Sogou Announces First Quarter 2020 Results

BEIJING, May 18, 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 first quarter, ended March 31, 2020.

First Quarter 2020 Highlights

  • Total revenues[1] were $257.3 million, a 2% increase year-over-year, or a 5% increase in RMB terms.
  • Net loss attributable to Sogou Inc. was $31.6 million. Non-GAAP[2] net loss attributable to Sogou Inc. was $31.1 million.
  • Sogou Mobile Keyboard had 482 million DAUs (daily average users), up 9% year-over-year. As China's largest voice recognition app, it processed up to 1.4 billion daily voice requests.

"We started 2020 with smooth operations across our core businesses despite the challenging environment during COVID-19," said Xiaochuan Wang, CEO of Sogou. "In particular, our core Search business continued to outperform the industry in the first quarter. Thanks to the surge of user demand for reliable information and high efficiency during the pandemic, our Search and Mobile Keyboard recorded new highs in terms of traffic and user base, respectively."

Mr. Wang added, "On top of that, we carried out a comprehensive AI-driven upgrade across our core businesses to capture the opportunities that emerged during COVID-19. In particular, our voice AI has equipped Mobile Keyboard with industry-leading voice recognition functions and further evolves it into an AI communication assistant, while also facilitated sales growth of our AI recorders despite the dampening market. With steady implementation of our strategy, we believe we will effectively navigate through the pandemic, and our long-term growth prospects remain intact." 

Joe Zhou, CFO of Sogou, said, "In the first quarter of 2020, we continued to deliver steady top-line growth despite challenges during the pandemic, while our profitability was impacted by the situation as a result of increased traffic acquisition cost. Going forward, we foresee ongoing pressure on our overall results in the second quarter as the impact of the pandemic lingers. We expect our business to resume healthy growth when the external environment normalizes post the pandemic."

First Quarter 2020 Financial Results

Total revenues were $257.3 million, a 2% increase year-over-year.

  • Search and search-related revenues were $237.6 million, a 1% increase year-over-year. Auction-based pay-for-click services continued to increase year-over-year, accounting for 91.0% of search and search-related revenues, compared to 87.2% in the corresponding period in 2019.
  • Other revenues were $19.7 million, a 6% increase year-over-year. The increase was primarily due to increased revenues from sales of smart hardware products.

Cost of revenues was $217.0 million, an 18% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $181.3 million, a 27% increase year-over-year, representing 70.5% of total revenues, compared to 56.6% 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 and non-GAAP gross profit were both $40.3 million, both a 41% decrease year-over-year.

Total operating expenses were $82.6 million, a 3% increase year-over-year.

  • Research and development expenses were $47.0 million, a 15% increase year-over-year, representing 18.3% of total revenues, compared to 16.2% in the corresponding period in 2019. The increase was primarily attributable to an increase in personnel-related expenses.
  • Sales and marketing expenses were $28.6 million, a 2% decrease year-over-year, representing 11.1% of total revenues, largely flat with the corresponding period in 2019.
  • General and administrative expenses were $7.0 million, a 29% decrease year-over-year, representing 2.7% of total revenues, compared to 3.9% in the corresponding period in 2019. The decrease was primarily due to a decrease in expenses related to the Company's non-core businesses.

Operating loss was $42.4 million, a 254% increase year-over-year, compared to a loss of $12.0 million in the corresponding period in 2019. Non-GAAP operating loss was $41.9 million, a 288% increase year-over-year, compared to a loss of $10.8 million in the corresponding period in 2019.

Other income, net was $7.2 million, compared to $8.7 million in the corresponding period in 2019. The decrease was primarily due to charitable donations of $1.9 million associated with the COVID-19 outbreak.

Income tax benefit was $1.0 million, compared to an income tax benefit of $0.2 million in the corresponding period of 2019.

Net loss attributable to Sogou Inc. was $31.6 million, compared to a net loss of $3.9 million in the corresponding period in 2019. Non-GAAP net loss attributable to Sogou Inc. was $31.1 million, compared to a net loss of $2.7 million in the corresponding period in 2019.

Both GAAP and non-GAAP basic and diluted loss per ADS was $0.08.

As of March 31, 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 first quarter of 2020 was $26.0 million. Capital expenditures for the first quarter of 2020 were $3.8 million.

[1] On a constant currency (non-GAAP) basis, if the exchange rate in the first quarter of 2020 had been the same as it was in the first quarter of 2019, or RMB 6.74=$1.00, total revenues in the first quarter of 2020 would have been 266.2 million, or $9.0 million more than GAAP total revenues, and up 5% 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."

Business Outlook

For the second quarter of 2020, Sogou expects total revenues to be in the range of $260 million to $280 million, representing a decrease of 8% to 14% year-over-year, or a decrease of 4% to 11% year-over-year in RMB terms. In developing this guidance, the Company has considered the expected continued impact of the COVID-19 outbreak and resulting contraction of the Chinese economy, as well as other challenges in the macro environment and the online advertising industry. The guidance represents the Company's current and preliminary view, which is subject to substantial uncertainty, particularly as to the status and impact of the COVID-19 pandemic in China and worldwide.

For the second quarter 2020 guidance, the Company has adopted a presumed exchange rate of RMB7.07 = $1.00, as compared with the actual exchange rate of approximately RMB6.82 = $1.00 for the second quarter of 2019, and RMB6.98 = $1.00 for the first quarter of 2020.

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; uncertainty regarding the extent and reach of PRC governmental regulation of sponsored search; and the effects of the COVID-19 virus on the economy in China generally and on our business in particular. 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 May 18, 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:

0996007

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 May 25, 2020:

International:

+1-412-317-0088

Passcode:

10143626

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:

Yadan Ouyang
Brunswick Group
Tel: +86 10 5960-8600
Email: sogou@brunswickgroup.com

 

SOGOU INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)










Three Months Ended



 Mar. 31, 2020 


 Dec. 31, 2019 


 Mar. 31, 2019 

Revenues: 







  Search and search‑related advertising
  revenues

$

237,610

$

274,610

$

234,177

  Other revenues


19,674


26,413


18,545

Total revenues 


257,284


301,023


252,722

Cost of revenues(1) 


217,024


168,657


184,654

Gross profit 


40,260


132,366


68,068

Operating expenses:







  Research and development(1)


47,023


48,725


41,037

  Sales and marketing(1) 


28,597


34,926


29,196

  General and administrative(1)


6,997


11,300


9,816

Total operating expenses 


82,617


94,951


80,049

Operating (loss)/income


(42,357)


37,415


(11,981)

Interest income 


744


540


1,371

Foreign currency exchange gain/(loss)(2)


1,730


(1,540)


(2,196)

Other income, net


7,212


527


8,735

(loss)/Income before income tax expenses 


(32,671)


36,942


(4,071)

Income tax (benefits)/expenses


(962)


1,953


(213)

Net (loss)/income


(31,709)


34,989


(3,858)

Less:Net loss attributable to non-controlling
interest shareholders


(93)


-


-

Net (loss)/income attributable to Sogou
Inc.

$

(31,616)

$

34,989

$

(3,858)

Weighted average number of ordinary shares
outstanding—basic


382,141


385,586


391,379

Weighted average number of ordinary shares
outstanding—diluted


382,141


391,356


391,379

Net (loss)/income per ordinary share—basic

$

(0.08)

$

0.09

$

(0.01)

Net (loss)/income per ordinary share—diluted

$

(0.08)

$

0.09

$

(0.01)

Net (loss)/income per ADS—basic

$

(0.08)

$

0.09

$

(0.01)

Net (loss)/income per ADS—diluted

$

(0.08)

$

0.09

$

(0.01)








(1) Share‑based compensation expense
included in:







  Cost of revenues 

$

77

$

255

$

27

  Research and development 


613


2,602


858

  Sales and marketing 


(379)


797


168

  General and administrative 


166


383


141


$

477

$

4,037

$

1,194

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

 

 

SOGOU INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)








As of  Mar. 31, 2020


As of  Dec. 31, 2019

ASSETS





Current assets:





Cash and cash equivalents 

$

263,500

$

142,464

Short-term investments


886,865


995,350

Restricted cash


5,705


5,370

Account and financing receivables, net 


119,035


131,813

Prepaid and other current assets


32,405


26,888

Due from related parties 


2,132


2,837

Total current assets 


1,309,642


1,304,722

Long‑term investments, net


72,117


63,345

Fixed assets, net 


100,016


110,006

Goodwill 


6,011


5,534

Intangible assets, net 


1,337


1,514

Deferred tax assets, net 


16,055


16,306

Other assets


44,110


20,975

Total assets 

$

1,549,288

$

1,522,402

LIABILITIES





Current liabilities:





Accounts payable

$

176,629

$

111,587

Accrued and other short-term liabilities


152,690


150,275

Receipts in advance


64,439


67,902

Accrued salary and benefits


13,493


24,167

Taxes payable


69,995


76,688

Due to related parties


37,567


22,594

Total current liabilities 


514,813


453,213

Long-term liabilities


19,161


5,686

Total liabilities 

$

533,974

$

458,899






SHAREHOLDERS' EQUITY





Sogou Inc. shareholders' equity


1,014,857


1,063,503

Non-controlling interest


457


-

Total shareholders' equity


1,015,314


1,063,503

Total liabilities and shareholders' equity 

$

1,549,288

$

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 Mar. 31, 2020

Three Months Ended Dec. 31, 2019

Three Months Ended Mar. 31, 2019


GAAP

Non-GAAP

Non-GAAP

GAAP

Non-GAAP

Non-GAAP

GAAP

Non-GAAP

Non-GAAP

Adjustments (1)

Adjustments (1)

Adjustments (1)

Gross profit

$

40,260

$

77

$

40,337

$

132,366

$

255

$

132,621

$

68,068

$

27

$

68,095




















Gross margin


16%




16%


44%




44%


27%




27%




















Operating expenses

$

82,617

$

(400)

$

82,217

$

94,951

$

(3,782)

$

91,169

$

80,049

$

(1,167)

$

78,882




















Operating (loss)/income

$

(42,357)

$

477

$

(41,880)

$

37,415

$

4,037

$

41,452

$

(11,981)

$

1,194

$

(10,787)




















Operating margin


-16%




-16%


12%




14%


-5%




-4%




















Income tax (benefits)/expenses

$

(962)

$

-

$

(962)

$

1,953

$

-

$

1,953

$

(213)

$

-

$

(213)




















Net (loss)/income before non-
controlling interest

$

(31,709)

$

477

$

(31,232)

$

34,989

$

4,037

$

39,026

$

(3,858)

$

1,194

$

(2,664)




















Net (loss)/income attributable to
Sogou Inc. 

$

(31,616)

$

477

$

(31,139)

$

34,989

$

4,037

$

39,026

$

(3,858)

$

1,194

$

(2,664)




















Net margin attributable to Sogou Inc. 


-12%




-12%


12%




13%


-2%




-1%







































(1) To exclude share-based compensation expense. This non-GAAP adjustment does not have an impact on income tax expense.







 

SOURCE Sogou Inc.


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