLBB”), one of the most popular PC games in China, as well as a number of mobile games. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Sohu.com, established by Dr. Charles Zhang, one of China’s internet pioneers, is in its twentieth year of operation.

For investor and media inquiries, please contact:

In China:

 

Mr. Eric Yuan
Sohu.com Inc.
Tel:   +86 (10) 6272-6593
E-mail:   ir@contact.sohu.com

In the United States:

 

Ms. Linda Bergkamp
Christensen
Tel:   +1 (480) 614-3004
E-mail:   lbergkamp@christensenir.com

 

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SOHU.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

    Three Months Ended     Twelve Months Ended  
    Dec. 31, 2015     Sep. 30, 2015     Dec. 31, 2014     Dec. 31, 2015     Dec. 31, 2014  

Revenues:

         

Online advertising

         

Brand advertising

  $ 140,927      $ 151,517      $ 147,824      $ 577,114      $ 541,158   

Search and search-related

    151,251        147,938        110,029        539,521        357,839   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    292,178        299,455        257,853        1,116,635        898,997   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online games

    127,001        152,501        184,405        636,846        652,008   

Others

    46,924        70,134        34,938        183,610        122,072   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    466,103        522,090        477,196        1,937,091        1,673,077   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

         

Online advertising

         

Brand advertising (includes stock-based compensation expense of $534, $184, $167, $1,381 and $823, respectively)

    87,625        91,163        77,246        383,187        307,708   

Search and search-related (includes stock-based compensation expense of $211, $12, $386, $330 and $1,092, respectively)

    68,108        62,365        45,386        238,944        163,918   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    155,733        153,528        122,632        622,131        471,626   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online games (includes stock-based compensation expense of $45, $-96, $-37, $37 and $55, respectively)

    28,266        34,635        51,754        156,315        142,552   

Others (includes stock-based compensation expense of $0, $0, $2, $0 and $2, respectively)

    17,552        25,996        21,204        80,618        71,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    201,551        214,159        195,590        859,064        685,634   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    264,552        307,931        281,606        1,078,027        987,443   

Operating expenses:

         

Product development (includes stock-based compensation expense of $9,665, $-1,332, $8,983, $19,343 and $24,982, respectively)

    102,402        92,779        81,374        398,143        409,285   

Sales and marketing (includes stock-based compensation expense of $1,482, $466, $1,894, $3,055 and $5,645, respectively)

    98,230        98,596        115,812        383,931        526,514   

General and administrative (includes stock-based compensation expense of $13,042, $-1,536, $16,442, $29,297 and $41,843, respectively)

    44,946        33,330        65,995        173,160        204,325   

Goodwill impairment and impairment of intangibles via acquisitions of businesses

    —          40,324        52,282        40,324        52,282   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    245,578        265,029        315,463        995,558        1,192,406   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit /(loss)

    18,974        42,902        (33,857     82,469        (204,963

Other income

    1,590        70,219        4,619        74,526        9,959   

Interest income

    6,004        5,192        6,273        23,459        30,977   

Exchange difference

    1,885        4,322        (1,169     5,337        (1,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income /(loss) before income tax expense

    28,453        122,635        (24,134     185,791        (165,169

Income tax expense

    19,656        29,461        8,612        76,936        6,050   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income /(loss)

    8,797        93,174        (32,746     108,855        (171,219
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income /(loss) attributable to the noncontrolling interest shareholders

    39,197        42,142        (13,171     146,542        (32,309

Deemed dividend to non-controlling Sogou series A preferred shareholders

    —          11,911        —          11,911        27,747   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income /(loss) attributable to Sohu.com Inc.

    (30,400     39,121        (19,575     (49,598     (166,657
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income /(loss) per share attributable to Sohu.com Inc.

  $ (0.79   $ 1.01      $ (0.51   $ (1.28   $ (4.33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing basic net income /(loss) per share attributable to Sohu.com Inc.

    38,646        38,633        38,501        38,598        38,468   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income /(loss) per share attributable to Sohu.com Inc.

  $ (0.80   $ 1.00      $ (0.52   $ (1.32   $ (4.43
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing diluted net income /(loss) per share attributable to Sohu.com Inc.

    38,646        38,665        38,501        38,598        38,468   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


SOHU.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

 

     As of Dec. 31, 2015      As of Dec. 31, 2014  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 1,245,205       $ 876,340   

Restricted time deposits

     227,285         282,186   

Short-term investments

     174,515         191,577   

Accounts receivable, net

     273,617         230,401   

Prepaid and other current assets

     158,890         116,704   
  

 

 

    

 

 

 

Total current assets

     2,079,512         1,697,208   
  

 

 

    

 

 

 

Long-term investments

     62,093         24,067   

Fixed assets, net

     508,692         540,778   

Goodwill

     154,219         303,426   

Intangible assets, net

     55,415         110,691   

Restricted time deposits

     136,694         144,562   

Prepaid non-current assets

     6,254         8,933   

Other assets

     39,315         37,344   
  

 

 

    

 

 

 

Total assets

   $ 3,042,194       $ 2,867,009   
  

 

 

    

 

 

 

LIABILITIES

     

Current liabilities:

     

Accounts payable

   $ 129,025       $ 127,758   

Accrued liabilities

     309,657         239,231   

Receipts in advance and deferred revenue

     135,385         127,740   

Accrued salary and benefits

     99,631         108,741   

Taxes payable

     67,480         33,380   

Deferred tax liability

     24,884         22,356   

Short-term bank loans

     344,500         25,500   

Other short-term liabilities

     154,017         105,644   

Contingent consideration

     —           3,935   
  

 

 

    

 

 

 

Total current liabilities

   $ 1,264,579       $ 794,285   
  

 

 

    

 

 

 

Long-term accounts payable

     4,600         5,143   

Long-term bank loans

     —           344,500   

Long-term tax payable

     24,732         24,829   

Deferred tax liabilities

     17,531         7,417   

Contingent consideration

     —           1,929   
  

 

 

    

 

 

 

Total long-term liabilities

   $ 46,863       $ 383,818   
  

 

 

    

 

 

 

Total liabilities

   $ 1,311,442       $ 1,178,103   
  

 

 

    

 

 

 

SHAREHOLDERS’ EQUITY:

     

Sohu.com Inc. shareholders’ equity

     1,241,022         1,201,661   

Noncontrolling Interest

     489,730         487,245   
  

 

 

    

 

 

 

Total shareholders’ equity

   $ 1,730,752       $ 1,688,906   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,042,194       $ 2,867,009   
  

 

 

    

 

 

 


SOHU.COM 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 Dec. 31, 2015     Three Months Ended Sep. 30, 2015     Three Months Ended Dec. 31, 2014  
    GAAP     Non-GAAP
Adjustments
    Non-GAAP     GAAP     Non-GAAP
Adjustments
    Non-GAAP     GAAP     Non-GAAP
Adjustments
    Non-GAAP  
      534  (a)          184  (a)          167  (a)   
   

 

 

       

 

 

       

 

 

   

Brand advertising gross profit

  $ 53,302      $ 534      $ 53,836      $ 60,354      $ 184      $ 60,538      $ 70,578      $ 167      $ 70,745   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Brand advertising gross margin

    38       38     40       40     48       48
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      211  (a)          12  (a)          386  (a)   
   

 

 

       

 

 

       

 

 

   

Search and search-related gross profit

  $ 83,143      $ 211      $ 83,354      $ 85,573      $ 12      $ 85,585      $ 64,643      $ 386      $ 65,029   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Search and search-related gross margin

    55       55     58       58     59       59
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      745  (a)          196  (a)          553  (a)   
   

 

 

       

 

 

       

 

 

   

Online advertising gross profit

  $ 136,445      $ 745      $ 137,190      $ 145,927      $ 196      $ 146,123      $ 135,221      $ 553      $ 135,774   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online advertising gross margin

    47       47     49       49     52       53
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      45  (a)          (96 ) (a)          (37 ) (a)   
   

 

 

       

 

 

       

 

 

   

Online games gross profit

  $ 98,735      $ 45      $ 98,780      $ 117,866      $ (96   $ 117,770      $ 132,651      $ (37   $ 132,614   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online games gross margin

    78       78     77       77     72       72
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
                  2  (a)   
               

 

 

   

Others gross profit

  $ 29,372      $ —        $ 29,372      $ 44,138      $ —        $ 44,138      $ 13,734      $ 2      $ 13,736   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others gross margin

    63       63     63       63     39       39
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      790  (a)          100  (a)          518  (a)   
   

 

 

       

 

 

       

 

 

   

Gross profit

  $ 264,552      $ 790      $ 265,342      $ 307,931      $ 100      $ 308,031      $ 281,606      $ 518      $ 282,124   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    57       57     59       59     59       59
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      24,979  (a)          (2,302 ) (a)          27,837  (a)   
   

 

 

       

 

 

       

 

 

   

Operating profit /(loss)

  $ 18,974      $ 24,979      $ 43,953      $ 42,902      $ (2,302   $ 40,600      $ (33,857   $ 27,837      $ (6,020
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

    4       9     8       8     -7       -1
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
      25,047  (a)          (2,302 ) (a)          27,837  (a)   
   

 

 

       

 

 

       

 

 

   

Net income /(loss) before Non-Controlling Interest

  $ 8,797      $ 25,047      $ 33,844      $ 93,174      $ (2,302   $ 90,872      $ (32,746   $ 27,837      $ (4,909
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            (2,302 ) (a)         
      25,047  (a)          725  (b)          27,837  (a)   
      (7,352 ) (b)          11,911  (c)          (21,757 ) (b)   
   

 

 

       

 

 

       

 

 

   

Net income /(loss) attributable to Sohu.com Inc. for diluted net income /(loss) per share

  $ (30,746   $ 17,695      $ (13,051   $ 38,796      $ 10,334      $ 49,130      $ (20,082   $ 6,080      $ (14,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income /(loss) per share attributable to Sohu.com Inc.

  $ (0.80     $ (0.34   $ 1.00        $ 1.27      $ (0.52     $ (0.36
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing diluted net income /(loss) per share attributable to Sohu.com Inc.

    38,646          38,646        38,665          38,701        38,501          38,501   
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Note:

 

(a) To eliminate the impact of share-based awards as measured using the fair value method.
(b) To adjust Sohu’s economic interests in Changyou and Sogou under the treasury stock method.
(c) Deemed dividend to non-controlling Sogou series A preferred shareholders.

 

10


SOHU.COM INC.

RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATION MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

    Twelve Months Ended Dec. 31, 2015     Twelve Months Ended Dec. 31, 2014  
    GAAP     Non-GAAP
Adjustments
    Non-GAAP     GAAP     Non-GAAP
Adjustments
    Non-GAAP  
      1,381  (a)          823  (a)   
   

 

 

       

 

 

   

Brand advertising gross profit

  $ 193,927      $ 1,381      $ 195,308      $ 233,450      $ 823      $ 234,273   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Brand advertising gross margin

    34       34     43       43
 

 

 

     

 

 

   

 

 

     

 

 

 
      330  (a)          1,092  (a)   
   

 

 

       

 

 

   

Search and search-related gross profit

  $ 300,577      $ 330      $ 300,907      $ 193,921      $ 1,092      $ 195,013   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Search and search-related gross margin

    56       56     54       54
 

 

 

     

 

 

   

 

 

     

 

 

 
      1,711  (a)          1,915  (a)   
   

 

 

       

 

 

   

Online advertising gross profit

  $ 494,504      $ 1,711      $ 496,215      $ 427,371      $ 1,915      $ 429,286   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online advertising gross margin

    44       44     48       48
 

 

 

     

 

 

   

 

 

     

 

 

 
      37  (a)          55  (a)   
   

 

 

       

 

 

   

Online games gross profit

  $ 480,531      $ 37      $ 480,568      $ 509,456      $ 55      $ 509,511   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Online games gross margin

    75       75     78       78
 

 

 

     

 

 

   

 

 

     

 

 

 
            2  (a)   
         

 

 

   

Others gross profit

  $ 102,992      $ —        $ 102,992      $ 50,616      $ 2      $ 50,618   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others gross margin

    56       56     41       41
 

 

 

     

 

 

   

 

 

     

 

 

 
      1,748  (a)          1,972  (a)   
   

 

 

       

 

 

   

Gross profit

  $ 1,078,027      $ 1,748      $ 1,079,775      $ 987,443      $ 1,972      $ 989,415   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    56       56     59       59
 

 

 

     

 

 

   

 

 

     

 

 

 
      53,443  (a)          74,442  (a)   
   

 

 

       

 

 

   

Operating profit /(loss)

  $ 82,469      $ 53,443      $ 135,912      $ (204,963   $ 74,442      $ (130,521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

    4       7     -12       -8
 

 

 

     

 

 

   

 

 

     

 

 

 
      53,511  (a)          74,442  (a)   
   

 

 

       

 

 

   

Net income /(loss) before non-controlling interest

  $ 108,855      $ 53,511      $ 162,366      $ (171,219   $ 74,442      $ (96,777
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      53,511  (a)          74,442  (a)   
      (18,230 ) (b)          (51,282 ) (b)   
      11,911  (c)          27,747  (c)   
   

 

 

       

 

 

   

Net loss attributable to Sohu.com Inc for diluted net loss per share

  $ (50,829   $ 47,192      $ (3,637   $ (170,576   $ 50,907      $ (119,669
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per share attributable to Sohu.com Inc.

  $ (1.32     $ (0.09   $ (4.43     $ (3.11
 

 

 

     

 

 

   

 

 

     

 

 

 

Shares used in computing diluted net loss per share attributable to Sohu.com Inc.

    38,598          38,693        38,468          38,468   
 

 

 

     

 

 

   

 

 

     

 

 

 

Note:

 

(a) To eliminate the impact of share-based awards as measured using the fair value method.
(b) To adjust Sohu’s economic interests in Changyou and Sogou under the treasury stock method.
(c) Dividend or deemed dividend to non-controlling Sogou series A preferred shareholders.

 

11