Changyou Reports Fourth Quarter and Fiscal Year 2009 Results

Fourth Quarter Total Revenues Reach a Record US$70.7 million, Up 3% Quarter- over-Quarter;

Fourth Quarter Non-GAAP Net Income Reaches a Record US$42.2 million, Up 2% Quarter-over-Quarter;

Full Year Total Revenues Increase 33% to US$267.6 million;

Full Year Non-GAAP Net Income Increases 39% to US$158.1 million

Feb 01, 2010, 02:15 ET from Changyou.com Limited

BEIJING, Feb. 1 /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 fourth quarter and fiscal year ended December 31, 2009.

    (Logo: http://www.newscom.com/cgi-bin/prnh/20090402/CNTH020 )

    Fourth Quarter 2009 Highlights
    -- Total revenues reached a record US$70.7 million, an increase of 3%
       quarter-over-quarter and 21% year-over-year, within the Company's
       guidance.
    -- Net income reached a record US$38.9 million, or US$0.73 per fully
       diluted ADS(1). Net income increased by 3% quarter-over-quarter and 34%
       year-over-year.
    -- Non-GAAP(2) net income (i.e. excluding share-based compensation
       expenses) reached a record US$42.2 million, or US$0.79 per fully
       diluted ADS. Non-GAAP net income increased by 2% quarter-over-quarter
       and 39% year-over-year, within the Company's guidance.
    -- Aggregate registered accounts for the Company's games(3) grew 8%
       quarter-over-quarter and 41% year-over-year to 80.9 million.
    -- Aggregate peak concurrent users ("PCU") for the Company's games grew 9%
       quarter-over-quarter and 19% year-over-year to 990,000.
    -- Average revenue per active paying account ("ARPU") for the Company's
       games increased 3% quarter-over-quarter and 1% year-over-year to RMB196.

       (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
           Unaudited Condensed Consolidated Statements of Operations."
       (3) Comprised of Tian Long Ba Bu ("TLBB"), Blade Online, and
           Blade Hero 2

    Fiscal Year 2009 Highlights
    -- Total revenues reached a record US$267.6 million, up 33% year-over-year.
    -- Net income reached a record US$144.7 million, or US$2.81 per fully
       diluted ADS. Net income increased 34% year-over-year.
    -- Non-GAAP net income (i.e. excluding share-based compensation expenses)
       reached a record US$158.1 million, or US$3.05 per fully diluted ADS.
       Non-GAAP net income increased 39% year-over-year.

"I am pleased that Changyou has delivered another quarter of solid results to close out an historic year," said Mr. Tao Wang, Changyou's chief executive officer. "In 2009, we executed on our strategies and enhanced our brand value through a successful IPO while experiencing consistent growth in our existing games, investing in and strengthening our game pipeline, and making various advances in game development technologies. Our user-centric development model and commitment to building our business for the long-term have generated record performances and have made Changyou one of the leaders in China's online gaming industry."

Mr. Wang continued, "Throughout 2010, in addition to releasing new game content, we have several pipeline games slated for release that we expect will further diversify our game roster and attract new users by appealing to a variety of gamers. We believe that our pipeline games and new technologies will firmly establish Changyou in new market sub-segments and serve as catalysts for growth."

Mr. Alex Ho, Changyou's chief financial officer, added, "Changyou's solid fourth quarter and full year performances are a result of the successful execution of our business strategies and our continuous focus on the in-game experience of our users. With continued growth in the operational and financial metrics of our existing games, a robust game pipeline, industry-leading margins, rich cash flows, and a track record of meeting our guidance targets, we continue to inspire confidence while further enhancing shareholder value."

Fourth Quarter 2009 Operational Results

Aggregate registered accounts for the Company's games as of December 31, 2009 increased 8% quarter-over-quarter and 41% year-over-year to 80.9 million.

Aggregate PCU for the Company's games was approximately 990,000, an increase of 9% quarter-over-quarter and an increase of 19% year-over-year.

Aggregate active paying accounts ("APA") for the Company's games was flat quarter-over-quarter and increased 21% year-over-year to 2.4 million.

ARPU for the Company's games increased 3% quarter-over-quarter and 1% year-over-year to RMB196, which the Company believes is within a range that is affordable for the majority of Chinese game players.

Fourth Quarter 2009 Unaudited Financial Results

Revenues

Total revenues for the fourth quarter of 2009 increased 3% quarter-over-quarter and 21% year-over-year to US$70.7 million.

Revenues from game operations for the fourth quarter of 2009 increased 3% quarter-over-quarter and 22% year-over-year to US$68.6 million. The sequential increase primarily reflects the growing popularity of our games. The year-over-year increase was mainly due to increased popularity of the Company's flagship game, TLBB.

Overseas licensing revenues for the fourth quarter of 2009 increased 15% quarter-over-quarter and 5% year-over-year to US$2.1 million. The increases were mainly due to increased momentum of TLBB in Vietnam and Malaysia.

Gross Profit

Gross profit for the fourth quarter of 2009 increased 2% quarter-over-quarter and 21% year-over-year to US$65.3 million. Gross margin in the fourth quarter of 2009 was 92%, compared to 93% in the previous quarter and 92% in the fourth quarter of 2008. Non-GAAP gross profit for the fourth quarter of 2009 increased 2% quarter-over-quarter and 21% year-over-year to US$65.3 million. Non-GAAP gross margin in the fourth quarter of 2009 was 92%, compared to 93% in both the previous quarter and the fourth quarter of 2008.

Operating Expenses

For the fourth quarter of 2009, total operating expenses decreased 3% quarter-over-quarter and increased 4% year-over-year to US$21.0 million. Non-GAAP operating expenses totaled US$17.7 million, down 3% quarter-over-quarter and 6% year-over-year.

Non-GAAP product development expenses increased 5% sequentially and decreased 12% year-over-year to US$5.1 million. The sequential increase was primarily attributable to an increase in salaries and benefits due to hiring of more game engineers. The year-over-year decrease was primarily the result of a change in the Company's bonus program for key engineers, for whom the Company lessened cash bonuses after share-based awards previously granted increased in value after the Company's IPO.

Non-GAAP sales and marketing expenses increased 3% sequentially and decreased 5% year-over-year to US$9.5 million. The sequential increase was primarily due to an increase in marketing and promotional activities for new content releases of the Company's existing games. The year-over-year decrease was primarily because of savings in marketing and promotional spending due to the Company's optimization of marketing campaigns in 2009 offset by an increase in salaries and benefits from the expansion of our sales and marketing team.

Non-GAAP general and administrative expenses decreased 25% sequentially and 2% year-over-year to US$3.1 million. The sequential decrease was primarily due to an increase in legal expenses to enforce the Company's intellectual property rights in the previous quarter. The year-over-year decrease was primarily the result of a change in our bonus program for management, for whom we lessened cash bonuses after share-based awards previously granted increased in value after the IPO.

Operating Profit

Operating profit for the fourth quarter of 2009 increased 5% quarter-over-quarter and 31% year-over-year to US$44.3 million. Operating margin in the fourth quarter of 2009 was 63%, up from 62% in the previous quarter and 58% in the fourth quarter of 2008. Non-GAAP operating profit for the fourth quarter of 2009 increased 4% quarter-over-quarter and 36% year-over-year to US$47.6 million. Non-GAAP operating margin in the fourth quarter of 2009 was 67%, unchanged from the previous quarter and up from 60% in the fourth quarter of 2008.

Net Income

For the fourth quarter of 2009, net income increased 3% quarter-over-quarter and 34% year-over-year to US$38.9 million. Non-GAAP net income increased 2% quarter-over-quarter and 39% year-over-year to US$42.2 million. Fully diluted earnings per ADS were US$0.73, up from US$0.71 in the previous quarter and US$0.61 in the fourth quarter of 2008. Non-GAAP fully diluted earnings per ADS were US$0.79, up from US$0.77 in the previous quarter and US$0.64 in the fourth quarter of 2008. Net margin for the fourth quarter of 2009 was 55%, unchanged from the previous quarter and up from 50% in the fourth quarter of 2008. Non-GAAP net margin for the fourth quarter was 60%, unchanged from the previous quarter and up from 52% in the fourth quarter of 2008.

Cash Balances

As of December 31, 2009, Changyou had a net cash balance of US$226.9 million, down from US$312.9 million as of September 30, 2009. Operating cash flow for the quarter was a net inflow of US$46.2 million.

The decrease in the net cash balance is due to the payment of a US$96.8 million pre-IPO cash dividend to Sohu.com (Game) Limited, an indirect, wholly-owned subsidiary of Sohu, during the fourth quarter of 2009. This dividend was declared on April 1, 2009, prior to the Company's IPO, and was described in the Company's IPO prospectus.

Fiscal Year 2009 Unaudited Financial Results

Revenues

Total revenues for the fiscal year 2009 were US$267.6 million, an increase of 33% from US$201.8 million for the fiscal year 2008.

Revenues from game operations for the fiscal year 2009 were US$259.8 million, an increase of 33% from US$194.6 million for the fiscal year 2008. The increase was mainly due to increased popularity of the Company's flagship game, TLBB.

Overseas licensing revenues for the fiscal year 2009 were US$7.8 million, an increase of 8% from US$7.2 million for the fiscal year 2008. The increase was mainly due to increased momentum of TLBB in Vietnam and Malaysia.

Gross Profit

Gross profit for the fiscal year 2009 was US$250.1 million, an increase of 34% from US$187.2 million for the fiscal year 2008. Gross margin for the fiscal year 2009 was 93%, unchanged from 93% for the fiscal year 2008. Non-GAAP gross profit for the fiscal year 2009 was US$250.4 million, an increase of 34% from US$187.2 million for the fiscal year 2008. Non-GAAP gross margin for the fiscal year 2009 was 94%, up from 93% for the fiscal year 2008.

Operating Expenses

Total operating expenses for the fiscal year 2009 were US$86.2 million, an increase of 20% from US$71.8 million for the fiscal year 2008. Non-GAAP operating expenses for the fiscal year 2009 totaled US$73.1 million, an increase of 10% from US$66.5 million for the fiscal year 2008.

Non-GAAP product development expenses for the fiscal year 2009 were US$19.9 million, an increase of 5% from US$18.9 million for the fiscal year 2008. The increase was primarily attributable to a doubling of the Company's R&D workforce in 2009 offset by changes in the Company's bonus program for key engineers, for whom the Company lessened cash bonuses after share-based awards previously granted increased in value after the Company's IPO.

Non-GAAP sales and marketing expenses for the fiscal year 2009 were US$39.8 million, an increase of 2% from US$38.9 million for the fiscal year 2008. The increase was primarily attributable to an increase in salaries and benefits due to expansion in sales and marketing headcount offset by savings in marketing and promotional spending due to the Company's optimization of marketing campaigns in 2009.

Non-GAAP general and administrative expenses for the fiscal year 2009 were US$13.3 million, an increase of 54% from US$8.6 million for the fiscal year 2008. The increase was primarily due to the expansion of back-office headcount and an increase in legal expenses to enforce the Company's intellectual property rights.

Operating Profit

Operating profit for the fiscal year 2009 was US$163.9 million, an increase of 42% from US$115.4 million for the fiscal year 2008. Operating margin for the fiscal year 2009 was 61%, up from 57% for the fiscal year 2008. Non-GAAP operating profit for the fiscal year 2009 was US$177.3 million, an increase of 47% from US$120.7 million for the fiscal year 2008. Non-GAAP operating margin for the fiscal year 2009 was 66%, up from 60% for the fiscal year 2008.

Net Income

Net income for the fiscal year 2009 was US$144.7 million, an increase of 34% from US$108.0 million for the fiscal year 2008. Non-GAAP net income for the fiscal year 2009 was US$158.1 million, an increase of 39% from US$113.3 million for the fiscal year 2008. Fully diluted earnings per ADS for the fiscal year 2009 were US$2.81, up from US$2.27 for the fiscal year 2008. Non-GAAP fully diluted earnings per ADS for the fiscal year 2009 were US$3.05, up from US$2.39 for the fiscal year 2008. Net margin for the fiscal year 2009 was 54%, up from 53% for the fiscal year 2008. Non-GAAP net margin for the fiscal year 2009 was 59%, up from 56% for the fiscal year 2008.

Other Business Developments and Awards

Newly Licensed Game

The Company licensed and received the exclusive operating rights for Da Hua Shui Hu in China from Firestone Technologies, a Guangzhou-based game development studio. Da Hua Shui Hu is a 2D turn-based cartoon-style MMORPG based on Outlaws of the Marsh, one of the four great classical novels of Chinese literature. The game is currently in closed beta testing.

The Asset's Triple A Regional Award for Best ADR Equity Deal/IPO of 2009

In January 2010, Changyou was honored as the "Best ADR Equity Deal/IPO of 2009" in The Asset's 2009 Triple A Regional Awards. The Asset magazine's annual Triple A awards recognize institutions and individuals that have made a significant contribution to the development of the finance industry in Asia and are highly regarded due to their rigorous assessment process. Changyou was awarded "Best ADR Equity Deal/IPO of 2009" based on a number of factors, including the execution, size, pricing and after-market performance of the Company's IPO.

Business Outlook

Changyou estimates total revenues for the first quarter of 2010 to be between US$70.0 million and US$73.0 million.

Changyou estimates non-GAAP net income for the first quarter of 2010 to be between US$41.0 million and US$42.5 million.

Changyou estimates non-GAAP fully diluted earnings per ADS for the first quarter of 2010 to be between US$0.77 and US$0.80.

Assuming no new grants of share-based awards, Changyou estimates share-based compensation expense for the first quarter of 2010 to be between US$3.0 million and US$3.5 million, reducing fully diluted earnings per ADS by US$0.06 to US$0.07.

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 cost of revenues, operating expenses, net income and net income per ADS, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted to employees. 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 measure 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 cost of revenues, operating expenses, net income and net income 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 extracted 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, the current global financial and credit markets crisis and its potential impact on the Chinese economy, the slower growth the Chinese economy experienced during the latter half of 2008 and in 2009, which could continue through 2010, 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 Registration Statement on Form F-1 originally filed on March 17, 2009 as amended through March 31, 2009, 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 Standard Time, February 1, 2010 (or 8 p.m. Beijing/Hong Kong time, February 1, 2010). To listen to the conference call, please use the dial in numbers below:

    US:            +1-866-713-8563
    Hong Kong:     +852-3002-1672
    International: +1-617-597-5311

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "CYOU."

A replay of the conference call may be accessed by phone at the following number until February 8, 2010:

International: +1-617-801-6888

Passcode: 39188151

The conference call will be available on webcast live and available for replay at: http://www.changyou.com/ir/ .

About Changyou

Changyou.com Limited's ("Changyou") (NASDAQ: CYOU) massively multi-player online role-playing games ("MMORPG") business began operations as a business unit within Sohu.com Inc. (NASDAQ: SOHU) in 2003. Changyou was carved out as a separate, stand-alone company in December 2007, completed an initial public offering on April 7, 2009, and is now a leading developer and operator of online games in China. Changyou currently operates three online games, including the in-house developed Tian Long Ba Bu, one of the most popular online games in China, and the licensed Blade Online and Blade Hero 2. Changyou has a diversified pipeline of games with various graphic styles and themes, including the licensed Da Hua Shui Hu, Zhong Hua Ying Xiong, Immortal Faith, Legend of the Ancient World, and the in-house developed Duke of Mount Deer, which received an award as one of China's most anticipated online games. Changyou's leading 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:   +86-10-5956-3358
     Email: ir@cyou-inc.com

     Ms. Cathy Li
     Ogilvy Financial, Beijing
     Tel:   +86-10-8520-6104
     Email: cathy.li@ogilvy.com

    In the United States:
     Ms. Jessica Barist Cohen
     Ogilvy Financial, New York
     Tel:   +1-646-460-9989
     Email: jessica.cohen@ogilvypr.com



                                  CHANGYOU.COM LIMITED
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)

                              Three Months Ended         Twelve Months Ended
                        Dec. 31,   Sep. 30,  Dec. 31,    Dec. 31,   Dec. 31,
                          2009       2009      2008        2009       2008
    Revenues:
         Game operation
          revenues     $  68,621 $  66,880  $  56,410 $   259,783 $  194,607
         Overseas
          licensing
          revenues         2,077     1,804      1,980       7,802      7,238
    Total revenues        70,698    68,684     58,390     267,585    201,845
    Cost of revenues
     (includes share-
     based compensation
     expense of $57,
     $169, $4, $324 and
     $14, respectively)    5,420     4,714      4,380      17,518     14,633
    Gross profit          65,278    63,970     54,010     250,067    187,212

    Operating expenses:
         Product
          development
          (includes
          share-based
          compensation
          expense of
          $1,763, $1,885,
          $1,155, $7,404
          and $4,919,
          respectively)    6,888     6,788      6,965      27,353     23,862
         Sales and
          marketing
          (includes
          share-based
          compensation
          expense of
          $77, $68, $2,
          $261 and $10,
          respectively)    9,551     9,280      9,949      40,048     38,917
         General and
          administrative
          (includes
          share-based
          compensation
          expense of
          $1,432, $1,432,
          $57, $5,412
          and $404,
          respectively)    4,556     5,614      3,253      18,759      9,053
    Total operating
     expenses             20,995    21,682     20,167      86,160     71,832

    Operating profit      44,283    42,288     33,843     163,907    115,380

    Interest expense          --        --        (67)       (104)      (245)
    Interest income and
     foreign currency
     exchange gain/loss      762       966        598       3,379      1,235
    Other income
     (expense)               125        34         13         158       (278)
    Income before
     income tax expense   45,170    43,288     34,387     167,340    116,092
    Income tax expense    (6,312)   (5,494)    (5,315)    (22,656)    (8,106)
    Net income         $  38,858 $  37,794  $  29,072 $   144,684 $  107,986

    Basic net income
     per ADS           $    0.75 $    0.74  $    0.61 $      2.87 $     2.27

    ADSs used in
     computing basic
     net income per
     ADS                  51,496    51,251     47,500      50,364     47,500

    Diluted net income
     per ADS           $    0.73 $    0.71  $    0.61 $      2.81 $     2.27

    ADSs used in
     computing diluted
     net income per
     ADS                  52,999    53,001     47,500      51,526     47,500



                               CHANGYOU.COM LIMITED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (UNAUDITED, IN THOUSANDS)

                                                 As of Dec.      As of Dec.
                                                  31, 2009        31, 2008
    ASSETS
     Current assets:
      Cash and bank deposits                    $    226,901   $     134,439
      Accounts receivable, net                         3,395           1,019
      Prepaid and other current assets                 4,720          22,187
      Due from Sohu                                      340           8,535
     Total current assets                            235,356         166,180
     Non-current assets:
      Fixed assets, net                               49,178           9,260
      Intangible assets, net                           3,221              57
      Other assets, net                                1,636           1,159
    TOTAL ASSETS                                $    289,391   $     176,656

    LIABILITIES AND SHAREHOLDERS' EQUITY

      Receipts in advance and deferred revenue  $     30,244   $      20,703
      Accrued liabilities                             26,618          22,834
      Tax payables                                     6,628           9,163
      Short-term loan from Sohu                           --           8,450
      Due to Sohu                                      5,046          10,812
    Total liabilities                                 68,536          71,962
    Total shareholders' equity                       220,855         104,694
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $    289,391   $     176,656



                              CHANGYOU.COM LIMITED
          RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
                                 OF OPERATIONS
                      (IN THOUSANDS EXCEPT PER ADS AMOUNTS)

                                            Three Months Ended Dec. 31, 2009
                                                       Non-GAAP
                                             GAAP    Adjustments    Non-GAAP
    Total revenues                          $70,698        $--       $70,698
    Less: Cost of revenues                    5,420        (57)(a)    $5,363
    Gross profit                            $65,278        $57       $65,335
      Gross margin                              92%                      92%

    Operating expenses                      $20,995    $(3,272)(a)   $17,723
      Product development expenses           $6,888    $(1,763)(a)    $5,125
      Sales and marketing expenses           $9,551       $(77)(a)    $9,474
      General and administrative expenses    $4,556    $(1,432)(a)    $3,124
    Operating profit                        $44,283     $3,329       $47,612
      Operating margin                          63%                      67%

    Net income                              $38,858     $3,329       $42,187
      Net margin                                55%                      60%
    Diluted net income per ADS                $0.73                    $0.79
    ADSs used in computing diluted net
     income per ADS                          52,999                   53,436


                                            Three Months Ended Sep. 30, 2009
                                                        Non-GAAP
                                              GAAP   Adjustments    Non-GAAP
    Total revenues                          $68,684        $--       $68,684
    Less: Cost of revenues                    4,714       (169)(a)    $4,545
    Gross profit                            $63,970       $169       $64,139
      Gross margin                              93%                      93%

    Operating expenses                      $21,682    $(3,385)(a)   $18,297
      Product development expenses           $6,788    $(1,885)(a)    $4,903
      Sales and marketing expenses           $9,280       $(68)(a)    $9,212
      General and administrative expenses    $5,614    $(1,432)(a)    $4,182
    Operating profit                        $42,288     $3,554       $45,842
      Operating margin                          62%                      67%

    Net income                              $37,794     $3,554       $41,348
      Net margin                                55%                      60%
    Diluted net income per ADS                $0.71                    $0.77
    ADSs used in computing diluted net
     income per ADS                          53,001                   53,436


                                            Three Months Ended Dec. 31, 2008
                                                       Non-GAAP
                                              GAAP   Adjustments   Non-GAAP
    Total revenues                          $58,390       $--       $58,390
    Less: Cost of revenues                    4,380        (4)(a)    $4,376
    Gross profit                            $54,010        $4       $54,014
      Gross margin                              92%                     93%

    Operating expenses                      $20,167   $(1,214)(a)   $18,953
      Product development expenses           $6,965    (1,155)(a)    $5,810
      Sales and marketing expenses           $9,949        (2)(a)    $9,947
      General and administrative expenses    $3,253       (57)(a)    $3,196
    Operating profit                        $33,843    $1,218       $35,061
      Operating margin                          58%                     60%

    Net income                              $29,072    $1,218       $30,290
    Net margin                                  50%                     52%
    Diluted net income per ADS                $0.61                   $0.64
    ADSs used in computing diluted net
     income per ADS                          47,500                  47,500


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



                               CHANGYOU.COM LIMITED
         RECONCILIATIONS TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
                                  OF OPERATIONS
                      (IN THOUSANDS EXCEPT PER ADS AMOUNTS)

                                           Twelve Months Ended Dec. 31, 2009
                                                       Non-GAAP
                                             GAAP     Adjustments   Non-GAAP
    Total revenues                         $267,585        $--      $267,585
    Less: Cost of revenues                   17,518       (324)(a)   $17,194
    Gross profit                           $250,067       $324      $250,391
      Gross margin                              93%                      94%

    Operating expenses                      $86,160   $(13,077)(a)   $73,083
      Product development expenses          $27,353    $(7,404)(a)   $19,949
      Sales and marketing expenses          $40,048      $(261)(a)   $39,787
      General and administrative expenses   $18,759    $(5,412)(a)   $13,347
    Operating profit                       $163,907    $13,401      $177,308
      Operating margin                          61%                      66%

    Net income                             $144,684    $13,401      $158,085
      Net margin                                54%                      59%
    Diluted net income per ADS                $2.81                    $3.05
    ADSs used in computing diluted net
     income per ADS                          51,526                   51,909


                                          Twelve Months Ended Dec. 31, 2008
                                                       Non-GAAP
                                             GAAP     Adjustments  Non-GAAP
    Total revenues                         $201,845       $--      $201,845
    Less: Cost of revenues                   14,633       (14)(a)   $14,619
    Gross profit                           $187,212       $14      $187,226
      Gross margin                              93%                     93%

    Operating expenses                      $71,832   $(5,333)(a)   $66,499
      Product development expenses          $23,862   $(4,919)(a)   $18,943
      Sales and marketing expenses          $38,917      $(10)(a)   $38,907
      General and administrative expenses    $9,053     $(404)(a)    $8,649
    Operating profit                       $115,380    $5,347      $120,727
      Operating margin                          57%                     60%

    Net income                             $107,986    $5,347      $113,333
      Net margin                                53%                     56%
    Diluted net income per ADS                $2.27                   $2.39
    ADSs used in computing diluted net
     income per ADS                          47,500                  47,500


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

SOURCE Changyou.com Limited



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