Hello and welcome to the Cheetah Mobile Second Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Helen Zhu. Please go ahead.

Thank you, Operator. Welcome to Cheetah Mobile's second quarter earnings conference call. With us today are Mr. Fu Sheng, our CEO; and Mr. Andy Yeung, our CFO. Following management's prepared remarks we will conduct 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 would now like to turn the conference call over to our CEO, Mr. Fu Sheng. Please go ahead, Fu Sheng.

Hi everyone, thank you for joining our call today. We are very happy to report another quarter of strong results. Q2 revenues came in at RMB871 million much higher than our previous guidance of RMB785 to RMB795 million. Due to stronger than expected amount for our mobile advertising service from both overseas and domestic advertisers, very importantly we continue to make very solid progress in our mobile and global strategy which should lead us strong foundation for our future growth. Only a year ago, we launched our overseas monetization efforts. In the second quarter this year, we set bridges another key milestone with our overseas mobile revenues nowaccounting for 50% of the total revenues for the first time. In Q2 mobile accounted for 64% of our revenues. We are happy with our transformation into a truly global and a mobile company. About three years ago, we decided to launch Clean Master in overseas market. As of June this year, five of our apps are now reaching amongst the top 40 most downloaded apps on Google Play worldwide. Today we have over 494 million mobile MAUs globally and 71% of our mobile user came – user base came from overseas. Additionally, about two years ago, we began to our mobile monetization efforts. Today mobile now accounts for 54% of our total revenues. As I mentioned early, we launched our overseas monetization efforts a year ago, yielding a very short amount of time. Overseas revenue has grown extremely faster and now accounts for 50% of our total revenues and 77% of our mobile revenues. Our solid progress in mobile and global was due to our continued improvements in commercial products and big data analytics expansion of direct sales and operational mobility worldwide, as well as our strong partnership with key global Internet…

Thank you, Fu Sheng. Good evening everyone. We had very strong performance in the second quarter both operationally and financially. The key highlight this quarter continues to be the strong progress in our mobile and global strategy especially a sustained momentum in our overseas operation. We had expected topline results close to our business model resulting in 180% year-over-year increase in growth in our GAAP operating income and 43% year-over-year increase in non-GAAP operating income. But as Sheng mentioned, this is just the beginning for us. The global mobile internet industry as a whole is due and incomplete. We continue to see significant opportunities in the global mobile space. Looking ahead we will continue to invest decisively in building up our overseas capability. Fixed data analytics and mobile ad technology in order to further support our business growth in the future. Now I will walk you through the details of our financial performance. All financial numbers are in RMB unless otherwise noted. Total revenue grew 129% year-over-year and 30% quarter-over-quarter to a record high of RMB831 million in the quarter. Mobile remains the key driver of our growth driven by ongoing strong demand for our mobile advertising services both domestically and overseas. Mobile revenues surged 634% year-over-year and 52% quarter-over-quarter RMB560 million in the quarter contributed 64% of our total revenue up from 20% last year. Most notably, having begun only one year ago overseas revenues now accounts for 50% of our total revenues and 77% of our mobile revenues. By segments, revenues from online marketing services for the second quarter was RMB752 million, an increase of 166% year-over-year and 34% quarter-over-quarter. The increase was primarily driven by strong demand for our mobile advertising solution especially in the overseas market. Mobile advertising business already accounts for 58% of total revenues…

[Operator Instructions] And the first question comes from Alvin Jiang with Morgan Stanley.

Hi, good evening Fu Sheng, Andy, and Helen, thank you for taking my questions. Congratulations on a strong quarter. I have two questions. The first question is on your investment plan in the second half of 2015 and also the investment plan in 2016, because in the last two quarters, I think we are doing better on margins than what we expected or we guided, so do we still hold at our guidance for full year zero profit? And my second question is on the revenue growth. Can you give us some color on how big is the organic revenue growth and how big is the impacts from those acquisitions?

So, Mr. Fu would like to answer the first part of your questions and then I will answer the second part of your question. Regarding our margins, yes, the margins for our quarters were than expected and as we have mentioned, we have a pretty aggressive plan to invest in - to benefit this year to acquire user. Even though the overall expenses or the cost of user acquisitions globally have been increasing, but we are very cautious and very careful in terms of how we spend our marketing dollar. And so I think if you think about what we have forecast, we will have guide to investor or probably worst case scenario, and again as we have mentioned before still possibly – was never our strategy, I guess user acquisitions will continue to be our focus but it may not be as low as we have previously in terms of margin. And the second part of your question regarding organic growth, as I mentioned to you on our prepared remarks, MobPartner's account for slightly more than 5% of revenues in the second quarter. So, it's more than 95% of our revenue comes from organic growth is definitely the primary driver for our revenue growth.

Okay.

So if you look at our quarter, our revenue grew - total revenue grew 129% year-over-year and as we mentioned MobPartner accounts for about 5% of that contribution in the second quarter.

Got it. Thank you.

Thank you. And the next question comes from Evan Zhou with Credit Suisse.

Hi, good evening Fu Sheng, Andy. Two questions, so questions regarding the product update. If you could provide some colors on how - I know you break down by products and what kind of the monetization contribution by some products and your growth rate by product especially the flagship Cheetah Mobile, Clean Master. And also if you have some major long-term plan for the product update in the next coming quarters will be very helpful. Thank you.

So if you look today, CM Clean Master is still our flagship product and still growing at very robust pace. Of course if you look at analytics products CM Security it’s also growing at a very fast pace right now. But in term of absolute size, you still have some distance from the size of Clean Master. So if you think about this, like we have to remind people that our MAU our monthly active user is defined on per device basis, so one device would have mobile application. So it's not so easy to say, like which one product has for how many and they use, but still if you look at the overall picture, our team still have the largest penetration only close to - yes more than 60% of our users would have same number. So if you look at our modernization on the other hand, we only have to go out from a single product monetization strategy which we never want to a very diversified monetization revenue stream coming from different products. In fact if you look at Clean Master is no longer the largest contributor to our mobile monetization. So in term of our product development, certainly we have a very good plan for new product development and we do expect potential nice price in term of our product development side. But if you look at our product layers today, you will say that because of our two applications like Clean Master, CM Security, Battery Doctor we only have layer products like CM Launcher, CM Block, and Lockers product that are very good growing also very nice product. So if you look at our on a game function side, last week we launched a game called Piano Tiles 2 right, and that product is right now is probably one of the top games in a lot of countries. And that I think is a fair percentage in term of direction where we want to go with sort of product and game. Another example is that, we have an ingoing muster for a small demand team - and that team the above launch recently and have one point, what's number one app in the U.S. and still today it’s still the top 10 apps in US. So if you look at those two, they're sort of perfect example of the products that we made in terms of product diversification and also building up a ecosystem for our product. So if we look at our all organic involved games and products, as well as the teams that we have invest in Tencent and other software, I think by next year we will probably see some nice prices coming from those efforts and also we’ll have more good news for you guys next year.

Thank you.

Thank you. And the next question comes from Henry Guo with Summit Research.

Hi, thanks for taking my question. Very quick one on the Cheetah Mobile ad platform. So I think you guys have launched platform - so can you just provide some color in terms of the traction over there and also do you guys see, I mean for example by the end of this year what portion of the mobile advertising revenue and mobile traffic can really come from this Cheetah Mobile ad platform. Thank you.

So let me translate question into Chinese first. So we have launched our mobile ad platform network for almost two months now. It's still pretty early for the development cycle. If you look at Facebook and other ad network, they're both in place for years now. So, we know where we want to go and what we need to do for our mobile ad network and we’ll continue to invest and focus on that. But I think it's too early to talk about the progress that is going. As a late comer to the low affecting industry, we got I think a very cooperative strategy. We like to cooperate with other large FA network and develop a differentiated strategy to supplement that. So that’s how we look at mobile network platform development.

Great, got it. Thank you.

Thank you. And the next question comes from Jeff Hao with China Merchants Securities.

Thank you for taking my question. So, I have two questions. The first question is about the company focuses, competition. So, as noticed the competition on the two apps in the overseas market is still very heavy. For example from other Chinese companies such as Qihoo, so I just wondering once the management start on the outlook of the comparative landscape, especially if you look at the 2016, do you think the competition was due being very heavy like this year? And then my second question is about the other income item in the income statement. Just wondering where does that come from? Thank you.

One clarification first, I think when you look at the 360 Security, the product is actually not been owned by 2 or 360, it's sort of by the product and license agreement with another company. So, they're not - In terms of another competitor, from the data that we have seems - monthly active users have actually declined, actually have not increased at all. So again as we have mentioned, one thing to look at the number of download in the scenario to look and then the monthly active user. And so I think these two are very early stage of results, and they spend a lot of money in terms of channels and to acquire downloads installation. But I think from our point of view that is not something that's useful. So, if you look at overall updates, even though sometimes you would see the download number may go up, it may go down during the quarter, but the overall size of those competitors is been competitive in terms of total user data and advantage is that we also have a lot of organic download. So, one finally, you would notice that our company have moved from a single product companies to a company down with a diversified portfolio of products and also we are in the process of moving to what we call a ecosystem environment. So, I think we are a few steps ahead of our competitors and what they're doing right now as we can see have been on our overall download number and our overall monthly active users. So actually the competitors you mentioned not the one that keep us from sleeping, but we are thinking in terms of moving ourselves from a multi based application developer to monetization and now we are - how can we move that to a platform and then to your ecosystem that can sustain our long term growth.

The second question, I will answer the second question which is about our added income. And so you look at our income slide, I think that's mostly coming from some of the investments gains that we have. As you can see from time-to-time we may have impairments or gains from our investments and this quarter we have about 30 million of investment gains. You would also notice that we also have impairments for our investments which mostly relate to our lottery business that we acquired last year. So, that's how the gain is, if you look at half quarter, there are some gains some impairments for those investments. That's not a big deal

[Operator Instructions] And our next question comes from Wendy Huang with Macquarie.

So my first question is, many related to your different marketing channels, so can you elaborate on what kind of channels that you're using to acquire the new users and how is the - how effective are those channels to actually convert the user traffic to a sticky traffic on our own platform. And also can you provide more details about your collaboration with Google and Tencent that you mentioned in the prepared remark. The second question is about, it's related to the R&D depreciation. So what is Cheetah's exposure to that. As far as what we're seeing, you currently have 50% of revenue coming from overseas, so if the management can provide some color on your business sensitivity to the currency changes that will be helpful as well. Thank you.

So, we've spent quite money on customizing, but - from our company perspective, the most important metric for us is actually our retention rate and monthly active users was this total download number. So if you look at our monthly active users and the trend there, you'll notice that we probably are doing much better than our adequate. And you also noticed that, most other competitors would only total user number, but for us and we use most product for us and we’re very much better sensitive to our user retention. So and then if you look at when we place our advertising - when utilized our user through channel. We also pay very close attention to the quality of the channel in terms of retention rate, in terms of conversion rate. And in fact we also have quickly expanded our disciplined channel beyond Google Play. In fact we have signed up more than 70 global smartphone manufacturer OEM to help us distribute our application. So those are experienced and channel strategy. So obviously other advertising platform are very key point partners for us in terms mobile market strategy. And so we pay a lot of attention to that especially Facebook, Google, and Tencent. And if you look at in China for example, Tencent moves was in quarter one of the highlights for the company was mobile typing performance so we have a good cooperation with Tencent as well. Well and then if you look at an overseas market, our cooperation with Facebook rather have got some press, thanks to the management - on the first quarter earnings call this year. We’re also - we have a cooperation with Google, we also were the early participants for ad word on mobile search area. So, in regards to your second question regarding RMB - financial performance, as we mentioned 50% of our revenue now comes from overseas market and obviously we had some far revenue and we also have the special costs that's also in U.S. dollars. And so the net impact for RMB is not as significant for our financial performance. And I think we potentially have little bit profit on the topline and we’ll be negative on the cost side. But net-net I think it’s been neutral for us.

I think our revenue from overseas market have increased continually maybe in terms of percentage of our revenue - total revenue overseas revenues were increased.

So if you look at our overseas revenues, I think our expectation is that it will continue to increase as a percentage of our overall revenues. And at the same time again like as we mentioned so that would be increasing main point to our overall company operations. So as we mentioned before our ultimate goal is to match our revenues start that with our user base. And I think potentially we’ll be able to exceed that in terms of our overseas revenue as a percentage of our total revenues.

Thank you.

Thank you. And the next question comes from Thomas Chong with Citigroup.

Hi good evening. Thanks for taking my questions. I have three questions. The first question is about balance sheet, - expect the cash and cash equivalents is about RMB113 million. So I'm just wondering whether Cheetah Mobile is thinking of about - new capital to support the fast growth of your business. And my second question is about MobPartner's. I understand that it contributes about 5% of your total revenue, but any color about the long gap earnings contribution from MobPartner.

Thomas thanks for your question. I think first I think we need to clarify that. For the second quarter our cash short-term investment and cash equivalent was actually higher than the number that you have mentioned. In fact if you look at our press release and also our financial statements, you will notice that our – in the second quarter our total cash and short-term investment and cash equivalent were RMB1.3 billion which is about US$210 million. So we have a lot of liquidity that more than sufficient to support our investment. And also our company is also - have been generating positive cash flow for the past two years and in fact in the most recent quarter our operating cash flow was very positive more than RMB150 million. So from both in term of cash flow from operation and that also the degree on our balance sheet we have very sufficient liquidity. And then the second question that you have is about our MobPartner contribution to our net income. As we mentioned, MobPartner was about RMB15 million in revenues in the quarter. And it’s obviously as we mentioned June our acquisition, the company is due for scale right now. So we feel money losing operation that is not too negative so the net impact of our overall income is markedly small. The third question that you have is about, yes, Facebook contributions. As we mentioned firstly we do not have the policy to discuss our individual customer or supplier contribution and unless required by the social rule and the reason for that is because we have some special agreement with our final customer, we respect that and also for commercial reason as well. So it's quite harder as we mentioned before Facebook is a very important product for us. We’re currently probably one of their top partners on the Facebook Audience network if not the larger. And so they all contribute a large portion of our revenue, we won’t disclose more detail on that. Thank you.

Thank you. And as there are no more questions at the present time, I would like to turn the call back over to management for any closing comments.

Thank you for joining our conference call today. If you have further questions, please do not hesitate to contact us. Thank you. Bye.

Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.