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Changyou Reports First Quarter 2016 Unaudited Financial Results

BEIJING, April 25, 2016 /PRNewswire/ -- Changyou.com Limited ("Changyou" or the "Company") CYOU, +2.09% a leading online game developer and operator in China, today announced its unaudited financial results for the first quarter ended March 31, 2016.

First Quarter 2016 Highlights

  • Total revenues were US$130 million [[1]] , representing a decrease of 38% year-over-year and 20% quarter-over-quarter, in line with the Company's guidance.
  • Online game revenues were US$103 million, representing a decrease of 45% year-over-year and 19% quarter-over-quarter, in line with the Company's guidance.
  • Non-GAAP [[2] ] net income attributable to Changyou.com Limited was US$31 million, in line with the Company's guidance. This compares with US$52 million in the first quarter of 2015 and US$46 million in the fourth quarter of 2015.
  • Non-GAAP net income attributable to Changyou.com Limited per fully-diluted ADS [[3]] was US$0.58. This compares with US$0.97 in the first quarter of 2015 and US$0.85 in the fourth quarter of 2015.

Mr. Dewen Chen, Co-CEO, commented "The core value of PC games lies in the enormous user base accumulated over the years of operation. To fully unlock this vast and untapped value, we are recreating the PC game experience on mobile by adapting our two most successful mobile games, 'TLBB' and 'Blade Online', in mobile format. For TLBB 3D, the new expansion pack issued in the first quarter improved the overall playing experience in the game and we will be adding more social functionalities to the game in the upcoming expansion packs. We will continue to execute our mobile game strategy of 'Top Games, Big IP and Mass Marketing', allocating our best IP and marketing resources to our finest games. In terms of our pipeline, we have around ten new mobile games up for review in the second quarter, and their launch dates will be subject to final testing results."

Mr. Qing Wei, Chief Games Development Officer added, "Our Legacy TLBB mobile game builds on the essence of TLBB PC. By creating an environment that supports a huge community with various interactive gameplays and social functions, we hope to re-attract the large group of users that were once loyal to our PC game and achieve a similar scale of success and popularity that we had with our PC game. We are also excited to be working with Tencent in publishing this game."

Ms. Jasmine Zhou, CFO of Changyou added, "We expect our second quarter results to be on par with the first quarter, and with the planned launches of the new games in the second half of the year, we expect our revenue to pick up in the third and the fourth quarters."

[1]

For the first quarter of 2016, on yearly basis, the depreciation of RMB against the U.S. dollar impacted our reported financial results. On a constant exchange rate basis, total revenues in the first quarter of 2016 would have been US$8 million higher, down 34% instead of 38% year-over-year.

[2]

Non-GAAP results exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions. 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 Operations Measures to the Nearest Comparable GAAP Measures."

[3]

Each ADS represents two Class A ordinary shares.

First Quarter 2016 Operational Results

  • Total average monthly active accounts [[4]] of the Company's PC games were 3.0 million, representing a decrease of 39% year-over-year and 17% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases reflected the natural declining life cycles of older games.
  • Total average monthly active accounts of the Company's mobile games were 3.2 million, representing a decrease of 27% year-over-year and 14% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were due to the natural declining life cycles of the Company's older games, which were partially offset by increases for the Legend of Sword and Fairy.
  • Total quarterly aggregate active paying accounts [[5]] of the Company's PC games were 1.1 million, flat year-over-year and representing a decrease of 8% quarter-over-quarter. The launch of Warframe and Steel Ocean during the past year partially offset the year-over-year decline in older games, and the quarter-over-quarter decrease reflected the decline in these games as a natural part of their life cycles.
  • Total quarterly aggregate active paying accounts of the Company's mobile games were 0.8 million, representing a decrease of 11% both year-over-year and quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were due to the natural declining life cycles of the Company's older games, which were partially offset by increases for the Legend of Sword and Fairy.

[4]

Average Monthly Active Accounts for a given period refers to the number of registered accounts that were logged in to these games at least once during the period.

[5]

Quarterly Aggregate Active Paying Accounts for a given period refers to the number of accounts from which game points are utilized at least once during the quarter.

First Quarter 2016 Unaudited Financial Results

Revenues

Total revenues were US$130 million, representing a decrease of 38% year-over-year and 20% quarter-over-quarter.

Online game revenues were US$103 million, representing a decrease of 45% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to the natural decline in revenues of older games, such as TLBB and TLBB 3D, and a decrease in Web game revenue upon the completion of the sale of the 7Road business during the third quarter of 2015. The quarter-over-quarter decrease was mainly due to the natural decline in revenues of TLBB, which is an older game.

Online advertising revenues were US$8 million, representing a decrease of 18% year-over-year and 47% quarter-over-quarter. The year-over-year decrease was mainly due to fewer PC and mobile games being marketed on the 17173 Website. The quarter-over-quarter decrease was mainly due to a seasonal trend in advertising typical of the first quarter.

Internet value-added services ("IVAS") revenues were flat year-over-year and decreased 14% quarter-over-quarter to US$6 million. The quarter-over-quarter decrease was a result of lower revenues from RaidCall in the first quarter of 2016.

Other revenues, which consist of cinema advertising revenues, were US$14 million, representing an increase of 66% year-over-year and flat quarter-over-quarter. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general.

Gross profit

GAAP and non-GAAP gross profit were both US$88 million, representing a decrease of 39% year-over-year and 26% quarter-over-quarter. GAAP and non-GAAP gross margins were both 68%, compared with 69% in the first quarter of 2015 and 74% in the fourth quarter of 2015.

GAAP and non-GAAP gross profit of the online games business were both US$76 million, representing a decrease of 44% year-over-year and 23% quarter-over-quarter. GAAP and non-GAAP gross margin of the online games business were both 75%, compared with 73% in the first quarter of 2015 and 78% in the fourth quarter of 2015. The changes in gross margins were mainly a result of a change in the revenue contribution from mobile games compared with PC games, as mobile games typically require larger revenue-sharing payments to others, which drive down gross margin. The year-over-year increase in gross margin was due to a smaller percentage revenue contribution from mobile games, while the quarter-over-quarter decrease in gross margins was due to a larger percentage revenue contribution from mobile games.

GAAP and non-GAAP gross profit of the online advertising business were both US$6 million, representing a decrease of 8% year-over-year and 54% quarter-over-quarter. GAAP and non-GAAP gross margin of the online advertising business were both 72%, compared with 64% in the first quarter of 2015 and 84% in the fourth quarter of 2015. The year-over-year increase in gross margins was due to a reduction in salary and benefits expense, which reflected a reduction in headcount during the past year. The quarter-over-quarter decrease in gross margins was due to a decrease in online advertising revenues which reflected a seasonal trend in advertising typical of the first quarter.

GAAP and non-GAAP gross profit for the IVAS business were both US$2 million, compared with a gross loss of US$0.2 million in the first quarter of 2015 and a gross profit of US$3 million in the fourth quarter of 2015.

GAAP and non-GAAP gross profit of the other business were both US$4 million, compared with US$2 million in the first quarter of 2015 and US$5 million in the fourth quarter of 2015.

Operating expenses

Total operating expenses were US$54 million, representing a decrease of 41% year-over-year and 32% quarter-over-quarter.

Product development expenses were US$30 million, representing a decrease of 34% year-over-year and 31% quarter-over-quarter. The year-over-year decrease was due to a reduction in salary and benefits expense, which reflected a reduction in headcount during the past year and a reduction in severance payments. The quarter-over-quarter decrease was mainly due to a reduction in salary and benefits expense as a result of a reduction in bonus expense, as well as a decrease in the market price for the Company's ADSs, which triggered a decrease in share-based compensation.

Sales and marketing expenses were US$12 million, representing a decrease of 43% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to a reduction in salary and benefits expense, which reflected a reduction in headcount during the past year, as well as a more targeted marketing approach for mobile games. The...


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