BEIJING, May 15, 2023 /PRNewswire/ -- Sohu.com Limited (NASDAQ:SOHU) ("Sohu" or the "Company"), a leading Chinese online media, video, and game business group, today reported unaudited financial results for the first quarter ended March 31, 2023.

First Quarter Highlights

Total revenues were US$162 million, down 16% year-over-year and up 1% quarter-over-quarter.
Brand advertising revenues were US$23 million, down 5% year-over-year and 22% quarter-over-quarter.
Online game revenues were US$129 million, down 18% year-over-year and up 7% quarter-over-quarter.
GAAP net loss attributable to Sohu.com Limited was US$18 million, compared with net income of US$3 million in the first quarter of 2022 and a net loss of US$7 million in the fourth quarter of 2022.
Non-GAAP^[1] net loss attributable to Sohu.com Limited was US$13 million, compared with net income of US$9 million in the first quarter of 2022 and a net loss of US$2 million in the fourth quarter of 2022.

^[1] Non-GAAP results exclude share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the one-time transition tax (the "Toll Charge") imposed by the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017 (the "U.S. TCJA"). 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."

Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "In the first quarter of 2023, we hit the high end of our prior guidance for brand advertising revenue while our bottom-line performance came in well above expectations, despite the impact of seasonality. At Sohu Media Portal, we further improved operational efficiency and focused on enhancing user experience through product and algorithm refinements. We closely monitored market trends and provided innovative marketing solutions to our advertisers. At Sohu Video, we continued to develop both long-form and short-form original content under the 'Twin Engine' strategy. Leveraging the advantages of our product matrix, we were able to consolidate our resources and proactively explore a diverse range of monetization opportunities. Online games remained stable during the quarter, with revenues in line with the prior guidance."

First Quarter Financial Results

Revenues

Total revenues were US$162 million, down 16% year-over-year and up 1% quarter-over-quarter.

Brand advertising revenues were US$23 million, down 5% year-over-year and 22% quarter-over-quarter.

Online game revenues were $129 million, down 18% year-over-year and up 7% quarter-over-quarter. The year-over-year decrease was mainly due to the natural decline of our older games, including TLBB PC and Little Raccoon: Heroes. The quarter-over-quarter increase was mainly due to improved performance of TLBB PC, as a result of promotional activities launched during the quarter.

Gross Margin

Both GAAP and non-GAAP gross margin were 75%, compared with 75% in the first quarter of 2022 and 78% in the fourth quarter of 2022.

Both GAAP and non-GAAP gross margin for the brand advertising business were 17%, compared with 2% in the first quarter of 2022 and 51% in the fourth quarter of 2022. The quarter-over-quarter margin decrease was mainly due to a waiver of unpaid long-term accounts payable of approximately US$10 million recognized during the fourth quarter of 2022.

Both GAAP and non-GAAP gross margin for online games were 85%, compared with 86% in the first quarter of 2022 and 84% in the fourth quarter of 2022.

Operating Expenses

GAAP operating expenses were US$140 million, up 6% year-over-year and 7% quarter-over-quarter. Non-GAAP operating expenses were US$139 million, up 7% year-over-year and quarter-over-quarter. The year-over-year increase was mainly due to increases in salary and benefits expenses. The quarter-over-quarter increase was mainly due to increases in marketing expenses and an increase in Changyou licensing fees related to product development.

Operating Profit/(Loss)

GAAP operating loss was US$18 million, compared with an operating profit of US$13 million in the first quarter of 2022 and an operating loss of US$6 million in the fourth quarter of 2022.

Non-GAAP operating loss was US$18 million, compared with an operating profit of US$14 million in the first quarter of 2022 and an operating loss of US$5 million in the fourth quarter of 2022.

Income Tax Expense

GAAP income tax expense was US$13 million, compared with income tax expense of US$17 million in the first quarter of 2022 and income tax expense of US$7 million in the fourth quarter of 2022. Non-GAAP income tax expense was US$11 million, compared with income tax expense of US$17 million in the first quarter of 2022 and income tax expense of US$5 million in the fourth quarter of 2022. Income tax expense in the fourth quarter of 2022 included a one-time tax benefit of US$7 million recognized by Changyou as a result of an adjustment related to its income tax due for 2022, as well as preferential tax rates having applied to certain of Changyou's subsidiaries as a result of their receipt of Software Enterprise status for 2021.

Net Income/(Loss)

GAAP net loss attributable to Sohu.com Limited was US$18 million, or a net loss of US$0.53 per fully-diluted ADS, compared with net income of US$3 million in the first quarter of 2022 and a net loss of US$7 million in the fourth quarter of 2022.

Non-GAAP net loss attributable to Sohu.com Limited was US$13 million, or a net loss of US$0.37 per fully-diluted ADS, compared with net income of US$9 million in the first quarter of 2022 and a net loss of US$2 million in the fourth quarter of 2022.

Liquidity and Capital Resources

As of March 31, 2023, cash and cash equivalents, short-term investments and long-term time deposits totaled approximately US$1.4 billion.

Supplementary Information for Changyou Results^[2]

First Quarter 2023 Operating Results

For PC games, total average monthly active user accounts^[3] (MAU) were 2.2 million, an increase of 8% year-over-year and a decrease of 4% quarter-over-quarter. The year-over-year increase was mainly due to content updates and optimization of some of our older games, including TLBB PC. Total quarterly aggregate active paying accounts^[4] (APA) were 0.9 million, a decrease of 4% year-over-year and 2% quarter-over-quarter.
For mobile games, total average MAU were 1.6 million, a decrease of 32% year-over-year and 8% quarter-over-quarter. Total quarterly APA were 0.3 million, a decrease of 39% year-over-year and 15% quarter-over-quarter. The year-over-year decreases in both MAU and APA resulted primarily from Bright Stars, which was launched during the first quarter of 2022. The quarter-over-quarter decreases in both MAU and APA were mainly due to the natural decline of our older games, including Legacy TLBB Mobile.

^[2] "Changyou Results" consist of the results of Changyou's online game business and its 17173.com Website.

^[3] Monthly active user accounts refers to the number of registered accounts that are logged in to these games at least once during the month.

^[4] Quarterly aggregate active paying accounts refers to the number of accounts from which game points are utilized at least once during the quarter.

First Quarter 2023 Unaudited Financial Results

Total revenues were US$131 million, a decrease of 18% year-over-year and an increase of 7% quarter-over-quarter. Online game revenues were US$129 million, a decrease of 18% year-over-year and an increase of 7% quarter-over-quarter. Online advertising revenues were US$2 million, a decrease of 25% year-over-year and an increase of 3% quarter-over-quarter.

GAAP and non-GAAP gross profit were both US$111 million, a decrease of 19% year-over-year and an increase of 8% quarter-over-quarter.

GAAP operating expenses were US$57 million, an increase of 6% year-over-year and 13% quarter-over-quarter. The year-over-year increase was mainly due to an increase in salary and benefits expenses. The quarter-over-quarter increase was mainly due to an increase in licensing fees related to product development.

Non-GAAP operating expenses were US$57 million, an increase of 7% year-over-year and 14% quarter-over-quarter.

GAAP operating profit was US$54 million, compared with an operating profit of US$83 million for the first quarter of 2022 and US$53 million for the fourth quarter of 2022.

Non-GAAP operating profit was US$55 million, compared with a non-GAAP operating profit of US$85 million for the first quarter of 2022 and US$54 million for the fourth quarter of 2022.

Business Outlook

For the second quarter of 2023, Sohu estimates:

Brand advertising revenues to be between US$23 million and US$26 million; this implies an annual decrease of 8% to an annual increase of 4%, and a sequential increase of 2% to 15%.
Online game revenues to be between US$112 million and US$122 million; this implies an annual decrease of 22% to 29%, and a sequential decrease of 6% to 13%.
Non-GAAP net loss attributable to Sohu.com Limited to be between US$15 million and US$25 million; and GAAP net loss attributable to Sohu.com Limited to be between US$18 million and US$28 million.

For the second quarter 2023 guidance, the Company has adopted a presumed exchange rate of RMB6.90=US$1.00, as compared with the actual exchange rate of approximately RMB6.61=US$1.00 for the second quarter of 2022, and RMB6.84=US$1.00 for the first quarter of 2023.

This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Sohu's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per ADS, which are adjusted from results based on GAAP to exclude the impact of share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge imposed by the U.S. TCJA. 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.

Sohu's management believes excluding share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts that have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact, do not involve subsequent cash outflow or are reflected in the cash flows at the equity transaction level, Sohu does not factor in their impact when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact, and also excluded the interest expense recognized in connection with the Toll Charge.

The non-GAAP financial measures are provided to enhance investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per ADS excluding share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge is that these excluded items have been and will continue to be significant recurring expenses in Sohu's business for the foreseeable future and similar impairment charges may also recur. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu's unaudited financial statements prepared in accordance with GAAP.

Safe Harbor Statement

This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu'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. 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, instability in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu's reported U.S. dollar results; recent slow-downs in the growth of the Chinese economy; the uncertain regulatory landscape in the People's Republic of China; fluctuations in Sohu's quarterly operating results; the possibilities that Sohu will be unable to recoup its investment in video content and will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; Sohu's reliance on online advertising sales and online games for its revenues; the impact of the U.S. TCJA; the effects of the COVID-19 pandemic on the economy in China in general and on Sohu's business in particular; and the possibility that the agreement governing inspections and investigations of audit firms based in China that was entered into in August 2022 between the U.S. Public Company Accounting Oversight Board (the "PCAOB") and the China Securities Regulatory Commission and the Ministry of Finance of China does not continue to be implemented to the satisfaction of the PCAOB and the U.S. Securities and Exchange Commission (the "SEC"), which could result in the SEC's prohibiting trading of Sohu's ADSs on Nasdaq, other U.S. stock exchanges, and the U.S. over-the-counter markets. Further information regarding these and other risks is included in Sohu's annual report on Form 20-F for the year ended December 31, 2022, and other filings with and information furnished to the SEC.

Conference Call and Webcast

Sohu's management team will host a conference call at 7:30 a.m. U.S. Eastern Time, May 15, 2023 (7:30 p.m. Beijing/Hong Kong time, May 15, 2023) following the quarterly results announcement. Participants can register for the conference call by clicking here, which will lead them to the conference registration website. Upon registration, participants will receive details for the conference call, including the dial-in numbers and a unique access PIN. Please dial in 10 minutes before the call is scheduled to begin.

The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's website at https://investors.sohu.com/

About Sohu

Sohu.com Limited (NASDAQ:SOHU) was established by Dr. Charles Zhang, one of China's internet pioneers, in the 1990s. As a mainstream media platform, Sohu is indispensable to the daily life of millions of Chinese, providing a network of web properties and community based products which continually offer a broad array of choices regarding information, entertainment and communication to the vast number of Sohu users. Sohu has built one of the most comprehensive matrices of Chinese language web properties, consisting of the leading online media destinations Sohu News App, mobile news portal m.sohu.com, PC portal www.sohu.com; online video website tv.sohu.com; and the online games platform www.changyou.com/en/.

Sohu provides online brand advertising services as well as multiple news, information and content services on its matrix of websites and also on its mobile platforms. Sohu's online game business, conducted by its subsidiary Changyou, develops and operates a diverse portfolio of PC and mobile games, such as the well-known Tian Long Ba Bu ("TLBB") PC and Legacy TLBB Mobile.

For investor and media inquiries, please contact:

In China:

Ms. Pu Huang
Sohu.com Limited
Tel:	+86 (10) 6272-6645
E-mail:	ir@contact.sohu.com

In the United States:

Ms. Linda Bergkamp
Christensen
Tel:	+1 (480) 614-3004
E-mail:	linda.bergkamp@christensencomms.com

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

		Three Months Ended
		Mar. 31, 2023		Dec. 31, 2022		Mar. 31, 2022
Revenues:
Brand advertising	$	22,524	$	28,778	$	23,770
Online games		129,463		121,381		157,854
Others		9,806		10,241		11,794
Total revenues		161,793		160,400		193,418

Cost of revenues:
Brand advertising (includes share-based compensation expense of $13, $-8, and $23, respectively)^[^5]		18,687		14,020		23,413
Online games (includes share-based compensation expense of $18, $18, and $41, respectively)		19,028		18,888		21,971
Others		2,728		2,888		3,725
Total cost of revenues		40,443		35,796		49,109

Gross profit		121,350		124,604		144,309

Operating expenses:
Product development (includes share-based compensation expense of $269, $217, and $607, respectively)		73,048		67,147		63,839
Sales and marketing (includes share-based compensation expense of $35, $-21, and $58, respectively)		52,443		47,067		51,707
General and administrative (includes share-based compensation expense of $410, $332, and $834, respectively)		14,311		15,970		16,092
Total operating expenses		139,802		130,184		131,638

Operating profit/(loss)		(18,452)		(5,580)		12,671

Other income, net		3,797		779		4,879
Interest income		11,084		6,190		2,593
Exchange difference		(1,074)		(1,071)		(477)
Income/(loss) before income tax expense		(4,645)		318		19,666

Income tax expense		13,289		7,413		16,997
Net income/(loss)		(17,934)		(7,095)		2,669

Less: Net income/(loss) attributable to the noncontrolling interest shareholders		(1)		(1)		3

Net income/(loss) attributable to Sohu.com Limited		(17,933)		(7,094)		2,666

Basic net income/(loss) per share/ADS attributable to Sohu.com Limited^[^6]	$	(0.53)	$	(0.21)	$	0.07
Shares/ADSs used in computing basic net income/(loss) per share/ADS attributable to Sohu.com Limited		34,091		34,091		36,802

Diluted net income/(loss) per share/ADS attributable to Sohu.com Limited	$	(0.53)	$	(0.21)	$	0.07
Shares/ADSs used in computing diluted net income/(loss) per share/ADS attributable to Sohu.com Limited		34,091		34,091		36,802


^[5]The cost of brand advertising revenues for the fourth quarter of 2022 included a waiver of unpaid long-term accounts payable of approximately US$10 million recognized during the quarter.
^[6]Each ADS represents one ordinary share.

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

		As of Mar. 31, 2023		As of Dec. 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	525,481	$	697,821
Restricted cash		3,682		3,641
Short-term investments		626,700		473,624
Accounts receivable, net		67,266		67,541
Prepaid and other current assets		91,555		83,093
Total current assets		1,314,684		1,325,720
Fixed assets, net		288,288		288,226
Goodwill		47,619		47,415
Long-term investments, net		23,050		26,012
Intangible assets, net		4,891		5,394
Long-term time deposits		271,234		265,802
Other assets		19,093		19,207
Total assets	$	1,968,859	$	1,977,776

LIABILITIES
Current liabilities:
Accounts payable	$	49,666	$	56,449
Accrued liabilities		125,900		126,461
Receipts in advance and deferred revenue		47,017		48,080
Accrued salary and benefits		53,853		60,754
Taxes payables		9,851		10,612
Other short-term liabilities		117,932		114,532
Total current liabilities	$	404,219	$	416,888

Long-term other payables		1,151		1,795
Long-term tax liabilities		458,512		448,043
Other long-term liabilities		251		340
Total long-term liabilities	$	459,914	$	450,178
Total liabilities	$	864,133	$	867,066


SHAREHOLDERS' EQUITY:
Sohu.com Limited shareholders' equity		1,103,459		1,109,442
Noncontrolling interest		1,267		1,268
Total shareholders' equity	$	1,104,726	$	1,110,710

Total liabilities and shareholders' equity	$	1,968,859	$	1,977,776


SOHU.COM LIMITED
RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

		Three Months Ended Mar. 31, 2023						Three Months Ended Dec. 31, 2022						Three Months Ended Mar. 31, 2022
		GAAP		Non-GAAP Adjustments		Non- GAAP		GAAP		Non-GAAP Adjustments		Non- GAAP		GAAP		Non-GAAP Adjustments		Non- GAAP

				13	(a)					(8)	(a)					23	(a)
Brand advertising gross profit	$	3,837	$	13	$	3,850	$	14,758	$	(8)	$	14,750	$	357	$	23	$	380
Brand advertising gross margin		17 %				17 %		51 %				51 %		2 %				2 %

				18	(a)					18	(a)					41	(a)
Online games gross profit	$	110,435	$	18	$	110,453	$	102,493	$	18	$	102,511	$	135,883	$	41	$	135,924
Online games gross margin		85 %				85 %		84 %				84 %		86 %				86 %

				-	(a)					-	(a)					-	(a)
Others gross profit	$	7,078	$	-	$	7,078	$	7,353	$	-	$	7,353	$	8,069	$	-	$	8,069
Others gross margin		72 %				72 %		72 %				72 %		68 %				68 %

				31	(a)					10	(a)					64	(a)
Gross profit	$	121,350	$	31	$	121,381	$	124,604	$	10	$	124,614	$	144,309	$	64	$	144,373
Gross margin		75 %				75 %		78 %				78 %		75 %				75 %


Operating expenses	$	139,802	$	(714)	(a) $	139,088	$	130,184	$	(528)	(a) $	129,656	$	131,638	$	(1,499)	(a) $	130,139

				745	(a)					538	(a)					1,563	(a)
Operating profit/(loss)	$	(18,452)	$	745	$	(17,707)	$	(5,580)	$	538	$	(5,042)	$	12,671	$	1,563	$	14,234
Operating margin		-11 %				-11 %		-3 %				-3 %		7 %				7 %

Income tax expense	$	13,289	$	(2,420)	(c,d)$	10,869	$	7,413	$	(1,954)	(c,d)$	5,459	$	16,997	$	125	(c,d)$	17,122

				745	(a)					538	(a)					1,563	(a)
				2,218	(b)					2,442	(b)					5,348	(b)
				(555)	(c)					(610)	(c)					(1,338)	(c)
				2,975	(d)					2,564	(d)					1,213	(d)
Net income/(loss) before non- controlling interest	$	(17,934)	$	5,383	$	(12,551)	$	(7,095)	$	4,934	$	(2,161)	$	2,669	$	6,786	$	9,455

				745	(a)					538	(a)					1,563	(a)
				2,218	(b)					2,442	(b)					5,348	(b)
				(555)	(c)					(610)	(c)					(1,338)	(c)
				2,975	(d)					2,564	(d)					1,213	(d)
Net income/(loss) attributable to Sohu.com Limited for diluted net income/(loss) per share/ADS	$	(17,933)	$	5,383	$	(12,550)	$	(7,094)	$	4,934	$	(2,160)	$	2,666	$	6,786	$	9,452
Diluted net income/(loss) per share/ADS attributable to Sohu.com Limited	$	(0.53)			$	(0.37)	$	(0.21)			$	(0.06)	$	0.07			$	0.26
Shares/ADSs used in computing diluted net income/(loss) per share/ADS attributable to Sohu.com Limited		34,091				34,091		34,091				34,091		36,802				36,802


Note:
(a) To eliminate the impact of share-based awards.
(b) To adjust for changes in the fair value of the Company's investments.
(c) To adjust for the impacts of income tax related to changes in the fair value of the Company's investments.
(d) To adjust for the effect of the Toll Charge.

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SOURCE Sohu.com Limited

SOHU.COM REPORTS FIRST QUARTER 2023 UNAUDITED FINANCIAL RESULTS