Q1 2022 Kingsoft Cloud Holdings Ltd Earnings Call
Good day and thank you for standing by welcome to Kingstone club's first quarter to tell them 22 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 answer questions. During the session you will need to press star.
One on your telephone please be advised that today's conference is being recorded.
And now I'll like to turn the conference over to Mr. Kocian IR manager of Kings of quote. Thank you. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us today, so well first of all it hurts when you got into earnings release.
Earlier today and is available on our IR website at IR adult he asked why you and they'll come as well as on global Newswire services on the call today from yourself well, we have our CEO , Mr. Eudy law and the several Mr. Harry Mr. Huang will review, our business operations and company highlights.
Hello, Mr Ho, who will discuss the financials and the guidance still be available to answer your questions. During the Q&A session that follows there it'll be like doing Russia, all integrations off oil can witness and reference purposes, only and kids. So any discriminate managements day money in the original language well before we begin I would like.
To remind you that this conference call contains forward looking statements within the meaning of section 21 of the Security Exchange Act open license or default at the money I thought it'd be fun in the U S. Private Security Litigation Reform Act of 1919 five. These forward looking statements are based upon management's current expectation and current market.
And operating conditions and relate to you are studying well known or unknown risks uncertainties and other factors all of which are difficult to predict and many of them reach out beyond the company's control, which may cause the company's actual results almost all of two minutes due for maturity from dosing the forward looking statements.
Information regarding this and other risks Oh.
What factors are included in the company's filings with the U S. S. E C. The comedy does undertake any obligation to update any forward looking statement as a result of new information future U S or otherwise except as required under applicable law.
Please note that unless otherwise stated all financial figures mentioned during this conference call are denominated in RMB.
My pleasure to introduce our CEO you see.
Please go ahead.
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Thank you Nicole and thank you all for joining our 2022 first quarter earnings call.
In the first quarter, we generated RMB 217 billion in total revenues, which was an increase of 20% year over year and above the high end of our revenue guidance range.
Our public cloud services revenue reached RMB 138 billion.
Meaning stable year over year.
Our enterprise services revenue reached RMB, $792 5 million up 89% year over year.
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As previously communicated starting from the second half of 2020, one the internet sector.
Pressure from market headwinds, new regulations and the epidemic.
Public cloud services traffic driven demand continues to grow but at a pace slower than before as internet companies focus more on high quality development.
In response to the market change, we initiated our strategic adjustments in the fourth quarter of last year.
We have proactively downsized, our CDN services and allocated more resources to core clubs, including.
Including computing storage and enterprise cloud facilitating their passports.
We are pleased to say that we had completed the strategic adjustments planned for this quarter, which started to bear fruit.
Gross billings from core Cob services increased to 61, 2% year over year and exceeded our guidance.
Proactive downsizing adjustment of the CDN services is progressing in the orderly manner.
Q1, gross billings for C D. Other services decreased 22% year over year.
In terms of profitability, our initiatives to cut costs and improve efficiency has delivered substantial results with our adjusted gross margin improving to three 8% from one 2% in the fourth quarter 2021.
In future quarters, we expect to continuously evaluate and dynamically optimize resource allocation and how things does it agility and promoting gradual improvement of profitability.
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Since the beginning of March the Covid resurgence across China, and a corresponding prevention measures adopted significantly slowed down market demand and severely interrupted offline business operations.
In response to the continuous slow down of the traffic driven demand internet sector, we proactively scaled it down CDN services, while the world of computing services. Among public services remained strong as gross billings of computing achieved a 45% year over year growth.
As a result, our public cloud services remained stable as a whole.
In terms of our enterprise cloud services the market demand potential remains enormous.
However, the epidemic did cause delay in bidding delivery and acceptance check off about projects.
Customer from benefiting from a premium customer strategy and the robust business operations such customers enjoy we're able to maintain stable relationships with our existing premium customers, while strengthening our efforts to expand our customer base with industry vertical leaders.
For example in the first quarter, we teamed up with Camelot to sign our first partnership agreement with Gunky Forest, a fast growing beverage brand in China.
Overall in the short term, we still face challenges from the macro environment.
So this year, we plan to focus on quality growth margin improvement and core industry verticals in.
In the long run we believe that the Golden trend for digital transformation, where enterprises increased cloud adoption to drive efficiency and save costs remains intact, and we'll keep driving massive demand for our business.
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Now onto our public cloud services.
Internet companies have been transferring more non traffic driven business operations from their internal on premise environment onto cloud services.
Therefore computing services growth remained strong.
We'd also like to mention that on the gaming front with the recent release of several gaming licenses, we're actively engaging with our gaming customers on their incremental cloud service needs.
We're making progress in our cooperation with see some game along with another top gaming company to support the launch of their new games.
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Moving to enterprise cloud services.
Prizes and institutions across the board have been increasingly turning to cloud at the natural choice of digital transformation.
However, the epidemic has disrupted the pace of such demand.
Any delays to project timelines and increases in delivery costs.
Mitigating the impact we are implementing Ohio project of quality standards and thresholds.
In the public services sector, we won the bid to build a one stop rental housing E platform for great Young industrial development held as park.
Allows users to various roles to operate manage and supervised the affordable rental housing services for the city.
As a leading power company with core technology capabilities, we continue to take part in the National project transporting data from eastern regions to western regions for storage in the calculation or in Chinese social as you thought.
Besides the pilot project for the Qingdao cluster. He got it from computing hub, which is one of the 10 national clusters, we expect to see more opportunities in big data and computing projects.
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In the financial services sector, we continued to dive deeper into top customers need for cloud services in multiple scenarios deliver industry lighthouse projects and keep perfecting our solutions offering.
But I'm not drawing at US we further expanded our coverage of top financial services customers.
90% of China's top 20 banks and have been continuously adding cooperation dimension.
Take some of our key account projects for example, during this quarter in banking space. We all debate to provide data management and cloud infrastructure product to I C. B C technology to jointly build a unified financial services and management buffer.
In the insurance space, we will provide public cloud services to China life insurance, a leading insurance company in China. This represents an important landmark project added pioneered insurance companies transitioning from on premise deployment to a hybrid cloud environment by improving their recognition enough public cloud.
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In the health care sector.
Its utilization upgrade has become a key topic for the medical institutions Regional health care network, and Smart health fitness since Covid started.
Health care cloud solutions needed to address several challenges, including the magnitude of beta sites complicated structure high storage requirements for image data and varying digitalization of level among regions.
A robust and stable digital cloud infrastructure provides the foundation for the value.
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And the cloud service companies like us have proved to be an essential component of the digital upgrades for the health care industry.
As the academic research in Shanghai, and Counsel Province, since March we took quick action and urgently deployed our teams scatter with cloud infrastructure resources to support local containment efforts.
We set up a cloud infrastructure dedicated to quit a shot of pseudo city for episodic containment.
The infrastructure enabled data collection aggregation governance analysis integration and Sharon.
Providing high quality and stable data support.
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Vincent will have a city, we want another project to build an information system for special disease prevention and control, where we will be building and middle platform.
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In conclusion, the complex economic environment and economic resurgence this year have put pressure on the short term growth.
Thanks to the strategic adjustments since Q4 of last year, we have laid a solid foundation for mid to long term revenue expansion and margin improvement.
Cloud computing terrorists long term potentials looking ahead, we will adhere to our strategic direction and tissue study and high quality development, while improving our business stability and profitability, we will fully leverage our technological strengths to provide a stable and efficient cloud services to our premium.
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Now I'll pass the call over to our CFO Harry to go over our financials for the first quarter.
Some people are doing and I welcome everyone for joining our call.
Before diving into the details I would like to walk you through with a falling for the past quarter.
First of all our total revenue reached two point of one 7 billion RMB in Q1.
Above the high end of our guidance, which ranged from 2.05.
Two 2.1 put it on me.
At the restaurant growth on plenty of upside there year over year.
Within that our call cloud services, including computing storage and enterprise cloud TV increased by 61, 2% year over year this quarter.
Second we're pleased to see that we have been making significant progress in our cost control strategy execution.
The adjusted gross profit for this quarter increased by 152% quarter over quarter to $83 6 million RMB.
Adjusted gross margin increased largely from one point to besides any previous quarter, two or three 8% this quarter.
Adjusted EBITDA margin narrowed from not tip 10, 5% in the previous quarter to seven 1% this quarter.
We introduced in last quarter.
The new technology of budgets from the Internet sector clients in general have been increasing at a slower pace than expected.
Starting from second half of last year, but they matter to us has been soft and it affects all resource efficiency connect it to the bottom line.
In response to the market change since Q4 last year, we are proactively downsized, our CDN services and allocated more resources to our core cloud services.
We have taken active cost control measures and improve overall operational efficiency.
Even though we are still facing the challenging macroeconomic environment. We believe we are on track to achieve quarterly adjusted EBITDA margin breakeven in Q4 pleasure plenty too.
Third as of March 31, 2022, we had cash cash equivalents and short term investments amounting to 5.6 billion RMB, providing us sufficient liquidity for operations.
Capex for this quarter was $622 4 million RMB. The increase was primarily due to the procurement of high performance service, which catering to our increasing demand from our cloud computing services.
Well as a cash payment for the service, we ordered last quarter.
For the full year 2022 we expect to keep our total capital expenditure plan in the range of one bit of RMB two one.
Got it.
We are firmly execute at a high quality development targets and allocate it on the lion's share of our resources prudently 12 call cloud service growth.
Lastly, our board of Directors has recently authorized the company to repurchase up to 100 million U S. Dollar of our ordinary shares in the form of American depository shares.
During a 12 month period today, we are pleased to announce that we have entered into a share repurchase program, which demonstrating our strong confidence in our company growth and our commitment to generating long term value to our shareholders.
I will now go through our financials in detail.
Revenue from public cloud remain stable year over year at 1.38 billion R&D this quarter.
It was primarily due to.
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40, 45.1, Saturday Youll have both of our computing services and offset by a 22% year over year decrease our wholesale business.
Which proactively and narrow down in terms of enterprise class or is this even though the COVID-19 has disrupted delivery of certain I'll find product market demand from traditional enterprises and organizations remain strong.
Enterprise class selling test achieved a solid increase of 89% year over year to 792 point in talking it up.
In terms of cost control and the Ultimate Asia, we have achieved the effectiveness this quarter total cost of revenues decreased by 20%.
Oh quarter to 2.0 not bid on them.
So how do you see costs decreased by $221 6 million RMB from last quarter to 1.11 billion this quarter.
Main consistent of bandwidth.
And a cabinet cost had a decrease trend it was in line with our adjustments all city on business.
Solution developments out of service as costs decreased by 8% quarter over quarter to 700.
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Conscious of payments to our solution design.
The latter months at our services personnel.
Depreciation and amortization cost increased by 10% quarter over quarter to $246 1 million RMB fulfillment costs were $184 5 million beat this quarter and it represents the cost of purchasing technologies products.
And the services from third party to fulfill the demand of our solutions.
Other costs were $76 9 million that'd be this quarter.
In terms of expenses, we have completed the preliminary organizational optimization and efficiency improvement.
Resulting personnel expenses decreased compared with Q4 last year.
Excluding share based compensation right at the end they hold or adjust the I. Appreciate expenses was $532 2 million RMB increased sequentially by nine 6% from $578 7 million being Q4 last year.
Within that adjusted R&D expenses were 221, let me know.
Compared with $246 2 million in the last quarter.
Selling and marketing expenses were $127 6 million RMB.
With 161.2 made out of the last quarter.
Adjusted SG&A expenses remained stable at 174.0, yeah that'd be.
As of March 31st 2022, we had a sufficient of cash and equivalents and short term deposits.
5.6 billion RMB.
During this quarter capital expenditures were 622 points.
Formula That'd be the increase was mainly due to the increasing purchase of high performance services to meet incremental demand from strategic all services of computing and storage we're <unk>.
Our full year Capex will range from one to one five.
Which will be prudently allocate it to meet the demand from I'll call quality.
Meanwhile, we have released our E.
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Social and governance report a plenty of time to watch along with our annual report in early May.
But what I would highlight that the nominating corporate governance committee of the board will primarily responsible for all of us see ESG initiatives at Apollo.
The company has appointed the first independent female board directors enhancing gender diversity in the workplace inclusivity.
Okay.
Keep focusing on our balance between revenue expansion and margin improvement.
Our total revenue to be between 2 billion.
B and a tool to get out and be for the second quarter 22, representing a year over year increase of about negative 8% to a positive one 2% and.
And it's mainly due to the offline fulfillment delay of enterprise cloud business.
In the middle of the short term, COVID-19 resurgence.
What about continue to embrace the opportunities post pandemic.
Also in the view that our profitability will keep it upward trend that adjusted gross margin will continuously to be higher in the second quarter compared with Q1.
Although the stable market condition assumptions, we believe we are on track to achieve quarterly adjusted EBITDA margin breakeven.
Q4 plenty of 'twenty two.
All of these forecast and comments above.
It's all our current and preliminary views of the market and operational conditions, which are subject to change.
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Based on the kind of market condition, we have already covered.
Our share repurchase program, which was authorized by the board in March to purchase up to 100 million U S. Dollar off the shelf you only have a 12 month period.
We will closely hearing problem of feedback from shareholders and to deliver long term value to all shareholders.
Finally, while moving forward with all the Hong Kong stock exchange listing status and we're on track with its progress.
We seek to maintain.
Independent listing status in both Hong Kong and the U S to maximize protection of our shareholders.
Given the recent positive progress in the negotiation all the Sino U S auditing accomplish I combine it with the fluctuation of global capital markets.
Well look carefully monitor out of productivity or just all execution timeline to safeguard the interests of our existing shareholders.
We are closely monitoring the market and regulatory dynamics how to proceed prudently at the right time.
The final lithium decision timeline is subject to both regulatory approvals and market conditions.
Thank you. This concludes our prepared remarks, that's probably on the ship and we are now happy to take out.
It's asaf.
Those factory in English as possible operator. Please go ahead.
Thank you as a reminder, if you wish you asked a question. Please press star one on your telephone and wait for your name to be announced if you wish to withdraw your request. Please press the pound key.
Please stand by while we compile the question and answer roster. So once again, if you wish you ask a question press star one on your telephone.
This question comes from the line of Thomas Chong from Jefferies. Please ask your question.
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No offense management novel, taking my questions. My question is about the Q2 revenue guidance. Okay management comments about the monthly trends that we are seeing in April may and June respectively.
And I'll keep them right now are we have already passed the first week of June just wanted to get a sense about our confidence level in terms of the guidance under what scenario would be hitting the low end and high end because I think the low end, we I talked about lack of if you will.
Just wanted to get some color about our thoughts at this point. Thank you.
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So thank you very much for your question so.
Yes, the second quarter is mainly impacted by the Covid situation and as you can see I just elaborated according to the two.
Our services in terms of public cloud services are we think the impact is limited there are some.
More impact for the.
For the increased amount in our data centers in the eastern China, Eastern China, Northern China.
For Oh, they're increasing our business our business operations, but it's not any material impacts are the impact on the other hand on the enterprise cloud.
The project a lot, especially in Q2, because the basic.
Basically the control measure in terms of the scope and the timing that it's fine I'll have.
Exceeded our expectation.
And that situation has impacted the bidding the implementation the deployment and the delivery of our enterprise projects.
That's as far as you can see since the end of last week are some of the project. That's ongoing we have already started to resume those some of those projects that have been impacted and are we still are having a you know several weeks towards the end of.
June so we're trying to catch up with the time to to meet.
The program target as much as possible so that leaves us to the guidance that Henry has provided towards the end of the prepared remarks.
Thank you.
Thank you. Our next question comes from the line of Sophie Jiang from C. ICC. Please go ahead.
This is certainly from Chelsea and thanks management for taking my questions.
So we've heard about the news of head counts cutting across many top tier internet companies.
Wonder like many of which are casey's teeth customers. So do we expect any change in their demands and how long of a dollar value on those core customers changed.
And accordingly, I shall we expect any head count adjustments within Casey.
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Thank you very much so question so in terms of Uh huh.
Public Oh, we know that the market was predominantly you know focusing on the internet a conglomerate, which some of them are our customers.
For the for the changes and adjustments that you mentioned actually we had already expected that and what we see that's happening in this quarter I exactly unfolding. According to what we had expected and as mentioned in the expectation of those changes, but we had proactively downsized our CDN business in due to the increase of all.
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A downwards, the idiots supply, where apple was able to come on.
Our profitable business of which again is consistent with our expectation.
And another part of the non CDN business for those of our customers of ours is that when they are focusing on reduced reduction up their cost. It is also a an incentive for them to increase their cloud adoption, which is good for their their cost savings and therefore, therefore, we are observing.
Increased amount for non CDM business, how do you stitch.
And certainly we also have made progress in the first quarter in in terms of new customers for public cloud services are in the enterprise space I know you didn't particularly I forgot about it after we discuss Oh, yeah, it's mostly impacted by the Covid situation and control measure and for the second question that you asked about the case.
Do you have kind of adjustments since the completion of acquisition of Commvault last year. We have started the integration with Camelot, which includes the integration of the our employees, which has largely been completed a pilot by year end of last year. So as of now we have a combined headphones off roughly 10.
People for Acacia and Camelot come back together and we expect that number to remain relatively stable with a small decline throughout this year, that's largely stable.
And how does it fit.
Thank you. Our next question comes from Kyna Wong from Credit Suisse. Please ask your question.
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Translate myself. The first question is actually a follow up question that wanted to take on more detail about the impact on the enterprise cloud because I, perhaps some quiet partly I cannot compete cannot be completed by the end of this year is with that and then the impact in the first quarter and second quarter and the or something if that's the impact.
I just forgot.
Our budget from the government or like well, that's not that's not quite yet and the second question is about the the public call industry trend because I do see some landscape changed here and the one or two a year sharing from the management. Thank you.
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So thanks very much.
Thank you very much for watching them and I think to answer the first question about the Covid impact.
Essentially it impacted pretty much concentrated on the enterprise item on for the public about the impact it does not have any mature it doesn't obviously its weight and does not have a material impact to our business, especially well. We do think maybe there is actually some short time I'm flipping off the public of usage just before COVID-19.
Factor factor per se and for the enterprise cloud side for the first quarter actually the impact is limited because it's mainly after the Chinese Spring Festival.
I stopped to sort of show the resurgence of the Covid situation started to take place, but the effect of the second quarter impact was almost covering the fourth quarter. So it's relatively severe so are there to kind of situations when they start to fall off the progress.
<unk>, that's already in process and where essentially you start you know seeing.
Seeing delays on those projects and those sort of projects because we are the <unk>.
Currently it's due in June and the early June I would think you could take a look for on a full year perspective, we do think there's still time to catch up with the all time best slot during down.
During the quarter due to the control measures and for a second the type a which is essentially the bidding process. That's called delayed during the control measure we think that's a you know.
According to our communication with respect to a prospectus passengers are there's no material change in that respect I'm, especially in terms of Opex service customers and health care customer.
Customers, we think the risk of missing at our full year guidance constantly as we can see it it's not material. So a we think generally speaking yes.
We're still on track to deliver the.
The full year guidance right now and we don't see I think of any.
A necessity to adjust for that that guidance for the enterprise business now.
Now for the for.
For the public cloud side, our communication with our key customers. Those customers included are asking very smooth and we have a very open and smoked channel communicating with them.
Despite all the changes and challenges that you mentioned those are things that are not outside of our expectation for both the as you can see it and also evidenced by the numbers that we just closed in the first quarter for both existing customers and new customers. There has been a relatively faster growth for the usage of the non traffic driven demand.
So that's that's.
Something that two two to now and also in terms of competitive dynamics, we think that for the vertical industry verticals that we've focused on namely the financial services Internet.
Opex areas in health care, the barrier to entry in those particular verticals actually had relatively high and we think after this many years of operation our comparative agile has been reinforcing. So you think we do not see really material change in the index in the enterprise cloud comparison.
That dynamic.
Okay now if I may I'm also happy to offer a few more data points to help triangulate that.
First of all if you remember.
In a recent discloses anywhere apart our dollar retention rate in Florida public cloud clients philosophy or well, it's around 14%. So consider the active decrease off the C D and revenue contribution.
Operator, I believe eroding basis into the Q1 this year.
You can either above so that's actually a base after a gross up the revenue opportunity is for across the board on the public cloud clients.
The second point is.
If you look at our person himself the revenue off the C. D. A bus at the computing business and kilowatt hour computing business itself actually deliver very solid growth around 40% on a year over year basis. Starting in December is also above the industry average age or whatnot, especially in a very difficult market conditions.
So if you're putting the two numbers together you may see around 2% or about the fundamental demand all stuck computing demand for some of our Internet base actually is pretty okay, and if you cross check that number with all cabinet Spanish or actual endesa, we spend about 600 million RMB.
Can tell that the money, we spent basically the servers and the high end infrastructure already started producing revenue in Q1 in the industry. So if there is a lot of risk and ensure they got into the amount of the client that I'll cover capital expenditure went up you congrats into their revenue so quickly on the efficiency until what.
Especially for the storage and computing business I think these are the few numbers, you'll probably can help and form the foundation of the growth, especially from computing and storage on the relatively higher business from a public cloud.
Okay.
But you see and very helpful.
Thank you. Our next question comes from Joel <unk> from Nomura. Please go ahead.
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My first question I.
I have two questions My first question.
Basically we are.
At least.
There's a lot of things with total public call for one couponing to my second one is for short term because of the public health market situations.
Maybe where folks onto the bus market in the past call button to a long time I guess, we have to own based on the two wheel strategy we'll.
Okay, so imposed a public enterprise called and called the R&D into both sector.
This is my understanding correct. Thank you.
Yes, sure Joe I may have to take on the first question. There are few important ratio why do I think about planning and our budgeting.
We want to use the opportunity to not only the C. D had a revenue contribution but also the top client concentration risk as well. So there are a few important dimension is well on track on the annual basis first of all full time and here too. We are assuming no single client who are contributing more than 20% of the poll.
Revenue all case I'll talk at a point of maturity, we want to assume around a plenty of 5%.
Without that branch off the CDN business as a total revenue came from cost yeah for financial year 'twenty two.
So when we look at that strategy in Q1 thing, we're happy to see that.
The city of revenue contribution of total revenue has decreased from historically, let's say 50 or above 50% right in historical years too.
To around 30% already sending kilowatt. So the trend is very clear and then call it in Florida.
The absolute dollar value also sitting around and it will remain relatively stable at all totally efficient field and they're working on.
But as a percentage of total revenue, we will see gradually coming down in the next few quarters, but I think the two important dimension numbers as I mentioned in the beginning will be important guidance well, let me think about the whole year a mix of the combination.
Thank you. Our next question comes from Alex Yao from J P. Morgan. Please ask your question.
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So my question is to follow up there.
Enterprise cloud demand in this year.
Based on your observation is the budget allocation to adopt enterprise clouds are very strong.
Demand from the corporate center.
With or without the COVID-19 impact of weak oil without a doubt.
Economic slowdown in parts of the world.
Hum very strongly committed to.
The adoption of an account or put another way each time, a digitization of their own business.
Do they have more flexibility.
Adoption.
And if the pipeline is a facing pressure from Mexico from a.
Covid impact to be on.
Likely to slow down a bunch of allocation to adopt those so called cloud solutions and I guess the answer has a lot to do well.
Will they be.
Are you able to see immediate efficiency improvements.
Or more monetization, but off to your adoption of visa.
Power solutions.
Or are they still in the kind of narrow stage to figure out how to use the cloud solution to make the efficient and it makes it accretion more efficient. Thank you.
Okay.
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Yes.
So just just to add on one of the prior questioners question was about whether we continue to do this too will kind of feeling our business model going forward and the answer is for sure it separately.
For the for the for the for the public pop side, we see that the demand continues to be actually a very strong being.
Being driven by the cost reduction incentive both those customers or driven by the multi cloud demand. So we continue to be committed to this.
This type of business and for the enterprise side. It actually differs among across the verticals that especially I mean for example in financial services sector.
Although the sector has been telling you for many years and we have just mentioned in the prepared remarks, I've been covering 90% of the top banks topline at Baxter in China, There's actually a continued to be in the elastic demand.
Kosmos does not that's amount comes from the demand and requirements for technology in their business.
It's not even related to argue that budgeting. So this is a man.
I think the mountains and we haven't as also evidenced by the fact that the company doesn't have any impact to this kind of project and the second one is health care of industry, which as you can understand it actually increased the COVID-19 situation actually increased the demand for housing projects and you know that also.
The increase of the granularity awful lot of the health care institutions, and government agencies management process, and thereby driving more project, that's well put public services side from our communication with the potential customers.
We havent really heard about the D insufficiency of budgeting and therefore, you know changing or cancellation of those projects. So that's basically the situation. Thank you.
Yeah.
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Yeah.
Right. Thank you. Our next question comes from Thompson Group from UBS. Please ask your question.
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Sure sure.
Q2.
The net profit breakeven.
Let's see opinion consistent that you'll see from our guidance.
Not we won't show you don't need one thing Joseph My first question has to do is relationship with what Alex just asked about a lot of messages are asking how China's macro.
Situation will impact our enterprise cloud adoption over the long term if there is any impact.
And then if so what what vertical specifically and then the second question is asking on behalf of them unless you're on the call.
He's flashy would like to know.
Full year guidance, we kept the company has given beyond reaching adjusted EBITDA breakeven point in fourth quarter has the company given full year 2022 guidance. Thank you.
Okay.
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So.
That's all we understand that.
And the market really care about the macro economy situation in China.
Our experience with our company in the public cloud services.
Our customers are mainly internet sector, our customers feel.
Feel like it's not going to be a materially.
Packet as long as the policy the general policy of the government remains a stable a lot we can experience our business for the public I still remains robust and with strong strong growth. So we are relatively optimistic.
Ultimate stick with that and on the enterprise side on the as mentioned just now.
There hasn't been any new significant style high potential customers canceling projects or canceling or changing.
Really their budget and.
And we also see that the government I have some incentive.
Macroeconomic policies are for.
For the second half of the year and we expect there might also be a wave of opportunities for us to see.
So.
Admittedly the coffee control metrics in the second quarter have had some impact but that those impacts are mainly about the pace and uncertainty for that particular period of time, and we don't think that the.
Overall speaking for enterprise cloud.
A part of it I think we remain optimistic.
Yeah. Thank you Thomas and on the second question.
All of the buckets of the profitability.
Right I think we are expecting to hit the quarterly breakeven after non-GAAP EBITDA margin in Q4, 2020 two.
And as he also mentioned.
In the week one in June so in Q2, I think our gross margin and what the likely higher than Q1 'twenty to 'twenty, two and hopefully we can keep upward trend in general after the gross margin.
On the second part and I'll give you a lot doing a lot of work on our cost.
Cost control mix and the diversification of our clients. So hopefully our hawkeye called cloud services, including computing storage and that if I saw.
As a whole.
Total revenue that bucket will be generally grow at a higher pace compared with the industry average as our major peers.
And search while we are not providing.
Official guidance for the full year total revenue.
But as I say, you'll get a merchandising we're executing on track of our total projects internally and a while terrorists a onetime quarterly impact in Q1, given the COVID-19, but hopefully on a full year basis would remain the same in terms of the total target internal day in Iraq cooling that based on that.
No change.
Total budget.
Right. Thank you. Our final question comes from Timothy Zhao from Goldman Sachs. Please ask your question.
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We are bullish on it.
Did you realize that she's had a jumbo family sounds won't want heavily when I see a company that's for sure.
Thank you management for taking my question. My question is on the cost control side, especially as we see in the first quarter deal with the big films with declining how do you see cost how much further decline can we expect a phone how do you see cost for Q2 and full year and what other cost control initiatives are we going to implement for the rest of this year. Thank you.
Yeah, I think I can't remember correctly illness are essential for pointed out I think we do have air show up till the time, we do see upgrades at a solid trend all on the results.
So youre right, we approximate a saving of about 100, many R&D all of that is it cost.
As you know within the RSA cost item. There are leasing expenses were paid to rent the cabinets and our bandwidth cost which are off majority of propulsion all of that is it cost.
So the major reason was our adjustment of the CDN business strategy since Q4 last year, but going forward. We are still assuming there are a few things about walking all will have further leverage to decrease the ITC cost, including there are plenty of rental after I D. C locations include.
Putting our budgeting at a more advanced technology to saving the entities, including a few initiatives, we're taking to optimize the downloading a screening of the bandwidth capacities and adapt to what they were working on that.
Frankly, I don't think that D&A cost will go down because as you well know we're spending the capex to buying a high performance Gpus and infrastructures I think assuming that is a good capex that will drive the revenue side of it. The other expenses I don't think we're affecting a lot and at that mathematically, but not affecting the EBITDA margin.
So I understand because of D&A expenses, adding back.
The fulfillment cost and the development of the ferocious those two items I think giving a further integration with it coming off where it may have further room to reduce the cost of those two items and that's why this will also affect it given that we are selling more recurring business and products will also come.
Verde into a higher margin that's what I've seen there are a few important price, especially in the financial services and health care, while doing or any of the phase two of the three so the initial fulfillment fulfillment and R&D expenses will be reduced to give enough good ability kind of recurring basis off those revenue.
Regarding the R&D I think we had mass, but actual room to see a dollar amount. It would decrease going forward. While we have continued to spend time and resources on our core strategy of technologies.
The cell phone market and the G&A I think will be remain relatively flat, but I think that you had and they would also have some flexibility to address all of that.
So we have a very.
Our prudent approach to navigate in the problem I have a few of them.
Initiatives, but I've seen those things will unfold.
All folded in the next few quarters, but majority of the work has been completed in that already in place.
Great. Thank you very much for all your questions. So now I'll turn the call back to Nicole for closing remarks.
Yeah. Thank you Olaf and again apologize if you have any color.
Feel free to come past look forward to speaking with you again, that's telling us. Thank you.
Thank you that does conclude our conference for today. Thank you for participating you may all of them.
Disconnect.
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Sure.
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