Quantcast
Last updated on April 18, 2014 at 11:27 EDT

Qihoo 360 Reports Fourth Quarter and Fiscal Year 2012 Unaudited Financial Results

March 5, 2013

BEIJING, March 5, 2013 /PRNewswire/ — 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 fourth quarter and fiscal year ended December 31, 2012.

Fourth Quarter Financial Highlights[1]

  • Revenues were $103.0 million, a 65% increase from $62.3 million in the fourth quarter of 2011.
  • Net income attributable to Qihoo 360 was $12.8 million, compared to $15.0 million in the fourth quarter of 2011.
  • Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP)[1] was $26.7 million, compared to $24.3 million in the fourth quarter of 2011.
  • Diluted earnings per ADS[2] (“EPADS”) attributable to Qihoo 360 was $0.10, compared to $0.13 in the same period last year.
  • Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)[1] was $0.22, compared to $0.20 in the same period last year.

Fourth Quarter Operating Metrics

  • Total monthly active users of Qihoo 360′s products and services reached a record 456 million in December 2012, compared to 402 million in December 2011[3].
  • User penetration of Qihoo 360′s products was 96.5% in December 2012, compared to 93.8% in December 2011[3].
  • Total smartphone users of Qihoo 360′s primary mobile security product( )[4] reached approximately 207 million in December 2012, compared to 53 million in December 2011.
  • Monthly active users of Qihoo 360′s browsers reached a record 310 million in December 2012, compared to 255 million in December 2011[3].
  • User penetration of Qihoo 360′s browsers reached a record 65.6% in December 2012, compared to 59.5% in December 2011[3].
  • Average daily unique visitors to the 360 Personal Start-up Page and its sub-pages were 91 million in the fourth quarter of 2012, compared to 65 million in the fourth quarter of 2011.
  • Average daily clicks on Qihoo 360′s Personal Start-up Page and its sub-pages were approximately 450 million in the fourth quarter of 2012, compared to 235 million in the fourth quarter of 2011.
  • Paying users of Qihoo 360′s web game platform were approximately 238,000 in December 2012, compared to 109,000 in December 2011.

Fiscal Year 2012 Highlights[1]

  • Revenues were $329.0 million, an increase of 96% from $167.9 million in 2011.
  • Net income attributable to Qihoo 360 was $46.8 million, an increase of 200% from $15.6 million in 2011.
  • Net income attributable to Qihoo 360 excluding share-based compensation (“non-GAAP”)[1] was $97.4 million, an increase of 53% from $63.6 million in 2011.
  • Diluted EPADS[2] attributable to Qihoo 360 were $0.38, compared to $0.14 in 2011.
  • Diluted EPADS attributable to Qihoo 360 excluding share-based compensation (non-GAAP)[1] were $0.80 compared to $0.55 in 2011.
    [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
                  December 2012.

    [4]           Referring to 360 Mobile Safe, the
                  Company's primary mobile security
                  product.

“We are very pleased to report our eighth consecutive quarter of substantive growth. We delivered another full year of strong operating results and continued to outperform the industry, despite a challenging macro environment,” commented Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360. “We have set several new records in our financial and operating metrics, exceeding our internal expectations. Monthly active users of our PC-based products and services, which cover over 96% of the Chinese PC Internet population, increased to 456 million at the end of 2012. We have also established substantial leadership in mobile security and the number of Chinese smartphone users of 360 Mobile Safe, our key mobile security product, has reached 207 million.”

“Our company-wide focus on product development and technology innovation, attention to customer satisfaction and superior execution results continue to drive our success. A major milestone during the fourth quarter of 2012 was the launch of our search engine monetization effort through both an internal monetization system and external partnership. We believe we are well positioned to capture a significant portion of the search market and help shape the competitive landscape in China, which will have a long-lasting transformative effect on our business model,” concluded Mr. Zhou.

Mr. Xiangdong Qi, President of Qihoo 360, added, “We are thrilled to have surpassed our revenue guidance and internal profitability targets for both the fourth quarter and the full year. With 80% year-over-year growth, our online advertising business continued to gain market share in 2012, supported by a strong increase in our user activities, as well as our successful initiatives to deepen our monetization process. Our Internet value-added services also outpaced the market with revenue growth of 137% year-over-year driven by strong momentum in the number of paying web game users. In 2012, we made proactive investments in product and technology development to further our leadership position and expand our footprint, particularly in mobile Internet and search technology where we see tremendous opportunity for future expansion. We believe these investments will build on our strong foundation, support sustainable growth for our company and drive long-term shareholder value.”

Fourth Quarter 2012 Results

Revenues

Revenues were $103.0 million, representing an increase of 65% from $62.3 million in the fourth quarter of 2011 and an increase of 23% from $84.0 million in the third 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 $66.9 million, up 49% from the same period last year and 15% from the prior quarter. The healthy year-over-year and quarter-over-quarter growth was primarily driven by increased monetization of user activities among the Company’s key products, such as the 360 browsers and Personalized Start-up Pages, despite more modest macro-level growth. Growth in online advertising revenues were partially offset by the contraction of search referral revenue from third party search engines due to the launch of Qihoo 360′s proprietary search service in August 2012.

Internet value-added service revenues, which are mainly derived from web game operations, were $35.2 million, up 105% from the same period last year and 38% from the prior quarter. The strong year-over-year and quarter-over-quarter increases were mainly driven by solid growth in the Company’s paying game user base and expanded game portfolio.

Cost of Revenues

Cost of revenues were $10.6 million, compared to $7.1 million in the fourth quarter of 2011 and $7.9 million in the third quarter of 2012, representing increases of 50% and 35%, respectively.

Operating Expenses

Operating expenses were $82.6 million, compared to $40.4 million in the fourth quarter of 2011 and $63.9 million in the third quarter of 2012. Operating expenses excluding share-based compensation (non-GAAP) were $68.6 million, compared to $31.2 million in the fourth quarter of 2011 and $52.6 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 and marketing expenses, as Qihoo 360 continued to strengthen its technology and product development capabilities, and expanded its business initiatives.

Operating Income

Operating income was $12.1 million, compared to $14.8 million in the fourth quarter of 2011 and operating income of $12.2 million in the prior quarter.

Operating income excluding share-based compensation (non-GAAP) was $26.1 million, compared to $24.1 million in the fourth quarter of 2011 and $23.5 million in the prior quarter.

Operating margin was 11.8%, compared to 23.8% in the fourth quarter of 2011 and 14.5% in the prior quarter.

Operating margin excluding share-based compensation (non-GAAP) was 25.4%, compared to 38.6% in the fourth quarter of 2011 and 28.0% in the prior quarter.

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

Net Income

Net income attributable to Qihoo 360 was $12.8 million, compared to $15.0 million in the fourth quarter of 2011 and $12.9 million in the prior quarter.

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was $26.7 million, compared to $24.3 million in the fourth quarter of 2011 and $24.2 million in the prior quarter.

Net Margin

Net margin was 12.4%, compared to 24.1% in the same period last year, and 15.4% in the prior quarter.

Net margin excluding share-based compensation (non-GAAP) was 26.0%, compared to 38.9% in the same period last year and 28.8% in the prior quarter. The year-over-year and sequential decline in non-GAAP net margin was also due to increased expenses in abovementioned areas related to new business initiatives in search and mobile Internet.

Diluted Earnings per ADS

Diluted EPADS for the fourth quarter of 2012 was $0.10, and diluted EPADS for the fourth quarter of 2012 excluding share-based compensation (non-GAAP) was $0.22. Both GAAP and non-GAAP weighted average ADS used in computing diluted EPADS was 123.6 million.

Cash Flows and Balance Sheet

Net cash generated from operations in the fourth quarter of 2012 was $53.1 million, compared to $40.2 million in the same period last year and $20.7 million in the prior quarter. Cash capital expenditures were $21.4 million. As of December 31, 2012, the Company had cash and cash equivalents of $380.7 million.

Fiscal Year 2012 Results

Revenues

Revenues were $329.0 million, representing an increase of 96% from $167.9 million in 2011. The significant year-over-year increase in revenues was mainly due to continued robust growth in both online advertising and Internet value-added services.

Online advertising revenues were $221.5 million, representing an increase of 80% from $123.0 million in 2011. The strong growth was primarily driven by further market penetration of the Company’s key products, such as the 360 browsers and the 360 Personalized Start-up Pages, increased user activity, as well as increased monetization efforts, despite the relatively challenging macro environment.

Internet value-added service revenues, which are mainly derived from web game operations, were $103.3 million, representing an increase of 137% from $43.6 million in 2011. The strong growth was mainly driven by continued expansion of the Company’s game platform and solid growth of game paying user base.

Cost of Revenues

Cost of revenues was $32.8 million, compared with $18.9 million in 2011, representing an increase of 73%.

Operating Expenses

Operating expenses were $250.1 million, compared with $130.9 million in 2011. Operating expenses excluding share-based compensation (non-GAAP) were $199.5 million, compared with $83.0 million in 2011.

Operating Income

Operating income was $48.7 million, compared with $18.1 million in 2011.

Operating income excluding share-based compensation (non-GAAP) was $99.3 million, representing an increase of 50% from $66.1 million in 2011.

Operating margin was 14.8%, compared with 10.8% in 2011.

Operating margin excluding share-based compensation (non-GAAP) was 30.2%, compared with 39.4% in 2011. The year-over-year decline in non-GAAP operating margin was primarily due to increased expenses related to new business initiatives in search and mobile Internet.

Net Income

Net income attributable to Qihoo 360 was $46.8 million, compared with $15.6 million in 2011.

Net income attributable to Qihoo 360 excluding share-based compensation (non-GAAP) was $97.4 million, representing an increase of 53% from $63.6 million in 2011.

Net Margin

Net margin was 14.2%, compared with 9.3% in 2011.

Net margin excluding share-based compensation (non-GAAP) was 29.6%, compared with 37.9% in 2011. The year-over-year decline in non-GAAP net margin was also due to increased expenses related to new business initiatives in search and mobile Internet.

Diluted Earnings per ADS

Diluted EPADS were $0.38, and diluted EPADS excluding share-based compensation (non-GAAP) were $0.80, compared to $0.55 in 2011. Weighted average ADS used in computing diluted EPADS in 2012 was 122.4 million.

Cash Flows and Balance Sheet

Net cash flow generated from operations in 2012 was $117.8 million, compared to $82.3 million in 2011. Cash capital expenditures were $73.9 million. As of December 31, 2012, the Company had cash and cash equivalents of $380.7 million, compared with $343.7 million as of December 31, 2011.

Business Outlook

For the first quarter of 2013, the Company expects revenues to be between $104.5 million and $106.5 million, representing a year-over-year increase of 50.8% – 53.7% and quarter-over-quarter increase of 1.5% – 3.4%. 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 7:30 p.m. Eastern Time on March 5, 2013 (8:30 a.m. Beijing time on March 6, 2013).

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 10:30 p.m. Eastern Time on March 5, 2013 through 08:30 a.m. Eastern Time on March 13, 2013. The dial-in details for the replay are:

    International Dial In:          +1 855-452-5696

    US Dial In:                     +1 646-254-3697

    Passcode:                                         14036100

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,         December 31,
                                                                                                                                                                        2011                 2012
                                                                                                                                                                        ----                 ----

    ASSETS

    Current assets:

      Cash and cash equivalents                                                                                                                                      343,731              380,664

      Restricted Cash                                                                                                                                                      -                1,905

      Trading securities                                                                                                                                                 231                  179

         Accounts receivable (net of allowance for doubtful accounts of $68 and                                                                                       16,741               23,591
                                                                                      $213 as of December 31, 2011 and December 31, 2012, respectively)

      Prepaid expenses and other current assets                                                                                                                       12,808               26,802

      Deferred tax assets - current                                                                                                                                      858                2,131

    Total current assets                                                                                                                                             374,369              435,272
                                                                                                                                                                     -------              -------

    Property and equipment, net                                                                                                                                       16,665              126,035

    Land use rights, net                                                                                                                                                   -               73,645

    Acquired intangible assets, net                                                                                                                                    7,854               12,310

    Goodwill                                                                                                                                                           4,580                4,628

    Long-term investments                                                                                                                                             15,561               27,559

    Other noncurrent assets                                                                                                                                            4,415                9,335

    Deferred tax assets - noncurrent                                                                                                                                     514                  745
                                                                                                                                                                         ---                  ---

    TOTAL ASSETS                                                                                                                                                     423,958              689,529
                                                                                                                                                                     =======              =======

    LIABILITIES

    Current liabilities:

      Accounts payable (including accounts payable of the consolidated

    VIEs without recourse to Qihoo 360 Technology Co. Ltd. of

                                                                                       $5,872 and $7,109 as of December 31, 2011 and December 31, 2012,                5,872                7,109
            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 $41,636 as of December 31, 2011 and December 31, 2012,               21,287              168,694
            respectively)

      Deferred revenue-current (including deferred revenue-current of the

            consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd.                                                                                       12,089               21,049
            of $9,831 and $17,520 as of December 31, 2011 and December 31,
            2012, respectively)

         Income tax payable (including income tax payable of the consolidated                                                                                          7,312                6,862
            VIEs without recourse to Qihoo 360 Technology Co. Ltd. of $3,635
            and $2,710 as of December 31, 2011 and December 31, 2012,
            respectively)

    Total current liabilities                                                                                                                                         46,560              203,714

    Deferred tax liabilities - noncurrent                                                                                                                                507                  790

       Other noncurrent liabilities (including other noncurrent liabilities of the                                                                                       286                    -
          consolidated VIEs without recourse to Qihoo 360 Technology Co. Ltd.
          of  $286 and $nil as of December 31, 2011 and December 31, 2012,
          respectively)

        Deferred revenue-noncurrent (including deferred revenue-noncurrent of                                                                                          5,113                6,762
           the consolidated VIEs without recourse to Qihoo 360 Technology Co.
           Ltd. of $1,589 and $3,242 as of December 31, 2011 and December 31
           2012, respectively)

    TOTAL LIABILITIES                                                                                                                                                 52,466              211,266
                                                                                                                                                                      ======              =======

    EQUITY

    Total Qihoo 360 Technology Co. Ltd. Shareholders' equity                                                                                                         370,853              478,096
                                                                                                                                                                     -------              -------

    Noncontrolling interest                                                                                                                                              639                  167

    Total equity                                                                                                                                                     371,492              478,263
                                                                                                                                                                     -------              -------

    TOTAL LIABILITIES AND EQUITY                                                                                                                                     423,958              689,529
                                                                                                                                                                     =======              =======

                                                                                                               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                                   Twelve Months  Twelve Months
                                                                                                                                                                                            Ended          Ended
                                                                                                                                                                                          -----        -----

                                                                                                                                    December 31,                September 30,         December 31,         December 31,   December 31,
                                                                                                                                                          2011                  2012           2012                 2011                  2012
                                                                                                                                                          ----                  ----           ----                 ----                  ----

    Revenues:

      Internet services                                                                                                                                 62,169                84,028        102,951              166,961               328,882

      Sales of third party anti-virus software                                                                                                             152                     7              -                  890                   150

    Total revenues                                                                                                                                      62,321                84,035        102,951              167,851               329,032
                                                                                                                                                        ------                ------        -------              -------               -------

    Cost of revenues:

      Internet services                                                                                                                                  7,042                 7,901         10,649               18,680                32,762

      Sales of third party anti-virus software                                                                                                              38                     3              -                  238                    40

    Total cost of revenues                                                                                                                               7,080                 7,904         10,649               18,918                32,802
                                                                                                                                                         -----                 -----         ------               ------                ------

    Subsidy income                                                                                                                                           8                     -          2,428                  151                 2,570

    Operating expenses:

      Selling and marketing                                                                                                                             10,251                13,909         18,616               46,836                58,178

      General and administrative                                                                                                                         6,772                 8,535         10,450               19,054                34,295

      Product development(a)                                                                                                                            23,392                41,475         52,169               65,049               156,269

    Impairment loss on intangible assets                                                                                                                     -                     -          1,348                    -                 1,348

    Total operating expenses                                                                                                                            40,415                63,919         82,583              130,939               250,090
                                                                                                                                                        ------                ------         ------              -------               -------

    Income from operations                                                                                                                              14,834                12,212         12,147               18,145                48,710
                                                                                                                                                        ------                ------         ------               ------                ------

    Interest income, net                                                                                                                                 1,185                 1,699          1,658                2,541                 6,715

    Other  income (expense)                                                                                                                                  -                    54            773                   (3)                1,243

    Exchange gain                                                                                                                                        2,719                 1,102            966                6,294                    49

    Impairment  loss on long-term investment                                                                                                              (902)                 (157)        (2,145)                (902)               (2,302)

    Change on fair value of trading securities                                                                                                             (63)                  (44)             6                 (220)                  (52)

    Gain on disposal of  subsidiaries and                                                                                                                    -                 1,282          2,024                    -                 8,332
       long-term investments

    Income before income tax expense and                                                                                                                17,773                16,148         15,429               25,855                62,695
       loss from equity method investments

    Income tax expense                                                                                                                                  (3,028)               (1,497)        (1,439)             (10,874)              (11,379)

    Loss from equity method investments                                                                                                                   (392)               (1,932)        (1,355)                (437)               (4,845)

    Net income                                                                                                                                          14,353                12,719         12,635               14,544                46,471
                                                                                                                                                        ------                ------         ------               ------                ------

    Less: Net loss attributable to noncontrolling interest                                                                                                 681                   212            117                1,059                   275

    Net income attributable to

      Qihoo 360 Technology Co. Ltd.                                                                                                                     15,034                12,931         12,752               15,603                46,746
                                                                                                                                                        ======                ======         ======               ======                ======

    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 attributable to ordinary shareholders                                                                                                    15,034                12,931         12,752               14,832                46,746
                                                                                                                                                        ======                ======         ======               ======                ======

    Net income   per ordinary share-basic                                                                                                                 0.09                  0.07           0.07                 0.10                  0.26

    Net income  per ordinary share-diluted                                                                                                                0.08                  0.07           0.07                 0.09                  0.25
                                                                                                                                                          ====                  ====           ====                 ====                  ====

    Weighted average shares used in calculating                                                                                                            176                   176            177                  149                   176
       net income per ordinary share- basic (in millions)(b)

    Weighted average shares used in calculating                                                                                                            180                   183            185                  173                   184
       net income per 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)

                                                                                                                                                   Twelve months period ended

                                                                                           Three-months period ended

                                                                                                 December 31,                December 31,                                     December 31,          December 31,
                                                                                                                       2011                  2012                                             2011                  2012

    Cash flows from operating activities:

    Net income                                                                                                       14,353                12,635                                           14,544                46,471

    Share-based compensation                                                                                          9,226                13,976                                           47,989                50,605

    Depreciation and amortization                                                                                     1,635                 7,074                                            4,227                16,597

    Gain on disposal of fixed assets                                                                                      -                  (838)                                               -                  (838)

    Loss on equity method investment                                                                                    392                 1,354                                              437                 4,844

    Gain on disposal of subsidiaries and long-term investments                                                            -                (2,024)                                               -                (8,332)

    Loss from impairment of intangible assets                                                                            87                 1,348                                               87                 1,348

    Impairment on long-term investment                                                                                  902                 2,145                                              902                 2,302

    Unrealized holding loss (gain) on trading securities                                                                 63                    (6)                                             220                    52

    Provision of allowance for doubtful accounts                                                                          -                   172                                               51                   454

    Changes in operating assets and liabilities                                                                      13,504                17,291                                           13,846                 4,285
    -------------------------------------------                                                                      ------                ------                                           ------                 -----

    Net cash provided by operating activities                                                                        40,162                53,127                                           82,303               117,788
    =========================================                                                                        ======                ======                                           ======               =======

    Cash flows from investing activities:

    Purchase of property and equipment and intangible assets                                                         (7,770)              (21,357)                                         (17,777)              (73,869)

    Payment for the purchase of other assets                                                                           (463)                    -                                           (1,571)                 (459)

    Consideration paid in connection with business acquisition                                                         (815)                    -                                             (487)                  258

    Payment for investment                                                                                           (5,971)               (3,354)                                         (14,976)              (24,241)

    Cash collected from sale of a subsidiary                                                                              -                 4,004                                                -                13,847

    Proceeds from disposal of property and equipment and intangible assets                                                -                 1,103                                                -                 2,126

    Increase in restricted cash                                                                                           -                (1,902)                                               -                (1,902)

    Dividends received by company                                                                                         -                     -                                                -                   313

    Net cash used in investing activities                                                                           (15,019)              (21,506)                                         (34,811)              (83,927)
    =====================================                                                                           =======               =======                                          =======               =======

    Cash flows from financing activities:

    Proceeds from initial public offering ("IPO")                                                                         -                     -                                          234,312                     -

    Capital contribution from noncontrolling interest                                                                     -                     1                                            1,559                    36

    Payment for IPO cost                                                                                             (1,320)                    -                                           (2,611)                    -

    Prepayment for share repurchase                                                                                       -                     -                                                -                  (139)

    Proceeds from exercise of stock option                                                                               20                     -                                               20                 2,089
    --------------------------------------                                                                              ---                   ---                                              ---                 -----

    Net cash (used in)/provided by financing activities                                                              (1,300)                    1                                          233,280                 1,986
    ===================================================                                                              ======                   ===                                          =======                 =====

    Effect of exchange rate changes                                                                                     871                 1,019                                            2,454                 1,086

    INCREASE  IN CASH                                                                                                24,714                32,641                                          283,226                36,933

    CASH, BEGINNING OF PERIOD                                                                                       319,017               348,023                                           60,505               343,731

    CASH, END OF PERIOD                                                                                             343,731               380,664                                          343,731               380,664


                                                                                                                                                   Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

                                                                          Three Months Ended December 31, 2011                           Three Months Ended September 30,               Three Months Ended December 31,
                                                                                                                                                        2012                                          2012
                                                                          ------------------------------------                          ---------------------------------              --------------------------------

                                                                                          GAAP                  Adjustment(c)                        Non-GAAP                                        GAAP                     Adjustment(c)           Non-GAAP           GAAP          Adjustment(c)           Non-GAAP

    Operating expenses                                                                                 $40,415                 ($9,219)                           $31,196                                       $63,919                     ($11,299)           $52,620       $82,583                ($13,976)          $68,607

    Income from operations                                                                             $14,834                  $9,226                            $24,060                                       $12,212                      $11,299            $23,511       $12,147                 $13,976           $26,123

    Operating margin                                                                                      23.8%                                                      38.6%                                         14.5%                                           28.0%         11.8%                                     25.4%

    Net income attributable                                                                            $15,034                  $9,226                            $24,260                                       $12,931                      $11,299            $24,230       $12,752                 $13,976           $26,728
       to Qihoo 360 Technology
       Co. Ltd.

    Net margin                                                                                            24.1%                                                      38.9%                                         15.4%                                           28.8%         12.4%                                     26.0%

    Diluted earnings per ADS                                                                             $0.13                                                      $0.20                                         $0.11                                           $0.20         $0.10                                     $0.22

                                                                             Twelve Months Ended December 31,                            Twelve Months Ended December 31,
                                                                                           2011                                                         2012
                                                                            ---------------------------------                           ---------------------------------

                                                                                          GAAP                  Adjustment(c)                        Non-GAAP                                        GAAP                     Adjustment(c)           Non-GAAP

    Operating expenses                                                                                $130,939                ($47,973)                           $82,966                                      $250,090                     ($50,601)          $199,489

    Income from operations                                                                             $18,145                 $47,989                            $66,134                                       $48,710                      $50,605            $99,315

    Operating margin                                                                                      10.8%                                                      39.4%                                         14.8%                                           30.2%

    Net income attributable to                                                                         $15,603                 $47,989                            $63,592                                       $46,746                      $50,605            $97,351
       Qihoo 360 Technology Co.
       Ltd.

    Net margin                                                                                             9.3%                                                      37.9%                                         14.2%                                           29.6%

    Diluted earnings per ADS                                                                             $0.14                                                      $0.55                                         $0.38                                           $0.80

    (c): Adjustment to exclude the share-based compensation expense of each period.

SOURCE Qihoo 360 Technology Co. Ltd.


Source: PR Newswire