Cheetah Mobile Announces Third Quarter 2020 Unaudited Consolidated Financial Results

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 third quarter ended September 30, 2020.

Management Commentary

Mr. Sheng Fu, Cheetah Mobile’s Chairman and Chief Executive Officer, stated, “In the third quarter of 2020, our revenue came in ahead of management’s revenue guidance. However, we still face challenges in growing our total revenues in the coming quarters due to the unfavorable environment in overseas markets. On the other hand, we don’t expect our AI-related robotics business to generate significant revenues in the foreseeable future. During the third quarter of 2020, we continued to streamline our operations and cut our costs and expenses. In the quarter, our gross margin expanded to 69% from 60% in the same period last year. Our operating loss narrowed to RMB126 million from RMB257 million in the same period last year. By segment, both the operating profits for our utility products and related services and our mobile entertainment business improved year-over-year in the quarter. Looking ahead, we will continue to streamline our mobile Internet business, focus on the domestic market, and invest in our AI-related robotic business to create a long-term growth engine.”

Mr. Thomas Ren, Cheetah Mobile’s Chief Financial Officer, commented, “We continued to create shareholder value. During the third quarter of 2020, the Company disposed certain business and assets, which boosted our earnings. Our net income attributable to Cheetah Mobile shareholders was RMB259 million in the third quarter of 2020. More importantly, Cheetah Mobile’s balance sheet remains strong. As of September 30, 2020, we had cash, cash equivalents, restricted cash, short-term investments of US$235 million. Additionally, we had long-term investments of US$332 million.”

Third Quarter 2020 Consolidated Financial Results

REVENUES

Total revenues were RMB365.1 million (US$53.8 million) in the third quarter of 2020, representing a decrease of 60.3% year over year. Excluding the impact resulting from the deconsolidation of LiveMe, total revenues decreased by 46.7% year over year in the third quarter of 2020.

Revenues from utility products and related services decreased by 47.3% year over year to RMB186.1 million (US$27.4 million) in the third 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 third quarter of 2020, approximately 65.4% 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 user subscription services, anti-virus software sales and office software sales.

Revenues from the Company’s mobile utility product business in overseas markets decreased by 72% year over year to RMB39 million in third 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 52% year over year to RMB58 million in the third quarter of 2020. This year-over-year decrease was primarily as a result of the headwinds in the domestic online advertising market.

PC-related revenues decreased by 10% year over year to RMB90 million in the third quarter of 2020 as internet traffic continued to migrate from PCs to mobile devices.

Revenues from the mobile entertainment business decrease by 70.4% year over year to RMB157.7 million (US$23.2 million) in the third quarter of 2020. Excluding the impact resulting from the deconsolidation of LiveMe, revenues from the mobile games business decreased by 47.0% year over year to RMB157.7 million (US$23.2 million) in the third quarter of 2020. This decrease was primarily attributable to the suspension of the Company’s advertising collaborations with Google since February 2020. In the third quarter of 2020, approximately 48.1% 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 68.9% year over year to RMB113.6 million (US$16.7 million) in the third quarter of 2020. The decrease was primarily due to the deconsolidation of LiveMe and reduced bandwidth and cloud service costs, in particular, in overseas markets. Non-GAAP cost of revenues decreased by 69.0% year over year to RMB113.2 million (US$16.7 million) in the third quarter of 2020.

Gross profit decreased by 54.6% year over year to RMB251.5 million (US$37.0 million) in the third quarter of 2020. Non-GAAP gross profit decreased by 54.6% year over year to RMB251.9 million (US$37.1 million) in the third quarter of 2020.

Gross margin was 68.9% in the third quarter of 2020, compared to 60.2% in the same period last year. Non-GAAP gross margin was 69.0% in the third quarter of 2020, compared to 60.3% in the same period last year.

OPERATING INCOME/LOSS AND EXPENSES

Total operating expenses decreased by 53.5% year over year to RMB377.5 million (US$55.6 million) in the third quarter of 2020. Total non-GAAP operating expenses decreased by 52.2% year over year to RMB370.8 million (US$54.6 million) in the third quarter of 2020.

• Research and development expenses decreased by 47.8% year over year to RMB117.6 million (US$17.3 million) in the third quarter of 2020. This decrease was primarily attributable to a reduction in the personnel for the Company’s utility products and related services business and mobile games business in the overseas market 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 46.9% year over year to RMB112.5 million (US$16.6 million) in the third quarter of 2020.
• Selling and marketing expenses decreased by 58.2% year over year to RMB165.5 million (US$24.4 million) in the third quarter of 2020. This decrease was mainly due to the reduction in promotional activities for the Company’s mobile games business. Non-GAAP selling and marketing expenses decreased by 58.0% year over year to RMB166.7 million (US$24.5 million) in the third quarter of 2020.
• General and administrative expenses decreased by 51.9% year over year to RMB91.0 million (US$13.4 million) in the third quarter of 2020. This decrease was primarily due to reduced general and administrative personnel. Non-GAAP general and administrative expenses decreased by 47.1% year over year to RMB88.2 million (US$13.0 million) in the third quarter of 2020.

Operating loss was RMB126.0 million (US$18.6 million) in the third quarter of 2020, reduced from RMB257.1 million in the same period last year. Non-GAAP operating loss was RMB118.9 million (US$17.5 million) in the third quarter of 2020, reduced from RMB221.5 million in the same period last year.

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 RMB51.2 million in the third quarter of 2020, increasing from RMB24.2 million in the same period last year due to reduced cost and expenses.
• Operating profit for the mobile entertainment business was RMB20.3 million in the third quarter of 2020, compared to an operating loss of RMB142.4 million in the same period last year due to reduced cost and expenses.

Share-based compensation expenses were RMB7.1 million (US$1.1 million) in the third quarter of 2020, compared to RMB35.5 million in the same period last year.

OTHER INCOME, NET

Other income, net was RMB378.3 million (US$55.7 million) in the third quarter of 2020, which was primarily due to the disposal of certain business and assets.

NET INCOME ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net income attributable to Cheetah Mobile shareholders was RMB259.2 million (US$38.2 million) in the third quarter of 2020, compared to RMB451.5 million in the same period last year.

Non-GAAP net income attributable to Cheetah Mobile shareholders was RMB266.3 million (US$39.2 million) in the third quarter of 2020, compared to RMB487.1 million in the same period last year.

NET INCOME PER ADS

Diluted earnings per ADS was RMB1.82 (US$0.27) in the third quarter of 2020, compared to RMB3.21 in the same period last year. Non-GAAP diluted earnings per ADS was RMB1.87 (US$0.28) in third quarter of 2020, compared to diluted earnings per ADS of RMB3.47 in the same period last year.

BALANCE SHEET

As of September 30, 2020, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB1,595.0 million (US$234.9 million).

SHARES ISSUED AND OUTSTANDING

As of September 30, 2020, the Company had a total of 1,398,070,144 Class A and Class B ordinary shares issued and outstanding. One ADS represents 10 Class A ordinary shares.

Business Outlook

For the fourth quarter of 2020, the Company expects its total revenues to be between RMB230 million (US$34 million) and RMB280 million (US$41 million). This amount reflects the Company’s current and preliminary expectations, which include the fact that the disposed business and assets will no longer be included in the Company’s revenues as well as the assumption the COVID-19 situation will not cause any significant disruptions to its operations throughout the remainder of the fourth quarter.

Conference Call Information

The Company will hold a conference call on Tuesday, November 24, 2020, at 7:00 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:

The replay will be accessible December 01, 2020 by dialing the following numbers:

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 RMB6.7896 to US$1.00, the exchange rate in effect as of September 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”).