Baidu, Inc.

Hello and thank you for standing by for Baidu's first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After management preparing marks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Jianlin Baidu, Director of Investor Relations. Over to you.

Hello, everyone, and welcome to Baidu's first quarter 2020 earnings conference. Baidu's earnings relief was distributed earlier today. You can find a copy on our website as well as on our services. On the call today, we have Robin Li, our chief executive officer, Herman Liu, our chief financial officer, and Dou Shen, our executive vice president and in charge of Baidu's mobile ecosystem group, our search and feed business. After our prepared remarks, We will hold a Q&A session. These notes of discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Security and Legislation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include and are not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statement except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. We have made minor adjustments to our non-GAAP measures and retroactively applied these changes for comparison purposes. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website. I will now turn the call over to our CEO, Robin.

The outbreak of COVID-19 resulted in China's economy shrinking 6.8% in the first quarter compared to a growth of 6.0% in the previous quarter. This was China's first economic contraction since quarterly GDP reporting began 28 years ago. Shelter-in-place was put in place, malls and movie theaters were shut down, and much of the offline activities came to a halt in the first quarter. The good news is that the pandemic outbreak seems to be under control, and people are gradually allowed to travel freely around the country, as we witnessed during the May 1st Labor Day Golden Week. Restaurants and shops are reopening across the country. The Chinese economy is rebounding. And Baidu's marketing services is growing each week after hitting a rough in February. Baidu's total revenues in the first quarter reached RMB 22.5 billion, declining 7% year-over-year. ITE weathered the macro events by growing 9% year-over-year. ITE's revenue diversification from advertising to membership to online games made it a beneficiary of the stay-at-home environment. Baidu core revenue declined 13% year-over-year in the first quarter, which is stronger than many advertising verticals. Our wide-spanning sales channel allowed Baidu's marketing services to diversify and benefit from the pockets of growth in the first quarter, such as online businesses and key account customers. Our new AI businesses also fared well during the first quarter. Cloud, Duo OS, and Apollo all saw healthy business growth in Q1. During the first quarter, we quickly retooled Baidu's AI capabilities to help users municipalities and organizations better cope with the pandemic crisis as part of Baidu's social responsibility. For example, through Baidu Health, one of the largest and most comprehensive health and wellness platforms in China, we provided tens of millions of free online doctor consultations and powered many third-party medical apps with Baidu's online healthcare services. such as online pneumonia screening to free up hospitals for critical emergencies. More than 100 Apollo-powered autonomous vehicles have been deployed across 17 cities in China, including Wuhan, Beijing, Shanghai, Shenzhen, and Xiamen, to provide medication, face masks, and food deliveries, and augment fever screening and sterilization services. COVID-19 was a black swan event, and we turned the crisis into opportunities for Baidu. Let me share with you a few observations that we believe will support Baidu's near-term recovery and fuel the long-term growth of our search and feed bins. First, according to Quest Mobile, Baidu app was one of the fastest growing in DAUs among the top 10 apps in China in February. This trend continued into March, even as the pandemic outbreak leveled off from the peak. As a leader in information and knowledge-centric internet, Baidu is well-positioned to allow users to easily fact-check information, which is a long-term demand on the backdrop of rampant misinformation on the internet. Our expanding mobile ecosystem further solidifies Baidu's capabilities, affording users native app-like experience of third-party content and services without leaving Baidu app. BJH accounts plus smart mini program and managed page together provide Baidu's in-app search and unmatched experience. Second. User behavior in China is shifting from browser search to in-app search, with the latter now accounting for the majority of Baidu's mobile search traffic. Baidu app has an advantage in in-app search, because most users visit with an intent to search. Such user intent is difficult to build, especially in apps that are developed for non-search purposes. In-app search creates a positive reinforcing cycle among users, customers, and partners. In the age of AI, Baidu can deliver better user experience when users log in, better conversion when our marketing customers log in, and better content distribution when content providers log in. Our twin-engine search plus feed allows users to consume feeds when they are visiting without any and Intent in mind, increasing overall user stickiness. In-app search also monetizes better than browser search. The shift in user behavior from browser search to AI-powered in-app search is a positive to Baidu's long-term growth. Third, with the Chinese economy recovering, SMEs are starting to rebound at an encouraging pace. especially with the support of government policies toward SMEs. Our survey of marketing services customers and distributors show that heavy-hit verticals such as healthcare, franchising, and auto logistics may recover faster in the months ahead. Baidu's new AI bins have weathered COVID-19 headwinds well. and the future looks even more promising. IDC's data indicates that smart speakers are becoming one of the major internet gateways in China. In 2019, smart speaker shipments doubled from the prior year, while smartphone shipments dropped 8%, resulting in smart speaker shipments surpassing 10% of smartphone shipments in China. One interesting trend to note is that Mobile users are adding smart devices in their homes so that they have a hands-free voice-enabled connected device nearby while keeping their phones free for texting and other mobile-centric activities. The Chinese government recently plotted new infrastructure investment amounting to trillions of U.S. dollars to speed up economic recovery and boost sustainable growth. Baidu's smart transportation and cloud service stand to benefit from this government project. Let's begin our operational review with MEG, our mobile ecosystem group. In March, the nation shifting from shelter-in-place to back-to-office, Baidu FDA youth experienced strong growth, reaching 222 million. that's up 28% year-over-year. In-app search queries grow 45% year-over-year, and feed time span was up 51% from a year ago. These impressive stats show that Baidu is widely recognized as the place to find more comprehensive, timely, and reliable information. Our efforts to strengthen Baidu's mobile ecosystem through our mobile building blocks is making a huge difference. Third-party content and services through BGH accounts, smart mini programs, and managed pages now make up the majority of our mobile search results. This interplay enables search users to engage with search results by liking or posting comments. which dramatically improves the quality of and leavens up search results. In-app search provides a better user experience and logged-in users on Baidu app have increased to almost 60% by the end of March. Baidu's content verticals add in-depth and authoritative content to Baidu's content ecosystem. For example, our health and wellness vertical includes a healthcare wiki, BGH account of doctors and other well-respected professionals in the medical field, healthcare smart mini programs to provide online doctor consultation, and managed pages from a large network of healthcare providers. In the first quarter, Baidu Health held more than 100 live broadcasting events on COVID-19 and other healthcare-related topics hosted by industry experts. Baidu Health allows users to register for doctor appointments, buy health insurance, research information on hospitals and certified doctors, and connect users to hundreds of thousands of doctors for online consultations. Baidu's building blocks are dynamic because content by topical interests are scattered in news feeds, in apps, and on mobile websites on the internet. Through Baidu's building blocks, we can pull all of the content by topical interests together, deliver the content to users through search and feed, and allow users to transact without leaving Baidu's platform. Just as how we have developed Baidu Health, we are using the same dynamic building block architecture to develop the B2B and beauty verticals, just to name a few. Baidu's knowledge products complement third-party content provided through Baidu's building blocks, providing users an oasis from the rampant misinformation on the internet. For example, users have come to know Baidu Wiki as the authoritative source for fact-checking in China. Baidu Now is another important knowledge product, which we have upgraded with innovative Q&A features and more video content, resulting in daily questions post increasing 150% over the past year. Baidu's comprehensive set of knowledge products, including Babynose and Baidu Experience, make it easier for users to fact-check and seek critical and reliable information. Baidu's mobile ecosystem is making great progress with video. In March, total daily video views within Baidu's knowledge products were 100% year-over-year, and short videos viewed within Baidu's family of apps was up 60% year over year. We have been expanding Baidu's library of short videos and live streaming, particularly around information and knowledge. For example, in the first quarter, we hosted 10 sessions of hour-long live streaming, Wandering Through Civilization, which is added to our library for VOD playback. Let me quickly cover the progress of Baidu mobile building blocks. BGH's content network now holds 3 million publisher accounts, up 44% year-over-year. In March, the number of publishers providing original content grew 178% year-over-year. Due to the large user scale of Baidu platform, including Baidu App, Haokan, Xuanmin, and Baidu Wiki, Baidu's smart mini program continued to see strong user growth, with MAUs on Baidu app reaching 354 million, up 96% year-over-year. And total MAUs, including users from Baidu's open network, reached over half a billion in March. The number of Baidu smart mini programs grow over 26-fold year-over-year and is up 35% sequentially as developers are drawn by the rapid user growth. Continuing the tradition of Baidu serving SMEs, Baidu's smart mini program enables long-tail apps with high-quality content to operate an effective business. For example, Yizhikan Comics grow the DAOs on its Baidu Smart Mini program 4.6-fold sequentially in March, exceeding the traffic on its own app. Leveraging Baidu's user insight and AI technology, Yizhikan more effectively attracted and reclaimed users. For example, the repeat users accounted for over a quarter of its Smart Mini program BAUs and contributed to over half of its subscription revenue. Turning to Managed Page. More and more advertisers are choosing Baidu Managed Page as the landing page for their ads over their HTML sites. As we expanded Managed Page industry-specific offerings, the structured data set up of Managed Page capturing pre-designed views customized for each industry allows Baidu to better monitor the information from third parties and provide users with more reliable information. Revenue from managed page was above 20% of Baidu's core marketing revenue, slightly down from last quarter as marketing services customers from sectors like healthcare and franchising pulled back in the quarter. Nevertheless, we are excited about the potential of Managed Page. Marketing services customers can leverage the resources of Baidu's hosted marketing platform, such as app creation tools, Baidu User Insights, and CRM features to improve sales lead generation and conversion. SMEs would not otherwise have the wherewithal to employ AI capabilities. The search traffic were diverted to their own mobile sites. On the monetization front, Baidu's hosted marketing platform has been instrumental in pushing out effective ad tools by having our marketing services customers log in. For example, after releasing a set of video ad creation tools, video ads grow to 38% of feed revenue in March, up from 29% in December. Moving to Duo OS. In the first quarter, Duo OS voice assistant's strong momentum continued, with monthly voice queries from first-party devices reaching $3.3 billion in March, up almost five-fold from last year. Total monthly voice queries reached $6.5 billion, up almost threefold from last year. Time spent on Xiaodu devices is also growing rapidly, especially on smart displays, whose average daily time spent per device reached over three hours in March, up over 20% quarter over quarter. The popularity of dual OS in China is drawing top apps like Douyin, Kuaishou, Bilibili, and WeSync to join the Duo OS skill store. Duo OS now offers over 3,800 skills, spanning a wide range of genres, including education, video, online games, and live streaming. Duo OS popularity is also driving strong sales for Xiaodu's smart devices. For 2019, IDC ranks Xiaodu first ranks Xiaodu first in global smart display shipments, which was reinforced by strategy analytics and analysis. We are seeing encouraging early signs of monetization with dual OS smart devices, similar to an app store. Dual OS skill store is distributing thousands of skills and have the potential to enjoy app store economics. Baidu's strong mobile content ecosystem also lends DuoOS an advantage in generating membership revenue for licensed content. With home devices becoming ever more popular, DuoOS is an important asset for Baidu to enable developers of smart mini programs to also distribute their content and services through home devices. Turning to Baidu Cloud and AI services. We are leveraging Baidu AI to help enterprises build a competitive edge and support their digital transformation. In March, we signed a strategic partnership with a major public utilities company to provide AI enterprise solutions to improve customer service and office productivity. The public utilities company leveraged Baidu's newly launched AI path to enable its customers to purchase electricity through facial recognition at the kiosks of their customer service centers, which significantly shortens queue time. The customer also upgraded its internal system with Baidu AI path to enable its employees to more efficiently draft daily and weekly management reports by recommending report highlights derived from relevant internal documents using Baidu's leading AI-powered recommendation engine. And on Apollo, we are seeing an increasing interest in Baidu's smart transportation solution. In the first quarter, Baidu won projects from municipalities including Hefei, Yangquan, and Chongqing Navigant Research, a well-known research firm, recognized Baidu Apollo as one of the four global leaders in autonomous driving based on strategy, branding, functionality, and reliability. Baidu was the exclusive autonomous driving leader from China named in the report. Apollo also received a top ranking in the 2019 Beijing Autonomous Driving Vehicles Road Test Report, which is well recognized as the numbers used for the report are monitored by Beijing Municipal Commission. Turning to ITE, in March, ITE's subscribers reached 118.9 million, up 23% year-over-year. ITE's large subscriber base strengthens its foundation as a leading video platform and producer of long-form videos. IT's leading position in China's video marketplace is a valuable component to Baidu's large content ecosystem, both on mobile and at home. With that, let me turn the call over to Herman to go through the financial highlights.