iQIYI, Inc. (Nasdaq: IQ) ("iQIYI" or the "Company"), a leading provider of online entertainment video services in China, today announced its unaudited financial results for the second quarter ended June 30, 2024.

Second Quarter 2024 Highlights

  • Total revenues were RMB7.4 billion (US$1.0 billion1), decreasing 5% year over year.
  • Operating income was RMB342.1 million (US$47.1 million) and operating income margin was 5%, compared to operating income of RMB610.4 million and operating income margin of 8% in the same period in 2023.
  • Non-GAAP operating income2 was RMB501.4 million (US$69.0 million) and non-GAAP operating income margin was 7%, compared to non-GAAP operating income of RMB786.4 million and non-GAAP operating income margin of 10% in the same period in 2023.
  • Net income attributable to iQIYI was RMB68.7 million (US$9.5 million), compared to net income attributable to iQIYI of RMB365.2 million in the same period in 2023.
  • Non-GAAP net income attributable to iQIYI2 was RMB246.9 million (US$34.0 million), compared to non-GAAP net income attributable to iQIYI of RMB594.7 million in the same period in 2023.

“We believe the vibrant competition within the long-form video sector in the second quarter is constructive for the industry, enhancing its appeal over other entertainment formats,” commented Mr. Yu Gong, Founder, Director, and Chief Executive Officer of iQIYI. “The key to long-term success hinges on consistently delivering premium content that balances artistic merits and commercial benefits, to which we remain committed.”

“We have prudently managed our financial resources to optimize the financial leverage of the balance sheet, enhance the sustainability of our business, and ultimately deliver value to all stakeholders.” commented Mr. Jun Wang, Chief Financial Officer of iQIYI.

Second Quarter 2024 Financial Highlights

    Three Months Ended
(Amounts in thousands of Renminbi (“RMB”), except for per ADS data, unaudited)     June 30,       March 31,     June 30,  
      2023       2024     2024  
      RMB       RMB     RMB  
Total revenues     7,802,297       7,927,355     7,438,785  
                       
Operating income     610,392       944,753     342,093  
Operating income (non-GAAP)     786,391       1,085,762     501,417  
                       
Net income attributable to iQIYI, Inc.     365,207       655,317     68,685  
Net income attributable to iQIYI, Inc. (non-GAAP)     594,663       844,325     246,914  
                       
Diluted net income per ADS     0.37       0.68     0.07  
Diluted net income per ADS (non-GAAP)2     0.61       0.87     0.25  
                       

Footnotes: [1] Unless otherwise noted, RMB to USD was converted at an exchange rate of RMB7.2672 as of June 28, 2024, as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. Translations are provided solely for the convenience of the reader.[2] Non-GAAP measures are defined in the Non-GAAP Financial Measures section (see also “Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures” for more details).

Second Quarter 2024 Financial Results

Total revenues reached RMB7.4 billion (US$1.0 billion), decreasing 5% year over year.

Membership services revenue was RMB4.5 billion (US$618.6 million), decreasing 9% year over year, primarily due to fluctuation in the content slate performance.

Online advertising services revenue was RMB1.5 billion (US$201.1 million), decreasing 2% year over year, primarily due to the decrease in brand advertising business, partially offset by the growth of performance-based advertising business.

Content distribution revenue was RMB698.2 million (US$96.1 million), increasing 2% year over year.

Other revenues were RMB783.9 million (US$107.9 million), increasing 16% year over year, primarily driven by the increase of revenue derived from talent agency services and third-party cooperation.

Cost of revenues was RMB5.7 billion (US$781.4 million), decreasing 2% year over year. Content costs as a component of cost of revenues were RMB4.1 billion (US$559.4 million), decreasing 2% year over year.

Selling, general and administrative expenses were RMB969.7 million (US$133.4 million), decreasing 1% year over year.

Research and development expenses were RMB448.7 million (US$61.7 million), increasing 2% year over year.

Operating income was RMB342.1 million (US$47.1 million), decreasing 44% year over year. Operating income margin was 5%, compared to operating income margin of 8% in the same period in 2023. Non-GAAP operating income was RMB501.4 million (US$69.0 million), decreasing 36% year over year. Non-GAAP operating income margin was 7%, compared to non-GAAP operating income margin of 10% in the same period in 2023.

Total other expense was RMB240.4 million (US$33.1 million), increasing 2% year over year.

Income before income taxes was RMB101.7 million (US$14.0 million), compared to income before income taxes of RMB375.8 million in the same period in 2023.

Income tax expense was RMB25.7 million (US$3.5 million), compared to income tax expense of RMB7.9 million in the same period in 2023.

Net income attributable to iQIYI was RMB68.7 million (US$9.5 million), decreasing 81% year over year. Diluted net income attributable to iQIYI per ADS was RMB0.07 (US$0.01) for the second quarter of 2024, compared to diluted net income attributable to iQIYI per ADS of RMB0.37 in the same period of 2023. Non-GAAP net income attributable to iQIYI was RMB246.9 million (US$34.0 million), decreasing 58% year over year. Non-GAAP diluted net income attributable to iQIYI per ADS was RMB0.25 (US$0.03), compared to non-GAAP diluted net income attributable to iQIYI per ADS of RMB0.61 in the same period of 2023.

Operating cash flow was RMB410.8 million (US$56.5 million), compared to operating cash flow of RMB885.6 million in the same period of 2023. Free cash flow was RMB382.5 million (US$52.6 million), compared to free cash flow of RMB872.3 million in the same period of 2023.

As of June 30, 2024, the Company had cash, cash equivalents, short-term investments and long-term restricted cash included in prepayments and other assets of RMB8.6 billion (US$1.2 billion).

Repurchase of 4% Convertible Senior Notes due 2026

In August 2024, the Company completed the repurchase right offer for its 4% convertible senior notes due 2026 (the “Notes”). An aggregate principal amount of US$395.5 million of the Notes were validly surrendered and repurchased with an aggregate repurchase price (including the aggregate principal amount of the Notes plus accrued and unpaid interest) of US$397.5 million. Following settlement of the repurchase, less than US$0.2 million aggregate principal amount of the Notes remains outstanding and continues to be subject to the existing terms of the Indenture and the Notes.

PAG Facility Agreements

In August 2024, the Company entered into a facility agreement with PAG, adding to the previous facility agreement from September 2023. Together, these facility agreements provide PAG with loan facilities with an aggregate amount of up to US$522.5 million, with an interest rate of 6% per annum. At each draw down, PAG shall release the equivalent amount of restricted cash collateralized by the Company under the PAG Notes. As a result, the foregoing facility arrangement does not impact the Company’s cash available for daily operations.

Upon PAG’s total draw down of US$400 million under the facility agreements, the corresponding restricted cash collateral will be released, and the repurchase right for the US$522.5 million principal of the PAG Notes will be waived. Such repurchase right would have allowed PAG to require the Company to repurchase the PAG Notes during the three-month period starting on December 30, 2025.

Conference Call Information

iQIYI's management will hold an earnings conference call at 7:00 AM on August 22, 2024, U.S. Eastern Time (7:00 PM on August 22, 2024, 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, passcode and unique access PIN by a calendar invite.

Participant Online Registration: https://s1.c-conf.com/diamondpass/10040374-iu4p0d.html  

It will automatically direct you to the registration page of "iQIYI Second Quarter 2024 Earnings Conference Call", where you may fill in your details for RSVP.

In the 10 minutes prior to the call start time, you may use the conference access information (including dial-in number(s), passcode and unique access PIN) provided in the calendar invite 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 August 29, 2024.

Dial-in numbers for the replay are as follows: International Dial-in                 +1 855 883 1031Passcode:                                 10040374

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

About iQIYI, Inc.

iQIYI, Inc. is a leading provider of online entertainment video services in China. It combines creative talent with technology to foster an environment for continuous innovation and the production of blockbuster content. It produces, aggregates and distributes a wide variety of professionally produced content, as well as a broad spectrum of other video content in a variety of formats. iQIYI distinguishes itself in the online entertainment industry by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies. Over time, iQIYI has built a massive user base and developed a diversified monetization model including membership services, online advertising services, content distribution, online games, IP licensing, talent agency, online literature, 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 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 the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income attributable to iQIYI, non-GAAP diluted net income attributable to iQIYI per ADS and free cash flow. 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 these non-GAAP financial measures provide meaningful supplemental information regarding its operating performance by excluding certain items that may not be indicative of its business operating results, such as operating performance excluding non-cash charges or non-operating in nature. The Company believes that both management and investors benefit from referring to the non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to iQIYI’s historical operating performance. The Company believes the non-GAAP financial measures are 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 these non-GAAP financial measures is that the non-GAAP measures 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. These non-GAAP financial measures 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.

Non-GAAP operating income represents operating income excluding share-based compensation expenses, amortization of intangible assets resulting from business combinations.

Non-GAAP net income attributable to iQIYI, Inc. represents net income attributable to iQIYI, Inc. excluding share-based compensation expenses, amortization of intangible assets resulting from business combinations, disposal gain or loss, impairment of long-term investments, fair value change of long-term investments, adjusted for related income tax effects. iQIYI’s share of equity method investments for these non-GAAP reconciling items, primarily amortization and impairment of intangible assets not on the investees’ books, accretion of their redeemable non-controlling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per share, adjusted for related income tax effects, are also excluded.

Non-GAAP diluted net income per ADS represents diluted net income per ADS calculated by dividing non-GAAP net income attributable to iQIYI, Inc, by the weighted average number of ordinary shares expressed in ADS.

Free cash flow represents net cash provided by operating activities less capital expenditures.

For more information, please contact:

Investor RelationsiQIYI, Inc.ir@qiyi.com

 
iQIYI, INC.Condensed Consolidated Statements of Income (In RMB thousands, except for number of shares and per share data)
 
  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,   June 30,
    2023       2024       2024       2023       2024  
  RMB   RMB   RMB   RMB   RMB
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues:                  
Membership services   4,946,567       4,798,861       4,495,310       10,493,872       9,294,171  
Online advertising services   1,495,378       1,482,052       1,461,367       2,899,130       2,943,419  
Content distribution   683,586       928,009       698,175       1,415,493       1,626,184  
Others   676,766       718,433       783,933       1,342,609       1,502,366  
Total revenues   7,802,297       7,927,355       7,438,785       16,151,104       15,366,140  
                   
Operating costs and expenses:                  
Cost of revenues   (5,773,867 )     (5,631,239 )     (5,678,342 )     (11,729,870 )     (11,309,581 )
Selling, general and administrative   (979,000 )     (922,035 )     (969,673 )     (2,084,855 )     (1,891,708 )
Research and development   (439,038 )     (429,328 )     (448,677 )     (867,356 )     (878,005 )
Total operating costs and expenses   (7,191,905 )     (6,982,602 )     (7,096,692 )     (14,682,081 )     (14,079,294 )
Operating income   610,392       944,753       342,093       1,469,023       1,286,846  
                   
Other income/(expenses):                  
Interest income   52,196       58,740       68,688       157,182       127,428  
Interest expenses   (278,521 )     (282,135 )     (288,162 )     (564,485 )     (570,297 )
Foreign exchange loss, net   (114,992 )     (31,551 )     (51,338 )     (78,010 )     (82,889 )
Gain/(loss) from equity method investments   33,789       13,514       (2,100 )     (51,320 )     11,414  
Others, net   72,928       (19,859 )     32,476       93,790       12,617  
Total other expense, net   (234,600 )     (261,291 )     (240,436 )     (442,843 )     (501,727 )
                   
Income before income taxes   375,792       683,462       101,657       1,026,180       785,119  
Income tax expense   (7,930 )     (17,633 )     (25,741 )     (32,562 )     (43,374 )
                   
Net income   367,862       665,829       75,916       993,618       741,745  
Less: Net income attributable to noncontrolling interests   2,655       10,512       7,231       10,302       17,743  
Net income attributable to iQIYI, Inc.   365,207       655,317       68,685       983,316       724,002  
Net income attributable to ordinary shareholders   365,207       655,317       68,685       983,316       724,002  
                   
Net income per share for Class A and Class B ordinary shares:                  
Basic   0.05       0.10       0.01       0.15       0.11  
Diluted   0.05       0.10       0.01       0.14       0.11  
                   
Net income per ADS (1 ADS equals 7 Class A ordinary shares):                  
Basic   0.38       0.68       0.07       1.04       0.75  
Diluted   0.37       0.68       0.07       1.01       0.74  
                   
Weighted average number of Class A and Class B ordinary shares used in net income per share computation:                  
Basic   6,704,546,096       6,717,652,924       6,725,978,497       6,637,475,009       6,721,815,708  
Diluted   6,851,986,558       6,788,073,126       6,857,915,450       6,803,848,441       6,822,994,286  
                                       

iQIYI, INC.Condensed Consolidated Balance Sheets (In RMB thousands, except for number of shares and per share data)
         
      December 31,     June 30,
      2023       2024  
    RMB   RMB
        (Unaudited)
ASSETS        
Current assets:        
Cash and cash equivalents     4,434,525       6,301,808  
Restricted cash     6,120       -  
Short-term investments     941,738       735,916  
Accounts receivable, net     2,169,042       2,339,010  
Prepayments and other assets     2,794,259       2,415,157  
Amounts due from related parties     1,707,024       320,504  
Licensed copyrights, net     582,521       641,490  
Total current assets     12,635,229       12,753,885  
         
Non-current assets:        
Fixed assets, net     863,813       849,994  
Long-term investments     2,260,785       2,172,309  
Licensed copyrights, net     6,966,508       6,913,875  
Intangible assets, net     309,534       321,200  
Produced content, net     13,376,985       14,328,294  
Prepayments and other assets     3,518,210       4,244,114  
Operating lease assets     683,897       642,047  
Goodwill     3,820,823       3,820,823  
Amounts due from related parties     158,590       1,601,745  
Total non-current assets     31,959,145       34,894,401  
         
Total assets     44,594,374       47,648,286  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts and notes payable     5,671,074       5,969,657  
Amounts due to related parties     2,953,658       3,168,323  
Customer advances and deferred revenue     4,373,208       4,541,220  
Convertible senior notes, current portion     2,802,442       2,892,033  
Short-term loans     3,571,637       4,262,684  
Long-term loans, current portion     2,000       29,000  
Operating lease liabilities, current portion     100,883       97,326  
Accrued expenses and other liabilities     2,866,632       3,057,163  
Total current liabilities     22,341,534       24,017,406  
Non-current liabilities:        
Long-term loans     97,990       379,830  
Convertible senior notes     8,143,994       8,407,516  
Deferred tax liabilities     824       297  
Amounts due to related parties     80,566       69,976  
Operating lease liabilities     523,747       489,232  
Other non-current liabilities     1,220,804       1,257,374  
Total non-current liabilities     10,067,925       10,604,225  
         
Total liabilities     32,409,459       34,621,631  
         
         
Shareholders’ equity:        
         
Class A ordinary shares     237       238  
Class B ordinary shares     193       193  
Additional paid-in capital     54,971,469       55,311,753  
Accumulated deficit     (44,573,428 )     (43,849,426 )
Accumulated other comprehensive income     1,688,047       1,500,355  
Non-controlling interests     98,397       63,542  
Total shareholders’ equity     12,184,915       13,026,655  
         
Total liabilities and shareholders' equity     44,594,374       47,648,286  

     
iQIYI, INC.Condensed Consolidated Statements of Cash Flows (In RMB thousands, except for number of shares and per share data)
     
  Three Months Ended  
  June 30,   March 31,   June 30,  
    2023       2024       2024    
  RMB   RMB   RMB  
  (Unaudited)   (Unaudited)   (Unaudited)  
             
Net cash provided by operating activities   885,560       937,773       410,752    
Net cash (used for)/provided by investing activities (1,2)   (420,481 )     (222,755 )     336,256    
Net cash (used for)/provided by financing activities   (1,175,147 )     261,136       865,894    
Effect of exchange rate changes on cash, cash equivalents and restricted cash   127,759       14,606       23,113    
Net (decrease)/increase in cash, cash equivalents and restricted cash   (582,309 )     990,760       1,636,015    
Cash, cash equivalents and restricted cash at the beginning of the period   5,664,674       5,280,608       6,271,368    
Cash, cash equivalents and restricted cash at the end of the period   5,082,365       6,271,368       7,907,383    
Reconciliation of cash and cash equivalents and restricted cash:            
Cash and cash equivalents   3,565,285       5,045,322       6,301,808    
Restricted cash   6,120       -       -    
Long-term restricted cash   1,510,960       1,226,046       1,605,575    
Total cash and cash equivalents and restricted cash shown in the statements of cash flows   5,082,365       6,271,368       7,907,383    
             
Net cash provided by operating activities   885,560       937,773       410,752    
Less: Capital expenditures (2)   (13,307 )     (22,429 )     (28,299 )  
Free cash flow   872,253       915,344       382,453    

(1)   Net cash provided by or used for investing activities primarily consists of net cash flows from investing in debt securities, purchase of long-term investments and capital expenditures.(2)   Capital expenditures are incurred primarily in connection with construction in process, computers and servers.

   
iQIYI, INC.Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures(Amounts in thousands of Renminbi (“RMB”), except for per ADS information, unaudited)
   
  Three Months Ended
  June 30,   March 31,   June 30,
    2023       2024       2024  
  RMB   RMB   RMB
           
Operating income   610,392       944,753       342,093  
Add: Share-based compensation expenses   169,380       139,476       157,791  
Add: Amortization of intangible assets(1)   6,619       1,533       1,533  
Operating income (non-GAAP)   786,391       1,085,762       501,417  
           
Net income attributable to iQIYI, Inc.   365,207       655,317       68,685  
Add: Share-based compensation expenses   169,380       139,476       157,791  
Add: Amortization of intangible assets(1)   6,619       1,533       1,533  
Add: Disposal gain   (89,571 )     -       -  
Add: Impairment of long-term investments   155,011       70,745       16,591  
Add: Fair value (gain)/loss of long-term investments   (3,550 )     (22,482 )     2,577  
Add: Reconciling items on equity method investments(2)   (8,895 )     -       -  
Add: Tax effects on non-GAAP adjustments(3)   462       (264 )     (263 )
Net income attributable to iQIYI, Inc. (non-GAAP)   594,663       844,325       246,914  
           
Diluted net income per ADS   0.37       0.68       0.07  
Add: Non-GAAP adjustments to earnings per ADS   0.24       0.19       0.18  
Diluted net income per ADS (non-GAAP)   0.61       0.87       0.25  

(1)    This represents amortization of intangible assets resulting from business combinations.(2)    This represents iQIYI’s share of equity method investments for other non-GAAP reconciling items, primarily amortization and impairment of intangible assets not on the investee’s books, accretion of their redeemable noncontrolling interests, and the gain or loss associated with the issuance of shares by the investees at a price higher or lower than the carrying value per share.(3)    This represents tax impact of all relevant non-GAAP adjustments.

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