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Sogou's total revenue in the third quarter was $276 million 600 thousand, an increase of 7% over the same period.

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Sogou (Nasdaq Securities Code: SOGO) released its unaudited third quarter results as of September 30, 2018. According to the results, Sogou's total revenue in the third quarter was 276.6 million U.S. dollars, up 7% from the same period last year, while its net profit attributable to Sogou was 23.9 million U.S. dollars, down 23% from the same period last year.

Main achievements in the third quarter:

- Sogou's total revenue in the third quarter was $276 million 600 thousand, an increase of 7% over the same period last year.

- The net profit of Sogou in the third quarter was $23.9 million, down 23% from the same period last year; the net profit of Sogou in the third quarter was $28 million, down 10% from the same period last year.

- the average daily user of Sogou mobile input in the third quarter was 405 million, an increase of 32% over the same period last year. As the largest voice application in China, it processes up to 500 million voice requests per day.

Executive comments:

Third quarter performance analysis:

Sogou's total revenue in the third quarter was $276 million 600 thousand, an increase of 7% over the same period last year.

Search and search related business revenue in the third quarter of Sogou was 255.3 million US dollars, an increase of 13% over the same period last year. Search dog search and search related business revenue growth in comparison, mainly due to the strong growth of pay-per-click services, promoting healthy traffic growth and mobile search monetization. Pay-per-click search services accounted for 82.7% of search and search-related revenue, compared with 83.8% in the same period last year.

Other revenues were $21 million 300 thousand, down 33% from a year earlier. Sogou's other revenue declined in the third quarter, mainly due to the decline in sales of intelligent hardware products after the decision to upgrade the strategy of intelligent hardware, better use of Sogou's artificial intelligence capabilities and improve the competitiveness of products.

The cost of revenue was $173 million 600 thousand, an increase of 33% over the same period last year. The cost of traffic acquisition in the third quarter of Sogou was 135.2 million US dollars, an increase of 58% over the same period of last year, accounting for 48.9% of the company's total revenue, and 33.3% over the same period of last year.

Total operating expenditure was $109 million 700 thousand, an increase of 20% over the same period last year.

R&D expenditure was $50.6 million, an increase of 26% over the same period last year, accounting for 18.3% of total revenue and 15.7% over the same period last year. Sogou's R&D expenditure rose in the third quarter, reflecting our continued efforts to strengthen the AI business as a result of increased stock-based salary, salary and welfare costs and outsourcing product development costs.

Sales and marketing expenditure was $43.6 million, down 3% from the same period last year, accounting for 15.8% of total revenue and 17.4% of the same period last year. Sogou's sales and marketing expenditure declined in the third quarter, mainly due to the company's reduced marketing and promotion expenditure on mobile products.

General and administrative expenditures amounted to $15.5 million, an increase of 149% over the same period last year, accounting for 5.6% of total revenue and 2.4% over the same period last year. Sogou's third quarter headquarters and administrative expenditure grew comparatively, mainly due to the company's issuance of more consumer loans through its Internet financial platform, which allotted for loan losses, as well as the increase in inventory impairment losses related to smart hardware products.

The operating loss was $6 million 800 thousand, and operating profit was $35 million 700 thousand during the same period last year. Sogou lost $2.7 million in the third quarter and made a profit of $36 million in the same period last year.

In the third quarter, the income tax income was $400 thousand, and the tax expenditure was $4 million 600 thousand in the same period last year.

The net profit of Sogou in the third quarter was $23 million 900 thousand, down 23% from the same period last year. The net profit attributable to Sogou in the third quarter was $28 million, down 10% from the same period last year.

In the third quarter, the basic and diluted earnings of American Depositary Receipts per Sogou were $0.06. In the third quarter, the basic and diluted earnings of each U.S. depository receipt attributable to Sogou were $0.07, not in accordance with the U.S. General Accounting Standards.

As of September 30, 2018, the total cash, cash equivalents and short-term investments held by Sogou were $1.1 billion, up from $1 billion as of December 31, 2017. Sogou's net operating cash flow in the third quarter was US $85 million 300 thousand. Sogou's capital expenditure in the third quarter was US $22 million 200 thousand.

Performance Outlook:

Sogou expects its total revenue in the fourth quarter of 2018 to be $292 million to $307 million, up 5% to 11% year-on-year, and 11% to 17% year-on-year in RMB terms.

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