Changyou Reports Fourth Quarter 2015 and Fiscal Year 2015 Unaudited Financial Results

Feb 01, 2016, 01:11 ET from Changyou.com Limited

BEIJING, Feb. 1, 2016 /PRNewswire/ -- Changyou.com Limited ("Changyou" or the "Company") (NASDAQ: CYOU), a leading online game developer and operator in China, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2015.

Fourth Quarter 2015 Highlights

  • Total revenues were US$162 million, representing a decrease of 25% year-over-year and 14% quarter-over-quarter, exceeding guidance by $7 million.
  • Online game revenues were US$127 million, representing a decrease of 31% year-over-year and 17% quarter-over-quarter, exceeding guidance by $2 million.
  • Non-GAAP(1) net income attributable to Changyou.com Limited was US$46 million, exceeding guidance  by US$11 million. This compares with US$78 million in the third quarter of 2015 and US$14 million in the fourth quarter of 2014.
  • Non-GAAP net income attributable to Changyou.com Limited per fully-diluted ADS(2) was US$0.85. This compares with US$1.43 in the third quarter of 2015 and US$0.25 in the fourth quarter of 2014.

Fiscal Year 2015 Highlights

  • Total revenues were US$762 million, compared with US$755 million in 2014.
  • Online game revenues were US$637 million, compared with US$652 million in 2014.
  • Non-GAAP net income attributable to Changyou.com Limited was US$228 million, compared with US$1 million in 2014.
  • Non-GAAP net income attributable to Changyou.com Limited per fully-diluted ADS was US$4.20, compared with US$0.01 in 2014.

Mr. Dewen Chen, Co-CEO, commented, "2015 has been a year of re-focus for Changyou. We rationalized our operations, drove up efficiencies and realigned our R&D efforts, which yielded a 2015 record revenue of US$762 million and a non-GAAP net income of US$228 million. The strategy we set forward is 'Big IP, Top Games and Mass Marketing', meaning we will only bring to market the top-level games that meet all of our new testing criteria and we will support these top-level games with our best IP and marketing resources to ensure their success.

"TLBB is indisputably amongst a handful of most successful and largest MMO games in China. We have seen clear examples of successful MMO PC game achieving an overwhelming success when re-launched in a mobile format. Based on the enormous user base and our best R&D resources coming from the original PC game development team, we are optimistic our re-creation of TLBB on mobile will achieve a similar level of success" added Mr. Qing Wei, Chief Games Development Officer.

Ms. Jasmine Zhou, CFO of Changyou added, "While the new policy and higher testing standards have led to further cost savings and improved efficiencies in the fourth quarter, it has also set the bar high for new games in pipeline, putting pressure on our short-term revenue over the next two to three quarters. Nevertheless, we believe that focusing on the best is the only way to make a "hit game" possible."

(1) Non-GAAP results exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions.  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 Operations Measures to the Nearest Comparable GAAP Measures."


(2) Each ADS represents two Class A ordinary shares.

Fourth Quarter 2015 Operational Results

  • Total average monthly active accounts(3) of the Company's PC games were 3.6 million, representing a decrease of 48% year-over-year and 12% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases reflected the natural declining life cycle of older games.
  • Total average monthly active accounts of the Company's mobile games were 3.7 million, representing a decrease of 47% year-over-year and an increase of 54% quarter-over-quarter. The year-over-year decrease reflected the natural life cycle of TLBB 3D, which was launched in the fourth quarter of 2014. This was partially offset by the launch of new mobile games, including Feng Yun, and the Legend of Sword and Fairy. The quarter-over-quarter increase was due to the launch of the new mobile games.
  • Total quarterly aggregate active paying accounts(4) of the Company's PC games were 1.2 million, representing a decrease of 8% year-over-year and 8% quarter-over-quarter. The year-over-year decrease reflected the declining life cycle of older games, and was partially offset by the launch of new PC games, including Steel Ocean and Warframe. The quarter-over-quarter decrease was a result of the typical life cycle of older games, and was partially offset by an increase from Warframe.
  • Total quarterly aggregate active paying accounts of the Company's mobile games were 0.9 million, representing a decrease of 40% year-over-year and an increase of 50% quarter-over-quarter. The year-over-year decrease was a result of the natural life cycle of TLBB 3D, which was launched in the fourth quarter of 2014. This was partially offset by the launch of new mobile games, including Feng Yun, and the Legend of Sword and Fairy. The quarter-over-quarter increase was due to the launch of the new mobile games.

(3) Average Monthly Active Accounts for a given period refers to the number of registered accounts that were logged in to these games at least once during the period.


(4) Quarterly Aggregate Active Paying Accounts for a given period refers to the number of accounts from which game points are utilized at least once during the quarter.

Fourth Quarter 2015 Unaudited Financial Results

Revenues

Total revenues were US$162 million, representing a decrease of 25% year-over-year and 14% quarter-over-quarter.

Online game revenues were US$127 million, representing a decrease of 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 upon the completion of the sale of the 7Road business during the last quarter.

Online advertising revenues were US$15 million, representing a decrease of both 19% year-over-year and quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were mainly due to fewer PC games launched in China as a result of the general weakness in PC games market during this quarter.

Internet value-added services ("IVAS") revenues increased 4% year-over-year and 26% quarter-over-quarter to US$7 million. The year-over-year and quarter-over-quarter increases were a result of higher revenues from PC and mobile products in the fourth quarter of 2015.

Other revenues, which consist of cinema advertising revenues, almost doubled year-over-year and increased 5% quarter-over-quarter to US$13 million. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general, and improvements made to the Company's advertising sales function. The quarter-over-quarter increase was due to popular movies having been launched in the fourth quarter of 2015.

Gross profit

GAAP and non-GAAP gross profit were both US$119 million, representing a decrease of 19% year-over-year and 15% quarter-over-quarter. Both GAAP and non-GAAP gross margins were 74%, compared with 74% in the third quarter of 2015 and 68% in the fourth quarter of 2014.

GAAP and non-GAAP gross profit of the online games business were both US$99 million, representing a decrease of 26% year-over-year and 16% quarter-over-quarter. Both GAAP and non-GAAP gross margin of the online games business were 78%, compared with 77% in the third quarter of 2015 and 72% in the fourth quarter of 2014. The year-over-year increase in gross margins was due to a smaller revenue contribution from mobile games that typically require revenue-sharing payments to others, which drive down gross margin.

Both GAAP and non-GAAP gross profit of the online advertising business were US$12 million, representing a decrease of 17% year-over-year and 20% quarter-over-quarter. Both GAAP and non-GAAP gross margin of the online advertising business were 84%, compared with 86% in the third quarter of 2015, and 82% in the fourth quarter of 2014. The year-over-year increase in gross margins was due to a reduction in personnel-related costs. The quarter-over-quarter decrease in gross margins was due to a decrease in online advertising revenues.

Both GAAP and non-GAAP gross profit for the IVAS business were US$3 million, compared with US$1 million in the third quarter of 2015 and a gross loss of US$1 million in the fourth quarter of 2014.

Both GAAP and non-GAAP gross profit of the other business were US$5 million, compared with US$5 million in the third quarter of 2015 and US$0.4 million in the fourth quarter of 2014. The year-over-year increase reflected improvements made to the Company's advertising sales function.

Operating expenses

Total operating expenses were US$79 million, representing a decrease of 47% year-over-year and 32% quarter-over-quarter.

Product development expenses were US$44 million, representing an increase of 95% year-over-year and 11% quarter-over-quarter. The year-over-year increase was mainly due to lower salary and benefits expense in the fourth quarter of 2014 which included a US$28 million reversal of accruals associated with an employee incentive plan in that quarter. The reversal was primarily due to lowered estimates based on management's most recent assessment of the estimated compensation liabilities for three employee incentive plans. These three employment incentive plans were cancelled in early 2015, and therefore no such accrual has been made since then. The quarter-over-quarter increase was mainly due to an increase in the market price for the Company's ADSs, which triggered an increase in share-based compensation.

Sales and marketing expenses were US$15 million, representing a decrease of 60% year-over-year and 29% quarter-over-quarter. The year-over-year decrease was mainly due to a significant reduction in marketing and promotional spending for mobile internet products since the fourth quarter of 2014. The quarter-over-quarter decrease was mainly due to a reduction in salary and benefits as a result of a reduction in bonus expense as well as a reduced headcount in the fourth quarter of 2015.

General and administrative expenses were US$20 million, representing a decrease of 45% year-over-year and an increase of 35% quarter-over-quarter. The year-over-year decrease was mainly due to a reduction in salary and benefits as a result of a reduction in the workforce. The quarter-over-quarter increase was mainly due to an increase in the market price for the Company's ADSs, which triggered an increase in share-based compensation.

Operating profit (loss)

Operating profit was US$40 million, compared with US$24 million in the third quarter of 2015 and an operating loss of US$2 million in the fourth quarter of 2014.   

Non-GAAP operating profit was US$48 million, compared with US$20 million in the third quarter of 2015 and US$1 million in the fourth quarter of 2014. Included in the third quarter of 2015 was a one-off impairment charge of US$40 million that   was mainly related to the Dolphin Browser. Included in the fourth quarter of 2014 was a one-off impairment charge of US$52 million that was mainly related to the RaidCall Business.

Other Income

Other income was US$1 million, compared with US$59 million in the third quarter of 2015 and US$3 million in the fourth quarter of 2014. The quarter-over-quarter decrease was due to one-off income related to gain recognized upon the divestment of 7Road and certain overseas assets during the third quarter of 2015.

Income tax expense

The Company's main operating entity in China is a "High and New Technology Enterprise," and as a result, the entity is entitled to a preferential corporate income tax rate of 15% for the 2015 and 2016 tax years.

Income tax expense was US$8 million, compared with US$26 million in the third quarter of 2015 and US$7 million in the fourth quarter of 2014.

Net income (loss)

Net income was US$38 million, which compares with US$62 million in the third quarter of 2015 and a net loss of US$4 million in the fourth quarter of 2014.

Non-GAAP net income was US$46 million, which compares with US$59 million in the third quarter of 2015 and a non-GAAP net loss of US$1 million in the fourth quarter of 2014.

Net loss attributable to non-controlling interests

GAAP and non-GAAP net loss attributable to non-controlling interests was US$0.2 million and US$0.3 million, respectively, compared with a net loss of US$19 million in the third quarter of 2015 and a net loss of US$15 million in the fourth quarter of 2014. Non-controlling interests include the non-controlling interests in RaidCall, which provides online music and entertainment services primarily in Taiwan, and in MoboTap Inc., the developer of the Dolphin Browser. The year-over-year improvement was mainly due to the impairment charge related to RaidCall that was recognized during the fourth quarter of 2014. The quarter-over-quarter improvement was mainly due to the impairment charge related to the Dolphin Browser that was recognized during the third quarter of 2015.

Net income attributable to Changyou.com Limited

Net income attributable to Changyou.com Limited was US$38 million, compared with US$81 million in the third quarter of 2015 and US$11 million in the fourth quarter of 2014. Fully-diluted net income attributable to Changyou.com Limited per ADS was US$0.73. This compares with US$1.55 in the third quarter of 2015 and US$0.21 in the fourth quarter of 2014.

Non-GAAP net income attributable to Changyou.com Limited was US$46 million. This compares with US$78 million in the third quarter of 2015 and US$14 million in the fourth quarter of 2014. Non-GAAP fully-diluted net income attributable to Changyou.com Limited per ADS was US$0.85. This compares with US$1.43 in the third quarter of 2015 and US$0.25 in the fourth quarter of 2014.

Liquidity

As of December 31, 2015, Changyou had net cash(5) of US$755 million, compared with US$460 million as of December 31, 2014. 

Operating cash flow for the fourth quarter of 2015 was a net inflow of US$58 million.

(5) Net cash is calculated as the sum of cash and cash equivalents, short-term investments, and current and non-current restricted time deposits, minus short-term and long-term bank loans.

Fiscal Year 2015 Unaudited Financial Results

Revenues

Total revenues in 2015 were US$762 million, compared with US$755 million in 2014.

Online game revenues were US$637 million, down 2% from US$652 million in 2014. The year-over-year decrease was mainly due to the natural decline in revenues of older games, such as TLBB, and a decrease in Web game revenue upon the completion of the sale of the 7Road business during the third quarter of 2015. These were mostly offset by the launch of new mobile games, such as TLBB 3D, which was launched during the fourth quarter of 2014.

Online advertising revenues were US$58 million, compared with US$59 million in 2014.

IVAS revenues increased 9% year-over-year to US$24 million. The increase was a result of higher revenues from PC and mobile products.

Other revenues, which consist of cinema advertising revenues, almost doubled year-over-year to US$43 million. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general, and improvements made to the Company's advertising sales function.

Gross profit

Both GAAP and non-GAAP gross profit were US$545 million, flat with US$553 million and US$554 million respectively in 2014. Both GAAP and non-GAAP gross margin were 72%, compared with 73% in 2014.

Both GAAP and non-GAAP gross profit of the online games business were US$481 million, down 6% from 2014. Both GAAP and non-GAAP gross margin of the online games business were 75%, compared with 78% in 2014. The decrease in gross margins was due to a change in the revenue mix as the Company launched new mobile games that typically require revenue-sharing payments to others, which drive down gross margin.

Both GAAP and non-GAAP gross profit of the online advertising business increased to US$46 million, up 5% from 2014. Both GAAP and non-GAAP gross margin of the online advertising business were 80%, compared with 75% in 2014. The year-over-year increase in gross margins was due to a reduction in personnel-related costs.

Both GAAP and non-GAAP gross profit of IVAS were US$5 million, compared with a gross loss of US$1 million in 2014.

Both GAAP and non-GAAP gross profit of the other business were US$13 million, compared with US$0.4 million in 2014. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general and improvements made to the Company's advertising sales function.

Operating expenses

Total operating expenses were US$384 million, down 36% from 2014.

Product development expenses were US$171 million, down 12% from 2014. The decrease was due to a decrease in salary and benefit expenses in 2015 as a result of a reduction in the workforce.

Sales and marketing expenses were US$92 million, down 62% from 2014. The decrease was due to a significant reduction in marketing and promotional spending for mobile internet products in 2015.

General and administrative expenses were US$80 million, down 25% from 2014. The decrease was mainly due to a decrease in salary and benefit expenses in 2015 as a result of reduction in workforce.

Goodwill impairment and impairment of intangibles via acquisitions of businesses was US$40 million, compared with US$52 million in 2014. The impairments in 2015 were mainly related to the Dolphin Browser business, which was acquired in 2014. Due to a change in the Company's strategic direction for some of its mobile internet products beginning in the third quarter of 2015, the Company determined that expected synergies between its mobile internet products and the Dolphin Browser were not likely to materialize, and that impairment charges were required to reflect the fair value of the Dolphin Browser. The impairments in 2014 were largely related to the business associated with RaidCall, which was acquired in 2013 with the intention of offering to online users a broader range of services, including real-time audio group communication. Upon review of post-integration results, the Company determined that RaidCall's audio communication technology was not a good fit for Changyou's online games, and that impairment charges were required to reflect the fair value of Raidcall.

Operating profit (loss)

Operating profit was US$161 million, compared with an operating loss of US$42 million in 2014.

Non-GAAP operating profit was US$176 million, compared with an operating loss of US$38 million in 2014. The year-over-year improvement was due to a reduction in marketing and promotional spending for mobile internet products, reduced headcount, as well as an overall increase in operating efficiencies.

Other Income

Other income was US$65 million, compared with US$4 million in 2014. The year-over-year increase was due to one-off income related to a gain that was recognized upon the divestment of 7Road and certain overseas assets in 2015.

Income tax expense

The Company's main operating entity in China is a "High and New Technology Enterprise," and as a result, the entity is entitled to a preferential corporate income tax rate of 15% for the 2015 and 2016 tax years.

Income tax expense was US$54 million in 2015, compared with US$2 million in 2014.

Net income (loss)

Net income was US$191 million, compared with a net loss of US$21 million in 2014.

Non-GAAP income was US$206 million, compared with a non-GAAP net loss of US$17 million in 2014.

Net loss attributable to non-controlling interests

Both GAAP and non-GAAP net loss attributable to non-controlling interests were US$22 million, compared with a net loss of US$18 million in 2014. Non-controlling interests include the non-controlling interests in RaidCall, which provides online music and entertainment services primarily in Taiwan, and in MoboTap Inc., the developer of the Dolphin Browser.

Net income (loss) attributable to Changyou.com Limited

Net income attributable to Changyou.com Limited was US$213 million, compared with a net loss of US$3 million in 2014. Fully-diluted net income attributable to Changyou.com Limited per ADS was US$4.02, compared with a fully-diluted net loss per ADS of US$0.06 in 2014. 

Non-GAAP net income attributable to Changyou.com Limited was US$228million, compared with US$1 million in 2014. Non-GAAP fully-diluted net income attributable to Changyou.com Limited per ADS was US$4.20, compared with US$0.01 in 2014.  

Business Outlook

For the first quarter of 2016, Changyou expects:

Total revenues to be between US$120 million and US$130 million, including online game revenues of US$95 million to US$105 million;

Non-GAAP net income attributable to Changyou.com Limited to be between US$30 million and US$35 million;

Non-GAAP fully diluted income attributable to Changyou.com Limited per ADS to be between US$0.56 and US$0.65;

Assuming no new grants of share-based awards, share-based compensation expense to be between US$3.9 million and US$4.3 million.

Non-GAAP Disclosure

Revision of Non-GAAP Reporting

Prior to the fourth quarter of 2014 , the Company's non-GAAP results excluded share-based compensation expenses, goodwill impairment, impairment of intangibles via acquisitions of businesses and the related tax impact, non-cash tax benefits from excess tax deductions related to share-based awards, and income/expense from the adjustment of contingent consideration previously recorded for acquisitions.

In the fourth quarter of 2014, the Company reassessed its definition of non-GAAP to better reflect the economic substance and performance of the Company. 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, Changyou revised its definition of non-GAAP to exclude only compensation expense associated with share-based awards, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from adjustments of contingent consideration previously recorded for acquisitions.

The Company's results for the fourth quarter of 2015 and fiscal year 2015 are presented using this revised definition of non-GAAP.

Revised 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"), Changyou's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions. 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.

Changyou's management believes that excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions from its non-GAAP financial measures is useful for itself and investors. Further, the amount of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions cannot be anticipated by management, and these expenses are not built into the Company's annual budgets and quarterly forecasts, which generally will be the basis for information Changyou provides to analysts and investors as guidance for future operating performance. As share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions does not involve subsequent cash outflow, Changyou does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business operations. As a result, in general, the monthly financial results for internal reporting and any performance measure for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions.

The non-GAAP financial measures are provided to enhance investors' overall understanding of Changyou'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 Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions, is that the share-based compensation charge has been and will continue to be a significant recurring expense in the Company's business for the foreseeable future, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future. 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.

Notes to Financial Information

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

Safe Harbor Statement

It is currently expected that the Business Outlook will not be updated until the release of Changyou's next quarterly earnings announcement; however, Changyou reserves the right to update its Business Outlook at any time for any reason.

This announcement contains forward-looking statements. Statements that are not historical facts, including statements about the Company'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. The Company cautions 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, continuing volatility 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 the Company's reported U.S. dollar results; slowing growth in the Chinese economy; the uncertain regulatory landscape in the People's Republic of China; fluctuations in Changyou's quarterly operating results; the possibility that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; the possibility that the Company's margins will decline as a result of the need for revenue-sharing with mobile game platform operators; and the Company's reliance on TLBB as its major revenue source. Further information regarding these and other risks is included in Changyou's Annual Report on Form 20-F filed on March 2, 2015, and other filings with the Securities and Exchange Commission.

Conference Call Information

Changyou's management team will host an earnings conference call today at 7 a.m. U.S. Eastern Time, February 1, 2016 (8 p.m. Beijing/Hong Kong, February 1, 2016).

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

US:

+1-855-298-3404

Hong Kong:

+852-5808-3202

China Mainland:

+86-400-1200-539

International:

+1-631-514-2526

Passcode:

CYOU

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 10: 00 a.m. Eastern Time on February 1, 2016 through February 7, 2016. The dial-in details for the telephone replay are:

International:

+1- 866-846-0868

Passcode:        

2500201

The live Webcast and archive of the conference call will be available on the Investor Relations section of Changyou's Website at http://ir.changyou.com/.

About Changyou

Changyou.com Limited (NASDAQ: CYOU) is a leading developer and operator of online games in China with 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. Changyou began operations as a business unit within Sohu.com Inc. (NASDAQ: SOHU) in 2003, and was carved out as a separate, stand-alone company in December 2007. It completed an initial public offering on April 7, 2009. Changyou has an advanced technology platform that includes advanced 2.5D and 3D graphics engines, a uniform game development platform, effective anti-cheating and anti-hacking technologies, proprietary cross-networking technology and advanced data protection technology. For more information, please visit http://ir.changyou.com.

For investor and media inquiries, please contact:

In China:

Ms. Margaret Shi
Investor Relations
Tel: +86 (10) 6192-0800
E-mail: ir@cyou-inc.com

In the United States:

Ms. Linda Bergkamp
Christensen
Phone: +1-480-614-3004
Email: lbergkamp@ChristensenIR.com

CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)




Three Months Ended


Twelve Months Ended



Dec. 31, 2015


Sep. 30, 2015


Dec. 31, 2014


Dec. 31, 2015


Dec. 31, 2014












Revenues:











        Online game

$

127,001

$

152,501

$

184,405

$

636,846

$

652,008

        Online advertising


14,798


18,255


18,267


57,832


58,963

        IVAS


6,796


5,400


6,556


24,385


22,357

        Others


13,315


12,719


6,685


42,573


21,938

                          Total revenues


161,910


188,875


215,913


761,636


755,266












Cost of revenues:











        Online game (includes share-based compensation expense
           of $47, $(97), $(36), $37 and $57 respectively)


28,266


34,637


51,752


156,318


142,549

        Online advertising (includes share-based compensation
           expense of $0, $0, $0, $0 and $93 respectively)


2,315


2,572


3,306


11,565


14,838

        IVAS(includes share-based compensation expense of
           $(2), $0, $2, $(2) and $2 respectively)


3,963


4,175


7,367


19,647


22,985

        Others


8,203


7,342


6,310


29,231


21,490

                          Total cost of revenues


42,747


48,726


68,735


216,761


201,862












Gross profit


119,163


140,149


147,178


544,875


553,404












Operating expenses:











     Product development (includes share-based compensation
          expense of $2,867, $(621), $793, $5,475 and $1,069,
          respectively)


43,841


39,557


22,475


170,605


194,113

     Sales and marketing (includes share-based compensation
          expense of $487, $280, $125, $1,017 and 105 
          respectively)


15,456


21,919


38,437


92,355


241,307

     General and administrative (includes share-based
          compensation expense of $4,095, $(3,027), $1,951,
          $8,497 and $2,788 respectively)


19,791


14,714


36,162


80,269


107,451

     Goodwill impairment and impairment of intangibles via
          acquisitions of businesses


0


40,324


52,282


40,324


52,282

                          Total operating expenses


79,088


116,514


149,356


383,553


595,153












Operating profit/(loss)


40,075


23,635


(2,178)


161,322


(41,749)












Interest income


4,432


3,279


3,164


15,444


19,639

Foreign currency exchange gain/(loss)


963


2,335


(957)


2,954


(668)

Other income


1,064


58,555


2,778


64,962


4,112

Income/(Loss) before income tax expense


46,534


87,804


2,807


244,682


(18,666)

Income tax expense


(8,317)


(25,784)


(7,077)


(54,055)


(2,493)

Net income/(loss)


38,217


62,020


(4,270)


190,627


(21,159)

      Less: Net loss attributable to non-controlling interests


(248)


(19,098)


(15,169)


(22,157)


(17,778)

Net income/(loss) attributable to Changyou.com Limited

$

38,465

$

81,118

$

10,899

$

212,784

$

(3,381)












Basic net income /(loss) attributable to Changyou.com Limited
     per ADS

$

0.74

$

1.55

$

0.21

$

4.06

$

(0.06)












ADSs used in computing basic net income/(loss) attributable to
     Changyou.com Limited per ADS


52,164


52,238


52,849


52,462


52,861












Diluted net income/(loss) attributable to Changyou.com Limited
     per ADS

$

0.73

$

1.55

$

0.21

$

4.02

$

(0.06)












ADSs used in computing Diluted net income/(loss) attributable
     to Changyou.com Limited per ADS


52,846


52,388


52,861


52,881


52,861












 

CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)




As of Dec. 31, 2015


As of Dec. 31, 2014






ASSETS





Current assets:





Cash and cash equivalents

$

569,917

$

220,794

Accounts receivable, net


67,959


77,969

Short-term investments


174,515


191,577

Restricted time deposits


227,285


282,186

Deferred tax assets


4,673


4,918

Prepaid and other current assets


227,719


29,927

Total current assets


1,272,068


807,371

Non-current assets:





Fixed assets, net


214,306


243,837

Goodwill


111,082


258,997

Intangible assets, net


25,139


68,276

Restricted time deposits


127,454


135,256

Deferred tax assets


12,729


18,704

Other assets, net


16,728


15,524

Total non-current assets


507,438


740,594

TOTAL ASSETS

$

1,779,506

$

1,547,965






LIABILITIES





Current liabilities:





Receipts in advance and deferred revenue

$

42,166

$

39,178

Accounts payable and accrued liabilities


275,926


138,507

Short-term bank loans


344,500


25,500

Tax payables


27,423


18,471

Deferred tax liabilities


24,884


22,356

Current contingent consideration


0


3,935

Total current liabilities


714,899


247,947

Long-term liabilities:





Long-term bank loans


0


344,500

Long-term contingent consideration


0


1,929

Long-term deferred tax liabilities


3,616


5,748

Long-term accounts payable


1,004


5,143

Other long-term liabilities


738


0

Total long-term liabilities


5,358


357,320

Total liabilities


720,257


605,267

SHAREHOLDERS' EQUITY





Changyou.com Limited shareholders' equity


1,029,479


890,388

Non-controlling interests


29,770


52,310

Total shareholders' equity


1,059,249


942,698

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

1,779,506

$

1,547,965

 

CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Three Months Ended Dec. 31, 2015



Non-GAAP adjustments



GAAP


Share-based
compensation expense (a)


Non-GAAP

Online game gross profit

$

98,735


47


98,782

Online advertising gross profit


12,483


0


12,483

IVAS gross profit


2,833


(2)


2,831

Other gross profit


5,112


0


5,112

Gross profit

$

119,163


45


119,208

Gross margin


74%




74%








Operating profit

$

40,075


7,494


47,569

Operating margin


25%




29%








Net income

$

38,217


7,494


45,711

Net income attributable to Changyou.com
   Limited

$

38,465


7,537


46,002

Net margin attributable to Changyou.com 
Limited


24%




28%

Diluted net income attributable to
   Changyou.com Limited per ADS

$

0.73




0.85

ADSs used in computing diluted net income
   attributable to Changyou.com Limited per 
   ADS


52,846




53,928


Note:


(a) To eliminate share-based compensation expense measured using the fair value method.

 

CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Three Months Ended Sep. 30, 2015



Non-GAAP adjustments



GAAP


Share-based
compensation expense (a)


Non-GAAP

Online game gross profit

$

117,864


(97)


117,767

Online advertising gross profit


15,683


0


15,683

IVAS gross profit


1,225


0


1,225

Other gross profit


5,377


0


5,377

Gross profit

$

140,149


(97)


140,052

Gross margin


74%




74%








Operating profit

$

23,635


(3,465)


20,170

Operating margin


13%




11%








Net income

$

62,020


(3,465)


58,555

Net income attributable to Changyou.com
   Limited

$

81,118


(3,484)


77,634

Net margin attributable to Changyou.com
Limited


43%




41%

Diluted net income attributable to
   Changyou.com Limited per ADS

$

1.55




1.43

ADSs used in computing diluted net income
   attributable to Changyou.com Limited per
   ADS


52,388




54,155


Note:

(a) To eliminate share-based compensation expense measured using the fair value method.

 

CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Three Months Ended Dec 31, 2014



Non-GAAP adjustments



GAAP


Share-based
compensation expense (a)


Non-GAAP

Online game gross profit

$

132,653


(36)


132,617

Online advertising gross profit


14,961


0


14,961

IVAS gross loss


(811)


2


(809)

Other gross profit


375


0


375

Gross profit

$

147,178


(34)


147,144

Gross margin


68%




68%








Operating (loss)/profit

$

(2,178)


2,835


657

Operating margin


(1%)




0%








Net loss

$

(4,270)


2,835


(1,435)

Net income attributable to Changyou.com
   Limited

$

10,899


2,770


13,669

Net margin attributable to Changyou.com
Limited


5%




6%

Diluted net income attributable to
   Changyou.com Limited per ADS

$

0.21




0.25

ADSs used in computing diluted net income
   attributable to Changyou.com Limited per
   ADS


52,861




54,189


Note:


(a) To eliminate share-based compensation expense measured using the fair value method.

CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Twelve Months Ended Dec. 31, 2015



Non-GAAP adjustments



GAAP


Share-based
compensation expense (a)


Non-GAAP

Online game gross profit

$

480,528


37


480,565

Online advertising gross profit


46,267


0


46,267

IVAS gross profit


4,738


(2)


4,736

Other gross profit


13,342


0


13,342

Gross profit

$

544,875


35


544,910

Gross margin


72%




72%








Operating profit

$

161,322


15,024


176,346

Operating margin


21%




23%








Net income

$

190,627


15,024


205,651

Net income attributable to Changyou.com
   Limited

$

212,784


15,010


227,794

Net margin attributable to Changyou.com
Limited


28%




30%

Diluted net income per ADS attributable to
   Changyou.com Limited

$

4.02




4.20

ADSs used in computing diluted net income
   per ADS attributable to Changyou.com
   Limited


52,881




54,280


Note:

(a) To eliminate share-based compensation expense measured using the fair value method.

 

CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)




Twelve Months Ended Dec. 31, 2014



Non-GAAP adjustments



GAAP


Share-based
compensation expense (a)


Non-GAAP

Online game gross profit

$

509,459


57


509,516

Online advertising gross profit


44,125


93


44,218

IVAS gross loss


(628)


2


(626)

Other gross profit


448


0


448

Gross profit

$

553,404


152


553,556

Gross margin


73%




73%








Operating loss

$

(41,749)


4,114


(37,635)

Operating margin


(6%)




(5%)








Net loss

$

(21,159)


4,114


(17,045)

Net (loss)/income attributable to Changyou.com
   Limited

$

(3,381)


4,049


668

Net margin attributable to Changyou.com
Limited


0%




0%

Diluted net (loss)/income attributable to
   Changyou.com Limited per ADS

$

(0.06)




0.01

ADSs used in computing diluted net
   (loss)/income attributable to Changyou.com
   Limited per ADS


52,861




53,319


Note:

(a) To eliminate share-based compensation expense measured using the fair value method.

Logo - http://photos.prnewswire.com/prnh/20090402/CNTH020

SOURCE Changyou.com Limited



RELATED LINKS

http://www.changyou.com/en