Qihoo 360 Reports First Quarter 2012 Unaudited Financial Results and Appoints Co-CFO

BEIJING, May 22, 2012 /PRNewswire-Asia/ -- 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, 2012.

"We have once again outperformed the industry and our expectations, delivering another quarter of triple-digit year-over year growth in revenue and net income as well as outstanding performance across several key operating metrics," said Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360. "Monthly active users of our products and services grew to 411 million and our browsers' user penetration rate reached a record 62% in the first quarter of 2012. We believe our success has been driven by our company-wide focus on product and technology innovation and maximizing customer satisfaction. As a leader in China's Internet industry, we have demonstrated our ability to effectively execute our open platform strategy. We are confident that the product initiatives we launched earlier this year will substantially enhance our monetization capabilities in the coming quarters, despite the uncertainty in the Chinese economy and global markets," concluded Mr. Zhou.

First Quarter Financial Highlights(1)

• Revenues were $69.3 million, representing an increase of 202.1% from $22.9 million in the first quarter of 2011.
• Net income attributable to Qihoo 360 was $14.1 million, compared to a net loss of $21.4 million in the first quarter of 2011.
• Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) was $25.7 million, representing an increase of 290.5% from $6.6 million in the first quarter of 2011.
• Diluted earnings per ADS(2) ("EPADS") attributable to Qihoo 360 were $0.12.
• Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)(1) were $0.21.

Mr. Xiangdong Qi, President of Qihoo 360, added, "While the first quarter is seasonally soft across the industry, we achieved stronger than expected revenue growth and profitability. Our online advertising business outperformed the industry in a challenging macro environment, with a 177% year-over-year increase supported by our robust user activity growth on our Personal Start-up Page. Web game operations continued to gain momentum and strong user growth drove a 248% year-over-year increase in game revenue. As we continue to deliver solid results in the near term, we believe our proactive investments in product and technology on both the PC and mobile platforms will support sustainable growth and drive long-term shareholder value."

First Quarter Operating Metrics

• Total monthly active users of Qihoo 360's products and services reached a record 411 million in March 2012, compared to 345 million in March 2011.
• User penetration of Qihoo 360's products was 93.4% in March 2012, compared to 86.7% in March 2011(3).
• Monthly active users of Qihoo 360's browsers were 273 million in March 2012, compared to 192 million in March 2011(3).
• User penetration of Qihoo 360's browsers reached a record 62% in March 2012, compared with 48% in March 2011(3).
• Average daily unique visitors to the 360 Personalized Start-up Page and its sub-pages were 77 million in the first quarter of 2012, compared to 34 million in the first quarter of 2011.
• Average daily clicks on Qihoo 360's Personalized Start-up Page and its sub-pages were approximately 295 million in the first quarter of 2012, compared to 112 million in the first quarter of 2011.

First Quarter 2012 Results

Revenues

Revenues were $69.3 million, representing an increase of 202.1% from $22.9 million in the first quarter of 2011 and an increase of 11.2% from $62.3 million in the fourth quarter of 2011. The year-over-year and quarter-over-quarter increases in revenues were mainly due to continued robust growth in both online advertising and Internet value-added services.

Online advertising revenues were $45.4 million, up 176.6% from the same period last year and 1.4% from the prior quarter. The robust year-over-year growth was primarily driven by further market penetration of the Company's key products, such as the 360 browsers and Personalized Start-up Pages, and increased user activity. The more modest quarter-over-quarter increase primarily reflected the seasonal impact of Chinese New Year.

Internet value-added service revenues, which are mainly derived from web game operations, were $20.9 million, up 240.1% from the same period last year and 21.9% from the prior quarter. The strong year-over-year and sequential growth was mainly driven by solid growth of the Company's game user base.

Cost of Revenues

Cost of revenues was $7.6 million, compared with $2.8 million in the first quarter of 2011 and $7.1 million in the fourth quarter of 2011, representing increases of 172.8% and 7.5%, respectively.

Operating Expenses

Operating expenses were $47.2 million, compared with $40.5 million in the first quarter of 2011 and $40.4 million in the fourth quarter of 2011. Operating expenses excluding share-based compensation (non-GAAP) were $35.5 million, compared with $12.4 million in the first quarter of 2011 and $31.2 million in the prior quarter. The year-over-year and sequential increases in non-GAAP operating expenses were mainly driven by increased personnel-related expenses as Qihoo 360 continued to strengthen its technology and product development capabilities.

Operating Income

Operating income was $14.4 million, compared with an operating loss of $20.2 million in the first quarter of 2011 and operating income of $14.8 million in the prior quarter.

Operating income excluding share-based compensation (non-GAAP) was $26.1 million, compared with $7.8 million in the first quarter 2011 and $24.1 million in the prior quarter.

Operating margin was 20.9%, compared with -88.1% in the first quarter of 2011 and 23.8% in the prior quarter.

Operating margin excluding share-based compensation (non-GAAP) was 37.7%, compared with 34.1% in the first quarter of 2011 and 38.6% in the prior quarter.

Net Income

Net income attributable to Qihoo 360 was $14.1 million, compared with a net loss of $21.4 million in the first quarter of 2011 and net income of $15.0 million in the prior quarter.

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was a record $25.7 million, compared with $6.6 million in the first quarter of 2011 and $24.3 million in the prior quarter, representing increases of 290.5% and 6.1%, respectively.

Net Margin

Net margin was 20.3%, compared with -93.5% in the same period last year, and 24.1% in the prior quarter.

Net margin excluding share-based compensation (non-GAAP) was 37.2%, compared with 28.8% in the same period last year and 38.9% in the prior quarter.

Diluted Earnings per ADS

Diluted EPADS for the first quarter of 2012 were $0.12, and diluted EPADS for the first quarter of 2012 excluding share-based compensation (non-GAAP) were $0.21. Both GAAP and non-GAAP weighted average ADS used in computing diluted EPADS were 121.5 million.

Cash Flows and Balance Sheet

Net cash provided by operations in the first quarter of 2012 was $25.8 million. As of March 31, 2012, the Company had cash and cash equivalents of $363.3 million.

Business Outlook

For the second quarter of 2012, the Company expects revenues to be between $72 million and $73 million, representing a year-over-year increase of 105% to 108%. These estimates give consideration to the impact of our offer of remote technical support services for free starting in April 2012. Such free offerings significantly extend Qihoo 360's comprehensive free security solution, strengthen the Company's core security position, and enhance user experiences and stickiness to Qihoo 360's products and services.

Appointment of Co-CFO

In light of its significantly expanded business operations, Qihoo 360 has appointed Ms. Jue Yao as Co-CFO, alongside Mr. Alex Xu, effective immediately, to further enhance its financial reporting, internal control, strategic investment and investor relations capabilities. Ms. Jue Yao has been Qihoo 360's vice president of finance since 2008 and served as its financial director from 2006 to 2008. Both Mr. Xu and Ms. Yao's responsibilities will remain unchanged.

Other Event

The Company filed its annual report on Form 20-F for the fiscal year ended December 31, 2011 with the U.S. Security and Exchange Commission on April 19, 2012. Upon request, the Company will provide a hard copy of its annual report, which contains its audited financial statements, free of charge to its shareholders and ADS holders. Requests should be directed to Qihoo 360, Attn: Annual Reports, Block 1, Area D, Huitong Times Plaza, No. 71 Jianguo Road, Chaoyang District, Beijing 100025, People's Republic of China

Conference Call

Qihoo 360's management will host a conference call to discuss the results at 8:30 p.m. Eastern Time on May 22, 2012 (8:30 a.m. Beijing time on May 23, 2012).

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

A telephone replay of the call will be available after the conclusion of the conference call at 11:30 p.m. Eastern Time on May 22, 2012 through 11:30 p.m. Eastern Time on May 29, 2012. The dial-in details for the replay are:

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. Qihoo 360 monetizes its massive user base primarily through online advertising and through Internet value-added services on its open platforms.

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 19, 2012.

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. 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.

SOURCE Qihoo 360 Technology Co. Ltd.