Cheetah Mobile Announces Third Quarter 2018 Unaudited Consolidated Financial Results

BEIJING, Nov. 21, 2018 /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 third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights

• Total revenues^[1] grew by 15.6% year over year and 22.5% quarter over quarter to RMB1,352.0 million (US$196.9 million).
• Revenues from the mobile entertainment business increased by 37.5% year over year and 49.6% quarter over quarter to RMB497.9 million (US$72.5 million). Revenues from utility products and related services increased by 4.4% year over year and 10.5% quarter over quarter to RMB835.6 million (US$121.7 million).
• Gross profit increased by 22.0% year over year to RMB970.3 million (US$141.3 million). Gross margin expanded to 71.8% in the third quarter of 2018 from 68.0% in the same period last year.
• Net income attributable to Cheetah Mobile shareholders increased by 19.6% year over year to RMB167.0 million (US$24.3 million) in the third quarter of 2018.
• The Company generated RMB338.8 million (US$49.3 million) of net cash from operating activities and RMB326.3 million (US$47.5 million) of free cash flow in the third quarter of 2018.

Third Quarter 2018 Operating Metrics

• The average number of global mobile monthly active users ("Mobile MAUs") was 535 million in the third quarter of 2018. The number of Mobile MAUs from markets outside of China, or overseas markets, accounted for 68% of the total number of Mobile MAUs in the third quarter of 2018. 
• The average number of Mobile MAUs from China grew by 18% year over year and 6% quarter over quarter to 171 million as the Company's mobile products continued to gain popularity in the domestic market.

Mr. Sheng Fu, Cheetah Mobile's Chairman and Chief Executive Officer, stated, "We successfully reinvigorated our growth engine through our mobile games, mobile utility, and artificial intelligence ("AI") businesses. In the third quarter of 2018, both revenues and profits from our mobile games business hit record highs, driven mostly by the long-tail success of Bricks n Balls, a game we started to operate earlier this year, and users' increasing in-game purchases. In our mobile utility business, we grew the mobile utility revenue in the domestic market by 54% year over year, stopped the revenue decline in the overseas market, and stabilized the revenues from our PC business. In our AI business, our consumer product -- Cheetah Translator -- has been the top seller among its peers since its launch in July, while our enterprise product -- Cheetah GreetBot – has now gone into commercial production. Looking forward, we are confident that we have the strategy and the team in place to overcome the challenge of market uncertainties. To express our strong conviction about our long-term success, we have initiated a 12-month share repurchase plan of up to US$100 million."

Mr. Vincent Jiang, Cheetah Mobile's Chief Financial Officer, commented, "Driven by our mobile games operation and our mobile utility products and related services business in the domestic market, our total revenues resumed the year-over-year and quarter-over-quarter growth trajectory in the third quarter of 2018 and exceeded the high end of our guidance range. On the profit side, our utility products and related services business continued to generate strong profits and cash flow. Our mobile games operation also achieved significant margin improvement sequentially and year over year attributable to a better operating leverage. These improvements contributed to the strong cash flow generated from our operating activities in the third quarter of 2018. As of September 30, 2018, we had cash and cash equivalents, restricted cash, and short-term investments of approximately RMB3.6 billion. Our strong cash generation capabilities and our high cash balance are enabling us to continue to invest in our long-term growth and our business expansion into the AI space."

Third Quarter 2018 Consolidated Financial Results

REVENUES

Total revenues in the third quarter increased by 15.6% year over year and 22.5% quarter over quarter to RMB1,352.0 million (US$196.9 million). 

Revenues from utility products and related services increased by 4.4% year over year and 10.5% quarter over quarter to RMB835.6 million (US$121.7 million) in the third quarter of 2018. The growths were mainly driven by increases in revenues from the mobile utility products and related services business in the domestic market due to the increasing mobile traffic and effective cost per mille ("eCPM"). Revenues from the mobile utility products and related services business in the domestic market accounted for 27.5% of the total revenues in the third quarter of 2018. This year-over-year growth was partially offset by (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 the Company's overseas third-party advertising partners, and (ii) a decline in PC revenues as the internet traffic continued to migrate from PC to mobile.

Revenues from the mobile entertainment business increased by 37.5% year over year and 49.6% quarter over quarter to RMB497.9 million (US$72.5 million) driven by the growth of the Company's mobile game business in the third quarter of 2018.

• Revenues from the mobile game business increased by 77.8% year over year and 105.7% quarter over quarter to RMB285.3 million (US$41.5 million). The year-over-year increase in the mobile game business mainly resulted from the success of the new game Bricks n Balls, which was released in the first half of 2018. The increase was also attributable to the improved performances of the Company's existing game titles, including Dancing Line, Piano Tiles 2, and Rolling Sky, as the Company continued to add in-game purchase features to its existing game portfolio and integrate its best-selling game titles with the WeChat mini game platform to expand its user base. In addition, the Company further improved its eCPM by utilizing innovative video advertisement placements while leveraging machine learning technologies to improve the targeting of its advertisements. The quarter-over-quarter increase was attributable to the typical seasonality during the third quarter, which has summer breaks and more holidays both in China and overseas. As a result, the Company's players tend to spend more time on our games during the third quarter.
• Revenues from the content-driven products increased by 5.4% year over year and 9.5% quarter over quarter to RMB212.6 million (US$31.0 million), due to the increase in revenues from Live.me, which introduced a new series of features in the third quarter of 2018 to further expand its average revenue per user. In addition, the appreciation of the US dollar against the RMB in the third quarter of 2018 also contributed to LiveMe's year-over-year revenue growth as most of its revenues were generated in US dollars but reported in RMB.

By platform, revenues generated from the mobile business accounted for 89.4% of the Company's total revenues in the third quarter of 2018, up from 88.4% in the same period last year, and 87.5% in the second quarter of 2018.

By region, revenues generated from the Chinese market increased by 44.6% year over year and 18.2% quarter over quarter to RMB536.4 million (US$78.1 million), and constituted 39.7% of the Company's total revenues in the third quarter of 2018, up from 31.7% in the same period last year but down slightly from 41.1% in the second quarter of 2018. The revenue growth in the Chinese market was primarily attributable to a ramp-up of mobile utility products and related services in China.

Revenues generated from the overseas market increased by 2.1% year over year and 25.5% quarter over quarter to RMB815.5 million (US$118.7 million), constituting 60.3% of the Company's total revenues in the third quarter of 2018, down from 68.3% in the same period last year but up from 58.9% in the second quarter of 2018. The revenue growth in the overseas market was primarily driven by the rapid growth of our mobile games business, whose market is mostly overseas.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues increased by 1.9% year over year and increased by 8.6% quarter over quarter to RMB381.7 million (US$55.6 million) in the third quarter of 2018. The sequential increase was primarily driven by higher costs of payment channels, such as Google Play and Apple's App Store, for the Company's mobile game business, and higher revenue sharing with live broadcasters of the Company's Live.me business. Non-GAAP cost of revenues decreased by 4.5% year over year and increased by 8.6% quarter over quarter to RMB381.6 million (US$55.6 million) in the third quarter of 2018.

Gross profit increased by 22.0% year over year and 29.0% quarter over quarter to RMB970.3 million (US$141.3 million). Non-GAAP gross profit increased by 22.1% year over year and 29.0% quarter over quarter to RMB970.3 million (US$141.3 million) in the third quarter of 2018. Gross margin expanded to 71.8% in the third quarter of 2018 from 68.0% in the same period last year and 68.2% in the second quarter of 2018, primarily due to higher revenue contribution from mobile games in the third quarter of 2018. Non-GAAP gross margin increased to 71.8% in the third quarter of 2018 from 68% in the same period last year and 68.2% in the second quarter of 2018.

OPERATING INCOME AND EXPENSES

Total operating expenses increased by 27.1% year over year and 35.0% quarter over quarter to RMB842.4 million (US$122.7 million) in the third quarter of 2018. Total non-GAAP operating expenses increased by 27.3% year over year and 33.9% quarter over quarter to RMB816.2 million (US$118.8 million) in the third quarter of 2018.

Research and development (R&D) expenses remained flat year over year and increased by 13.0% quarter over quarter to RMB175.3 million (US$25.5 million) in the third quarter of 2018. The quarter-over-quarter increase was primarily due to higher share-based compensation expenses. Non-GAAP R&D expenses, which exclude share-based compensation expenses, decreased by 2.9% year over year and increased by 5.2% quarter over quarter to RMB166.7 million (US$24.3 million) in the third quarter of 2018. The quarter-over-quarter increase was mainly due to increased R&D staff members.

Selling and marketing expenses increased by 39.0% year over year and 53.7% quarter over quarter to RMB568.4 million (US$82.8 million) in the third quarter of 2018. The increases were mainly due to increased marketing promotions for the Company's utility products and related services business in the domestic markets and its mobile games business. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 37.6% year over year and 53.9% quarter over quarter to RMB565.1 million (US$82.3 million) in the third quarter of 2018.

General and administrative expenses increased by 22.0% year over year and 8.2% quarter over quarter to RMB108.3 million (US$15.8 million) in the third quarter of 2018. The increases were primarily due to increased employee benefits, higher professional and legal service fees, and other administrative expenses. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, increased by 37.2% year over year and 10.6% quarter over quarter to RMB93.9 million (US$13.7 million) in the third quarter of 2018.

Operating profit decreased by 3.4% year over year and remained relatively flat quarter over quarter at RMB127.9 million (US$18.6 million). The year-over-year decrease in the Company's operating profit was primarily due to the Company's proactive investments in both its mobile utility product business in the domestic market and its mobile games operation. Both of these two businesses drove the Company's year-over-year and quarter-over-quarter revenue growth in the third quarter of 2018. Non-GAAP operating profit remained relatively flat year over year and increased by 8.1% quarter over quarter to RMB154.2 million (US$22.4 million). 

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

Operating profit for utility products and related services increased by 1.4% year over year and decreased by 6.4% quarter over quarter to RMB264.1 million (US$38.5 million) in the third quarter of 2018. The quarter-over-quarter decrease was primarily due to the Company's increased marketing promotions for its utility products and related services business in the domestic market.

Operating loss for the mobile entertainment business was RMB74.1 million (US$10.8 million) in the third quarter of 2018, compared to an operating loss of RMB105.0 million in the same period last year and RMB98.6 million in the second quarter of 2018. The reduced losses were mainly a result of increased revenues from the mobile games operation and reduced costs and expenses from the News Republic business.

Share-based compensation expenses increased by 23.0% year over year and 79.8% quarter over quarter to RMB26.3 million (US$3.8 million) in the third quarter of 2018, as the Company granted a certain quantity of restricted shares to our key employees.

NET INCOME ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net income attributable to Cheetah Mobile shareholders increased by 19.6% year over year, and decreased by 15.0% quarter over quarter to RMB167.0 million (US$24.3 million) in the third quarter of 2018. Non-GAAP net income attributable to Cheetah Mobile shareholders increased by 20.0% year over year and decreased by 8.4% quarter over quarter to RMB193.3 million (US$28.2 million) in the third quarter of 2018. The quarter over quarter decrease in net income was mainly due to the investment income recognized in the second quarter of 2018.

NET INCOME PER ADS

Diluted income per ADS increased by 14.7% year over year, and decreased by 15.5% quarter over quarter to RMB1.09 (US$0.16) in the third quarter of 2018. Non-GAAP diluted income per ADS increased by 15.5% year over year and decreased by 8.6% quarter over quarter to RMB1.27 (US$0.19) in the third quarter of 2018. The quarter over quarter decrease was mainly due to the investment income recognized in the second quarter of 2018.

ADJUSTED EBITDA

Adjusted EBITDA (Non-GAAP) decreased by 8.0% year over year and increased by 4.8% quarter over quarter to RMB172.0 million (US$25.0 million) in the third quarter of 2018.

BALANCE SHEET AND CASH FLOW

Net cash from operating activities in the third quarter of 2018 was RMB338.8 million (US$49.3 million) compared to RMB197.8 million in the same period of 2017. Free cash flow in the third quarter of 2018 was RMB326.3 million (US$47.5 million) compared to RMB192.3 million in the same period of 2017.

As of September 30, 2018, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB3,624.7 million (US$527.8 million). 

SHARES ISSUED AND OUTSTANDING

As of September 30, 2018, the Company had a total of 1,433,343,199 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 2018, the Company expects its total revenues to be between RMB1,390 million (US$202 million) and RMB1,430 million (US$208 million). This estimate represents management's preliminary view as of the date of this release, which is subject to change.

Share Repurchase Program

On September 13, 2018, the Company announced that its board of directors approved a share repurchase program of up to US$100 million of the Company's outstanding ADSs for a period not to exceed 12 months. Cheetah funded repurchases made under this program from its available cash balance. As of November 20, 2018, the Company had repurchased approximately 1 million ADSs for approximately US$8 million under this program.

Dispose of Certain Portion of Shares of Bytedance Ltd.

Cheetah Mobile has entered into an agreement to sell a certain portion of its equity ownership in Bytedance Ltd. and this transaction will result in a disposal gain of investment of approximately US$43 million in the fourth quarter of 2018. This transaction will also result in a fair value gain of US$43 million in the fourth quarter of 2018 for the remaining portion which the Company still holds. This transaction is expected to close by the end of November 2018, subject to customary closing conditions.

Conference Call Information

The Company will hold a conference call on Wednesday, November 21, 2018 at 8:00 am Eastern Time or 9:00 pm Beijing Time to discuss its financial results. Listeners may access the call by dialing the following numbers:

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

A presentation for the Company's earnings call is also available at the aforementioned website.

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 RMB6.868 to US$1.00, the exchange rate in effect as of September 30, 2018, 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, Bricks n Balls, and live streaming product Live.me. The Company provides its advertising customers, which include direct advertisers and mobile advertising networks through which advertisers place their advertisements, with direct access to highly targeted mobile users and global promotional channels. 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

To supplement Cheetah Mobile's consolidated financial information presented in accordance with U.S. GAAP, Cheetah Mobile uses the following non-GAAP financial measures:

• Non-GAAP cost of revenues reflects cost of revenues excluding the portion of share-based compensation expenses allocated to cost of revenues.
• Non-GAAP gross profit reflects gross profit excluding the portion of share-based compensation expenses allocated to gross profit.
• Non-GAAP operating income and expenses reflect operating income and expenses excluding the portion of share-based compensation expenses allocated to operating expenses.
• Non-GAAP operating profit reflects operating profit excluding share-based compensation expenses.
• Non-GAAP net income attributable to Cheetah Mobile shareholders is net income attributable to Cheetah Mobile shareholders excluding share-based compensation expenses.
• Non-GAAP diluted earnings per ADS is non-GAAP net income attributable to Cheetah Mobile shareholders excluding net income attributable to redeemable noncontrolling interests, divided by weighted average number of diluted ADSs.
• Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, other non-operating income and share-based compensation expenses.
• Free cash flow is net cash generated by operating activities less capital expenditure.

The Company believes that separate analysis and exclusion of share-based compensation expenses and the use of Adjusted EBITDA add clarity to the constituent parts of its performance from the cash perspective. 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" and "Cheetah Mobile Inc. Reconciliation of Net Income Attributable to Cheetah Mobile Shareholders to Adjusted EBITDA (Non-GAAP)" at the end of this release.

Investor Relations Contact
Cheetah Mobile Inc.
Helen Jing Zhu
Tel: +86 10 6292 7779 ext. 1600
Email: [email protected]

ICR Inc.
Jack Wang
Tel: +1 (646) 417-5395
Email: [email protected]

SOURCE Cheetah Mobile

Related Links

http://ir.cmcm.com

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