Cheetah Mobile Inc.

We expect these two businesses will take off the second half of 2021. For our AI business, we have made good progress with business model of shopping mall, coupon selling robots. We created a brand new inside shopping mall marketing model to attract customers for merchants and have got really positive feedback. So far, our robots see more than 1,000 kinds of coupons for more than 1,000 merchants in nearly 40 cities all over the country. Weekly average GMU has increased for consecutive 11 weeks. with a compounded growth rate of about 20%. Next, we plan to deepen our focus on high-quality shopping malls and machines. In this model, machines can attract customers. Customers can get good benefits and we can achieve sustainable growth This is a real multi-wing situation. Lastly, I would like to mention that with great effort, the company's operational efficiency has been significantly improved. In past quarter, the growth margin has been increasing and non-gap operating loss has been narrowed. We will keep working to get the best outcome with very reasonable input. As of June 30th, 2021, our cash position was around US dollar 259 million, and the long-term equity investment was about US dollar 374 million. The abundant cash can enable the rally of our internet business as well as the rapid development of our AI and other business. We are confident in the second half of 2021, we will get out difficult position and achieve all-round growth in our business. With that, I will now turn the call to our CFO, Thomas Ren, to go through details of our fourth Second quarter financial results.

Thank you, Fuzong, and hello, everyone. Thank you all for joining us today. Now, I will walk you through our key financial highlights. Please note that unless stated otherwise, all money amounts are in RMB terms. As Sheng just mentioned, we delivered a healthy quarter. In the second quarter of 2021, Our total revenues were 212 million, representing a year-over-year decrease of 46% and a quarter-over-quarter increase of 7%. The revenue was within the range of our previous guidance. To explain the reasons behind the changes, now let me break down our revenues into internet and AI and other sectors. Revenues from the company's internet business decreased by 46% year-over-year and increased by 9% quarter-over-quarter to $204 million in this quarter. The year-over-year decrease was due to the company's strategic efforts to diminish the gaming-related business in past quarters. And the quarter-over-quarter increase was mainly from the growth of our membership business and the commercialization of several new utility products. Revenue from AI and others were $8 million in the second quarter of 2021, representing a 59% year-over-year decrease and a 27% quarter-over-quarter decrease. The year-over-year decline was primarily attributable to the planned drop in sales of consumer-facing AI-related products. The quarter-over-quarter decrease was from the expected volatility during the transition of business model. Although, in the last couple of months, we have seen some preliminary success in the business model of shopping mall coupon-selling robots, fluctuations could happen in the short term as we are still optimizing this business model. Turning to cost and expenses, the following discussion of results will be on a non-GAAP basis, which excludes stock-based compensation expenses. The use of non-GAAP measures in this context will help us to better present the results of our operating performance without the effect of non-cash items. For financial information presented in accordance with U.S. GAAP, please refer to our earnings release. Our operating loss has been further narrowed with consistently improved operational efficiency. In the second quarter of 2021, our operating loss was 56 million, narrowed from 133 million in the same period of last year and 58 million in the previous quarter. Cost of revenues decreased by 56% year over year and 15% quarter over quarter to 50 million in the second quarter of 2021. The decrease reflects our ongoing efforts to streamline the business and improve the operational efficiency. Research and development expenses decreased by 58% year over year and 33% quarter over quarter to 47 million in the second quarter of 2021. The decrease was due to the deconsolidation of certain gaming business in past quarters. And at the same time, the technologies to support our current AI business have been relatively well developed. So comparing with past quarters, the investment in AI-related R&D was lower in this quarter. Selling and marketing expenses decreased by 41% year over year and increased by 52% quarter over quarter to 121 million in the second quarter of 2021. This year over year decrease was attributable to the streamlining of our business and the strategic cost cutting, while the quarter-over-quarter increase was mostly from the promotion of our new utility products. General and administrative expenses decreased by 47% year-over-year and increased by 6% quarter-over-quarter to 52 million in the second quarter of 2021. The year-over-year decrease was mainly due to the streamlining of our business and our defective expense control, while the quarter-over-quarter increase was caused by a one-time reversal of share-based compensation expenses due to forfeiture in the first quarter of 2021. Now, let me turn to our balance sheet. As of June 30th, 2021, we had cash and cash equivalents restricted cash and short-term investments of US$259 million and long-term equity investments of US$374 million. We have maintained a strong balance sheet as always, which makes it possible for us to invest across our core business to support our long-term growth plan. And for our third quarter revenue guidance, we currently expect total revenues to be between RMB 180 million and 230 million. Please note, this forecast reflects our current and preliminary views and is subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. At this time, we will pause momentarily to assemble our roster. And our first question will come from Melody Chen of Jefferies. Please go ahead.

I have two questions. The first question is about our advertising business. How do we see the trend of the advertising industry? And the second question is about our AI business. Because we also do a good job in the commercial industry. I have two questions. The first one is on the advertising sector and the second one is about our AI shopping more robots business. Can management share a bit more on the . Thank you.

Thank you, Melody, for your question. I will answer your first question regarding the advertising industry, and I think Fuzong will answer your second question regarding the AI business. So for the advertising industry, recently in Q2, as we all know, there were some occasional COVID-19 cases in several cities across China. So therefore, we can see some negative impact on advertising for travel and transportation. And also because of the recent regulation on K-12 education, so we can see the online education industry is gradually stepping out of the market. However, we still see industries very active, such as internet service, consumer goods, cars, and so on. And for us, as we mentioned, we have been transforming our single advertising business model to a diversified business model of both advertising and subscription. So currently we can, for some of our utility products, we can see more than half of our daily cash revenue received is from membership or subscription. user subscription. And also as we mentioned, the renewal rate is up and more and more members are choosing longer term membership. So this will be our continuing strategy in the long run. And at the same time we also, as we mentioned, we also launched some new utility products. These products revenues are mostly from the user paying models. I hope this answers your first question. Yes, and the question is... About the progress of AI. Okay.

Through this period of research, we are getting to know more and more that in the mall, through robots, we can provide customers with this kind of question and answer consultation and customer information services. We have a very...

Okay, let me translate this part. So, based on our recent exploration, we realized that in the shopping mall, our robots can provide to the customers about the like inquiries of location and also the information about the local merchants. We think there is a great chance we can do a really successful business model on the shopping mall.

Yeah, the local traffic in the shopping malls are increasing in recent years. 然后这个商场也越修越大,更多的店铺的入住使得这个顾客在逛商场的时候,对商场内部的信息是缺乏一个

Yeah, and the size of the local shopping malls are becoming bigger and bigger, so it will be difficult for a customer when entering the shopping mall. There is a lack of a channel to obtain merchant information.

Our robots in the shopping malls, especially the noisy environment in the shopping malls, our robots can provide good

voice interaction with the customers so that they can quickly obtain the merchant's information in this shopping mall. This also helps the shopping mall to improve its service quality.

When a customer is inquiring information regarding certain merchants, we can also recommend some coupons

for the merchants he is asking.

This can bring more traffic to the local merchants in the shopping mall.

Yeah, this is a multi-win solution for the three parties, i.e. the shopping mall, the merchant, and the customers.

We all know that today's many stores and customers have to go through some large Internet platforms, and the prices are getting higher and higher. We have provided a faster and more advantageous purchase for these stores, which is called Local.

Yeah, as we all know the local merchants nowadays their user acquisition is mostly from the big internet platforms and the cost is becoming more heavier for the local merchants. So we can provide quick channels for the merchants to obtain local traffic.

So we have sold more than 1,000 types of credit cards to more than 1,000 businesses in nearly 40 cities. And the daily sales volume has increased by 11 weeks in a row. The weekly recovery has also increased by about 20%.

So far, our robots are selling more than 1,000 kinds of coupons for more than 1,000 merchants in nearly 40 cities all over the country. And the weekly average GMV has increased for consecutive 11 weeks with a compounded growth rate of about 20%.

Yes, we think this model can still continue to grow and can We believe this kind of business model can increase or grow substantially and also we can create a service platform based on the shopping mall environment.

So that's our answers about your second question. Thank you.

As there are no further questions at this time, I'd like to hand the conference back over to the management team for closing remarks.

Thank you, Andrew. Thank you all for joining us today. If you have any further questions, please don't hesitate to contact us. Thank you. Bye.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.