Qihoo 360 Reports Third Quarter 2012 Unaudited Financial Results

       Qihoo 360 Reports Third Quarter 2012 Unaudited Financial Results

PR Newswire

BEIJING, Nov. 19, 2012

BEIJING, Nov. 19, 2012 /PRNewswire/ -- Qihoo 360 Technology Co. Ltd.("Qihoo
360" or the "Company") (NYSE: QIHU), a leading Internet company inChina,
today reported its unaudited financial results for the third quarter ended
September 30, 2012.

Third Quarter Financial Highlights[1]

  oRevenues were $84.0 million, a 77% increase from $47.5 millionin the
    third quarter of 2011.
  oNet income attributable to Qihoo 360 was $12.9 million, an 18% increase
    from $10.9 million in the third quarter of 2011.
  oNet income attributable to Qihoo 360 excluding share-based compensation
    (non-GAAP)[1] was $24.2 million, a 24% increase from $19.5 million in the
    third quarter of 2011.
  oDiluted earnings per ADS[2] ("EPADS") attributable to Qihoo 360 was $0.11
    compared to $0.09 in the same period last year.
  oDiluted EPADS attributable to Qihoo 360 excluding share-based compensation
    (non-GAAP)[1] was $0.20 compared to $0.16 in the same year ago period.

Third Quarter Operating Metrics

  oTotal monthly active users of Qihoo 360's products and services reached a
    record 442 million in September 2012, compared to 370 million in September
    2011[3].
  oUser penetration of Qihoo 360's products was 95% in September 2012,
    compared to 89% in September 2011[3].
  oTotal smartphone users of Qihoo 360's mobile security products[4] reached
    approximately 149 million in September 2012.
  oMonthly active users of Qihoo 360's browsers reached a record 303 million
    in September 2012, compared to 235 million in September 2011[3].
  oUser penetration of Qihoo 360's browsers was a record 65% in September
    2012, compared to 57% in September 2011[3].
  oAverage daily unique visitors to the 360 Personal Start-up Page and its
    sub-pages were 89 million in the third quarter of 2012, compared to 55
    million in the third quarter of 2011.
  oAverage daily clicks on Qihoo 360's Personal Start-up Page and its
    sub-pages were approximately 451 million in the third quarter of 2012,
    compared to 185 million in the third quarter of 2011.
  oPaying users of Qihoo 360's game platform were approximately 182,000 in
    September 2012, compared to 148,000 in June 2012.

[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
September 2012.
[4] Referring to 360 Mobile Safe, the company's main mobile security product.

"The third quarter of 2012 marks our seventh straight quarter of robust
revenue growth since the Company's IPO last year. We continue to outperform
the growth rate of the industry, despite the macro economic challenges that
persist in the market," said Mr. Hongyi Zhou, Chairman and Chief Executive
Officer of Qihoo 360. "Monthly active users of our PC-based products and
services, which cover approximately 95% of the Chinese PC Internet population,
increased to 442 million as of September 2012. Additionally, the number of
smartphone users of our key mobile security product – 360 Mobile Safe reached
149 million and we further strengthened our established leadership in this
field."

"We believe our success is largely driven by our company-wide focus on
innovation in product and technology, attention to customer satisfaction, as
well as superior execution capabilities. A major milestone during the third
quarter was our launch of 360 search services. We recently began to publicly
test our search engine monetization system and we believe that our search
services will capture a meaningful share of the market and have a long-term
transformative effect on our business model."

"We also believe that the products and services we launched earlier this year
will continue to enhance our monetization capabilities in the coming quarters
despite the macro headwinds in the Chinese economy," concluded Mr. Zhou.

Mr. Xiangdong Qi, President of Qihoo 360, added, "We are thrilled to have
surpassed our revenue guidance and internal profitability targets this quarter
even though the overall industry experienced slower growth. Our online
advertising business continued to deliver solid growth, supported by a robust
increase in our user activity on Qihoo's Personal Start-up Page. Internet
value-added services also outpaced the market with a 111% year-over-year
increase in revenue driven by strong momentum in paying user growth. As we
previously stated, we have made proactive investments in product and
technology development to continue our innovation and expand our footprint,
particularly in mobile Internet and search technology. We believe that the
investment will support sustainable growth for our company and drive long-term
shareholder value."

Third Quarter 2012 Results

Revenues

Revenues were $84.0 million, representing an increase of 77.0% from$47.5
millionin the third quarter of 2011 and an increase of 15.5% from $72.8
million in the second quarter of 2012. 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 $58.4 million, up 66.5% from the same period
last year and 14.8% 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, somewhat offset by a subdued macro economy.

Internet value-added service revenues, which are mainly derived from web game
operations, were $25.5 million, up 110.8% from the same period last year and
17.8% from the prior quarter. The strong year-over-year and sequential growth
was mainly driven by solid growth of the Company's paying user base.

Cost of Revenues

Cost of revenues were $7.9 million, compared to $5.3 millionin the third
quarter of 2011 and $6.6 million in the second quarter of 2012, representing
increases of 47.8% and 19.1%, respectively.

Operating Expenses

Operating expenses were $63.9 million, compared to $31.4 millionin the third
quarter of 2011 and $56.4 million in the second quarter of 2012. Operating
expenses excluding share-based compensation (non-GAAP) were $52.6 million,
compared to $22.7 million in the third quarter of 2011 and $42.7 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, bandwidth
expenses, equipment depreciation expenses, as well as marketing expenses, as
Qihoo 360 continued to strengthen its technology and product development
capabilities, and expanded into new business initiatives.

Operating Income

Operating income was $12.2 million, compared to $10.8 million in the third
quarter of 2011 and operating income of $9.9 million in the prior quarter. 

Operating income excluding share-based compensation (non-GAAP) was $23.5
million, compared to $19.4 million in the third quarter of 2011 and $23.6
million in the prior quarter.

Operating margin was 14.5%, compared to 22.7% in the third quarter of 2011 and
13.6% in the prior quarter.

Operating margin excluding share-based compensation (non-GAAP) was 28.0%,
compared to 40.9% in the third quarter of 2011 and 32.4% in the prior quarter.

The year-over-year and quarter-over-quarter decline in non-GAAP operating
margin was due to increased expenses related to new business initiatives in
search and mobile Internet.

Net Income

Net income attributable to Qihoo 360 was$12.9 million, compared to $10.9
millionin the third quarter of 2011 and $7.0 million in the prior quarter.

Net income attributable to Qihoo 360 excluding share-based compensation
(non-GAAP) was $24.2 million, compared to $19.5 million in the third quarter
of 2011 and $20.6 million in the prior quarter.

Net Margin

Net margin was 15.4%, compared to 23.0% in the same period last year, and 9.6%
in the prior quarter.

Net margin excluding share-based compensation (non-GAAP) was 28.8%, compared
to 41.2% in the same period last year and 28.4% in the prior quarter. The
year-over-year decline in non-GAAP net margin was due to increased expenses
related to new business initiatives in search and mobile Internet.

Diluted Earnings per ADS

Diluted EPADS for the third quarter of 2012 was $0.11, and diluted EPADS for
the third quarter of 2012 excluding share-based compensation (non-GAAP) was
$0.20. Both GAAP and non-GAAP weighted average ADS used in computing diluted
EPADS was 122.3 million.

Cash Flows and Balance Sheet

Net cash generated from operations in the third quarter of 2012 was $34.8
million. As of September 30, 2012, the Company had cash and cash equivalents
of $348.0 million.

Business Outlook

For the fourth quarter of 2012, the Company expects revenues to be between $93
million and $94 million, representing a year-over-year increase of 49% - 51%.
For the full year 2012, the Company expects revenues to be between $319
million and $320 million, representing a year-over-year increase of
approximately 90%. 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
7:00 p.m. Eastern Time on November 19, 2012 (8:00 a.m. Beijing time on
November 20, 2012).

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

US Toll Free Dial In:            +1 866-519-4004
US Toll / International Dial In: +1 718-354-1231
Hong Kong Dial In:               +852-2475-0994
Passcode:                        QIHU

A telephone replay of the call will be available after the conclusion of the
conference call at 10:00 p.m. Eastern Time on November 19, 2012 through 07:00
a.m. Eastern Time on November 27, 2012. The dial-in details for the replay
are:

International Dial In: +1 855-452-5696
US Dial In:            +1 646-254-3697
Passcode:              68469154

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 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.

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.
Brandi Floberg or Lee Roth
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, September 30,
                                                    2011         2012
ASSETS
Current assets:
 Cash and cash equivalents                         343,731      348,023
 Trading securities                                231          173
 Accounts receivable (net of allowance for
doubtful accounts of $68 and $120                   16,741       20,512
 as of December 31, 2011 and September 30,
2012, respectively)
 Prepaid expenses and other current assets         12,808       22,283
 Deferred tax assets – current                     858          1,488
Total current assets                                374,369      392,479
Property and equipment, net                         16,665       52,880
Acquired intangible assets, net                     7,854        8,520
Goodwill                                            4,580        4,587
Long-term investments                               15,561       30,173
Other noncurrent assets                             4,415        26,386
Deferred tax assets – noncurrent                    514          517
TOTAL ASSETS                                        423,958      515,542
LIABILITIES
Current liabilities:
 Accounts payable (including accounts payable of
the consolidated VIEs without                                  
recourse to Qihoo 360 Technology Co. Ltd. of
$5,872 and $5,860 as of                            5,872        5,860
December 31, 2011 and September 30, 2012,
respectively)
 Accrued expenses and other current liabilities
(including accrued expenses and
other current liabilities of the                         
consolidated VIEs without recourse to
Qihoo 360 Technology Co. Ltd. of $9,469 and  21,287       31,937
$17,992 as of
December 31, 2011 and September 30, 2012,
respectively)
 Deferred revenue-current (including deferred
revenue-current of the consolidated                            
VIEs without recourse to Qihoo 360
Technology Co. Ltd. of $9,831 and $14,135           12,089       17,020
as of December 31, 2011 and September 30,
2012, respectively)
 Income tax payable (including income tax payable
of the consolidated VIEs without                               
 recourse to Qihoo 360 Technology Co. Ltd. of
$3,635 and $3,740 as of                            7,312        7,238
December 31, 2011 and September 30, 2012,
respectively)
Total current liabilities                           46,560       62,055
Deferred tax liabilities – noncurrent               507          464
 Other noncurrent liabilities (including other
noncurrent liabilities of the consolidated VIEs
 without recourse to Qihoo 360 Technology Co. 286          286
Ltd. of $286 and $286 as of
 December 31, 2011 and September 30, 2012,
respectively)
Deferred revenue-noncurrent (including deferred
revenue-noncurrent of the consolidated                          
 VIEs without recourse to Qihoo 360
Technology Co. Ltd. of $1,589 and$3,033 as of      5,113        5,842
 December 31, 2011 and September 30, 2012,
respectively)
TOTAL LIABILITIES                                   52,466       68,647
EQUITY
Total Qihoo 360 Technology Co. Ltd. Shareholders'   370,853      445,273
equity
Noncontrolling interest                             639          1,622
Total equity                                        371,492      446,895
TOTAL LIABILITIES AND EQUITY                        423,958      515,542



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           NineMonthsEnded NineMonthsEnded
                September June    September  September30,    September 30,
                30,       30,     30,        2011              2012
                2011      2012    2012
Revenues:
 Internet      47,289    72,751  84,028     104,792           225,931
services
 Sales of
third party     201       19      7          738               150
anti-virus
software
Total revenues  47,490    72,770  84,035     105,530           226,081
Cost of
revenues:
 Internet      5,296     6,629   7,901      11,638            22,113
services
 Sales of
third party     53        8       3          200               40
anti-virus
software
Total cost of   5,349     6,637   7,904      11,838            22,153
revenues
Subsidy income  9         135     -          143               142
Operating
expenses:
 Selling and   8,943     13,799  13,909     36,585            39,562
marketing
 General and   5,551     7,681   8,535      12,282            23,845
administrative
 Product       16,888    34,883  41,475     41,657            104,100
development^(a)
Total operating 31,382    56,363  63,919     90,524            167,507
expenses
Income from     10,768    9,905   12,212     3,311             36,563
operations
Interest        834       1,846   1,699      1,356             5,057
income, net
Other (expense) (62)      82      54         (3)               470
income
Exchange gain   2,946     (1,920) 1,102      3,575             (917)
(loss)
Impairment
loss on         -         -       (157)      -                 (157)
long-term
investment
Change on fair
value of        (218)     (68)    (44)       (157)             (58)
trading
securities
Gain on
disposal of
subsidiaries   -         1,460   1,282      -                 6,308
and long-term
investments
Income before
income tax
expense and     14,268    11,305  16,148     8,082             47,266
loss from
equity method
investments
Income tax      (3,460)   (3,400) (1,497)    (7,846)           (9,940)
expense
Loss from
equity method   (271)     (878)   (1,932)    (45)              (3,490)
investments
Net income      10,537    7,027   12,719     191               33,836
Less: Net loss
(income)
attributable to 367       (30)    212        378               158
noncontrolling
interest
Net income
attributable to                                            

 Qihoo 360     10,904    6,997   12,931     569               33,994
Technology Co.
Ltd.
Accretion of
Series A
convertible
participating   -         -       -          203               -
redeemable
preferred
shares
Accretion of
Series B
convertible
participating   -         -       -          313               -
redeemable
preferred
shares
Accretion of
Series C
convertible
participating   -         -       -          255               -
redeemable
preferred
shares
Net income
(loss)
attributable to 10,904    6,997   12,931     (202)             33,994
ordinary
shareholders
Net income
(loss) per      0.06      0.04    0.07       (0.00)            0.19
ordinary
share-basic
Net income
(loss) per      0.06      0.04    0.07       (0.00)            0.19
ordinary
share-diluted
Weighted
average shares
used in
calculating net 176       176     176        140               176
income per
ordinary
share-basic (in
millions)^(b)
Weighted
average shares
used in
calculating net
income per      181       183     183        171               183
ordinary
share-diluted
(in
millions)^(b)
(a): From Q3 2011, the Company changed the "Research and development expenses"
to "Product development expenses" in the
statements of operations. This is mainly because the business has been growing
rapidly and along with the development of new
products, the Company has devoted more resources in enhancing its existing
products, by which the Company believes using
"Product development expenses" will better reflect the nature of such expenses.



The Product development expenses include costs associated with new product
development and enhancement for existing
products, such as salaries and benefits, including share-based compensation
expenses, costs of bandwidth and utilities,
license and technical service fees, and depreciation of equipment and
amortization of acquired intangible assets.



(b): 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  Ninemonthsperiodended
                        September   September30,  September30, September30,
                        30,         2012           2011          2012
                        2011
Cash flows from
operating activities:
Net income              10,537      12,719         191           33,836
Share-based             8,645       11,299         38,763        36,629
compensation
Depreciation and        1,254       4,443          2,592         9,523
amortization
Loss on equity method   271         1,932          45            3,490
investment
Gain on disposal of
subsidiaries and        -           (1,282)        -             (6,308)
long-term investments
Impairment on long-term -           157            -             157
investment
Unrealized holding loss 218         44             157           58
on trading securities
Provision of allowance  -           201            51            282
for doubtful accounts
Changes in operating    (684)       5,297          342           1,096
assets and liabilities
Net cash provided by    20,241      34,810         42,141        78,763
operating activities
Cash flows from
investing activities:
Purchase of property
and equipment and       (5,271)     (46,085)       (10,007)      (66,614)
intangible assets
Payment for the
purchase of other       (378)       -              (1,108)       (459)
assets
Proceeds from disposal
of property and         -           1,023          -             1,023
equipment
Net cash acquired from  1,793       443            328           258
business acquisitions
Payment for trading
securities and          (8,555)     (7,304)        (9,005)       (20,887)
long-term investment
Dividends received from -           -              -             313
an investee
Cash collected from
sale of a subsidiary    -           4,202          -             9,843
and long-term
investments
Net cash used in        (12,411)    (47,721)       (19,792)      (76,523)
investing activities
Cash flows from
financing activities:
Proceeds from initial   -           -              233,021       -
public offering ("IPO")
Capital contribution
from noncontrolling     1,559       35             1,559         35
interest
Prepayment for share    -           (139)          -             (139)
repurchase
Proceeds from exercise  -           1,063          -             2,089
of stock option
Net cash provided by    1,559       959            234,580       1,985
financing activities
Effect of exchange rate 706         1,080          1,583         67
changes
INCREASE (DECREASE) IN  10,095      (10,872)       258,512       4,292
CASH
CASH, BEGINNING OF      308,922     358,895        60,505        343,731
PERIOD
CASH, END OF PERIOD     319,017     348,023        319,017       348,023



Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
             Three Months Ended September    Three Months Ended June 30,      Three Months Ended September
             30, 2011                        2012                             30, 2012
             GAAP    Adjustment(c) Non-GAAP  GAAP     Adjustment(c) Non-GAAP  GAAP    Adjustment(c) Non-GAAP
Operating    $31,382 ($8,641)      $22,741   $56,363  ($13,647)     $42,716   $63,919 ($11,299)     $52,620
expenses
Income from  $10,768 $8,645        $19,413   $9,905   $13,647       $23,552   $12,212 $11,299       $23,511
operations
Operating    22.7%                 40.9%     13.6%                  32.4%     14.5%                 28.0%
margin
Net income
attributable
to           $10,904 $8,645        $19,549   $6,997   $13,647       $20,644   $12,931 $11,299       $24,230
 Qihoo 360
Technology
Co. Ltd.
Net margin   23.0%                 41.2%     9.6%                   28.4%     15.4%                 28.8%
Diluted
earnings per $0.09                 $0.16     $0.06                  $0.17     $0.11                 $0.20
ADS
             Nine Months Ended September     Nine Months Ended September 30,
             30, 2011                        2012
             GAAP    Adjustment(c) Non-GAAP  GAAP     Adjustment(c) Non-GAAP
Operating    $90,524 ($38,754)     $51,770   $167,507 ($36,625)     $130,882
expenses
Income from  $3,311  $38,763       $42,074   $36,563  $36,629       $73,192
operations
Operating    3.1%                  39.9%     16.2%                  32.4%
margin
Net income
(loss)
attributable
to           ($202)  $38,763       $38,561   $33,994  $36,629       $70,623
 Qihoo 360
Technology
Co. Ltd.
Net margin   (0.2%)                36.5%     15.0%                  31.2%
Diluted
earnings per ($0.00)               $0.34     $0.28                  $0.58
ADS
(c): Adjustment to exclude the share-based compensation expense of each
period. 

SOURCE Qihoo 360 Technology Co. Ltd.

Website: http://corp.360.cn