Baidu, Inc.

And welcome to the Baidu Incorporated Third Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to your host for today, Joanne Lim, Baidu's Director of Investor Relations. Please go ahead.

Hello, everyone, and welcome to Baidu's third quarter 2022 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website, as well as our newswire services. On the call today, we have Robin Li, our co-founder and CEO, Rong Luo, our CFO, Dou Shen, our EVP in charge of Baidu AI Cloud Group, and Zhenyu Li, our SVP in charge of Baidu Intelligent Driving. 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 the U.S. Private Security Litigation 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 SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward listing 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 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 be available on Baidu's IR website. I will now turn the call over to our CEO, Robin.

Hello, everyone. Recapping the third quarter in broad terms, we delivered improved bottom line results despite a challenging macro environment. Especially for the mobile ecosystem, operating profit resumed positive year-over-year growth, and for AI Cloud, operating loss and margin improved meaningfully both on a year-over-year and a quarter-over-quarter basis. Businesses across the line, from mobile ecosystem to AI Cloud to intelligent driving, have been negatively affected by the resurgence of COVID. Throughout Baidu's history, however, we have experienced many challenging environments. Periods of challenges have enabled us to emerge stronger, given our relentless efforts on building long-term growth. We're using this period to ready ourselves for current business conditions to improve. Our key short-term tasks remain unchanged, which are efficiency optimization and continuous investments in the new AI business. Our new AI business, such as AI cloud and intelligent driving, are well aligned with China's tech innovation and national initiatives. By doing so, we will further strengthen our leadership in the new AI business and re-accelerate business growth. In Q3, Bible Corps ad revenue was down 4% year-over-year, but improved from the second quarter's 10% year-over-year decline, as macro had improved gradually since June. Encouragingly, revenues from healthcare and retail recorded positive year-over-year growth in the quarter. Going forward, once COVID situation alleviates in major cities, Ad revenues across different verticals, such as travel, franchising, and local services, should rebound. For our new AI events, I'm proud to report some highlights. Revenues from AI Cloud increased by 24% year-over-year to RMB $4.5 billion in the quarter. AI Cloud has been a major growth driver for Baidu Core's non-advertising revenue. In Q3, non-advertising accounted for 26% of Baidu Core's total revenue, that's up from 21% a year ago. Baidu Apollo's auto solutions continue to gain traction among leading automakers, and the total projected accumulated sales reached RMB 11.4 billion recently, growing more than 50% year over year. ApolloGo completed 474,000 rides in the employer, up 311% year over year. By the end of Q3, ApolloGo has completed 1.4 million rides on public roads. We believe we remain the largest autonomous ride-hailing service provider globally. Now, let's review the third quarter operational highlights. Revenues from AI Cloud increased by 24% year-over-year to RMB 4.5 billion in a quarter. In Q3, the operating loss margin for AI Cloud improved notably, both year-over-year and quarter-over-quarter. Over the past quarter, we have made shifts away from some lower margin businesses to build sustainable growth for AI Cloud. Meanwhile, we continue to take measures to standardize our solution to cut down deployment costs as we scale up. Our efforts have allowed us to gradually improve operating profit and margin. I'll take ACE Smart Transportation as an example. In the past quarter, we continue to grow revenue and improve operating margin for Smart Transportation as we gain scale. Leveraging our strong AI capabilities and our insights into the industry, we have developed the solutions for typical use cases, such as traffic management and V2X for urban roads and highways. Previously, we talked about how our projects helped improve traffic efficiency on city roads in Beijing, Guangzhou, Changsha, Chongqing, and other cities. Recently, Zhuzhou City, an important transportation hub in Hunan Province, adopted our smart traffic management solution. Our solutions covered more than 70% of the major intersections in the busiest district of Zhuzhou. After adopting our solution, delays have been reduced by 22% during rush hours in the covered region. By the end of the quarter, Baidu ACE Smart Transportation Solutions had been adopted by 63 cities, up from 24 cities a year ago and 51 cities a quarter ago, based on contract amounts of over RMB 10 million per city. As we demonstrated our capabilities to use AI to improve transportation efficiency in more cities, ACE Smart Transportation will further expand its market share. We're trying to repeat our success in smart transportation in other key verticals, such as manufacturing, energy and utilities, and the public sector. We will empower our customers with AI capabilities to help them increase productivity and cost control. With AI Cloud, our customers will be better positioned to take advantage of digital and intelligent transformation. We believe we remain well positioned in this early-stage, fast-growing market due to, number one, our capabilities to establish end-to-end solutions based on our full-stack AI capabilities, ranging from chip design to deep learning frameworks to large language models to application-level software. And number two, our insights about customers' pain points and our growing know-how and capabilities to solve their problems. While COVID caused delays in project implementation and complicated our sales team's efforts, hampering new contract wins, we believe the long-term trend of digital and intelligent transformation remains unchanged. Looking ahead, we will continue to focus on quality growth and aim to improve margins to achieve profitability for AI Cloud. In intelligent driving, we marked several key highlights in the third quarter, and our years of investments in intelligent driving have begun bearing fruit. According to Apollo's auto solutions, our total projected cumulative sales exceeded 11.4 billion recently. Based on our current pipeline, some of the major car models equipped with AMP and ABP are expected to be launched in the second half of next year. We expect meaningful revenue contribution from this business to begin in 2024 and profit to expand once material revenue kicks in. Such growth demonstrates the increasing demand for our auto solutions. In Q3, we extended our partnership with one of China's largest automotive and technology companies, AMP, AVP, and HD maps for one of their popular models. As of today, we have announced collaborations with many OEM partners. Serving various automakers has helped us standardize our auto solutions, making them compatible with more popular car models. As more cars equipped with our auto solutions get into consumers' hands, we will continue to refine and update our solutions. Considering the sizable development cost for high level autonomous driving technology, many automakers seek partnership with reliable suppliers who have strong brand and technology capabilities. We have differentiated ourselves with world leading level four autonomous driving which has been established through years of investment. Now, we are proactively building high-quality partnerships with an increasing number of auto OEMs to accelerate our partners' progress in autonomous driving. A few months ago, we integrated Baidu Map into our Intelligent Driving Group to create synergies between the Baidu Map mobile app and the map solutions for auto and transportation industries. Since our maps have already been widely adopted, we have obtained more insights in the transportation industry, allowing us to strengthen our solutions for the mobility sector. On Apollo's goal, we continue to scale up our operations and we believe we remain the largest autonomous ride-hailing service provider worldwide. In the third quarter, the rides provided by Apollo Gold reached 474,000, increasing 311% year-over-year and 65% quarter-over-quarter. A vast majority of the rides were for serving passengers during rush hours, covering places like subway stations, office buildings and shopping malls. As our operation continues to expand, ApolloGo keeps learning and improving from scenarios that do not occur during the testing phase. Leveraging large-scale operations, we're making ApolloGo a professional AI driver while offering a safe and comfortable autonomous ride-hailing service. Today, With an ApolloGo vehicle and its dense intersections, it is able to easily pick a gap between pedestrians, bicycles, and other moving objects, safely driving through while providing a comfortable experience to the passengers. ApolloGo continues to improve autonomous ride-hailing services under extreme weather. Scalable operations have indeed reinforced our level four autonomous driving capabilities, setting a strong foundation for further operation expansion. We believe this virtuous cycle will make ApolloGo the most experienced AI driver to handle various situations on the road on a large scale. We're pacing the expansion of ApolloGo based on a comprehensive financial model. In previous earnings calls, we talked about ApolloGo's achievement in the Yizhuang region of Beijing. In fact, ApolloGo has achieved significant progress in other tier one cities as well. In Q3, on average, each vehicle in Beijing, Shanghai, and Guangzhou completed more than 15 rides per day. According to our knowledge, this number is quite close to the average daily rides for traditional ride-hailing services. We believe that our strong and improving safety track record on public roads provides a strong endorsement for more cities to issue permits for fully driverless ride-hailing. We believe fully driverless ride-hailing will create more affordable urban transport and attract more consumers to the right ceiling market, Baidu will continue to invest to capture this massive market opportunity. Moving to the mobile ecosystem. Our operating profit improved on a year-over-year basis, and we continue to generate strong cash flow in the quarter. Our mobile ecosystem continues to expand. In September, Baidu app's MAUs increased by 5% year-over-year to 634 million. In Q3, total mobile search queries increased by double-digit year-over-year. And feeds distributed through Baidu app increased by 23% year-over-year. We continue to introduce short videos in feeds and search results. In September, Short video distribution and time spent within Baidu feed grow double digit year over year. For Baidu search in September, 23% of the clicks on search result pages were short videos. And we expect the prevalence of video in search results to continue progressing rapidly. We're using AI to produce more short videos for our mobile ecosystem. While it is still in a very early stage, we believe AI will allow us to generate short videos much faster and more cost-effectively than human-generated content. In e-commerce, users are coming to Baidu's app for product search, which resulted in a continuous increase in product-related search queries. Quarterly GMB facilitated by Baidu search grow by about 52% year over year in Q3. Today, users come to Baidu app not only to search for information and knowledge, but increasingly to look for services and merchandise. As we are able to make purchases and book services without leaving Baidu app, we have been deepening our understanding of user needs. Meanwhile, more customers are leveraging our ecosystem infrastructure to build their marketing campaigns and even operate their businesses on our mobile ecosystem. This has allowed us to accumulate more customer insights and better serve the customers. The improving insights into our users and customers have in turn allowed us to improve user experience and ad conversion. In the future, we believe our mobile ecosystem will continue to generate strong profits and cash flow. To close, during this uncertain time, we focus on making the long-term investments that will position us to be stronger coming out of this challenging period, including Baidu AI Cloud and Intelligent Driving. While the advertising industry has been impacted by COVID-19, Some of our verticals could recover faster when there is an upturn in the economy, which will drive our ad revenue to resume growth. Before I turn the call to Long, I want to thank Baidu's employees for their diligent work in a challenging environment and the time and effort they put into making our company's story a success in the long term. With that, let me turn the call over to Rong to go through the financial highlights.