Q1 2020 Cheetah Mobile Inc Earnings Call
Good.
Okay.
First quarter 2020 conference call.
I guess it then so be in listen only mode.
After todays presentation will be an opportunity to ask questions. Please note. This event that's being recorded I would now like to turn the conference. So how long you Investor Relations director of Cheetah Mobile. Please go ahead.
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Some of our company Seattle.
Hi, my prepared remarks, well docket to what exactly.
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The Safe Harbor statement, Ernest Rady, which also applies to work comp at call. It today.
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I'll now turn the conference call all work to our chairman and CEO Mr. Zhao. Please go ahead.
Thank you Hello, Hello, everybody.
Honestly.
Both the mobile you cannot be the.
The deal fees.
How do we ended the quarter over to compete today.
Due to.
I mean.
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They should.
Oh for our <unk> partnerships with the Facebook and Google.
I would continue to come.
We will communicate with Google and Facebook, we have not yet.
We do.
We filmed Oh, I walk with them.
Results, we are hiring depakote difficulties.
We acquire new users and monetizing our topic you know what is lucky.
Caught up to 2020 revenues from overseas markets decreased by 56% year over year on day.
11% quote quote.
I mean, you Oh, what the market.
Declined by 33% year over year under 40% Cordova.
Due to the.
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Oh, I, usually P.M., we try not declined significantly in Q1, resulting in.
So when he five.
Yeah, all year, and 42 quarter over quarter decreased all of our mobile your Turkey product revenue in the domestic markets.
Overall, we expect our.
Our total revenue.
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Quarter over.
So the independently by excluding.
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Our profit.
Oh, so our cash and built along kind of girls and your.
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We have Jimmy light our operation.
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Domestic mobile internet market.
And offered old.
Nonstrategic strategic business such as the lighting.
Second we have continued to.
Hi.
Optimize our costs.
And our east Hi, John jumper.
Especially to our mobile internet business, including the utility occurred about business and the mobile game business.
So the income or when you last Monday <unk>, we were focused on.
We were books I would've thought Oh, yeah, I relate heated up would be the need each okay more.
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Equity Stakes.
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Airport pre agreement did well mother, how lucky.
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Non-GAAP operating profits for our mobile Internet business unit unit in the fourth quarter of 2000 aplenty.
In crude.
The bundling.
Fourth quarter over 2019 gift might.
Hi, good revenue the caught I mean your phone.
Our mobile Internet business decreased by.
50% year over year, and the 28 quarter over quarter in the fourth quarter, Although 2020.
If you excluded.
The.
Do you come.
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Well, our mobile Internet isn't it decreased by 30% year over year independent <unk> quarter over quarter, either <unk> corridor.
As a reminder, we studied too.
You called because the lake each line <unk> Finance your faith Q4 last year.
He's out the non-GAAP.
Operating profit of our mobile you <unk> crude to I'm B H media from a non-GAAP operating loss of the maybe.
92 media, so fourth quarter 2000, the Nike.
The corporate de lever our girls marching expense on both a year over year and of course, I know a quota they use a quota non-GAAP operating profit also improved.
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Sequentially from the fourth quarter last year.
Looking ahead, we will continue to complete meant Jake.
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Why even crude improving upgrade operate chino inpatient efficiency.
Meanwhile, our PC revenue stabilize on both a.
A year over year and of course all quarter basis.
A wrong on B, one 120 media the fourth quarter over 2000 pundit importantly.
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What do I tightening revenue and a gaming revenue we generated an increased amount of a PC revenue from paying goes up who subscribe to who the premium.
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Our Dubai and Humira is self built.
Both the painting painting, the comps and the Bailey said cry Subscribership, So Chris <unk> revenue reached record the higher doing them.
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Declined.
Slightly up at the Chinese deals there how how did you can do they tended to work and school.
They have recently studied it took a look at.
In Q1, the degrees in our mobile your because you've heard about revenue in the domestic markets what due to the <unk>.
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I'd be timing I'd be dummy an hour you Nishu initiative.
To grow activity actively.
We do some type of money.
In China, we enhanced our yields that you could be there is.
No we still have close to 100 to media <unk> on both PC and mobile in China. We believe our utility part B thing is in China had to be.
They bought lighting.
Going forward.
We expect both our PC revenue and the mobile you attended Hubert top revenue.
<unk> domestic market to remain.
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Pretty crazy replicate our yields that scrubs you.
[laughter] curbishley modal from PC to mobile.
Who reviewed our long term growth and yet we continue to folks are what we thought on selected.
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Faith Luckier, we how would you close Oh I'm deployed our robots in more than.
800, jokey more throughout China, China higher.
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Yeah, one and the tier two cities.
Our operating how how come or to find shop.
And the bread.
They they are looking for improved the cup come much joking expiries and agreed to more business opportunities.
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Before the outbreak the customer daily inquiry with all were up on how to be good old brilliant since inception.
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No no.
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Of course, the reach of our beach interaction Sobi has already.
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Hi, Chuck I talk to you Didnt, many shop and the Brian to come to up to up to.
To gain coverage.
Our team has developed poach, Oh light that <unk>, which had hoped.
Okay.
You the lead you to other jobs and I'll update updates there you formation, Oh I real time basically.
Recently, we have.
Tend to accumulate you'd look to do not.
You're not paid the more choppy traffic to certain.
Users to monetize our user traffic.
In the coming quarter, if we were focused on monetization of our user traffic.
In shopping mall. Additionally, we have would do well uphold our robot throughout many hospital in China doing studies.
Recent outbreak.
Colo the 19th.
But I can create increasing brand awareness.
Barry awareness for our product and solutions.
With that we've ever had and I were handed the phone or <unk>.
Thank you for them and good day everybody.
Thank you all put running up today.
No I'd be a walk you through our financial results.
Please note that a lot stated otherwise all money alone.
RMB tour.
All growth comparisons are made a year over year basis.
That's the stated in previous calls her last me a Monday they share incentive plan on September 30, or 20 Nike.
That's a result, we no longer hold the majority voting power you like me on have started to Deconsolidate like <unk> financial results since the fourth quarter Oftwenty Nike.
During the fourth quarter of Twentytwenty total revenue decreased by 51% to 528 meeting.
Excluding the impact of the deconsolidation of like me its revenue.
Total revenue decreased by 36%.
The called her.
No no loopy into all resolved for each beat this lot starting with utility product and the related services.
Revenue from utility products and the related services.
Decreased by 58% to 200, an 11 million.
Moreover, during the call her about 71% off our revenue farm utility products were generated from advertising.
This decrease was primarily due to the falling.
For the decline in our mobile utility product <unk> in overseas markets.
Mobile utility product revenue was an overseas market decreased.
63% to 54 million either called her which was mainly due to the suspension of our collaborations with Google all the other Mccarthy from.
February 20 Twond.
Second the decline in our mobile utility productivity.
Domestic market.
Mobile activity product revenue domestic market decreased.
By 75%.
<unk> 62 million in the called her.
Mitch what the result of hadn't been you try to all about advertising market.
Sure the decline in PC related revenue.
Few fee related revenue decreased by 60% a 6%.
To 95 million either called her internet traffic in China continue to migrate from PC to mobile devices.
Revenues from our mobile game business.
Decreased by 5% to 285 million caught her.
Mainly due to the suspension of our collaborations with Google all the other with hiding from.
February 20 Twond.
In addition, during the quarter about 70% of revenue from our mobile games Peafiel core generated from other advertising.
Oh, the remaining portion of revenues were generated 4 million game purchases.
Turning to our call an expensive.
The following discussion not resolved there will be on a non-GAAP basis, which.
Exclude stock based compensation expenses and goodwill impairment.
You are non-GAAP major you did come back.
How cost too bad her present resolve our operating performance Vietnam, The fact of noncash items.
Well financial information presented in accordance with U.S. got please refer to our press release, which is available on Cheetah mobile stops that I R. C. N C M Dot com.
The fourth quarter of Twentytwenty.
The implemented treat strict cost saving an expense control majors to our mobile internet speed the.
Specialty former utility part of business.
The mobile game business.
Total cost and expenses decreased by 38% year over year.
To a 675 meeting in the first quarter of Twentytwenty.
This year over year decrease what mainly due to the deconsolidation Aflac me an hour I first to reduce cost and expenses for our mobile Internet business.
Excluding the impact off like me, our total cost and expenses decreased by 16% year over year over year, you know called her.
In addition, a sequential basis total costs and expenses decreased by 18%.
First quarter of Twentytwenty.
Turning to each line item of our costs and expenses.
Cost of revenue decreased by 60% year over year by the 90% quarter over quarter.
To 148 meeting you know called her.
The year over year equally what's mainly due to the deconsolidation Aflac me.
The called her overcalled or do you quit what's the mainly due to the reductions the ITC the CDN costs.
Relating to the company utility products business.
Gross profit decreased.
By 47% year over year, and 12% quarter over quarter.
Two or 380 million in the quarter.
Gross margin grew to 72% Cocker from 66% in the same period lop here and the from 70% he's a previous quarter.
R&D expenses decreased by 25% year over year, an 11% quarter over quarter to 136 million called her.
Mainly due to a reduction of personnel for the company utility products and the related services business in overseas market.
Selling and marketing expenses decreased by 30% year over year, an 11% called her own recall her two or 304 million caught her.
The year over year decrease was mainly due to the reduction in promotional activities for the company utility product and the related services piece.
Domestic market.
So at the deconsolidation of Black me.
The quarter over quarter decreased.
Well, it's mainly due to the reduction in promotion promotional activities for the company, it's more about paint business in the overseas market.
She had a expenses decreased by 12% year over year, and 46% quarter over quarter.
To 87 million in the quarter.
The year over year decrease was mainly due to decreased professional fees the quarter over quarter decreased what the mainly due to lower salaries and employment benefits related to our GE and they stop.
Operating loss was about 841 million you know caught her compared to an operating profit of 9 million.
The same period of luckier.
However, our operating losses reduced by 31% on a sequential basis.
Thanks to our efforts to implement cost saving an expense control majors.
Moving onto each reporting segment.
Operating profit for our utility products and the related services.
What's 44 million in the call occur decreasing from 123 million in the same period of last year.
Despite this year over year decrease which was mainly due to the decline in revenue.
Operating profit water utility product I think related services.
Increased almost sequential basis from 29 million last quarter sex to our cost saving an expense control measures.
Operating loss for our mobile entertainment business.
36 million caught her decreasing from 44 million in the same period up lot here.
This year over year decrease what the mainly due to the deconsolidation Aflac me.
Sequentially operating loss.
For our mobile entertainment, Peter you narrowed from 120 million.
36 million.
This quarter, which was mainly due to our cost saving an expense control matters far more about game busy.
Operating loss for our therapy. These what's been hundred 49 million caught her compared to.
Currently many of the same period of last year, mainly due to the in quit the investments in our related is it.
Moving onto our balance sheet.
I saw March 31st Twentytwenty, we had cash cash equivalents restricted cash on the shopping embarrassment of U.S. dollar 331 million.
Long term equity investments of U.S. dollar 300, and Sixtyv Amelie.
We continue to review our investment portfolio and the selectively decrease that some of our you've asked me.
Recently, we it is polled our remaining equity ownership impact though limited.
Which will result in there again.
Investment of approximately U.S. dollar 66 meeting and a cash inflow of approximate the U.S. dollar by 130 million in the second quarter of Twentytwenty.
We also continue to return cash to our shareholders.
Recently, our poor approved a special cash dividend.
Oh, well U.S. dollar 44 cents per adss.
The aggregate amount of the cash dividend was approximately U.S. dollar 200 million.
Importantly.
She to move out cash position the Ms drop even after paying off these special cash dividend.
Now, let me provide you with our second quarter revenue guidance.
We currently expect total revenue for the second quarter to be between RMB 314 million.
And RMB 390 meeting.
Colluding the impact of Deconsolidating left me this guidance implies a year over year decline in total revenue between 49%.
55% in appearance.
Please note this forecast reflects our current and preliminary views and they subject to change.
This concludes conclude our prepared remarks, operator, we're now ready to take question. Thank you.
We will now begin the question and answers that shot to ask a question you might press Star then one on your Touchtone phone. If she goes you know speakerphone. Please pick up your handset before passing the keys to withdraw your question. Please press Star then too. Please ask your question and Chinese from.
And one in English at this time, we will pause momentarily to assemble our roster.
Our first question, it's from Thomas Kim from Jefferies Go ahead.
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Friends management optic and my question.
My first question is about to kill two left in your guidance can management comment about the business trend Oh, Egypt that men on a monthly basis and how we should expect the outlook in the second half.
And my second question, you asked about momentum in perhaps up to be comfortably in domestic and overseas market kopin ought to be a couple not wireless in comes off the timing and to be couple movie.
The French a in China in overseas, how we should think about Uh huh.
So our piece that's like Oh involved with thank you.
Okay. Thomas I view I answer your first question on who the only answer your second question. So the first popped up your question. It's about the to provide more color on Q2 guidance. So normally have you don't provide breakdown for revenue guide and I know Savi don't provide modestly.
Revenue guidance, that's now but.
But you can see our Q2 revenue guidance is between 340 million to 390 million compared to a 530 meeting.
Last call her.
So that you create the mainly come from the a utility business and gaming PD.
Being affected by Google termination of collaboration in late February.
And before he for the Q2 way I'd revenue, we expected it to be stable compared to Q1.
Although the impact by Koby Nike into some touch in sales this not recovering.
But that the duly some more time to pick up the I'd revenue.
For the.
Second half Oh Luke.
I would say that because of the impact that Google termination of collaboration for.
Our utility and gaming business a younger mobile.
Cannot be they will sharpen or we may affect some downturns on revenue side.
Only coming from overseas markets now as I commit to a utility revenue has been stabilized.
But the do think by all the reconstructing or where revenue composition Gambia experimenting.
Monetization model for a new retail mentioned in our prepared remarks.
Other revenue will contribute more a sizeable heart.
If the experiment that is a successful during the second half of this year.
Oh, please answers your question.
Thank you.
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Okay Fine Yeah, let me translate the first part about the overseas market. So.
Although we are still a trying to communicate with Google and Facebook.
If they will have no clear answer from both companies.
How are we are or what we can do to resume our collaborations.
So.
These are.
Cost of that be cannot upgrade our product to our further survivor.
A huge user base.
So.
So now for the overseas market, we are actively looking for some opportunities for asset sale and we are also focusing our business.
Oh domestic market.
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Okay, Let me translate up our the domestic markets. So.
I'm, a P.C. that Oh, we are changing our model from a free Bluff Amatitlan model toll free Plaza premium.
Subscription model, which we believe with more.
Acceptable by all the PC users.
Now our revenue or on the domestic mobile clarity if not declining.
Our PC revenue is stabilizing.
Currently and we are also asked me mention that we also.
Trying tool.
Replicates, our model youth or subsequent cooked in my model from PC to mobile.
Yeah.
Got it thank you.
Yeah to ask a question. Please press Star then one.
Our next question is from Vicki away from Citi Go ahead.
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Even the management. Thanks for taking my question I had two small questions.
So what management why some color on the progress on the strategic focus on mobile Internet market in China.
And my second question, it's about margins.
Well management to buy on the gross margin trend after that the consolidation like me.
In the future real Debbie and your room to improve thank you.
So.
How do I answer your question so for the fourth partner in your Krotz and now I believe we have mentioned for our domestic utility business that we mentioned in her prepared remarks, although the revenue is decreasing due to the academic an hour.
Self adjustment at blocked the hot user experience. How are you revenue has been stabilized and we have oh, so changed in a revenue composition by adding a premium members subscription model.
So basically paying user commentary subscription revenue has reached a record high so I didn't know so actually mentioned jump Navidea also dropped T.K. the famous its subscription model from PC to mobile.
Well for the domestic gaming be theyll be there will be oh, focusing key titles.
Yes, sure our profitability.
Maybe the also selectively and the carefully truth new title if there is any available.
So hope that answers.
On Thursday or fourth question. So for your second question about gross profit racial.
Actually.
Our gross margin trend it really depends on our revenue compensation. So normally we have higher gross margin for mobile Internet business.
Utility and.
Gaming business.
And we believe for mobile internet beneath the growth Prophy rational racial there will be a stabilized after deconsolidating, let me now for the IP. These because it includes.
Robotic sales or a consumer product sale, the margin would be lower than that but a tradition.
Internet business so.
If we are increasing the portion of yeah revenue later in the gross margin might be lower than the current level, because that's a different revenue accommodation.
Yeah, I hope that answers your question.
Thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to management for closing remarks.
Thank you all for joining US today, if you have any further questions. Please do not hesitate to contact that thank you bye bye.
The conference has now concluded. Thank you for 10, then today's presentation you may now disconnect.