Good day and welcome to the Cheetah Mobile Second Quarter 2021 conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Sheryl Zhang, Investor Relations Director of Cheetah Mobile.

Please go ahead, ma'am..

Thank you [Indiscernible] Welcome to Cheetah Mobile Second Quarter 2021 earnings conference call. With us today are Mr. Sheng Fu, Chairman and CEO, and Mr. Thomas Ren, Ren, CFO. Following management's prepared remarks, we will come back to the Q&A session.

Before we begin, I refer you to the Safe Harbor statements in our earnings release, which also applies to our conference call today, as we will make forward-looking statements. At this time, I now would like to turn the conference call over to our CEO, Mr. Sheng Fu. Please go ahead..

Thank you, Sheryl. Hello, everyone. In the second quarter of 2021, Cheetah Mobile's revenue was RMB 212 million, which is raising our previous guidance.

It is worth mentioning that it is for the first time in the past ten quarters, we realized quarter-over-quarter revenue growth for our Internet business, our membership maintains strong momentum in both membership members and revenue.

We're happy to see an increase in the renew -- renewal rates and more and more members have been choosing 3 months, 6 months, and an even longer time membership. This shows our members are satisfied with the superior experience we deliver.

The second advertising model has been successfully transformed into a diversified model of advertising [Indiscernible] subscription. We will stick to this [Indiscernible] to expand the size of our membership business. In addition, on a mobile platform, we have been developing and launching new products to attract more high-value young users.

This product has efficiently increased user time and brought in revenue for the Company. In January, also in the past two years, we experienced huge external challenges. We have efficiently reshaped our Internet business in the right direction. As you'll see for this quarter, we have resumed the sequential quarterly revenues growth.

Besides resume the domestic Internet business we just mentioned, we also have 2 services to utilize our overseas experience and the results to empower Chinese companies to develop business outside China. One service assists domestic companies to launch advertisements on large overseas advertising platforms.

The other service provides an integrated cloud platform for enterprises so they can seamlessly? Autonet? through a multi-cloud platform at low costs. With our services, companies can improve operations and save costs. We expect these 2 businesses will take off the second half of 2021.

For our AI business, we have made good progress with a business model of the shopping mall, compound saving robots. We create a brand new inside shopping mall marketing model to attract customers for merchants and have got really positive feedback.

So far, our robots sell more than 1,000 kinds of coupons for more than 1,000 merchants in nearly 40 cities all over the country. Weekly average GMU has increased for consequently -- consecutive 11 weeks with our compounded growth rates of about 20%. Next, we plan to deepen our focus on high-quality shopping malls and merchants.

In this model, machines can attract customers, customers can get good benefits, and we can achieve September growth. And this is a real much -- much being situation. Lastly, I would like to mention that with great effort to companies operational efficacy -- efficiency has been significantly improved.

In the past quarter, the gross margin has been increasing and non-GAAP operating loss has been narrowed. We will keep working to get the best outcome with very reasonable inputs. As of June 30th, 2021, our cash position was around the U.S. $259 million and the long term in equity investments was about the U.S.

$374 million, This abundant cash can enable the rally of our internet business as well as the rapid development of our AI and other businesses. We are confident in the second half of 2021, we will get out difficult position and achieve all-around growth in our business.

With that, I will now turn the call to our CFO, Thomas Ren, to go through details of our second-quarter financial results..

Thank you and hello, everybody. Thank you all for joining us today. Now, I will walk you through our key financial highlights. Please note that unless stated otherwise, all monetary amounts are RMB terms. As Sheng just mentioned, they delivered a healthy quarter.

In the second quarter of 2021, our total revenues were RMB212 million representing a year-over-year decrease of 46% and a quarter-over-quarter increase of 7%. The revenue was within the range of our previous guidance to explain the reasons behind the changes. Now, let me break down our revenue into the Internet and AI, and others sectors.

Revenues from the Company's internet business decreased by 46% year-over-year and increased by 9% quarter-over-quarter to 204 million in this quarter. The year-over-year decrease was due to the Company's strategic efforts to diminish the gaming-related business in past quarters.

The quarter-over-quarter increase was mainly from the growth of our membership business and the commercialization of several new utility products. Revenue from AI and others was 8 million in the second quarter of 2021, representing a 59% year-over-year decrease and a 27% quarter-over-quarter decrease.

The year-over-year decline was primarily attributable to the plan drop in sales of consumer-facing AI-related products. The quarter-over-quarter decrease was from the expected volatility during the transition of the business model.

Although in the last couple of months, we have seen some preliminary success in the business model of shopping mall coupon-selling robots. Fluctuations could happen in the short term as we are still optimizing this business model. Turning to costs and expenses.

The following discussion of results will be our non-GAAP basis, which excludes stock-based compensation expenses. The use of non-GAAP measures in this context will help us to better present the results of our operating performance, without the effect of non-cash items. For financial information presented in accordance with U.S.

GAAP, please refer to our earnings release. Our operating loss has been further narrowed, this consistently improved operational efficiency. In the second quarter of 2021, our operating loss was RMB56 million, narrowed from RMB133 million in the same period of last year and 58 million in the previous quarter.

Cost of revenue decreased by 56% year-over-year and 15% quarter-over-quarter to 50 million in the second quarter of 2021. The decrease reflects our ongoing efforts to streamline the business and improve operational efficiencies.

Research and development expenses decreased by 58% year-over-year, and 33% quarter-over-quarter to 47 million in the second quarter of 2021. The decrease was due to the deconsolidation of certain gaming businesses in past quarters. And at the same time, the technologies to support our current AI business have been relatively well developed.

So comparing these past quarters, the investment in AI-related R&D was lower in this quarter. Selling and marketing expenses decreased by 41% year-over-year and increased by 52% quarter-over-quarter to RMB121 million in the second quarter of 2021.

This year-over-year decrease was attributable to the streamlining of our business and the strategic cost-cutting. While the quarter-over-quarter increase was mostly from the promotion of our new utility products.

General and administrative expenses decreased by 47% year-over-year and increased by 6% quarter-over-quarter to 52 million in the second quarter of 2021. The year-over-year decrease was mainly due to the streamlining of our business and our effective expense control.

While the quarter-over-quarter increase was caused by a one-time reversal of share-based compensation expenses due to features in the first quarter of 2021. Now, let me turn to our balance sheet.

As of June 30th, 2021, we had cash and cash equivalents, restricted cash, and short-term investments of US$259 million and long-term equity investments of US$374 million. We have maintained a strong balance sheet as always, which makes it possible for us to invest across our core business to support our long-term growth plan.

For our third-quarter revenue guidance, we currently expect total revenues to be between RMB 180 million and RMB230 million. Please note, this forecast reflects our current and preliminary views and is subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Thank you..

We will now begin the question-and-answer session. [Operator Instructions] When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. At this time, we will pause momentarily to assemble our roster.

And our first question will come from Melody Chan of Jefferies. Please go ahead..

[Indiscernible] Thanks for taking my questions. I have two questions. The first one is in the advertising sector and the second one is about our AI shopping mall robot business. Can management share a bit more on the operation strategies? Thank you..

Thank you, Melody, for your question. I will answer your first question regarding the advertising industry and I think Fu Sheng will answer your second question regarding the AI business. So for the advertising industry, recently, in Q2, as we all know, there were some COVID-19 cases in several cities across China.

So, therefore, we can see some negative impacts on advertising for travel and transportation. And also because of the recent regulation on K-12 education. So we can see the online education industry is gradually starting out of the market. However, we still -- the industries very active, such as Internet service, consumer goods, cars, and so on.

For us, as we mentioned, we have been transforming our single advertising business model to a diversified business model of both advertising and subscription. So currently we can -- for some of our utility products because more than half our daily cash revenue received this from membership for users subscription.

So -- and also as we mentioned, the renewal rate is up, and more and more members are choosing longer-term membership. So this will be our continuing strategy in the long run. And at the same time, as we mentioned, that we also launched some new utility products. These products' revenues are mostly from the user-paying model.

Hope this answers your first question..

[Indiscernible].

Okay. Let me first say this part. So based on our recent exploration, we realized that in the shopping mall, our robots can provide to the customers about the inquiries of the location and also the information about the local merchants. And we think there is a great chance we can do a very successful business model in the shopping mall..

[Indiscernible].

Yes. The local traffic in the shopping malls is increasing in recent years..

[Indiscernible].

Yes. And the size of the local shopping mall is becoming bigger and bigger. So it will be difficult for our customers to enter the shopping mall. There is -- there is a lack of channel to obtain merchants information..

[Indiscernible].

Our robots in the shopping mall, especially in the noisy environment in the shopping malls, our robots can provide good word interaction with the customers so that they can quickly obtain merchants information in these shopping malls..

[Indiscernible].

This also helped the shopping mall to improve its service quality..

[Indiscernible].

The customer, if inquiring information regarding certain merchants, We can also recommend that some coupons for the merchants he is asking..

[Indiscernible].

This can bring more traffic to the local merchants in the shopping mall..

[Indiscernible].

Yeah. This is not even a solution for the three parties, i.e. the shopping mall, the merchant, and the customers..

[Indiscernible] [Indiscernible].

Yeah. As we all know, the local merchants nowadays they -- their user acquisition is mostly from the big Internet platforms and then the cost is becoming more highly explored by the local merchants. So we can provide a quick channel for the merchants to obtain local traffic..

[Indiscernible] [Indiscernible].

So far, our robots are selling more than 1,000 kinds of coupons for more than 1,000 merchants in nearly 40 cities all over the country. The weekly average GMV has increased for consecutive 11 weeks. There is a compounded growth rate of about 20%..

[Indiscernible].

Yeah, we believe this kind of business model can be -- can increase our growth substantially, and also we can create a service platform based on the shopping mall environment..

[Indiscernible].

That's our answer to your second question. Thank you..

As there are no further questions at this time, I'd like to hand the conference back over to the management team for closing remarks..

Thank you, Andrea. Thank you all for joining us today. If you have any further questions, please don't hesitate to contact us. Thank you. Bye..

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect..