Cheetah Mobile Announces Second Quarter 2018 Unaudited Consolidated Financial Results

Cheetah Mobile Announces Second Quarter 2018 Unaudited Consolidated Financial Results

BEIJING, Aug. 20, 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 second quarter ended June 30, 2018.

Second Quarter 2018 Financial Highlights

  • Total revenues[1] were RMB1,103.5 million (US$166.8 million), exceeding the Company's previous guidance range of RMB1,020.0 million to RMB1080.0 million.
  • Gross profit increased by 1.6% year over year to RMB752.1 million (US$113.7 million). Gross margin was 68.2% in the second quarter of 2018 compared to 62.8% in the same period last year. Non-GAAP gross profit increased by 1.5% year over year to RMB752.2 million (US$113.7 million) in the second quarter of 2018. Non-GAAP gross margin was 68.2% in the second quarter of 2018 compared to 62.9% in the same period last year.
  • Operating profit increased to RMB127.9 million (US$19.3 million) from RMB66.2 million in the same period last year. Operating margin expanded to 11.6% from 5.6% in the same period last year. Non-GAAP operating profit increased to RMB142.6 million (US$21.5 million) from RMB90.4 million in the same period last year. Non-GAAP operating margin expanded to 12.9% from 7.7% in the same period last year.
  • Operating profit for utility products and related services increased by 32.5% year over year to RMB282.1 million (US$42.6 million) in the second quarter of 2018. Operating margin for utility products and related services expanded to 37.3% in the second quarter of 2018 from 26.7% in the same period last year.
  • The Company generated RMB21.7 million (US$3.3 million) of net cash from operating activities and RMB12.6 million (US$1.9 million) of free cash flow in the second quarter of 2018.

Second Quarter 2018 Operating Metric

  • The average number of global mobile monthly active users ("Mobile MAUs") was 540 million in the second quarter of 2018. The number of Mobile MAUs from markets outside of China, or overseas markets, accounted for 70.2% of the total number of Mobile MAUs in the second quarter of 2018. 

Mr. Sheng Fu, Cheetah Mobile's Chairman and Chief Executive Officer, stated, "We are pleased that the initiatives we have implemented to resume growth for our company are starting to bear fruit. In the second quarter of 2018, we reported better-than-expected total revenue. In the second half of 2018, we expect revenues to recover its sequential growth trends, primarily driven by growth in our mobile utility products business in the domestic market, growth in our mobile game business and the normal seasonality effect. In this quarter, revenues from mobile utility products in the domestic market grew substantially, primarily driven by our Clean Master application for the Chinese market, which reached over 30 million DAUs in June. In addition, our existing game portfolio has continued to achieve solid performance. Going forward, we expect our existing businesses in mobile utility products and mobile games will continue to grow steadily and generate healthy profits. Meanwhile, we are excited to further develop our new artificial intelligence ("A.I.") robotics products, with the help of Beijing OrionStar."

Mr. Vincent Jiang, Cheetah Mobile's Chief Financial Officer, commented, "We are pleased with the continued profit and margin improvements during the second quarter of 2018, especially in our utility product and related services business driven by the strong performance of our mobile utility products in the domestic market. Going forward, we will remain committed to our ongoing efforts in optimizing the Company's cost structures and operating efficiency. We are confident that the strong cash flow generated by our existing business and our strong cash reserves will enable us to further expand into the A.I. space which we expect to be the key to our long term growth."

[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 the Company's 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.

Second Quarter 2018 Consolidated Financial Results

REVENUES

Total revenues were RMB1,103.5 million (US$166.8 million) in the second quarter of 2018. 

  • Revenues from utility products and related services decreased by 5.2% year over year to RMB756.1 million (US$114.3 million) in the second 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 the Company's overseas third-party advertising partners, and (ii) a decline in PC revenues as the internet traffic continued its migration from PC to mobile. This decrease was largely offset by an increase in revenues from the mobile utility products and related services business in China.
  • Revenues from the mobile entertainment business decreased by 10.2% year over year to RMB332.9 million (US$50.3 million). Revenues from mobile game business decreased by 9.2% year-over-year to RMB138.7 million (US$21.0 million), mainly due to a short-term delay in the release schedules of new titles in the second quarter of 2018, whereas revenues generated by the Company's existing game titles remained stable. Revenues from content-driven product decreased by 10.9% year over year to RMB194.2 million (US$29.3 million), mainly due to a decline in revenues from the News Republic application as the Company disposed of this operation in the fourth quarter of 2017, as well as a year-over-year decrease in revenues from Live.me. The decrease in Live.me revenues was primarily attributable to the year over year depreciation of US dollar against RMB in the second quarter of 2018 as most the revenues generated by Live.me were recognized in US dollars then reported in RMB.

By platform, revenues generated from the mobile business accounted for 87.5% of the Company's total revenues in the second quarter of 2018, up from 87.0% in the same period last year.

By region, revenues generated from the Chinese market constituted 41.1% of the Company's total revenues in the second quarter of 2018, up from 28.7% in the same period last year. The revenue growth in the Chinese market was attributable to a ramp-up of mobile utility products and related services in China.

Revenues generated from the overseas market constituted 58.9% of the Company's total revenues in the second quarter of 2018, decreased by 22.7% year over year to RMB649.6 million (US$98.2 million), mainly due to the impact of the removal of lock screen ads.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues decreased by 19.8% year over year to RMB351.4 million (US$53.1 million) in the second 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 intangible assets in the quarter as we had disposed News Republic and completed the amortization of MobPartner, which was acquired in April 2015. Non-GAAP cost of revenues decreased by 19.6% year over year to RMB351.3 million (US$53.1 million) in the second quarter of 2018.

Gross profit increased by 1.6% year over year to RMB752.1 million (US$113.7 million). Non-GAAP gross profit increased by 1.5% year over year to RMB752.2 million (US$113.7 million) in the second quarter of 2018.

OPERATING INCOME AND EXPENSES

Total operating expenses decreased by 7.4% year over year to RMB624.2 million (US$94.3 million) in the second quarter of 2018. Total non-GAAP operating expenses decreased by 6.3% year over year to RMB609.6 million (US$92.1 million) in the second quarter of 2018.

  • Research and development (R&D) expenses decreased by 7.1% year over year to RMB155.2 million (US$23.5 million) in the second quarter of 2018. The decreases were due to lower share-based compensation expenses and reduced R&D headcount associated with 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 2.8% year over year to RMB158.6 million (US$24.0 million) in the second quarter of 2018.
  • Selling and marketing expenses decreased by 10.5% year over year to RMB369.9 million (US$55.9 million) in the second quarter of 2018. The decreases were mainly due to decreased promotional activities for the Company's utility products in the overseas markets, and our mobile game business as we were delayed in the release schedules of new titles. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, decreased by 10.0% year over year to RMB367.2 million (US$55.5 million) in the second quarter of 2018.
  • General and administrative expenses remained relatively flat year over year to RMB100.1 million (US$15.1 million) in the second quarter of 2018. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, remained relatively flat year over year to RMB84.9 million (US$12.8 million) in the second quarter of 2018.
  • Impairment of goodwill and intangible assets were RMB5.6 million (US$0.8 million) in the second quarter of 2018 primarily due to a one-time non-cash write-down of intangible assets.

Operating profit increased by 93.2% to RMB127.9 million (US$19.3 million) from RMB66.2 million in the same period last year. Non-GAAP operating profit increased by 57.7% to RMB142.6 million (US$21.5 million) from RMB90.4 million in the same period last year. 

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

  • ŸOperating profit for utility products and related services increased by 32.5% year over year to RMB282.1 million (US$42.6 million) in the second quarter of 2018 due to the optimization of the Company's cost and expense structure for this segment, and the increased revenue from mobile utility products and related services in China.
  • Operating loss for the mobile entertainment business was RMB98.6 million (US$14.9 million) in the second quarter of 2018, compared to an operating loss of RMB122.1 million in the same period last year. The reduced loss was mainly a result of reduced costs and expenses from the News Republic business, partially offset by the Company's increased investments in the Live.me operation.

Share-based compensation expenses decreased by 39.5% year over year to RMB14.6 million (US$2.2 million) in the second quarter of 2018. The decrease resulted from a combination of several factors. The Company employed an accelerated method to recognize share-based compensation expenses. In addition, a higher number of share-based awards were granted by the Company in earlier years than 2018.

Reversal of Impairment

The company's net reversed impairment was RMB14.5 million (US$2.2 million) in the second quarter of 2018, mainly due to the disposal of certain long-term investment asset with consideration higher than its carry value.

OTHER INCOME, NET

Other income, net was RMB52.7 million (US$8.0 million) in the second quarter of 2018, which was primarily due to increases in fair value of certain long-term investments in the second quarter of 2018.

NET INCOME ATTRIBUTABLE TO CHEETAH MOBILE SHAREHOLDERS

Net income attributable to Cheetah Mobile shareholders increased by 180.0% year over year to RMB196.5 million (US$29.7 million) in the second quarter of 2018. Non-GAAP net income attributable to Cheetah Mobile shareholders increased by 123.7% year over year to RMB211.2 million (US$31.9 million) in the second quarter of 2018.

NET INCOME PER ADS

Diluted income per ADS was RMB1.29 (US$0.19) in the second quarter of 2018. Non-GAAP diluted income per ADS was RMB1.39 (US$0.21) in the second quarter of 2018 from RMB0.64 in the same period last year.

ADJUSTED EBITDA

Adjusted EBITDA (Non-GAAP) increased by 29.7% year over year to RMB164.2 million (US$24.8 million) in the second quarter of 2018.

CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS BALANCE

As of June 30, 2018, the Company had cash and cash equivalents, restricted cash, and short-term investments of RMB3,515.0 million (US$531.2 million). 

SHARES ISSUED AND OUTSTANDING

As of June 30, 2018, the Company had a total of 1,426,649,639 Class A and Class B ordinary shares issued and outstanding. One ADS represents 10 Class A ordinary shares.

Business Outlook

For the third quarter of 2018, the Company expects its total revenues to be between RMB1,290 million (US$194.9 million) and RMB1,350 million (US$204.0 million), representing a year-over-year increase of 10% to 15%. This estimate represents management's preliminary view as of the date of this release, which is subject to change.

Conference Call Information

The Company will hold a conference call on Monday, August 20, 2018 at 8:00 am Eastern Time or 8:00 pm Beijing Time to discuss the financial results. Listeners may access the call by dialing the following numbers:

International:                                      

+1-412-902-4272

United States Toll Free:                    

+1-888-346-8982

China Toll Free:                                 

4001-201-203

Hong Kong Toll Free:                        

800-905-945

Conference ID:                                 

Cheetah Mobile

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/.

A presentation for the Company's earnings call is available at the Company's investor relations 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 RMB6.6171 to US$1.00, the exchange rate in effect as of June 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 strong global vision. 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 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: helenjingzhu@cmcm.com

ICR Inc.
Jack Wang
Tel: +1 (646) 417-5395
Email: IR@cmcm.com

CHEETAH MOBILE INC.

Condensed Consolidated Balance Sheets

(Unaudited, amounts in thousands of Renminbi ("RMB") and US dollars ("US$")

           
 

As of

 

 December 31, 2017

 

 June 30, 2018

 

 June 30, 2018

 

RMB

 

RMB

 

USD

ASSETS

         

Current assets:

         

Cash and cash equivalents

2,317,488

 

1,819,907

 

275,031

Restricted cash

90,149

 

5,899

 

891

Short-term investments

1,395,694

 

1,689,218

 

255,281

Accounts receivable

621,272

 

625,835

 

94,578

Prepayments and other current assets

918,243

 

845,969

 

127,849

Due from related parties

54,052

 

89,418

 

13,513

Total current assets

5,396,898

 

5,076,246

 

767,143

           

Non-current assets:

         

Property and equipment, net

89,137

 

73,702

 

11,138

Intangible assets, net 

70,225

 

62,327

 

9,419

Goodwill

634,157

 

640,464

 

96,789

Investment in equity investees

149,969

 

147,377

 

22,272

Other long term investments

1,002,721

 

1,196,545

 

180,826

Due from related parties

5,216

 

10,253

 

1,549

Deferred tax assets

57,642

 

62,888

 

9,504

Other non-current assets

42,966

 

39,606

 

5,985

Total non-current assets

2,052,033

 

2,233,162

 

337,482

           

Total assets

7,448,931

 

7,309,408

 

1,104,625

           

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

         
           

Current liabilities: 

         

Bank loans

336,304

 

-

 

-

Accounts payable

164,537

 

174,797

 

26,416

Accrued expenses and other current liabilities

1,532,489

 

1,383,813

 

209,127

Due to related parties

81,810

 

44,376

 

6,706

Income tax payable

50,614

 

54,850

 

8,289

Total current liabilities

2,165,754

 

1,657,836

 

250,538

           

Non-current liabilities: 

         

Deferred tax liabilities

73,393

 

73,613

 

11,125

Other non-current liabilities

54,574

 

53,658

 

8,109

Total non-current liabilities

127,967

 

127,271

 

19,234

           

Total liabilities

2,293,721

 

1,785,107

 

269,772

           

Mezzanine equity:

         

Redeemable noncontrolling interests

649,246

 

667,573

 

100,886

           

Shareholders' equity:

         

Ordinary shares

229

 

230

 

35

Additional paid-in capital

2,644,043

 

2,674,546

 

404,187

Retained earnings

1,564,883

 

1,825,265

 

275,841

Accumulated other comprehensive income

84,206

 

135,397

 

20,462

Total Cheetah Mobile shareholders' equity

4,293,361

 

4,635,438

 

700,525

Noncontrolling interests

212,603

 

221,290

 

33,442

           

Total equity

4,505,964

 

4,856,728

 

733,967

           

Total liabilities, mezzanine equity and equity

7,448,931

 

7,309,408

 

1,104,625

 

CHEETAH MOBILE INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, amounts in thousands of Renminbi ("RMB") and US dollars ("US$"), except for number of shares and per share(or ADS) data)

               
 

For The Three Months Ended

 

 June 30, 2017

 

March 31, 2018

 

 June 30, 2018

 

 June 30, 2018

 

RMB

 

RMB

 

RMB

 

USD

Revenues (a)

1,201,561

 

1,145,097

 

1,103,456

 

166,758

Utility products and related services 

820,342

 

744,763

 

756,093

 

114,263

Mobile entertainment

371,034

 

392,452

 

332,907

 

50,310

Others

10,185

 

7,882

 

14,456

 

2,185

               

Cost of revenues (b)

(461,089)

 

(391,182)

 

(351,360)

 

(53,099)

Gross profit

740,472

 

753,915

 

752,096

 

113,659

               

Operating income and expenses: 

             

Research and development (b)

(166,983)

 

(147,278)

 

(155,202)

 

(23,455)

Selling and marketing (b) 

(413,116)

 

(391,355)

 

(369,914)

 

(55,903)

General and administrative (b) 

(99,996)

 

(90,600)

 

(100,107)

 

(15,129)

Impairment of goodwill and intangible assets

(172)

 

-

 

(5,587)

 

(844)

Other operating income

6,022

 

11,679

 

6,660

 

1,006

Total operating income and  expenses

(674,245)

 

(617,554)

 

(624,150)

 

(94,325)

               

Operating profit

66,227

 

136,361

 

127,946

 

19,334

Other income (expense):

             

Interest income, net

3,380

 

16,652

 

19,425

 

2,936

Foreign exchange (loss) gain, net

(6,627)

 

(12,829)

 

10,022

 

1,515

(Impairment) reversal of investment impairment

-

 

(58,000)

 

14,500

 

2,191

Losses from equity method investments, net

(477)

 

(2,739)

 

(2,818)

 

(426)

Other income, net

15,517

 

500

 

52,666

 

7,959

               

Income before taxes

78,020

 

79,945

 

221,741

 

33,509

Income tax expenses

(4,664)

 

(5,042)

 

(27,993)

 

(4,230)

Net income

73,356

 

74,903

 

193,748

 

29,279

Less: net income (loss) attributable to noncontrolling interests 

3,157

 

4,906

 

(2,792)

 

(422)

Net income attributable to Cheetah Mobile shareholders

70,199

 

69,997

 

196,540

 

29,701

               

Earnings per share

             

Basic 

0.05

 

0.04

 

0.13

 

0.02

Diluted 

0.05

 

0.04

 

0.13

 

0.02

               

Earnings per ADS

             

Basic 

0.48

 

0.43

 

1.33

 

0.20

Diluted 

0.47

 

0.42

 

1.29

 

0.19

               

Weighted average number of shares outstanding

             

Basic 

1,392,558,263

 

1,403,597,719

 

1,407,191,965

 

1,407,191,965

Diluted 

1,430,957,071

 

1,452,802,118

 

1,452,195,012

 

1,452,195,012

Weighted average number of ADSs outstanding

             

Basic 

139,255,826

 

140,359,772

 

140,719,197

 

140,719,197

Diluted 

143,095,707

 

145,280,212

 

145,219,501

 

145,219,501

               

Other comprehensive loss, net of tax of nil

             

Foreign currency translation adjustments

(38,948)

 

(134,774)

 

188,530

 

28,491

Other comprehensive (loss) income

(38,948)

 

(134,774)

 

188,530

 

28,491

Total comprehensive income (loss)

34,408

 

(59,871)

 

382,278

 

57,770

Less: Total comprehensive income attributable to
noncontrolling interests

1,380

 

3,321

 

1,358

 

205

Total comprehensive income (loss) attributable to
Cheetah Mobile shareholders

33,028

 

(63,192)

 

380,920

 

57,565

 

 

CHEETAH MOBILE INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, amounts in thousands of Renminbi ("RMB") and US dollars ("US$"), except for number of shares and per share(or ADS) data)

               

  (a) On January 1, 2018, The Group adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018.  

  Adoption did not have a material impact as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606,   

  while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting under ASC 605.  

  As ASC 605 has been superseded by ASC 606 on this subject, value added tax was reclassified from the cost of revenues to net against revenues.    

  Advertising-for-advertising barter transactions should be recorded at the fair value of the advertising received by reference to the fair value of advertising services   

  provided to other customers. Revenues are recognized in the same amount with costs and  expenses. Previously, such transactions were recorded at cost which  

  was nil as no consideration was exchanged. The following table illustrates the effect of the adoption of ASC 606 by presenting a comparison of revenues for  

  the three months ended June 30, 2018, as actually reported and as they would have been reported under ASC 605, without the adoption of ASC 606:  

               
 

For The Three Months Ended

       
 

 June 30, 2018

 

 June 30, 2018

       
 

RMB

 

USD

       

As reported

1,103,456

 

166,758

       

Add: value added taxes

27,638

 

4,177

       

Less: barter transactions

5,137

 

776

       

Without adoption of ASC 606

1,125,957

 

170,159

       
               
 

For The Three Months Ended

 

 June 30, 2017

 

March 31, 2018

 

 June 30, 2018

 

 June 30, 2018

(b) Share-based compensation expenses

RMB

 

RMB

 

RMB

 

USD

Cost of revenues

872

 

(90)

 

90

 

14

Research and development

3,802

 

(6,143)

 

(3,365)

 

(509)

Selling and marketing

4,956

 

302

 

2,683

 

405

General and administrative

14,552

 

14,850

 

15,225

 

2,301

Total

24,182

 

8,919

 

14,633

 

2,211

 

CHEETAH MOBILE INC.

Reconciliation of GAAP and Non-GAAP Results

(Unaudited, in'000, except for per share data and percentage)

                           
 

For The Three Months Ended June 30, 2018

   
 

GAAP

 

% of Net

 

Share-based 

 

% of Net

 

Non-GAAP

 

% of Net

 

Non-GAAP

 

Result

 

Revenues

 

Compensation

 

Revenues

 

Result

 

Revenues

 

Result ($)

Revenues

1,103,456

             

1,103,456

     

166,758

Cost of revenues

(351,360)

 

31.8%

 

90

 

0.0%

 

(351,270)

 

31.8%

 

(53,085)

Gross profit

752,096

 

68.2%

 

90

 

0.0%

 

752,186

 

68.2%

 

113,673

                           

Research and development 

(155,202)

 

14.1%

 

(3,365)

 

0.3%

 

(158,567)

 

14.4%

 

(23,964)

Selling and marketing 

(369,914)

 

33.5%

 

2,683

 

0.2%

 

(367,231)

 

33.3%

 

(55,498)

General and administrative 

(100,107)

 

9.1%

 

15,225

 

1.4%

 

(84,882)

 

7.7%

 

(12,828)

Impairment of goodwill and intangible assets

(5,587)

 

0.5%

 

-

 

0.0%

 

(5,587)

 

0.5%

 

(844)

Other operating income

6,660

 

0.6%

 

-

 

0.0%

 

6,660

 

0.6%

 

1,006

Total operating income and expenses

(624,150)

 

56.6%

 

14,543

 

1.3%

 

(609,607)

 

55.2%

 

(92,128)

                           

Operating profit 

127,946

 

11.6%

 

14,633

 

1.3%

 

142,579

 

12.9%

 

21,545

Net income attributable to Cheetah Mobile shareholders

196,540

 

17.8%

 

14,633

 

1.3%

 

211,173

 

19.1%

 

31,913

                           

Diluted earnings per ordinary share (RMB)

0.13

     

0.01

     

0.14

       

Diluted earnings per ADS (RMB)

1.29

     

0.10

     

1.39

       

Diluted earnings per ADS (USD)

0.19

     

0.02

     

0.21

       
                           
                           
                           
 

For The Three Months Ended March 31, 2018

   
 

GAAP

 

% of Net

 

Share-based 

 

% of Net

 

Non-GAAP

 

% of Net

   
 

Result

 

Revenues

 

Compensation

 

Revenues

 

Result

 

Revenues

   

Revenues

1,145,097

             

1,145,097

       

Cost of revenues

(391,182)

 

34.2%

 

(90)

 

0.0%

 

(391,272)

 

34.2%

   

Gross profit

753,915

 

65.8%

 

(90)

 

0.0%

 

753,825

 

65.8%

   
                           

Research and development 

(147,278)

 

12.9%

 

(6,143)

 

0.5%

 

(153,421)

 

13.4%

   

Selling and marketing 

(391,355)

 

34.2%

 

302

 

0.0%

 

(391,053)

 

34.2%

   

General and administrative 

(90,600)

 

7.9%

 

14,850

 

1.3%

 

(75,750)

 

6.6%

   

Other operating income

11,679

 

1.0%

 

-

 

0.0%

 

11,679

 

1.0%

   

Total operating income and expenses

(617,554)

 

53.9%

 

9,009

 

0.8%

 

(608,545)

 

53.1%

   
                           

Operating profit 

136,361

 

11.9%

 

8,919

 

0.8%

 

145,280

 

12.7%

   

Net income attributable to Cheetah Mobile shareholders

69,997

 

6.1%

 

8,919

 

0.8%

 

78,916

 

6.9%

   
                           

Diluted earnings per ordinary share (RMB)

0.04

     

0.01

     

0.05

       

Diluted earnings per ADS (RMB)

0.42

     

0.06

     

0.48

       
                           
                           
                           
 

For The Three Months Ended June 30, 2017

   
 

GAAP

 

% of Net

 

Share-based 

 

% of Net

 

Non-GAAP

 

% of Net

   
 

Result

 

Revenues

 

Compensation

 

Revenues

 

Result

 

Revenues

   

Revenues

1,201,561

             

1,201,561

       

Cost of revenues

(461,089)

 

38.4%

 

872

 

0.1%

 

(460,217)

 

38.3%

   

Gross profit

740,472

 

61.6%

 

872

 

0.1%

 

741,344

 

61.7%

   
                           

Research and development 

(166,983)

 

13.9%

 

3,802

 

0.3%

 

(163,181)

 

13.6%

   

Selling and marketing 

(413,116)

 

34.4%

 

4,956

 

0.4%

 

(408,160)

 

34.0%

   

General and administrative 

(99,996)

 

8.3%

 

14,552

 

1.2%

 

(85,444)

 

7.1%

   

Impairment of goodwill and intangible assets

(172)

 

0.0%

 

-

 

0.0%

 

(172)

 

0.0%

   

Other operating income

6,022

 

0.5%

 

-

 

0.0%

 

6,022

 

0.5%

   

Total operating income and expenses

(674,245)

 

56.1%

 

23,310

 

1.9%

 

(650,935)

 

54.2%

   
                           

Operating profit 

66,227

 

5.5%

 

24,182

 

2.0%

 

90,409

 

7.5%

   

Net income attributable to Cheetah Mobile shareholders

70,199

 

5.8%

 

24,182

 

2.0%

 

94,381

 

7.9%

   
                           

Diluted earnings per ordinary share (RMB)

0.05

     

0.01

     

0.06

       

Diluted earnings per ADS (RMB)

0.47

     

0.17

     

0.64

       

 

CHEETAH MOBILE INC.

Information about Segment 

(Unaudited, in'000, except for percentage)

                     
 

For The Three Months Ended June 30, 2018

 
 

Utility Products
and
Related Services

 

Mobile
Entertainment

 

Others 

 

Unallocated*

 

Consolidated

 

RMB

 

RMB

 

RMB

 

RMB

 

RMB

USD

Revenue

756,093

 

332,907

 

14,456

 

-

 

1,103,456

166,758

Operating profit (loss)

282,090

 

(98,568)

 

(40,943)

 

(14,633)

 

127,946

19,334

Operating margin

37.3%

 

(29.6)%

 

(283.2)%

     

11.6%

11.6%

 
                     
 

For The Three Months Ended March 31, 2018

 
 

Utility Products
and
Related Services

 

Mobile
Entertainment

 

Others 

 

Unallocated*

 

Consolidated

 
 

RMB

 

RMB

 

RMB

 

RMB

 

RMB

 

Revenue

744,763

 

392,452

 

7,882

 

-

 

1,145,097

 

Operating profit (loss)

264,706

 

(75,046)

 

(44,380)

 

(8,919)

 

136,361

 

Operating margin

35.5%

 

(19.1)%

 

(563.1)%

     

11.9%

 
                     
                     
 

For The Three Months Ended June 30, 2017

 
 

Utility Products
and
Related Services

 

Mobile
Entertainment

 

Others 

 

Unallocated*

 

Consolidated

 
 

RMB

 

RMB

 

RMB

 

RMB

 

RMB

 

Revenue

820,342

 

371,034

 

10,185

 

-

 

1,201,561

 

Operating profit (loss)

212,849

 

(122,069)

 

(371)

 

(24,182)

 

66,227

 

Operating margin

25.9%

 

(32.9)%

 

(3.6)%

     

5.5%

 
                     

* Unallocated expenses refer to SBC expenses that are not allocated to individual segments.

 

CHEETAH MOBILE INC.

Reconciliation from Net Income Attributable to Cheetah Mobile Shareholders to Adjusted EBITDA (Non-GAAP)

(Unaudited, in '000)

       

For The Three Months Ended

 

 June 30, 2017

March 31, 2018

 June 30, 2018

 June 30, 2018

 

RMB

RMB

RMB

USD

Net income attributable to Cheetah Mobile shareholders

70,199

69,997

196,540

29,701

Add:

       

Income tax expenses

4,664

5,042

27,993

4,230

Interest income, net

(3,380)

(16,652)

(19,425)

(2,936)

Depreciation and amortization

36,166

23,472

21,573

3,260

Net income (loss) attributable to noncontrolling interests 

3,157

4,906

(2,792)

(422)

Other non-operating (income) expense, net

(8,413)

73,068

(74,370)

(11,239)

Share-based compensation 

24,182

8,919

14,633

2,211

Adjusted EBITDA

126,575

168,752

164,152

24,805

 

CHEETAH MOBILE INC.

Revenues Generated from PC-based and Mobile-based Applications and Services

(Unaudited, in '000)

         

For The Three Months Ended

 

 June 30, 2017

March 31, 2018

 June 30, 2018

 June 30, 2018

 

RMB

RMB

RMB

USD

PC

162,771

127,094

137,763

20,819

Mobile

1,038,790

1,018,003

965,693

145,939

Total

1,201,561

1,145,097

1,103,456

166,758

 

 
 

CHEETAH MOBILE INC.

Revenues Generated from Domestic and Overseas Markets

(Unaudited, in '000)

         

For The Three Months Ended

 

 June 30, 2017

March 31, 2018

 June 30, 2018

 June 30, 2018

 

RMB

RMB

RMB

USD

Domestic

358,655

447,620

453,837

68,585

Overseas

842,906

697,477

649,619

98,173

Total

1,201,561

1,145,097

1,103,456

166,758

 

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