Good day and welcome to the Cheetah Mobile First Quarter 2017 Earnings Conference Call. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the conference over to Helen Zhu, Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Cheetah Mobile’s first quarter 2017 earnings conference call. With us today are our CEO, Mr. Fu Sheng and our CFO, Mr. Vincent Jiang. Following management’s prepared remarks, we will conduct a Q&A session. 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 would now like to turn the conference call over to our CEO, Mr. Fu Sheng. Please go ahead, Fu Sheng.

Thanks, Helen and hi, everyone. 2017 is a very transformational year for Cheetah Mobile. We will continue to enhance our AI-based technology platform that brings new opportunity to the mobile utility space and drives the rapid progress of our mobile content products. In addition, AI is the core of our mobile content strategy, enable us to connect our over 600 million users with highly personalized content. Recently, our company reached our three year anniversary as a publicly listed company in the US. In just three years, our total revenue grew by almost three times. Our mobile MAU surpassed 600 million. We achieved our goal to transform into a mobile and global company. In Q1, 2017, mobile revenues accounted for almost 85% of our total revenues and overseas revenues accounted for over 70% of our total revenues. We’ve made significant progress on our content driving apps, which already contribute to 19% of our total revenues in the quarter. And we have a very healthy balance sheet. We understand there is still a lot of work ahead of us in order to transform into a mobile content platform. With our rich experience in mobile internet industry and our proven track record, we are very confident in achieving our new target. Today, I would like to first discuss the progress we have made in the development of content driving products. On the revenue side, our content driving products are becoming important driver of our total revenue growth. In Q1, revenues from content driving products grew by 65% [ph] quarter-over-quarter, which pushed our overseas revenues to an all-time high. Live.me was a key contributor for this growth. On the other side, we have made strong demand for live broadcasting platform in developed markets. Users in Europe and North America have to express themselves and…

Thank you, Sheng and hello, everyone. This is Vincent just joined the company about 1.5 months ago. For the first quarter of 2017, we reported solid financial results with total revenues beating the high end of our guidance. Non-GAAP net income increased to RMB116 million. Now, let me walk you through the details of our first quarter financial performance. All financial numbers are in RMB unless otherwise noted. For the quarter, total revenues increased by 7% year-over-year to RMB1.19 billion, driven by the fast growth of our content-driven products. As our various business lines are in different phases of growth, starting this quarter, we will report our revenues according to business lines in order to help investors better understand our businesses. We expect to provide more transparency in the performance of this business lines in the coming quarters. Revenues from content-driven products increased by 55% quarter-over-quarter, which contributed to 90% of total revenues in the first quarter of 2017 as compared to 11% in the first quarter of 2016. The growth was primarily driven by Live.me, a popular live video streaming app serving overseas users, particularly in developed countries. In the second quarter of 2016, we introduced the virtual gift function aiming to enhance our user engagements and interaction. This function has been well received by our users, who purchased virtual gifts to support in appreciation for their favorite broadcasting hosts. The increase in Live.me in the first quarter was driven by both paying user growth and the increase in ARPU. The paying user growth was a result of DAU expansion and the paying ratio increase. And the ARPU growth was driven by an increased number of live broadcasting events during Valentine’s Day. Revenues from utility products and related services decreased by 13% year-over-year and 18% quarter-over-quarter to 827 million…

[Operator Instructions] Our first question comes from Tian Hou of T.H. Capital. Please go ahead.

[Foreign Language] So congratulations on good Q1 results. My question is related to user acquisitions for Live.me going forward, so what’s the plan to acquire more users for Live.me and also the traffic on Live.me, what’s the synergy between Live.me and News Republic and utility apps? That’s my question. Thank you.

[Foreign Language]

Okay. I’ll translate. Although Live.me has finished external investments and, but it’s still the majority owned subsidiary of Cheetah Mobile and they still operate as a same company. So although it has certain independence in its operation, but we restored the operation as a same company. In that sense, Cheetah Mobile will find the way to effectively convert its current user into Live.me users.

[Foreign Language]

Okay. Although we have seen many successful models such as normal and they have attracted significant user traffic using live broadcasting model, but they also have other approaches and we will, using the same approaches such as social platforms and shorter video content to attract more user traffic to the platform.

[Foreign Language]

Okay. Cheetah Mobile is using, is developing its AI technologies and we believe that when we achieved certain level of the current technology excellency, we will be able to using AI technologies to bring traffic. So we will be able to using AI technology to find out the current users preference and interest and then we will recommend the appropriate user traffic to the Live.me platform.

Our next question comes from David Sun of Morgan Stanley. Please go ahead.

[Foreign Language] So I will translate the question by myself. So the first question is regarding the reclassification of the revenue reporting lines. So we have reclassified the revenue into utility app content products and mobile games, so just want to get a sense what do the marketing profile look like for these three key segments and also the revenue outlook for this year? So the second question is that, we see the company currently has three key business options, core utility apps such as Clean Master and Battery Doctor, second one is content apps such as Live.me and News Republic. And last one is AI or robotic related initiatives. So just want to know how the management view the short term and mid to long term opportunities of these different businesses and how do company allocate resources accordingly. Thanks.

[Foreign Language]

Well, you can consider those products in this way. The utility is Cheetah’s today and the content product is for tomorrow and the robotics product is for the day after tomorrow in the future.

[Foreign Language]

Okay. In the past three years, Cheetah Mobile has two utility apps into a global products and it has the refinancing business model and although it has reached a relatively mature phase of its lifecycle, they continue to maintain its profitability.

[Foreign Language]

Okay. Today, the two apps is still the best approach to acquire users and a quickest approach to acquire users.

[Foreign Language]

It also helps us create a significant amount of user data.

[Foreign Language]

Yeah. It also generates a lot of user traffic that can support our product once the AI technology is.

[Foreign Language]

Okay. The content product can help our more than 600 million users to spend more time with our products to increase the user engagement and user stickiness and also helps our monetization model.

[Foreign Language]

Using the content we have acquired that helps to refine our AI technologies and that’s the first, that will be a foundation for our next stage which is the robotics business. So that’s the second question. Now, I’ll answer the first question about the segments and margins. Okay. Starting, well, in this quarter, we still view the company as a single segment, but we start to divide the revenues into three parts, which is the three business lines. For the second quarter, we plan to present the company’s financial into three segments, which will not only have revenues for each business lines, it will also have operating cost and expenses. So that -- with that, we will have better visibilities for the three segments. In terms of profit margin, we expect that the margin for the utility products will decrease year-over-year next quarter. And the margin for the content products right now is still in a loss, but the relative amount of loss will narrow in the next quarter as we have starting to see economy of scales for our content products. For the game, we expect we will, that the profit margin probably was similar. We will not see a significant change, at least in the next quarter.

Our next question comes from Joyce Ju of Citi. Please go ahead.

[Foreign Language] I will translate my questions. We have seen this quarter R&D costs actually reduced year over year and quarter on quarter. So my question is, we saw in the press release that is due to the personnel reduction, so I’m wondering how many like R&D personnel now have in the R&D department and in the future, how these numbers will change while we add more R&D investment to continue to grow our AI technology or content products? Thank you.

[Foreign Language]

Okay. So right now for R&D personnel, we have more than half of them are still in the utility apps segment. In the past two years, we have seen that we just see some room that we can help the R&D people to increase their productivity. So I think we still have some room for improvement.

[Foreign Language]

Okay. So in the past year, we have already invested heavily in the AI technology and we have significant high in the last year. So right now, the workforce for the AI technology is, while even though, we may not be able to compare to those super large company, but comparable to many other so called AI companies. So we do not expect we will have a larger headcount increase in the next year, instead we will be focused on to improve the productivity and have more products to go to the markets.

[Foreign Language]

Okay. So there will be something such as Live.me, they may still increase their R&D strength and skillset. So they might add other headcounts, but overall, for a company, we will probably not see a large R&D fee increase, we’ll be more focused on the productivity again.

Our next question comes from Thomas Chong of BOCI. Please go ahead.

Hi. Good evening. Thanks for taking my questions. I have two questions. The first question is about Live.me. When should we expect the business to be profitable? Should we expect it to happen in the fourth quarter? And my second question is about the second quarter guidance on the utility apps revenues, about our relationship with advertisers. Can management talk a little bit more about the ad formats and why we have to see this year-on-year decline? Should we expect it to happen in the third and the fourth quarter? [Foreign Language]

Okay. Hello, Thomas. Let me answer your first question. For the Live.me business, although it’s approaching a breakeven point right now, seeking profitability is not the focus with business right now. So we will be more focused on increasing the user base at this stage. Hold on just a second. So I’ll come back. For the second question, which is about the certain ad formats and see this is what happens, there are a lot of utility app companies, they have various type of ad formats and certain formats may not be considered to be user friendly by some advertising platforms. So some of our third party advertising platforms, they decide to discontinue to deliver apps to those type of formats. So that will impact us as well. And we will see some other inventory, which now may not be filled up immediately by our other advertising platform partners. So that’s what’s happening right now.

Our next question comes from Andrew Orchard of Nomura. Please go ahead.

[Foreign Language] So just a quick question on the investment structure of the robotics business, can you give us some updates or some color on how this investment is going to be structured? Thanks.

Hello, Andrew. I’ll answer that question. Right now, the robotics business, it is still, it has not been, let me put it this way, it’s still in the progress. It hasn’t been signed or closed yet. So, but we expect to have a public release pretty soon. But today, we’re probably, we’re not able to talk too much about this.

Our next question comes from Robert Cowell of 86 Research. Please go ahead.

[Foreign Language] So my question is also about some of your investment items in the first quarter, it looks like there is a RMB67 million gain from other income, I’d like to know what investment that gain is coming from? Thank you.

[Foreign Language]

Okay. Let me translate. Well, we have two exits in this quarter. One is for a company that has been listed in Asia markets, in China and the other one is a normal VC investment exit. Cheetah Mobile has invested in a portfolio about more than 40 companies right now. And from time to time, we make exits, because the portfolio is actually performing pretty well.

[Foreign Language]

Okay. So when we decide that the investee, the investor company is not strategically significant to our business, we may want to make an exit when the timing is appropriate. So this time, the two companies we exit, one is a gaming company and the other one is advertisement platform and actually we had a pretty good return on this. Thank you.

[Operator Instructions] There are no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

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