Cheetah Mobile Inc. Reports First Quarter 2014 Unaudited Financial Results 1Q14 Total Revenues Up 131.6% YoY and 17.3% QoQ to RMB315.7 Million 1Q14 Online Marketing Services Revenues Up 97.2% YoY and 9.3% QoQ to RMB232.2 Million 1Q14 IVAS Revenues Up 1533.9% YoY and 71.0% QoQ to RMB71.8 million PR Newswire BEIJING, June 2, 2014 BEIJING, June 2, 2014 /PRNewswire/ -- Cheetah Mobile Inc. (NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile internet company that provides mission critical applications to help make the internet and mobile experience speedier, simpler, and safer for users worldwide, today announced its unaudited financial results for the first quarter ended March 31, 2014. The Company will hold a conference call at 8:00 p.m. Eastern Time on June 2, 2014. Dial-in details are provided at the end of the release. First Quarter 2014 Highlights oTotal revenues increased by 131.6% year-over-year and 17.3% quarter-over-quarter toRMB315.7 million ($50.8 million) from RMB136.3 million in the prior year period and RMB269.2 million in the prior quarter. oOnline marketing services revenues grew 97.2% year-over-year and 9.3% quarter-over-quarter to RMB232.2 million (US$37.4 million) from RMB117.8 million in the prior year period and RMB212.5 million in the prior quarter. oInternet value-added services ("IVAS") revenues increased by 1,533.9% year-over-year and 71.0% quarter-over-quarter toRMB71.8 million (US$11.6 million) from RMB4.4 million in the prior year period and RMB42.0 million in the prior quarter. Key Operating Metrics oTotal mobile user installations globally increased by 44.9% quarter-over-quarter to 502.1 million as of March 31, 2014 from 346.6 million as of the prior quarter end. oMobile monthly active users ("Mobile MAUs") increased by 385.6% year-over-year and 33.9% quarter-over-quarter to 222.5 million as of March 2014 from 45.8 million in the prior year period and 166.2 million in the prior quarter. oMobile MAUs from overseas markets were 63.0% of total mobile MAUs in March 2014, compared with 53.0% in the prior quarter. oMonthly active users of Duba.com Personal Start Page increased by 43.0% to 54.3 million in March 2014 from 38.0 million in the prior year period and 46.8 million in the prior quarter. Mr. Sheng Fu, Cheetah Mobile's Chief Executive Officer, stated, "We are pleased to see an exciting start in 2014 and to report solid operating and financial results for our first quarter of the year. We are also very proud that as of March 2014, we were again the publisher of the #1 mobile application in the Tools category on Google Play worldwide and the #2 internet security software provider in China. Our mobile applications continued to gain popularity worldwide, adding new users at a rapid pace. Mobile MAUs increased 385.6% year-over-year to 222.5 million with approximately 63.0% of mobile MAUs coming from overseas markets, mostly the US and Europe. Looking forward, we plan to further solidify our global market position, and capitalize on the increasingly global and mobile-centric internet market by further growing our mobile user base, deepening our global penetration, enhancing our mobile monetization capability and pursuing strategic investments and acquisitions to expand our product portfolio and global service capabilities." Mr. Andy Yeung, Cheetah Mobile's Chief Financial Officer, commented, "Despite weak seasonality, we delivered the eighth consecutive quarter of revenue growth, with revenues having grown 17.3% sequentially and 131.6% year-over-year to RMB315.7 million. In addition to strong top-line growth, in the first quarter, we are also seeing encouraging results in our mobile business. While mobile monetization is still in its early stage, mobile already accounted for 17.0% of our revenues in the quarter, up from 1.6% a year ago and 11.6% in the fourth quarter of 2013. In 2014, we will continue to invest in our mobile businessand step-up our efforts to capture exciting growth opportunities in the global mobile internet market." First Quarter 2014 Financial Results REVENUES Total revenues for the first quarter of 2014 increased by 131.6% to RMB315.7 million (US$50.8 million) from RMB136.3 million in the prior year period. This increase was primarily due to the increase in revenues from online marketing services and IVAS. Revenues generated from our mobile business increased to RMB53.7 million (US$8.6 million) from RMB2.1 million resulting from the increased acceptance of the Company's mobile marketing services and the growth of its mobile gaming services. Mobile revenues as a percentage of total revenues for the first quarter was 17.0% compared to 1.6% in the prior year period. oRevenues from online marketing services increased by 97.2% to RMB232.2 million (US$37.4 million) in the first quarter of 2014 from RMB117.8 million in the prior year period. This increase was due to growth in marketing revenues from key online marketing customers driven by significant growth in our user traffic on the Company's online marketing platforms. oRevenues from internet value added services ("IVAS") increased significantly by 1,533.9% to RMB71.8 million (US$11.6 million) in the first quarter of 2014 from RMB4.4 million in the prior year period. This increase was primarily driven by the increase in the number of PC and mobile games the Company published and the increase in the number of monthly paying users. oRevenues from internet security services and others decreased by 17.2% to RMB11.7 million (US$1.9 million) in the first quarter of 2014 from RMB14.1 million in the prior year. This decrease was primarily due to the Company ceasing to promote subscriptions services to paying users in a strategic reorientation which started in 2011, resulting in a decrease in the number of paying customers. COST OF REVENUES AND GROSS PROFIT Cost of revenues increased by 203.8% to RMB70.4 million (US$11.3 million) in the first quarter of 2014 from RMB23.2 million in the prior year period. The increase in cost of revenues was mainly driven by higher bandwidth and IDC costs as well as sharing and content costs. Bandwidth and IDC costs increased as a result of the growing user base and user traffic. The increase in sharing and content costs was primarily associated with the strong performance of licensed mobile game titles. Gross profit increased by 116.8% to RMB245.3 million (US$39.5 million) in the first quarter of 2014 from RMB113.1 million in the prior year period. Gross margin was 77.7% in the first quarter of 2014 compared with 83.0% in the prior year period. OPERATING INCOME AND EXPENSES Total operating expenses for the first quarter of 2014 increased by 148.8% to RMB226.0 million (US$36.4 million) from RMB90.9 million in the prior year period primarily due to an increase in research and development expenses, selling and marketing expenses, and general and administrative expenses. oResearch and development expenses increased by 101.0% to RMB77.8 million (US$12.5 million) from RMB38.7 million in the prior year period. This increase was primarily due to the expansion of research and development personnel, mainly to further develop the Company's mobile business and cloud-based analytics engines. oSelling and marketing expenses increased by 187.0% to RMB111.6 million (US$18.0 million) from RMB38.9 million in the prior year period. The increase was primarily due to expenses incurred in further promoting Cheetah's mobile applications, in particular Clean Master. oGeneral and administrative expenses increased by 176.3% to RMB36.6 million (US$5.9 million) from RMB13.3 million in the prior year period. This increase was primarily due to an increase in staff costs and professional service fees. Operating profit in the first quarter of 2014 was RMB19.3 million (US$3.1 million) compared with RMB22.3 million in the prior year period. Operating margin was 6.1% compared with 16.4% in the prior year period. Adjusted operating profit increased by 20.9% to RMB33.3 million (US$5.4 million) in the first quarter of 2014 from RMB27.6 million in the prior year period. For the first quarter of 2014, share-based compensation expenses were RMB 14.1 million ($2.3 million) compared with RMB 5.3 million in the first quarter of 2013. Adjusted operating margin decreased to 10.6% in the first quarter of 2014 from 20.2% in the prior year period. NET INCOME Net income decreased by 35.9% to RMB18.7 million (US$3.0 million) in the first quarter of 2014 from RMB29.2 million in the prior year period. Net margin decreased to 5.9% from 21.4% in the prior year period. Adjusted net income decreased by 4.8% to RMB32.8 million (US$5.3 million) from RMB34.4 million in the prior year period. Adjusted net margin decreased to 10.4% in the first quarter of 2014 from 25.3% in the prior year period. NET INCOME PER ADS Diluted earnings per ADS in the first quarter of 2014 decreased to RMB0.16 (US$0.02) from RMB0.27 in the prior year period. Adjusted diluted earnings per ADS in the first quarter of 2014 decreased to RMB0.27 (US$0.04) from RMB0.32 in the prior year period. INITIAL PUBLIC OFFERING On May 13, 2014, the Company completed its initial public offering ("IPO") of 12,000,000 American depositary shares ("ADSs"), representing 120,000,000 ClassA ordinary shares, at $14.00 per ADS. Concurrently with the IPO, Kingsoft Corporation Limited, Xiaomi Ventures Limited and Baidu Holdings Limited subscribed for 7,142,857, 14,285,714 and 14,285,714 ClassA ordinary shares of the Company, respectively, at a price of US$1.40 per share, for a total of $50 million. On May 30, 2014, the Company was notified that the underwriters for the IPO had elected to exercise the over-allotment option to purchase an additional 1,800,000 ADSs, representing 18,000,000 Class A ordinary shares, from the Company in full. CASH AND TIME DEPOSITS BALANCE As of March 31, 2014, the Company had cash, cash equivalents, and short-term investments of RMB496.1 million (US$79.6 million). SHARES OUTSTANDING As of March 31, 2014, the Company had a total of 1,225,456,652 ordinary shares and preferred shares outstanding. Immediately after the closing of the over-allotment option, the Company will have a total of 1,399,170,937 ordinary shares outstanding, comprised of 173,714,285 Class A ordinary shares and 1,225,456,652 Class B ordinary shares. BUSINESS OUTLOOK For the second quarter of 2014, the Company expects its total revenues to be between RMB335 million and RMB345 million, representing a year-over-year growth of approximately 111% to 117%. The forecast reflects the Company's current and preliminary view, which is subject to change. Conference Call Information Company will hold a conference call on Monday, June 2, 2014 at 8:00 pm Eastern Time or Tuesday, June 3, 2014 at 8:00 am Beijing Time to discuss the financial results. Listeners may access the call by dialing the following numbers: United States: +1-877-870-4263 International Toll Free: +1-412-317-0790 China Domestic: 4001-201203 Hong Kong: +800-905945 Conference ID: #10047298 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 RMB6.2164 to US$1.00, the noon buying rate in effect on March 31, 2014 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York. 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 approximately 362 million monthly active users in March 2014. Its mission critical applications, including Clean Master, CM Security, Battery Doctor and Duba Anti-virus, help make the internet and mobile experience speedier, simpler, and safer for users worldwide. Cheetah Mobile is the second largest internet security software provider in China by monthly active users as of March 2014, according to iUserTracker of iResearch, and the publisher of Clean Master, the #1 mobile app in the Google Play Tools category worldwide by monthly downloads in March 2014, according to App Annie. The Company also provides various platform products such as Duba.com, Cheetah browser, game centers, and mobile app stores to provide multiple user traffic entry points and global content distribution channels for its business partners. Safe Harbor Statements 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 certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements include, but are not limited to, statements about: 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 from 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 adjusted operating profit, adjusted operating margin, adjusted net income, adjusted net margin and adjusted diluted earnings per ADS, which are non-GAAP financial measures. Adjusted operating profit and adjusted operating margin reflects operating profit excluding share-based compensation costs. Adjusted net income is net income excluding share-based compensation costs. Adjusted net margin is adjusted net income as a percentage of total revenues. Adjusted diluted earnings per ADS is adjusted net income or loss attributable to ordinary shareholders divided by weighted average number of diluted ADS. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation costs adds 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 measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation costs, 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 similar 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 table captioned "Cheetah Mobile Limited Unaudited Reconciliations of GAAP and Non-GAAP Results" at the end of this release.  Adjusted operating profit is a non-GAAP financial measure, which is defined as adjusted operating profit excluding share-based compensation.  Adjusted operating margin is a non-GAAP financial measure, which is defined as adjusted operating profit as a percentage of total revenues.  Adjusted net income is a non-GAAP financial measure, which is defined as net income excluding share-based compensation costs.  Adjusted net margin is a non-GAAP financial measure, which is defined as adjusted net income as a percentage of total revenues. ADS is American Depositary Share. Each ADS represents 10 Class A ordinary  shares of the Company. Diluted earnings per ADS is net income attributable to ordinary shareholders divided by weighted average number of diluted ADS. Adjusted diluted earnings per ADS is a non-GAAP financial measure, which  is defined as adjusted net income attributable to ordinary shareholders divided by weighted average number of diluted ADS. Cheetah Mobile Inc. Condensed Consolidated Balance Sheet (in '000, except for per share data) As of December 31, March 31, 2014 March 31, 2014 2013 RMB RMB US$ (Audited) (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents 530,536 438,789 70,401 Short-term investments 55,780 57,326 9,198 Accounts receivable 100,428 143,568 23,034 Prepayments and other current 63,037 52,536 8,429 assets Due from related parities 12,868 12,909 2,071 Deferred tax assets 1,913 896 144 Total current assets 764,562 706,024 113,277 Non-current assets: Property and equipment , net 31,326 32,834 5,268 Intangible assets, net 32,850 32,340 5,189 Goodwill 52,819 53,176 8,532 Long-term investments 12,054 68,958 11,063 Due from related parities - 37,177 5,965 Deferred tax assets 7,178 6,947 1,115 Other non-current assets 8,804 9,436 1,514 Total non-current assets 145,031 240,868 38,646 Total assets 909,593 946,892 151,923 LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY Accounts payable 23,439 39,711 6,371 Accrued expenses and other 181,551 178,580 28,652 current liabilities Redemption right liabilities 5,711 1,439 231 Deferred revenue 7,840 21,928 3,518 Due to related parties 31,893 6,103 979 Income tax payable 13,534 22,118 3,549 Total current liabilities 263,968 269,879 43,300 Non-current liabilities: Deferred revenue 2,866 2,254 362 Deferred tax liability 39,206 32,489 5,213 Other non-current liabilities 9,485 9,823 1,576 Total non-current liabilities 51,557 44,566 7,151 Total liabilities 315,525 314,445 50,451 Commitments and contingencies Mezzanine equity: Series A convertible preferred 119,976 119,976 19,249 shares Series B convertible preferred 321,965 321,965 51,658 shares Total mezzanine equity 441,941 441,941 70,907 Shareholders' equity: Ordinary shares 150 150 24 Additional paid-in capital 63,919 79,117 12,694 Retained earnings 74,819 93,518 15,004 Accumulated other comprehensive 13,239 17,721 2,843 income Total shareholders' equity 152,127 190,506 30,565 Total liabilities, mezzanine 909,593 946,892 151,923 equity and shareholders' equity Cheetah Mobile Inc. Condensed Consolidated Statements of Comprehensive Income (in '000, except for per share data and number of shares and ADSs) For the three months ended March 31, December 31, March 31, March 31, 2013 2013 2014 2014 RMB RMB RMB US$ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues 136,311 269,179 315,712 50,787 Online marketing 117,767 212,532 232,192 37,351 services Internet value-added 4,395 42,004 71,810 11,552 services Internet security 14,149 14,643 11,710 1,884 services and others Cost of revenues (a) (23,179) (50,630) (70,417) (11,328) Gross profit 113,132 218,549 245,295 39,459 Operating expenses: Research and (38,684) (58,214) (77,760) (12,509) development (a) Selling and marketing (38,891) (87,012) (111,636) (17,958) (a) General and (13,266) (23,095) (36,649) (5,896) administrative (a) Total operating (90,841) (168,321) (226,045) (36,363) expenses Operating profit 22,291 50,228 19,250 3,096 Other income (expenses): Interest income 1,111 2,549 1,980 319 Changes in fair value of redemption right granted to a - 6,593 3,488 561 non-controlling shareholder Changes in fair value of contingent (94) (425) (437) (70) consideration Changes in fair value of put options - - 332 53 granted to employees Foreign exchange gain 154 (402) (40) (6) (loss), net Other income, net 2,270 220 269 43 Gains (losses) from equity method - 721 (1,547) (249) investments Income before tax 25,732 59,484 23,295 3,747 Income tax benefit 3,421 (33,490) (4,596) (739) (expense) Net income 29,153 25,994 18,699 3,008 Earnings per share Basic 0.03 0.02 0.02 0.00 Diluted 0.03 0.02 0.02 0.00 Earnings per ADS Basic 0.29 0.22 0.16 0.03 Diluted 0.27 0.21 0.16 0.02 Weighted average number of shares outstanding Basic 919,980,149 937,219,852 944,224,593 944,224,593 Diluted 1,068,062,460 1,203,409,240 1,208,937,986 1,208,937,986 Weighted average number of ADSs used in computation Basic 91,998,015 93,721,985 94,422,459 94,422,459 Diluted 106,806,246 120,340,924 120,893,799 120,893,799 Other comprehensive income (loss), net of tax Foreign currency translation (407) (3,087) 3,513 565 adjustments Unrealized gains on available-for-sale - 20,960 969 156 securities, net Other comprehensive (407) 17,873 4,482 721 income (loss) Comprehensive income 28,746 43,867 23,181 3,729 (a) Share-based compensation expenses ('000) For the three months ended March 31, December 31, March 31, March 31, 2013 2014 2014 2014 RMB RMB RMB USD (Unaudited) (Unaudited) (Unaudited) (Unaudited) Cost of revenues 4 2 -2 0 Research and 2,030 4,432 6,029 970 development Selling and marketing 122 2,399 817 131 General and 3,128 2,775 7,237 1,164 administrative Total 5,284 9,608 14,081 2,265 Cheetah Mobile Inc. Reconciliation of GAAP to Non-GAAP Results (in '000, except for per share data) Three Months Ended March 31, 2013 Three Months Ended December 31, 2013 Three Months Ended March 31, 2014 GAAP Adjustment* Non-GAAP GAAP Adjustment* Non-GAAP GAAP Adjustment* Non-GAAP Non-GAAP RMB RMB RMB RMB RMB RMB RMB RMB RMB US$ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Operating (90,841) (5,284) (96,125) (168,321) (9,608) (177,929) (226,045) (14,081) (240,126) 34,098 expenses Operation 22,291 5,284 27,575 50,228 9,608 59,836 19,250 14,081 33,331 5,361 Profit Net 29,153 5,284 34,437 25,994 9,608 35,602 18,699 14,081 32,780 5,273 income Diluted earnings 0.27 0.05 0.32 0.21 0.08 0.29 0.16 0.12 0.27 0.04 per ADS Note: *Adjustment to exclude the share-based compensation expense of each period. Cheetah Mobile Inc. Revenues Generated from PC-based and Mobile-based Applications (Unaudited, in '000, except for per share data) For the three months ended March 31, 2013 December 31, 2014 March 31, 2014 March 31, 2014 RMB RMB RMB USD (Unaudited) (Unaudited) (Unaudited) (Unaudited) PC 134,175 237,906 262,009 42,148 Mobile 2,136 31,273 53,703 8,639 Total 136,311 269,179 315,712 50,787 SOURCE Cheetah Mobile Inc. Website: http://ir.cmcm.com Contact: Investor Relations Contact: ICR, Inc., Calvin Jiang, +1 (646) 417-5395, IR@cmcm.com
Cheetah Mobile Inc. Reports First Quarter 2014 Unaudited Financial Results
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