Aug 24, 2014 Uncategorized Comments Off on Qihoo 360 Reports Second Quarter 2014 Unaudited Financial Results
BEIJING, August 25, 2014 /PRNewswire/ — 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, 2014.Second Quarter Financial Highlights1Revenues were $317.9 million, a 109.6% increase from $151.7 million in the second quarter of 2013. Net income attributable to Qihoo 360 was $39.1 million, compared to $33.0 million in the second quarter of 2013. Non-GAAP net income attributable to Qihoo 360 (1) was $69.2 million, compared to $51.0 million in the second quarter of 2013. Diluted earnings per ADS(2) (“EPADS”) attributable to Qihoo 360 was $0.30, compared to $0.26 in the same period last year. Non-GAAP diluted EPADS attributable to Qihoo 360 (1) was $0.50, compared to $0.40 in the same period last year. Second Quarter Operating MetricsTotal monthly active users of Qihoo 360’s PC-based products and services reached a record of 496 million in June 2014, compared to 461 million in June 2013(3). User penetration of Qihoo 360’s PC-based products was 93.9% in June 2014, compared to 96% in June 2013(3). Total smartphone users of Qihoo 360’s primary mobile security product (4) reached a record of 641 million in June 2014, compared to 338 million in June 2013(5). Monthly active users of Qihoo 360’s PC browsers were 345 million in June 2014, compared to 330 million in June 2013(3). User penetration of Qihoo 360’s PC browsers was 65.2% in June 2014, compared to 69% in June 2013(3). Average daily unique visitors to the 360 Personal Start-up Page and its sub-pages were 128 million in the second quarter of 2014, compared to 114 million in the second quarter of 2013(5). Average daily clicks on Qihoo 360’s Personal Start-up Page and its sub-pages were approximately 749 million in the second quarter of 2014, compared to 590 million in the second quarter of 2013(5).”We delivered another quarter of strong growth and solid operational metrics,” said Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360. “As we maintain our leadership position in key PC-related product categories, we are making a significant transition to the ever more-important mobile Internet market. The number of Chinese smartphone users of our key mobile security product, 360 Mobile Safe, reached 641 million in the second quarter, further strengthening our indisputable leadership position in Internet security in China. In addition, our Android-based app store, 360 Mobile Assistant, continues to lead the market with the largest Android app distribution market share. We intend to continue to invest significant resources in the fast-growing mobile Internet market for the foreseeable future.” “A few days ago, our share of Internet search traffic reached over 30% according to third-party data, achieving our year-end target four months ahead of schedule. As we continue to claim higher market share in PC search, we intend to allocate significantly more resources to support product development and market penetration of our mobile search. Through continued product improvement and technological innovation, we believe we are in an excellent position to further grow our share of China’s search market in both PC and mobile traffic and revenue. Mr. Xiangdong Qi, President of Qihoo 360, added, “We are excited to see robust growth in key areas of our business. Online advertising grew 89% year-over-year, supported by strong contributions from both search and mobile monetization and deepening monetization of our user traffic. Internet value-added services continue to show strong momentum with revenue growth of 140%, driven by strength in PC games and a continued ramp-up in mobile games. Since we began monetizing our search and mobile products at the beginning of 2013 we have made significant progress, and are encouraged by the results. While search and mobile monetization are still in their early stages, we believe they represent a substantial long-term growth opportunity for our company. We will continue to make significant investments in the coming quarters to strengthen our brand and market position, and to improve our products and technology, particularly in mobile Internet-related areas. At the same time, we also intend to strengthen and expand our ecosystem through strategic partnerships and investments in the rapidly evolving industry landscape.”Second Quarter 2014 ResultsRevenuesRevenues were $317.9 million, representing an increase of 109.6% from $151.7 million in the second quarter of 2013 and an increase of 19.9% from $265.1 million in the first quarter of 2014. The robust year-over-year growth was due to strong performance in both online advertising and Internet value-added services, driven by continued ramp in search and mobile monetization, as well as strong user traffic growth and monetization. Online advertising revenues were $171.3 million, up 89.0% from the same period last year and 22.3% from the prior quarter. The strong year-over-year increase was primarily driven by incremental contribution from search and mobile advertising and increased monetization of user activities on 360 Personalized Start-up Pages. Strong momentum in search and seasonal strength in advertising supported solid sequential growth.Internet value-added service revenues, which are mainly derived from game platform operations, were $146.2 million, up 140.0% from the same period last year and 17.2% from the prior quarter. The robust year-over-year growth was mainly driven by the strong growth in both PC and mobile games. Other IVAS and game operations also drove healthy sequential growth.Cost of RevenuesCost of revenues were $66.6 million, compared to $17.8 million in the second quarter of 2013 and $50.4 million in the first quarter of 2014, representing increases of 273.3% and 32.2%, respectively. Operating ExpensesOperating expenses were $208.3 million, compared to $97.2 million in the second quarter of 2013 and $175.1 million in the first quarter of 2014. Non-GAAP operating expenses(1) were $182.6 million, compared to $79.3 million in the second quarter of 2013 and $155.2 million in the prior quarter. The year-over-year and sequential increases in non-GAAP operating expenses(1) were mainly driven by increased marketing and promotional expenses, personnel-related costs, and bandwidth and equipment depreciation expenses, as the Company continued to strengthen its brand and market position, and enhance its technology and product development capabilities in an increasingly competitive industry.Operating IncomeOperating income was $43.9 million, compared to $36.6 million in the second quarter of 2013 and $39.6 million in the prior quarter. Non-GAAP operating income(1) was $69.7 million, compared to $54.5 million in the second quarter of 2013 and $59.5 million in the prior quarter. Operating margin was 13.8%, compared to 24.1% in the second quarter of 2013 and 14.9% in the prior quarter. Non-GAAP operating margin(1) was 21.9%, compared to 36.0% in the second quarter of 2013 and 22.5% in the prior quarter. The year-over-year and sequential decline in non-GAAP operating margin(1) was mainly due to increased marketing and promotional expenses, personnel-related costs, and bandwidth and equipment depreciation expenses.Net Income attributable to Qihoo 360Net income attributable to Qihoo 360 was $39.1 million, compared to $33.0 million in the second quarter of 2013 and $49.1 million in the prior quarter. Non-GAAP net income(1) attributable to Qihoo 360 was $69.2 million, compared to $51.0 million in the second quarter of 2013 and $73.3 million in the prior quarter.Net MarginNet margin was 12.3%, compared to 21.8% in the same period last year, and 18.5% in the prior quarter. Non-GAAP net margin(1) was 21.8%, compared to 33.6% in the same period last year and 27.7% in the prior quarter. Diluted Earnings per ADSDiluted EPADS for the second quarter of 2014 was $0.30, and non-GAAP diluted EPADS(1) for the second quarter of 2014 was $0.50. The GAAP weighted average ADS(1) used in computing diluted EPADS was 131.9 million.Cash Flows and Balance SheetNet cash generated from operations in the second quarter of 2014 was $57.7 million, compared to $86.4 million in the same period last year and $100.5 million in the prior quarter. Cash capital expenditures were $41.4 million. As of June 30, 2014, the Company had cash and cash equivalents of $786.8 million. Business OutlookFor the third quarter of 2014, the Company expects revenues to be between $360 million and $365 million, representing a year-over-year increase of 92% to 94% and quarter-over-quarter increase of 13% to 15%. These estimates reflect the Company’s current and preliminary view, which is subject to possible material changes.Conference CallQihoo 360’s management will host a conference call to discuss the results at 7:30 a.m. Eastern Time on August 25, 2014 (7:30 p.m. Beijing time on August 25, 2014). The dial-in details for the live conference call are: US Toll Free Dial In: +1 866-519-4004International Dial In: +65 6723 9381Hong Kong Dial In:+852-2475-0994Passcode: 87291151A telephone replay of the call will be available after the conclusion of the conference call at 10:30 a.m. Eastern Time on August 25, 2014 through 09:30 a.m. Eastern Time on September 2, 2014. The dial-in details for the replay are: International Dial In: +61 2 8199 0299US Dial In: +1 646-254-3697Passcode:87291151A 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 360Qihoo 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 platform. Forward-looking Statements 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 25, 2014.About Non-GAAP Financial MeasuresTo 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 and interest expense of Convertible Senior Notes. 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.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 June 2014 and June 2013.4 360 Mobile Safe is the Company’s primary mobile security product.5 Company data as of June 2014 and June 2013.For investor and media inquiries, please contact:Qihoo 360 Technology Co. Ltd.In China:Tel: +86 10-5878-1574 E-mail: firstname.lastname@example.orgIn the U.S.:The Piacente Group, Inc. Don Markley or Glenn GarmontTel: (212) 481-2050E-mail: email@example.com Qihoo 360 Technology Co. Ltd.Condensed Consolidated Balance Sheets(U.S. dollars in thousands, except for shares and per share data)(Unaudited)December 31,June 30,20132014ASSETSCurrent assets: Cash and cash equivalents1,013,465786,821 Restricted cash2,3683,705 Short-term investments74816,868 Accounts receivable (net of allowance for doubtful accounts of $145 and $160 as of December 31, 2013 and June 30, 2014, respectively)54,59893,142 Prepaid expenses and other current assets83,409154,591 Deferred tax assets – current3,1293,804Total current assets1,157,7171,058,931Property and equipment, net163,864197,987Land use rights, net75,69873,010Acquired intangible assets, net17,24841,889Goodwill29,509211,931Long-term investments84,293256,185Other noncurrent assets39,621136,561Deferred tax assets – noncurrent946975TOTAL ASSETS1,568,8961,977,469LIABILITIESCurrent liabilities: Short-term loan (including short-term loan of the consolidatedVIEs without recourse to Qihoo 360 Technology Co. Ltd of$1,322 and $4,514 as of December 31, 2013 and June 30, 2014, respectively)1,3224,514 Accounts payable (including accounts payable of the consolidatedVIEs without recourse to Qihoo 360 Technology Co. Ltd. of $22,856 and $72,182 as of December 31, 2013 and June 30, 2014, respectively)25,03084,398 Accrued expenses and other current liabilities (including accruedexpenses and other current liabilities of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $77,170 and $113,635 as of December 31, 2013 and June 30, 2014, respectively)120,935219,126Deferred revenue-current (including deferred revenue-current of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $30,717 and $63,327 as of December 31, 2013 and June 30, 2014, respectively)46,63284,639Income tax payable (including income tax payable of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $5,546 and $(485) as of December 31, 2013 and June 30, 2014, respectively)14,67913,486Total current liabilities208,598406,163Deferred tax liabilities – noncurrent2,6765,701Deferred revenue-noncurrent (including deferred revenue-noncurrent of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $664 and $648 as of December 31, 2013 and June 30, 2014, respectively)3,5442,847Long-term debt600,000600,000TOTAL LIABILITIES814,8181,014,711EQUITYTotal Qihoo 360 Technology Co. Ltd. Shareholders’ equity736,893882,261Noncontrolling interest17,18580,497Total equity754,078962,758TOTAL LIABILITIES AND EQUITY1,568,8961,977,469 Qihoo 360 Technology Co. Ltd.Condensed Consolidated Statements of Income(U.S. dollars in thousands, except for shares and per share data)(Unaudited)Three Months EndedSix Months EndedJune 30,2013March 31, 2014June 30, 2014June 30,2013June 30, 2014Revenues:151,666265,142317,914261,543583,056Cost of revenues:17,84650,39066,62631,752117,016Subsidy income–9203920Operating expenses: Selling and marketing23,99768,73384,90751,059153,640 General and administrative12,91821,76622,51124,81344,277 Product and development60,33184,643100,931110,542185,574Total operating expenses97,246175,142208,349186,414383,491Income from operations36,57439,61043,85943,38083,469Interest income1,7784,9204,9993,2159,919Interest expenses-(4,315)(4,462)-(8,777)Other (expense) income(79)251247117498Exchange gain (loss) 1,424(12,289)5641,785(11,725)Impairment loss on long-term investments(1,301)-(1,956)(1,301)(1,956)Gain on sales of short-term and long-term investments-27,6528,445-36,097Income before income tax expense and loss from equity method investments38,39655,82951,69647,196107,525Income tax expense(4,278)(5,889)(10,991)(6,495)(16,880)Loss on equity method investments(905)(2,018)(3,730)(1,926)(5,748)Net income33,21347,92236,97538,77584,897Less: Net (gain) loss attributable to noncontrolling interest(216)1,1992,149(227)3,348Net income attributable to Qihoo 360 Technology Co. Ltd32,99749,12139,12438,54888,245Net income per ordinary share-basic0.180.2126.96.36.199Net income per ordinary share-diluted0.170.250.200.200.45Weighted average shares used in calculating net income per ordinary share- basic (in millions)179184185179184Weighted average shares used in calculating net income per ordinary share-diluted (in millions)191197198190198 Qihoo 360 Technology Co. Ltd.Condensed Consolidated Statements of Cash Flows(U.S. dollars in thousands)(Unaudited)Three-months period endedJune 30, 2013June 30, 2014Cash flows from operating activities:Net income33,21336,975Share-based compensation17,96225,798Depreciation and amortization9,69419,705Amortization of land use right422427Loss on disposal of fixed assets-90Loss on equity method investments9053,730Impairment loss on long-term investments1,3011,956Gain on sales of short-term and long-term investments-(8,445)(Gain) loss resulting from nonoperating activities(31)48Provision of allowance for doubtful accounts36125Changes in operating assets and liabilities22,870(22,754)Net cash provided by operating activities86,37257,655Cash flows from investing activities:Decrease (increase) in restricted cash1,625(3,370)Purchase of property and equipment and intangible assets(13,383)(41,443)Proceeds from disposal of property and equipment and intangible assets-19Payment for short-term and long-term investments(5,061)(81,627)Proceeds from sales of short-term and long-term investments-31,317Dividend proceeds received by company174-Net cash paid in connection with business acquisition(483)(74,989)Net cash used in investing activities(17,128)(170,093)Cash flows from financing activities:Capital contribution from noncontrolling interest3-Proceeds from exercise of share option5,9331,565Payment for short-term loans-(4,075)Net cash provided by (used in) financing activities5,936(2,510)Effect of exchange rate changes1,866202INCREASE (DECREASE) IN CASH77,046(114,746)CASH, BEGINNING OF PERIOD300,935901,567CASH, END OF PERIOD377,981786,821 Reconciliations of Non-GAAP Financial Measures to Comparable GAAP MeasuresThree Months Ended June 30, 2013Three Months Ended March 31, 2014Three Months Ended June 30, 2014GAAPAdjustment(a)Non-GAAPGAAPAdjustment(a)Adjustment (b)Non-GAAPGAAPAdjustment(a)Adjustment (b)Non-GAAPOperating expenses$97,246($17,962)$79,284$175,142($19,932)$155,210$208,349($25,798)$182,551Income from operations$36,574$17,962$54,536$39,610$19,932$59,542$43,859$25,798$69,657Operating margin24.1%36.0%14.9%22.5%13.8%21.9%Net income attributable to Qihoo 360 Technology Co. Ltd.$32,997$17,962$50,959$49,121$19,932$4,279$73,332$39,124$25,798$4,325$69,247Net margin21.8%33.6%18.5%27.7%12.3%21.8%Diluted earnings per ADS$0.26$0.40$0.37$0.54$0.30$0.50 Six Months Ended June 30, 2013Six Months Ended June 30, 2014GAAPAdjustment(a)Non-GAAPGAAPAdjustment(a)Adjustment (b)Non-GAAPOperating expenses$186,414($29,929)$156,485$383,491($45,730)$337,761Income from operations$43,380$29,929$73,309$83,469$45,730$129,199Operating margin16.6%28.0%14.3%22.2%Net income attributable to Qihoo 360 Technology Co. Ltd.$38,548$29,929$68,477$88,245$45,730$8,604$142,579Net margin14.7%26.2%15.1%24.5%Diluted earnings per ADS$0.30$0.54$0.67$1.04(a): Adjustment to exclude the share-based compensation expense of each period.(b): Adjustment to exclude the interest expense of Convertible Senior Notes of each period.
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