Cheetah Mobile Announces Fourth Quarter 2019 and Full Year 2019 Unaudited Consolidated Financial Results

BEIJING, March 24, 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 fourth quarter and full year ended December 31, 2019.

Management Commentary

Mr. Sheng Fu, Cheetah Mobile's Chairman and Chief Executive Officer, stated, "We are currently facing some difficulties in our legacy mobile internet business. However, these challenges are not causing any damage to our company at the systemic level. Over the past years, we have built an unyielding and relentless team while amassing a strong balance sheet. Importantly, the recent outbreak of COVID-19 has increased customer demand for our robotics products and solutions, while robotics business will not generate significant revenues in the near term. Going forward, we are confident in our ability to rejuvenate growth in our business by capturing those opportunities emerging in the field of artificial intelligence."

Mr. Thomas Ren, Cheetah Mobile's Chief Financial Officer, commented, "Despite facing difficulties in growing our revenues, we continued to implement strict cost and expense controls while simultaneously restructuring some of our business units. In the fourth quarter of 2019, total non-GAAP costs and expenses decreased by 36% year over year while the operating profit of our utility products and related services business grew to RMB29 million from RMB24 million in the third quarter of 2019. Looking into 2020, we will continue to implement prudent cost-saving measures. In addition, we believe that our strong balance sheet will enable us to weather through these difficulties."

Fourth Quarter 2019 Consolidated Financial Results

REVENUES

Total revenues were RMB612.0 million (US$87.9 million) in the fourth quarter of 2019, decreasing by 55.7% year over year. Excluding the impact resulting from the deconsolidation of LiveMe's revenues, total revenues decreased by 46.9% year over year in the fourth quarter of 2019.

Revenues from utility products and related services decreased by 61.9% year over year to RMB298.6 million (US$42.9 million) in the fourth quarter of 2019. The year-over-over 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 fourth quarter of 2019, approximately 80.4% of the Company's revenues from its utility products and related services business were generated from online advertising while the rest of its revenues were generated from other sources, such as providing premium services, anti-virus software sales and office software sales.

Revenues from the Company's mobile utility product business in overseas markets decreased by 68.6% year over year to RMB92.8 million in the fourth quarter of 2019, mainly due to the suspension of the Company's advertising collaboration with Facebook since December 2018, and a decline in MAUs. Revenues from the Company's mobile utility product business in the domestic market decreased by 69.9% year over year to RMB106.5 million in fourth quarter of 2019 as a result of headwinds in the domestic online advertising market. PC-related revenues decreased by 25.7% year over year to RMB99.4 million in the fourth quarter of 2019 as internet traffic in China continued to migrate from PC to mobile devices.

Revenues from the mobile games business decreased by 12.6% year over year to RMB285.1 million (US$40.9 million) in the fourth quarter of 2019. This decrease was mainly attributable to a lack of new hit games and the market saturation of our existing hyper-casual games. In the fourth quarter of 2019, approximately 77.3% of the revenues from the mobile games business were generated from advertising while the remaining revenues were generated from in-game purchases.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased by 56.2% year over year to RMB182.3 million (US$26.2 million) in the fourth quarter of 2019. The year-over-year decrease was primarily due to the deconsolidation of LiveMe and a significant reduction in the costs associated with the Company's utility product business. Non-GAAP cost of revenues decreased by 56.2% to RMB182.2 million (US$26.2 million) in the fourth quarter of 2019.

Gross profit decreased by 55.5% year over year to RMB429.7 million (US$61.7 million) in the fourth quarter of 2019. Non-GAAP gross profit decreased by 55.5% year over year to RMB429.8 million (US$61.7 million) in the fourth quarter of 2019.

Gross margin was 70.2% in the fourth quarter of 2019, compared to 69.9% in the fourth quarter of 2018. Non-GAAP gross margin was 70.2% in the fourth quarter of 2019, compared to 69.9% in the fourth quarter of 2018.

OPERATING INCOME/LOSS AND EXPENSES

Total operating expenses increased by 36.0% year over year to RMB1,210.2 million (US$173.8 million) in the fourth quarter of 2019. Total non-GAAP operating expenses decreased by 25.9% year over year to RMB633.3 million (US$91.0 million) in the fourth quarter of 2019.

• Research and development (R&D) expenses decreased by 19.7% year over year to RMB153.5 million (US$22.1 million) in the fourth quarter of 2019. This decrease was primarily attributable to a reduction in the personnel for the Company's utility products and related services business as well as the deconsolidation of LiveMe. Non-GAAP R&D expenses decreased by 21.8% year over year to RMB137.5 million (US$19.8 million) in the fourth quarter of 2019.
• Selling and marketing expenses decreased by 40.7% year over year to RMB344.0 million (US$49.4 million) in the fourth quarter of 2019. This decrease was mainly due to the reduction in promotional activities for the Company's utility products and related services business as well as the deconsolidation of LiveMe. Non-GAAP selling and marketing expenses decreased by 40.6% year over year to RMB342.9 million (US$49.3 million) in the fourth quarter of 2019.
• General and administrative expenses increased by 32.7% year over year to RMB174.9 million (US$25.1 million) in the fourth quarter of 2019. This year-over-year increase was primarily due to the one-time asset impairment charges. Non-GAAP general and administrative expenses increased by 40.3% year over year to RMB160.7 million (US$23.1 million) in the fourth quarter of 2019.

Operating loss was RMB780.4 million (US$112.1 million) in the fourth quarter of 2019, compared to an operating profit of RMB75.1 million in the same period last year. Non-GAAP operating loss was RMB203.5 million (US$29.2 million) in the fourth quarter of 2019, compared to an operating profit of RMB110.3 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 RMB28.6 million (US$4.1 million) in the fourth quarter of 2019, compared to RMB224.0 million in the fourth quarter of 2018, which was mainly due to the decrease in revenues.
• Operating loss for the mobile entertainment business was RMB120.3 million (US$17.3 million) in the fourth quarter of 2019, compared to RMB64.8 million in the same period last year, which was mainly attributable to the increased amount of investment made into the Company's mobile games business as it continued to launch new titles.
• Operating loss for AI and other business was RMB111.8 million (US$16.1 million) in the quarter, compared to RMB48.9 million in the same period last year, mainly due to the Company's increased investment into its AI-related business.

Share-based compensation expenses were RMB31.3 million (US$4.5 million) in the fourth quarter of 2019, compared to RMB35.3 million in the same period last year.

GOODWILL IMPAIRMENT

For the year ended December 31, 2019, the Company performed qualitative and quantitative assessments for each of its reporting units. As a result, the Company booked a goodwill impairment charge of RMB545.7 million (US$78.4 million) in the fourth quarter of 2019.

NET INCOME/LOSS ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net loss attributable to Cheetah Mobile shareholders was RMB821.2 million (US$118.0 million) in the fourth quarter of 2019, compared to a net income attributable to Cheetah Mobile shareholders of RMB733.3 million in the fourth quarter of 2018.

Non-GAAP net loss attributable to Cheetah Mobile shareholders was RMB244.2 million (US$35.1 million) in the fourth quarter of 2019, compared to a non-GAAP net income attributable to Cheetah Mobile shareholders of RMB768.6 million in the fourth quarter of 2018.

NET INCOME/LOSS PER ADS

Basic/diluted loss per ADS was RMB5.98(US$0.86) in the fourth quarter of 2019, compared to diluted earnings per ADS of RMB5.09 of 2018. Non-GAAP basic/diluted loss per ADS was RMB1.78(US$0.26) in the fourth quarter of 2019, compared to diluted earnings per ADS of RMB5.34 of 2018.

BALANCE SHEET

As of December 31, 2019, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB2,354.8 million (US$338.2 million).

SHARES ISSUED AND OUTSTANDING

As of December 31, 2019, the Company had a total of 1,393,070,159 Class A and Class B ordinary shares issued and outstanding. One ADS represents 10 Class A ordinary shares.

Fiscal Year 2019 Results

REVENUES

Total revenues decreased by 28.0% to RMB3,587.7 million (US$515.3 million) in 2019.

Revenues from utility products and related services decreased by 49.6% year over year to RMB1,573.0 million (US$226.0 million) in 2019. The year-over-over 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 2019, approximately 85.4% of the Company's revenues from its utility products and related services business were generated from advertising while the rest of its revenues were generated from other sources, such as providing premium services, anti-virus software sales and office software sales.

Revenues from the Company's mobile utility product business in overseas markets decreased by 60.4% year over year to RMB502.1 million in 2019, mainly due to the suspension of the Company's advertising collaboration with Facebook since December 2018, and a decline in MAUs resulting from our flagship product life cycle reaching maturity. Revenues from the Company's mobile utility product business in the domestic market decreased by 50.8% year over year to RMB664.2 million in 2019 as the result of headwinds in the domestic online advertising market. PC-related revenues decreased by 19.0% year over year to RMB406.7 million in 2019 as internet traffic in China continued to migrate from PC to mobile devices.

Revenues from the mobile entertainment business increased by 5.2% year over year to RMB1,872 million (US$268.8 million), mostly driven by the growth of the Company's casual mobile game, Bricks n Balls.

• Revenues from the mobile game business increased by 26.8% year over year to RMB1,173.0 million (US$168.5 million). The increases were mainly due to the contribution from the casual mobile game, Bricks n Balls.
• Revenues from the content-driven products decreased by 18.2% year over year to RMB698.6 million (US$100.3 million), mainly due to the deconsolidation of LiveMe effective since September 30, 2019. In the first nine months of 2019, revenues generated from content-driven products increased by 11.9% year over year.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased by 19.4% year over year to RMB1,241.9 million (US$178.4 million) in 2019. The year-over-year decrease was primarily due to a significant reduction in costs associated with the Company's utility product business and the deconsolidation of LiveMe. Non-GAAP cost of revenues decreased by 19.4% year over year to RMB1,241.4 million (US$178.3 million) in 2019.

Gross profit decreased by 31.8% year over year to RMB2,345.8 million (US$336.9 million) in 2019. Non-GAAP gross profit decreased by 31.8% year over year to RMB2,346.3 million (US$337.0 million) in 2019.

Gross Margin decreased to 65.4% in 2019 from 69.1% in 2018. Non-GAAP gross margin decreased to 65.4% in 2019 from 69.1% in 2018.

OPERATING INCOME/LOSS AND EXPENSES

Total operating expenses increased by 16.2% year over year to RMB3,456.7 million (US$496.5 million) in 2019. Total non-GAAP operating expenses decreased by 3.6% year over year to RMB2,784.1 million (US$399.9 million).

• Research and development expenses increased by 17.7% year over year to RMB787.3 million (US$113.1 million) in 2019. The year-over-year increase was mainly due to the rise in R&D personnel for both the Company's mobile games and AI-related businesses, partially offset by a reduction in the personnel for the Company's utility products and related services business. Non-GAAP research and development expenses increased by 11.1% year over year to RMB727.6 million (US$104.5 million).
• Selling and marketing expenses decreased by 18.4% year over year to RMB1,558.3 million (US$223.8 million) in 2019. The year-over-year decrease was primarily due to the reduction in promotional activities for the Company's utility products and related services business. Non-GAAP selling and marketing expenses decreased by 18.2% year over year to RMB1,554.5 million (US$223.3 million).
• General and administrative expenses increased by 36.4% year over year to RMB587.5 million (US$84.4 million) in 2019, which was mainly due to one-time asset impairment charges. Non-GAAP general and administrative expenses increased by 42.0% year over year to RMB524.1 million (US$75.3 million).

Operating loss was RMB1,110.9 million (US$159.6 million) in 2019, compared to an operating profit of RMB467.2 million in 2018. Non-GAAP operating loss was RMB437.8 million (US$62.9 million) in 2019, compared to a non-GAAP operating profit of RMB552.3 million in 2018.

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 was RMB297.1 million (US$42.7 million) in 2019, compared to RMB1,035.0 million in 2018, primarily due to a decrease in revenue from this reporting segment.
• Operating loss for the mobile entertainment business was RMB375.3 million (US$53.9 million) in 2019, compared to RMB312.5 million in 2018, attributable to the Company's increased investment into its mobile game operations.

Share-based compensation expenses increased by 49.7% year over year to RMB127.4 million (US$18.3 million) in 2019, as the Company granted a certain quantity of restricted shares to key employees.

NET LOSS ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net loss attributable to Cheetah Mobile shareholders was RMB314.0 million (US$45.1 million) in 2019, as compared to net income attributable to Cheetah Mobile shareholders of RMB1,166.9 million in 2018.

Non-GAAP net income attributable to Cheetah Mobile shareholders was RMB359.1 million (US$51.6 million) in 2019, as compared to RMB1,252.0 million in 2018.

NET INCOME PER ADS

Basic/diluted loss per ADS was RMB2.51(US$0.36) in 2019, as compared to diluted earnings per ADS of RMB7.84 in 2018. Non-GAAP basic/diluted loss per ADS was RMB2.41(US$0.35) in 2019, as compared to non-GAAP diluted earnings per ADS of RMB8.43 in 2018.

Business Outlook

For the first quarter of 2020, the Company expects its total revenues to be between RMB490 million (US$70 million) and RMB540 million (US$78 million). This amount has reflected the fact that LiveMe's revenues will no longer be included in the Company's revenues. The above outlook is based on the current market conditions and reflects the Company's preliminary estimates, which are all subject to change, particularly in light of the uncertainties related to how COVID-19 develops.

Recent Development

Updates on Google Collaboration

On February 21, 2020, the Company announced that it was informed by Google that the Company's Google Play Store, Google AdMob and Google AdManager accounts were disabled on February 20, 2020.

Pending the restoration of Google collaboration, the Company expects its ability to attract new users and generate revenue from Google may be materially adversely affected from February 2020. In 2019, Cheetah Mobile generated 21.9% of its total revenues from Google, including revenues from the mobile advertising business and revenues from the purchase and consumption of virtual items by users via Google as a channel.

According to Google, the decision was made because some of the Company's apps had not been compliant with Google policies, resulting in certain invalid traffic. Since February 20, 2020, the Company has been in continuous communication with Google to appeal the decision, clarify any misunderstanding, and adopt any requisite remedial measures to restore the disabled accounts. However, the Company was recently notified that Google was unable to reinstate its accounts after a thorough review of its appeal and additional information the Company provided. While the Company will continue to communicate with Google, and the Company cannot guarantee that its appeals will be successful.

Conference Call Information

The Company will hold a conference call on Tuesday, March 24, 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:

The replay will be accessible March 31, 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 RMB6.9618 to US$1.00, the exchange rate in effect as of December 31, 2019, 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 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

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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SOURCE Cheetah Mobile Inc