This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Hey, and welcome to the Cheetah Mobile third quarter 2021 conference call. All 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 Cheryl Zong, Investment Relations Director of Cheetah Mobile. Please go ahead, ma'am.
spk03: Thank you, operator. Welcome to Cheetah Mobile's third quarter 2021 earnings conference call. With us today are Mr. Sheng Fu, Chairman and CEO, and Mr. Thomas Yen, CFO. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the Safe Harbor Statement in our earnings release, which will also apply to our conference call today as we will make forward-looking statements. At this time, I would now like to turn the conference call over to our CEO, Mr. Shengfu. Please go ahead, Fuzong.
spk01: Thank you, Sherry. Hello, everyone. In the third quarter of 2021, constant with our previous guidance, Trader Mobile's revenue was RMD 196 million. For our internet business, we continue to transform our business from single advertising model to a diversified model of advertising plus subscription. The number of members keep double ticket sales. The revenue from our membership business have increased for more than five quarters consecutively. On TC platform, we further enhanced our service and membership privilege. The overall member's satisfaction score stays a high level. Our mobile platform, we improved user experience through product optimization and more value added service. The percentage of paying users as well as the renewal rate both increased. In general, after the huge external challenges, our internet business has been back to the right track as we planned. However, now globally, Advertising is facing some uncertainty in China. Sectors such as education, real estate, travel have slowed down due to COVID-19, government supervision and regulation, and some other reasons. The impact has been passed on to advertising business. Companies, including Baidu and Tencent, are not very optimistic about advertising in the coming quarters. Our outlook for the first quarter also reflects these factors. Advertising business of big companies, such as Facebook, also faced headwind from the change of iOS 14. Macroeconomic and COVID related factors. Our overseas advertising agency business is inevitably adversely affected As this might be a multi-quarter impact, this also has been factored in our fourth quarter guidance. Good news is revenues from our global cloud service has been growing very well due to expanding service categories and the client base in this quarter. Enterprise, which tried to explore overseas markets, has a real demand for this service. We are very optimistic about its future growth. For our AI business, GMU and revenue from shopping mall coupon-saving robots has been up for several months in a row. We applied both offline and online marketing strategies to expand the business. Offline, we have deployed more than 10,000 robots in more than 40 cities. Online, we use our own WeChat mini program, Chuan Duo Duo, some other local network community, as well as some mainstream third-party platforms. Customers can register in Chuan Duo Duo through our Shopping Mall robots and choose their favorite coupons from a list of options we displayed in this mini program. Machines can also use Trendodo's professional platform to review the data of their coupon sales and to analyze. Currently, our robots sell more than 5,000 kinds of coupons for more than 1,000 merchants in more than 700 shopping malls all over the country. At the end of October, GM Vapor Day, as a weekend, has achieved another milestone. For this business, we have gradually created competition barriers It has been widely welcomed by more and more merchants and customers. Generally speaking, revenue from our new business, such as the membership business, the global cloud service business, and the shopping mall coupon trading robots business will keep going. While revenues from advertising-related business will face some challenges in the coming quarter, for cost and expense, operational efficiency has been greatly improved in the past quarters. Upon this, we will continue the strict control over cost and expense to maximize our operational efficiency and the interest of our shareholders. Additional, as of September 30th, 2021, our cash position was around USD 200, US dollar 288 million, and the long-term equity investments was about US dollar 376 million. The vendor capital reserves ensure us to focus on our strategies and growth Stately with that, I will now turn the call to our CFO, Thomas Ren, to go through the detail of our third quarter financial results.
spk00: Thank you, Sheng. 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, in the third quarter of 2021, our total revenues were 196 million, representing a year-over-year decrease of 46% and a quarter-over-quarter decrease 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. As a result of the company's ongoing business streamlining efforts, we realigned our business segments based on the change of the way that the management assesses the company's segment performance. The company's overseas advertising agency services which assists companies to launch advertisements on overseas advertising platforms are changed from the internet business into AI and others due to the synergies created between the company's advertising agency services and global cloud services. Consequently, the company has retrospectively revised segment information and related revenue presentation to confirm the change in the company's segments. Revenues from the company's internet business decreased by 51% year over year and 16% quarter over quarter to $161 million in this quarter. The year over year decrease was due to the company's strategic efforts to diminish the game-related business in past quarters the quarterly decrease was mainly because revenue in the second quarter of 2021 was temporarily increased due to green 18 promotional events and no such promotional event occurred in this quarter revenues from ai and others As the reclassification of segment from this quarter, this segment now includes our shopping mall coupon selling business, overseas advertising agency business, global cloud business, and some other business. Revenues from this segment were 36 million in the third quarter of 2021, representing a 9% year-over-year decrease and a 63% quarter-over-quarter increase. The year-over-year decline was primarily attributable to the planned drop in sales of AI-related hardware products. The quarter-over-quarter increase was from our global cloud services as well as shopping mall, coupon selling robots business. Turning to costs 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 US GAAP, please refer to our earnings release. Our operating loss was 59 million in the third quarter of 2021, compared with 119 million in the same period of last year and 56 million in the previous quarter. Our adjusted EBITDA was negative 38 million in the third quarter of 2021. compared with negative 101.6 million in the same period last year and negative 47.7 million in the previous quarter. Cost of revenues increased by 34% year over year and increased 48% quarter over quarter to 74 million in the third quarter of 2021. The year-over-year decrease was primarily due to the decreased revenue. The quarter-over-quarter increase was from increased spending over AI-related business. Research and development expenses decreased by 54% year-over-year and increased by 11% quarter-over-quarter to $52 million in the third quarter of 2021. The decrease was due to the deconsolidation of certain gaming related business in past quarters. Our investment in research and development has been keeping flat. The quarter over quarter change was mainly due to less government grants in this quarter. Selling and marketing expenses decreased by 49% year over year and 30% quarter over quarter. to 85 million in the third quarter of 2021. This year-over-year decrease was attributable to the streamlining of our business and the strategic reduction of our costs. While the quarter-over-quarter decrease was mostly because we incurred incremental promotion expenses for the June 18 promotional events in the second quarter. General and administrative expenses decreased by 46% year over year and by 7% quarter over quarter to 48 million in the third quarter of 2021. The decrease was mainly due to the streamlining of our business and our effective expense control. Now, let me turn to our balance sheet. As of September 30, 2021, we had cash and cash equivalents, restricted cash and short-term investments of U.S. dollar 288 million and long-term equity investments of U.S. dollar 376 million. This strong balance sheet ensures us to follow our long-term development plans and achieve our strategic goals. And for our fourth quarter revenue guidance, we currently expect total revenues to be between 130 million and 180 million. As Sheng just mentioned, our guidance has has reflected the uncertainty we face in the fourth quarter due to the headwinds in global advertising business. 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.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. If your question has already been addressed and you'd like to remove yourself from queue, 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. Please stand by as we pull for questions. And today's first question comes from Melody Chang at Jefferies. Please go ahead.
spk04: The second question is about our AI-related business. Um. Let me translate my question. My first question is on the advertising business. So how should we think about the impact of the COVID uncertainty and the micro weakness and also the regulation impact? And my second question is on the AI business. How should we think about the AI business outlook in 2022? Thank you. You can answer this first.
spk00: Okay, thank you, Melody. I will answer your first question, and Mr. Sheng will answer your second question, and I will translate for him. So your question, I think it's regarding the advertising business, and firstly, I would briefly answer the impact by COVID uncertainty and also Marco weakness. Yes, we think COVID uncertainty and Marco weakness will affect our business. And we can see now globally advertising is facing some uncertainty. In China, sectors such as education, real estate, travel have been slowed down due to COVID-19. and also the government supervision, the regulations, some other reasons. So the impact has been passed on to advertising business. So some bigger internet platform companies are not very optimistic about advertising in the coming quarter. also our outlook for the fourth quarter also reflect these negative factors and Overseas overseas market advertising business as we mentioned For the big platform company like Facebook. They they are also facing headwinds and from the change of iOS 14 macroeconomic and COVID-related factors. So our overseas advertising agency business is also adversely affected, and this might be impacted by multi-quarters. This also has been factored in our fourth quarter guidance. And also for our Shopping More coupon selling Robert business, there were also some negative impacts on our business in certain cities. Some shops in these cities were closed or some restaurants stopped eating, but it is controllable and the impact was only in limited areas. So we didn't see a significant impact on our shopping mall robot business. And also, I think your question also involves the regulation impact and the personal information protection law. Yeah, we also see the strict government supervision and regulations could also slow down the advertising business. This has already been reflected in some Chinese internet companies' financial results. And as we mentioned earlier, we also expect some negative impact on our advertising-related business. And for us, Internally, our related departments have been starting and following the regulations and laws seriously. We also adjusted how we display advertisement on our platforms and how we can collect users' information. We conducted some internal restructure to better comply with the updated government regulations. And also, as we mentioned, now we are focusing on new business, such as membership, shopping mall, coupon selling, and the global cloud service. We are confident about the growth of this new business. So generally speaking, about these regulations, we will strictly comply. And at the same time, we also have made business strategies to ensure the growth of our overall business. I hope this answers your question.
spk01: This is the second question, about the future of the mall. Let me answer it. In total, we have deployed more than 10,000 service robots in dozens of cities across China. We have found that consumers have developed a dialogue with these service robots to ask about the situation of the stores in certain malls,
spk00: Okay, let me translate this part. So we have deployed over 10,000 service robots in thousands of cities across China. And we recently realized that all the customers, they are already used to talking to the robots in the shopping malls. like inquiring the information of merchants in that shopping mall or the service provided by those merchants.
spk01: And then, because consumers have developed a habit, we found that when consumers ask for directions or make a deal with the machine, we can accept some discount cards from some shops in the countryside.
spk00: Because we found the customer already used to, you know, communicating with our service robots, we found that when the customer is asking the location or interaction with our service robots, the coupons be recommended. for the customers could be acceptable.
spk01: And all the merchants in the shopping malls, especially the restaurants,
spk00: they also need that to deploy some of their coupons in this shopping mall to attract its traffic.
spk01: Yes, and when consumers are shopping in shopping malls, most of them don't have a very clear purpose. So at this time, they will go to some restaurants for dinner or to buy some products.
spk00: When the customer is shopping in the mall, so for most of the time, they didn't have a clear targeted restaurant. So sometimes it might be they might go in to the recommended restaurants because of the coupons being recommended.
spk01: So we combined the needs of these three people and launched a small program called Persuade More.
spk00: So combining the three parties' demands, we are promoting the mini-program called Quanzuoduo.
spk01: When the user is dealing with the machine, he first has to register as a member of our small program, and then go directly to pay for the coupon, and then take the coupon to the store to enjoy the discount.
spk00: When the customer interacts with our robots, so they, firstly, they need to register our mini program to become a member of our mini program. pay to buy the coupons through our program, and then they can bring the electronic coupons to the restaurant or to the merchants who enjoy the discounts.
spk01: Yes, so we actually used this service robot to convert the offline traffic to our online Chendodoro small program group. The offline user group converted to our online Chendodoro user group.
spk00: So by promoting our service robots around the shopping malls, we can successfully convert the offline traffic into the online traffic or online user base of our mini program.
spk01: ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG
spk00: So by this business model, we can apply our advantage of the internet traffic business model to combine with the offline traffic user base.
spk01: We have provided over 5,000 coupons in our mini program.
spk00: We believe this business model could grow fast because, as we just mentioned, it's a combination of three parties' demands.
spk01: This could also convert our traditional internet business
spk00: from the previous pure advertisement model into the consuming and payment procedures. You can also earn commissions by selling coupons. This could be another source of our future commercial income.
spk01: This is basically our Shopping Mall Service Roberts business model. I understand. Thank you. Thank you, Melody.
spk02: And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then 1. And as there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.
spk03: Thank you, operator. Thank you all for joining us today. If you have any questions, please don't hesitate to contact us. Thank you. Bye.
spk02: And ladies and gentlemen, this concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Disclaimer