PR Newswire | Nov 16, 2020 04:30PM EST

11/16 15:30 CST

iQIYI Announces Third Quarter 2020 Financial Results BEIJING, Nov. 16, 2020

BEIJING, Nov. 16, 2020 /PRNewswire/ -- iQIYI, Inc. (Nasdaq: IQ) ("iQIYI" or the "Company"), an innovative market-leading online entertainment service in China, today announced its unaudited financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Highlights

* Total revenues were RMB7.2 billion (US$1.1 billion[1]), representing a 3% decrease from the same period in 2019. * Operating loss was RMB1.2 billion (US$178.2 million) and operating loss margin was 17%, compared to operating loss of RMB2.8 billion and operating loss margin of 38% in the same period in 2019. * Net loss attributable to iQIYI was RMB1.2 billion (US$173.0 million), compared to net loss attributable to iQIYI of RMB3.7 billion in the same period in 2019. Diluted net loss attributable to iQIYI per ADS was RMB1.61 (US$0.24), compared to diluted net loss attributable to iQIYI per ADS of RMB5.04 in the same period of 2019. * The number of total subscribing members was 104.8 million as of September 30, 2020, 99.5% of whom were paying subscribing members. This compares to 105.8 million of total subscribing members as of September 30, 2019.

"Our business performed fairly well in the third quarter and in-line with our overall expectation," commented Dr. Yu Gong, Founder, Director, and Chief Executive Officer of iQIYI. "Despite the turbulence this year, we have leveraged a number of strategies, such as launching theatre-themed content and upgrading our membership portfolio, to improve our service and to better serve our users. Our Mist Theatre has become a remarkable success in terms of both reputation and ROI. In the coming quarters, we may continue to see fluctuations in the number of subscribers, driven by the normalization of user behaviour and content pipeline. However, with the valuable insight gained during this period, we believe our capabilities are sharpened in content generation and technology innovation, which have better positioned us to capture greater business opportunities in the future."

"Our advertising revenue increased by 16% quarter-over-quarter, while net loss margin significantly narrowed for two consecutive quarters on a year-over-year basis" commented Mr. Xiaodong Wang, Chief Financial Officer of iQIYI. "We continued our efforts on exploring diversified contents and innovated products with better ROI. Meanwhile, during such challenging times, we also managed our expenses more cautiously and efficiently. We believe our arduous efforts can lead to solid future growth in the long run."

Footnotes:

^[1] Unless otherwise noted, all translations from RMB to U.S. dollars are madeat a rate of RMB6.7896 to US$1.00, the exchange rate in effect as of September30, 2020 as set forth in the H.10 statistical release of the Board of Governorsof the Federal Reserve System. Translations are provided solely for theconvenience of the reader.

Third Quarter 2020 Financial Results

Total revenues reached RMB7.2 billion (US$1.1 billion), representing a 3% decrease from the same period in 2019.

Membership services revenue was RMB4.0 billion (US$585.5 million), representing a 7% increase from the same period in 2019. The increase was primarily attributable to our various operational initiatives to improve monetization.

Online advertising services revenue was RMB1.8 billion (US$271.0 million), representing a 11% decrease from the same period in 2019. The decrease was primarily due to the challenging macroeconomic environment in China.

Content distribution revenue was RMB392.3 million (US$57.8 million), representing a 42% decrease from the same period in 2019. The decrease was primarily due to less content titles we distributed to other platforms during the quarter.

Other revenues were RMB979.6 million (US$144.3 million), representing a 5% increase from the same period in 2019, primarily due to the growth of certain business lines.

Cost of revenues was RMB6.4 billion (US$937.2 million), representing a 22% decrease from the same period in 2019. The decrease in cost of revenues was primarily due to lower content costs during the quarter. Content costs as a component of cost of revenues were RMB4.7 billion (US$692.1 million), representing a 24% decrease from the same period in 2019 due to less new content being released online and update of accounting estimates of future viewership consumption patterns and useful lives of content assets to better reflect the expected usage of these content assets.

Selling, general and administrative expenses were RMB1.4 billion (US$200.9 million), representing a 1% increase from the same period in 2019. This was primarily due to increased share-based compensation expenses and allowance for doubtful accounts.

Research and development expenses were RMB669.9 million (US$98.7 million), representing a 5% decrease from the same period in 2019, primarily due to the decrease of personnel-related compensation expenses.

Operating loss was RMB1.2 billion (US$178.2 million), compared to operating loss of RMB2.8 billion in the same period in 2019. Operating loss margin was 17%, compared to operating loss margin of 38% in the same period in 2019.

Total other income was RMB67.0 million (US$9.9 million), compared to total other expense of RMB826.8 million during the same period of 2019. The year-over-year variance was mainly due to the fluctuation of exchange rate between Renminbi and the U.S. dollar.

Loss before income taxes was RMB1.1 billion (US$168.3 million), compared to loss before income taxes of RMB3.7 billion in the same period in 2019.

Income tax expense was RMB18.8 million (US$2.8 million), compared to income tax expense of RMB16.0 million in the same period in 2019.

Net loss attributable to iQIYI was RMB1.2 billion (US$173.0 million), compared to net loss attributable to iQIYI of RMB3.7 billion in the same period in 2019. Diluted net loss attributable to iQIYI per ADS was RMB1.61(US$0.24) for the third quarter of 2020, compared to diluted net loss attributable to iQIYI per ADS of RMB5.04 in the same period of 2019.

As of September 30, 2020, the Company had cash, cash equivalents, restricted cash and short-term investments of RMB7.4 billion (US$1.1 billion).

Financial Guidance

For the fourth quarter of 2020, iQIYI expects total net revenues to be between RMB7.28 billion (US$1.07 billion) and RMB7.73 billion (US$1.14 billion), representing a 3% decrease to a 3% increase year over year. This forecast reflects iQIYI's current and preliminary view, which may be subject to change.

Conference Call Information

iQIYI's management will hold an earnings conference call at 7:00 PM on November 16, 2020, U.S. Eastern Time (8:00 AM on November 17, 2020, Beijing Time).

Please register in advance of the conference using the link provided below. Upon registering, you will be provided with participant dial-in numbers, Direct Event passcode and unique registrant ID by email.

Participant Online Registration: http://apac.directeventreg.com/registration/event/2948288

It will automatically direct you to the registration page of "iQIYI Third Quarter 2020 Earnings Conference Call", where you may fill in your details for RSVP. If it requires you to enter a participant conference ID, please enter "2948288".

In the 10 minutes prior to the call start time, you may use the conference access information (including dial-in number(s), Direct Event passcode and unique registrant ID) provided in the confirmation email that you have received following your pre-registration.

A telephone replay of the call will be available after the conclusion of the conference call through November 24, 2020.

Dial-in numbers for the replay are as follows:

International Dial-in:+61 2 8199 0299

Passcode: 2948288

A live and archived webcast of the conference call will be available at http://ir.iqiyi.com/.

About iQIYI, Inc.

iQIYI, Inc. is an innovative market-leading online entertainment service in China. Its corporate DNA combines creative talent with technology, fostering an environment for continuous innovation and the production of blockbuster content. iQIYI's platform features highly popular original content, as well as a comprehensive library of other professionally-produced content, professional user generated content and user-generated content. The Company distinguishes itself in the online entertainment industry by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies. iQIYI attracts a massive user base with tremendous user engagement, and has developed a diversified monetization model including membership services, online advertising services, content distribution, online games, live broadcasting, IP licensing, talent agency, online literature and e-commerce etc.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under 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," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the Financial Guidance and quotations from management in this announcement, as well as iQIYI's strategic and operational plans, contain forward-looking statements. iQIYI may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about iQIYI's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. 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: iQIYI's strategies; iQIYI's future business development, financial condition and results of operations; iQIYI's ability to retain and increase the number of users, members and advertising customers, and expand its service offerings; competition in the online entertainment industry; changes in iQIYI's revenues, costs or expenditures; Chinese governmental policies and regulations relating to the online entertainment industry, general economic and business conditions globally and in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Company's filings with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release, and iQIYI undertakes no duty to update such information, except as required under applicable law.

Non-GAAP Financial Measures

To supplement iQIYI's consolidated financial results presented in accordance with GAAP, iQIYI uses free cash flow as non-GAAP financial measure. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

iQIYI believes that the non-GAAP financial measure provides meaningful supplemental information regarding its liquidity by excluding certain items that may not be indicative of its recurring liquidity position, such as operating cash flows adjusted by capital expenditures. The Company believes that both management and investors benefit from referring to the non-GAAP financial measure in assessing its liquidation and when planning and forecasting future periods. The non-GAAP financial measure also facilitates management's internal comparisons to iQIYI's historical liquidity. The Company believes the non-GAAP financial measure is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using the non-GAAP financial measure is that the non-GAAP measure exclude certain items that have been and will continue to be for the foreseeable future a significant component in the Company's results of operations. The non-GAAP financial measure 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.

Free cash flow represents net cash provided by operating activities less capital expenditures. Starting from January 1, 2020, iQIYI adopted ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, which reclassifies cash outflows for costs incurred to acquire licensed contents from investing activities to operating activities. To increase comparability, 2019 free cash flow has been adjusted to include cash outflows of acquisition of licensed copyrights, which is presented on the same basis as 2020 and going forward.

For more information, please contact:

Investor RelationsiQIYI, Inc.+ 86 10 8264 6585 ir@qiyi.com

iQIYI, INC.

Condensed Consolidated Statements of Loss

(In RMB thousands, except for number of shares and per share data)

Three Months Ended

September 30, June 30, September 30,

2019 2020 2020

RMB RMB RMB

(Unaudited) (Unaudited) (Unaudited)

Revenues:

Membership services 3,716,861 4,045,968 3,975,514

Online advertising services 2,067,385 1,586,083 1,840,231

Content distribution 680,377 860,629 392,338

Others 932,311 918,897 979,609

Total revenues 7,396,934 7,411,577 7,187,692

Operating costs and expenses:

Cost of revenues (8,175,751) (6,833,586) (6,363,438)

Selling, general and administrative (1,349,543) (1,195,632) (1,363,935)

Research and development (703,211) (664,045) (669,933)

Total operating costs and expenses (10,228,505) (8,693,263) (8,397,306)

Operating loss (2,831,571) (1,281,686) (1,209,614)

Other expense

Interest income 116,494 44,425 34,049

Interest expenses (254,435) (265,656) (269,311)

Foreign exchange (loss)/gain, net (656,105) 61,199 265,572

Loss from equity method investments (33,213) (62,205) (24,749)

Other income, net 478 81,389 61,461

Total other (expense)/income, net (826,781) (140,848) 67,022

Loss before income taxes (3,658,352) (1,422,534) (1,142,592)

Income tax expense (16,047) (15,926) (18,846)

Net loss (3,674,399) (1,438,460) (1,161,438)

Less: Net income attributable to noncontrolling interests 13,724 3,357 12,850

Net loss attributable to iQIYI, Inc. (3,688,123) (1,441,817) (1,174,288)

Accretion of redeemable noncontrolling interests - (1,747) (1,796)

Net loss attributable to ordinary shareholders (3,688,123) (1,443,564) (1,176,084)

Net loss per share for Class A and Class B ordinary shares:

Basic (0.72) (0.28) (0.23)

Diluted (0.72) (0.28) (0.23)

Net loss per ADS (1 ADS equals 7 Class A ordinary shares):

Basic (5.04) (1.96) (1.61)

Diluted (5.04) (1.96) (1.61)

Weighted average number of Class A and Class B ordinary shares used innet loss per share computation:

Basic 5,109,395,926 5,151,499,718 5,182,686,302

Diluted 5,109,395,926 5,151,499,718 5,182,686,302

iQIYI, INC.

Condensed Consolidated Balance Sheets

(In RMB thousands, except for number of shares and per share data)

December 31, September 30,

2019 2020

RMB RMB

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents 5,934,742 3,163,128

Restricted cash 974,932 655,653

Short-term investments 4,579,313 3,603,891

Accounts receivable 3,627,749 3,260,191

Prepayments and other assets 3,719,228 3,463,425

Amounts due from related parties 211,993 169,799

Licensed copyrights, net 1,224,881 1,247,415

Total current assets 20,272,838 15,563,502

Non-current assets:

Fixed assets, net 1,754,367 1,463,733

Long-term investments 2,982,154 3,710,782

Deferred tax assets, net 34,916 66,673

Licensed copyrights, net 6,287,330 6,061,511

Intangible assets, net 813,960 661,683

Produced content, net 4,355,221 5,517,095

Prepayments and other assets 3,508,476 2,711,235

Operating lease assets 722,742 1,001,648

Goodwill 3,888,346 3,888,346

Amounts due from related parties 172,200 242,000

Total non-current assets 24,519,712 25,324,706

Total assets 44,792,550 40,888,208

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS'EQUITY

Current liabilities:

Accounts and notes payable 8,212,449 7,455,954

Amounts due to related parties 1,604,258 1,828,085

Customer advances and deferred revenue 3,081,407 3,064,785

Short-term loans 2,618,170 3,804,396

Long-term loans, current portion 736,814 733,365

Operating lease liabilities, current portion 125,412 197,673

Accrued expenses and other liabilities 3,794,656 3,419,198

Total current liabilities 20,173,166 20,503,456

Non-current liabilities:

Long-term loans 880,278 628,286

Convertible senior notes 12,296,868 12,307,243

Deferred tax liabilities 30,136 13,749

Amounts due to related parties 1,061,883 993,608

Operating lease liabilities 402,732 757,882

Other non-current liabilities 232,555 207,071

Total non-current liabilities 14,904,452 14,907,839

Total liabilities 35,077,618 35,411,295

Redeemable noncontrolling interests: 101,542 106,802

Shareholders' equity:

Class A ordinary shares 142 146

Class B ordinary shares 183 183

Additional paid-in capital 41,298,328 42,464,474

Accumulated deficit (33,834,357) (39,424,412)

Accumulated other comprehensive income 2,106,718 2,274,276

Non-controlling interests 42,376 55,444

Total shareholders' equity 9,613,390 5,370,111

Total liabilities, redeemable noncontrolling interests and shareholders' equity 44,792,550 40,888,208

iQIYI, INC.

Condensed Consolidated Statements of Cash Flows

(In RMB thousands, except for number of shares and per share data)

Three Months Ended

September 30, June 30, September 30,

2019 2020 2020

RMB RMB RMB

(Unaudited) (Unaudited) (Unaudited)

Net cash provided by (used in) operating activities^(1) 293,485 (1,358,278) (1,929,077)

Net cash (used in) provided by investing activities ^(1^?^2) (921,736) 1,144,401 342,847

Net cash (used in) provided by financing activities (160,334) 822,793 238,109

Effect of exchange rate changes on cash, cash equivalents 257,690 (10,016) (113,074) and restricted cash

Net (decrease) increase in cash, cash equivalents and (530,895) 598,900 (1,461,195) restricted cash

Cash, cash equivalents and restricted cash

At beginning of period 7,624,018 4,681,076 5,279,976

At end of period 7,093,123 5,279,976 3,818,781

Net cash provided by (used in) operating activities 293,485 (1,358,278) (1,929,077)

Less: Capital expenditures ^(3) (180,885) (57,465) (89,938)

Less: Acquisition of licensed copyrights ^(1) (2,688,769) - -

Free cash flow (2,576,169) (1,415,743) (2,019,015)

(1) Starting from January 1, 2020, iQIYI adopted ASU 2019-02, Improvements toAccounting for Costs of Films andLicense Agreements for Program Materials, which reclassifies cash outflows forcosts incurred to acquirelicensed contents from investing activities to operating activities. Toincrease comparability, 2019 non-GAAPmeasure of free cash flow has been adjusted to include cash outflows ofacquisition of licensed copyrights, whichis presented on the same basis as 2020 and going forward.

(2) Starting from January 1, 2020, net cash used in or provided by investingactivities primarily consists of net cashflows from investing in debt securities, purchase of long term investments andcapital expenditures.

(3) Capital expenditures are incurred primarily in connection with leaseholdimprovements, computers and servers.

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SOURCE iQIYI, Inc.