2014

Changyou Reports Third Quarter 2011 Results Company Achieves Record Total Revenues for the Third quarter

BEIJING, Oct. 31, 2011 /PRNewswire-Asia/ -- 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 third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

  • Total revenues reached a record US$119.0 million and exceeded the high end of the Company's guidance by US$1.0 million. Total revenues increased 13% quarter-over-quarter and 39% year-over-year.
  • Net income attributable to Changyou.com Limited was US$52.8 million, or US$0.99 per fully diluted ADS(1). Net income attributable to Changyou.com Limited decreased 3% quarter-over-quarter and increased 17% year-over-year.
  • Non-GAAP(2) net income attributable to Changyou.com Limited (i.e., excluding share-based compensation expenses) was US$53.8 million, or US$1.01 per fully diluted ADS, and exceeded the high end of the Company's guidance by US$1.3 million.  Non-GAAP net income attributable to Changyou.com Limited decreased 3% quarter-over-quarter and increased 14% year-over-year.
  • Aggregate registered accounts for the Company's games(3), excluding the Web-based game of the Company's majority-owned subsidiary Shenzhen 7Road Technology Co., Ltd. ("7Road"), increased 21% quarter-over-quarter and 51% year-over-year to 159.0 million.
  • Aggregate peak concurrent users ("PCU") for the Company's games, excluding 7Road's Web-based game, increased 19% quarter-over-quarter and 17% year-over-year to 1,150,000.
  • Aggregate active paying accounts ("APA") for the Company's games, excluding 7Road's Web-based game, increased 4% quarter-over-quarter and 16% year-over-year to 3.02 million.
  • Average revenue per active paying account ("ARPU") for the Company's games, excluding 7Road's Web-based game, increased 3% quarter-over-quarter and 2% year-over-year to RMB218.


(1) Each American depositary share ("ADS") represents two Class A ordinary shares.

(2) 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 to the nearest comparable GAAP financial measures."

(3) Excludes Web-based games of 7Road and comprises the following games operated in China: Tian Long Ba Bu ("TLBB"), Duke of Mount Deer ("DMD"), Blade Online, Blade Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong, Immortal Faith, San Jie Qi Yuan and Legend of Ancient World.




Mr. Tao Wang, Changyou's Chief Executive Officer, commented, "Our blockbuster Tian Long Ba Bu, or TLBB, continues to expand player numbers with the release of each new expansion pack that adds sought-after new game play that is requested by our players.  After the release of the major expansion pack TLBB3 on October 20th, the number of users and the number of active paying accounts increased. Meanwhile, our new self-developed 3D MMO game, Duke of Mount Deer, or DMD, which launched on July 22nd, appeals to hard-core game players with its new technologies and advanced cross-server game play. We believe these results once again demonstrate our ability to understand and fulfill gamers' needs and showcase our content development and game operation strengths.  We anticipate bringing a greater variety of games to market in the following quarter and next year to further advance our leading position in the online game industry."

Mr. Dewen Chen, president and chief operating officer, continued, "During the quarter, we completed the integration of Shenzhen 7Road Technologies Co., Ltd., or 7Road, one of the leading players in the rapidly expanding Web-based game market in China. 7Road's hit game, DDTank, continues to top the charts on different social platforms and game portals in China, and is attracting interest from players overseas. In the next few quarters, we will be working closely with 7Road's management team on new products and initiatives to develop the Web-based game business."

Mr. Alex Ho, Changyou's chief financial officer, added, "Our business was strong and resilient in the third quarter.  Once again, we exceeded our top-line and bottom-line financial goals for the quarter, while making planned investments in the marketing and promotion of DMD.  In addition, both our existing and acquired businesses generated solid cash flows in the third quarter.  With solid cash reserves and a debt-free balance sheet, we are well-positioned to capture new opportunities in the industry as they arise and to increase returns to shareholders over the long term."

Third Quarter 2011 Operational Results  

The Company's operational results for the third quarter of 2011, which exclude those of 7Road's Web-based game, were as follows:

  • Aggregate registered accounts for the Company's games increased 21% quarter-over-quarter and 51% year-over-year to 159.0 million.
  • Aggregate PCU for the Company's games increased 19% quarter-over-quarter and 17% year-over-year to 1,150,000.
  • Aggregate APA for the Company's games increased 4% quarter-over-quarter and 16% year-over-year to 3,020,000.
  • ARPU for the Company's games increased 3% quarter-over-quarter and 2% year-over-year to RMB218, which is consistent with the Company's intention to have ARPU within a range that keeps the Company's games affordable for the majority of Chinese game players.

7Road's operational results for the third quarter of 2011 were as follows:

  • Active accounts(4) for 7Road's game were 46.9 million.
  • Active charging accounts(5) for 7Road's game were 1,720,000.
  • Average revenue recognized per active charging accounts(6) for 7Road's game were RMB38.


(4) Active accounts are defined as registered accounts that were logged in at least once during the period.

(5) Active charging accounts are defined as the number of active accounts that purchased virtual currency for use in the game during the period.

(6) Average revenue recognized per active charging accounts are defined as net revenues recognized by 7Road for the period divided by the number of active charging accounts for the same period.




Third Quarter 2011 Unaudited Financial Results

Revenues

Total revenues for the third quarter of 2011 increased 13% quarter-over-quarter and 39% year-over-year to US$119.0 million.

Online game revenues, which include revenues from Changyou's game operations and overseas licensing revenues and revenues from 7Road, increased 14% quarter-over-quarter and 35% year-over-year to US$115.8 million. The increases were mainly due to a full quarter of revenue contribution from 7Road, revenue contribution from the newly launched DMD, and the ongoing popularity of TLBB in China during the third quarter of 2011.

Other revenues were US$3.2 million, down 8% quarter-over-quarter. The decrease was mainly due to lower cinema advertising sales in the third quarter of 2011 after the Company did not renew its contracts with selected cinemas that were generating lower investment returns.

Gross Profit

Gross profit and non-GAAP gross profit increased 11% quarter-over-quarter and 31% year-over-year to US$101.0 million. Both gross margin and non-GAAP gross margin were 85%, compared with 87% in the second quarter of 2011 and 90% in the third quarter of 2010. The decline in gross margin was mainly due to higher bandwidth costs incurred for the new game DMD, and the hiring of game operation staff in the third quarter of 2011.

Gross profit and non-GAAP gross profit of the online games business increased 11% quarter-over-quarter and 31% year-over-year to US$101.2 million. Both gross margin and non-GAAP gross margin of the online games business were 87%, compared with 90% in the second quarter of 2011 and in the third quarter of 2010, respectively.

Gross loss and non-GAAP gross loss of other business were US$246,000.

Operating Expenses

Total operating expenses were US$39.1 million, an increase of 32% quarter-over-quarter and 65% year-over-year.

Product development expenses were US$12.0 million, essentially flat quarter-over-quarter and an increase of 17% year-over-year. The year-over-year increase in product development expenses were mainly due to the hiring of game engineers and a full quarter of product development expenses from 7Road in the third quarter of 2011.

Sales and marketing expenses were US$20.2 million, an increase of 69% quarter-over-quarter and 108% year-over-year. The quarter-over-quarter and year-over-year increases in sales and marketing expenses were mainly due to a nationwide advertising campaign in the third quarter of 2011 to promote the newly launched DMD.

General and administrative expenses were US$6.9 million, an increase of 23% quarter-over-quarter and 85% year-over-year. The quarter-over-quarter and year-over-year increases in general and administrative expenses were mainly due to an increase in headcount and a full quarter of general and administrative expenses from 7Road in the third quarter of 2011.

Operating Profit

Operating profit increased 1% quarter-over-quarter and 16% year-over-year to US$61.9 million. Operating margin was 52%, compared with 58% in the second quarter of 2011 and 62% in the third quarter of 2010.

Non-GAAP operating profit was flat quarter-over-quarter and increased 14% year-over-year to US$62.8 million. Non-GAAP operating margin was 53%, compared with 60% in the second quarter of 2011 and 64% in the third quarter of 2010.

Net income

Net income decreased 1% quarter-over-quarter and increased 19% year-over-year to US$53.9 million. Net margin was 45%, compared with 52% in the second quarter of 2011 and 53% in the third quarter of 2010.

Non-GAAP net income decreased 2% quarter-over-quarter and increased 17% year-over-year to US$54.9 million. Non-GAAP net margin was 46%, compared with 53% in the second quarter of 2011 and 55% in the third quarter of 2010.

Net income attributable to Changyou.com Limited

Net income attributable to Changyou.com Limited decreased 3% quarter-over-quarter and increased 17% year-over-year to US$52.8 million. Fully diluted earnings per ADS attributable to Changyou.com Limited were US$0.99, down from US$1.02 in the second quarter of 2011 and up from US$0.85 in the third quarter of 2010. Net margin attributable to Changyou.com Limited was 44%, compared with 52% in the second quarter of 2011 and 53% in the third quarter of 2010.

Non-GAAP net income attributable to Changyou.com Limited decreased 3% quarter-over-quarter and increased 14% year-over-year to US$53.8 million. Non-GAAP fully diluted earnings per ADS attributable to Changyou.com Limited were US$1.01, down from US$1.04 in the second quarter of 2011 and up from US$0.88 in the third quarter of 2010. Non-GAAP net margin attributable to Changyou.com Limited was 45%, compared with 53% in the second quarter of 2011 and 55% in the third quarter of 2010.

Cash Balances

As of September 30, 2011, Changyou had a net cash balance of US$458.5 million, which increased from US$398.3 million as of June 30, 2011. Operating cash flow for the third quarter of 2011 was a net inflow of US$74.1 million.

Business Outlook

For the fourth quarter of 2011, Changyou expects:

  • Total revenues to be between US$122.0 million and US$125.0 million, including online game revenues of US$119.0 million to US$122.0 million.  
  • Non-GAAP net income attributable to Changyou.com Limited to be between US$58.0 million and US$60.0 million.  
  • Non-GAAP fully diluted earnings per ADS attributable to Changyou.com Limited to be between US$1.09 and US$1.12.  
  • Assuming no new grants of share-based awards, share-based compensation expense to be between US$1.5 million and US$2.0 million, reducing fully diluted earnings per ADS attributable to Changyou.com Limited by US$0.03 to US$0.04.  

Non-GAAP Disclosure

To supplement the unaudited consolidated financial information prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Changyou's management uses non-GAAP measures of gross profit, operating profit, 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. 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 the share-based compensation expense from its non-GAAP financial measures is useful for itself and investors. Further, the amount of share-based compensation expense 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 does not involve any upfront or 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.

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 attributable to Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, excluding share-based compensation expense, 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. 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.

Mezzanine Equity consists of non-controlling interests in 7Road and a put option that gives the non-controlling shareholders the right to put their shares to Changyou at a pre-determined price if 7Road achieves specified performance milestones before the expiry of the put option and certain other circumstances occur. The put option will expire in 2014. Non-controlling interests of 7Road and the put option are classified as mezzanine equity in Changyou's consolidated balance sheets, as redemption of the non-controlling interests is not solely within the control of Changyou.

In accordance with ASC subtopic 480-10, Changyou accretes the balance of non-controlling interests to its redemption value over the period from the date of 7Road acquisition to the earliest exercise date of the put right. Any subsequent changes in the redemption value are considered to be changes in accounting estimates and are also recognized over the same period as net income attributable to mezzanine classified non-controlling interests.

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, the continuing global financial and credit markets crisis and its potential impact on the Chinese economy, the uncertain regulatory landscape in the People's Republic of China, fluctuations in Changyou's quarterly operating results, Changyou's historical and possible future losses and limited operating history, and the Company's reliance on Tian Long Ba Bu 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 February 28, 2011, 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 Daylight Time, October 31, 2011 (7 p.m. Beijing/Hong Kong, October 31, 2011).

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


US:

+1-866-519-4004

Hong Kong:

+852-2475-0994

International:

+1-718-354-1231

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. U.S. Eastern Daylight Time on October 31 through November 7, 2011. The dial-in details for the telephone replay are:


International:

+1-718-354-1232

Passcode:

13981264




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

About Changyou

Changyou.com Limited is a leading developer and operator of online games in China. It began operations as a business unit within Sohu.com Inc. (NASDAQ: SOHU) in 2003 primarily focused on the development and operation of massively multi-player online role-playing games ("MMORPG"). Changyou was carved out as a separate, stand-alone company in December 2007, and completed an initial public offering on April 7, 2009. Changyou and its subsidiaries currently operate over 10 online games, including in-house developed MMORPGs such as Tian Long Ba Bu, one of the most popular online games in China, and Duke of Mount Deer, as well as Web-based games such as DDTank. Changyou's advanced technology platform 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 about Changyou, please visit http://www.changyou.com/en/.

For investor and media inquiries, please contact:

In China:
Ms. Angie Chang
Investors Relations Manager
Changyou.com Limited
Tel: +86 (10) 6861-3688
E-mail: ir@cyou-inc.com

In the United States:

Mr. Jeff Bloker
Christensen
Tel: +1 (480) 614-3003
E-mail: jbloker@ChristensenIR.com


CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)




Three Months Ended


Nine Months Ended



Sep. 30, 2011


Jun. 30, 2011


Sep. 30, 2010


Sep. 30, 2011


Sep. 30, 2010












Revenues:











   Online game

$

115,799

$

101,531

$

85,624

$

312,260

$

235,417

   Others


3,214


3,494


-


8,867


-

           Total revenues


119,013


105,025


85,624


321,127


235,417












Cost of revenues:











   Online game (includes share-based compensation expense of $21, $19, $40, $73 and $150 respectively)


14,578


9,950


8,537


33,496


20,929

   Others


3,460


4,144


-


10,194


-

           Total cost of revenues


18.038


14,094


8,537


43,690


20,929












Gross profit


100,975


90,931


77,087


277,437


214,488












Operating expenses:











   Product development (includes share-based compensation expense of $455, $503, $922, $1,729 and $3,450, respectively)


11,987


12,023


10,222


34,731


24,912

   Sales and marketing (includes share-based compensation expense of $(19), $293, $8, $473 and $124 respectively)


20,213


11,965


9,711


40,912


31,130

   General and administrative (includes share-based compensation expense of $506, $567, $819, $1,840 and $3,015 respectively)


6,893


5,588


3,728


18,009


13,040

           Total operating expenses


39,093


29,576


23,661


93,652


69,082












Operating profit


61,882


61,355


53,426


183,785


145,406












Interest income


3,404


2,345


1,194


7,588


2,913

Foreign currency exchange loss


(160)


(173)


(151)


(489)


(252)

Other income / (expense)


1,139


(602)


(713)


208


(431)

Income before income tax expense


66,265


62,925


53,756


191,092


147,636

Income tax expense


(12,360)


(8,354)


(8,464)


(29,767)


(20,547)

Net income


53,905


54,571


45,292


161,325


127,089

   Less: Net income attributable to mezzanine
     classified non-controlling interests


1,092


361


-


1,453


-

Net income attributable to Changyou.com Limited

$

52,813

$

54,210

$

45,292

$

159,872

$

127,089












   Basic net income per ADS attributable to
     Changyou.com Limited

$

1.01

$

1.03

$

0.87

$

3.05

$

2.45












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


52,506


52,466


52,034


52,399


51,848












   Diluted net income per ADS attributable to
     Changyou.com Limited

$

0.99

$

1.02

$

0.85

$

3.00

$

2.39












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


53,338


53,302


53,135


53,296


53,099
















CHANGYOU.COM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)




As of Sep. 30, 2011


As of Dec. 31, 2010






ASSETS





   Current assets:





       Cash and cash equivalents

$

458,529

$

350,957

       Accounts receivable, net


13,151


1,464

       Short-term investments


22,319


-

       Prepaid and other current assets


8,777


12,383

       Due from Sohu


-


312

   Total current assets


502,776


365,116

   Non-current assets:





       Fixed assets, net


66,285


53,659

       Goodwill


121,005


10,258

       Intangible assets, net


51,302


7,251

       Interests in associated companies


350


3,645

       Deferred tax assets


2,544


2,369

       Other assets, net


63,512


60,214

   Total non-current assets


304,998


137,396

TOTAL ASSETS

$

807,774

$

502,512






LIABILITIES





   Current liabilities:





       Receipts in advance and deferred revenue

$

44,618

$

34,509

       Accounts payable and accrued liabilities


55,013


34,783

       Tax payables


12,162


13,471

       Current deferred tax liabilities


-


243

       Current contingent consideration


13,331


-

       Due to Sohu


5,135


5,155

   Total current liabilities


130,259


88,161

   Long-term liabilities:





       Long-term deferred tax liabilities


5,328


-

       Long-term contingent consideration


15,805


-

       Long-term accounts payable


2,615


-

   Total long-term liabilities


23,748


-

Total liabilities


154,007


88,161

MEZZANINE EQUITY





Mezzanine equity


55,664


-

SHAREHOLDERS' EQUITY





Total shareholders' equity


598,103


414,351

TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

$

807,774

$

502,512






CHANGYOU.COM LIMITED

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

(UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)




Three Months Ended Sep. 30, 2011



Three Months Ended Jun. 30, 2011



Three Months Ended Sep. 30, 2010



GAAP


Non-GAAP
 Adjustments


Non-GAAP



GAAP


Non-GAAP 
Adjustments


Non-GAAP



GAAP


Non-GAAP 
Adjustments


Non-GAAP

Online game gross profit

$

101,221

$

21

$

101,242


$

91,581

$

19

$

91,600


$

77,087

$

40

$

77,127

Other gross loss


(246)


-

(a)

(246)



(650)


-

(a)

(650)



-


-

(a)

-

Gross profit

$

100,975

$

21

$

100,996


$

90,931

$

19

$

90,950


$

77,087

$

40

$

77,127

   Gross margin


85%




85%



87%




87%



90%




90%






















Operating profit

$

61,882

$

963

$

62,845


$

61,355

$

1,382

$

62,737


$

53,426

$

1,789

$

55,215

   Operating margin


52%




53%



58%




60%



62%




64%






















Net income

$

53,905

$

963

$

54,868


$

54,571

$

1,382

$

55,953


$

45,292

$

1,789

$

47,081

Net income attributable to Changyou.com Limited

$

52,813

$

963

$

53,776


$

54,210

$

1,382

$

55,592


$

45,292

$

1,789

$

47,081

 Net margin


44%




45%



52%




53%



53%




55%

Diluted net income per ADS attributable to 
 Changyou.com Limited

$

0.99



$

1.01


$

1.02



$

1.04


$

0.85



$

0.88

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


53,338




53,447



53,302




53,453



53,135




53,427

Note:

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





SOURCE Changyou.com Limited



RELATED LINKS
http://www.changyou.com/en
http://www.changyou.com/ir

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.