Form 6-K SOGOU INC. For: Jul 31

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

For the month of July 2018

Commission File Number: 001-38279

 

SOGOU INC.

(Exact name of registrant as specified in its charter)

 

 

Level 15, Sohu.com Internet Plaza

No. 1 Unit Zhongguancun East Road, Haidian District

Beijing 100084

People’s Republic of China

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x                    Form 40-Fo

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o No x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o No x

 

 

 

Press Release

 

On July 30, 2018, the registrant announced its unaudited financial results for the second quarter ended June 30, 2018.  A copy of the press release issued by the registrant regarding the foregoing is filed herewith as Exhibit 99.1 and is incorporated herein by reference.

 

Exhibits

 

99.1

Press release regarding financial results for the second quarter ended June 30, 2018.

 

2

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	SOGOU INC.
	By:	/s/ Joe Zhou (Yi Zhou)
		Joe Zhou (Yi Zhou)
		Chief Financial Officer
Date: July 30, 2018

 

3

Exhibit 99.1

 

Sogou Announces Second Quarter 2018 Results

 

BEIJING, China, July 30, 2018 — Sogou Inc. (NYSE: SOGO) (“Sogou” or “the Company”), an innovator in search and a leader in China’s internet industry, today announced its unaudited financial results for the second quarter 2018, ended June 30, 2018.

 

Second Quarter 2018 Highlights

 

 

“We continued to develop our twin growth engines — search and mobile keyboard — in the second quarter,” said Xiaochuan Wang, CEO of Sogou. “In search, we bolstered our differentiated services in key verticals, such as healthcare, where we added more authoritative content, leading to a solid increase in related search queries and click through rate. We also deepened our partnership with WeChat by providing more search services such as our encyclopedia and interactive Q&A platform. Overall, our core search business maintained solid growth with revenues increasing by 45% year-over-year. During the quarter, we enhanced functionality of the Sogou Mobile Keyboard to better meet user needs for smart interaction and expression. Our AI-powered innovations drove broader adoption of the Sogou Mobile Keyboard, with DAU increasing by 36% year-on-year to 380 million in the second quarter.”

 

Mr. Wang added, “Going forward, we remain committed to developing language-centered AI technologies in voice, translation and Q&A, which are well positioned to empower our search, mobile keyboard and smart hardware products. Sogou Search continuously improved its content quality and user experience with the ongoing refinement of our translation and Q&A technologies. In the month of June, Sogou Mobile Keyboard handled approximately 300 million voice inputs on average per day, up 54% year-on-year, and remained China’s largest voice mobile application. We have also applied our AI capabilities to greatly enhance the competitiveness of our recently launched hardware products, such as Sogou Travel Translator and Sogou Smart Recording Translator.”

 

Joe Zhou, CFO of Sogou, said, “We achieved solid results in the second quarter with revenue increasing 43% year-over-year and non-GAAP net income up by 58%. Looking forward, we expect that our third quarter revenues will be lower than anticipated due to the one-time impact of a regulatory investigation and steps taken to ensure our advertising practices are compliant with relevant regulations, and the adjustment of our smart hardware strategy. We are confident that our twin growth engines and AI-focused strategy will lead to sustainable growth over the long term.”

 

Second Quarter 2018 Financial Results

 

Total revenues were $301.4 million, a 43% increase year-over-year.

 

 

Cost of revenues was $179.7 million, a 70% increase year-over-year. Traffic acquisition cost, a primary driver of cost of revenues, was $135.7 million, a 91% increase year-over-year, representing 45.0% of total revenues, compared to 33.7% in the corresponding period in 2017. The increase was driven by price inflation as a result of increased competition.

 

 

Gross profit was $121.7 million, a 15% increase year-over-year. Non-GAAP gross profit was $121.9 million, a 16% increase year-over-year.

 

Total operating expenses were $96.8 million, a 21% increase year-over-year.

 

 

Operating income was $24.8 million, a 2% decrease year-over-year. Non-GAAP operating income was $29.9 million, a 14% increase year-over-year.

 

Income tax expense was $3.0 million, compared to income tax expense of $2.0 million in the corresponding quarter of 2017.

 

Net income attributable to Sogou Inc. was $33.2 million, a 41% increase year-over-year. Non-GAAP net income attributable to Sogou Inc. was $38.2 million, a 58% increase year-over-year.

 

Basic earnings per ADS were $0.09. Diluted earnings per ADS were $0.08. Non-GAAP basic and diluted earnings per ADS were $0.10 and $0.09 respectively.

 

As of June 30, 2018, the Company had cash and cash equivalents and short-term investments of $1.0 billion, compared with $1.1 billion as of March 31, 2018. Net loans receivable in the amount of $13.0 million represented amounts receivable under small consumer loans extended through the Company’s recently launched internet finance platform. Net operating cash inflow for the second quarter of 2018 was $12.5 million. Capital expenditures for the second quarter of 2018 were $20.2 million.

 

1 On a constant currency (non-GAAP) basis, if the exchange rate in the second quarter of 2018 had been the same as it was in the second quarter of 2017, or RMB 6.85=$1.00, total revenues in the second quarter of 2018 would have been $280.7 million, or $20.7 million less than GAAP total revenues, and up 33% year-over-year.

 

2 Non-GAAP results exclude share-based compensation expense. Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying “Non-GAAP Disclosure” and “Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures.”

 

3 The Company has adopted ASU No. 2014-09, ‘‘Revenue from Contracts with Customers” beginning January 1, 2018. The only major impact of the standard is that revenues and expenses related to advertising barter transactions are recognized beginning January 1, 2018. The impact for this quarter is approximately $5.6 million for both revenues, and cost of revenues and expenses.

 

 

Recent Developments

 

·                  Chinese regulatory authorities, including the Beijing Office of the Cyberspace Administration of China and the Beijing Administration for Industry and Commerce, initiated an investigation of Sogou after certain advertisements involving content that the authorities believed insulted a national hero were displayed on its platform. The advertisements were developed and reviewed by Douyin, a Chinese short-form video platform, and displayed on Sogou Search in June 2018. Following the investigation, the regulatory authorities instructed Sogou to amend its advertising practices. Sogou fully cooperated with the authorities in their investigation and the Company has taken steps to revise its advertising policies and audit procedures to ensure compliance with relevant regulations. In connection with implementing such remedial measures, Sogou suspended part of its advertising business for ten days commencing July 1, 2018. This is expected to result in a one-time reduction in revenues in the third quarter of 2018.

 

·                  Sogou recently adjusted its smart hardware strategy to better leverage the Company’s AI capabilities to improve product competitiveness. The adjustment followed the recent launch of two translation devices that were well-received in the market due to Sogou’s industry-leading translation technologies. As a result of the change in strategy, Sogou will phase out hardware products that are not AI-enabled, such as some legacy models of Teemo Smart Watch, and transition to products that integrate the Company’s leading AI technologies. Sogou expects that this will result in a reduction in hardware revenues in the second half of 2018.

 

Business Outlook

 

For the third quarter of 2018, Sogou expects total revenues to range from $275 million to $285 million, representing a 7% to 11% increase year-over-year. The guidance for the third quarter takes into account the one-time impact of the regulatory investigation, lower hardware sales following the adjustment of the smart hardware strategy, and the depreciation of the RMB.

 

For the third quarter 2018 guidance, the Company has adopted a presumed exchange rate of RMB 6.80 = $1.00, as compared with the actual exchange rate of approximately RMB6.66 = $1.00 for the third quarter of 2017, and RMB 6.38 = $1.00 for the second quarter of 2018.

 

Non-GAAP Disclosure

 

To supplement the unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), Sogou’s management uses non-GAAP measures of gross profit, gross margin, and net income that are adjusted from results based on GAAP to exclude the impact of share-based awards. 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.

 

Sogou’s management believes that excluding share-based compensation expense is useful for management’s internal operating purposes and for investors. 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 Sogou provides to analysts and investors as guidance for future operating performance. As share-based compensation expense does not involve subsequent cash outflow, Sogou does not factor in this expense when evaluating and approving expenditures or when determining the allocation of its resources to its business operations. As a result, in general, the Company’s monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on these non-GAAP financial measures that exclude share-based compensation expense.

 

 

The non-GAAP financial measures are provided to enhance investors’ overall understanding of Sogou’s current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, gross margin, and net income measures that exclude share-based compensation expense is that share-based compensation expense has been and is likely to continue to be a significant recurring expense in the Company’s business. 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.

 

Safe Harbor Statement

 

This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sogou’s next quarterly earnings announcement. However, Sogou reserves the right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sogou’s and Sogou management’s beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates, and projections, which involve inherent risks and uncertainties. We caution you 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, intense competition in the market for search and search-related services; our need to continually innovate and adapt in order to grow our business; our reliance on Tencent platforms for a significant portion of our user traffic; and uncertainty regarding the extent and reach of PRC governmental regulation of sponsored search. Further information regarding these and other risks is included in Amendment No. 2 to Sogou’s Registration Statement on Form F-1 (Registration No. 333-220928) filed with the Securities and Exchange Commission on November 6, 2017, and other documents Sogou files with or submits to the Securities and Exchange Commission.

 

Conference Call and Webcast

 

Sogou’s management team will host a conference call at 7:30 am U.S. Eastern Time, (7:30 pm Beijing/Hong Kong time) on July 30, 2018, following the quarterly results announcement.

 

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

 

U.S. Toll Free: 1-888-346-8982

Mainland China: 4001-201203 (Toll Free)

Hong Kong: 800-905945 (Toll Free); +852-301-84992 (Local Toll)

International: +1-412-902-4272

Passcode: 8781674

 

Please dial in 10 minutes before the call is scheduled to begin. When prompted, ask to be connected to the Sogou Inc. call and provide the passcode.

 

A replay of the conference call may be accessed by phone at the following number until August 6, 2018:

 

International: +1-412-317-0088

Passcode: 10122131

 

A live webcast and archive of the conference call will be available on the Investor Relations section of Sogou’s website at http://ir.sogou.com.

 

 

About Sogou

 

Sogou Inc. (NYSE: SOGO) is an innovator in search and a leader in China’s internet industry. With a mission to make it easy to communicate and get information, Sogou has grown to become the second largest search engine by mobile queries and the fourth largest internet company by MAU in China. Sogou has a wide range of innovative products and services including the Sogou Input Method, which is the largest Chinese language input software for both mobile and PC. Sogou is also at the forefront of AI development and has made significant breakthroughs in voice and image technologies, machine translation, and Q&A, which have been successfully integrated into our products and services.

 

For investor enquiries, please contact:

 

Jessie Zheng

Sogou Investor Relations

Tel: +86 10 5689 8068

Email: [email protected]

 

For media enquiries, please contact:

 

Rachael Layfield

Brunswick Group

Tel: +86 10 5960-8600

Email: [email protected]

 

 

SOGOU INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

		Three Months Ended
		Jun. 30, 2018			Mar. 31, 2018			Jun. 30, 2017
Revenues:
Search and search-related advertising revenues		$	270,622		$	220,374		$	186,771
Other revenues		30,794			28,010			24,172
Total revenues		301,416			248,384			210,943
Cost of revenues(1)		179,749			154,023			105,462
Gross profit		121,667			94,361			105,481
Operating expenses:
Research and development (1)		56,223			46,634			38,114
Sales and marketing (1)		33,865			27,060			36,616
General and administrative (1)		6,748			6,400			5,305
Total operating expenses		96,836			80,094			80,035
Operating income		24,831			14,267			25,446
Interest income		1,763			3,467			2,139
Foreign currency exchange gain/(loss) (2)		6,136			(4,666		)	(2,163		)
Other income, net		3,427			4,386			131
Income before income tax expenses		36,157			17,454			25,553
Income tax expenses		2,997			2,144			2,027
Net income		33,160			15,310			23,526
Net income attributable to Sogou Inc.		$	33,160		$	15,310		$	23,526
Less: Dividends attributable to preferred shareholders		—			—			7,023
Net income attributable to ordinary shareholders		$	33,160		$	15,310		$	16,503
Weighted average number of ordinary shares outstanding—basic		388,409			386,840			237,772
Weighted average number of ordinary shares outstanding—diluted		395,163			395,698			270,104
Net income per ordinary share—basic		$	0.09		$	0.04		$	0.07
Net income per ordinary share—diluted		$	0.08		$	0.04		$	0.06
Net income per ADS—basic		$	0.09		$	0.04		$	0.07
Net income per ADS—diluted		$	0.08		$	0.04		$	0.06
(1)Share-based compensation expense included in:
Cost of revenues		$	263		$	219		$	2
Research and development		3,637			3,186			628
Sales and marketing		427			353			25
General and administrative		720			521			4
		$	5,047		$	4,279		$	659

 

(2) Foreign currency exchange gain/(loss), mainly arising from our cross-border RMB-denominated intragroup loans, is a result of depreciation or appreciation, respectively, of the RMB.

 

 

SOGOU INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

 

		As of Jun. 30, 2018			As of Dec. 31, 2017
ASSETS
Current assets:
Cash and cash equivalents		$	177,276		$	694,207
Short-term investments		866,611			339,006
Accounts receivable, net		79,714			69,967
Loans receivables, net		13,039			—
Prepaid and other current assets		35,714			15,091
Due from related parties		5,380			2,971
Total current assets		1,177,734			1,121,242
Long-term investments		43,451			30,152
Fixed assets, net		142,336			139,209
Goodwill		5,834			5,908
Intangible assets, net		861			1,328
Deferred tax assets, net		11,733			15,006
Other assets		9,277			8,191
Total assets		$	1,391,226		$	1,321,036
LIABILITIES
Current liabilities:
Accounts payable		$	80,060		$	73,018
Accrued and other short term liabilities		152,436			164,269
Receipts in advance		73,816			66,199
Accrued salary and benefits		25,151			29,719
Taxes payable		50,903			56,481
Due to related parties		46,882			23,109
Total current liabilities		429,248			412,795
Total liabilities		$	429,248		$	412,795
SHAREHOLDERS’ EQUITY
Sogou Inc. shareholders’ equity		961,978			908,241
Total shareholders’ equity		961,978			908,241
Total liabilities and shareholders’ equity		$	1,391,226		$	1,321,036

 

 

SOGOU INC.

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

(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

		Three Months Ended Jun. 30, 2018									Three Months Ended Mar. 31, 2018									Three Months Ended Jun. 30 2017
		GAAP			Non-GAAP Adjustments(1)			Non-GAAP			GAAP			Non-GAAP Adjustments(1)			Non-GAAP			GAAP			Non-GAAP Adjustments(1)			Non-GAAP
Gross profit		$	121,667		$	263		$	121,930		$	94,361		$	219		$	94,580		$	105,481		$	2		$	105,483
Gross margin		40		%				40		%	38		%				38		%	50		%				50		%
Operating expenses		$	96,836		$	(4,784	)	$	92,052		$	80,094		$	(4,060	)	$	76,034		$	80,035		$	(657	)	$	79,378
Operating Profit		$	24,831		$	5,047		$	29,878		$	14,267		$	4,279		$	18,546		$	25,446		$	659		$	26,105
Operating margin		8		%				10		%	6		%				7		%	12		%				12		%
Income tax expenses		$	2,997		$			$	2,997		$	2,144		$			$	2,144		$	2,027		$			$	2,027
Net income		$	33,160		$	5,047		$	38,207		$	15,310		$	4,279		$	19,589		$	23,526		$	659		$	24,185
Net income attributable to Sogou Inc.		$	33,160		$	5,047		$	38,207		$	15,310		$	4,279		$	19,589		$	23,526		$	659		$	24,185
Net margin attributable to Sogou Inc.		11		%				13		%	6		%				8		%	11		%				11		%

 

 

 

 

(1) To exclude share-based compensation expense. This non-GAAP adjustment does not have an impact on income tax expense.

 

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