Baidu, Inc.

Hello and thank you for standing by for the third quarter 2021 earnings conference call. Well, at this time, all participants are in the listen only mode. After management's prepared remarks, there will be an answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'd like to turn the meeting over to your host for today's conference, Joanne Lynn Baidu's Director of Investor Relations.

Hello, everyone, and welcome to Baidu's Third Quarter 2021 Earnings Conference Call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. On the call today, we have Robin Li, our co-founder and CEO, Zong Luo, our CFO, Zhou Shen, our EVP in charge of Baidu Mobile Ecosystem, and Herman Yu, our CFO, After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of U.S. Private Securities Verification 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. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the ICC and Hong Kong Exchange. 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 annotated non-GAAP financial measures. Our press release contains a reconciliation of the annotated non-GAAP measures to the annotated most directly comparable GAAP, 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.

Hello, everyone. We delivered another solid quarter in Q3, with Baidu Core revenue growing 15% year-over-year, driven by AI Cloud growing 73% year-over-year. Many years ago, we doubled down on AI believing that it would expand our market opportunity and accelerate Baidu's long-term growth. Non-ad revenue accounted for 21% of Baidu core revenue in Q3 and remains a strong growth engine for us. Through AI, we are bringing innovation across the consumer, enterprise, and the public sector on the backdrop of policy tailwinds and the rising tide of tech innovation in digital transformation infrastructure internet, IoT, and intelligent mobility. Baidu AI Cloud is empowering enterprises from traditional industries and the public sector to better serve customers and move faster with greater efficiency. At Baidu World in August, which was broadcasted on CCTV, we showcased Baidu AI solutions, including smart quality assurance, to automate the screening of electronic components of manufacturing assembly lines, smart logistics to optimize fleet management, and smart monitoring to ensure a steady energy supply from the utility sector. We are excited about Baidu AI Cloud's continuing fast growth. Leading companies across industries are adopting Baidu AI Cloud solutions to improve their operation. And we are working hard to standardize such solutions for industry adoption. An example is our end-to-end AI solution composed of SaaS, PaaS, and SaaS for financial services sector. Our AI Cloud customers are recognizing Baidu's value proposition with strong consumer internet reach. For example, we are winning Smart Public Parking Project is our solution offering the convenience of collect public parking fees via Baidu Maps without the need for meter maids. Hospitals are choosing Baidu for cloud solutions that save patients trips to the hospital with continued patient care for chronic diseases at home through dual OS smart display. According to the World Health Organization, there are 1.35 million road traffic deaths every year. Apollo Autonomous Driving aims to reduce traffic accidents, accelerate mobility to EV, and provide greater passenger safety, especially after dark. ApolloGo has become the largest robot taxi service provider in the world, based on our estimates. Our leadership position in autonomous driving will lend strength to AFD and Jidoo Auto. Deepway, a gateway between Baidu and Lion Bridge, a leading trucking company in China, recently unveiled its first-generation EV truck powered by Apollo to automate road freight marking Apollo's entry into the multi-trillion dollar truck market. Deepway leverages Apollo's leading autonomous driving capabilities and Linebridge's market reach. Jidoo is making great progress as it plans to release the first concept production car at the Beijing Auto Show early next year. Jidou will showcase Apollo's intelligent self-driving and in-camping features with the aim to deliver mass production in 2023. For the third quarter, China's GDP grew 4.9%, much slower than the 18.3% and 7.9% growth rate in the first two quarters. Our admins have been impacted by sectors like education, real estate and home furnishing, travel, and franchising, as we expect this headwind to continue in the near term. As we look forward, there are also positives coming into play. For example, Baidu app is reaching over 600 million users each month. Our hosted marketing solution It's becoming ever more popular with site owners, and the trend is for the Internet to become more open. Non-ad makes up over one-fifth of Maidu's core business and grows over 70% year over year. We stand to benefit from China's plan to leverage technology to grow the enterprise and the public sector part of the economy. ESG is at the heart of Baidu as we leverage our strong internet foundation to grow our AI business at scale. Apollo's mission is aligned with lowering carbon emissions from making traffic in large cities smoother to accelerating the adoption of EVs through GDU, software for EVs and EV-powered ride hailing. In June, we announced our goal to become carbon neutral by year 2030. Our Yangqian Data Center was awarded the Carbon Neutral Data Center Leader certification. And MSCI named Baidu as one of the two companies in China with transparent reports on greenhouse gas emission in its net zero tracker. Turning to Q3 operational highlights. Baidu's AI cloud continues to see strong growth leveraging our world-class AI technologies and our capabilities to provide one-stop-shop solutions to our customers. Our AI solutions are being increasingly adopted across different industries and for different scenarios. We enriched our cloud offering with the release of an end-to-end AI cloud solution powered by Kunlun AI Cheap and PedoPedo Deep Learning Framework. to help financial services firms digitize and automate their operational processes, enlisting leading customers like China Life and Bank of Jiangsu. Maidu AI Cloud is expanding into industrial internet by partnering with industrial parks and municipalities. Our deployment to serve large pool of enterprises is extraordinary. Last year, we spent seven months implementing our AI path in Guiyang economic and technology development zone, serving approximately 100 enterprises. Our deployment of AI path to enterprises in Tongxiang, including those in their economic development zone, took only three months. Tongxiang hosts 40,000 enterprises, most mostly manufacturing-based, and we believe our AI solution can help these companies improve their operational capabilities. Baidu AI Cloud is moving into a smart city. Lijiang, a UNESCO heritage site with 800-year-old bridges and waterways in southwest China, is using Baidu AI solution to keep the city safe and clean for visitors. Leveraging the digitization of tourist areas by the AI cloud helps local authorities timely detect and address infractions such as illegal parking and public littering. Our success in Lijiang is leading to projects with Chengdu, Suzhou, and other cities. Moving to ACE Smart Transportation. FIDO ACE has been adopted in 24 cities, up three-fold from last year based on contract size over RMB 10 million. About half of ACE projects signed in Q3 came from repeat customers. In addition to supporting policy tailwinds, ACE is benefiting from the value we deliver to the public sector. For example, the ACE smart transportation solution that was deployed in Guangzhou earlier this year helped improve congested traffic by over 30%. Smart parking has made it easier for local residents to find available parking spaces, shortening travel time. Turning to autonomous driving. Apollo Level 4 testing has accumulated over 10 million miles, or 16 million kilometers, setting a new milestone. We continue to receive green light in our application for autonomous driving testing as we demonstrate to local authorities Apollo's progress in technology and operation. Apollo has received 411 autonomous driving permits, an increase of 250,000 37 permits from a year ago. Our progress in autonomous driving technology, operation, and continuous cost reduction positions us for ride-sharing monetization in a few years at a paid ride scale. In July, Baidu opened its third Apollo Park in Shanghai, a 10,000-square-meter facility housing Apollo Cloud and data operation. Shanghai marks ApolloGo's fifth ride-hailing service open to the public, following the cities of Beijing, Guangzhou, Changsha, and Tangzhou. In August, we introduced the Chinese brand for ApolloGo, RoboKuaipao, a phonetic interpretation of robot taxi in Chinese. Apollo goal is resonating with ride-hailing passengers with total rides doubling quarter-on-quarter to reach 115,000 in the third quarter. Apollo goal is off to a good start as we set an ambitious goal to expand operations into 65 cities by the year 2025 and 100 cities by year 2030. Turning to AST and dual OS in-vehicle infotainment software, Weimar Motor, a Chinese EV OEM, signed with Baidu to install Apollo Navigation Pilot in its new W6 SUV, taking Apollo Partner Network to 31 makes, including those from automakers like GM, Ford, Toyota, Honda, and Great Wall. turning to Jidoo Auto. Jidoo has completed its first vehicle wind tunnel testing with a full-size oil and clay model. We have identified the model design schemes and engineering development, and design optimization are underway. Jidoo will showcase the latest AISD, demonstrating the appeal of smart EVs advanced autonomous driving, and smart in-cabin features. We hope the success of Jidoo will increase the appeal of Apollo solutions to other automakers. On Duo OS, Xiaoduo again was ranked the number one in smart display globally and number one in smart speaker in China based on second quarter shipment according to strategy analytics Canalys, and IDC. A key growth driver for Xiaodu Smart Display is the shift of user time spent at home to large screens for services like karaoke, short and long videos, online games, education services, video conferencing, and other visually-oriented activities. Popular mobile apps are appearing on dual OS skills, like Douyin, Kuaishou, Red, Damping, 58.com, Haiti, and Kentucky Fried Chicken, to name a few. In addition, Xiaodu completed its Series B financing at a market valuation of $5.1 billion in August, nine months after its Series A financing at $2.9 billion. Baidu remains a supermajority shareholder after the Series B brand. The continued strong performance of our new AI business would not have occurred without our relentless investment in technology and our pursuit of better products and more customer adoption from our technology leadership. Baidu released PLATO XL, the world's first 11 billion parameter pre-trained dialog generation model. achieving breakthroughs in Chinese and English conversations. Plateau allows for different kinds of conversation with users, including chit chats, knowledge-based dialogues, and conversational Q&A, which will be incorporated into Xiaodu in the future. Turning to mobile ecosystem. Daily logged in users in Baidu app reached another all-time high at 79% and in-app search queries was up 11% year over year, reflecting a better search experience from Baidu app. We continue to focus on deepening the service offering of our key verticals. For example, Baidu Health has built a strong community of medical experts that allow users to frictionlessly move from search to telehealth consultation We recently enabled doctors in our network to write prescriptions for online consultation and home delivery. Baidu app now offers instant replies to search queries from over 30,000 industry participants spanning 19 industry verticals. Instant replies were up five folds from a year ago and 40% are paid services. For example, users who search for tips on job interviews can readily connect to career advisors to get help on reviewing their resumes and selecting career training programs. Instant replies have enriched Baidu's search experience, further driving the vibrancy of our in-app search. Revenues from managed page reached 43% of Baidu core advertising, as we make doing business online for merchants simpler through Baidu's hosted marketing cloud. For example, Mei Nian One Health, a physical checkup clinic chain in Shanghai, opened a managed page storefront, allowing users to browse its services, chat with customer service, make payments, leave comments, and share reviews. Monthly orders increased fourfold three months after using managed page promotion. Search by nature is open, and we are benefiting from the trend to make internet more open in China. Our e-commerce feature is seeing good progress. In September, the number of third-party SPUs From China's top e-commerce sites, searchable on Baidu reached almost 1 billion. And e-commerce DMV on Baidu, though small, grow 90% sequentially. The open nature of our mobile ecosystem is leading smartphone makers to select Baidu's Smart Mini program as the landing page for their browser search. MAU from such collaboration has reached 24 million, and we believe such trend will enhance user experience and monetization or union search. Last but not least, I want to welcome Luo Rong, who has joined us recently as our new CFO. Rong brings a wealth of financial management and capital market experience. I also want to thank Herman for his four years of service at Baidu CFO, and we expect more great things from him as CFO. With that, let me turn the call over to Rong to go through the financial highlights.