BEIJING, Oct. 24, 2016 /PRNewswire/ -- Changyou.com Limited ("Changyou" or the "Company") (NASDAQ: CYOU), a leading online game developer and operator in China, today announced its unaudited financial results for the third quarter ended September 30, 2016.

http://photos.prnewswire.com/prnvar/20090402/CNTH020

Third Quarter 2016 Highlights


    --  Total revenues were US$136 million(1), representing a decrease of 28%
        year-over-year and an increase of 5% quarter-over-quarter, exceeding
        guidance by $1 million.
    --  Online game revenues were US$99 million, representing a decrease of 35%
        year-over-year and 1% quarter-over-quarter, in line with the Company's
        guidance.
    --  GAAP net income attributable to Changyou.com Limited was US$39 million,
        or US$0.73 per fully-diluted ADS(2).
    --  Non-GAAP(3) net income attributable to Changyou.com Limited was US$46
        million, exceeding the Company's guidance by US$16 million(4). This
        compares with US$78 million in the third quarter of 2015 and US$36
        million in the second quarter of 2016.
    --  Non-GAAP net income attributable to Changyou.com Limited per
        fully-diluted ADS was US$0.85. This compares with US$1.43 in the third
        quarter of 2015 and US$0.68 in the second quarter of 2016.

Mr. Dewen Chen, CEO, commented, "In the year since we repositioned ourselves as game-centric company, we adopted the strategy, 'Top games, Big IP, and Mass marketing'. We have been working to diversify our portfolio of games and we have set higher criteria for assessing games in order to maintain the user base and draw new players to our various online and mobile worlds. We have full confidence in this process, and believe we have set ourselves up well for the coming year."

Mr. Qing Wei, Chief Games Development Officer added, "During the third quarter, we conducted a test on Legacy TLBB with Tencent and the results essentially matched both of our expectations. Progress on the game's development has been in line with our schedule, and we are now entering the final stages of fine-tuning. We expect to be able to launch the game at the beginning of 2017."

Ms. Jasmine Zhou, CFO of Changyou added, "We are pleased that we exceeded our revenue guidance and non-GAAP net income guidance. Online game revenues remained stable at around $100 million compared with the second quarter, and we were able to keep fairly tight control of our costs. Total revenues and online game revenues are expected to decline slightly in the fourth quarter. Overall, we believe that we are well positioned for a rebound in 2017 as we get closer to releasing a diverse collection of new and exciting games that are currently under development."



    [1] For the third quarter of 2016, on a
     yearly basis, the depreciation of the RMB
     against the U.S. dollar impacted our
     reported financial results. Should the
     exchange rate be at RMB6.26=US$1.00 as
     the same of the third quarter of 2015,
     total revenues in the third quarter of
     2016 have been US$145 million, or US$9
     million higher than the GAAP total
     revenue, or down 23% year-over-year.


    [2] Each ADS represents two Class A
     ordinary shares.


    [3] Non-GAAP results exclude share-based
     compensation expense, non-cash tax
     benefits from excess tax deductions
     related to share-based awards and
     income/expense from the adjustment of
     contingent consideration previously
     recorded for acquisitions.  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 Operations Measures to the Nearest
     Comparable GAAP Measures."


    [4] As noted in the Company's report of
     results for the second quarter of 2016,
     the Company's guidance for the third
     quarter of 2016 excluded the potential
     impact of a tax expense adjustment on the
     Company's results. During the third
     quarter of 2016, the Company recognized a
     tax benefit for the preferential tax rate
     of one of the Company's PRC subsidiaries
     as a "2015 Key National Software
     Enterprise". If the tax benefit was
     deducted from the third quarter results,
     non-GAAP net income attributable to
     Changyou.com Limited would exceed the
     Company's guidance by US$5 million for
     the third quarter of 2016.

Third Quarter 2016 Operational Results


    --  Total average monthly active accounts(5) of the Company's PC games were
        2.7 million, representing a decrease of 34% year-over-year and 7%
        quarter-over-quarter. The year-over-year and quarter-over-quarter
        decreases reflected the natural declining life cycles of the Company's
        older PC games.
    --  Total average monthly active accounts of the Company's mobile games were
        2.8 million, representing an increase of 17% both year-over-year and
        quarter-over-quarter. The year-over-year and quarter-over-quarter
        increases were mainly due to the launch of new games Da Da Da Luan Dou
        and Hortesia Saga in the third quarter of 2016.
    --  Total quarterly aggregate active paying accounts(6) of the Company's PC
        games were 1.0 million, representing a decrease of 23% year-over-year
        and flat quarter-over-quarter. The year-over-year decrease reflected the
        natural declining life cycles of the Company's older PC games.
    --  Total quarterly aggregate active paying accounts of the Company's mobile
        games were 0.7 million, representing an increase of 17% both
        year-over-year and quarter-over-quarter. The year-over-year increase was
        due to the launch of new games Da Da Da Luan Dou and Hortesia Saga in
        the third quarter of 2016. The quarter-over-quarter increase was mainly
        due to the launch of new games Da Da Da Luan Dou and Hortesia Saga in
        the third quarter of 2016, and was also a result of an increase in total
        quarterly aggregate active paying accounts of TLBB 3D due to the
        Company's efforts in retaining the core base of players and encouraging
        returning players.


    [5] Average Monthly Active
     Accounts for a given
     period refers to the
     number of registered
     accounts that were logged
     in to these games at
     least once during the
     period.


    [6] Quarterly Aggregate
     Active Paying Accounts
     for a given period refers
     to the number of accounts
     from which game points
     are utilized at least
     once during the quarter.

Third Quarter 2016 Unaudited Financial Results

Revenues

Total revenues were US$136 million, representing a decrease of 28% year-over-year and an increase of 5% quarter-over-quarter.

Online game revenues were US$99 million, representing a decrease of 35% year-over-year and 1% quarter-over-quarter. The year-over-year decrease was mainly due to the natural decline in revenues of older games, such as TLBB and TLBB 3D, and a decrease in Web game revenues upon the completion of the sale of the 7Road business during the third quarter of 2015.

Online advertising revenues were US$12 million, representing a decrease of 36% year-over-year and an increase of 1% quarter-over-quarter. The year-over-year decrease was mainly due to fewer PC games being marketed on the 17173 Website.

Internet value-added services ("IVAS") revenues were US$4 million, representing a decrease of 15% year-over-year and 5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases were a result of lower revenues from mobile internet products in the third quarter of 2016.

Other revenues, which consist of cinema advertising revenues, were US$21 million, representing an increase of 66% year-over-year and 55% quarter-over-quarter. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general. The quarter-over-quarter increase was mainly due to a seasonal pickup of the cinema business during the summer holiday, as well as a business expansion strategy to purchase more cinema resources related to our cinema advertising business.

Gross profit

GAAP and non-GAAP gross profit were both US$95 million, representing a decrease of 32% year-over-year and an increase of 9% quarter-over-quarter. GAAP and non-GAAP gross margins were both 70%, compared with 74% for both in the third quarter of 2015, and 68% for both in the second quarter of 2016.

GAAP and non-GAAP gross profit of the online games business were both US$75 million, representing a decrease of 37% and 36% for year-over-year, respectively, and an increase of 1% for both quarter-over-quarter. GAAP and non-GAAP gross margin of the online games business were both 76%, compared with 77% in the third quarter of 2015 and 74% in the second quarter of 2016. The quarter-over-quarter increase in gross margin was due to a smaller revenue contribution from mobile games, which typically require additional revenue-sharing payments.

GAAP and non-GAAP gross profit of the online advertising business were both US$9 million, representing a decrease of 43% year-over-year and 3% quarter-over-quarter. GAAP and non-GAAP gross margin of the online advertising business were both 76%, compared with 86% in the third quarter of 2015 and 79% in the second quarter of 2016. The year-over-year decrease in gross margin was due to a decrease in online advertising revenues.

GAAP and non-GAAP gross profit for the IVAS business were both US$2 million, compared with a gross profit of US$1 million in the third quarter of 2015 and a gross profit of US$2 million in the second quarter of 2016.

GAAP and non-GAAP gross profit of the other business were both US$9 million, compared with US$5 million in the third quarter of 2015 and US$3 million in the second quarter of 2016.The increases were mainly due to an increase in other business revenues.

Operating expenses

Total operating expenses were US$65 million, representing a decrease of 44% year-over-year and an increase of 12% quarter-over-quarter.

Product development expenses were US$30 million, representing a decrease of 24% year-over-year and 4% quarter-over-quarter. The year-over-year decrease reflected a reduction in salary and benefits expenses due to a reduction in headcount during the past year, which was partially offset by an increase in share-based compensation expense(7) compared with the third quarter of 2015. The quarter-over-quarter decrease was due to a reduction in bonus expense, which was partially offset by an increase in share-based compensation expense(8) compared with the second quarter of 2016.

Sales and marketing expenses were US$19 million, representing a decrease of 14% year-over-year and an increase of 40% quarter-over-quarter. The year-over-year decrease was due to a reduction in salary and benefits expenses, which was a result of reduced workforce as well as a reduction in bonus expense. The quarter-over-quarter increase was mainly due to an increase in marketing spending to promote the new game Da Da Da Luan Dou launched in the third quarter and an upcoming annual expansion pack of TLBB PC game in the fourth quarter.

General and administrative expenses were US$16 million, representing an increase of 13% year-over-year and 22% quarter-over-quarter. The year-over-year increase was mainly due to an increase in share-based compensation expense(7) compared with the third quarter of 2015, which was partially offset by a decrease in salary and benefits expenses due to a reduction in headcount and severance payments. The quarter-over-quarter increase was mainly due to an increase in share-based compensation expense(8) compared with the second quarter of 2016.



    [7] The increase in share-based
     compensation expense was
     triggered by an increase in the
     market price for the Company's
     ADSs compared to the third
     quarter of 2015.


    [8] The increase in share-based
     compensation expense was
     triggered by an increase in the
     market price for the Company's
     ADSs compared to the second
     quarter of 2016.

Operating profit

Operating profit was US$29 million, compared with US$24 million in the third quarter of 2015 and US$29 million in the second quarter of 2016.

Non-GAAP operating profit was US$37 million, compared with US$20 million in the third quarter of 2015 and US$33 million in the second quarter of 2016.

Other Income

Other income was US$3 million, compared with US$59 million in the third quarter of 2015 and US$4 million in the second quarter of 2016. The year-over-year decrease was mainly due to one-off income related to gain recognized upon the divestment of 7Road and certain overseas assets during the third quarter of 2015.

Income tax benefit/ (expense)

Income tax benefit was US$1 million, compared with an income tax expense of US$26 million in the third quarter of 2015 and US$5 million in the second quarter of 2016, respectively. The income tax benefit in the third quarter of 2016 was mainly due to recognition of a tax benefit for the preferential tax rate of one of the Company's subsidiaries as a "2015 Key National Software Enterprise" in the third quarter of 2016.

Net income

Net income was US$39 million, which compares with US$62 million in the third quarter of 2015 and US$33 million in the second quarter of 2016.

Non-GAAP net income was US$46 million, which compares with US$59 million in the third quarter of 2015 and US$37 million in the second quarter of 2016.

Net income/ (loss) attributable to non-controlling interests

Both GAAP and non-GAAP net income attributable to non-controlling interests was US$0.3 million. This compares with both a GAAP and non-GAAP net loss of US$19 million in the third quarter of 2015, and a GAAP and a non-GAAP net income of US$0.4 million in the second quarter of 2016. Non-controlling interests include the non-controlling interests in RaidCall, which provides online music and entertainment services primarily in Taiwan, and in MoboTap Inc., the developer of the Dolphin Browser. The GAAP and non-GAAP net loss in the third quarter of 2015 was mainly due to an impairment charge related to the Dolphin Browser having been recognized.

Net income attributable to Changyou.com Limited

Net income attributable to Changyou.com Limited was US$39 million, compared with US$81 million in the third quarter of 2015 and US$33 million in the second quarter of 2016. Fully-diluted net income attributable to Changyou.com Limited per ADS was US$0.73. This compares with US$1.55 in the third quarter of 2015 and US$0.62 in the second quarter of 2016.

Non-GAAP net income attributable to Changyou.com Limited was US$46 million. This compares with US$78 million in the third quarter of 2015 and US$36 million in the second quarter of 2016. Non-GAAP fully-diluted net income attributable to Changyou.com Limited per ADS was US$0.85. This compares with US$1.43 in the third quarter of 2015 and US$0.68 in the second quarter of 2016.

Liquidity

As of September 30, 2016, Changyou had net cash(9) of US$848 million, compared with US$755 million as of December 31, 2015.

Operating cash flow for the third quarter of 2016 was a net inflow of US$47 million.



    [9] Net cash is calculated as
     the sum of cash and cash
     equivalents, short-term
     investments, current and non-
     current restricted time
     deposits, minus short-term
     bank loans.

Business Outlook

For the fourth quarter of 2016, Changyou expects:


    --  Total revenues to be between US$120 million and US$130 million,
        including online game revenues of US$85 million to US$95 million;
    --  Non-GAAP net income attributable to Chanyou.com Inc. to be between US$30
        million and US$35 million, and non-GAAP income per fully-diluted share
        to be between US$0.56 and US$0.65. Assuming no new grants of share-based
        awards and that the market price of our shares is unchanged; we estimate
        that compensation expense relating to share-based awards will be around
        US$2.0 million and US$3.0 million. Considering eliminating the impact of
        these share-based awards, GAAP net income attributable to Changyou.com
        to be between US$27 million and US$33 million, and GAAP income per
        fully-diluted share to be between US$0.51 and US$0.62.

For the fourth quarter 2016 guidance, the Company has adopted a presumed exchange rate of RMB6.7 = US$1.00, as compared with the actual exchange rate of approximately RMB6.39 = US$1.00 for the fourth quarter 2015, and RMB6.66=US$ 1.00 for the third quarter 2016.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"), Changyou's management uses non-GAAP measures of gross profit, operating profit, net income, net income attributable to Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, which are adjusted from results based on GAAP to exclude the compensation cost of share-based awards granted, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions. 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.

Changyou's management believes that excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions from its non-GAAP financial measures is useful for itself and investors. Further, the amount of share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions cannot be anticipated by management, and these expenses are not built into the Company's annual budgets and quarterly forecasts, which generally will be the basis for information Changyou provides to analysts and investors as guidance for future operating performance. As share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions does not involve subsequent cash outflow, Changyou does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business operations. As a result, in general, the monthly financial results for internal reporting and any performance measure for commissions and bonuses are based on non-GAAP financial measures that exclude share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions.

The non-GAAP financial measures are provided to enhance investors' overall understanding of Changyou'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 Changyou.com Limited and diluted net income attributable to Changyou.com Limited per ADS, excluding share-based compensation expense, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions, is that the share-based compensation charge has been and will continue to be a significant recurring expense in the Company's business for the foreseeable future, non-cash tax benefits from excess tax deductions related to share-based awards and income/expense from the adjustment of contingent consideration previously recorded for acquisitions may recur in the future. In order to mitigate these limitations the Company has provided specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables include details on the reconciliation between GAAP financial measures that are most directly comparable to the non-GAAP financial measures the Company has presented.

Notes to Financial Information

Financial information in this press release other than the information indicated as being non-GAAP is derived from Changyou's unaudited financial statements prepared in accordance with GAAP.

Loan Agreement and Share Pledge Agreement with Sohu.com Inc. ("Sohu")

On October 24, 2016, Changyou entered into a loan agreement with a PRC subsidiary of Sohu, Changyou's parent company, pursuant to which the PRC subsidiary may borrow up to RMB1 billion (or approximately US$148.64 million) from a PRC subsidiary of Changyou from time to time, with the first advance request to occur prior to December 31, 2016 and Sohu's right to request advances continuing for one year after the first advance, subject to extension for an additional year with Changyou's consent. Principal amounts outstanding under the loan agreement will bear interest at an annual rate of 6%, accruing and payable on each one-year anniversary of each advance. The outstanding principal of each advance will be due one year from the date of the advance, subject to extension for an additional year with Changyou's consent. Advances under the loan agreement will be secured by a pledge to Changyou under a share pledge agreement of an agreed-upon number of Changyou Class B ordinary shares of Changyou held by Sohu. The share pledge agreement will give Changyou the right to apply the outstanding principal and accrued interest on the loan to the repurchase of Changyou Class B ordinary shares from Sohu in the event such principal and interest are not paid when due. Sohu has indicated that it will use amounts drawn down under the loan agreement to finance Sohu's operations, excluding the operations of Changyou and of Sohu's subsidiary Sogou.

A special committee of the Company's Board of Directors (the "Board"), composed solely of independent directors, determined that the terms of the proposed loan were fair to the Company and recommended that the Board approve the loan agreement and the share pledge agreement. The Board, relying on the special committee's recommendation and an evaluation report from the financial advisor to the special committee, determined that the terms of the proposed loan were fair to the Company, and approved the loan agreement and the share pledge agreement.

Safe Harbor Statement

It is currently expected that the Business Outlook will not be updated until the release of Changyou's next quarterly earnings announcement; however, Changyou reserves the right to update its Business Outlook at any time for any reason.

This announcement contains forward-looking statements. Statements that are not historical facts, including statements about the Company'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. The Company cautions 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, continuing volatility in global financial and credit markets and its potential impact on the Chinese economy; exchange rate fluctuations in general and possible continued valuation of the RMB in particular, including their potential impact on the Chinese economy and on the Company's reported U.S. dollar results; slowing growth in the Chinese economy; the uncertain regulatory landscape in the People's Republic of China; fluctuations in Changyou's quarterly operating results; the possibility that Changyou will be unable to develop a series of successful games for mobile platforms or successfully monetize mobile games it develops or acquires; the possibility that the Company's margins will decline as a result of the need for revenue-sharing with mobile game platform operators; and the Company's reliance on TLBB as its major revenue source. Further information regarding these and other risks is included in Changyou's Annual Report on Form 20-F filed on February 26, 2016, and other filings with the Securities and Exchange Commission.

Conference Call Information

Changyou's management team will host an earnings conference call today at 7 a.m. U.S. Eastern Time, October 24, 2016 (7 p.m. Beijing/Hong Kong, October 24, 2016).

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



    US:                               +1-855-298-3404

    Hong Kong:                        +852-5808-3202

    China Mainland:                   +86-400-1200-539

    International:                    +1-631-514-2526

    Passcode:                         CYOU

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A telephone replay of the call will be available after the conclusion of the conference call at 10: 00 a.m. Eastern Time on October 24, 2016 through October 31, 2016. The dial-in details for the telephone replay are:



    International:                          +1- 866-846-0868

    Passcode:                                              2116291

The live Webcast and archive of the conference call will be available on the Investor Relations section of Changyou's Website at http://ir.changyou.com/.

About Changyou

Changyou.com Limited (NASDAQ: CYOU) is a leading developer and operator of online games in China with a diverse portfolio of popular online games , such as Tian Long Ba Bu ("TLBB"), one of the most popular PC games in China, as well as a number of mobile games. Changyou also owns and operates the 17173.com Website, a leading game information portal in China. Changyou began operations as a business unit within Sohu.com Inc. (NASDAQ: SOHU) in 2003, and was carved out as a separate, stand-alone company in December 2007. It completed an initial public offering on April 7, 2009. Changyou has an advanced technology platform that includes advanced 2.5D and 3D graphics engines, a uniform game development platform, effective anti-cheating and anti-hacking technologies, proprietary cross-networking technology and advanced data protection technology. For more information, please visit http://ir.changyou.com.

For investor and media inquiries, please contact:

In China:

Ms. Margaret Shi
Investor Relations
Tel: +86 (10) 6192-0800
E-mail: ir@cyou-inc.com

In the United States:

Ms. Linda Bergkamp
Christensen
Tel: +1-480-614-3004
E-mail: lbergkamp@ChristensenIR.com



                                                                                    CHANGYOU.COM LIMITED

                                                                      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                      (UNAUDITED, IN THOUSANDS EXCEPT PER ADS AMOUNTS)


                                                                                                                                                       Three Months Ended
                                                                                                                                                       ------------------

                                                                                                                               Sep. 30, 2016           Jun. 30, 2016                Sep. 30, 2015
                                                                                                                               -------------           -------------                -------------


    Revenues:

             Online game                                                                                                                       $98,553                      $99,226                  $152,501

             Online advertising                                                                                                               11,651                       11,541                    18,255

             IVAS                                                                                                                              4,600                        4,844                     5,400

             Others                                                                                                                           21,058                       13,549                    12,719
                                                                                                                                              ------                       ------                    ------

                        Total revenues                                                                                                       135,862                      129,160                   188,875


    Cost of revenues:

             Online game (includes share-based compensation                                                                                   23,719                       25,383                    34,637
             expense of $26, $17 and $(97) respectively)

             Online advertising                                                                                                                2,761                        2,370                     2,572

             IVAS (includes share-based compensation expense of $0,                                                                            2,711                        3,114                     4,175
                                                                                                                  $0 and $0 respectively)

             Others                                                                                                                           11,906                       11,017                     7,342
                                                                                                                                              ------                       ------                     -----

                        Total cost of revenues                                                                                                41,097                       41,884                    48,726


    Gross profit                                                                                                                              94,765                       87,276                   140,149


    Operating expenses:

             Product development (includes share-based compensation                                                                           29,934                       31,112                    39,557
             expense of $2,524, $1,334 and $(621) respectively)

             Sales and marketing (includes share-based compensation                                                                           18,748                       13,353                    21,919
             expense of $437, $299 and $280 respectively)

             General and administrative (includes share-based                                                                                 16,647                       13,668                    14,714
             compensation expense of $4,215, $1,762 and $(3,027)
             respectively)

             Goodwill impairment and impairment of intangibles via                                                                         -                       -                       40,324
             acquisitions of businesses


                       Total operating expenses                                                                                               65,329                       58,133                   116,514
                                                                                                                                              ------                       ------                   -------


    Operating profit                                                                                                                          29,436                       29,143                    23,635


    Net interest income                                                                                                                        5,879                        3,233                     3,279

    Foreign currency exchange gain                                                                                                               518                        2,450                     2,335

    Other income                                                                                                                               2,691                        3,522                    58,555
                                                                                                                                               -----                        -----                    ------

    Income before income tax expense                                                                                                          38,524                       38,348                    87,804

    Income tax  benefit/(expense)                                                                                                                519                      (5,012)                 (25,784)
                                                                                                                                                 ---                       ------                   -------

    Net income                                                                                                                                39,043                       33,336                    62,020

             Less: Net income/ (loss) attributable to non-controlling                                                                            339                          402                  (19,098)
                       interests


    Net income attributable to Changyou.com Limited                                                                                            $38,704                      $32,934                   $81,118



    Basic net income per ADS attributable to Changyou.com                                                                                        $0.74                        $0.63                     $1.55
    Limited



    ADSs used in computing basic net income  per ADS                                                                                          52,292                       52,254                    52,238
    attributable to Changyou.com Limited



    Diluted net income per ADS attributable to Changyou.com                                                                                      $0.73                        $0.62                     $1.55
    Limited



    ADSs used in computing diluted net income per ADS                                                                                         53,219                       53,113                    52,388
    attributable to Changyou.com Limited


                                                                                   CHANGYOU.COM LIMITED

                                                                           CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                 (UNAUDITED, IN THOUSANDS)


                                                                                                                             As of Sep. 30, 2016             As of Dec. 31, 2015
                                                                                                                             -------------------             -------------------


    ASSETS

    Current assets:

    Cash and cash equivalents                                                                                                                       $636,934                        $569,917

    Accounts receivable, net                                                                                                                        49,661                          67,959

    Short-term investments                                                                                                                         211,286                         174,515

    Restricted time deposits10                                                                                                                 -                         227,285

    Deferred tax assets                                                                                                                              4,561                           4,673

    Prepaid and other current assets                                                                                                               450,345                         227,719

    Assets held for sale11                                                                                                                         101,786                               -

    Total current assets                                                                                                                         1,454,573                       1,272,068
                                                                                                                                                 ---------                       ---------

    Non-current assets:

    Fixed assets, net                                                                                                                              199,773                         214,306

    Goodwill                                                                                                                                        27,133                         111,082

    Intangible assets, net                                                                                                                          11,693                          25,139

    Restricted time deposits10                                                                                                                 -                         127,454

    Deferred tax assets                                                                                                                              6,580                          12,729

    Other assets, net                                                                                                                                7,507                          16,728

    Total non-current assets                                                                                                                       252,686                         507,438
                                                                                                                                                   -------                         -------

    TOTAL ASSETS                                                                                                                                  $1,707,259                      $1,779,506



    LIABILITIES

    Current liabilities:

    Receipts in advance and deferred revenue                                                                                                         $48,274                         $42,166

    Accounts payable and accrued liabilities                                                                                                       462,184                         275,926

    Short-term bank loans10                                                                                                                    -                         344,500

    Tax payables                                                                                                                                     5,896                          27,423

    Deferred tax liabilities                                                                                                                        26,247                          24,884

    Liabilities held for sale11                                                                                                                      3,236                               -

    Total current Liabilities                                                                                                                      545,837                         714,899
                                                                                                                                                   -------                         -------

    Long-term liabilities:

    Long-term deferred tax liabilities                                                                                                               3,485                           3,616

    Long-term accounts payable                                                                                                                          27                           1,004

    Long-term tax payable                                                                                                                           13,811                               -

    Other long-term liabilities                                                                                                                        773                             738
                                                                                                                                                       ---                             ---

    Total long-term liabilities                                                                                                                     18,096                           5,358
                                                                                                                                                    ------                           -----

    Total liabilities                                                                                                                              563,933                         720,257

    SHAREHOLDERS' EQUITY

    Changyou.com Limited shareholders' equity                                                                                                    1,113,816                       1,029,479

    Non-controlling interests                                                                                                                       29,510                          29,770

    Total shareholders' equity                                                                                                                   1,143,326                       1,059,249

    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                    $1,707,259                      $1,779,506



    [10] Changyou repaid all of the remaining bank loans of $345 million, and restricted time deposits of $355 million that
    secured these loans were released during the first quarter of 2016.

    [11] Changyou management had an intention to divest the Company's interest in MoboTap during the third quarter of 2016.
    Therefore, the assets and liabilities of MoboTap were recognized as "Assets held for sale" and "Liabilities held for sale,"
    respectively, in the third quarter of 2016.


                                                                                       CHANGYOU.COM LIMITED

                                                RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

                                                                         (UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                                                                                        Three Months Ended Sep. 30, 2016
                                                                                                                                        --------------------------------

                                                                                                                                      Non-GAAP adjustments
                                                                                                                                      --------------------

                                                                                                       GAAP                                                                    Non-GAAP
                                                                                                                                           Share-based
                                                                                                                                    compensation expense (a)
                                                                                                                                    -----------------------

    Online game gross profit                                                                                              $74,834                                           26                74,860

    Online advertising gross profit                                                                                       8,890                                            0                 8,890

    IVAS gross profit                                                                                                     1,889                                            0                 1,889

    Other gross profit                                                                                                    9,152                                            0                 9,152
                                                                                                                          -----                                          ---                 -----

    Gross profit                                                                                                          $94,765                                           26                94,791


    Gross margin                                                                                                 70%                                                                    70%
                                                                                                                 ===                                                                     ===


    Operating profit                                                                                                      $29,436                                        7,202                36,638


    Operating margin                                                                                             22%                                                                    27%
                                                                                                                 ===                                                                     ===


    Net income                                                                                                            $39,043                                        7,202                46,245


    Less: Net income attributable to                                                                                        339                                            8                   347
    non-controlling interests


    Net income attributable to Changyou.com                                                                               $38,704                                        7,194                45,898
    Limited


    Net margin attributable to Changyou.com                                                                      28%                                                                    34%
    Limited


    Diluted net income attributable to                                                                                      $0.73                                                              0.85
    Changyou.com Limited per ADS


    ADSs used in computing diluted net income                                                                 53,219                                                                  53,796
    attributable to Changyou.com Limited per
    ADS



    Note:

    (a)  To eliminate share-based compensation expense measured using the fair value method.


                                                                                       CHANGYOU.COM LIMITED

                                                RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

                                                                         (UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                                                                                        Three Months Ended Jun. 30, 2016
                                                                                                                                        --------------------------------

                                                                                                                                      Non-GAAP adjustments
                                                                                                                                      --------------------

                                                                                                            GAAP                                                               Non-GAAP
                                                                                                                                           Share-based
                                                                                                                                    compensation expense (a)
                                                                                                                                    -----------------------

    Online game gross profit                                                                                              $73,843                                           17              73,860

    Online advertising gross profit                                                                                       9,171                                            0               9,171

    IVAS gross profit                                                                                                     1,730                                            0               1,730

    Other gross profit                                                                                                    2,532                                            0               2,532
                                                                                                                          -----                                          ---               -----

    Gross profit                                                                                                          $87,276                                           17              87,293


    Gross margin                                                                                                 68%                                                                  68%
                                                                                                                 ===                                                                   ===


    Operating profit                                                                                                      $29,143                                        3,412              32,555


    Operating margin                                                                                             23%                                                                  25%
                                                                                                                 ===                                                                   ===


    Net income                                                                                                            $33,336                                        3,412              36,748


    Less: Net income attributable to                                                                                        402                                            8                 410
    non-controlling interests


    Net income attributable to Changyou.com                                                                               $32,934                                        3,404              36,338
    Limited


    Net margin attributable to Changyou.com                                                                      25%                                                                  28%
    Limited


    Diluted net income attributable to                                                                                      $0.62                                                            0.68
    Changyou.com Limited per ADS


    ADSs used in computing diluted net income                                                                 53,113                                                                53,759

    attributable to Changyou.com Limited per
    ADS



    Note:

    (a)  To eliminate share-based compensation expense measured using the fair value method.


                                                                                          CHANGYOU.COM LIMITED

                                                   RECONCILIATIONS OF NON-GAAP RESULTS OF OPERATIONS MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES

                                                                           (UNAUDITED, IN THOUSANDS, EXCEPT PER ADS AMOUNTS)


                                                                                                                                            Three Months Ended Sep. 30, 2015
                                                                                                                                            --------------------------------

                                                                                                                                          Non-GAAP adjustments
                                                                                                                                          --------------------

                                                                                                               GAAP                                                                  Non-GAAP
                                                                                                                                               Share-based
                                                                                                                                        compensation expense (a)
                                                                                                                                        -----------------------

    Online game gross profit                                                                                                 $117,864                                           (97)                117,767

    Online advertising gross profit                                                                                          15,683                                              0                  15,683

    IVAS gross profit                                                                                                         1,225                                              0                   1,225

    Other gross profit                                                                                                        5,377                                              0                   5,377
                                                                                                                              -----                                            ---                   -----

    Gross profit                                                                                                             $140,149                                           (97)                140,052


    Gross margin                                                                                                    74%                                                                     74%
                                                                                                                    ===                                                                      ===


    Operating profit                                                                                                          $23,635                                        (3,465)                 20,170


    Operating margin                                                                                                13%                                                                     11%
                                                                                                                    ===                                                                      ===


    Net income                                                                                                                $62,020                                        (3,465)                 58,555


    Less: Net loss attributable to                                                                                         (19,098)                                            19                (19,079)
    non-controlling interests


    Net income attributable to Changyou.com                                                                                   $81,118                                        (3,484)                 77,634
    Limited


    Net margin attributable to Changyou.com                                                                         43%                                                                     41%
    Limited


    Diluted net income attributable to                                                                                          $1.55                                                                  1.43
    Changyou.com Limited per ADS


    AADSs used in computing diluted net income                                                                   52,388                                                                   54,155
    attributable to Changyou.com Limited per
    ADS



    Note:

    (a)  To eliminate share-based compensation expense measured using the fair value method.  The downward adjustment of share-based
    compensation expense in the current period was a result of fluctuation in the market price for the Company's ADS.

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SOURCE Changyou.com Limited