Cheetah Mobile Inc. Q3 FY2025 Earnings Call

Thank you, operator. Welcome to Cheetah Mobile's Third Quarter 2025 Earnings Conference Call. With us today are our company's Chairman and CEO, Mr. Fu Sheng; and our company's Director and CFO, Mr. Thomas Ren. Following management's prepared remarks, we will conduct a Q&A section. Please note the management'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 conference call today. Management will make forward-looking statements. At this time, I will now turn the conference call over to our Chairman and CEO, Mr. Fu Sheng. Fu Sheng, please go ahead.

Good day, everyone, and thank you for joining Cheetah Mobile's Third Quarter 2025 Earnings Call. I'm Fu Sheng, the CEO of Cheetah Mobile. I’m pleased to share that our turnaround efforts are yielding positive results. We reached quarterly breakeven ahead of expectations, achieving an operating profit in Q3 for the first time in six years. We are confident in our position to reach breakeven for the full year 2025. Our growth remained robust in Q3, building on the momentum from the first half of the year, with revenue increasing by 50% year-over-year, fueled by both our Internet and AI businesses. The AI segment grew even more rapidly, with a remarkable 151% year-over-year growth and a 6% quarter-over-quarter increase, now accounting for 50% of total revenues. Overall, 2025 has been a strong year for Cheetah, with revenue in the first nine months rising nearly 48%. We achieved profitability in Q3 and made significant strides in our two AI focus areas: AI robots and AI tools. This progress illustrates that our investors made the right choice in believing in our vision and efforts. I want to extend my gratitude to our shareholders for your support. I recognize many of you invested in Cheetah because you trusted in our capacity for a comeback, and we are dedicated to making that a reality. I am fully committed to steering the company forward, and our results this year indicate that the turnaround is genuine. Looking ahead, our focus will be on fostering growth through our AI initiatives in AI robots and AI tools. I will discuss our vision and advancements in these areas today, and Thomas will elaborate on how we are maintaining a lean cost structure to ensure long-term profitability. Both AI robots and AI tools present vast market opportunities, and Cheetah Mobile has distinct advantages to cultivate new growth engines in these domains. Additionally, we hold minority stakes in several companies in this field that could enhance our organic growth going forward. In Q3, our AI robotics segment contributed around 15% of total revenue, experiencing growth of about 100% year-over-year and 40% quarter-over-quarter. We identify two key drivers for this growth. Firstly, there is a significant demand for our voice-enabled wheel robots in China. For the second consecutive quarter in Q3, revenue from these robots doubled year-over-year, now representing approximately 5% of our total revenues, supported by both repeat orders and new acquisitions. As of September 30, 2025, the contract backlog for these robots in China increased by 32% from the previous quarter and has since doubled again, indicating sustained demand. These trends give us confidence in continued strong revenue growth from these robots in the fourth quarter. The rising demand can be attributed to two factors: more customers are embracing robot usage, as wheel robots have emerged as the most reliable and cost-effective option for large-scale deployment, and there is an improved product experience. Our AI-powered voice system, AgentOS, enhances our robots' capabilities to understand and respond to people more naturally. This improved experience enables us to command a premium even in a competitive market, although much of our revenue growth has stemmed from increased shipment volumes. We believe that AgentOS not only enriches user experience but also fortifies our leadership in voice-enabled robots. Our voice-enabled wheel robot, integrated with Google’s Gemini 2.5 Flash, was recently highlighted by Google Cloud at its AI Asia Conference, which we view as a strong endorsement. We are consistently upgrading our AI agent capabilities and applying them to our products. Looking ahead, we believe these robots can perform even better internationally as we integrate third-party generative AI and multimodal models with our expertise in voice AI and autonomous mobility to enable real-world applications. Secondly, our robotic arm business is growing steadily, supported by three key industry trends. Number one, in manufacturing, collaborative robotic arms are becoming more and more popular because they're smaller, easier to install and more affordable. They're also safer to work with, so they help fill many unmet needs in factories like doing tasks that need flexible movement, careful and precise work, or real-time feedback. These tasks currently rely on human workers. Number two, in commercial spaces like coffee shops and smart retail, because of advances in lightweight design and easy programming and building vision of feedback, we are unlocking new use cases. Our team's ability to understand real-world needs and build practical products gives us an edge. Number three, robotic arms are a core part of embodied AI. As global demand for physical AI grows, we believe robotic arms will play a key role in bringing AI into the real world. We strengthened our robotic arm business through an acquisition, demonstrating our strategy of combining organic growth with M&A. This business is a great fit for us. It is already profitable with tens of millions of RMB in annual revenue, most of it from overseas customers. By bringing this company into our group, we've expanded our product line and strengthened our presence in global markets. More importantly, we started testing how to combine our wheel robots with robotic arms to create embodied AI that can handle more complex real-world tasks. It's still in early days, but our solid foundation in both technology and product development puts us in a strong position to grow in this space in the long run. Moving on to AI tools. This is another area where we see long-term potential. We're using AI agents to quickly build a variety of new tools for both PC and mobile, and we're also upgrading some of our existing products with AI features. For example, in one of our legacy products, Duba Antivirus, users can now interact with their PCs through natural language to complete tasks like system settings, eliminating the need for complex manual steps. In small-scale testing of other tools like meeting summarizers, we've also seen strong user engagement and good willingness to pay. What makes this space exciting is that AI coding apps have greatly reduced the time and cost it takes to build and launch new products. This gives us the flexibility to test many ideas quickly and focus on what works. While we're still in the early stages, we believe our strength in building user-friendly tool-based apps, especially with the help of AI agents, puts us in a good position. And since subscriptions already make up more than 60% of our Internet revenue, we're confident in our ability to monetize future products through the same model. To close, I believe Cheetah has moved beyond the turnaround phase. Looking ahead, our focus is on building long-term value by scaling our AI robot business and capturing the upside of AI-native tools. While we're still early, both segments have real momentum and strong potential to drive growth in the years to come.

Thank you, Fu Sheng. Hello, everyone, and thank you for joining the call. Unless otherwise stated, all financial figures are presented in RMB. In the third quarter of 2025, we are pleased to reach an important milestone. We reported our first quarterly operating profit in the past 6 years. This achievement reflects the disciplined execution of our teams and the continued improvement in our operational efficiency. Operating profit was RMB 4 million in the quarter. On a non-GAAP basis, operating profit reached RMB 15 million compared with an operating loss of RMB 60 million in the same period last year and an operating loss of RMB 2 million in the previous quarter. Let me walk you through the key financial results in the quarter. Total revenue reached RMB 287 million, up 50% year-over-year, driven by 151% growth in our AI and other segment. This segment accounted for 50% of total revenue compared with 30% in the same period last year. Our Internet business remained stable with revenue increasing 6% year-over-year in Q3. Gross profit increased by 64% year-over-year and gross margin improved to 75%, up from 68% in the year-ago quarter. Operating profit improved to RMB 4 million compared with an operating loss of RMB 72 million a year ago. On a non-GAAP basis, operating profit was RMB 15 million compared with an operating loss of RMB 60 million last year. By segment, our Internet business delivered approximately RMB 21 million in adjusted operating profit in this quarter, up 55% year-over-year. Adjusted operating loss for our AI and other segment narrowed by 82% year-over-year and 53% quarter-over-quarter to RMB 15 million in this quarter. On the balance sheet side, our financial position remains strong. As of the 30th of September 2025, the company has cash and cash equivalents of about USD 224 million and long-term investments of USD 107 million. We continue to maintain discipline in cash flow management and capital allocation. Looking ahead for our Internet business, we will continue to deliver robust operating profits. We want to be clear that we prioritize operating profit growth over revenue growth. For our AI and other business, we also aim to further manage our costs and expenses to a more focused and efficient approach. First, we are focusing on high potential use cases for our robotics business; that is the only way to build sustainable and profitable business models. We concentrate on AI-powered, voice-enabled wheel robots, products that have proved to deliver a highly competitive ROI, a cheaper alternative for reception, museum, and exhibition scenarios. Second, we leverage third-party and open source models and tools to enhance our robotic experience. This approach allows us to accelerate product updates, thereby increasing our overall efficiency. Third, for our advertising agency service and multi-cloud management services, we are taking a more disciplined approach, strengthening contract control and customer value to better manage our costs and expenses. Overall, at the corporate level, we will continue to invest in AI robots and AI tools as we believe these two areas will drive our long-term revenue growth. However, we will stay disciplined and ROI-focused in every decision. I believe Cheetah has entered a much better phase compared with a year ago. In product development, as we shared in the previous calls, we encourage our employees to use AI tools such as coding apps to build their own AI, not only to improve productivity but also to enhance decision-making. Leveraging AI allows us to develop products faster and operate them with fewer people than before. Most importantly, with the AI opportunity, the business improvements we have achieved over the past year and growing recognition from the capital market, we are seeing renewed confidence and momentum across our teams. I personally believe these changes, stronger execution, disciplined investments, improved efficiency, and an inspired team form the foundation for Cheetah to rebuild its success in this new chapter. Thank you.

Operator, please open the call for...

And our first question today comes from Thomas Chong from Jefferies.

Given our achievements and increasing recognition from the capital market, we are experiencing renewed confidence and momentum throughout our teams. I truly believe that these changes, along with stronger execution, disciplined investments, enhanced efficiency, and a motivated team, create the foundation for Cheetah to restore its success in this new chapter. Thank you.

We are seeing renewed confidence and momentum across our teams in the ital market. I personally believe these changes, stronger execution, disciplined investments, improved efficiency, and an inspired team form the foundation for Cheetah to rebuild its success in this new chapter. Thank you. Operator, please open the call for our first question today, which comes from Thomas Chong from Jefferies.

Our next question comes from Vicky Wei at Citi.

Stronger execution, disciplined investments, improved efficiency, and an inspired team form the foundation for Cheetah to rebuild its success in this new chapter. Thank you. Our first question today comes from Thomas Chong from Jefferies. Our next question comes from Vicky Wei at Citi.

Thank you. Operator, please open the call for questions. Our first question today comes from Thomas Chong from Jefferies. Our next question comes from Vicky Wei at Citi.

Our next question comes from Lydia Lin at Morgan Stanley.

Thank you. Operator, please open the call for our first question today, which comes from Thomas Chong from Jefferies. Our next question is from Vicky Wei at Citi. Following that, we have Lydia Lin from Morgan Stanley.

Our next question comes from Zhang Heng with Everbright Securities.

Our next question comes from Zhang Heng with Everbright Securities.

Our next question comes from Vicky Wei at Citi. Our next question comes from Lydia Lin at Morgan Stanley. Our next question comes from Zhang Heng with Everbright Securities.

Our next question today comes from Alicia Soh with JPMorgan.

Our next question comes from Lydia Lin at Morgan Stanley. Our next question comes from Zhang Heng with Everbright Securities. Our next question today comes from Alicia Soh with JPMorgan.

Our next question comes from Lydia Lin at Morgan Stanley. Our next question comes from Zhang Heng with Everbright Securities. Our next question today comes from Alicia Soh with JPMorgan.

Our next question comes from Zeping Zhao with ICBC International.

Our next question comes from Zhang Heng with Everbright Securities. Our next question today comes from Alicia Soh with JPMorgan. Our next question comes from Zeping Zhao with ICBC International.

Our next question comes from Zhang Heng with Everbright Securities. Our next question today comes from Alicia Soh with JPMorgan. Our next question comes from Zeping Zhao with ICBC International.

Our next question today comes from Joanna Ma with CMBI.

Our next question today comes from Alicia Soh with JPMorgan. Our next question comes from Zeping Zhao with ICBC International. Our next question today comes from Joanna Ma with CMBI.

Our next question comes from Alicia Soh with JPMorgan. Our next question comes from Zeping Zhao with ICBC International. Our next question today comes from Joanna Ma with CMBI.

Our next question comes from Jing Wan with CICC.

Our next question comes from Zeping Zhao with ICBC International.

Our next question comes from Zeping Zhao with ICBC International.

Our next question comes from CYN Securities.

Our next question today comes from Joanna Ma with CMBI. Our next question comes from Jing Wan with CICC. Our next question comes from indiscernible from CYN Securities.

Our next question today comes from Joanna Ma with CMBI. Our next question comes from Jing Wan with CICC. Our next question comes from an analyst from CYN Securities.

Our next question comes from Yongping Diao with Guotai Haitong.

Our next question comes from Yongping Diao with Guotai Haitong.

Our next question comes from Jing Wan with CICC. Our next question comes from [indiscernible] from CYN Securities. Our next question comes from Yongping Diao with Guotai Haitong.

And our final question today comes from CYN Securities.

Our next question comes from Yongping Diao with Guotai Haitong.

Our next question comes from Yongping Diao with Guotai Haitong.

Okay. Operator, please check if we have any further questions. If not, we will end the call.

We have no further questions in queue at this time. I'm showing no questions. You may proceed with any closing remarks.

Okay. And then we can end the call. Thank you so much for joining our earnings conference call today. Thank you so much.

Thank you, and thanks, everyone, for connecting to today's call. You may now disconnect your lines, and have a wonderful day.