Cheetah Mobile Inc.

Good day, and welcome to the Cheetah Mobile First Quarter 2020 Conference Call. Our participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Halanyu, Investor Relations Director of Cheetah Mobile. Please go ahead, ma'am.

Thank you, Officer. Thank you, operator. Welcome to Cheetah Mobile's first quarter conference call. With us today are our company's chairman and CEO, Mr. Fusheng, and Mr. Thomas Yan, our company's CFO. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the same proper statement in our earnings release. which also applies to our conference call today, as we will make forward-looking statements. At this time, I will now turn the conference call over to our Chairman and CEO, Mr. Fushun. Please go ahead, Fushun.

Thank you, Helen. Hello, everyone. Honestly, China Mobile's mobile internet business still faced some headwinds in the first quarter of 2020. due to epidemic as well as suspension of our partnerships with Facebook and Google. While we continue to communicate with Google and Facebook, we have not yet resumed our work with them. As a result, we are having difficulties in acquiring new users and monetizing our traffic in overseas markets. In the first quarter of 2020, revenues from overseas markets decreased by 56% year-over-year and 11% quarter-over-quarter. MAUs in overseas markets declined by 33% year-over-year and 40% quarter-over-quarter. Due to the epidemic, our ECPM in China declined significantly in Q1, resulting in 75% year-over-year and 42% quarter-over-quarter decrease of our mobile utility product revenue in the domestic market. Overall, we expect our total revenues to decrease by 49 to 55 year-over-year in the second quarter of 2020 by excluding the impact of this conciliating rating like me. In face of these challenges, we have taken measures to sustain our profits conserve our cash, and build a long-term growth engine. These measures include the following. First, we have streamlined our operations, focused on the domestic mobile internet market, and offered some non-strategic business, such as Limey. Second, we have continued to optimize our cost and expense structure, especially to our mobile internet business, including the utility product business and the mobile game business. Third, in terms of our investment in AI, we will focus our resource on AI-related robotics business in shopping malls. Fourth, we have liquidated our equity stakes in other companies, which Thomas will provide some additional color in his part. Our efforts to implement these four measures have started payoffs. Non-GAAP operating profits for our mobile internet business unit in the first quarter of 2020 improved The standard from fourth quarter of 2019, despite a decline in revenue, the cost and expense for our mobile internet business decreased by 50% year-over-year, and the 28th quarter-over-quarter in the first quarter of 2020, excluding the decline Deconcelation of Limey, the cost and expense for our mobile Internet business decreased by 30% year-over-year and 28% quarter-over-quarter in the first quarter. As a reminder, we started to deconcelate Limey's financials since Q4 last year. As a result, the non-GAAP operating profits of our mobile internet business improved to RMB 8 million from a non-GAAP operating loss of RMB 92 million in the fourth quarter of 2019. At the corporate level, our gross margin expands on both a year-over-year and a quarter-over-quarter basis in the quarter. Non-GAAP operating profits also improved from the fourth quarter of last year. Looking ahead, we will continue to implement strict cost saving and expense control measures while improving operational efficiency. Meanwhile, our PC revenues stabilized on both a year-over-year and a quarter-over-quarter basis at around RMB 120 million in the first quarter of 2020. Importantly, the composition of our PC revenues is changing. In addition to advertising revenues and gaming revenues, we generated an increased amount of PC revenues from paying users who subscribed to the premium service of our Duba antivirus software. Both the paying user count and the daily subscription revenue reached record highs during the pandemic. While these metrics declined slightly after the Chinese user had attended returned to work and school. They have recently started to grow again. In Q1, the decrease in our mobile utility product revenue in the domestic market was due to the epidemic and our initiatives to proactively reduce some advertisement slots in China to enhance our user experience. Now we still have close to 100 million MAU on both PC and mobile in China. We believe our utility product business in China has been stabilizing. Going forward, we expect both our PC revenues and mobile utility product revenues in the domestic market to remain resilient. At the same time, we will replicate our user subscription model from PC to mobile. To rebuild our long-term growth engine, we continue to focus our resource on selected AI-related robotics business, such as AI new retail. Since last year, we have deployed our robot in more than 800 shopping malls throughout China's tier 1 and tier 2 cities. Our offering helps customers to find shops and brands they are looking for. improve the customer's shopping experience and create more business opportunities for merchants. Before the outbreak, the customer's daily inquiries with our robot had been growing since inception. While engagement level decreased during the outbreak, it is back to the in recover model now. On the other hand, the accuracy rate of our speech interaction service has already surpassed 90%, which is reaching the level of smart home speakers. Increased customer usage has attracted many shops and brands to come to our to us to gain coverage. Our team has developed an online system which has helped users register, adjust, and update their information on a real-time basis. Recently, we have tentatively directed more traffic to certain users to monetize our user traffic. In the coming quarters, we will focus on the monetization of our user traffic in shopping malls. Additionally, we have developed our robot throughout many hospitals in China during the recent outbreak of COVID-19. Further increase in brand awareness for our product and solutions. With that, I will hand the phone over to our CFO, Thomas.