Cheetah Mobile Announces Second Quarter 2020 Unaudited Consolidated Financial Results

BEIJING, Aug. 18, 2020 /PRNewswire/ -- Cheetah Mobile Inc. (NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile internet company with global market coverage, today announced its unaudited consolidated financial results for the second quarter ended June 30, 2020.

Management Commentary

Mr. Sheng Fu, Cheetah Mobile's Chairman and Chief Executive Officer, stated, "Our second quarter revenue came in ahead of management's expectations despite the unfavorable macro environment caused by the outbreak of COVID-19. We have shifted our business focus from overseas markets to the domestic market. As a result, non-GAAP operating losses continued to narrow in the quarter on a sequential basis. Specifically, the second quarter of 2020 was the third straight quarter in which our non-GAAP operating losses reduced since the third quarter of 2019. In addition, our non-GAAP net income attributable to Cheetah Mobile shareholders was RMB243.9 million in the quarter as we disposed of our remaining stake in Bytedance, while our number of AI-related robotics products in shopping malls grew to approximately 7,000 by the end of the second quarter. Looking ahead, we will continue to focus on the domestic market and our AI-related business in shopping malls to build a new growth engine for Cheetah Mobile over the long run."

Mr. Thomas Ren, Cheetah Mobile's Chief Financial Officer, commented, "We continued to streamline our operations and optimize our cost and expense structures for our mobile internet business and AI-related business during the second quarter of 2020. As a result, total cost and expenses decreased by 44.3% year over year and 15.2% quarter over quarter in the second quarter. Our cost savings helped us to expand our gross margin and reduce our non-GAAP operating loss in the quarter. In addition, Cheetah Mobile has a very strong balance sheet. Backed by our clear, strategic focus, strict cost saving measures, and strong cash position, we are confident in our ability to improve our financial condition in the coming quarters."

Second Quarter 2020 Consolidated Financial Results

REVENUES

Total revenues were RMB394.2 million (US$55.8 million) in the second quarter of 2020, representing a decrease of 59.4% year over year. Excluding the impact resulting from the deconsolidation of LiveMe, total revenues decreased by 48.2% year over year in the second quarter of 2020.

Revenues from utility products and related services decreased by 53.9% year over year to RMB195.4 million (US$27.7 million) in the second quarter of 2020. The year-over-year decrease was primarily due to (i) a decline in the Company's mobile utility product business in overseas markets, (ii) a decline in the Company's mobile utility product business in the domestic market, and (iii) a decline in PC-related revenues. In the second quarter of 2020, approximately 64.6% of the Company's revenues from its utility products and related services business were generated from advertising while the remaining portion of revenues were generated from other sources, such as anti-virus software sales and office software sales.

Revenues from the Company's mobile utility product business in overseas markets decreased by 68.4% year over year to RMB41.5 million in second quarter of 2020. This decrease was mainly due to the suspension of the Company's advertising collaborations with Google since February 2020. On February 21, 2020, the Company announced that the Company's Google Play Store, Google AdMob, and Google AdManager accounts had been disabled, which adversely affected its ability to attract new users and generate revenue from Google.

Revenues from the Company's mobile utility product business in the domestic market decreased by 70.7% year over year to RMB54.2 million in the second quarter of 2020 primarily as a result of the headwinds in the domestic online advertising market. During the quarter, a large portion of the Company's advertising clients located in major cities, such as Beijing, were negatively impacted by the second wave of COVID-19 and thus reduced their online advertising and marketing budgets. As a result, revenues generated by the Company from online marketing services were materially impacted in the period.

PC-related revenues decreased by 7.0% year over year to RMB99.6 million in the second quarter of 2020 as internet traffic in China continued to migrate from PCs to mobile devices.

Revenues from the mobile entertainment business decrease by 64.0% year over year to RMB179.4 million (US$25.4 million) in the second quarter of 2020. Excluding the impact resulting from the deconsolidation of LiveMe, revenues from the mobile games business decreased by 38.0% year over year to RMB179.4 million (US$25.4 million) in the second quarter of 2020. This decrease was primarily attributable to the suspension of the Company's advertising collaborations with Google since February 2020. In the second quarter of 2020, approximately 54.7% of the Company's revenues from its mobile games business were generated from advertising while the remaining portion of revenues were generated from in-game purchases.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased by 65.2% year over year to RMB113.7 million (US$16.1 million) in the second quarter of 2020. The decrease was primarily due to the deconsolidation of LiveMe and reduced bandwidth and cloud service costs in overseas markets. Non-GAAP cost of revenues decreased by 65.3% year over year to RMB113.4 million (US$16.1 million) in the second quarter of 2020.

Gross profit decreased by 56.4% year over year to RMB280.5 million (US$39.7 million) in the second quarter of 2020. Non-GAAP gross profit decreased by 56.4% year over year to RMB280.8 million (US$39.7 million) in the second quarter of 2020.

Gross margin was 71.2% in the second quarter of 2020, compared to 66.3% in the same period last year. Non-GAAP gross margin was 71.2% in the second quarter of 2020, compared to 66.3% in the same period last year.

OPERATING INCOME/LOSS AND EXPENSES

Total operating expenses decreased by 33.7% year over year to RMB463.4 million (US$65.6 million) in the second quarter of 2020. Total non-GAAP operating expenses decreased by 37.8% year over year to RMB413.5 million (US$58.5 million) in the second quarter of 2020.

• Research and development expenses decreased by 40.8% year over year to RMB125.0 million (US$17.7 million) in the second quarter of 2020. This decrease was primarily attributable to a reduction in the personnel for the Company's utility products and related services business in overseas markets as the Company chose to shift its focus from overseas markets to the domestic market. This decrease was also due to the deconsolidation of LiveMe. Non-GAAP research and development expenses decreased by 42.8% year over year to RMB113.2 million (US$16.0 million) in the second quarter of 2020.
  
• Selling and marketing expenses decreased by 46.2% year over year to RMB205.6 million (US$29.1 million) in the second quarter of 2020. This decrease was mainly due to the reduction in promotional activities for the Company's mobile apps in overseas markets, in particular, mobile games. Non-GAAP selling and marketing expenses decreased by 46.3% year over year to RMB204.8 million (US$29.0 million) in the second quarter of 2020.
  
• General and administrative expenses increased by 13.8% year over year to RMB133.8 million (US$18.9 million) in the second quarter of 2020. This increase was primarily due to increased stock-based compensation expenses. Non-GAAP general and administrative expenses decreased by 1.6% year over year to RMB96.5 million (US$13.7 million) in the second quarter of 2020.

Operating loss was RMB182.9 million (US$25.9 million) in the second quarter of 2020, compared to an operating loss of RMB55.7 million in the same period last year and an operating loss of RMB148.0 million in the previous quarter. Non-GAAP operating loss was RMB132.7 million (US$18.8 million) in the second quarter of 2020, compared to a non-GAAP operating loss of RMB21.8 million in the same period last year and a non-GAAP operating loss of RMB141.1 million in the previous quarter.

The Company has reported its operating profit (loss) along the following segments since the second quarter of 2017:

• Operating profit for utility products and related services was RMB56.5 million in the second quarter of 2020, decreasing from RMB121.1 million in the same period last year due to the 53.9% year-over-year decrease in revenues generated from the Company's utility products and related services business. Cost and expenses for the Company's utility products and related services decreased by 54.1% year over year in the second quarter of 2020. These decreases were primarily due to the reduction in overseas markets expenditures as the Company shifted its focus to the domestic market. 
  
• Operating loss for the mobile entertainment business was RMB20.9 million in the second quarter of 2020, decreasing from RMB68.4 million in the same period last year and RMB36.4 million in the previous quarter. The year-over-year reduction in operating loss was mainly attributable to the deconsolidation of LiveMe, while the quarter-over-quarter reduction in operating loss resulted from the Company's decision to shift its focus from overseas markets to the domestic market.

Share-based compensation expenses were RMB50.2 million (US$7.1 million) in the second quarter of 2020, compared to RMB34.0 million in the same period last year.

OTHER INCOME, NET

Other income, net was RMB453.5 million (US$64.2 million) in the second quarter of 2020, which was primarily due to the disposal of equity ownership in Bytedance Ltd.

NET INCOME/LOSS ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net income attributable to Cheetah Mobile shareholders was RMB193.7 million (US$27.4 million) in the second quarter of 2020, compared to a net income attributable to Cheetah Mobile shareholders of RMB48.5 million in the same period last year.

Non-GAAP net income attributable to Cheetah Mobile shareholders was RMB243.9 million (US$34.5 million) in the second quarter of 2020, compared to a net income attributable to Cheetah Mobile shareholders of RMB82.5 million in the same period last year.

NET INCOME/LOSS PER ADS

Diluted earnings per ADS was RMB1.38 (US$0.20) in the second quarter of 2020, compared to RMB0.28 in the same period last year. Non-GAAP diluted earnings per ADS was RMB1.74 (US$0.25) in second quarter of 2020, compared to diluted earnings per ADS of RMB0.52 in the same period last year.

BALANCE SHEET

As of June 30, 2020, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB3,202.4 million (US$453.3 million). 

SHARES ISSUED AND OUTSTANDING

As of June 30, 2020, the Company had a total of 1,398,070,159 Class A and Class B ordinary shares issued and outstanding. One ADS represents 10 Class A ordinary shares.

Business Outlook

For the third quarter of 2020, the Company expects its total revenues to be between RMB310 million (US$43.9 million) and RMB360 million (US$51.0 million). This amount reflects the fact that LiveMe's revenues will no longer be included in the Company's revenues as well as the Company's current and preliminary expectations, which assume that the COVID-19 situation will not cause any significant disruptions to its operations throughout the remainder of the third quarter.

Recent Development

On July 9, 2020, the Company used cash from its balance sheet to pay a special cash dividend of US$1.44 per ADS to its shareholders. The aggregate amount of the cash dividends was about US$200 million.

Conference Call Information

The Company will hold a conference call on Tuesday, August 18, 2020, at 8:00 a.m. Eastern Time (or 8:00 p.m. Beijing Time) to discuss its financial results. Listeners may access the call by dialing the following numbers:

International: +1-412-902-4272
United States Toll Free: +1-888-346-8982
Mainland China Toll Free: 4001-201-203
Hong Kong Toll Free: 800-905-945
Conference ID: Cheetah Mobile

The replay will be accessible August 25, 2020 by dialing the following numbers:

International: +1-412-317-0088
United States Toll Free: +1-877-344-7529
Access Code: 10147113

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.cmcm.com.

Exchange Rate

This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this press release were made at a rate of RMB7.0651 to US$1.00, the exchange rate in effect as of June 30, 2020, as set forth in the H.10 statistical release of the Federal Reserve Board. Such translations should not be construed as representations that RMB amounts could be converted into U.S. dollars at that rate or any other rate, or to be the amounts that would have been reported under accounting principles generally accepted in the United States of America ("U.S. GAAP").

About Cheetah Mobile Inc.

Cheetah Mobile is a leading mobile Internet company with global market coverage. It has attracted hundreds of millions of monthly active users through its mobile utility products such as Clean Master and Cheetah Keyboard, casual games such as Piano Tiles 2 and Bricks n Balls. The Company's advertising customers include direct advertisers and mobile advertising networks. Through the Company's advertising products, advertisers can promote their products and services to a wide range of mobile users. The Company also provides value-added services to its mobile application users through the sale of in-app virtual items on selected mobile products and games. Cheetah Mobile is committed to leveraging its cutting-edge artificial intelligence technologies to power its products and make the world smarter. It has been listed on the New York Stock Exchange since May 2014.

Safe Harbor Statement

This press release contains forward-looking statements. These statements, including management quotes and business outlook, constitute forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Such statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in the forward-looking statements, including but are not limited to the following: Cheetah Mobile's growth strategies; Cheetah Mobile's ability to retain and increase its user base and expand its product and service offerings; Cheetah Mobile's ability to monetize its platform; Cheetah Mobile's future business development, financial condition and results of operations; competition with companies in a number of industries including internet companies that provide online marketing services and internet value-added services; expected changes in Cheetah Mobile's revenues and certain cost or expense items; and general economic and business condition globally and in China. Further information regarding these and other risks is included in Cheetah Mobile's filings with the U.S. Securities and Exchange Commission. Cheetah Mobile does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Use of Non-GAAP Financial Measures

This release contains the following non-GAAP financial measures:

• Non-GAAP cost of revenues excludes share-based compensation expenses
  
• Non-GAAP gross profit excludes share-based compensation expenses
  
• Non-GAAP gross margin excludes share-based compensation expense
  
• Total non-GAAP operating expenses exclude share-based compensation expenses and impairment of goodwill
  
• Non-GAAP research and development expenses exclude share-based compensation expenses
  
• Non-GAAP selling and marketing expenses exclude share-based compensation expenses
  
• Non-GAAP general and administrative expenses exclude share-based compensation expenses
  
• Non-GAAP operating profit/loss excludes share-based compensation expenses and impairment of goodwill
  
• Non-GAAP net income/loss attributable to Cheetah Mobile shareholders excludes share-based compensation expenses and impairment of goodwill
  
• Non-GAAP diluted income/loss per ADS excludes share-based compensation expenses and impairment of goodwill

The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measures for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance without the effect of share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company's net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Cheetah Mobile Inc. Reconciliations of GAAP and Non-GAAP Results".

Investor Relations Contact

Cheetah Mobile Inc.

Helen Jing Zhu
Tel: +86 10 6292 7779 ext. 1600
Email: helenjingzhu@cmcm.com

ICR Inc.

Xinran Rao
Tel: +1 (646) 417-5395
Email: IR@cmcm.com

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