Good day, and welcome to the Cheetah Mobile First Quarter 2020 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 Helen Zhu, Investor Relations Director of Cheetah Mobile. Please go ahead, ma’am.

With us today are our company's Chairman and CEO, Mr. Fu Sheng; and Mr. Thomas Ren, our company's CFO. Following management's prepared remarks, we will conduct a Q&A section. Before we begin, I refer you to the safe harbor statement in our earnings release, which also applies to our conference call today as we will make forward-looking statements. At this time, I will now turn the conference call over to our Chairman and CEO, Mr. Fu Sheng. Please go ahead, Fu Sheng.

Thank you, Helen. Hello, everyone. Honestly, Cheetah Mobile is a mobile internet business that still faced some headwinds in the first quarter of 2020, due to epidemic as well as suspension of our partnerships with Facebook and Google. While we continue to communicate with Google and Facebook, we have not yet resumed our work with them. As a result, we are having difficulties in acquiring new users and monetizing our traffic in overseas markets. In the first quarter of 2020, revenues from overseas market decreased by 56% year-over-year and 11% quarter-over-quarter. MAUs in overseas markets declined by 33% year-over-year and 40% quarter-over-quarter. Due to the epidemic, our eCPM in China declined significantly in Q1, resulting in 75 year-over-year and 42 quarter-over-quarter decrease of our mobile utility products revenue in the domestic market. Overall, we expect our total revenues to decrease by 49 to 55 year-over-year in the second quarter of 2020 by excluding the impact of deconsolidation facing of LiveMe. In face of these challenges, we have taken measures to sustain our profits, fulfill our cash and build a long-term growth engine. These measures include the following: first, we have streamlined our operations focused on the domestic mobile internet market and offload some non-strategic business such as LiveMe; second, we have continued to optimized our cost and expense structure, especially to our mobile Internet business, including the utility product business and mobile game business; third, in terms of our investment in AI, we are focus on – we will focus our resource on AI-related robotics business in shopping malls; fourth, we have liquidated our equity stakes in other companies, which Thomas will provide some additional color in his part. Our efforts to implement in these four measures have started to payoff. Non-GAAP operating profit for our mobile internet business unit…

Thank you, Fu Sheng, and good day everyone. Thank you all for joining us today. Now, I will walk you through our financial results. Please note that, unless stated otherwise all money amounts are in RMB terms and all growth comparisons are made on a year-over-year basis. As we stated in previous quarters, LiveMe amended its share incentive plan, on September 30th, 2019. As a result, we no longer hold the majority voting power in LiveMe. And have started to deconsolidate LiveMe's financial results, since the fourth quarter of 2019. During the first quarter of 2020, total revenues decreased by 51% to RMB528 million. Excluding the impact of the deconsolidation of LiveMe's revenues, total revenues decreased by 36% in the quarter. Let's now look into our results for each business line, starting with utility products and related services. Revenues from utility products and related services decreased by, 58% to RMB211 million in the quarter. Moreover, during the quarter about 71% of our revenues from utility products were generated from advertising. This decrease was primarily due to the following, first, the decline in our mobile utility product business in overseas markets. Mobile utility product revenue in overseas market decreased by 63% to RMB54 million in the quarter which was mainly due to the suspension of our collaborations with Google on the advertising front, since February 2020. Second the decline in our mobile utility product business, in a domestic market. Mobile utility product revenue in the domestic market decreased by, 75% to RMB62 million in the quarter, which was the result of headwinds in China's online advertising market. Third, the decline in PC-related revenues, PC-related revenues decreased by 60% -- 6% to RMB95 million in the quarter, as the internet traffic in China continued to migrate from PC to mobile devices. Revenues…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Thomas Chong from Jefferies. Go ahead.

[Foreign Language] Thanks management for taking my questions. My first question is about the Q2 revenue guidance. Can management comment about the business trend for each segment on a monthly basis? And how we should expect the outlook in the second half? And my second question is about the momentum in terms of the recovery in domestic and overseas market. Given the coronavirus in terms of the timing and the recovery is different in China and overseas, how we should think about the impact to our business line going forward? Thank you.

Okay. Thomas, I'll answer your first question, and Fu Sheng will answer your second question. So the first part of your question is about the – to provide more color on Q2 guidance. So normally, we don't provide breakdown for revenue guidance. And also, we don't provide monthly revenue guidance as well. But you can see, our Q2 revenue guidance is between 340 million to 390 million compared to 530 million last quarter. So the decrease will mainly come from the utility business and gaming business being affected by Google's termination of collaboration since late February. And for the Q2 AI revenue, we expected it to be stable compared to Q1. Although, the impact by COVID-19 to supply chain and sales is recovering step-by-step, we do need some more time to pick up the AI revenue. For the second half outlook, I would say that, because of the impact by Google's termination of collaboration for our utility and gaming business i.e. our mobile internet business, for short term we may expect some downturns on revenue side, mainly coming from overseas markets. While the domestic utility revenue has been stabilized, but we do think while we reconstructing our revenue composition then we are experimenting monetization model for AI new retail mentioned in our prepared remarks. AI and other revenue will contribute more sizable part, if the experiment is successful during the second half of this year. I hope this answers your question.

Thank you.

[Foreign Language]

Yeah. Let me translate the first part about the overseas market. So although, we are still trying to communicate with Google and Facebook, we still have no clear answer from both companies how we – what we can do to resume our collaborations. So this cost us that we cannot upgrade our products to further serve our huge user base. So now for the overseas market we are actively looking for some opportunities for asset sales and we are also focusing our business domestic market.

Okay. Let me translate about the domestic market. So on the PC side we are changing our model from free plus advertisement model to free plus premium subscription model, which we believe is more acceptable by all the PC users. Now our revenue on the domestic mobile side is declining. Our PC revenue is stabilizing currently. And we are also as we mentioned we also trying to replicate our model -- user subscription model from PC to mobile.

Got it. Thank you.

[Operator Instructions] Our next question is from Vicky Wei from Citi. Go ahead.

Even in management thanks for taking my questions. I have two small questions. So would management provide some color on the progress on the strategic focus on mobile internet market in China? And my second question is about margin trends. Would management provide on the gross margin trend after deconsolidation of LiveMe in the future? Will there be any room to improve? Thank you.

So I will answer your question. So for the first part in your question, I believe we have mentioned for -- our domestic utility business as we mentioned in the prepared remarks, although, the revenue is decreasing due to the epidemic and our sale adjustment at [indiscernible] it user experience. Our revenue has been stabilized and we have also changed the revenue composition by adding premium member subscription model. So based the paying user account daily subscription revenue has reached the record high. So -- and also as we mentioned just now we will also replicate the same subscription model from PC to mobile. Now for the domestic gaming business we will be focusing key titles to ensure our profitability, while we also selectively and carefully choose new title if there is any available. So I hope this answers your first question. So for your second question about gross profit ratio, actually our gross margin trend it really depends on our revenue compensation. So normally, we have higher gross margin for mobile internet business by utility and gaming business. And we believe for mobile internet business, the gross profit ratio will be stabilized after deconsolidating LiveMe. Now for AI business because it includes robotic sales or consumer product sales, the margin will be lower than traditional -- Internet business. So if we are increasing the portion of AI revenue later, the gross margin might be lower than the current level because of the different revenue compensation. Yes. Hope that answers your question.

Thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you all for joining us today. If you have any further questions, please do not hesitate to contact us. Thank you. Bye-bye.

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