Qihoo 360 Reports Fourth Quarter and Fiscal Year 2011 Unaudited Financial Results

BEIJING, Feb. 22, 2012 /PRNewswire-Asia/ -- Qihoo 360 Technology Co. Ltd. ("Qihoo 360" or the "Company") (NYSE: QIHU), a leading Internet company in China as measured by active user base, today reported its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2011.

Fourth Quarter 2011 Highlights(1)

• Revenues were $62.3million, an increase of 214.5% from $19.8 million in the fourth quarter of 2010.
• Net income attributable to Qihoo 360 was $15.0 million, an increase of 274.1% from $4.0 million in the fourth quarter of 2010.
• Net income attributable to Qihoo 360 excluding share-based compensation ("non-GAAP")(1) was $24.3 million, an increase of 365.9% from $5.2 million in the fourth quarter of 2010.
• Diluted earnings per ADS(2) (EPADS) attributable to Qihoo 360 were $0.13.  
• Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) were $0.20.
• Total monthly active users of Qihoo 360's products and services surpassed 400 million for the first time ever and user penetration of Qihoo 360's products reached a record 93.8% in December 2011(3)
• User penetration of Qihoo 360's browsers reached a record 59.5% in December 2011(3).
• Average daily clicks on Qihoo 360's Personalized Start-up Page and its sub-pages were approximately 235 million in the fourth quarter of 2011.

Fiscal Year 2011 Highlights(1)

• Revenues were $167.9 million, an increase of 191.1% from $57.7 million in 2010.
• Net income attributable to Qihoo 360 was $15.6 million, an increase of 83.4% from $8.5 million in 2010.
• Net income attributable to Qihoo 360 excluding share-based compensation ("non-GAAP")(1) was $63.6 million, an increase of 408.2% from $12.5 million in 2010.
• Diluted EPADS(2) attributable to Qihoo 360 were $0.14.  
• Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) were $0.55.

"We are very pleased to report robust growth and expanding margins in our first full year operating results since becoming a public company," commented Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360.  "We have set a number of new records in financial and operating metrics, significantly exceeding our expectations. Our success was driven by our continued focus on product and technology innovation and customer satisfaction. Despite global economic uncertainty and capital markets volatility, growth in China's Internet sector remains healthy and we continue to outgrow the market by a wide margin."

"Our business fundamentals are strong as ever. We continue to experience robust growth in all major areas throughout 2011, particularly in the second half. As we maintain our dominant market position in China's Internet security industry, we continued to expand our market share in other key product areas. Our browsers' user penetration hit another record high of 59.5% at the end of 2011, compared to 41% at the end of 2010, further strengthening our leading market position. Total monthly active users of Qihoo 360's products and services surpassed 400 million for the first time ever in our company's history, a significant leap from 290 million at the end of 2010. This is particularly encouraging as it demonstrates the level of trust that our users have in us and the strong brand recognition we carry in the market. We are well positioned for the many opportunities ahead of us as we effectively execute our open platform strategy to drive long-term sustainable growth," Mr. Zhou concluded.

Xiangdong Qi, President of Qihoo 360, added, "With a relatively healthy market environment in China and our history of solid execution, we achieved stronger than expected revenue growth and profitability in the fourth quarter and the full year. Our online advertising business is clearly gaining market share. The 217% year-over-year growth in online advertising in 2011 was supported by robust user activity growth on our Personal Start-up Page and new customer contributions. Although web game operations is still relatively small at Qihoo 360, it is gaining momentum as we see accelerated user growth in the second half of 2011 that eventually drove an over 170% year-over-year revenue growth. As we continue to execute our business plan, we are confident that we can consistently deliver strong operating results in the near term. We also believe our proactive investments in product innovation and technology on both PC and mobile platforms will support long-term sustainable growth for our company."

Fourth Quarter 2011 Operating Metrics

• Monthly active users of Qihoo 360's products reached 402 million in December 2011, compared to 290 million in December 2010(3).
• Qihoo 360's product penetration rate among all Chinese Internet users reached 93.8% in December 2011, compared to 75.0% in December 2010(3).
• Monthly active users of Qihoo 360's browsers were 255 million in December 2011, compared to 159 million in December 2010(3).
• User penetration rate of Qihoo 360's browsers was 59.5% in December 2011, compared to 41.2% in December 2010(3).
• Average daily unique visitors to the 360 Personalized Start-up Page and its sub-pages were 65 million in the fourth quarter of 2011, compared to 28 million in the fourth quarter of 2010.
• Average daily clicks on the 360 Personalized Start-up Page and its sub-pages were 235 million in the fourth quarter of 2011, compared to 85 million in the fourth quarter of 2010.

Fourth Quarter 2011 Results

Revenues

Revenues were $62.3 million, representing an increase of 214.5% from $19.8 million in the fourth quarter of 2010 and an increase of 31.2% from $47.5 million the third quarter of 2011. The significant year-over-year and sequential increases in revenues were mainly due to continued robust growth in both online advertising and Internet value-added services.

Online advertising revenues were $44.8 million, up 217.2% from the same period last year and 27.8% from the prior quarter. The robust growth was primarily driven by further market penetration of the Company's key products, such as the 360 browsers and the 360 Personalized Start-up Pages and increased user activity.

Internet value-added service revenues, which are mainly derived from web game operations, were $17.2 million, up 227.7% from the same period last year and 41.8% from the prior quarter.  The year-over-year and sequential growth was mainly driven by solid growth of the game user base.

Cost of Revenues

Cost of revenues was $7.1 million, compared with $2.2 million in the fourth quarter of 2010 and $5.3 million in the third quarter of 2011, representing increases of 215.2% and 32.4%, respectively.

Operating Expenses

Operating expenses were $40.4 million, compared with $13.3 million in the fourth quarter of 2010 and $31.4 million in the third quarter of 2011. Operating expenses excluding share-based compensation (non-GAAP) were $31.2 million, compared with $12.1 million in the fourth quarter of 2010 and $22.7 million in the prior quarter.

Operating Income

Operating income was $14.8 million, compared with $4.4 million in the fourth quarter of 2010 and $10.8 million in the prior quarter.

Operating income excluding share-based compensation (non-GAAP) was $24.1 million, compared with $5.6 million in the fourth quarter 2010 and $19.4 million in the prior quarter.

Operating margin was 23.8%, compared with 22.2% in the fourth quarter of 2010 and 22.7% in the prior quarter.

Operating margin excluding share-based compensation (non-GAAP) was 38.6%, compared with 28.2% in the fourth quarter of 2010 and 40.9% in the prior quarter. The significant year-over-year improvements in non-GAAP operating margin were primarily driven by leverage from robust revenue growth.

Net Income

Net income attributable to Qihoo 360 was $15.0 million, compared with $4.0million in the fourth quarter of 2010 and $10.9 million in the prior quarter.

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was $24.3 million, compared with $5.2 million in the fourth quarter of 2010 and $19.5 million in the prior quarter, representing increases of 365.9% and 24.1%, respectively.

Net Margin

Net margin was 24.1%, compared with 20.3% in the same period last year, and 23.0% in the prior quarter.

Net margin excluding share-based compensation (non-GAAP) was 38.9%, compared with 26.3% in the same period last year and 41.2% in the prior quarter. The substantial year-over-year improvements in non-GAAP net margin were driven by leverage from robust revenue growth, as well as foreign currency exchange gains.

Diluted Earnings per ADS

Diluted EPADS for the fourth quarter of 2011 were $0.13, and diluted EPADS for the fourth quarter of 2011 excluding share-based compensation (non-GAAP) were $0.20. Weighted average ADS used in computing diluted EPADS were 120.1 million.

Cash Flows and Balance Sheet

Net cash flow generated from operations in the fourth quarter of 2011 was $40.2 million. Capital expenditures were $7.8 million during the quarter. As of December 31, 2011, the Company had cash and cash equivalents of $343.7 million.

Fiscal Year 2011 Results

Revenues

Revenues were $167.9 million, representing an increase of 191.1% from $57.7 million in 2010. The significant year-over-year increases in revenues were mainly due to accelerated growth in both online advertising and Internet value-added services.

Online advertising revenues were $123.0 million, representing an increase of 216.9% from $38.8 million in 2010. The robust growth was primarily driven by further market penetration of the Company's key products, such as the 360 browsers and the 360 Personalized Start-up Pages, increased user activity, as well as the support of a healthy market environment.

Internet value-added service revenues, which are mainly derived from web game operations, were $43.6 million, representing an increase of 194.9% from $14.8 million in 2010.  The strong growth was mainly driven by expanding of the Company's game platform and the accelerated growth of the game user base.

Cost of Revenues

Cost of revenues was $18.9 million, compared with $6.8 million in 2010, representing an increase of 180.2%.

Operating Expenses

Operating expenses were $130.9 million, compared with $42.2 million in 2010. Operating expenses excluding share-based compensation (non-GAAP) were $83.0 million, compared with $38.2 million in 2010.

Operating Income

Operating income was $18.1 million, compared with $9.0 million in 2010.

Operating income excluding share-based compensation (non-GAAP) was $66.1 million, representing an increase of 407.7% from $13.0 million in 2010.

Operating margin was 10.8%, compared with 15.6% in 2010.

Operating margin excluding share-based compensation (non-GAAP) was 39.4%, compared with 22.6% in 2010. The significant year-over-year improvements in non-GAAP operating margin were primarily driven by leverage from robust revenue growth.

Net Income

Net income attributable to Qihoo 360 was $15.6 million, compared with $8.5 million in 2010.

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was $63.6 million, representing an increase of 408.2% from $12.5 million in 2010.

Net Margin

Net margin was 9.3%, compared with 14.8% in 2010.

Net margin excluding share-based compensation (non-GAAP) was at a record high of 37.9%, compared with 21.7% in 2010. The substantial year-over-year improvements in non-GAAP net margin were attributable to leverage from robust revenue growth, as well as foreign currency exchange gains.

Diluted Earnings per ADS

Diluted EPADS for the year 2011 were $0.14, and diluted EPADS for the year 2011 excluding share-based compensation (non-GAAP) were $0.55. Weighted average ADS used in computing diluted EPADS was 115.3 million.

Cash Flows and Balance Sheet

Net cash flow generated from operations in 2011 was $82.3 million, compared to $20.1 million in 2010. Capital expenditures were $17.8 million. As of December 31, 2011, the Company had cash and cash equivalents of $343.7 million.

Business Outlook

For the first quarter of 2012, the Company expects revenues to be between $63 million and $65 million, representing a year-over-year increase of 175% - 183% and a sequential increase of 1% - 5%. These estimates reflect the Company's current and preliminary view, which is subject to possible material changes.

Other Events

To help investors better understand Qihoo 360's operations, the Company will provide quarterly Cash Flow Statement in its earnings release from the fourth quarter 2011 onwards.

Conference Call

Qihoo 360's management will host a conference call to discuss the results at 8:00 p.m. Eastern Standard Time on February 22, 2012 (9:00 a.m. Beijing time on February 23, 2012).

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

A telephone replay of the call will be available after the conclusion of the conference call at 11:00 p.m. Eastern Standard Time on February 22, 2012 through 11:00 p.m. Eastern Standard Time on February 29, 2012. The dial-in details for the replay are:

A 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 360

Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) is a leading internet company in China as measured by its active user base. The Company is also the number one provider of internet and mobile security solutions in China as measured by its active smartphone 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. Qihoo 360 monetizes its massive user base primarily through online advertising and through internet value-added services on its open platforms.  

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 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 final prospectus dated March 29, 2011.

About Non-GAAP Financial Measures

To 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. 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.

SOURCE Qihoo 360 Technology Co. Ltd.