Cheetah Mobile Announces First Quarter 2018 Unaudited Consolidated Financial Results

BEIJING, May 21, 2018 /PRNewswire/ -- Cheetah Mobile Inc. (NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile internet company with strong global vision, today announced its unaudited consolidated financial results for the first quarter ended March 31, 2018.

First Quarter 2018 Financial Highlights

• Total revenues[1] were RMB1,145.1 million (US$182.6 million), exceeding the Company's previous guidance range of RMB1,100 million to RMB1,140 million.
• Gross profit increased by 2.9% year over year to RMB753.9 million(US$120.2 million). Gross margin was 65.8% in the first quarter of 2018 compared to 61.5% in the same period last year.
• Operating profit increased to RMB136.4 million (US$21.7 million) from RMB26.3 million in the same period last year. Operating margin expanded to 11.9% from 2.2% in the same period last year.
• Operating profit for utility products and related services increased by 47.8% year over year to RMB264.7 million (US$42.2 million) in the first quarter of 2018. Operating margin for utility products and related services expanded to 35.5% in the first quarter of 2018 from 21.7% in the same period last year.

First Quarter 2018 Operating Metrics

• The average number of global mobile monthly active users ("Mobile MAUs") was 574 million in the first quarter of 2018. The number of Mobile MAUs from markets outside of China, or overseas markets, accounted for 75.4% of the total number of Mobile MAUs in the first quarter of 2018.  

Artificial Intelligence Technology

• In March 2018, Beijing OrionStar Technology, an investee of Cheetah Mobile, achieved a record-setting 98.355% recognition rate in the MegaFace challenge (Challenge1/FaceScrub identification), an internationally recognized facial recognition test managed by the Paul G. Allen School of Computer Science & Engineering at the University of Washington. Cheetah Mobile holds approximately 30% equity interest in Beijing OrionStar Technology and has a two-year warrant to subscribe for additional equity interest to achieve a controlling position.

Mr. Sheng Fu, Cheetah Mobile's Chairman and Chief Executive Officer, stated, "We began 2018 on a solid note with total revenues exceeding the high-end of our guidance. In the first quarter of 2018, our utility product business continued to generate strong profits and cash flow. We also solidified our leading position in the mobile casual game market by further enriching our game pipeline. Our artificial intelligence ("AI") powered businesses made steady progress as well. In March, Cheetah Mobile and Beijing OrionStar jointly launched five practical and easy-to-use robotics products, which are powered by Orion OS, an open platform for robotics, which has been developed by Beijing OrionStar. Going forward, we aim to drive steady and healthy profit from our core businesses while simultaneously leveraging our extensive technology and product experience to expand our robotic product offerings."

Mr. Vincent Jiang, Cheetah Mobile's Chief Financial Officer, commented, "We continued to expand our profits and margins in the first quarter of 2018 as a result of our strategic efforts to optimize the cost and expense structure for our utility products business and our initiative to dispose of News Republic. Looking ahead, we will continue to drive higher operational efficiency for our core businesses, which in turn will fund our investment in AI-powered business and build long-term growth for Cheetah Mobile and its shareholders."

[1] Starting from January 1, 2018, Cheetah Mobile adopted a new revenue accounting standard (ASC 606), which reclassifies value added tax from the cost of  revenues to net against revenues. To increase comparability of operating results and help investors better understand our business performance and operating  trends, 2017 net revenues have been used to calculate all percentage changes in revenues. 2017 net revenues are defined as gross revenues under legacy GAAP  after the deduction of value added taxes, which is presented on the same basis as 2018 and going forward.

First Quarter 2018 Consolidated Financial Results

REVENUES

Total revenues were RMB1,145.1 million (US$182.6 million) in the first quarter of 2018. 

• Revenues from utility products and related services decreased by 7.7% year over year to RMB744.8 million (US$118.7 million) in the first quarter of 2018. The year-over-year change was primarily due to (i) a decline in revenues from mobile utility products and related services business in the overseas markets as certain ad formats, i.e., ads on mobile phone lock screens, have been discontinued by our overseas third-party advertising partners, and (ii) a decline in PC revenues. This decrease was largely offset by an increase in mobile utility products and related services business in China.
• Revenues from the mobile entertainment business increased by 8.0% year over year to RMB392.5 million (US$62.6 million). The year-over-year increase was driven by the Company's mobile game business, which grew by 25.3% year over year to RMB174.7 million(US$27.9 million) in the quarter. The increase in the mobile game operation was a result of the Company's continued efforts to expand its mobile game portfolio by introducing some new mobile games in early 2017. In the first quarter of 2018, revenues from content-driven product decreased by 2.7% year over year to RMB217.7 million (US$34.7 million). The decrease was a result of a year-over-year growth in revenues from Live.me, which was offset by a decline in revenues from the News Republic application as the Company disposed of this operation in the fourth quarter of 2017.

By platform, revenues generated from the mobile business were 88.9% of total revenues in the first quarter of 2018, up from 85.3% in the same period last year.

By region, revenues generated from the Chinese market constituted 39.1% of total revenues in the first quarter of 2018, up from 27.6% in the same period last year. The growth of the Company's revenues in the Chinese market was attributable to a ramp-up of mobile utility products and related services businesses in China and increased mobile game revenues in the Chinese market, where the Company's mobile games continue to gain popularity.

Revenues generated from the overseas market constituted 60.9% of total revenues in the first quarter of 2018, a 17.6% decrease year over year to RMB697.5 million (US$111.2 million), mainly due to the impact of lock screen ads. Excluding the foreign exchange impact, revenues from the overseas market decreased by 11.4% year over year.  

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased by 14.6% year over year to RMB391.2 million(US$62.4 million) in the first quarter of 2018. The year-over-year decrease resulted from reduced bandwidth and IDC costs associated with the Company's mobile utility applications in the overseas markets as well as lower amortization of acquired intangible assets. Non-GAAP cost of revenues decreased by 14.4% year over year to RMB391.3 million (US$62.4 million) in the first quarter of 2018.

Gross profit increased by 2.9% year over year to RMB753.9 million (US$120.2 million) in the first quarter of 2018. Non-GAAP gross profit increased by 2.7% year over year to RMB753.8 million (US$120.2 million) in the first quarter of 2018.

OPERATING INCOME AND EXPENSES

Total operating expenses decreased by 12.6% year over year to RMB617.6 million (US$98.5 million) in the first quarter of 2018. Total non-GAAP operating expenses decreased by 10.9% year over year to RMB608.5 million (US$97.0 million) in the first quarter of 2018.

• Research and development (R&D) expense decreased by 23.0% year over year to RMB147.3 million (US$23.5 million) in the first quarter of 2018. The decreases were due to lower share-based compensation expenses and reduced R&D headcount resulting from the Company's mobile utility application business in the overseas markets, and the disposal of News Republic. Non-GAAP R&D expenses, which exclude share-based compensation expenses, decreased by 15.6% year over year to RMB153.4 million (US$24.5 million) in the first quarter of 2018.
• Selling and marketing expenses decreased by 5.5% year over year to RMB391.4 million (US$62.4 million) in the first quarter of 2018. The decreases were mainly due to decreased promotional activities for the Company's mobile products in the overseas markets. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, decreased by 5.6% year over year to RMB391.1 million (US$62.3 million) in the first quarter of 2018.
• General and administrative expenses decreased by 12.5% year over year to RMB90.6 million (US$14.4 million) in the first quarter of 2018. The year-over-year decrease was primarily due to lower professional service fees and employee benefits. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, decreased by 15.4% year over year to RMB75.8 million(US$12.1 million) in the first quarter of 2018.

Operating profit increased to RMB136.4 million (US$21.7 million) in the first quarter of 2018 from RMB26.3 million in the same period last year. Non-GAAP operating profit increased to RMB145.3 million (US$23.2 million) in the first quarter of 2018 from RMB50.7 million in the same period last year. 

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