Q2 2021 Kingsoft Cloud Holdings Ltd Earnings Call
[music].
Good day, and thank you for standing by welcome to the King So cloud second quarter 2021 earnings conference call.
At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you need.
And then number one on your telephone.
He advised that today's conference is being recorded if you require any further assistance. Please press star zero.
Now I'd like to hand, the Congress over with your first speaker for today, Mr called <unk>.
Please go ahead.
Thank you Amy Hello, everyone and thank you.
Need to best today can sell cloud second quarter. It's anytime you want learnings release was distributed earlier today and is available on our IR website at IR Doug.
Why you and they'll come as well as on global Newswire services on the call today from the teams all cloud we have all received only three Indian law and therefore.
Neither had didn't horrible Mr. Wang will review our business operations and company highlights followed by Mr. Ho, who will discuss the financials and our guidance there will be available to answer your questions. During the Q&A session. Therefore, there'll be context to integration or interpretations of oil come in here and you referenced what was the only because of.
I needed to prevent the managements derma in the original language will parallel before we begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934 as amended and as defined in the U S. Private Securities litigation reform of 1995.
These forward looking statements are based upon management's current expectations and current market and operating conditions and the related where you live that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance.
Oh, it's humans to differ materially from those in the forward looking statements or other information regarding these and other risks uncertainties or factors are included in the Companys filings with the U S. S. E Z. The company does not undertake any obligation to update any forward looking statements as a result of new information future.
He was otherwise except as required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this conference call are denominated in RMB.
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Thank you Nicole and thank you all for joining our second quarter 2021 earnings call.
After the second quarter, we generated RMB two 7 billion in total revenues, which was a new quarterly record for US. It was 41, 6% increase year over year and also a significant acceleration from the 34% year over year increase in the first quarter, our public cloud services revenue increased for the sixth consecutive quarter since our IPO.
And hit a record of RMB 155 billion, which is an increase of RMB $159 million over the first quarter. Our enterprise cloud services revenue reached RMB $622.1 million, representing a 152, 8% increase over the same period of 2020 and an acceleration from the 131.
3% year over year increase in the first quarter.
Overall, we continue to effectively execute our premium customer strategy as the largest independent cloud service provider in China, our new positioning helps us attract develop and maintain long lasting stable in depth and multi dimensional relationships with an expanding group of premium.
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Now, let me walk you through our outperformance of profit major vertical.
Start off with public cloud, despite a challenging market environment, we delivered a solid progress during the quarter on customer from our existing customer.
Base remains stable with a solid year over year, increasing their usage, while continued to make significant progress attracting a diverse group of new customers. Today. We are pleased to announce that kicks off the cloud had entered into a comprehensive partnership framework agreement with volcano engine under buttons.
Effort to jointly provide services to enterprise.
As digitalization and see if the huge market opportunities from China cloud computing market kicks up cloud leveraging our rich sales resources and the capabilities well helpful kind of engine Sally its path and SaaS products and at the same time promote our Iot products will also jointly work on business development as partners. In addition.
Enterprise definitely supported a certain top social media company three key large scale online events, including a gala and the livestream. The variety show that had a massive number of concurrent viewers. We also made great progress to engage new customers. For example, we started to provide matewan with public power solutions, leveraging our neutrality leading products.
With technology and deep premium customer service experience, we're able to continuously engage the broadest of premium customer base established especially under the multi cloud trend.
Meanwhile, we jointly hosted intellectual property protection for them with quite show a pop into now a client of us that brought together senior executives from over 70, leading.
Leading internet companies, raising our profile among internet industry and interacting with our customers to advocate IP protection initiatives.
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Either on product and technology front, we continue to enhance our.
Past capabilities to meet our customers' needs, while also providing stable I S services to them in support of these efforts. We completed the acquisition of two paths companies to optimize our services capabilities and real time communication and edge computing. This allowed us to boost our public cloud revenue at the past levels through cross selling as a symbol of recognition.
And if our technology during the quarter. We were proud to have received a national level Award, which is the highest award of its kind in China for our patented <unk> virtualization technology.
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In this quarter, many customer cases, exemplify our leading technological prowess.
We supported our customers events during the June 18th online shopping festival in ensuring smooth and stable performance during periods of peak traffic with zero failures throughout we worked with large scale video customers to apply edge computing to live streaming scenarios significantly improving network transmission speed and stability, we were the exclusive vendor for out.
During the Shanghai International Auto show, where we helped to deliver a stable and smooth experience without full CAD 360 degree virtual reality live streaming solutions on the gaming front. Following the success of our recent partnership with Honeywell on the phenomenal game cashing impact we entered into an agreement with season games for its blockbuster game <unk> online III.
So home, which was launched at the end of July on multiple terminals, thanks to our cloud gaming technology.
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So you wont youre drilling in terms of underlying infrastructure, a new data center in Tianjin. It was tough out on June 30. The project includes two phases with a total of over $6.6008.
I'm on that phase one includes over 3400 racks, which is to be delivered in the fourth quarter and presale expected within this year and phase two to be delivered next year once in operation The data center with enriched our computing resources in the Beijing neighborhood and support our public cloud revenue next year.
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In addition, according to the 2020, China Cloud computing market Annual Research report just released by CCI consulting are direct and affiliate of the Ministry of industry and information technology of the Trc, we remain the third largest internet and cloud service provider with our market share rising to seven 1% going forward in public.
The company will continue to strengthen our relationships and dig deeper into the needs of our existing customers actively expand and diversify our customer base to maintain healthy and rapid business growth.
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In enterprise cloud space market demand continued to be strong.
The impact continued to cultivate the vertical selected to achieve accelerated growth in the financial services sector. We have already been serving six out of the top 10 banks in China building on our track record of successful cooperation with existing major state owned bank customers. We continued to provide expansion upgrades and maintenance services, while proactively engage with new customers.
And we can then project for example, we have successfully engaged with a new large scale commercial bank industrial bank to built their big data cloud platform from there we will continue to dig into its demands and provides stable and premium cloud services contributing to bank. The bank's digitalization profit as another example, we partnered with Shandong property REIT exchange vendors.
Customers, who go to supply chain financing platform for Shandong Province, the experience gained from this project is transferable into other regions.
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In the health care sector, we won the bid exclusively to build the health care Big data cloud platform uphold their promise with a contract value of approximately RMB 80 million and have started development on the platform. This is a national key projects and health care space and will be effect of benchmark, which helps.
To accelerate our business expansion. In addition, during the recent IHA, China 2021 annual testing conference. We passed all three IHG certifications for original health care information platforms, which is a first for a cloud service provider IHG is an abbreviation for integrating health care enterprises it was establishing.
1998 by Radiological Society of North America also known as our M&A and healthcare information and management system Society also known as H I M. S. S and aims to improve the international standards for the connectivity and sharing of information among health care information systems. It provides health care certifications and sat information systems.
Standards worldwide, the certifications from IH EC demonstrate the recognition we come out among prestigious networks in health care information space.
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Oh debated a little humble bundle in a public services sector. We further strengthened our original presence engaged with the middle platform digitalization in regions, such as Beijing obey jumps to cancel and other provinces. Besides leveraging our cutting edge video cloud technology.
We successfully provided cloud delivery services to mingle with China mobile to brought to broadcast to the Euro 2020, and the Olympic games.
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As part of our enterprise cloud business performance. The company in early August announced a major strategic move in our enterprise cloud services business by integrating came last nationwide project execution capabilities and resources across major cities in China, including Beijing Wuhan.
G hunting Shanghai I'm honest the company expects to further accelerate and enhance the implementation of enterprise cloud projects with lower costs and improve the efficiency.
Mid Suffolk with higher Kinlaw senior management team, who join us and bring alone in the industry Knowhow and long standing client relationships. This group of senior personnel.
That well came a lot for a long period of time, ranging from 15 to 29 years prior to <unk>. They worked at IBM bearing point and other global leading companies leveraging came lots proprietary second knowhow and solutions strong project implementation and maintenance capabilities as well as a high quality premium customer base that is highly complementary to our existing.
That's what private cloud businesses. We believe this will further cement our leadership in the enterprise cloud space.
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<unk> Enterprise cloud segment, we maintain great relationships with our key customers and sequential it delivered a batch of flagship projects successfully they laid a solid foundation for further business expansion in terms of our products and services customer base and market reputation.
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We have fully appreciated stakeholders concerned on data security and privacy and we'd like to take this opportunity to share more color. In this regard about our company first we focused on corporate customers rather than individual developers, hence we do not collect nor one massive.
Personal identifiable information SEC.
We only offer computing environment and the legal titles of the data in such an environment belongs to and our customers and not have third our enterprise pilot projects are primarily deployed with physical separation.
Fourth we have set up the general counsel and compliance Apis.
Led by a very experienced a general counsel and appointed a certified data protection officer will continue to strengthen our internal management implement stringent compliance and risk control standards and maintain continuous effective and timely communication with all stakeholders, including the regulators.
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I will now pass the call over to our CFO Henry to go over our financials for the quarter. Thank you.
San Diego eating before down into that you'd house I would like to offer a few highlights for the past quarter.
Our total revenue of 2.1.17.
RMB in Q2 sets, a new quarterly revenue record for our history.
Representing approximately 42% year over year growth, which was an acceleration from the 30% year over year in the first quarter 2021.
Revenue from public Cloud services was 1.5 fact in RMB a quarter over quarter increase.
<unk> of $158.9 million RMB, representing the sixth consecutive quarters revenue increase since our IPO.
As a decent step up off the incremental quarterly revenue.
Revenue from Enterprise call services was $622.1 million RMB, representing approximately 150.
Percent year on year growth, another significant acceleration compared to the 131% year on year in Q1, 'twenty or 'twenty one.
Our strong and accelerated topline growth in Q2 is underpinned by the following factors, resulting from fundamental strategies and advantages.
Three of them.
I don't know the strategy of serving premium customers, we have established robust and multi dimensional relationship with our premium customers.
Revenue from our top three customers achieved healthy year on year growth.
Revenue from our largest customer achieved a quarter on quarter growth.
Sure.
The cross selling initiatives of our past level products has been successfully executed in the meantime, while the total revenue from our top 10 customers has increased in dollar value on a year over year basis.
What percentage of the revenue contribution to the company in total has gradually and slowly.
That's why it decreased quarter by quarter.
We believe is a very good sign and a trend for derisk the client concentration.
Second.
Our strategy of being a neutral and a pure play cloud service provider, we demonstrated strong customer acquisition capabilities under the multi cloud deployment backdrop.
Slowly driven by progressing vendor strategies being adopted by leading internet companies.
Example, we have started to provide a public call services, who made fun of successful leading internet account.
Lastly, we're having always adopt a disciplined approach to select the right verticals. For example, we have very small exposure.
In sectors, such as online education as a result, the recent headwinds have limited impact to our business we.
We expect this underlying strategy and advantages we will continue to support our healthy growth in the future.
In addition, as our CEO mentioned earlier the agreement with Camelot in early August.
<unk> will benefit our future deployment and enterprise cloud services in China, and trying to Camelot service served 213 premium customers and approximately 94% of total revenue were recurring whereas the backlog of $3.8 billion RMB as of July 31, 2021.
Coupled with faster revenue growth and a robust profitability, we expect a positive impact to our financials.
In line with strong top line growth.
The cost of revenue grew 41, 3% year over year to 2.06 billion RMB.
Is it cost the largest cost components represented approximately.
61, 1% of total cost of revenue grew 28, 3% year over year to 1.26 billion RMB as a percentage of total revenue RTC cost decreased from 63, 8% in Q2 last year to 57, 8% in this quarter.
Depreciation and.
<unk> costs were $183.1 million RMB, representing approximately eight 4% of total revenues also a decrease from the same period of last year.
Overall, we are achieving greater economies of scale and improved operational efficiencies.
As a result, adjusted gross profit grew.
And I'm going to a lot.
Ascent from $83.8 million RMB in the same period of last year to $121.4 million RMB. This quarter, our adjusted gross margin for this quarter increased from five 5% in the same period last year to five 6% this quarter as we continue to scale up our.
<unk> total operating expenses were $438.9 million RMB.
14, 1% decrease from Q2 last year, mainly due to the onetime off share based compensation expenses and a listing expenses related to our IPO in Q2 last year, partially offset by increase in personal.
Personnel expenses, resulting from the suspended a favorable social tax policies.
Excluding share based compensation adjusted R&D expenses were $213.6 million RMB, representing an increase of $13.413, 5% year over year, adjusted selling and marketing expenses were 86.
$6.6 million RMB.
As a percentage of total revenue a decrease from five 1% in Q2 last year to 4% this quarter.
Our adjusted G&A expenses were $65.7 million RMB as a percentage of revenue a decrease from four 8% in Q1 last year.
Two three.
3% this quarter among the lowest in peers.
Accordingly, our adjusted EBITDA was negative $55.3 million RMB adjusted EBITA margin improved from negative two 7% in Q1 to negative two 5% this quarter.
Our net loss was 200.
26 million RMB with a net margin significantly improved from negative 27, 4% in Q2 last year to negative 10, 1% this quarter.
That profitability improvement trajectory was mainly driven by enhanced operational efficiency economy of scale and Apache.
Partially offset by impact of suspended all favorable social tax policy.
As of June 30, 'twenty or 'twenty, one we had a sufficient cash and cash equivalents of 5.47 billion RMB during.
During the quarter, our total capital expenditures was $221 eight modality.
Looking ahead, we expect our total revenue to be between 258 billion RMB and $2.7 billion RMB for the third quarter of 'twenty or 'twenty, one representing a year over year increase of 49% to 56% such.
Such.
<unk> of growth is expected to be built a few pillars, including.
Solid deepening and a multi dimensional relationship with existing top premium customers.
Winning new premium customers cross.
Cross selling of new products and services and a strong demand and momentum for our enterprise cloud services.
As Europe. This is based on our current preliminary views on the market and operational conditions, which are subject to change.
In terms of the ESG efforts.
We do not have super voting share class as opposed to do class share structure of most U S listed China ADR companies.
Sure.
Sure of Kinsale cloud represents same voting rights.
Our main shareholders, a Hong Kong listed companies.
Our principal shareholder structure are fully transparent and straightforward.
So we have established our ESG task force in April 2020 watt to continuously discuss in.
Implement best practices with consultants investors and other stakeholders, improving transparency and our corporate governance.
Lastly.
We're preparing company's first Investor day, when we were invited our key business lines executive leaders from our customers and a renowned industry.
Industry ecosystem partners to join Us where.
We're targeting mid of October, but at a time and a format are subject to change given the COVID-19 situation, where a woman welcoming investors and analyst to join either onsite or online.
We are committed to improving our business transparency and it brings sustainable value.
To our stakeholders. Thank you.
This concludes our prepared remarks, that's fully all attention well now having to take out please.
Please ask your question in Mandarin.
English is plausible operator. Please go ahead. Thank you.
Yes. Thank.
Keith.
To ask a question you will need to press star and the number one on your telephone to withdraw your question. Please press the pound at Husky and please standby, while we compile the Q&A.
Austin.
Once again, please press star one on your telephones.
My first question is from the line.
Sheldon Jang of.
Brian Gong of Citigroup. Please go ahead.
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Okay. Thank you.
Hello, a question so in relation to your first question about how we think about the growth.
Public cloud business revenue in the second half of this year and there are a few points first of all we haven't really seen that the second quarter public cloud revenue has already increased around 160 million RMB.
Quarter over quarter compared to the first quarter. This is not only the sixth consecutive growth accordingly revenue growth for the public cloud segment, but also significantly the absolute dollar amount increase is also significantly higher than the past the levels and therefore, we are becoming more confident for the growth of the second half.
<unk> of our business. This year in particular, there are several reasons that we are more comfortable we're more confident about it first is that we have managed to maintain a very stable relationship with top partners, including back to them.
With our usage of volumes become also very stable.
This forms a.
Very sustainable.
Revenue Foundation for our public cloud service.
Our segment and the second point is that under the heavy regulation, especially for the industries like online education, because we have maintained a very disciplined approach to vertical because the.
Impacted two hour to hour.
Our business is actually a non material all of this.
The second sector exposure for online education is in lower low single digit.
And certainly the current regulatory backdrop is actually beneficiary to us because we can better leverage our neutrality positioning and.
The multi cloud deployment the general trend, we're able to penetrate further into the Penn Internet customers and to make new revenues that made one case, it's just.
Just to show how we can.
Further penetrate indeed in this in this segment.
Your second question about.
Hum about our religion about about our cooperation with patents I first of all I would like to make a clarification. The corporation is not with Tic toc, but actually with Pfizer.
Secondly, the way that we cooperate with them is that we will integrate our Iot products and together with the patents have products from buying from.
<unk> engine.
Two altogether provide an integrated one stop shop solution for the potential customers.
Also we will also explore it and do business development together with patents with Makena engine too.
<unk> potential marketing to new customers and certainly I think it's hard.
Or quantify the potential revenue as of now because we have just started this framework agreement and even the bookend of engine has only started this for one or two months. So we currently do not expect the revenue.
Contribution from this operation to have a material impact for the second half.
Half of this year.
Thank you.
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Thank you.
Thank you. Our next question is from the line of show them.
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Don't come on the Archer whichever EBITA margin and how does it actually feel can be got shanda someone called VR Tonight.
Gino I do if you do that Jacob EBITA margin due to shortages of Mt.
Now, let's see things out. So my first question is regarding the.
Our recent acquisition so could you please update.
I eat longer consolidation progressive came lots and what I'm, saying the longer term what type of targets, where we look at for our acquisition in the future.
So my second question is regarding our guidance on EBITDA margin in the upcoming quarters and thank you.
Yeah.
Thank you Sofie for the class and how do you to address two other questions.
The first question I had regarding our position with Camelot.
We are just costing and preparing remarks areas our business, especially the implementation capabilities will be significantly improved in the half by this acquisition.
So it's a business and a strategy driven deal and also we're happy to see the 14th.
With over 20 years of experience the management team will join us and we'll deliver their know how in this space as well as they are solid client relationship. So regarding our progress as we announced the deal in the second half of August and.
Right now we are doing all the necessary regulatory approvals and Antonio approvals before we closed the deal. So we are hoping.
If everything goes well, which is we believe it will go down.
With that direction, well be close and by end of this year or some time will be in Q4.
So however, as you all know the timing.
The approval process and also the pacing of the clothing for other mechanical.
Process, so, but we believe there'll be no major bottlenecks before we close the transaction and once we close the transaction the team and all the kind of process will be.
Integrated into our business and our.
<unk> will be consolidated into kings of cloud, which reducing that would be a positive impact to the kings of cloud financials.
Regarding the future investment there are a few key themes that we will continue to excel.
Explore and will enhance our capabilities from the following.
First of all.
We're looking into the innovative technology ventures to really enhance our matrix of the product offerings and our services and that will be basically enhance and upgrade our cross selling capabilities and extending our revenue opportunities with existing clients. So as you can see our previous investment in the past of our technologies.
<unk> has a proven track record to really push up our public cloud revenue in this quarter in particular I think we will follow that philosophy and are continuing to looking good assets in the market second I think coming out of it is also a good example of that it will expand our capabilities in both enterprise cloud and also the ecosystem partnership with other.
Other companies that will help us to reach out to more <unk>.
<unk> clients in that direction and I think given the past few cases, we'll have improvement ourselves, which we can identify the right assets execute those process efficiently and of course that efficiently.
Third question regarding the EBITDA margin.
We are also happy to see that there was a sequential improvement on the EBITDA margin. There are few important factors first of all we do adopt a very efficient process to manage our expenses. So as you can see while our company topline grow at around 40 plus percent our expenses in terms of the absolute dollar value of housekeeping.
I think relatively stable so as our company continue to expand on the topline I think that will naturally and mathematically convert it to a better margin and bottom line going forward from a long term perspective. However, we want to point out is as you know our business, especially from both public and address cloud there are certain.
Seasonality.
<unk> reactors for different quarters. So for the long term, we are confident our gross margin and EBITDA margin will be further improved in the long term, but we do.
We're looking into the details, especially in a market factors for certain factors that may affect our EBITDA margin as well so speaking to the.
Margins for the following few.
Quarters, we still expect that our non-GAAP EBITDA margin approaching breakeven by end of this year, and we're hoping that trend where carryall and continue going forward, especially consider about the few things you mentioned I think that fundamental support to improving efficiency of expenses and our costs will be Kerry.
<unk>.
Organic factors that will be improving our bottom line as well. Thank you.
Thank you.
Okay.
Thank you. Our next question is from the line.
<unk> of UBS. Please go ahead.
Thank you Bonnie wish Linda gentleman from UBS.
<unk>.
How's it going you and Michelle go Jay coming out to the just asking where you have got any time a woman a longtime Doug also the Bengals you'll hall afterwards.
<unk> she sent me on that.
Not quite there with Linda gross margin will play out.
So jaggers should Eagle and Tina Sterling Kishore Guang Yang Chen just said, one will conduct without a bump or like Oh, Guangzhou, Guangzhou, what should I should about mortality.
I don't know that much actually is that well, maybe I'll just kick off with the bundle that that kind of what they want many don't.
She doesn't have a boy you can find all the.
Do your tool that's G O.
So hopefully that will come out and say they'll do them I know gross margin shouldn't be on the getting some no what I'm, saying is that.
So I have two questions. The first question is about our acquisition of Camelot, How do we think about its impacts are of a gross margin given that this company can help us to improve.
Our implementation efficiency. The second question I was also about gross margin are so the China.
China has some has launched to the critical infrastructure protection law and been a security law. So how do we.
Estimate the related costs, a two of complying with this.
Improve Odyssey.
Okay.
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So I think we'll do well not watching what happens here I have two of them. What you call as usual you know are you.
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Harry Joe.
Yeah.
Yeah. Thank you Wendy will actually offer three perspectives regarding the cost impact after acquisition.
First of all.
The company cannot has over 16.
Hover around.
Nation in China. So there are local teams has been very active.
Experienced and are very close to the clients, especially in those sophisticated projects. So those local team or dramatically say for example, the travel expenses and the local delivery cost. So that's what we're reflecting two the cost of the delivery of projects.
Number two.
Over 94%.
After current revenue of Camelot are recurring which means two things first of all they do have to our proprietary products and some of them are standardized so by adding into those components at the module within the enterprise comp pockets that wont be also improving our contribution.
Second.
Given the company is.
Growing at a double digit on a year over year basis, where do you believe the incremental revenue will be also receiving a better economy scale, even on a standalone basis. So the third point.
Coming out of currently has about 200.
And premium customers, which followed the same definition of king's off out of 2020.
And we actually analyzed the overlapping premium customer base of Camelot and it keeps our clock.
And the majority of the 213 premium customers, especially the top Hong Kong of those customers have great.
Overlap with Con Edison moment.
Which means we can leverage and cross sell or upsell of our current projects and if we can enhance and a deepening our multinational client relationships, including our top 10 clients by leveraging the Camelot team as well so that it will also reduce our sales cost for the recurring projects.
13, a photo sales cost also for the new engagement of the new projects. So by combining the three factors I just mentioned the contribution and the benefits of Camelot acquisition will be coming to contribution margin the percentage of recurring revenue sales marketing costs and a local travel expenses. So those will be also reflect.
Reflecting to both gross margin and EBITDA margin of Kings on cloud. Thank you.
Hum and also allow me to translate Mr. <unk>.
Answered about the in relation to the reclamation.
Security so like we've always talked about we believe that.
Cloud computing is a very important constituent of of.
Infinite information technology sector.
And therefore, the regulation on information security and data security is very important.
We do believe that a regular and orderly regulation, it's beneficial for the long term in house development.
<unk> are up in industry, so, even though that full term regulation might impact.
Some of the players or the industry and people would need to adapt to do that we still believe that in the mid to long term, it's going to be beneficial for the growth of the company and like we said in our prepared remarks.
The points of shows.
Both of our business model and our methods and approach towards data security and privacy.
Shows that we're very we're very well prepared in this regard are number one we are really focused on corporate clients rather than serving a lot of individual developers and therefore the purse.
Personal data information security does not relate to us the two that's great extent and secondly, what we provide is computing environment and the data that are stored or process in that environment belong to the customers and not us and thirdly on so the majority of our enterprise cloud business and all of this project are deployed.
They're privately and therefore, there is a physical separation, which enhances our data security and Luckily, we really advocate the full lifecycle of data security and protection mechanism.
With all the internal control methods, including the data security and privacy Committee and the General Counsel office etcetera. So we do think that.
In light of this we're pretty well prepared in facing the reckless.
Regulatory developments.
<unk>.
Since you asked about the <unk>.
Spanish or in this regard we do believe that we will continue to.
Two to build our capability and security, including human resources.
And spending on our financial resources on this but we do not expect that this will cause any material financial impact for our financial results and also I would like to mention that in light of these regulations.
More than maybe some of the clients may choose to adopt for private cloud or.
It is.
Or a hybrid cloud, which we can provide as well. So this could also benefit for our customer acquisition efforts.
Thank you.
Thank you.
Next question is from the line of Thomas Chong of Jefferies.
Go ahead.
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Thompson Joseph.
Yeah with alcohol.
Sure.
Hi management, Thanks for taking my question congratulation.
Graduations on the strong results and I have two questions on.
My first question is regarding the obligations come load. So could you share some details about what the Carrington Ms. Martin.
And what are the financial results of Camelot homebuilding. Thank you Keith.
Our first quarter next year.
Second question is could you please put.
You can kind of about the revenue contribution from it.
Cloud customers and how should we think about the competitive landscape for public cloud and enterprise cloud and how should how are you.
Think about it is trending upward thank you.
Yes.
Thank you.
I'm happy to take.
Myself to a cautious regarding the acquisition of <unk>.
I think the order.
The necessary information on what has been disclosed in our previous.
<unk> spending of 6K fall, but happy to share some additional color on this call.
First of all.
Given kind of loss revenue and most of that.
Our recurring and also they do have a doubt.
Our products so I think at this moment.
Gross margin at the internal contribution margin at least on the double digit territory.
And our mature regarding the timing of our consolidation, we're hoping as we mentioned there is no major roadblocks for receiving the.
Countless of regulatory approvals and internal approvals, we're hoping.
There will be close some time in Q4. This year. So I think the latest time off the financial consolidation will be pure one by hopefully.
We hope the timing can we move on to push a little bit hatch.
If everything goes.
In essence, we are happy to share the updates Wednesday things are confirmed.
So regarding the revenue contribution of the public cloud clients as we mentioned in our prepared remarks.
While we're happy to see our top three clients are contributing on a year over year basis have a higher dollar revenue.
Contribution at our largest customer has also sequentially on a quarter over quarter also seeing revenue increase but given our total revenue are increasing as improving at a faster pace. So mathematically our top 10 clients are contributing a lower percentage of total revenue offerings helped drop quarter over quarter, but on a.
Gradually pace, so I think that it will be derisked derisked, our client concentration from that perspective. So speaking to your question I think right now we're happy to say that there is no major clients has been contributing a majority of our.
Revenue of Kingsville cloud over 30% and we do feel like the revenue contribution.
As a percentage perspective are healthy and are moving to the right direction.
And also as Youll see from the total company revenue mix, our enterprise cloud.
This year, it will be likely around 30% of the total revenue.
To follow that on track so our total company's revenue mix will be also moving into a house are healthy.
Healthy.
Combination so.
So that actually the few things regarding the enterprise regarding the.
Total revenue going forward I think we are going to see the major breakthroughs of the previous backlog as we discussed early would be gradually book into the revenue as we are seeing the continued.
The implementation and also the delivery of those projects. So some of the announcements and public information regarding some of the great bits of our enterprise projects has been currently implemented on track and also with Camelot addition will be helping going forward to accelerate those implement implementation schedule.
Yes.
Thank you.
Thank you. Our last question is from the line of Joel Yang.
Of Nomura. Please go ahead.
Oh gosh.
Okay.
That's correct.
They'll come up that's where before you were kind of Lucky all OCA social enterprise called no woman with Azure Dutiful holds at the enterprise called Blah Blah Blah Blah Blah brings you asked Europe actually the initial shock nowhere that's ideal.
Oh are you equal to a lot profit a long time.
Okay Gotcha guidance women, the total revenue by vertical public California.
Thanks <unk>.
Next question from warrants with consistent what are the things.
Although <unk> come along which is focusing on the post call.
It's called <unk>.
The public call and.
Maybe attribute and 49% on total revenue for Q1, so what's our guidance regarding the mix going forward.
We're just trying to play to our medium to long term. Thank you.
Thank you Joe.
Happy to share some additional color as well so as you can see the three major fundamental driver of the revenue growth number one is our public cloud.
Really from our new accounts as well as a.
And based on the existing accounts number two is our organic growth of enterprise cloud revenue and number three is a graduate of conversion of the backlog of $3.8 billion from Camelot going forward, but I want to mention that all three streams are actually all growing obviously at a different pace, but they actually are growing so depend on.
On the timing of closing the <unk> transaction, we're going to have a final views regarding how the three different speeds can convert into a final mix, but I think that will be the kind of the.
The natural results, but I think our focus of our management team perspective is to make sure that our public cloud organic enterprise cloud and an additional.
<unk> opportunities from catalog can all grow so.
I think right now frankly speaking, it's going to be a bit earlier to give our final view regarding the guidance of the mix because the timing of the closing has not been fixed yet, but hopefully given that even come out today's revenue is also growing at also a double digit.
Perspective, so hopefully.
After the consolidation as late as Q1 next year, it will significantly adding to the business opportunity talking about cloud and I think for next year the percentage of enterprise cloud will be growing as well.
Our public cloud revenue in thorough value. We believe will be also seeing a good growth for next year as.
Well thank you.
Yeah.
Thank you very much.
Thank you and that's the question and answer session and I would like to hand, the conference back to the management.
Please continue.
Thank you operator, thank you once again for joining US today, if you have any further questions. Please feel great.
Look forward to speaking with you again next quarter. Thank you.
Thank you and this concludes today's conference call. Thank you for participating.
I'll disconnect.
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Yes.
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