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DUBAI, UAE, Nov. 21, 2023 /PRNewswire/ -- Yalla Group Limited ("Yalla" or the "Company") (NYSE: YALA), the largest Middle East and North Africa (MENA)-based online social networking and gaming company, today announced its unaudited financial results for the third quarter ended September 30, 2023. Third Quarter 2023 Financial and Operating Highlights Revenues were US$85.2 million in the third quarter of 2023, representing an increase of 6.4% from the third quarter of 2022. Revenues generated from chatting services in the third quarter of 2023 were US$53.9 million. Revenues generated from games services in the third quarter of 2023 were US$31.2 million. Net income was US$35.2 million in the third quarter of 2023, a 44.3% increase from US$24.4 million in the third quarter of 2022. Net margin[1] was 41.4% in the third quarter of 2023. Non-GAAP net income[2] was US$38.3 million in the third quarter of 2023, a 30.3% increase from US$29.4 million in the third quarter of 2022. Non-GAAP net margin[3] was 44.9% in the third quarter of 2023. Average MAUs[4] increased by 13.6% to 35.1 million in the third quarter of 2023 from 30.9 million in the third quarter of 2022. The number of paying users[5] on our platform decreased by 2.6% to 11.2 million in the third quarter of 2023 from 11.5 million in the third quarter of 2022 due to a near-term game mechanism adjustment. Key Operating Data For the three months ended September 30, 2022 September 30, 2023 Average MAUs (in thousands) 30,896 35,096 Paying users (in thousands) 11,541 11,236 [1] Net margin is net income as a percentage of revenues. [2] Non-GAAP net income represents net income excluding share-based compensation. Non-GAAP net income is a non-GAAP financial measure. See the sections entitled "Non-GAAP Financial Measures" and "Reconciliations of GAAP and Non-GAAP Results" for more information about the non-GAAP measures referred to in this press release. [3] Non-GAAP net margin is non-GAAP net income as a percentage of revenues. [4] "Average MAUs" refers to the average monthly active users in a given period calculated by dividing (i) the sum of active users for each month of such period, by (ii) the number of months in such period. "Active users" refers to registered users who accessed any of our main mobile applications at least once during a given period. Yalla, Yalla Ludo and Yalla Parchis have been our main mobile applications for the periods presented herein; YallaChat and 101 Okey Yalla have been our main mobile applications since the fourth quarter of 2022; WeMuslim has been our main mobile application since the second quarter of 2023; and Ludo Royal has been our main mobile application since the third quarter of 2023. [5] "Paying users" refers to registered users who played a game or purchased our virtual items or upgrade services using virtual currencies on our main mobile applications at least once in a given period, except for users who received all of their virtual currencies directly or indirectly from us for free; YallaChat and WeMuslim do not involve the usage of virtual currencies, and the metrics of "paying users" and "ARPPU" do not reflect user activities on YallaChat and WeMuslim. "Registered users" refers to users who have registered accounts on our main mobile applications as of a given time; a registered user is not necessarily a unique user, as an individual may register multiple accounts on our main mobile applications. "We were pleased to achieve strong results in the third quarter of 2023," said Mr. Yang Tao, Founder, Chairman and CEO of Yalla. "We recorded all-time high revenues of US$85.2 million in the third quarter of 2023, beating the upper end of our guidance, while year-over-year revenue growth from games services exceeded 30% once again. Notably, our net income increased by 44.3% year over year to US$35.2 million during the quarter. Our robust quarterly results demonstrate our operational success in refining processes, enhancing the gamification of our flagship applications, improving our gaming mechanics and optimizing user acquisition. These efforts have empowered us to build a more engaged community of users, reflected by a 13.6% year-over-year increase in our group's average MAUs to 35.1 million. Our high-value users also exhibited a great willingness to spend on enhanced gamification features, driving the ARPPU[6] up to US$7.35 in the third quarter of 2023, compared with US$6.89 in the third quarter of 2022. "Thanks to our consistent game iterations and engagement of our existing Yalla user community, our two hard-core games have gained traction in the MENA region. We see immense room for growth in this sector and as such, we are determined to gradually increase our investment in the mid-core and hard-core game business, unleashing our growth potential in this flourishing market," Mr. Yang added. "Moving forward, we remain confident in the growth opportunities presented by MENA's increasingly pivotal role on the global stage and the region's rapid digital transformation. As the largest MENA-based online social networking and gaming company, we are dedicated to building relationships locally and globally to broaden our business horizons and fulfill local users' evolving online social networking and entertainment needs." Ms. Karen Hu, CFO of Yalla, commented, "We delivered a robust third quarter performance, highlighted by our record-high revenues and impressive net margin enhancement. Our relentless efforts to streamline costs as well as our enhanced, ROI-focused marketing strategy continued to yield positive outcomes, enabling us to elevate our overall efficiency. As a result, we improved our net margin to 41.4% and non-GAAP net margin to 44.9% in the third quarter of 2023. As we head into the fourth quarter, we will continue to execute our high-quality growth strategy with focus on efficiency and profitability enhancement. We believe our solid fundamentals and strong cash position will support us well to capture future opportunities as we strive to create sustainable value for our shareholders in the long run." Third Quarter 2023 Financial Results Revenues Our revenues were US$85.2 million in the third quarter of 2023, a 6.4% increase from US$80.1 million in the third quarter of 2022. The increase was primarily driven by the broadening of our user base and our enhanced monetization capability. Our average MAUs increased by 13.6% from 30.9 million in the third quarter of 2022 to 35.1 million in the third quarter of 2023. Our solid revenue growth was also partially attributable to the significant increase in ARPPU, which grew from US$6.89 in the third quarter of 2022 to US$7.35 in the third quarter of 2023. In the third quarter of 2023, our revenues generated from chatting services were US$53.9 million, and revenues from games services were US$31.2 million. Costs and expenses Our total costs and expenses were US$52.8 million in the third quarter of 2023, a 5.0% decrease from US$55.6 million in the third quarter of 2022. Our cost of revenues was US$27.8 million in the third quarter of 2023, a 6.1% decrease from US$29.6 million in the same period last year, primarily due to lower technical service fees resulting from more disciplined management. Cost of revenues as a percentage of our total revenues decreased to 32.6% in the third quarter of 2023, compared with 36.9% in the third quarter of 2022. Our selling and marketing expenses were US$11.3 million in the third quarter of 2023, a 5.5% decrease from US$12.0 million in the same period last year, primarily driven by lower share-based compensation expenses recognized in the third quarter of 2023. Selling and marketing expenses as a percentage of our total revenues decreased from 14.9% in the third quarter of 2022 to 13.3% in the third quarter of 2023. Our general and administrative expenses were US$7.3 million in the third quarter of 2023, a 14.5% decrease from US$8.6 million in the same period last year, primarily driven by lower share-based compensation expenses recognized in the third quarter of 2023. General and administrative expenses as a percentage of our total revenues decreased from 10.7% in the third quarter of 2022 to 8.6% in the third quarter of 2023. Our technology and product development expenses were US$6.4 million in the third quarter of 2023, a 16.6% increase from US$5.5 million in the same period last year, primarily due to an increase in salaries and benefits for our technology and product development staff to support the development of new businesses and expansion of our product portfolio. Technology and product development expenses as a percentage of our total revenues increased from 6.9% in the third quarter of 2022 to 7.5% in the third quarter of 2023. Operating income Operating income was US$32.4 million in the third quarter of 2023, a 32.3% increase from US$24.5 million in the third quarter of 2022. Non-GAAP operating income[7] Non-GAAP operating income in the third quarter of 2023 was US$35.4 million, a 20.4% increase from US$29.5 million in the same period last year. Interest income Our interest income was US$5.6 million in the third quarter of 2023, compared with US$0.8 million in the third quarter of 2022, primarily due to a significant increase in interest rates applicable to the Company's bank deposits and a continued increase in the Company's cash position. Income tax expense Our income tax expense was US$0.71 million in the third quarter of 2023, a 10.2% decrease from US$0.79 million in the third quarter of 2022. Net income As a result of the foregoing, our net income was US$35.2 million in the third quarter of 2023, a 44.3% increase from US$24.4 million in the third quarter of 2022. Non-GAAP net income Non-GAAP net income in the third quarter of 2023 was US$38.3 million, a 30.3% increase from US$29.4 million in the same period last year. Earnings per ordinary share Basic and diluted earnings per ordinary share were US$0.23 and US$0.20, respectively, in the third quarter of 2023, while basic and diluted earnings per ordinary share were US$0.16 and US$0.14, respectively, in the same period of 2022. Non-GAAP earnings per ordinary share[8] Non-GAAP basic and diluted earnings per ordinary share were US$0.24 and US$0.21, respectively, in the third quarter of 2023, compared with US$0.19 and US$0.17, respectively, in the same period of 2022. Cash and cash equivalents, restricted cash, term deposits and short-term investments As of September 30, 2023, we had cash and cash equivalents, restricted cash, term deposits and short-term investments of US$545.1 million, compared with US$453.0 million as of December 31, 2022. [6] "ARPPU" refers to average revenues per paying user in a given period, which is calculated by dividing (i) revenues for such period, by (ii) the number of paying users for such period. When calculating the ARPPU, we include revenues generated from Yalla, Yalla Ludo, Yalla Parchis, 101 Okey Yalla (since the fourth quarter of 2022) and Ludo Royal (since the third quarter of 2023) in a given period. [7] Non-GAAP operating income represents operating income excluding share-based compensation. Non-GAAP operating income is a non-GAAP financial measure. See the sections entitled "Non-GAAP Financial Measures" and "Reconciliations of GAAP and Non-GAAP Results" for more information about the non-GAAP measures referred to in this press release. [8] Non-GAAP earnings per ordinary share is non-GAAP net income attributable to Yalla Group Limited's shareholders, divided by weighted average number of basic and diluted shares outstanding. Non-GAAP net income attributable to Yalla Group Limited's shareholders represents net income attributable to Yalla Group Limited's shareholders, excluding share-based compensation. Non-GAAP earnings per ordinary share and non-GAAP net income attributable to Yalla Group Limited's shareholders are non-GAAP financial measures. See the sections entitled "Non-GAAP Financial Measures" and "Reconciliations of GAAP and Non-GAAP Results" for more information about the non-GAAP measures referred to in this press release. Share repurchase program Pursuant to the Company's share repurchase program beginning on May 21, 2021, with an extended expiration date of May 21, 2024, in the third quarter of 2023, the Company repurchased 1,670,735 American depositary shares ("ADSs") representing 1,670,735 Class A ordinary shares from the open market with cash for an aggregate amount of approximately US$8.5 million. Cumulatively, the Company completed cash repurchases in the open market of 3,972,876 ADSs, representing 3,972,876 Class A ordinary shares, for an aggregate amount of approximately US$35.5 million, as of September 30, 2023. The aggregate value of ADSs and/or Class A ordinary shares that remain available for purchase under the current share repurchase program was US$114.5 million as of September 30, 2023. Outlook For the fourth quarter of 2023, Yalla currently expects revenues to be between US$73.0 million and US$80.0 million. The above outlook is based on current market conditions and reflects the Company management's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change. Conference Call The Company's management will host an earnings conference call on Monday, November 20, 2023, at 8:00 PM U.S. Eastern Time, Tuesday, November 21, 2023, at 5:00 AM Dubai Time, or Tuesday, November 21, 2023, at 9:00 AM Beijing/Hong Kong time. Dial-in details for the earnings conference call are as follows: United States Toll Free: +1-888-317-6003 International: +1-412-317-6061 United Arab Emirates Toll Free: 80-003-570-3589 Mainland China Toll Free: 400-120-6115 Hong Kong Toll Free: 800-963-976 Access Code: 9043914 Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at https://ir.yalla.com. A replay of the conference call will be accessible until November 27, 2023, by dialing the following telephone numbers: United States Toll Free: +1-877-344-7529 International: +1-412-317-0088 Access Code: 5229914 Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States, or GAAP, this press release presents non-GAAP financial measures, namely non-GAAP operating income, non-GAAP net income, non-GAAP net margin and non-GAAP basic and diluted earnings per ordinary share, as supplemental measures to review and assess the Company's operating performance. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We define non-GAAP operating income as operating income excluding share-based compensation. We define non-GAAP net income as net income excluding share-based compensation. We define non-GAAP net margin as non-GAAP net income as a percentage of revenues. We define non-GAAP net income attributable to Yalla Group Limited's shareholders as net income attributable to Yalla Group Limited's shareholders, excluding share-based compensation. We define non-GAAP earnings per ordinary share as non-GAAP net income attributable to Yalla Group Limited's shareholders, divided by the weighted average number of basic and diluted shares outstanding. By excluding the impact of share-based compensation expenses, which are non-cash charges, the Company believes that the non-GAAP financial measures help identify underlying trends in its business and enhance the overall understanding of the Company's past performance and future prospects. Investors can better understand the Company's operating and financial performance, compare business trends among different reporting periods on a consistent basis and assess its core operating results, as they exclude share-based compensation expenses, which are not expected to result in cash payments. The Company also believes that the non-GAAP financial measures allow for greater visibility with respect to key metrics used by the Company's management in its financial and operational decision-making. The non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. The non-GAAP financial measure has limitations as analytical tools. One of the key limitations of using the non-GAAP financial measures is that they do not reflect all items of income and expense that affect the Company's operations. Share-based compensation has been and may continue to be incurred in the Company's business and is not reflected in the presentation of non-GAAP financial measures. Further, the non-GAAP financial measure may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. The Company compensates for these limitations by providing the relevant disclosure of its non-GAAP financial measures in the reconciliations to the nearest U.S. GAAP performance measures, all of which should be considered when evaluating its performance. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure. Reconciliations of GAAP and non-GAAP results are set forth at the end of this press release. About Yalla Group Limited Yalla Group Limited is the largest MENA-based online social networking and gaming company, in terms of revenue in 2022. The Company operates two flagship mobile applications, Yalla, a voice-centric group chat platform, and Yalla Ludo, a casual gaming application featuring online versions of board games, popular in MENA, with in-game voice chat and localized Majlis functionality. Building on the success of Yalla and Yalla Ludo, the Company continues to add engaging new content, creating a regionally-focused, integrated ecosystem dedicated to fulfilling MENA users' evolving online social networking and gaming needs. Through its holding subsidiary, Yalla Game Limited, the Company has expanded its capabilities in mid-core and hard-core games in the MENA region, leveraging its local expertise to bring innovative gaming content to its users. In addition, the growing Yalla ecosystem includes YallaChat, an IM product tailored for Arabic users and casual games such as Yalla Baloot and 101 Okey Yalla, developed to sustain vibrant local gaming communities in MENA. Yalla is also actively exploring outside of MENA with Yalla Parchis, a Ludo game designed for the South American markets. Yalla's mobile applications deliver a seamless experience that fosters a sense of loyalty and belonging, establishing highly devoted and engaged user communities through close attention to detail and localized appeal that profoundly resonates with users. For more information, please visit: https://ir.yalla.com. Safe Harbor Statement This press release contains statements that may constitute "forward-looking" statements pursuant to the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "aims," "future," "intends," "plans," "believes," "estimates," "likely to" and similar statements. Statements that are not historical facts, including statements about Yalla Group Limited's beliefs, plans and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in Yalla Group Limited's filings with the SEC. All information provided in this press release is as of the date of this press release, and Yalla Group Limited does not undertake any obligation to update any forward-looking statement, except as required under applicable law. For investor and media inquiries, please contact: Yalla Group LimitedInvestor RelationsKerry Gao - IR DirectorTel: +86-571-8980-7962Email: ir@yalla.com Piacente Financial CommunicationsJenny CaiTel: +86-10-6508-0677Email: yalla@tpg-ir.com In the United States: Piacente Financial CommunicationsBrandi PiacenteTel: +1-212-481-2050Email: yalla@tpg-ir.com YALLA GROUP LIMITED UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS As of December 31, 2022 September 30,2023 US$ US$ ASSETS Current assets Cash and cash equivalents 407,256,837 267,454,622 Restricted cash — 417,839 Term deposits 20,000,000 236,761,209 Short-term investments 25,788,304 40,476,760 Amounts due from a related party — 111,665 Prepayments and other current assets 28,652,840 33,453,298 Total current assets 481,697,981 578,675,393 Non-current assets Property and equipment, net 2,121,613 1,952,303 Intangible asset, net 1,328,470 1,198,768 Operating lease right-of-use assets 1,950,364 2,993,403 Long-term investments 3,833,750 1,328,491 Other assets 15,406,078 15,080,531 Total non-current assets 24,640,275 22,553,496 Total assets 506,338,256 601,228,889 LIABILITIES Current liabilities Accounts payable 5,382,276 1,147,827 Deferred revenue 35,957,485 44,468,280 Operating lease liabilities, current 858,452 1,286,661 Accrued expenses and other current liabilities 22,821,168 24,017,537 Total current liabilities 65,019,381 70,920,305 Non-current liabilities Operating lease liabilities, non-current 744,612 1,118,285 Amounts due to a related party 709,789 616,904 Total non-current liabilities 1,454,401 1,735,189 Total liabilities 66,473,782 72,655,494 EQUITY Shareholders' equity of Yalla Group Limited Class A Ordinary Shares 13,356 13,726 Class B Ordinary Shares 2,473 2,473 Additional paid-in capital 294,406,395 309,383,994 Treasury stock (27,014,697) (35,527,305) Accumulated other comprehensive loss (1,701,111) (2,862,193) Retained earnings 174,880,748 261,038,063 Total shareholders' equity of Yalla Group Limited 440,587,164 532,048,758 Non-controlling interests (722,690) (3,475,363) Total equity 439,864,474 528,573,395 Total liabilities and equity 506,338,256 601,228,889 YALLA GROUP LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30,2022 June 30,2023 September 30,2023 September 30,2022 September 30,2023 US$ US$ US$ US$ US$ Revenues 80,061,650 79,246,363 85,187,360 228,489,731 237,952,336 Costs and expenses Cost of revenues (29,568,306) (28,330,815) (27,772,226) (86,368,643) (83,955,518) Selling and marketing expenses (11,951,117) (12,378,490) (11,292,732) (35,685,652) (35,026,197) General and administrative expenses (8,567,865) (8,018,573) (7,325,451) (23,541,724) (25,508,418) Technology and product development expenses (5,487,884) (6,586,078) (6,396,426) (19,199,167) (20,393,692) Total costs and expenses (55,575,172) (55,313,956) (52,786,835) (164,795,186) (164,883,825) Operating income 24,486,478 23,932,407 32,400,525 63,694,545 73,068,511 Interest income 777,581 4,623,275 5,612,861 1,005,132 13,354,425 Government grants 51,483 4,560 228 212,015 182,447 Investment (loss) income (104,944) 529,308 435,545 (255,715) 1,456,742 Impairment loss of investments — — (2,509,480) — (2,509,480) Income before income taxes 25,210,598 29,089,550 35,939,679 64,655,977 85,552,645 Income tax expense (788,985) (821,149) (708,673) (2,182,641) (2,146,180) Net income 24,421,613 28,268,401 35,231,006 62,473,336 83,406,465 Net loss attributable to non-controlling interests 206,347 1,202,160 994,099 520,944 2,750,850 Net income attributable to Yalla Group Limited's shareholders 24,627,960 29,470,561 36,225,105 62,994,280 86,157,315 Earnings per ordinary share ——Basic 0.16 0.19 0.23 0.41 0.54 ——Diluted 0.14 0.16 0.20 0.36 0.47 Weighted average number of shares outstanding used in computing earnings per ordinary share ——Basic 155,190,724 158,871,859 160,554,831 152,244,358 159,134,347 ——Diluted 177,347,900 180,752,549 183,111,650 176,347,667 181,460,639 Share-based compensation was allocated in cost of revenues, selling and marketing expenses, general and administrative expenses and technology and product development expenses as follows: Three Months Ended Nine Months Ended September 30,2022 June 30,2023 September 30,2023 September 30,2022 September 30,2023 US$ US$ US$ US$ US$ Cost of revenues 1,065,549 923,513 627,760 3,914,210 2,581,522 Selling and marketing expenses 1,059,009 1,014,371 532,001 4,755,921 2,517,707 General and administrative expenses 2,462,675 3,242,981 1,633,262 11,788,894 8,121,521 Technology and product development expenses 379,994 315,173 255,677 1,048,923 920,127 Total share-based compensation expenses 4,967,227 5,496,038 3,048,700 21,507,948 14,140,877 YALLA GROUP LIMITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS Three Months Ended Nine Months Ended September 30,2022 June 30,2023 September 30,2023 September 30,2022 September 30,2023 US$ US$ US$ US$ US$ Operating income 24,486,478 23,932,407 32,400,525 63,694,545 73,068,511 Share-based compensation expenses 4,967,227 5,496,038 3,048,700 21,507,948 14,140,877 Non-GAAP operating income 29,453,705 29,428,445 35,449,225 85,202,493 87,209,388 Net income 24,421,613 28,268,401 35,231,006 62,473,336 83,406,465 Share-based compensation expenses, net of tax effect of nil 4,967,227 5,496,038 3,048,700 21,507,948 14,140,877 Non-GAAP net income 29,388,840 33,764,439 38,279,706 83,981,284 97,547,342 Net income attributable to Yalla Group Limited's shareholders 24,627,960 29,470,561 36,225,105 62,994,280 86,157,315 Share-based compensation expenses, net of tax effect of nil 4,967,227 5,496,038 3,048,700 21,507,948 14,140,877 Non-GAAP net income attributable to Yalla Group Limited's shareholders 29,595,187 34,966,599 39,273,805 84,502,228 100,298,192 Non-GAAP earnings per ordinary share ——Basic 0.19 0.22 0.24 0.56 0.63 ——Diluted 0.17 0.19 0.21 0.48 0.55 Weighted average number of shares outstanding used in computing earnings per ordinary share ——Basic 155,190,724 158,871,859 160,554,831 152,244,358 159,134,347 ——Diluted 177,347,900 180,752,549 183,111,650 176,347,667 181,460,639
HANGZHOU, China, Nov. 16, 2023 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the third quarter ended September 30, 2023. Third Quarter 2023 Financial Highlights Net revenues were RMB27.3 billion (US$3.7 billion), an increase of 11.6% compared with the third quarter of 2022. Games and related value-added services net revenues were RMB21.8 billion (US$3.0 billion), an increase of 16.5% compared with the third quarter of 2022. Youdao net revenues were RMB1.5 billion (US$210.9 million), an increase of 9.7% compared with the third quarter of 2022. Cloud Music net revenues were RMB2.0 billion (US$270.4 million), a decrease of 16.3% compared with the third quarter of 2022. Innovative businesses and others net revenues were RMB2.0 billion (US$271.2 million), a slight increase compared with the third quarter of 2022. Gross profit was RMB17.0 billion (US$2.3 billion), an increase of 23.4% compared with the third quarter of 2022. Total operating expenses were RMB9.4 billion (US$1.3 billion), an increase of 4.5% compared with the third quarter of 2022. Net income attributable to the Company's shareholders was RMB7.8 billion (US$1.1 billion). Non-GAAP net income from continuing operations attributable to the Company's shareholders was RMB8.6 billion (US$1.2 billion).[1] Basic net income per share was US$0.33 (US$1.67 per ADS). Non-GAAP basic net income from continuing operations per share was US$0.37 (US$1.84 per ADS).[1] [1] As used in this announcement, non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per share and per ADS are defined to exclude share-based compensation expenses. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. Third Quarter 2023 and Recent Operational Highlights Justice mobile game gained robust revenue and user growth, accumulating over 50 million registered players. Dunk City Dynasty, NetEase Game's first self-developed basketball game, topped China's iOS top-grossing chart at the end of October. Time-honored flagship titles, including the Fantasy Westward Journey series, continued to invigorate players, and newer hit games, including Eggy Party, Identity V and Naraka: Bladepoint, maintained ongoing popularity. Hotly anticipated new games spanning diverse genres reached ongoing Company development milestones with multiple high-profile titles slated for launch in 2024. Cloud Music considerably strengthened its music-centric membership monetization and further improved profitability. Cloud Music continued to cultivate its music community and introduce premium offerings, including expansive content and innovative features. Youdao achieved record-high revenue, driven by growth in its learning services and online marketing services, and substantially reduced its loss from operations as an ongoing effort. "Our robust and increasingly diversified games portfolio led our strong results in the third quarter, with total net revenues reaching RMB27.3 billion for a year-over-year increase of nearly 12%," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Our flagship games continue to win the hearts of players with fan favorites like the Fantasy Westward Journey series. Our newest innovative, first-rate games in various genres, including Racing Master, Justice mobile game and Dunk City Dynasty, also quickly gained widespread acclaim. The popularity of our wide-ranging newest hits highlights our exceptional talent in R&D that is expanding our reach in the casual gaming market while also pushing the boundaries of traditional MMOs, where we are bringing players all-new gaming experiences like never before. "In our broader NetEase family, Cloud Music and Youdao are tracking well, delivering innovative content offerings in their respective fields. Looking forward, creating products and content with a passion that invigorates the market and shapes resonant experiences will drive value for our users and for our Company," Mr. Ding concluded. Third Quarter 2023 Financial Results Net Revenues Net revenues for the third quarter of 2023 were RMB27,270.4 million (US$3,737.7 million), compared with RMB24,011.3 million and RMB24,426.8 million for the preceding quarter and the third quarter of 2022, respectively. Net revenues from games and related value-added services were RMB21,779.9 million (US$2,985.2 million) for the third quarter of 2023, compared with RMB18,798.6 million and RMB18,699.1 million for the preceding quarter and the third quarter of 2022, respectively. Net revenues from the operation of online games accounted for approximately 93.7% of the segment's net revenues for the third quarter of 2023, compared with 91.7% and 92.9% for the preceding quarter and the third quarter of 2022, respectively. Net revenues from mobile games accounted for approximately 77.6% of net revenues from the operation of online games for the third quarter of 2023, compared with 73.6% and 68.6% for the preceding quarter and the third quarter of 2022, respectively. Net revenues from Youdao were RMB1,538.8 million (US$210.9 million) for the third quarter of 2023, compared with RMB1,206.6 million and RMB1,402.4 million for the preceding quarter and the third quarter of 2022, respectively. Net revenues from Cloud Music were RMB1,973.1 million (US$270.4 million) for the third quarter of 2023, compared with RMB1,948.5 million and RMB2,357.2 million for the preceding quarter and the third quarter of 2022, respectively. Net revenues from innovative businesses and others were RMB1,978.7 million (US$271.2 million) for the third quarter of 2023, compared with RMB2,057.5 million and RMB1,968.0 million for the preceding quarter and the third quarter of 2022, respectively. Gross Profit Gross profit for the third quarter of 2023 was RMB16,966.3 million (US$2,325.4 million), compared with RMB14,375.4 million and RMB13,743.9 million for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter increase in games and related value-added services' gross profit was primarily due to increased net revenues from newly launched games such as Justice mobile game and Racing Master. The year-over-year increase was primarily due to increased net revenues from the operation of online games such as Eggy Party and those newly launched titles, as well as decreased royalty fees due to the termination of certain licensed games. The quarter-over-quarter increase in Youdao's gross profit was primarily attributable to the increase in net revenues from its learning services. The year-over-year increase primarily resulted from increased revenue contribution from both its learning services and online marketing services. The quarter-over-quarter and year-over-year increases in Cloud Music's gross profit primarily resulted from increased net revenues from sales of membership subscriptions and continued improvement in cost control measures. The quarter-over-quarter decrease in innovative businesses and others' gross profit was primarily due to decreased e-commerce gross profit from Yanxuan. The year-over-year increase was primarily due to increased gross profit from Yanxuan and several other businesses included within the segment. Gross Profit Margin Gross profit margin for games and related value-added services for the third quarter of 2023 was 69.0%, compared with 67.4% and 65.0% for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter increase was primarily attributable to changes in the revenue mix of NetEase's self-developed, co-developed and licensed games, as well as the relative revenue contribution from different channels. The year-over-year increase was mainly attributable to a higher proportion of net revenues contributed by NetEase's self-developed games. Gross profit margin for Youdao for the third quarter of 2023 was 55.9%, compared with 47.0% and 54.2% for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter and year-over-year increases were primarily attributable to the factors enumerated above. Gross profit margin for Cloud Music for the third quarter of 2023 was 27.2%, compared with 27.0% and 14.2% for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter and year-over-year improvements were mainly due to the factors enumerated above. Gross profit margin for innovative businesses and others for the third quarter of 2023 was 27.3%, compared with 29.5% and 25.5% for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to changes in the product mix within the segment. Operating Expenses Total operating expenses for the third quarter of 2023 were RMB9,408.4 million (US$1,289.5 million), compared with RMB8,312.8 million and RMB9,002.1 million for the preceding quarter and the third quarter of 2022, respectively. The quarter-over-quarter increase was mainly due to increased marketing expenditures and staff-related costs associated with games and related value-added services. The year-over-year increase was mainly due to higher research and development investments. Other Income/ (Expenses) Other income/ (expenses) consisted of investment income, interest income, exchange gains/ (losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to net unrealized exchange losses arising from the Company's U.S. dollar-denominated bank deposits and loan balances as the exchange rate of the U.S. dollar against the RMB fluctuated in the third quarter of 2023. Income Tax The Company recorded a net income tax charge of RMB1,290.4 million (US$176.9 million) for the third quarter of 2023, compared with RMB712.1 million and RMB1,586.7 million for the preceding quarter and the third quarter of 2022, respectively. The effective tax rate for the third quarter of 2023 was 14.2%, compared with 8.0% and 19.3% for the preceding quarter and the third quarter of 2022, respectively. The lower effective tax rate for the preceding quarter was primarily due to tax benefits recognized in that quarter. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter. Net Income and Non-GAAP Net Income Net income attributable to the Company's shareholders totaled RMB7,836.9 million (US$1,074.1 million) for the third quarter of 2023, compared with RMB8,242.8 million and RMB6,699.4 million for the preceding quarter and the third quarter of 2022, respectively. NetEase reported basic net income of US$0.33 per share (US$1.67 per ADS) for the third quarter of 2023, compared with US$0.35 per share (US$1.75 per ADS) and US$0.28 per share (US$1.41 per ADS) for the preceding quarter and the third quarter of 2022, respectively. Non-GAAP net income from continuing operations attributable to the Company's shareholders totaled RMB8,645.2 million (US$1,184.9 million) for the third quarter of 2023, compared with RMB9,017.5 million and RMB7,469.6 million for the preceding quarter and the third quarter of 2022, respectively. NetEase reported non-GAAP basic net income from continuing operations of US$0.37 per share (US$1.84 per ADS) for the third quarter of 2023, compared with US$0.38 per share (US$1.92 per ADS) and US$0.31 per share (US$1.57 per ADS) for the preceding quarter and the third quarter of 2022, respectively. Other Financial Information As of September 30, 2023, the Company's total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, minus short-term and long-term loans, totaled RMB104.4 billion (US$14.3 billion), compared with RMB95.6 billion as of December 31, 2022. Net cash provided by operating activities was RMB9.8 billion (US$1.3 billion) for the third quarter of 2023, compared with RMB7.7 billion and RMB7.5 billion for the preceding quarter and the third quarter of 2022, respectively. Quarterly Dividend The board of directors has approved a dividend of US$0.0990 per share (US$0.4950 per ADS) for the third quarter of 2023 to holders of ordinary shares and holders of ADSs as of the close of business on December 1, 2023, Beijing/Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on December 1, 2023 (Beijing/ Hong Kong Time). The payment date is expected to be December 12, 2023 for holders of ordinary shares, and on or around December 15, 2023 for holders of ADSs. NetEase paid a dividend of US$0.1050 per share (US$0.5250 per ADS) for the second quarter of 2023 in September 2023. Under the Company's current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors. Share Repurchase Program On November 17, 2022, the Company announced that its board of directors had approved a new share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market transactions. This share repurchase program commenced on January 10, 2023 following the completion of the prior program on January 9, 2023, and will be in effect for a period not to exceed 36 months from such date. As of September 30, 2023, approximately 6.6 million ADSs had been repurchased under this program for a total cost of US$587.9 million. The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time. ** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB. Announcement on Change of Management The Company also announced today that Mr. Charles Zhaoxuan Yang has resigned from his position as Chief Financial Officer effective November 30, 2023 for personal reasons and to subsequently pursue other career interests. Mr. Yang will remain with the Company as a consultant until June 30, 2024 to ensure a smooth transition as the Company undertakes a search to find a successor. "We are grateful to Charles for his contributions to NetEase over the past six years, and he has been instrumental in leading some of our largest capital market transactions, which were key milestones in the Company's history. On behalf of the Board and management team, I wish him well in his future endeavors," said Mr. Ding. Mr. Yang said, "It has been a pleasure to have been able to work together with William, the Board and the management team to help NetEase progress to where it is now. I am committed to ensuring a smooth transition and have full confidence in NetEase's prospects for sustainable growth and value creation." Conference Call NetEase's management team will host a teleconference call with a simultaneous webcast at 7:00 a.m. New York Time on Thursday, November 16, 2023 (Beijing/ Hong Kong Time: 8:00 p.m., Thursday, November 16, 2023). NetEase's management will be on the call to discuss the quarterly results and answer questions. Interested parties may participate in the conference call by dialing 1-914-202-3258 and providing conference ID: 10034483, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10034483. The replay will be available through November 23, 2023. This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com/. About NetEase, Inc. NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase") is a leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the most popular and longest running mobile and PC games available in China and globally. Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world. Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), an intelligent learning company with industry-leading technology, and Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase's private label consumer lifestyle brand. NetEase's market-leading ESG initiatives are among the most recognized in the global media and entertainment industry, earning it inclusion in the 2022 Dow Jones Sustainability World Index, 2022 Dow Jones Sustainability Emerging Markets Index and 2023 Bloomberg Gender-Equality Index, as well as receiving an "A" rating from MSCI. For more information, please visit: http://ir.netease.com/. Forward Looking Statements This announcement 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," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; the risk related to economic uncertainty and capital market disruption; the risk related to the expansion of NetEase's businesses and operations internationally; the risk associated with cybersecurity threats or incidents; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law. Non-GAAP Financial Measures NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income from continuing operations attributable to the Company's shareholders and non-GAAP basic and diluted net income from continuing operations per ADS and per share, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). NetEase defines non-GAAP net income from continuing operations attributable to the Company's shareholders as net income from continuing operations attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income from continuing operations attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance. Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income from continuing operations attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income from continuing operations attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited. NetEase compensates for these limitations by reconciling non-GAAP net income from continuing operations attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See "Unaudited Reconciliation of GAAP and Non-GAAP Results" at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure. Contact for Media and Investors: Margaret Shi Email: ir@service.netease.com Tel: (+86) 571-8985-3378Twitter: https://twitter.com/NetEase_Global NETEASE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 31, September 30, September 30, 2022 2023 2023 RMB RMB USD (Note 1) Assets Current assets: Cash and cash equivalents 24,889,000 15,116,464 2,071,884 Time deposits 84,947,679 87,174,226 11,948,222 Restricted cash 2,699,055 3,041,312 416,846 Accounts receivable, net 5,002,872 6,492,193 889,829 Inventories 993,636 721,958 98,953 Prepayments and other current assets, net 5,448,284 6,483,086 888,581 Short-term investments 7,622,673 8,536,188 1,169,982 Total current assets 131,603,199 127,565,427 17,484,297 Non-current assets: Property, equipment and software, net 6,342,330 7,582,320 1,039,243 Land use rights, net 4,121,767 4,109,744 563,287 Deferred tax assets 1,480,789 1,422,599 194,983 Time deposits 2,973,840 2,220,840 304,391 Restricted cash 270 290 40 Other long-term assets 26,238,790 28,673,785 3,930,069 Total non-current assets 41,157,786 44,009,578 6,032,013 Total assets 172,760,985 171,575,005 23,516,310 Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity Current liabilities: Accounts payable 1,507,141 863,331 118,329 Salary and welfare payables 4,732,941 2,833,841 388,410 Taxes payable 2,813,096 3,072,590 421,133 Short-term loans 23,875,704 11,221,194 1,537,993 Contract liabilities 12,518,890 14,188,592 1,944,708 Accrued liabilities and other payables 11,381,075 11,689,169 1,602,134 Total current liabilities 56,828,847 43,868,717 6,012,707 Non-current liabilities: Deferred tax liabilities 2,126,120 2,005,689 274,903 Long-term loans 3,654,964 427,997 58,662 Other long-term liabilities 1,277,574 1,327,427 181,938 Total non-current liabilities 7,058,658 3,761,113 515,503 Total liabilities 63,887,505 47,629,830 6,528,210 Redeemable noncontrolling interests 136,440 144,382 19,789 NetEase, Inc.'s shareholders' equity 104,731,317 119,978,728 16,444,453 Noncontrolling interests 4,005,723 3,822,065 523,858 Total equity 108,737,040 123,800,793 16,968,311 Total liabilities, redeemable noncontrolling interests and shareholders' equity 172,760,985 171,575,005 23,516,310 The accompanying notes are an integral part of this announcement. NETEASE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data or per ADS data) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, September 30, September 30, September 30, 2022 2023 2023 2023 2022 2023 2023 RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1) Net revenues 24,426,760 24,011,301 27,270,406 3,737,720 71,141,680 76,327,994 10,461,622 Cost of revenues (10,682,868) (9,635,888) (10,304,106) (1,412,295) (31,619,918) (30,089,735) (4,124,141) Gross profit 13,743,892 14,375,413 16,966,300 2,325,425 39,521,762 46,238,259 6,337,481 Operating expenses: Selling and marketing expenses (3,768,618) (3,271,705) (3,567,153) (488,919) (9,984,812) (9,743,904) (1,335,513) General and administrative expenses (1,264,342) (1,132,147) (1,494,186) (204,795) (3,392,866) (3,648,011) (500,002) Research and development expenses (3,969,156) (3,908,907) (4,347,052) (595,813) (10,948,938) (12,005,691) (1,645,517) Total operating expenses (9,002,116) (8,312,759) (9,408,391) (1,289,527) (24,326,616) (25,397,606) (3,481,032) Operating profit 4,741,776 6,062,654 7,557,909 1,035,898 15,195,146 20,840,653 2,856,449 Other income/ (expenses): Investment income, net 1,347,269 287,691 556,603 76,289 91,078 1,315,662 180,326 Interest income, net 556,148 935,578 1,147,227 157,241 1,520,383 2,858,835 391,836 Exchange gains/ (losses), net 1,398,045 1,464,956 (400,483) (54,891) 2,165,448 677,905 92,915 Other, net 164,435 120,826 240,024 32,898 501,940 618,883 84,825 Income before tax 8,207,673 8,871,705 9,101,280 1,247,435 19,473,995 26,311,938 3,606,351 Income tax (1,586,673) (712,090) (1,290,398) (176,864) (4,065,264) (3,631,047) (497,676) Net income from continuing operations 6,621,000 8,159,615 7,810,882 1,070,571 15,408,731 22,680,891 3,108,675 Net income from discontinued operations - - - - 624,864 - - Net income 6,621,000 8,159,615 7,810,882 1,070,571 16,033,595 22,680,891 3,108,675 Accretion of redeemable noncontrolling interests (781) (868) (895) (123) (2,268) (2,623) (360) Net loss attributable to noncontrolling interests 79,145 84,020 26,901 3,687 353,536 156,021 21,384 Net income attributable to the Company's shareholders 6,699,364 8,242,767 7,836,888 1,074,135 16,384,863 22,834,289 3,129,699 Including: -Net income from continuing operations attributable to the Company's shareholders 6,699,364 8,242,767 7,836,888 1,074,135 15,759,999 22,834,289 3,129,699 -Net income from discontinued operations attributable to the Company's shareholders - - - - 624,864 - - Basic net income per share * 2.05 2.56 2.44 0.33 5.01 7.10 0.97 -Continuing operations 2.05 2.56 2.44 0.33 4.82 7.10 0.97 -Discontinued operations - - - - 0.19 - - Basic net income per ADS * 10.27 12.80 12.19 1.67 25.04 35.48 4.86 -Continuing operations 10.27 12.80 12.19 1.67 24.09 35.48 4.86 -Discontinued operations - - - - 0.95 - - Diluted net income per share * 2.03 2.54 2.41 0.33 4.96 7.02 0.96 -Continuing operations 2.03 2.54 2.41 0.33 4.77 7.02 0.96 -Discontinued operations - - - - 0.19 - - Diluted net income per ADS * 10.17 12.69 12.06 1.65 24.79 35.11 4.81 -Continuing operations 10.17 12.69 12.06 1.65 23.84 35.11 4.81 -Discontinued operations - - - - 0.95 - - Weighted average number of ordinary shares used in calculating net income per share * Basic 3,262,989 3,218,783 3,213,834 3,213,834 3,271,602 3,217,873 3,217,873 Diluted 3,293,766 3,248,916 3,249,649 3,249,649 3,305,081 3,251,666 3,251,666 * Each ADS represents five ordinary shares. The accompanying notes are an integral part of this announcement. NETEASE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, September 30, September 30, September 30, 2022 2023 2023 2023 2022 2023 2023 RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1) Cash flows from operating activities: Net income 6,621,000 8,159,615 7,810,882 1,070,571 16,033,595 22,680,891 3,108,675 Net income from discontinued operations - - - - (624,864) - - Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 713,852 661,363 651,856 89,344 2,089,068 2,395,488 328,329 Fair value changes of equity security investments 680,019 (78,035) (382,132) (52,376) 2,956,180 (686,887) (94,146) Impairment losses on investments and other long-term assets 6,763 47,870 280,641 38,465 254,848 328,511 45,026 Fair value changes of short-term investments (119,620) (96,884) (72,875) (9,988) (319,278) (307,675) (42,170) Share-based compensation cost 786,999 787,862 819,548 112,328 2,297,600 2,429,823 333,035 Allowance for expected credit losses 44,126 8,540 22,386 3,068 54,778 51,646 7,079 Losses on disposal of property, equipment and software 528 252 2,649 363 2,454 2,291 314 Unrealized exchange (gains)/ losses (1,401,893) (1,466,295) 362,213 49,645 (2,193,925) (718,121) (98,427) Gains on disposal of long-term investments (1,724,433) (16,382) (3,197) (438) (1,728,433) (25,347) (3,474) Deferred income taxes (234,336) (334,380) (305,703) (41,900) (88,647) (62,417) (8,555) Share of results on equity method investees (159,128) (129,292) (160,042) (21,936) (1,205,195) (385,142) (52,788) Changes in operating assets and liabilities: Accounts receivable 35,786 770,551 (1,177,732) (161,422) 330,143 (1,523,463) (208,808) Inventories (88,300) 69,410 84,970 11,646 33,082 271,710 37,241 Prepayments and other assets 368,673 (7,233) (573,631) (78,623) (364,782) (455,037) (62,368) Accounts payable (84,434) (115,791) 150,868 20,678 (128,355) (577,862) (79,203) Salary and welfare payables (567,676) 758,106 (588,217) (80,622) (1,541,111) (2,055,848) (281,777) Taxes payable 475,245 (992,892) 515,087 70,599 10,457 255,911 35,076 Contract liabilities 1,580,450 (41,196) 1,560,628 213,903 1,781,919 2,009,423 275,414 Accrued liabilities and other payables 552,688 (306,784) 845,721 115,917 1,050,486 (104,899) (14,378) Net cash provided by operating activities 7,486,309 7,678,405 9,843,920 1,349,222 18,700,020 23,522,996 3,224,095 Cash flows from investing activities: Purchase of property, equipment and software (557,028) (520,544) (643,144) (88,150) (1,751,443) (1,816,627) (248,989) Proceeds from sale of property, equipment and software 3,307 4,292 3,101 425 39,210 9,897 1,356 Purchase of intangible assets, content and licensed copyrights (152,276) (283,321) (742,523) (101,771) (381,233) (1,852,526) (253,910) Net change in short-term investments with terms of three months or less 156,475 1,630,013 (1,993,921) (273,290) 1,708,147 (1,087,059) (148,994) Purchase of short-term investments with terms over three months - - - - (1,250,000) - - Proceeds from maturities of short-term investments with terms over three months 1,195,475 - 376,950 51,665 3,208,478 481,219 65,957 Investment in long-term investments and acquisition of subsidiaries (844,513) (270,228) (417,448) (57,216) (3,434,752) (1,916,724) (262,709) Proceeds from disposal of long-term investments 2,277,625 16,531 20,898 2,864 2,318,275 78,709 10,788 Placement/ rollover of matured time deposits (18,830,844) (10,874,831) (30,831,994) (4,225,876) (75,998,870) (78,026,928) (10,694,480) Proceeds from maturities of time deposits 17,770,581 21,918,791 33,893,436 4,645,482 64,570,517 78,144,576 10,710,605 Change in other long-term assets (31,782) (31,189) (181,263) (24,844) (262,227) (333,293) (45,682) Net cash provided by/ (used in) investing activities 987,020 11,589,514 (515,908) (70,711) (11,233,898) (6,318,756) (866,058) Cash flows from financing activities: Net changes from loans with terms of three months or less (3,645,232) (14,970,935) (7,501,788) (1,028,206) 2,479,450 (19,834,683) (2,718,569) Proceed of loans with terms over three months 70,691 2,171,541 7,607,060 1,042,634 3,627,609 11,058,160 1,515,647 Payment of loans with terms over three months (50,208) (3,233,500) (4,250,550) (582,586) (82,481) (7,524,472) (1,031,315) Net amounts received/ (paid) related to capital contribution from or repurchase of noncontrolling interests shareholders 14,305 22,228 11,573 1,586 (54,537) 58,150 7,970 Cash paid for repurchase of NetEase's ADSs/ purchase of subsidiaries' ADSs and shares (1,956,829) (2,195,210) (296,495) (40,638) (5,320,359) (4,608,462) (631,642) Dividends paid to NetEase's shareholders (1,617,574) (2,119,316) (2,423,355) (332,148) (4,704,683) (5,755,011) (788,790) Net cash used in financing activities (7,184,847) (20,325,192) (6,853,555) (939,358) (4,055,001) (26,606,318) (3,646,699) Effect of exchange rate changes on cash, cash equivalents and restricted cash held in foreign currencies 3,470 (47,876) 4,197 575 57,166 (28,181) (3,863) Net increase/ (decrease) in cash, cash equivalents and restricted cash 1,291,952 (1,105,149) 2,478,654 339,728 3,468,287 (9,430,259) (1,292,525) Cash, cash equivalents and restricted cash, at the beginning of the period 19,552,450 16,784,561 15,679,412 2,149,042 17,376,115 27,588,325 3,781,295 Cash, cash equivalents and restricted cash, at end of the period 20,844,402 15,679,412 18,158,066 2,488,770 20,844,402 18,158,066 2,488,770 Supplemental disclosures of cash flow information: Cash paid for income tax, net 1,550,748 1,625,045 1,165,196 159,703 4,121,174 3,864,820 529,718 Cash paid for interest expenses 193,329 326,646 105,665 14,483 324,149 708,025 97,043 The accompanying notes are an integral part of this announcement. NETEASE, INC. UNAUDITED SEGMENT INFORMATION (in thousands, except percentages) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, September 30, September 30, September 30, 2022 2023 2023 2023 2022 2023 2023 RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1) Net revenues: Games and related value-added services 18,699,106 18,798,646 21,779,851 2,985,177 55,480,763 60,644,094 8,311,965 Youdao 1,402,434 1,206,634 1,538,783 210,908 3,559,200 3,908,687 535,730 Cloud Music 2,357,248 1,948,539 1,973,064 270,431 6,615,964 5,881,444 806,119 Innovative businesses and others 1,967,972 2,057,482 1,978,708 271,204 5,485,753 5,893,769 807,808 Total net revenues 24,426,760 24,011,301 27,270,406 3,737,720 71,141,680 76,327,994 10,461,622 Cost of revenues: Games and related value-added services (6,551,193) (6,122,836) (6,749,507) (925,096) (19,978,841) (19,555,391) (2,680,290) Youdao (642,254) (639,459) (679,147) (93,085) (1,751,443) (1,880,026) (257,679) Cloud Music (2,023,600) (1,422,855) (1,436,552) (196,896) (5,745,203) (4,379,785) (600,299) Innovative businesses and others (1,465,821) (1,450,738) (1,438,900) (197,218) (4,144,431) (4,274,533) (585,873) Total cost of revenues (10,682,868) (9,635,888) (10,304,106) (1,412,295) (31,619,918) (30,089,735) (4,124,141) Gross profit: Games and related value-added services 12,147,913 12,675,810 15,030,344 2,060,081 35,501,922 41,088,703 5,631,675 Youdao 760,180 567,175 859,636 117,823 1,807,757 2,028,661 278,051 Cloud Music 333,648 525,684 536,512 73,535 870,761 1,501,659 205,820 Innovative businesses and others 502,151 606,744 539,808 73,986 1,341,322 1,619,236 221,935 Total gross profit 13,743,892 14,375,413 16,966,300 2,325,425 39,521,762 46,238,259 6,337,481 Gross profit margin: Games and related value-added services 65.0 % 67.4 % 69.0 % 69.0 % 64.0 % 67.8 % 67.8 % Youdao 54.2 % 47.0 % 55.9 % 55.9 % 50.8 % 51.9 % 51.9 % Cloud Music 14.2 % 27.0 % 27.2 % 27.2 % 13.2 % 25.5 % 25.5 % Innovative businesses and others 25.5 % 29.5 % 27.3 % 27.3 % 24.5 % 27.5 % 27.5 % The accompanying notes are an integral part of this announcement. NETEASE, INC. NOTES TO UNAUDITED FINANCIAL INFORMATION Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.2960 on the last trading day of September 2023 (September 29, 2023) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 29, 2023, or at any other certain date. Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands): Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, September 30, September 30, September 30, 2022 2023 2023 2023 2022 2023 2023 RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1) Share-based compensation cost included in: Cost of revenues 190,645 193,001 210,533 28,856 562,620 607,048 83,203 Operating expenses Selling and marketing expenses 24,980 31,069 33,804 4,633 87,170 97,226 13,326 General and administrative expenses 288,598 281,326 280,581 38,457 865,551 856,188 117,350 Research and development expenses 282,776 282,466 294,630 40,382 782,259 869,361 119,156 The accompanying notes are an integral part of this announcement. Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiaries to meet the disclosure requirements under U.S. GAAP or different accounting standards requirements. Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (in thousands, except per share data or per ADS data): Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, September 30, September 30, September 30, 2022 2023 2023 2023 2022 2023 2023 RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1) Net income from continuing operations attributable to the Company's shareholders 6,699,364 8,242,767 7,836,888 1,074,135 15,759,999 22,834,289 3,129,699 Add: Share-based compensation 770,255 774,683 808,276 110,783 2,237,056 2,394,559 328,202 Non-GAAP net income from continuing operations attributable to the Company's shareholders 7,469,619 9,017,450 8,645,164 1,184,918 17,997,055 25,228,848 3,457,901 Non-GAAP basic net income from continuing operations per share * 2.29 2.80 2.69 0.37 5.50 7.84 1.07 Non-GAAP basic net income from continuing operations per ADS * 11.45 14.01 13.45 1.84 27.50 39.20 5.37 Non-GAAP diluted net income from continuing operations per share * 2.27 2.78 2.66 0.36 5.45 7.76 1.06 Non-GAAP diluted net income from continuing operations per ADS * 11.34 13.88 13.30 1.82 27.23 38.79 5.32 * Each ADS represents five ordinary shares. The accompanying notes are an integral part of this announcement.
First Quarter of Fiscal Year 2024 Financial Highlights Total revenues were $199.9 million, an increase of 17.6% compared to the comparable prior year period. Gross margin was 34.6%, compared to 31.1% for the comparable prior year period. Non-GAAP gross margin was 34.8%, compared to 31.3% for the comparable prior year period. Net income attributable to Hollysys was $31.6 million, an increase of 47.9% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $32.2 million, an increase of 40.3% compared to the comparable prior year period. Diluted earnings per share was $0.51, an increase of 45.7% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.52, an increase of 40.5% compared to the comparable prior year period. Net cash provided by operating activities was $28.2 million. Days sales outstanding ("DSO") of 145 days, compared to 171 days for the comparable prior year period. Inventory turnover days of 84 days, compared to 79 days for the comparable prior year period. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin, non-GAAP net income attributable to Hollysys and non-GAAP diluted earnings per share. BEIJING, Nov. 16, 2023 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the first quarter of fiscal year 2024 ended September 30, 2023. In the industrial automation segment, the Company maintains an emphasis on research and development and technological innovation. In this fiscal quarter, the HOLLiSec-lk220T1 Programmable Logic Controller successfully passed the mandatory national standard testing of the "Critical Network Devices Security Common Requirements" (GB40050-2021). In addition, the Company successfully initiated the trial production at its Tianjin facility in this fiscal quarter. The facility is capable of delivering high-quality products and cost-effective customized solutions while ensuring small batch and multi-variety deliveries, which is expected to further empower the Company's future development. In the chemical and petrochemical sector, the Company successfully assisted in a 20,000-ton hydrogen production from green electricity project. In collaboration with Sinopec, the Company provided an integrated solution for this project, which encompassed functions ranging from basic control and intelligent management. This breakthrough solution successfully addressed the challenge of achieving flexible and cost-effective hydrogen production while maintaining continuous and stable supply in fluctuating power scenarios. Additionally, the Company supported the low-carbon transformation of a Yunnan clean energy development company with its HiaAPC, an advanced process control system that can effectively solve the key control problems in complex industrial processes. This enabled an automatic, stable, and precise control of the hydrogen nitrogen ratio, a key process parameter for methanol synthesis reaction, and created significant economic benefits. In the smart factory sector, the smart factory construction project of Yangfeng Group's synthetic ammonia plant was officially launched, with Hollysys providing the whole-process control optimization of the production equipment as well as the data center and operation platform, intending to establish a top-notch smart factory in China. This project marks further enhancement of Hollysys' comprehensive solution for optimizing whole-process control, digitization, informatization, and intelligent construction of large-scale coal chemical projects. In the electricity sector, the Company entered into a strategic cooperation agreement with a hydroelectric research institute to collaborate on the research and development of the Hydroelectric Intelligent Distributed Control System (HICS), acting with a common goal to drive the intelligent transformation and advancement of China's hydropower industry. In Rail Transportation Automation segment, the Company continued to maintain its market position. In the high-speed rail sector, its Automation Train Protection wireless download and intelligent analysis system provided high-tech support for the safe functioning of high-speed railway signal equipment during the Asian Games. The Company also delivered Radio Block Center, Train Control Center, and Element Management System as the Chinese Train Control System Level 3 supplier for the Guiyang to Libo section of the Guiyang-Nanning High-speed Railway. In addition, the Company assisted in the AC counting code transformation project of a station with its ZPW-2000S-M, a railway station coding equipment with strong system compatibility, high integration, and easy maintenance characteristics, which successfully enhanced the maintenance efficiency of the station. In the urban rail transit sector, the Company successfully completed the central level equipment switch for the Building Automatic System renovation project of Beijing Metro Line 4, as well as the network security level protection of the integrated monitoring system of Shenyang Metro Line 10. In the mechanical and electrical solutions ("M&E") segment, the Company also manifested a stable performance with smooth executions on various projects. The risk monitor and control are still expected to be its focus in this field in the foreseeable future. With its continuous dedication to the industry and the support of experienced and passionate experts, Hollysys believes that it will continue to create greater value for clients and shareholders. Fiscal Quarter Ended September 30, 2023 Unaudited Financial Results Summary (In USD thousands, except for %, number of shares and per share data) Three months ended September 30, 2023 2022 % Change Revenues $ 199,900 170,041 17.6 % Integrated solutions contracts revenue $ 149,701 143,125 4.6 % Products sales $ 14,319 11,773 21.6 % Revenue from services $ 35,880 15,143 136.9 % Cost of revenues $ 130,724 117,194 11.5 % Gross profit $ 69,176 52,847 30.9 % Total operating expenses $ 34,925 36,304 (3.8) % Selling $ 16,184 13,013 24.4 % General and administrative $ 5,530 12,733 (56.6) % Research and development $ 18,356 17,359 5.7 % VAT refunds and government subsidies $ (5,145) (6,801) (24.3) % Income from operations $ 34,251 16,543 107.0 % Other income, net $ 350 1,066 (67.2) % Foreign exchange (loss) gain $ (45) 4,097 (101.1) % Share of net (losses) income of equity investees $ (943) 597 (258.0) % Interest income $ 3,560 3,161 12.6 % Interest expenses $ (317) (143) 121.7 % Income tax expenses $ 5,273 3,880 35.9 % Net (loss) income attributable to non-controlling interests $ (56) 44 (227.3) % Net income attributable to Hollysys Automation Technologies Ltd. $ 31,639 21,397 47.9 % Basic earnings per share $ 0.51 0.35 45.7 % Diluted earnings per share $ 0.51 0.35 45.7 % Share-based compensation expenses $ 262 1,237 (78.8) % Amortization of acquired intangible assets $ 322 340 (5.3) % Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.(1) $ 32,223 22,974 40.3 % Non-GAAP basic earnings per share(1) $ 0.52 0.37 40.5 % Non-GAAP diluted earnings per share(1) $ 0.52 0.37 40.5 % Basic weighted average common shares outstanding 61,847,885 61,317,302 0.9 % Diluted weighted average common shares outstanding 62,197,935 61,940,240 0.4 % (1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures. Operational Results Analysis for the First Quarter Ended September 30, 2023 Total revenues for the three months ended September 30 were $199.9 million, as compared to $170.0 million for the same period of the prior fiscal year, representing an increase of 17.6%. In terms of revenues by type, integrated solutions contracts revenue increased by 4.6% to $149.7 million, products sales revenue increased by 21.6% to $14.3 million, and services revenue increased by 136.9% to $35.9 million. The following table sets forth the Company's total revenues by segment for the periods indicated. (In USD thousands, except for %) Three months ended Sep 30, 2023 2022 $ % to Total Revenues $ % to Total Revenues Industrial Automation 117,041 58.5 121,048 71.2 Rail Transportation Automation 57,511 28.8 28,242 16.6 Mechanical and Electrical Solution 25,348 12.7 20,751 12.2 Total 199,900 100.0 170,041 100.0 Gross margin was 34.6% for the three months ended September 30, 2023, as compared to 31.1% for the same period of the prior fiscal year. Gross margin of integrated solutions contracts, product sales, and service rendered was 22.1%, 77.6% and 69.5% for the three months ended September 30, 2023, as compared to 25.0%, 70.6% and 58.2% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 34.8% for the three months ended September, 2023, as compared to 31.3% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 22.3% for the three months ended September 30, 2022, as compared to 25.2% for the same period of the prior fiscal year. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts. Selling expenses were $16.2 million for the three months ended September 30, 2023, representing an increase of $3.2 million, or 24.4%, compared to $13.0 million for the same period of the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount to support the business growth, and the implementation of industry key customer strategy in industrial automation segment. Selling expenses as a percentage of total revenues were 8.1% and 7.7% for the three months ended September 30, 2023 and 2022, respectively. General and administrative expenses were $5.5 million for the three months ended September 30, 2023, representing a decrease of $7.2 million, or 56.6%, compared to $12.7 million for the same period of the prior fiscal year, which was primarily due to a $5.5 million decrease in net of allowance for credit losses and a $1.0 million decrease in share-based compensation expenses. Share-based compensation expenses were $0.3 million and $1.2 million for the three months ended September 30, 2023 and 2022, respectively. General and administrative expenses as a percentage of total revenues were 2.8% and 7.5% for the three months ended September 30, 2023 and 2022, respectively. Research and development expenses were $18.4 million for the three months ended September 30, 2023, representing an increase of $1.0 million, or 5.7%, compared to $17.4 million for the same period of the prior fiscal year, which was primarily due to a $1.7 million increase in staff cost. Research and development expenses as a percentage of total revenues were 9.2% and 10.2% for the three months ended September 30, 2023 and 2022, respectively. The VAT refunds and government subsidies were $5.1 million for three months ended September 30, 2023, as compared to $6.8 million for the same period of the prior fiscal year, representing a $1.7 million, or 24.3%, decrease. The income tax expenses and the effective tax rate were $5.3 million and 14.3% for the three months ended September 30, 2023, respectively, as compared to $3.9 million and 15.3% for the comparable period in the prior fiscal year, respectively. The effective tax rate fluctuates, as the Company's subsidiaries contributed different pre-tax income at different tax rates. Net income attributable to Hollysys was $31.6 million for three months ended September 30, 2023, representing an increase of 47.9% from $21.4 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $32.2 million or $0.52 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys. Diluted earnings per share was $0.51 for the three months ended September 30, 2023, representing an increase of 45.7% from $0.35 for the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.52 for the three months ended September 30, 2023, representing an increase of 40.5% from $0.37 for the comparable period in the prior fiscal year. These were calculated based on 62.2 million and 61.9 million diluted weighted average ordinary shares outstanding for the three months ended September 30, 2023 and 2022, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share. Contracts and Backlog Highlights Hollysys achieved $256.4 million in terms of the value of new contracts for the three months ended September 30, 2023. The order backlog of contracts as of September 30, 2023 was $938.6 million. The detailed breakdown of new contracts and backlog by segment is shown in the table below: (In USD thousands, except for %) Value of new contracts achieved for the three months ended Sep 30, 2023 Backlog as of Sep 30, 2023 $ % of Total Contract Value $ % of Total Backlog Industrial Automation 155,880 60.8 432,210 46.1 Rail Transportation 73,780 28.8 322,151 34.3 Mechanical and Electrical Solutions 26,757 10.4 184,235 19.6 Total 256,417 100.0 938,596 100.0 Cash Flow Highlights For the three months ended September 30, 2023, the total net cash inflow was $37.8 million. The net cash provided by operating activities was $28.2 million. The net cash used in investing activities was $15.9 million and mainly consisted of $18.2 million of purchases of short-term investments and $16.9 million of purchases of property, plant and equipment, which was partially offset by $19.1 million of maturity of short-term investments. The net cash provided by financing activities was $29.3 million and mainly consisted of $29.5 million of proceeds from long-term bank loans. Balance Sheet Highlights The total amount of cash and cash equivalents was $650.4 million, $611.6 million, and $575.1 million as of September 30, 2023, June 30, 2023 and September 30, 2022, respectively. For the three months ended September 30, 2023, DSO was 145 days, as compared to 171 days for the comparable prior fiscal year and 149 days for the last fiscal quarter; inventory turnover days were 84 days, as compared to 79 days for the comparable prior fiscal year and 81 days for the last fiscal quarter. About Hollysys Automation Technologies Ltd. Hollysys is a leading automation control system solutions provider in China, with overseas operations in eight other countries and regions throughout Asia. Leveraging its proprietary technology and deep industry know-how, Hollysys empowers its customers with enhanced operational safety, reliability, efficiency, and intelligence which are critical to their businesses. Hollysys derives its revenues mainly from providing integrated solutions for industrial automation and rail transportation automation. In industrial automation, Hollysys delivers the full spectrum of automation hardware, software, and services spanning field devices, control systems, enterprise manufacturing management and cloud-based applications. In rail transportation automation, Hollysys provides advanced signaling control and SCADA (Supervisory Control and Data Acquisition) systems for high-speed rail and urban rail (including subways). Founded in 1993, with technical expertise and innovation, Hollysys has grown from a research team specializing in automation control in the power industry into a group providing integrated automation control system solutions for customers in diverse industry verticals. As of June 30, 2023, Hollysys had cumulatively carried out more than 45,000 projects for approximately 23,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions. Safe Harbor Statements This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "target," "confident," or similar expressions, involve known and unknown risks and uncertainties. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements. For further information, please contact: Hollysys Automation Technologies Ltd.www.hollysys.com+8610-58981386investors@hollysys.com HOLLYSYS AUTOMATION TECHNOLOGIES LTD. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In USD thousands except for number of shares and per share data) Three months ended September 30, 2023 2022 (Unaudited) (Unaudited) Net revenues Integrated solutions contracts revenue $ 149,701 $ 143,125 Products sales 14,319 11,773 Revenue from services 35,880 15,143 Total net revenues 199,900 170,041 Costs of integrated solutions contracts 116,586 107,396 Cost of products sold 3,206 3,465 Costs of services rendered 10,932 6,333 Gross profit 69,176 52,847 Operating expenses Selling 16,184 13,013 General and administrative 5,530 12,733 Research and development 18,356 17,359 VAT refunds and government subsidies (5,145) (6,801) Total operating expenses 34,925 36,304 Income from operations 34,251 16,543 Other income, net 350 1,066 Foreign exchange (loss)gain (45) 4,097 Share of net (losses) income of equity investees (943) 597 Interest income 3,560 3,161 Interest expenses (317) (143) Income before income taxes 36,856 25,321 Income taxes expenses 5,273 3,880 Net income 31,583 21,441 Less: Net income(losses) attributable to non-controlling interests (56) 44 Net income attributable to Hollysys Automation Technologies Ltd. $ 31,639 $ 21,397 Other comprehensive income, net of tax of nil Translation adjustments (7,352) (70,492) Comprehensive (loss) income 24,231 (49,051) Less: Comprehensive (loss) income attributable to non-controlling interests (64) 116 Comprehensive income (loss) attributable to Hollysys Automation Technologies Ltd. $ 24,295 $ (49,167) Net income per share: Basic 0.51 0.35 Diluted 0.51 0.35 Shares used in income per share computation: Basic 61,847,885 61,317,302 Diluted 62,197,935 61,940,240 HOLLYSYS AUTOMATION TECHNOLOGIES LTD. CONSOLIDATED BALANCE SHEETS (In USD thousands except for number of shares and per share data) September 30, June 30, 2023 2023 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 650,413 $ 611,632 Short-term investments 32,100 33,202 Restricted cash 24,392 23,009 Accounts receivable, net of allowance for credit losses of $63,925 and $73,009 as of September 30, 2023 and June 30, 2023, respectively 308,788 309,822 Costs and estimated earnings in excess of billings, net of allowance for credit losses of $13,908 and $14,439 as of September 30, 2023 and June 30, 2023, respectively 285,218 253,262 Accounts receivable retention 5,783 7,465 Other receivables, net of allowance for credit losses of $15,584 and $12,044 as of September 30, 2023 and June 30, 2023, respectively 20,389 19,265 Advances to suppliers 31,216 28,493 Amounts due from related parties 28,712 25,906 Inventories 112,261 111,634 Prepaid expenses 280 596 Income tax recoverable 449 649 Total current assets 1,500,001 1,424,935 Non-current assets Restricted cash 11,174 13,489 Costs and estimated earnings in excess of billings 1,451 1,746 Accounts receivable retention 7,418 6,587 Prepaid expenses 2 3 Property, plant and equipment, net 145,885 134,626 Prepaid land leases 11,357 11,503 Intangible assets, net 8,079 8,483 Investments in equity investees 46,381 47,603 Investments securities 1,552 1,561 Goodwill 18,827 18,939 Deferred tax assets 11,364 11,937 Operating lease right-of-use assets 2,997 3,436 Total non-current assets 266,487 259,913 Total assets 1,766,488 1,684,848 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities September30, June 30, 2023 2023 (Unaudited) (Audited) Current portion of long-term loans 15,237 15,231 Accounts payable 174,713 170,632 Construction costs payable 11,328 11,085 Deferred revenue 202,782 181,387 Accrued payroll and related expenses 27,752 26,742 Income tax payable 5,667 6,414 Warranty liabilities 3,094 3,238 Other tax payables 14,197 10,504 Accrued liabilities 36,885 36,870 Amounts due to related parties 5,111 6,155 Operating lease liabilities 1,542 1,887 Total current liabilities 498,308 470,145 Non-current liabilities Accrued liabilities 2,118 2,367 Long-term loans 45,899 16,775 Accounts payable 2,754 2,588 Deferred tax liabilities 12,773 13,069 Warranty liabilities 2,885 2,568 Operating lease liabilities 1,024 1,103 Total non-current liabilities 67,453 38,470 Total liabilities 565,761 508,615 Commitments and contingencies - - Stockholders' equity: Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 62,024,409 shares and 62,021,930 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively 62 62 Additional paid-in capital 247,170 246,908 Statutory reserves 78,875 78,875 Retained earnings 993,423 961,782 Accumulated other comprehensive income (119,763) (112,418) Total Hollysys Automation Technologies Ltd. stockholder's equity 1,199,767 1,175,209 Non-controlling interests 960 1,024 Total equity 1,200,727 1,176,233 Total liabilities and equity $ 1,766,488 $ 1,684,848 HOLLYSYS AUTOMATION TECHNOLOGIES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (In USD thousands) Three months ended September 30, 2023 (Unaudited) Cash flows from operating activities: Net income $ 31,583 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 2,117 Amortization of prepaid land leases 81 Amortization of intangible assets 322 Allowance for credit losses (6,593) Gains on disposal of long-lived assets 4 Share of net income of equity investees 943 Share-based compensation expenses 262 Deferred income tax expenses 257 Changes in operating assets and liabilities: Accounts receivable and retention 6,219 Costs and estimated earnings in excess of billings (33,287) Inventories (1,293) Advances to suppliers (2,901) Other receivables (1,240) Deposits and other assets 315 Due from related parties (2,969) Accounts payable 5,315 Deferred revenue 22,545 Accruals and other payables 4,310 Due to related parties (1,044) Income tax payable (515) Other tax payables 3,768 Net cash provided by operating activities 28,199 Cash flows from investing activities: Purchases of short-term investments (18,206) Purchases of property, plant and equipment (16,895) Proceeds from disposal of property, plant and equipment 73 Maturity of short-term investments 19,137 Net cash used in investing activities (15,891) Cash flows from financing activities: Repayments of short-term bank loans 29,545 Proceeds from long-term bank loans (230) Net cash provided by financing activities 29,315 Effect of foreign exchange rate changes (3,774) Net decrease in cash, cash equivalents and restricted cash $ 37,849 Cash, cash equivalents and restricted cash, beginning of period $ 648,130 Cash, cash equivalents and restricted cash, end of period 685,979 Non-GAAP Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, in evaluating our results, we use the following non-GAAP financial measures: non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share. These non-GAAP financial measures serve as additional indicators of our operating performance and not as any replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the share-based compensation expenses, which are calculated based on the number of shares or options granted and the fair value as of the grant date, and amortization of acquired intangible assets. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects. Non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share should not be considered in isolation or construed as an alternative to gross profit and gross margin, gross profit and gross margin of integrated solutions contracts, net income attributable to Hollysys Automation Technologies Ltd., basic and diluted earnings per share, or any other measure of performance, or as an indicator of the Company's operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Non-GAAP gross profit and gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. The Company encourages investors and others to review the Company's financial information in its entirety and not rely on a single financial measure. We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, adjusted to exclude non-cash amortization of acquired intangibles. The following table provides a reconciliation of our gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin for the periods indicated. Three months ended September 30, 2023 2022 (Unaudited) (Unaudited) Gross profit $ 69,176 $ 52,847 Gross margin(1) 34.6 % 31.1 % Add: Amortization of acquired intangible assets 322 340 Non-GAAP gross profit $ 69,498 $ 53,187 Non-GAAP gross margin(2) 34.8 % 31.3 % (1) Gross margin represents gross profit for the period as a percentage of revenues for such period. (2) Non-GAAP gross margin represents non-GAAP gross profit for the period as a percentage of revenues for such period. We define non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts as gross profit and gross margin of integrated solutions contracts, respectively, adjusted to exclude non-cash amortization of acquired intangibles associated with integrated solutions contracts. The following table provides a reconciliation of the gross profit of integrated solutions contracts to non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts for the periods indicated. (In USD thousands, except for %) Three months ended September 30, 2023 2022 (Unaudited) (Unaudited) Gross profit of integrated solutions contracts $ 33,115 $ 35,729 Gross margin of integrated solutions contracts(1) 22.1 % 25.0 % Add: Amortization of acquired intangible assets 322 340 Non-GAAP gross profit of integrated solutions contracts $ 33,437 $ 36,069 Non-GAAP gross margin of integrated solutions contracts(2) 22.3 % 25.2 % (1) Gross margin of integrated solutions contracts represents gross profit of integrated solutions contracts for the period as a percentage of integrated solutions contracts revenue for such period. (2) Non-GAAP gross margin of integrated solutions contracts represents non-GAAP gross profit of integrated solutions contracts for the period as a percentage of integrated solutions contracts revenue for such period. We define non-GAAP net income attributable to Hollysys as net income attributable to Hollysys adjusted to exclude the share-based compensation expenses and non-cash amortization of acquired intangible assets. The following table provides a reconciliation of net income attributable to Hollysys to non-GAAP net income attributable to Hollysys for the periods indicated. Three months ended September 30, 2023 2022 (Unaudited) (Unaudited) Net income attributable to Hollysys Automation Technologies Ltd. $ 31,639 $ 21,397 Add: Share-based compensation expenses 262 1,237 Amortization of acquired intangible assets 322 340 Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. $ 32,223 $ 22,974 Non-GAAP basic (or diluted) earnings per share represents non-GAAP net income attributable to Hollysys divided by the weighted average number of ordinary shares outstanding during the periods (or on a diluted basis). The following table provides a reconciliation of our basic (or diluted) earnings per share to non-GAAP basic (or diluted) earnings per share for the periods indicated. (In USD thousands, except for number of shares and per share data) Three months ended September 30, 2023 2022 (Unaudited) (Unaudited) Net income attributable to Hollysys Automation Technologies Ltd. $ 31,639 $ 21,397 Add: Share-based compensation expenses 262 1,237 Amortization of acquired intangible assets 322 340 Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. $ 32,223 $ 22,974 Weighted average number of basic ordinary shares 61,847,885 61,317,302 Weighted average number of diluted ordinary shares 62,197,935 61,940,240 Basic earnings per share(1) $ 0.51 0.35 Add: Non-GAAP adjustments to net income per share(2) 0.01 0.03 Non-GAAP basic earnings per share(3) $ 0.52 $ 0.37 Diluted earnings per share(1) $ 0.51 0.35 Add: Non-GAAP adjustments to net income per share(2) 0.01 0.03 Non-GAAP diluted earnings per share(3) $ 0.52 $ 0.37 (1) Basic (or diluted) earnings per share is derived from net income attributable to ordinary shareholders for computing basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis). (2) Non-GAAP adjustments to net income per share are derived from non-GAAP adjustments to net income divided by weighted average number of shares (or on a diluted basis). (3) Non-GAAP basic (or diluted) earnings per share is derived from non-GAAP net income attributable to ordinary shareholders for computing non-GAAP basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).
BEIJING, Nov. 13, 2023 /PRNewswire/ -- Sohu.com Limited (NASDAQ: SOHU) ("Sohu" or the "Company"), a leading Chinese online media, video, and game business group, today reported unaudited financial results for the third quarter ended September 30, 2023. Third Quarter Highlights[1] Total revenues were US$145 million, down 22% year-over-year and 4% quarter-over-quarter. Brand advertising revenues were US$22 million, down 14% year-over-year and 8% quarter-over-quarter. Online game revenues were US$117 million, down 21% year-over-year and 1% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was US$14 million, compared with a net loss of US$22 million in the third quarter of 2022 and a net loss of US$21 million in the second quarter of 2023. Non-GAAP[2] net loss attributable to Sohu.com Limited was US$10 million, compared with a net loss of US$17 million in the third quarter of 2022 and a net loss of US$18 million in the second quarter of 2023. Dr. Charles Zhang, Chairman and CEO of Sohu.com Limited, commented, "In the third quarter of 2023, we continued to improve our product offering and enhance operational efficiency. Thanks to these efforts, we delivered both top and bottom-line performance in line with our prior expectations. At Sohu Media Portal, we further refined our products and upgraded the user experience. At Sohu Video, with our "Twin Engine" strategy, we focused on the generation and distribution of compelling short-form content as well as live broadcasts. These efforts helped us further boost user engagement and social interactions. At the same time, benefiting from our unique content marketing campaigns, we continued to explore a diverse range of monetization opportunities that leverage our differentiated competitive advantages. For online games, with consistent release of new content updates and operational efforts, game revenues remained stable." [1] The bankruptcy proceedings of Changyou's wholly-owned subsidiary Shanghai Jingmao Culture Communication Co., Ltd. ("Shanghai Jingmao"), which operated Changyou's cinema advertising business, were concluded by a Chinese mainland bankruptcy court during the third quarter of 2023. We recognized a US$35 million disposal gain within discontinued operations in the condensed consolidated statements of operations for the third quarter. Unless indicated otherwise, results presented in this press release are related to continuing operations only, and exclude the disposal gain mentioned above. [2] Non-GAAP results exclude share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the one-time transition tax (the "Toll Charge") imposed by the U.S. Tax Cuts and Jobs Act signed into law on December 22, 2017 (the "U.S. TCJA"). Explanation of the Company's non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and "Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures." Third Quarter Financial Results Revenues Total revenues were US$145 million, down 22% year-over-year and 4% quarter-over-quarter. Brand advertising revenues were US$22 million, down 14% year-over-year and 8% quarter-over-quarter. Online game revenues were US$117 million, down 21% year-over-year and 1% quarter-over-quarter. The decreases were mainly due to the natural decline of our older games. Gross Margin Both GAAP and non-GAAP gross margin were 76%, compared with 71% in the third quarter of 2022 and 76% in the second quarter of 2023. Both GAAP and non-GAAP gross margin for the brand advertising business were 15%, compared with 2% in the third quarter of 2022 and 30% in the second quarter of 2023. Both GAAP and non-GAAP gross margin for online games were 87%, compared with 84% in the third quarter of 2022 and 87% in the second quarter of 2023. Operating Expenses GAAP operating expenses were US$132 million, down 12% year-over-year and 5% quarter-over-quarter. Non-GAAP operating expenses were US$131 million, down 12% year-over-year and 5% quarter-over-quarter. The year-over-year decrease was mainly due to a decrease in Changyou's marketing and promotional spending for online games. Operating Loss GAAP operating loss was US$21 million, compared with an operating loss of US$18 million in the third quarter of 2022 and an operating loss of US$23 million in the second quarter of 2023. Non-GAAP operating loss was US$20 million, compared with an operating loss of US$17 million in the third quarter of 2022 and an operating loss of US$23 million in the second quarter of 2023. Income Tax Expense GAAP income tax expense was US$15 million, compared with income tax expense of US$16 million in the third quarter of 2022 and income tax expense of US$18 million in the second quarter of 2023. Non-GAAP income tax expense was US$12 million, compared with income tax expense of US$14 million in the third quarter of 2022 and income tax expense of US$15 million in the second quarter of 2023. Net Loss GAAP net loss attributable to Sohu.com Limited was US$14 million, or a net loss of US$0.41 per fully-diluted American depositary share ("ADS," each ADS representing one Sohu ordinary share), compared with a net loss of US$22 million in the third quarter of 2022 and a net loss of US$21 million in the second quarter of 2023. Non-GAAP net loss attributable to Sohu.com Limited was US$10 million, or a net loss of US$0.30 per fully-diluted ADS, compared with a net loss of US$17 million in the third quarter of 2022 and a net loss of US$18 million in the second quarter of 2023. Liquidity and Capital Resources As of September 30, 2023, cash and cash equivalents, short-term investments and long-term time deposits totaled approximately US$1.4 billion. Supplementary Information for Changyou Results[3] Third Quarter 2023 Operating Results For PC games, total average monthly active user accounts[4] (MAU) were 2.2 million, an increase of 3% year-over-year and 2% quarter-over-quarter. Total quarterly aggregate active paying accounts[5] (APA) were 1 million, a decrease of 5% year-over-year and an increase of 12% quarter-over-quarter. The quarter-over-quarter increase in APA was mainly a result of in-game promotional activities launched for TLBB PC during the quarter. For mobile games, total average MAU were 2.3 million, a decrease of 9% year-over-year and an increase of 75% quarter-over-quarter. Total quarterly APA were 0.5 million, a decrease of 18% year-over-year and an increase of 60% quarter-over-quarter. The year-over-year decreases in MAU and APA were due to the natural decline of our older games, partially offset by the launch of New TLBB Mobile during the quarter. The quarter-over-quarter increases in MAU and APA were mainly due to the launch of New TLBB Mobile. Third Quarter 2023 Unaudited Financial Results Total revenues were US$118 million, a decrease of 21% year-over-year and 1% quarter-over-quarter. Online game revenues were US$117 million, a decrease of 21% year-over-year and 1% quarter-over-quarter. Online advertising revenues were US$1 million, a decrease of 25% year-over-year and 4% quarter-over-quarter. GAAP and non-GAAP gross profit were both US$103 million, a decrease of 18% year-over-year and flat quarter-over-quarter. GAAP operating expenses were US$52 million, a decrease of 25% year-over-year and 5% quarter-over-quarter. The year-over-year decrease was mainly due to a decrease in marketing and promotional spending for online games. Non-GAAP operating expenses were US$51 million, a decrease of 24% year-over-year and 5% quarter-over-quarter. GAAP operating profit was US$51 million, compared with an operating profit of US$57 million for the third quarter of 2022 and US$49 million for the second quarter of 2023. Non-GAAP operating profit was US$52 million, compared with a non-GAAP operating profit of US$58 million for the third quarter of 2022 and US$49 million for the second quarter of 2023. [3] "Changyou Results" consist of the results of Changyou's online game business and its 17173.com Website. [4] Monthly active user accounts refers to the number of registered accounts that are logged in to these games at least once during the month. [5] Quarterly aggregate active paying accounts refers to the number of accounts from which game points are utilized at least once during the quarter. Recent Development Sohu today announced that on November 11, 2023, its board of directors authorized a share repurchase program of up to US$80 million of the outstanding ADSs of Sohu over the next two years. The ADSs may be purchased from time to time at Sohu's management's discretion at prevailing market prices in accordance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934. Sohu's management will determine the timing and amount of any purchases of ADSs based on their evaluation of market conditions, the trading price of ADSs and other factors. The share repurchase program may be suspended or discontinued at any time. Sohu plans to fund repurchases from its existing cash balance. Business Outlook For the fourth quarter of 2023, Sohu estimates: Brand advertising revenues to be between US$20 million and US$23 million; this implies an annual decrease of 20% to 31%, and a sequential decrease of 9% to a sequential increase of 4%. Online game revenues to be between US$106 million and US$116 million; this implies an annual decrease of 4% to 13%, and a sequential decrease of 1% to 9%. Non-GAAP net loss attributable to Sohu.com Limited to be between US$10 million and US$20 million; and GAAP net loss attributable to Sohu.com Limited to be between US$13 million and US$23 million. For the fourth quarter 2023 guidance, the Company has adopted a presumed exchange rate of RMB7.20=US$1.00, as compared with the actual exchange rate of approximately RMB7.09=US$1.00 for the fourth quarter of 2022, and RMB7.17=US$1.00 for the third quarter of 2023. This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty. Non-GAAP Disclosure To supplement the unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Sohu's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Sohu.com Limited and diluted net income attributable to Sohu.com Limited per ADS, which are adjusted from results based on GAAP to exclude the impact of share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge imposed by the U.S. TCJA. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. Sohu's management believes excluding share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge from its non-GAAP financial measure is useful for itself and investors. Further, the impact of share-based compensation expense; changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact; and interest expense recognized in connection with the Toll Charge cannot be anticipated by management and business line leaders and these expenses were not built into the annual budgets and quarterly forecasts that have been the basis for information Sohu provides to analysts and investors as guidance for future operating performance. As share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact, do not involve subsequent cash outflow or are reflected in the cash flows at the equity transaction level, Sohu does not factor in their impact when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, in general, the monthly financial results for internal reporting and any performance measures for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense and changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact, and also excluded the interest expense recognized in connection with the Toll Charge. The non-GAAP financial measures are provided to enhance investors' overall understanding of Sohu's current financial performance and prospects for the future. A limitation of using non-GAAP gross profit, operating profit, net income, net income attributable to Sohu.com Limited, and diluted net income attributable to Sohu.com Limited per ADS excluding share-based compensation expense and interest expense recognized in connection with the Toll Charge is that share-based compensation expense and interest expense recognized in connection with the Toll Charge have been and can be expected to continue to be significant recurring expenses in Sohu's business. It is also possible that changes in fair value recognized in the Company's consolidated statements of operations with respect to equity investments with readily determinable fair values, and the related income tax impact will recur in the future. In order to mitigate these limitations Sohu has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between the GAAP financial measures that are most directly comparable to the non-GAAP financial measures that have been presented. Notes to Financial Information Financial information in this press release other than the information indicated as being non-GAAP is derived from Sohu's unaudited financial statements prepared in accordance with GAAP. Safe Harbor Statement This announcement contains forward-looking statements. It is currently expected that the Business Outlook will not be updated until release of Sohu's next quarterly earnings announcement; however, Sohu reserves right to update its Business Outlook at any time for any reason. Statements that are not historical facts, including statements about Sohu's beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, instability in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations, including their potential impact on the Chinese economy and on Sohu's reported U.S. dollar results; fluctuations in Sohu's quarterly operating results; the possibilities that Sohu will be unable to recoup its investment in video content and will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; Sohu's reliance on online advertising sales and online games for its revenues; and the impact of the U.S. TCJA. Further information regarding these and other risks is included in Sohu's annual report on Form 20-F for the year ended December 31, 2022, and other filings with and information furnished to the U.S. Securities and Exchange Commission. Conference Call and Webcast Sohu's management team will host a conference call at 7:30 a.m. U.S. Eastern Time, November 13, 2023 (8:30 p.m. Beijing/Hong Kong time, November 13, 2023) following the quarterly results announcement. Participants can register for the conference call by clicking here, which will lead them to the conference registration website. Upon registration, participants will receive details for the conference call, including the dial-in numbers and a unique access PIN. Please dial in 10 minutes before the call is scheduled to begin. The live Webcast and archive of the conference call will be available on the Investor Relations section of Sohu's website at https://investors.sohu.com/ About Sohu Sohu.com Limited (NASDAQ: SOHU) was established by Dr. Charles Zhang, one of China's internet pioneers, in the 1990s. As a mainstream media platform, Sohu is indispensable to the daily life of millions of Chinese, providing a network of web properties and community based products which continually offer a broad array of choices regarding information, entertainment and communication to the vast number of Sohu users. Sohu has built one of the most comprehensive matrices of Chinese language web properties, consisting of the leading online media destinations Sohu News App, mobile news portal m.sohu.com, PC portal www.sohu.com; online video website tv.sohu.com; and the online games platform www.changyou.com/en/. Sohu provides online brand advertising services as well as multiple news, information and content services on its matrix of websites and also on its mobile platforms. Sohu's online game business, conducted by its subsidiary Changyou, develops and operates a diverse portfolio of PC and mobile games, such as the well-known Tian Long Ba Bu ("TLBB") PC and Legacy TLBB Mobile. For investor and media inquiries, please contact: In China: Ms. Huang, Pu Sohu.com Limited Tel: +86 (10) 6272-6645 E-mail: ir@contact.sohu.com In the United States: Ms. Bergkamp, Linda Christensen Tel: +1 (480) 614-3004 E-mail: linda.bergkamp@christensencomms.com SOHU.COM LIMITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended Sep. 30, 2023 Jun. 30, 2023 Sep. 30, 2022 Revenues: Brand advertising $ 22,087 $ 23,883 $ 25,762 Online games 117,049 118,426 148,895 Others 6,294 9,781 10,617 Total revenues 145,430 152,090 185,274 Cost of revenues: Brand advertising (includes share-based compensation expense of $15, $-21, and $19, respectively) 18,745 16,705 25,245 Online games (includes share-based compensation expense of $18, $18, and $42, respectively) 15,039 15,839 24,451 Others 687 4,477 3,972 Total cost of revenues 34,471 37,021 53,668 Gross profit 110,959 115,069 131,606 Operating expenses: Product development (includes share-based compensation expense of $280, $179, and $613, respectively) 67,749 69,492 64,688 Sales and marketing (includes share-based compensation expense of $39, $-52, and $58, respectively) 53,040 57,153 73,347 General and administrative (includes share-based compensation expense of $358, $134, and $720, respectively) 10,801 11,372 11,629 Total operating expenses 131,590 138,017 149,664 Operating loss (20,631) (22,948) (18,058) Other income, net 10,869 5,131 4,750 Interest income 11,519 11,041 4,808 Exchange difference (478) 3,067 3,129 Income/(loss) before income tax expense 1,279 (3,709) (5,371) Income tax expense 15,340 17,747 16,213 Ne loss from continuing operations (14,061) (21,456) (21,584) Net income from discontinued operations, net of tax [6] 35,426 - - Net income/(loss) 21,365 (21,456) (21,584) Less: Net income/(loss) from continuing operations attributable to the noncontrolling interest shareholders (2) (261) (1) Net loss from continuing operations attributable to Sohu.com Limited (14,059) (21,195) (21,583) Net income from discontinued operations attributable to Sohu.com Limited 35,426 - - Net income/(loss) attributable to Sohu.com Limited 21,367 (21,195) (21,583) Basic net loss from continuing operations per share/ADS attributable to Sohu.com Limited[7] $ (0.41) $ (0.62) $ (0.63) Basic net income from discontinued operations per share/ADS attributable to Sohu.com Limited $ 1.04 $ - $ - Basic net income/(loss) per share/ADS attributable to Sohu.com Limited $ 0.63 $ (0.62) $ (0.63) Shares/ADSs used in computing basic net income/(loss) per share/ADS attributable to Sohu.com Limited 34,190 34,091 34,387 Diluted net loss from continuing operations per share/ADS attributable to Sohu.com Limited $ (0.41) $ (0.62) $ (0.63) Diluted net income from discontinued operations per share/ADS attributable to Sohu.com Limited $ 1.04 $ - $ - Diluted net income/(loss) per share/ADS attributable to Sohu.com Limited $ 0.63 $ (0.62) $ (0.63) Shares/ADSs used in computing diluted net income/(loss) per share/ADS attributable to Sohu.com Limited 34,190 34,091 34,387 [6] See Footnote 1. [7] Each ADS represents one ordinary share. SOHU.COM LIMITED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS) As of Sep. 30, 2023 As of Dec. 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 335,923 $ 697,821 Restricted cash 3,176 3,641 Short-term investments 594,474 473,624 Accounts receivable, net 61,047 67,541 Prepaid and other current assets 86,736 83,093 Total current assets 1,081,356 1,325,720 Fixed assets, net 268,726 288,226 Goodwill 46,961 47,415 Long-term investments, net 44,266 26,012 Intangible assets, net 3,099 5,394 Long-term time deposits 431,864 265,802 Other assets 11,015 19,207 Total assets $ 1,887,287 $ 1,977,776 LIABILITIES Current liabilities: Accounts payable $ 47,504 $ 56,449 Accrued liabilities 112,389 126,461 Receipts in advance and deferred revenue 50,586 48,080 Accrued salary and benefits 50,672 60,754 Taxes payables 9,097 10,612 Other short-term liabilities 82,318 114,532 Total current liabilities $ 352,566 $ 416,888 Long-term other payables 3,770 1,795 Long-term tax liabilities 462,193 448,043 Other long-term liabilities 485 340 Total long-term liabilities $ 466,448 $ 450,178 Total liabilities $ 819,014 $ 867,066 SHAREHOLDERS' EQUITY: Sohu.com Limited shareholders' equity 1,067,269 1,109,442 Noncontrolling interest 1,004 1,268 Total shareholders' equity $ 1,068,273 $ 1,110,710 Total liabilities and shareholders' equity $ 1,887,287 $ 1,977,776 SOHU.COM LIMITED RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended Sep. 30, 2023 Three Months Ended Jun. 30, 2023 Three Months Ended Sep. 30, 2022 GAAP Non-GAAP Adjustment Non-GAAP GAAP Non-GAAP Adjustment Non-GAAP GAAP Non-GAAP Adjustment Non-GAAP 15 (a) (21) (a) 19 (a) Brand advertising gross profit $ 3,342 $ 15 $ 3,357 $ 7,178 $ (21) $ 7,157 $ 517 $ 19 $ 536 Brand advertising gross margin 15 % 15 % 30 % 30 % 2 % 2 % 18 (a) 18 (a) 42 (a) Online games gross profit $ 102,010 $ 18 $ 102,028 $ 102,587 $ 18 $ 102,605 $ 124,444 $ 42 $ 124,486 Online games gross margin 87 % 87 % 87 % 87 % 84 % 84 % - (a) - (a) - (a) Others gross profit $ 5,607 $ - $ 5,607 $ 5,304 $ - $ 5,304 $ 6,645 $ - $ 6,645 Others gross margin 89 % 89 % 54 % 54 % 63 % 63 % 33 (a) (3) (a) 61 (a) Gross profit $ 110,959 $ 33 $ 110,992 $ 115,069 $ (3) $ 115,066 $ 131,606 $ 61 $ 131,667 Gross margin 76 % 76 % 76 % 76 % 71 % 71 % Operating expenses $ 131,590 $ (677) (a) $ 130,913 $ 138,017 $ (261) (a) $ 137,756 $ 149,664 $ (1,391) (a) $ 148,273 710 (a) 258 (a) 1,452 (a) Operating loss $ (20,631) $ 710 $ (19,921) $ (22,948) $ 258 $ (22,690) $ (18,058) $ 1,452 $ (16,606) Operating margin -14 % -14 % -15 % -15 % -10 % -9 % Income tax expense $ 15,340 $ (3,149) (d)$ 12,191 $ 17,747 $ (3,061) (d)$ 14,686 $ 16,213 $ (1,884) (c,d)$ 14,329 710 (a) 258 (a) 1,452 (a) - - 891 (b) - - (224) (c) 3,149 (d) 3,061 (d) 2,108 (d) Net loss before non-controlling interest $ (14,061) 3,859 (10,202) $ (21,456) $ 3,319 $ (18,137) $ (21,584) $ 4,227 $ (17,357) 710 (a) 258 (a) 1,452 (a) - - 891 (b) - - (224) (c) 3,149 (d) 3,061 (d) 2,108 (d) Net loss from continuing operations attributable to Sohu.com Limited for diluted net loss per ADS $ (14,059) 3,859 (10,200) $ (21,195) $ 3,319 $ (17,876) $ (21,583) $ 4,227 $ (17,356) Net income from discontinued operations attributable to Sohu.com Limited for dilutednet loss per ADS [8] $ 35,426 - $ 35,426 $ - - $ - $ - - $ - Net income/(loss) attributable to Sohu.com Limited for diluted net income/(loss) pershare/ADS $ 21,367 3,859 25,226 $ (21,195) $ 3,319 $ (17,876) $ (21,583) $ 4,227 $ (17,356) Diluted net loss from continuing operationsper ADS attributable to Sohu.com Limited $ (0.41) $ (0.30) $ (0.62) $ (0.52) $ (0.63) $ (0.50) Diluted net income from discontinued operations per ADS attributable to Sohu.com Limited $ 1.04 $ 1.04 $ - $ - $ - $ - Diluted net income/(loss) per share/ADS attributable to Sohu.com Limited $ 0.63 $ 0.74 $ (0.62) $ (0.52) $ (0.63) $ (0.50) Shares/ADSs used in computing diluted net income/(loss) per share/ADS attributable to Sohu.com Limited 34,190 34,190 34,091 34,091 34,387 34,387 Note: (a) To eliminate the impact of share-based awards. (b) To adjust for changes in the fair value of the Company's investments. (c) To adjust for the impacts of income tax related to changes in the fair value of the Company's investments. (d) To adjust for the effect of the Toll Charge. [8] See Footnote 1.
STOCKHOLM, Oct. 27, 2023 /PRNewswire/ -- Highlights of the third quarter of 2023 Net sales amounted to SEK 33,427m (35,244). The organic sales decline of 7.9% was mainly driven by continued weak market demand and consumers shifting to lower price points. Mix was positive, supported by the innovative product offering, despite this market shift. Price was negative year-over-year as promotional activity has returned to high levels this year. Operating income amounted to SEK 608m (-385), corresponding to a margin of 1.8% (-1.1). Operating income included a previously announced positive non-recurring item of SEK 294m from the divestment of the Nyíregyháza factory in Hungary. Excluding this, operating income amounted to SEK 314m (-35), corresponding to a margin of 0.9% (-0.1). The Group-wide cost reduction and North America turnaround program continued to progress well, resulting in a positive year-over-year impact of approximately SEK 2.4bn. The substantial savings contributed to a positive underlying operating income development year-over-year, despite the negative impact from volume and price. Income for the period amounted to SEK 123m (-605) and earnings per share were SEK 0.46 (-2.23). Operating cash flow after investments improved to SEK 1,147m (-1,483). Acceleration of cost reduction efforts to restore margins have been initiated and are expected to result in net cost savings of SEK 10-11bn in 2024 vs 2022, compared to previous cost reduction target of over SEK 7bn. This is expected to lead to a restructuring charge of SEK 2-2.5bn in the fourth quarter of 2023. President and CEO Jonas Samuelson's comment Organic sales declined by 7.9% in the third quarter. Like in the previous quarter, volumes declined significantly and as expected, net price was negative. We continued to execute well on the Group-wide cost reduction and North America turnaround program. However, the challenging market environment with demand mainly driven by forced replacements, consumers shifting to lower price points and high promotional activity, offset most of the SEK 2.4bn cost savings. Underlying operating income increased to SEK 314m compared to break-even in the third quarter of 2022. Operating cash flow after investments was SEK 1.1bn. Lower residential construction and remodeling activity continued to lead to weaker market demand in the for Europe and Australia very important built-in kitchen category. As expected, this in combination with postponed purchases of more discretionary product categories resulted in a less pronounced positive seasonality in the normally strong third quarter. Due to the lower consumer demand and the end of post-pandemic supply chain constraints, promotional activity remained high in all major markets, especially in North America. This resulted in a negative net price, year-over-year, in line with our communication in the interim report for the second quarter. We expect price also in the fourth quarter to be negative for the Group as a whole. It is disappointing that our North American business area, although delivering a significant year-over-year improvement, reports a loss in the third quarter. Despite execution of the turnaround program ahead of plan, the industry's high promotional activity negatively impacted primarily gross margin realization, but also sales volumes. I firmly believe we have the right strategy in place to return to profitability in North America. It is a sign of strength that we in the quarter grew in higher value categories, which the investments in new and innovative modular product architectures have enabled, and that we introduced and ramped-up production of our new freestanding cooking products. We need to further accelerate this commercial growth and at the same time increase our cost reduction measures, not just for our North America operation but the Group as a whole. The ongoing cost reduction program, while ahead of plan, is not sufficient to restore margins given the continued weak consumer demand and competitive pressure in the market, which is significantly exacerbated by large discrepancies in input cost inflation between Europe/North America and certain parts of Asia. With today's announcement, we are stepping up our cost reduction efforts significantly. This also means that we focus our growth efforts on selected mid- and premium categories under our three main brands and drive even more targeted portfolio management and simplification enabling faster cost reductions. Hence, the cost reduction target for 2024 vs 2022 is increased to SEK 10-11bn, compared to the previous target of over SEK 7bn. The new target comprises net cost reductions from Cost efficiency and Investments in innovation and marketing, combined. For 2023 the target is to reach cost reductions of approximately SEK 6bn, year-over-year, compared to the previous target of at least SEK 5bn. Given the time lag before the actions now put in place will have full earnings impact, we do not expect sequential improvement of underlying operating income in the fourth quarter. We remain committed to achieving at least 6% EBIT margin mid-term. In addition to an attractive offering driving commercial growth in targeted areas, a key component to deliver on this under current market conditions will be to continue to annually reduce product cost at a similar rate as during the period 2023-2024. This is enabled by a new, more focused business approach and simplified organizational structure. The Group will reorganize into three regional business areas and two global product lines reporting directly to me, leveraging the Group's global scale with fewer layers, and resulting in increased focus and reduced costs. The new organizational setup is expected to affect approximately 3,000 positions, resulting in a restructuring charge in the fourth quarter of 2023 of SEK 2-2.5bn, which will be reported as a non-recurring item. Consumer sentiment related to consumer durables purchases is projected to remain negatively impacted by the high inflation and interest rate environment throughout 2023. However, given high promotional activity we revise the market demand outlook in terms of units for North America for the full-year 2023 to be neutral compared to previously negative, while we continue to expect total market value development in the region to be negative. We are making progress on our strategic divestment initiatives of non-core assets with a combined potential value of approximately SEK 10bn over the coming years. In the quarter, divestments of over SEK 1bn were announced, whereof SEK 0.5bn has been realized. Total liquidity, including revolving credit facilities, increased sequentially to SEK 33.7bn. Our main priority remains executing on our cost reduction targets and to implement the new organization. We thereby aim to successfully strengthen our position in selected mid- and premium categories to restore margins and return to profitable growth. Telephone conference 09.00 CET A telephone conference is held at 09.00 CET today, October 27. Jonas Samuelson, President and CEO, Therese Friberg, CFO, and Anna Ohlsson-Leijon, CCO, will comment on the report. To only listen to the telephone conference, use the link: https://edge.media-server.com/mmc/p/hcdw3ekw OR To both listen to the telephone conference and ask questions, use the link: https://register.vevent.com/register/BIcabd606149f449a5a594d9432d6abf8d Presentation material available for download www.electroluxgroup.com/ir This is information that AB Electrolux is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, on 27-10-2023 08:00 CET. CONTACT: For more information: Sophie Arnius, Investor Relations, +46 70 590 80 72 Electrolux Group Press Hotline, +46 8 657 65 07 The following files are available for download: https://mb.cision.com/Main/1853/3863901/2389733.pdf Interim Report Q3 2023_FINAL
BEIJING, Oct. 26, 2023 /PRNewswire/ -- NaaS Technology Inc. ("NaaS" or the "Company") (Nasdaq: NAAS), the first U.S. listed EV charging service company in China, today announced its unaudited financial results for the third quarter ended September 30, 2023. Third Quarter 2023 Financial Highlights: Revenues1 grew by 536% year over year to a record setting RMB170.9 million (US$23.4 million) in the third quarter of 2023. Gross margin increased from 6.1% to 27.4% year over year in the third quarter of 2023. Gross profit grew 28 times year over year to RMB46.8 million (US$6.4 million) in the third quarter of 2023. Non-IFRS2 net loss attributable to ordinary shareholders was RMB175.7 million (US$24.1 million) in the third quarter of 2023 and non-IFRS net margin attributable to ordinary shareholders improved from negative 359% to negative 103%. Third Quarter 2023 Operational Highlights: Charging volume transacted through NaaS' network reached 1,383 GWh in the third quarter of 2023, representing an increase of 66% year over year. Gross transaction value transacted through NaaS' network reached RMB1.3 billion (US$178.8 million) in the third quarter of 2023, representing an increase of 58% year over year. Number of orders transacted through NaaS' network reached 59.2 million in the third quarter of 2023, representing an increase of 58% year over year. As of September 30, 2023, NaaS' network had connected 767,611 EV chargers covering 73,710 charging stations, up by 76% from 436,296 and 65% from 44,767 as of September 30, 2022, respectively. 1 Effective as of the third quarter of 2023, the Company has changed its income statement presentation and retrospectively recast prior periods' income statement to conform to the current period presentation. The Company is now reporting revenues under Charging Services, Energy Solutions and New Initiatives, which management believes better reflects NaaS' expanded business offerings. See "Change in presentation of income statement" in this press release for additional information. 2 Non-IFRS net loss was arrived at after excluding share-based compensation expenses, equity-settled listing costs, fair value changes of instruments convertible to shares of the Company, and fair value changes of financial assets at fair value through profit or loss. Non-IFRS net margin was calculated by dividing non-IFRS net loss by total revenue. Please refer to the section titled "Unaudited reconciliations of IFRS and non-IFRS results" for details. Recent Developments Became the First Batch of Strategic Enterprises of OASES in Hong Kong In October 2023, the Company formed a partnership with the Hong Kong S.A.R. Office for Attracting Strategic Enterprises ("OASES"), becoming one of its inaugural strategic enterprises. OASES will assist NaaS to set up, develop, and operate in Hong Kong, where the Company will focus on energy data analytics R&D. The Company expects to establish a research center in the Hong Kong Science Park by the end of 2023 and to provide algorithm support for its global energy assets' operations, leveraging local R&D and academic resources in Hong Kong. Won Bid for Leading Integrated "PV-storage-charging-swapping" Project In September 2023, the Company won a RMB67.18 million contract for the initial phase of the Anji Green and Low-carbon Supply Chain Construction Project located at Anshan Station. The Company will provide one-stop PV-storage-charging-swapping solutions, including supply, procurement, installation, and grid connection of charging systems, battery swapping systems, PV systems, and energy storage systems. The project entails the installation of 458 DCFC chargers, a 4,205.4 kW distributed photovoltaic system, 36 energy storage and charging cabinets, and two leading domestic heavy-duty truck battery swapping stations. The Company will leverage its "Comprehensive Energy Management Platform" and "battery detection technology" to achieve seamless energy operations. Upon completion, the project will provide charging services for 1,800 heavy-duty trucks and small EVs in the Anji County. Established Strategic Collaborations with ZSY, China Construction Bank, CIID and Tengzhou Municipal Government, Shandong In September 2023, the Company entered into diverse strategic collaborations with ZSY Financial Services ("ZSY"), China Construction Bank ("CCB"), Hubei Provincial Communications Investment Industrial Development ("CIID"), and the People's Government of Tengzhou City, Shandong Province. In partnership with ZSY and CCB, the Company will help advance the integration of financial services with the domestic and global new energy sectors. With CIID, the Company will contribute to the construction of expressway service areas and energy supply infrastructure, accelerating the establishment of a comprehensive energy supply network for expressways. With the People's Government of Tengzhou City, the Company will drive innovation and promote digitalized energy management to support the transportation energy transformation in Tengzhou City. Conversion of LMR Convertible Notes The Company issued a US$30 million convertible note and a US$40 million convertible note to LMR Multi-Strategy Master Fund Limited, an affiliate of LMR Partners Limited, in July and September 2023, respectively. Up to date, an aggregate principal amount of US$33 million under these notes has been converted into our American depositary shares, each representing ten Class A ordinary shares, and the remaining principal amount of the notes totals US$37 million. "Our exceptional third quarter operating and financial results reflect the significant expansion of our business. Led by our increasing capabilities in energy management and storage solutions, our total revenues increased six-fold year-over-year and tripled quarter-over-quarter," said Ms. Yang Wang, NaaS' CEO. "We have fortified our local footprint by extending our partnership networks and winning new, important contracts in energy storage, including securing the leading integrated 'PV-storage-charging-swapping' project in Anji. Meanwhile, our expansion beyond mainland China has already yielded fruitful result and contributed 32.7% of total revenues this quarter. The consistent recognition we've received for our integrated energy infrastructure solutions, both domestically and internationally, underscores our commitment to the global energy transition across the key drivers of renewables, electrification, and energy storage improvements. As we further advance, sustainable, clean energy solutions on a global scale, we endeavor to become a leading integrated new energy asset management and services provider." "We're pleased with our stellar third-quarter performance fueled by the significant growth in our energy solutions business, which contributed 81% of our revenues in the quarter," added Mr. Alex Wu, NaaS' president and chief financial officer. "With our expansion and high-growth profile, our profitability trajectory has become much more visible, as evidenced by the significant jump in our third-quarter gross margin to 27.4% from 6.1% in the same period last year. Furthermore, our focus on achieving economies of scale affords us increased operating leverage and sustainable growth. We maintain our previous guidance, anticipating full-year 2023 revenues between RMB500 million (US$69 million) and RMB600 million (US$82 million), marking a notable year over year increase of five to six fold. As we continue to grow our business, both in domestic and international markets, we remain dedicated to providing sustainable new energy solutions while exploring diverse opportunities that drive the industry forward." Third Quarter 2023 Financial Results: Revenues Total revenues reached RMB170.9 million (US$23.4 million) in the third quarter of 2023, representing an increase of 536% year over year. The rapid increase was mainly attributable to strong execution and delivery in the Company's energy solutions projects throughout the third quarter of 2023. Charging services revenues contributed RMB31.5 million (US$4.3 million) in the third quarter of 2023, with a growth rate of 23% year over year. The increase was primarily attributable to an overall increase in charging volume completed through NaaS' EV Charging network. The Company offered platform-based incentives to end-users to boost the use of its network. Costs associated with end-user incentives and recorded as reductions to total revenues totaled RMB82.9 million (US$11.4 million) and RMB61.3 million for the third quarter of 2023 and 2022, respectively. Energy solutions revenues increased from RMB0.3 million year over year to RMB138.8 million (US$19.0 million) in the third quarter of 2023. The increase was primarily driven by revenues from the on-going delivery of energy solution projects to provide renewable energy generation, energy management and storage solutions. New initiatives revenues were RMB0.6 million (US$0.1 million) in the third quarter of 2023, as the Company continued to launch new initiatives to expand its market offerings. Cost of revenues, gross profit and margin Total cost of revenues increased 392% year over year to RMB124.1 million (US$17.0 million) as the Company made significant progress in delivering various energy solution projects in mainland China and international markets. Total gross profit increased 28 times year over year from RMB1.6 million to RMB46.8 million (US$6.4 million), benefiting from solid revenue growth and significant year over year improvement in gross margin to 27.4% from 6.1%. Gross margin improved as the Company started to reap benefits from its know-how and capabilities in delivering and executing energy solution projects of different scales. Operating expenses Total operating expenses were RMB285.3 million (US$39.1 million) in the third quarter of 2023. Operating expenses as a percentage of revenues improved year over year from 385% to 167%, demonstrating the Company's increased operating leverage. Selling and marketing expenses increased from RMB67.7 million to RMB160.2 million (US$22.0 million) in the third quarter of 2023. The increase in selling and marketing expenses was mainly attributable to higher incentives to end-users and sales and marketing efforts relating to the energy solutions business. Costs associated with excess incentives to end-users included in selling and marketing expenses were RMB78.0 million (US$10.7 million) in the third quarter of 2023, compared with RMB38.6 million in the same period of 2022. Administrative expenses increased from RMB25.5 million to RMB107.7 million (US$14.8 million) in the third quarter of 2023. The increase in administrative expenses was largely due to an increase in headcount and professional service fees to support the Company's domestic and international business expansion. Research and development expenses increased from RMB10.3 million to RMB17.4 million (US$2.4 million) in the third quarter of 2023. The increase in research and development expenses was primarily due to the continued expansion of the Company's research and development team to enhance the Company's charging services and energy solutions business. Finance costs Finance costs were RMB8.5 million (US$1.2 million) for the third quarter of 2023, compared with finance costs of RMB9.8 million for the same period of 2022. Income tax expenses NaaS' income tax expenses were RMB2.2 million (US$0.3 million) for the third quarter of 2023, compared with income tax expenses of RMB3.8 million for the same period of 2022. Net loss and non-IFRS net loss attributable to ordinary shareholders; Net margin and non-IFRS net margin Net loss attributable to ordinary shareholders was RMB366.9 million (US$50.3 million) for the third quarter of 2023, compared with a net loss attributable to ordinary shareholders of RMB109.1 million for the same period of 2022. Non-IFRS net loss attributable to ordinary shareholders was RMB175.7 million (US$24.1 million) for the third quarter of 2023, compared with non-IFRS net loss attributable to ordinary shareholders of RMB96.5 million for the same period of 2022. Net margin improved from negative 406% to negative 214%, whereas non-IFRS net margin improved from negative 359% to negative 103%. Please refer to the section titled "Unaudited reconciliations of IFRS and non-IFRS results" for details. Outlook Based on preliminary assessment of the current market conditions, the Company reaffirms its previous guidance and expects its full-year 2023 revenues to be between RMB500 million (US$69 million) and RMB600 million (US$82 million), representing a year over year increase of 5 to 6 times. The Company expects its full-year 2024 revenues to be between RMB2 billion (US$274 million) and RMB3 billion (US$411 million). The foregoing is the current and preliminary view of NaaS' management and is subject to changes and uncertainties. Conference Call Information The Company's management will host an earnings conference call at 8:00 AM U.S. Eastern time on October 26, 2023 (8:00 PM Beijing/Hong Kong time on October 26, 2023). Participants who wish to join the conference call should register online at:https://s1.c-conf.com/diamondpass/10034495-gsp92v.html Once registration is completed, participants will receive the dial-in information for the conference call. Participants joining the conference call should dial-in at least 10 minutes before the scheduled start time. Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.enaas.com. A replay of the conference call will be accessible approximately two hours after the conclusion of the live call until November 2, 2023, by dialing the following telephone numbers: United States: 1 855 883 1031China: 400 1209 216Replay Access Code: 10034495 Exchange Rate This press release contains translations of certain RMB amounts into USD at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.2960 to US$1.00, the noon buying rate in effect on September 29, 2023, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release. Change in presentation of income statement Effective as of the third quarter of 2023, the Company implemented certain changes to align its income statement presentation more closely with the manner in which the Company's management currently receives and uses financial information to evaluate business performance following the Company's expansion of business lines, extension of its services to a broader range of energy asset owners, including EV charging stations, PV and energy asset owners, and recent acquisitions. The Company now reports its revenues under three primary categories: Charging services revenue, which includes income from the provision of mobility connectivity solutions to EV charging stations and the provision of charging services at charging stations that NaaS operates under its full station operation model. NaaS' mobility connectivity solutions include mobility services delivered in conjunction with Kuaidian, its partnered platform that is operated by a third-party service provider, and SaaS products that optimize the marketing, operations and energy efficiency of charging stations connected to NaaS' network. Energy solutions revenue, which includes income from the provision of integrated charging facilities and energy storage solutions that cover the planning, deployment, production and optimization of EV charging, renewable energy and energy storage systems for energy asset owners. New initiatives revenue, which includes income from electricity procurement services and other services that aim to enhance the efficiency and profitability of energy assets including charging stations, PV and energy storage assets. The Company retrospectively recast prior periods' income statement information to conform to the current period presentation. The recasting involved the recategorization of revenues from mobility connectivity services and from full station operation model to charging services revenue; the inclusion of revenues from EPC services, hardware procurement, station upgrade and maintenance services to energy solutions revenue; and the reclassification of income from electricity procurement, non-charging services such as food and beverage and online advertising, virtual power plant and charging robots to new initiatives revenue. These changes have no material impact on NaaS' previously reported consolidated net revenues, net income or net income per share. Non-IFRS Financial Measure The Company uses non-IFRS net profit/loss and non-IFRS net margin for the period, which are non-IFRS financial measures, in evaluating its operating results and for financial and operational decision-making purposes. NaaS believes that non-IFRS net profit/loss and non-IFRS net margin help identify underlying trends in the Company's business that could otherwise be distorted by the effect of certain expenses that the Company includes in its results for the period. NaaS believes that non-IFRS net profit/loss and non-IFRS net margin for the period provide useful information about its results of operations, enhances the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by its management in its financial and operational decision-making. Non-IFRS net profit/loss and non-IFRS net margin for the period should not be considered in isolation or construed as an alternative to operating profit or net profit for the period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-IFRS net profit/loss and IFRS net margin for the period and the reconciliation to their most directly comparable IFRS measures. Non-IFRS net profit/loss and non-IFRS net margin for the period presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. NaaS encourages investors and others to review its financial information in its entirety and not rely on a single financial measure. Non-IFRS net profit/loss for the period represents profit/loss for the period excluding share-based compensation expenses, equity-settled listing costs, fair value changes of convertible and redeemable preferred shares, and fair value changes of financial assets at fair value through profit or loss. Non-IFRS margin for the period is calculated by dividing non-IFRS net loss for the period by total revenue for the period. Merger Transactions On June 10, 2022, RISE Education Cayman Ltd, the Company's predecessor, completed the merger and other related transactions (the "Merger Transactions") with Dada Auto Inc. ("Dada"), as a result of which Dada became a wholly-owned subsidiary of the Company and the Company assumed and began conducting the principal business of Dada. The name of the Company was changed from "RISE Education Cayman Ltd" to "NaaS Technology Inc." and its ticker was changed from "REDU" to "NAAS." About NaaS Technology Inc. NaaS Technology Inc.(Nasdaq: NAAS) is the first U.S. listed EV charging service company in China. The Company is a subsidiary of Newlinks Technology Limited, a leading energy digitalization group in China. The Company provides one-stop solutions to energy asset owners comprising charging services, energy solutions and new initiatives, supporting every stage of energy asset's lifecycle and facilitating energy transition. As of September 30, 2023, NaaS had connected 767,611 chargers covering 73,710 charging stations, representing 41.6% and 50.0% of China's public charging market share respectively. Safe Harbor Statement 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. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. All information provided in this press release is as of the date hereof, and the Company 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 the Company 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. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: NaaS' goals and strategies; its future business development, financial conditions and results of operations; its ability to continuously develop new technology, services and products and keep up with changes in the industries in which it operates; growth of China's EV charging industry and EV charging service industry and NaaS' future business development; demand for and market acceptance of NaaS' products and services; NaaS' ability to protect and enforce its intellectual property rights; NaaS' ability to attract and retain qualified executives and personnel; the COVID-19 pandemic and the effects of government and other measures that have been or will be taken in connection therewith; U.S.-China trade war and its effect on NaaS' operation, fluctuations of the RMB exchange rate, and NaaS' ability to obtain adequate financing for its planned capital expenditure requirements; NaaS' relationships with end-users, customers, suppliers and other business partners; competition in the industry; relevant government policies and regulations related to the industry; and fluctuations in general economic and business conditions in China and globally. Further information regarding these and other risks is included in NaaS' filings with the SEC. For investor and media inquiries, please contact: Investor RelationsNaaS Technology Inc.E-mail: ir@enaas.comMedia inquiries:E-mail: pr@enaas.com NAAS TECHNOLOGY INC. UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND OTHER COMPREHENSIVE LOSS For the Three Months Ended For the Nine Months Ended September 30, 2022 September 30, 2023 September 30, 2022 September 30, 2023 (In thousands, except for share and per share and per ADS data) RMB RMB US$ RMB RMB US$ Charging services revenues 25,519 31,506 4,318 60,323 81,516 11,173 Energy solutions revenues 265 138,795 19,023 1,492 171,099 23,451 New initiatives revenues 1,087 643 88 1,544 3,104 425 Revenues 26,871 170,944 23,429 63,359 255,719 35,049 Cost of revenues (25,233) (124,115) (17,011) (64,377) (183,667) (25,174) Gross profit 1,638 46,829 6,418 (1,018) 72,052 9,875 Other gains, net 6,346 4,965 681 8,954 11,926 1,635 Operating expenses Selling and marketing expenses (67,713) (160,199) (21,957) (170,154) (312,684) (42,857) Administrative expenses (25,486) (107,668) (14,757) (2,149,647) (414,974) (56,877) Research and development expenses (10,256) (17,418) (2,387) (25,361) (36,431) (4,993) Total operating expenses (103,455) (285,285) (39,101) (2,345,162) (764,089) (104,727) Operating loss (95,471) (233,491) (32,002) (2,337,226) (680,111) (93,217) Finance costs (9,819) (8,539) (1,170) (10,081) (22,842) (3,131) Fair value changes of convertible and redeemable preferred shares — — — (3,158,498) — — Fair value changes of financial instruments at fair value through profit or loss — (120,985) (16,582) 1,753 (105,854) (14,508) Loss before income tax (105,290) (363,015) (49,754) (5,504,052) (808,807) (110,856) Income tax expenses (3,760) (2,178) (298) (6,457) (415) (57) Net loss (109,050) (365,193) (50,052) (5,510,509) (809,222) (110,913) Net loss attributable to: Equity holders of the company (109,050) (366,863) (50,281) (5,510,509) (811,183) (111,182) Non-controlling interests — 1,670 229 — 1,961 269 (109,050) (365,193) (50,052) (5,510,509) (809,222) (110,913) NAAS TECHNOLOGY INC. UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND OTHER COMPREHENSIVE LOSS For the Three Months Ended For the Nine Months Ended September 30, 2022 September 30, 2023 September 30, 2022 September 30, 2023 (In thousands, except for share and per share and per ADS data) RMB RMB US$ RMB RMB US$ Basic and diluted loss per share for loss attributable to the ordinary shareholders of the Company (Expressed in RMB per share) Basic (0.05) (0.16) (0.02) (2.97) (0.37) (0.05) Diluted (0.05) (0.16) (0.02) (2.97) (0.37) (0.05) Basic and diluted loss per ADS for loss attributable to the ordinary shareholders of the Company (Expressed in RMB per ADS) Basic (0.51) (1.63) (0.22) (29.74) (3.66) (0.50) Diluted (0.51) (1.63) (0.22) (29.74) (3.66) (0.50) Weighted average number of ordinary shares outstanding-basic 2,137,608,219 2,249,586,003 2,249,586,003 1,852,683,306 2,218,815,732 2,218,815,732 Weighted average number of ordinary shares outstanding-diluted 2,137,608,219 2,249,586,003 2,249,586,003 1,852,683,306 2,218,815,732 2,218,815,732 Net loss (109,050) (365,193) (50,052) (5,510,509) (809,222) (110,913) Other comprehensive loss that will not be reclassified to profitor loss in subsequent period: Fair value changes on equity investment designated at fair value through other comprehensive loss, net of tax — (4,363) (602) — (25,979) (3,583) Currency translation differences 17,222 (1,258) (173) 16,638 (1,583) (218) Other comprehensive loss, net of tax 17,222 (5,621) (775) 16,638 (27,562) (3,801) Total comprehensive loss (91,828) (370,814) (50,827) (5,493,871) (836,784) (114,714) Total comprehensive loss attributable to: Equity holders of the company (91,828) (372,484) (51,056) (5,493,871) (838,745) (114,983) Non-controlling interests — 1,670 229 — 1,961 269 (91,828) (370,814) (50,827) (5,493,871) (836,784) (114,714) NAAS TECHNOLOGY INC. UNAUDITED RECONCILIATIONS OF IFRS AND NON-IFRS RESULTS For the Three Months Ended For the Nine Months Ended September 30, 2022 September 30, 2023 September 30, 2022 September 30, 2023 (In thousands, except for share and per share and per ADS data) RMB RMB US$ RMB RMB US$ Reconciliation of Adjusted net loss attributable to ordinary shareholders of the Company to Net loss attributable to ordinary shareholders of the Company Net loss attributable to ordinary shareholders of the Company (109,050) (366,863) (50,281) (5,510,509) (811,183) (111,182) Add: Share-based compensation expenses 12,521 70,160 9,616 198,781 319,348 43,770 Equity-settled listing costs — — — 1,912,693 — — Fair value changes of instruments convertible to shares of the Company 120,400 16,502 120,400 16,502 Fair value changes of convertible and redeemable preferred shares — — — 3,158,498 — — Fair value changes of financial assets at fair value through profit or loss — 585 80 (1,753) (14,546) (1,994) Adjusted net loss attributable to ordinary shareholders of the Company (96,529) (175,718) (24,083) (242,290) (385,981) (52,904) Adjusted net basic and diluted loss per share for loss attributable to the ordinary shareholders of the Company (Expressed in RMB per share) Basic (0.05) (0.08) (0.01) (0.13) (0.17) (0.02) Diluted (0.05) (0.08) (0.01) (0.13) (0.17) (0.02) Adjusted net basic and diluted loss per ADS for loss attributable to the ordinary shareholders of the Company (Expressed in RMB per ADS) Basic (0.45) (0.78) (0.11) (1.31) (1.74) (0.24) Diluted (0.45) (0.78) (0.11) (1.31) (1.74) (0.24) Weighted average number of ordinary shares outstanding-basic 2,137,608,219 2,249,586,003 2,249,586,003 1,852,683,306 2,218,815,732 2,218,815,732 Weighted average number of ordinary shares outstanding-diluted 2,137,608,219 2,249,586,003 2,249,586,003 1,852,683,306 2,218,815,732 2,218,815,732 NAAS TECHNOLOGY INC. UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2022 September 30, 2023 (In thousands) RMB RMB US$ ASSETS Current assets Cash and cash equivalents 513,351 396,072 54,286 Trade receivables 130,004 233,704 32,032 Contract assets — 100,263 13,742 Financial assets at fair value through profit or loss — 178,146 24,417 Inventories — 18,852 2,584 Prepayments, other receivables and other assets 287,435 555,699 76,165 Other financial assets — 129,079 17,692 Total current assets 930,790 1,611,815 220,918 Non-current assets Right-of-use assets 17,030 12,984 1,780 Financial assets at fair value through profit or loss 11,753 16,260 2,229 Financial assets at fair value through other comprehensive income 129,060 103,081 14,128 Investments accounted for using equity method — 160 22 Property, plant and equipment 2,600 4,263 584 Other non-current assets 13,869 9,221 1,264 Intangible assets 833 11,572 1,586 Goodwill — 40,590 5,563 Total non-current assets 175,145 198,131 27,156 Total assets 1,105,935 1,809,946 248,074 LIABILITIES AND EQUITY Current liabilities Interest-bearing bank borrowings 38,000 149,582 20,502 Current lease liabilities 6,853 6,567 900 Trade payables 49,239 181,061 24,816 Income tax payables 16,214 16,258 2,228 Convertible bonds — 503,888 69,064 Other payables and accruals 81,835 218,660 29,971 Total current liabilities 192,141 1,076,016 147,481 Non-current liabilities Non-current lease liabilities 9,327 5,854 802 Interest-bearing bank borrowings 465,155 555,191 76,095 Deferred tax liabilities 438 2,344 321 Total non-current liabilities 474,920 563,389 77,218 Total liabilities 667,061 1,639,405 224,699 EQUITY Share capital 146,730 151,598 20,778 Additional paid in capital 6,358,600 6,919,111 948,343 Accumulated losses (6,031,255) (6,842,438) (937,834) Other reserves (35,201) (62,763) (8,602) Non-controlling interests — 5,033 690 Total equity 438,874 170,541 23,375 Total equity and liabilities 1,105,935 1,809,946 248,074
A12 藝術空間
Earnings projections or forecasts
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