Qihoo 360 Reports First Quarter 2015 Unaudited Financial Results

May 19, 2015, 18:00 ET from Qihoo 360 Technology Co. Ltd.

BEIJING, May 19, 2015 /PRNewswire/ -- Qihoo 360 Technology Co. Ltd. ("Qihoo 360" or the "Company") (NYSE: QIHU), a leading Internet company in China, today reported its unaudited financial results for the first quarter ended March 31, 2015.

First Quarter Financial Highlights[1]

  • Revenues were $384.4 million, a 45% increase from $265.1 million in the first quarter of 2014.
  • Net income attributable to Qihoo 360 was $53.0 million, compared to $49.1 million in the first quarter of 2014.
  • Non-GAAP net income attributable to Qihoo 360[1] was $81.9 million, compared to $73.3 million in the first quarter of 2014.
  • Diluted earnings per ADS[2] ("EPADS") attributable to Qihoo 360 was $0.41, compared to $0.37 in the same period last year. 
  • Non-GAAP diluted EPADS attributable to Qihoo 360[1] was $0.57, compared to $0.54 in the same period last year.

First Quarter Operating Metrics

  • Total monthly active users of Qihoo 360's PC-based products and services reached  503 million in March 2015, compared to 479 million in March 2014[3].
  • User penetration of Qihoo 360's PC-based products was 94.7% in March 2015, compared to 93.3% in March 2014[3].
  • Total smartphone users of Qihoo 360's primary mobile security product [4] reached a record 778 million in March 2015, compared to 538 million in March 2014[5].
  • Monthly active users of Qihoo 360's PC browsers were 376 million and user penetration was 70.8% in March 2015, compared to 339 million and 66.1% in March 2014[3], respectively.  
  • Average daily unique visitors to the 360 Personal Start-up Page and its sub-pages were 133 million in the first quarter of 2015, compared to 122 million in the first quarter of 2014[5].
  • Average daily clicks on Qihoo 360's Personal Start-up Page and its sub-pages were approximately 690 million in the first quarter of 2015, compared to 772 million in the first quarter of 2014[5].

"We are pleased to report another quarter of solid growth and operating metrics," said Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360.  "While we maintained our leadership position in key PC-related product categories, we continued to make progress in mobile Internet. The number of Chinese smartphone users of our key mobile security product, 360 Mobile Safe, reached 778 million in the first quarter, making Qihoo 360 the indisputable leader in mobile Internet security in China. In addition, our Android-based app store, 360 Mobile Assistant, continued to maintain its leadership position in Android app distribution in China."

"During the first quarter, we launched our independent search brand, 'HaoSou,' and we have since observed encouraging user recognition and interaction with the new brand and our search services. Through continued product improvement and innovation, we aim to further grow our share of China's PC and mobile search market in terms of both traffic and revenue. We recently closed our joint venture transaction with Coolpad, and we expect the joint venture to launch a series of new smartphone models under the 'QiKoo' brand in the coming months. We view smartphones and smart hardware as critical components of our long-term mobile strategy," concluded Mr. Zhou.

Mr. Xiangdong Qi, President of Qihoo 360, added, "We are glad to see continued solid growth in our business. Online advertising grew 75.1% year-over-year, supported by strong contributions from both search and mobile monetization. We are particularly encouraged by the progress in search monetization and expect the upward momentum to continue in the coming quarters. We have made significant investments over the last few quarters to strengthen our brand and market position, and to improve our product and technology, particularly in mobile Internet-related areas. We believe such investments will build a solid foundation for our future growth and we have already seen exciting progress in areas such as enterprise security, smart hardware, and international expansions."

First Quarter 2015 Results

Revenues

Revenues were $384.4 million, representing an increase of 45.0% from $265.1 million in the first quarter of 2014 and a decrease of 10.9% from $431.2 million in the fourth quarter of 2014. The strong year-over-year growth was due to solid performance in both online advertising and Internet value-added services. Search and mobile monetization continued to ramp nicely, despite seasonal headwinds.

Online advertising revenues were $245.3 million, up 75.1% from the same period last year and 0.9% from the prior quarter. The strong year-over-year increase was primarily driven by incremental contribution from search and mobile advertising.

Internet value-added service revenues, which are mainly derived from game platform operations, were $133.7 million, up 7.1% from the same period last year and down 20.1% from the prior quarter. The year-over-year growth was driven by the solid ramp-up in mobile game operations. The sequential decline was mainly due to soft business trend in web games and the temporary suspension of online lottery operations beginning in March.

Cost of Revenues

Cost of revenues were $79.6 million, compared to $50.4 million in the first quarter of 2014 and $103.0 million in the fourth quarter of 2014, representing an increase of 57.9% from the same period of last year and a decrease of 22.7% from the prior quarter.

Operating Expenses

Operating expenses were $230.4 million, compared to $175.1 million in the first quarter of 2014 and $225.2 million in the fourth quarter of 2014.  Non-GAAP operating expenses[1] were $209.7 million, compared to $155.2 million in the first quarter of 2014 and $201.2 million in the prior quarter.

The year-over-year and sequential increases in non-GAAP operating expenses[1] were mainly driven by increased marketing and promotional expenses, personnel-related costs, and bandwidth and equipment depreciation expenses, as we continued to strengthen our brand and market position and enhance our technology and product development capabilities.

Operating Income

Operating income was $75.9 million, compared to $39.6 million in the first quarter of 2014 and operating income of $108.1 million in the prior quarter.   

Non-GAAP operating income[1] was $96.5 million, compared to $59.5 million in the first quarter of 2014 and $132.0 million in the prior quarter.

Operating margin was 19.7%, compared to 14.9% in the first quarter of 2014 and 25.1% in the prior quarter.

Non-GAAP operating margin[1] was 25.1%, compared to 22.5% in the first quarter of 2014 and 30.6% in the prior quarter.

The year-over-year increase in non-GAAP operating margin[1] was mainly due to leverage from revenue growth while the Company continues to invest in new product and business initiatives. The sequential decline in non-GAAP operating margin[1] reflected normal seasonal spending patterns.

Net Income attributable to Qihoo 360

Net income attributable to Qihoo 360 was $53.0 million, compared to $49.1 million in the first quarter of 2014 and $76.8 million in the prior quarter.

Non-GAAP net income[1] attributable to Qihoo 360 was $81.9 million, compared to $73.3 million in the first quarter of 2014 and $109.4 million in the prior quarter.

Net Margin

Net margin was 13.8%, compared to 18.5% in the same period last year, and 17.8% in the prior quarter.

Non-GAAP net margin[1] was 21.3%, compared to 27.7% in the same period last year and 25.4% in the prior quarter.

Diluted Earnings per ADS

Diluted EPADS for the first quarter of 2015 was $0.41, and non-GAAP diluted EPADS[1] for the first quarter of 2015 was $0.57. The GAAP weighted average ADS[1] used in computing diluted EPADS was 130.7 million.

Cash Flows and Balance Sheet

Net cash generated from operations in the first quarter of 2015 was $72.9 million, compared to $100.5 million in the same period last year and of $138.9 million in the prior quarter. Cash capital expenditures were $35.7 million.  As of March 31, 2015, the Company had cash and cash equivalents of approximately $1.5 billion.

Business Outlook

For the second quarter of 2015, the Company expects revenues to be between $435 million and $445 million, representing a year-over-year increase of 37% to 40% and quarter-over-quarter increase of 13% to 16%. These estimates reflect the Company's current and preliminary view, which is subject to possible material changes.

Conference Call

Qihoo 360's management will host a conference call to discuss the results at 7:30 a.m. Eastern Time on May 20, 2015 (7:30 p.m. Beijing time on May 20, 2015).

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

US Toll Free Dial In:

+1 866-519-4004

International Dial In:

+65 6723 9381

Hong Kong Dial In:

+852-3018-6771

Passcode:

44388859

A telephone replay of the call will be available after the conclusion of the conference call at 10:30 a.m. Eastern Time on May 20, 2015 through 09:30 a.m. Eastern Time on May 28, 2015. The dial-in details for the replay are:

International Dial In:

+61 2 8199 0299

US Dial In:

+1 646-254-3697

Passcode:

44388859

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. The Company is also the number one provider of Internet and mobile security products in China as measured by its user base, according to iResearch. Qihoo 360 also provides users with secure access points to the Internet via its market leading web browsers and application stores. The Company has built one of the largest open Internet platforms in China and monetizes its massive user base primarily through online advertising and through Internet value-added services on its open platform.

Forward-looking Statements

This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward- looking statements by terminology such as "will," "expects," "believes," "anticipates," "intends," "estimates" and similar statements. Among other things, the management's quotations and the "Business Outlook" section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about Qihoo 360 and the industry. Potential risks and uncertainties include, but are not limited to: the Company's ability to continue to innovate and provide attractive products and services to attract and retain users; the Company's ability to keep up with rapid changes in technologies and Internet-enabled devices; the Company's ability to leverage its user base to attract customers for our revenue-generating services; and the Company's dependence on online advertising for a substantial portion of our revenues; and the Company's ability to compete effectively. All information provided in this press release is as of the date of the press release, and Qihoo 360 undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although Qihoo 360 believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by Qihoo 360 is included in Qihoo 360's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F dated April 27, 2015.

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 and interest expense of Convertible Senior Notes. Reconciliations of our non-GAAP financial measures to our U.S. GAAP financial measures are set forth in tables at the end of this earnings release, which provide more details on the non-GAAP financial measures.

Our non-GAAP financial information is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of the historical and current financial performance of our continuing operations and our prospects for the future. Our non-GAAP financial information should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to U.S. GAAP results. In addition, our calculation of this non-GAAP financial information may be different from the calculation used by other companies, and therefore comparability may be limited.

[1]

Non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections titled "About Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end of the press release.

[2]

American Depositary Shares, which are traded on the NYSE. Every two ADSs represent three Class A ordinary shares of the Company.

[3]

User and market penetration data is based on data from iResearch as of March 2015.

[4]

360 Mobile Safe is the Company's primary mobile security product.

[5]

Company data as of March 2015. Daily clicks include clicks on www.360kan.com, formerly known as v.360.cn

For investor and media inquiries, please contact:

Qihoo 360 Technology Co. Ltd. In China: Tel:         +86 10-5878-1574 E-mail:  ir@360.cn

In the U.S.: The Piacente Group, Inc. Don Markley or Glenn Garmont Tel: (212) 481-2050 E-mail: qihu@tpg-ir.com

 

Qihoo 360 Technology Co. Ltd.

Condensed Consolidated Balance Sheets

(U.S. dollars in thousands, except for shares and per share data)

(Unaudited)

December 31,

March 31,

2014

2015

ASSETS

Current assets:

  Cash and cash equivalents

1,645,234

1,493,746

  Restricted Cash

2,053

2,585

  Short-term Investments

58,736

134,648

Accounts receivable (net of allowance for doubtful accounts of $2,410 and $2,592 as of December 31, 2014 and March 31, 2015, respectively)

 

154,287

 

 

220,793

 

  Prepaid expenses and other current assets

230,995

349,581

  Deferred tax assets – current

4,844

6,564

Total current assets

2,096,149

2,207,917

Property and equipment, net

272,026

284,096

Land use rights, net

139,107

138,405

Acquired intangible assets, net

51,289

62,336

Goodwill

344,630

320,944

Long-term investments

314,979

450,970

Other noncurrent assets

97,025

55,595

Deferred tax assets – noncurrent

16,365

15,756

TOTAL ASSETS

3,331,570

3,536,019

LIABILITIES

 

Current liabilities (including amounts of the consolidated VIEs without recourse to Qihoo360 Technology Co. Ltd. Of $367,837 and $318,649 as of December 31, 2014 and Mar 31, 2015, respectively):

 

  Accounts payable 

121,115

118,202

  Accrued expenses and other current liabilities

299,920

341,125

Deferred revenue-current 

72,890

81,969

Income tax payable

46,304

46,417

Total current liabilities

540,229

587,713

 

Non-current liabilities (including amounts of the consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd. Of $9,611 and $24,405 as of December 31, 2014 and March 31, 2015, respectively):

 

Deferred tax liabilities – noncurrent

8,516

22,649

Deferred revenue-noncurrent 

2,281

2,282

Long-term debt

1,635,000

1,635,000

Other noncurrent liabilities

3,276

3,279

TOTAL LIABILITIES

2,189,302

2,250,923

EQUITY

Total Qihoo 360 Technology Co. Ltd. Shareholders' equity

1,028,598

1,174,922

Noncontrolling interest

113,670

110,174

Total equity

1,142,268

1,285,096

TOTAL LIABILITIES AND EQUITY

3,331,570

3,536,019

 

 

Qihoo 360 Technology Co. Ltd.

Condensed Consolidated Statements of operations

(U.S. dollars in thousands, except for shares and per share data)

(Unaudited)

Three Months Ended

March 31, 2014

December 31, 2014

March 31, 2015

Revenues:

265,142

431,207

384,359

  Cost of revenues

50,390

103,047

79,605

Subsidy income

-

5,093

1,463

Operating expenses:

  Selling and marketing

68,733

88,514

90,564

  General and administrative

21,766

23,627

27,814

  Product development

84,643

113,045

111,979

Total operating expenses

175,142

225,186

230,357

Income from operations

39,610

108,067

75,860

Interest income

4,920

9,997

7,269

Interest expenses

(4,315)

(10,243)

(8,483)

Other income

207

909

362

Exchange (loss) gain

(12,289)

(4,126)

1,912

Gain (loss) in connection with short-term investments

44

(45)

(9,708)

Gain in connection with long-term investments

27,652

352

2,721

Income before income tax expense and loss from equity method investments

55,829

104,911

69,933

Income tax expense

(5,889)

(21,053)

(18,167)

Loss from equity method investments

(2,018)

(8,060)

(5,604)

Net income

47,922

75,798

46,162

Add: Net loss attributable to noncontrolling interest

1,199

1,022

6,868

Net income attributable to

  Qihoo 360 Technology Co. Ltd.

49,121

76,820

53,030

Net income  per ordinary share-basic

0.27

0.41

0.28

Net income per ordinary share-diluted

0.25

0.39

0.27

Weighted average shares used in calculating net income per ordinary share- basic (in millions)(a)

184

186

187

Weighted average shares used in calculating net income per ordinary share-diluted (in millions)(a)

197

197

196

(a): 3 Ordinary Shares = 2 ADSs

 

 

Qihoo 360 Technology Co. Ltd.  Condensed Consolidated Statements of Cash Flows  (U.S. dollars in thousands)  (Unaudited) 

Three-months period ended

March 31, 2014

March 31, 2015

Cash flows from operating activities:

Net income

47,922

46,162

Share-based compensation

19,932

20,625

Depreciation and amortization

17,250

26,751

Amortization of land use right

436

817

Loss on disposal of fixed assets

30

104

Loss from impairment of intangible assets

-

289

Provision of allowance for doubtful accounts

-

227

(Gain) loss in connection with short-term investments

(44)

9,708

Loss on equity method investments

2,018

5,604

Gain in connection with long-term investments

(27,652)

(2,721)

Loss resulting from an nonoperating activity

-

305

Changes in operating assets and liabilities

40,567

(34,931)

Net cash provided by operating activities

100,459

72,940

Cash flows from investing activities:

Decrease (increase)  in restricted cash

1,639

(526)

Purchase of property and equipment and intangible assets

(69,547)

(35,732)

Payment for short-term investment and long-term investments

(103,350)

(99,390)

Cash collected from sale of long-term investments

-

5,162

Proceeds from sale of short-term investments

-

5,723

Dividend proceeds received by company

-

88

Net cash paid in connection with business acquisitions

(38,941)

(2,655)

Deconsolidation of a subsidiary

-

(2,993)

Net cash used in investing activities

(210,199)

(130,323)

Cash flows from financing activities:

Proceeds from exercise of share option

5,057

1,969

Payment for short term loans

(773)

-

Payment for share repurchase

-

(95,799)

Capital contribution from noncontrolling interest

7

-

Cash paid for purchase of noncontrolling interest in a subsidiary

-

(208)

Net cash provided by (used in)  financing activities

4,291

(94,038)

Effect of exchange rate changes

(6,449)

(67)

DECREASE IN CASH

(111,898)

(151,488)

CASH, BEGINNING OF PERIOD

1,013,465

1,645,234

CASH, END OF PERIOD

901,567

1,493,746

 

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures (U.S. dollars in thousands, except for per share data)

Three Months Ended March 31, 2014

Three Months Ended December 31, 2014

Three Months Ended March 31, 2015

GAAP

Adjustment (b)

Adjustment (c)

Non-GAAP

GAAP

Adjustment (b)

Adjustment (c)

Non-GAAP

GAAP

Adjustment (b)

Adjustment (c)

Non-GAAP

Operating expenses

175,142

(19,932)

155,210

225,186

(23,938)

-

201,248

230,357

(20,625)

209,732

Income from operations

39,610

19,932

59,542

108,067

23,938

132,005

75,860

20,625

96,485

Operating margin

14.9%

22.5%

25.1%

30.6%

19.7%

25.1%

Net income attributable to Qihoo 360 Technology Co. Ltd.

49,121

19,932

4,279

73,332

76,820

23,622

8,971

109,413

53,030

20,476

8,371

81,877

Net margin

18.5%

27.7%

17.8%

25.4%

13.8%

21.3%

Diluted earnings per ADS

0.37

0.54

0.58

0.75

0.41

0.57

(b): Adjustment to exclude the share-based compensation expense of each period.

(c): Adjustment to exclude the interest expense of Convertible Senior Notes of each period.

 

 

SOURCE Qihoo 360 Technology Co. Ltd.



RELATED LINKS

http://corp.360.cn