Cheetah Mobile Q3 2024 Earnings Call Transcript

There are 5 speakers on the call.

Operator

Good day, and welcome to the Cheetah Mobile Third Quarter 20 24 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I would now like to turn the conference over to Helen Jing Zhu, IR for Cheetah Mobile.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to Cheetah Mobile's Q3 2024 Earnings Conference Call. With us today are our company's Chairman and CEO, Mr. Fu Sheng and our Director and CFO, Mr. Thomas Jin.

Speaker 1

Following management's prepared remarks, we will conduct the Q and A section. Please note that the CEO's script will be presented by an AI agent. Before we begin, I refer you to the Safe Harbor statement in our earnings release, which also applies to our earnings conference call today as we will make forward looking statements. At this time, I will now turn the call over to our CEO, Mr. Fu Sheng.

Speaker 1

Please go ahead, Fusheng.

Speaker 2

Hello, everyone. Thank you for joining us today. Qida Mobile once again achieved accelerated revenue growth in Q3, driven by our service robotics and Internet businesses. This consistent growth results from our strategies to expand the use cases of our wheeled service robotics and expand into overseas markets, as well as the resilience of our legacy intranet business. Industry demand for service robots continues to rise, especially in the overseas markets and in restaurants, hotels, factories and offices.

Speaker 2

Business owners are using robots more often to help their staff and improve efficiency. In the past weeks, I visited many customers and partners in Europe and associations Asia. In fact, I am still in Europe today meeting with our local customers to further strengthen our presence, building a strong local distribution network is very important for our global expansion as it was set as a part from our peers. That's why I have spent significant effort on this initiative. During my conversations with local partners, I learned that our robots are helping themselves leave shortages.

Speaker 2

Some customers in Europe shared that using Cheetah's robots have reduced employee absences and turnover. Meanwhile, some Japanese customers told us our robots are much more reliable than other players offerings and are switching to our products. In September, we launched a new robot for factory and fulfillment center use. This robot can autonomously deliver goods to move low payload items from transit warehouses to assembly lines. We are currently optimizing the product to better meet the needs of customers in overseas markets.

Speaker 2

This highlights the importance of receiving feedback and input from local partners. We believe this product will become an important part of our service robotics business in 2025. While the robotics industry is still in its early stages, it will be a $1,000,000,000,000 market. Robots are becoming essential hoppers for humans and will happen in developed markets first. And LMs will speed up this growth by enabling robots to do more tasks and making them easier to deploy than ever before.

Speaker 2

Through our conversations with investors, we've noticed a lot of interest in how LMs are making our robots smarter and driving steady revenue growth. Today, I will share what we've achieved so far with LMs in our products and what's coming next. First, we are using LMs to improve the way our service robots interact through voice thanks to our strong far field voice recognition. Our robots already hear users well. Now with LMs, we understand users' questions more clearly and respond better, making the overall experience much smoother.

Speaker 2

For instance, in restaurants, our robots don't just deliver food during busy hours, they can also help attract customers, boosting the return on investment for restaurant owners by taking on more roles. And because LMs break down language barriers, we are expanding these voice enabled robots to international markets. We are also working on HNU is a system that lets customers set up tasks for robots using voice prompts. For example, you can tell a robot to check each table at 2 pm to see if anyone wants to order more food before the kitchen closes at 2:30 pm, the robot will go to each table, skip the ones with our customers and even allow people to place orders if the ordering system is late without ALMs. This kind of functionality would be nearly impossible or would require writing a lot of complicated code.

Speaker 2

Secondly, we are using multi modality models to improve our robot indoor autonomous driving. One area that we are working is to enable our robots to map out the large factory as they move and look around once the map is ready. Our MV team can mark key locations and the robots can then navigate the factory on their own to deliver goods. Factory owners want to change these key locations. They can easily update the map whenever needed.

Speaker 2

Based on our initial testing, thanks to LMs, the time it takes to set up our robots can dramatically reduce from about 2 days to just 2 hours. We are already using vision based autonomous driving technology in some cases and plan to expand it further. For instance, our robots use vision based autonomous driving technology to avoid keyboard and obstacles and understand their surroundings. Over time, we aim to achieve an end to end navigation system. This will allow our robots to handle more complex environments entirely on their own.

Speaker 2

3rd, we're adding robotic arms to our robots to help them do specific jobs. Some of these arms can press buttons, which is useful for delivering things between floors, in particular in the overseas markets, where business owners are reluctant to adjust the elevator access control systems due to security concerns. Others can pick up and sort items, which is great for use in factories. These arms are powered by on device multi modality models, making it easier to automate routine tasks. When it comes to LMs, we use advanced models through API calls to support some of the features we have discussed.

Speaker 2

At the same time, we are also developing our own models. In November, we launched an 8x7000000000 mixture of experts model covering many languages, including Chinese, English, Korean and Japanese. We have made it open source and use it to power our robots, especially the agent OS features. Additionally, we have trained smaller own device models to support indoor autonomous driving and control robotic arms. Turning to ALM based applications.

Speaker 2

We recently introduced AirDx, an eye based data service platform, assisting enterprises in data and building prompts for their LM based application. ARTS was built on top of our insights into developing LMs and LM based apps. So far, we have received positive customer feedback on our LM based application and we will continue to enrich our portfolio. Our goal is to offer relatively standardized SaaS products, allowing businesses to use LMS gain efficiency. Before handing the call over to Thomas for the financial highlights, I want to stress this Cheetah Mobile is in a good position to tap into the growing markets for service robots and LM based apps We've been years of experience on the PC and mobile phone areas as well as expanding into international markets and we have strong LM expertise.

Speaker 2

We've already made solid progress in growing our revenue and cutting losses. This is just the beginning of Cheetah Mobile's turnaround.

Speaker 3

Thank you, Fusheng. Hello, everyone on the call. Please note that unless stated otherwise, all money amounts are in RMB terms. In Q3, 2024, our financial results demonstrated solid execution on 2 strategic objectives. Number 1, accelerating revenue growth driven by both the sales of robots and the legacy internet businesses and number 2, enhancing our operational efficiency to reduce our operating losses sequentially.

Speaker 3

In the Q3 of 2024, our total revenues increased 16.6% year over year, marking the 2nd consecutive quarter of accelerating revenue growth compared to 11.6% in Q1 and 12.3% in Q2. Our view based service robots continue to be a key driver of growth. Additionally, our legacy Internet business remains resilient, achieving solid revenue growth and margin expansion. On profitability, we made further progress. Non GAAP gross profit rose 14% year over year and 7% quarter over quarter to RMB 131 1,000,000 with non GAAP gross margin expanding to 68% in the 3rd quarter from 65% in Q2 and 63% in Q1.

Speaker 3

Non GAAP operating loss was RMB61 1,000,000 in the quarter, reduced from RMB63 1,000,000 in Q2 RMB66 1,000,000 in Q1. We continue to focus on managing costs and expenses. Notably, we consolidated the teams of Cheetah and Beijing Orion Star, streamlining staff and services with overlapping functions. For example, in Q3, we reduced unpaid costs and club costs, professional and legal service fees, and certain labor costs related to G and A and operations. We are also decisively investing in AI, using AI to enhance our service robotic business.

Speaker 3

For example, our non GAAP R and D expenses increased 25% quarter over quarter in Q3 and now about 60% of our revenues are invested in R and D. As Fu Sheng has said in the past, while we focus on developing products that generate immediate revenue and profits, we remain attentive to the latest technological advancements. Another highlight is the continued strength of our legacy internet business, which grew 26% year over year and 18% quarter over quarter. Operating margin excluding share based compensation expense for this segment improved to 10% from 6% last year. As of September 30, 2024, we maintained a strong balance sheet with cash and cash equivalents of $1,831,000,000 or US218 million dollars long term investments of about US886 million dollars or US126 million dollars In closing, we are making solid progress in expanding revenues and narrowing losses.

Speaker 3

We are confident in our investments in AI because we see the significant market potential of integrating our arms into our service robotics business. At the same time, we remain disciplined in reducing losses and driving efficiency in our AI operations. Thank you. This concludes our prepared remarks. Operator, we are now ready for the Q and A session.

Operator

Thank you. And we will now begin the question and answer session.

Speaker 1

Everyone, for today's call, management will answer questions in Chinese and an AI agent will translate management's comments into English in another line. Please note that the translation is for convenience purpose only. In the case of any discrepancy or management statement in Chinese works well. If you are unable to hear the Chinese translation, I think our transcript in English will be available on our IR website as soon as we can. Operator, we are now ready to take questions.

Speaker 1

Thank you so much.

Operator

Thank you. Moving the first question and it's from Thomas Chong at Jefferies. Please go ahead.

Speaker 4

Thanks management for taking my question and good evening. My question is about Cheetah Global Business. In 2025, what are our goals in terms of volume, revenue growth and revenue contribution from the robot business? Thank you.

Speaker 1

Thank you. Operator, can we move to the next question please?

Operator

Yes. Our next question comes from Vicky Wei at Citi. Please go ahead.

Speaker 1

Thank you. Thank you. Please move to the next question please.

Operator

Thank you. Our next question comes from Yanlong Chen with CITIC Securities. Please go ahead.

Speaker 1

Operator, please move to the next question please.

Operator

Thank you. Our next question comes from Yani Su with Haitai Securities. Please go ahead.

Speaker 1

Operator, please move to the next question please.

Operator

Thank you. Our next question comes from Suri Yin with CLAM Securities. Please go ahead.

Speaker 1

Operator, please move to the next question. Thank you.

Operator

Thank you. Our next question comes from Yi Zhu with Founder Securities. Please go ahead.

Speaker 1

Operator, please move to the next question, please. Thank you.

Operator

No problem. And our next question comes from Binxiang Wu with TF Global. Please go ahead.

Speaker 1

Thank you. Operator, please move to the next question.

Operator

Thank you. Our next question comes from Alex Wong with SDICS International. Please go ahead.

Speaker 1

Thank you. Please move to the next question please.

Operator

Thank you. Our next question today comes from Yungping Biao with Gautai Junan Securities. Please go ahead.

Speaker 3

Hi, management. Thanks for taking my question. And we have noticed that you have large amount of net cash on your balance sheet. So do you have any plan of dividend distribution or share repurchase in the future? Thank

Speaker 2

you.

Speaker 1

Operator, please move to the next question.

Operator

Thank you. Our next question comes from Gigi Zhao with GS Securities. Please go ahead.

Speaker 1

Thank you. Operator, please move to the next question.

Operator

Thank you. Our next question comes from Joanna Ma with CMBI. Please go ahead.

Speaker 1

Operator, please move to the next question please.

Operator

Thank you. Our next question comes from Chengdu Li with William Securities. Please go ahead.

Speaker 1

Thank you. Operator, if we have no further questions, we can just conclude the Q and A section.

Operator

We have no further questions, ma'am.

Speaker 1

Okay. And so thank you so much for joining Cheetah Mobile's Q3 2024's 20 24 earnings conference call. If you have any further questions, please do not hesitate to reach out to our IR team. Thank you so much. Bye bye.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Earnings Conference Call
Cheetah Mobile Q3 2024
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