Q1 2022 Kingsoft Cloud Holdings Ltd Earnings Call

Good day and thank you for standing by. Welcome the kingssouth clubd first quarter to thousand 20 through earnings conference call. At this time all that is been design the listen only mote. After the speaker's presentation, there will be a question and answer session.

Throughout the question during session. You need to press stalwone on your telephone, Please. The Advisor. Today's conference is being recorded.

And now I'd like to turnend to conference EV to my oshan IR Manager of King of cloud. Thank you, Please go ahead.

Thank you, operator all one and thank you for joining us today. Sub clou, first call 20 to earning release or disributed earlier today and is available on our I applied, I K's Y and as well as global news services on the call today from sub cloud we have our Inter Ong and thatil or law MR Ong. We will review our business operation and the company highlights follow byank tercall. We will discuss the financial and guidance still be available to answer question during the Q ession that follows there will be conseutduring inform or information of com and reference vers only case any discriminlyate management's statement in original language will roil. Before we like to remind you that this conference call forward-looking statements within the meaning of seions on one of the thesecurity Exchange Act of one ety and 34, as the man is, and that defund in the U's privs securityigation Reform Act of nine thousandhundred and 95. this forward looking statements upded how management's current expectation and remarket and operating conditions and reated to thaty known known risks, certaines and other factors. We are difficult to anyual we beyond the company's control which may cause the company's actual results formmanments, call iements to differ maturity from those in the forward looking statements for ther information regarding this and other risks as certain needs of factors included in the company's fings with the us SEC. The company as now and undertake anyual obligation to update any forward-looking statements as a result of new information, future UN otherwise, except as require under actable law only, Please no as otherwise today of financial figures mission during this conference call. Nomination harmb now. visure VIE, our VIE ininter this call.

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Thank you Nico, and thank you all for joining our 2022 first quarter earnings call. In the first quarter, we generated R? Ing the two point one seven billion in total revenues, which was an increase of two 20% year-over-year and above the high end of our revenue guidance range.

Our publicty cloud services revenues reached rmthe one point three eight billion, remaining stable year-over-year, and our enterprise cloud services revenues reached RMB 792.5 billion, up 89% year-over-year.

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As previously communicated, starting from the second half of 2021, the Internet sector fac pressures from market headwind, new regulations and the epidemic.

For public clou services. traffic-driven demand continued to grow, But at a pace slower than before, as Internet companies focused more on high-quality development.

In respons to the market change, we initiated our strategic adjustments in the fourth quarter last year. We have proactively downsized our CDN services and allocated more resources to core clou services, including computing storage and enterprise cloud, facilitating their fast growth.

We are pleased today that we had completed the strategic adjustments plan for this quarter, which started to bear fruit.

Growth billings from core clap services increased 61% year-over-year and exceed our guidance.

The proactive downsizing adjustments of the CDN services is progressing in an orderly manner. In Q1, the gross billings for CD services decreased 20% year-over-year.

In terms of profitability. Our initiatives to comp costs and improved efficiency have delivered substantial results, with our adjusted growth margin improving to 4% from 1% in the fourth quarter 2021.

In future quarters, we expect to continuously evaluate and dynamically optimize resources allocation, inenhcounousting business agility and promoting gradual improvements of profitability.

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Since the beginning of March, the coh resurgence across China and the corresponding prevention measures adopted significantly slowdown market demand and severely interrupted offline business operations.

For us. In response to the continued slowdown of the traffic-driven demands in Internet sets, we proactively scale down CDM services, while the worldth off computing services among public cou services remain strong as growth buildillings of computing achieved a 45% year-over-year growth.

As a result, our public cloud servories, it remains stable as a whole.

In terms of our enterprise clou services, the market demand potential remained enormous. However, the epidemic fee to cost, delays in bidding, delivery and acceptance check of cloud projects.

Our customer fronts, benefiting from our 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 CM to sign our first partnership agreement with genk forest, a fast-growing coverage brand in China.

Overall in the short term, we still face challenges from the macro environment.

For this year, we plan to focus on quality growth, margin improvements and core industry verticals.

In the long run. We believe that the ongoing trends for digital transformation, where enterprises increased cloud adoption to drive efficiency and safe costs, remains intact and will keep driving massive demand for our business.

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Internet companies have been transferring more nontraffic-driven business operations from their internal on-premise environment onto cloud services.

Therefore computing services growth remains strong.

We'd also like to mention that on the gaming front, with the recent release of several gaming licenses, we're actively engaging our gaming customers on their incremental cloud servies needs and are making progress in our corporation with csun gme, along with another top gaming company, to support the launch of their new games.

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Moving to enterprise cost services.

Enterprises 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 caoing, delays to project timeline and increases in delivery costs.

To mitigate the impact.

We are implementing a higher project of quality standard and margin thresholds.

In the public services sector. We want the bid to build a one-dop rental housing E platform for guoang industrial development heldings Park. The platform allows users to off various roles to operate, manage and provide the affordable rental housing services for the city.

As a leading cloud company with core technology capabilities, we continue to take part in theinternational projects transporting data from Eastern regions to Western regions for storage and calculation or, in Chinese, funal asssement.

Besides the pilot project for the tenyang cluster in guno computing hub, which is one of the 10 national clusters, we expect to seize more opportunities in big data and computing projects.

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In the financial services sector to continue to dive deeper into top customers' need for cloud services in multiple scenarios, deliver industry Lighthouse projects and keep perfecting our solutions offering.

With timelnot joining at us. We ve further expanded our coverage of top financial servic customers.

We announced 90% of China's top 20 banks and have been continuously having cooperation dimensions. Take some of our key account projects. For example, during this quarter, in ventking space, we want the? B to provide data management and cloud infrastructure products to icbc technology to jointly build a unified financial service and management buvees.

In insurance base. We will provide public cloud services to China life insurance, a leading insurance company in China. This represents an important landmark project as a pioneer insurance companies transitioning from on-premisits deployment to hybrid cloud environment by improving their recognition of public cloud.

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In the Healthcare sector, digitalization upgradees has become a key topic for medical institutions, regional healthcare networks and smart health cities since kovid started.

Healthcare. Cloud collutions needed to address several challenges, including the magnitude of data size, complicated structure, high storage requirements for image data and varying digitalizational levels among regions.

A robust and stable digital value infrastructure provides the foundation for the value of maximization of data assets.

And clust service companies like us. T proved to be an essential component of the digital upgrade for the health care industry.

As the epidemic, ressearch in Shanghai and counsel profits. Since March, we took quick action and urgently deployed our teams, togetherchter with cloud infrastructure resources, to support local containment efforts.

We thought about barginginfrastructure dedicated to coinion of pseudo city for esamic containment.

The infrastructure enabled data collection aggregation governance analysis, integration and sharing, providing high-quality and stable data support.

In hobea province. Following our success with the health care project in hube province and buhan city, we want another project to building an information system for special disease prevention and control, where we will be building a middle pliform.

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In conclusion, the complex economic environment and epadmic resurgence this year have put pressure on the short terrun growth.

But thanks to the strategic adjustments since Q4 last year, we have laid solid foundation for mid to long-term revenue expansion and margin improvement.

Cloud computing carries long-term potentials. Looking ahead, we will adhere to our strategic direction and pursue daddy in the high-quality development, while improving our business stability and profitability.

We will fully leverage our technological strength to provide stable and efficient cloud services to our premium customer base.

Do you have an lot on the saple hereit we that you are. How yto do those highwawiyear decision. I will now ask the fall over to our CFO herit to go over our financials for the first quarter.

Central uning and I web on everyone for joining a call. Before turning to the financial detail, I would like to walk you through the following highs for the past quarter.

First of all, our total revenue reached two point one seven billion rmp in Q1, above a high end of our items, which ranange from two point zero five.

two two point one faced on B.

At the represent of growth of 20% year-over-year. Within that, our core cloud servicies, including computing storage and anerprized cloud servaties, increased by 61% year-over-year this quarter.

Second we are pleased to see that we have been making significant progress in our cost control strategy exfusion.

The adjusted gross profit for this quarter increased by 152% quarter-over-quarter to 83.6 million RMB.

Adjusted growth margin increased largely from 1% in previous quarter to 4% this quarter.

Adjusted the EBITDA margin, narrowed from ntive ten point fac cent in the previous quarter to a ntive 7% this quarter, as we introduced in last quarter. As the new technology budgets from Internet factor cliines in general had been increasing at a slower pace than expected.

Starting from second half of last year, the demand to us has been softened and affect our resource efficiency cannot ded to the bottom line.

In response to the market change since Q4 last year, we proactively diffze our cim services and allocated more resources to our core cloud services.

We have taken active cost control measures and improved overall operational efficiency.

Even though we are still facing a challenging microeconomic environment, we believe we are on track to achieve quarterly adjusted EBITDA margin breaking keven in Q4 th 2020 -two.

Third as of March thirty-first 2022, we had cash and a cash equivalent and short term investment.

Amounting to five point six bill RMB, providing our sufficient liquidity for operations.

A CapEx for this quarter was 622.4 million in the.

This increase was primarily due to the procurement of high-performance service which, caterling to our increasing demand from our core comclputing services, as well as the 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 larrd to one point factory AMB.

We firmly exeued our high-quality development targets and allocated onlying server resources prudently to our core cloud service growth.

Last our Board Directors has recently authorized a company to repurchase up to one million U's dollar of our ordinary shares in a 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 a company growth and a commitment to a generating long-ter value to our shareholders.

I will now go through our financials in detailers.

Revenues from public CL remain stable of IA at one point three eight pillar hour. This quarter it was primarily due to.

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40 45% year-over-year worth of our computing services and offset by 20% -over-year decreased our whole CN business.

Which proactively narrowed down in terms of enterprise class services. Even though the COVID-19 has disrupted delivery of certain off-line products, market demand from traditional enterprises and izations remain strong. Our enterprise class services achieved a solid increase of py-nine percent year-over-year to a 792 Min.

In terms of compst control and oftenamtheation, we have achieved effectiveness. This quarter total car of revenues decreased by 20%.

Quarter of orarder to two point zero nine be and B.

The ADC cost decreased by 221.6 million M from last quarter to one point one one billion mb. This quarter had remained consistent of birwest.

And a cabinet cost and a deepcreested trend was in line with our adjustment of idiom business.

Solution development and services. Cost decreased by 8% quarter quarter to sell 100 to 476 minab.

It consists of payments to our solution design.

Is develoamments and a services personnel.

deprestiationia and amortiuration cost increased by 10% quiteoa a quarter to 246 millionaire B.

Fulfillment costs will 108, four point five minillion B this quarter and it represents the cost of purchasing technologies, products and facilices from third party to fulfillment the demand of our solutions.

Other costs were 76.9 minuteion on of the this quarter.

In terms of expenses. We have completed the preliminary pollinization optimization and efficiency improvement.

Resulting personnel expenses decreased compared with Q4 last year.

it'sexcluding sharebased conversation at the MNA.

How do adjust the operation expenses while 532 mill AMB increased sequentially by 10% from 578.7 million andb in Q4 last year?

Within that, adjusted on the expenses were 221.7 million, compared with 200 and fory six point two million in the last quarter, adjusted selling and marketing expenses were 127.6 million.

Compared with 161 minill-out last quarter. Adjusted genic expenses remain stable at 174 mb.

As of March 30, first 2022, we had a sufficient of cash and a cash equivalence and short-term deposits of five point six billion in mb.

D ear quarter caolic expenditures were 622 points.

Formula the increase was mainly due to the increasing purchase of high end performance services to meet the incremental demand from strategic core services of computing and storage.

We expect our full year. Capex were ranked from one to one point five D a.

Which will be prudently allocated to meet the demand from our core cloud services.

Meanwhile, we have released our DSC in the mental, social and the govervenant report for 2021, along with our annual point earnings may.

We would have highlight that the Nominating that corporate, the covenant Committee of the Board, will primarily responsible for overseeing ESG initiatives at a boall level.

And the company has appointed, at a first, independent female for Directors, enhancing gender diversity and a workplace inclusivity.

Looking ahead, we keep focusing on a balance between new revenue expansion and the margin improvement.

We expect our total revenue to be between two billion the and a two point two bill B for the second quarter of 20 and 20, tworepresenting a year-over-year increase of about negative pereffect to positive one point two cent.

It is mainly due to the offline fulfillment delay of neras cloud business.

In the middle of the short term. COVID-19 ressearchers.

We have continue to embrace opportunities poamic.

We're offering a view that our profitability will keep it upward trend. The adjusted gross marketing will continuously will be higher in the second quarter compared with Q1.

Other the stable market condition assumptions would believe we are on track to achieve quarterly adjusted EBITDA margin breakeven by Q4 on thirget two.

All these forecasts and comments above are based on our current and preliminary views of the market and operational conditions, which are subject to change.

In addition, based on the cominga market condition, would have already common a share repurchase program which was authorized by the bal March to purchase up 100 minillion U's dollar of the share's during a wel-month period.

We were closely hearing from the feedback from shareholders and a deliber value of cre our shareholders.

Finally while moving forward with our Hong Kong stock exchange listing plan and well on track with the progress.

We seem to maintain.

Independent listing status in both Hong Kong and the? U's to maximize protection our shareholders.

Given the recent positive progress in the negotiation on the final? U's audits in Corporation, compbined with fluctuuration in the global capital market, we we will carecfully monitor proactively adjust our execution timeline to safeguard the interests of our existing shareholders.

We'll look closely, monitor the market together, other anmaturary dynamics and a proceedved food entity at the right time.

The finalis decision and timeline. Subject: probothed magnetical approvals and market condition.

Thank you.

And you. This concludes our perm and biotechship and we are now having to take your question. Ple ask our questers in both planary and inversion, if possible. Operator, Please look go head you.

Thank you as a reminder, if you wish to ask a question, Please P star one on your telephone. L lights for your name to be announced. If you wish to withdraw your request, please press the panel or hashkey. Please stand by while we compel the question and nanswer roster. So once again, if you wish to ask a question, please press star one on your telephone.

Al Ice. questionst comes from the line of thmstrong FRAM jeffreies. Please us a question.

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So thank you very much to your question. So essentially, the second quarter is mainly impactedis that co situation en ergy, as you can see. I just elaborat-e: acgoinging to the to services in terms of public CL services, withthink the impact limited. There is some small impact for the for the increased amount in our data centers in the if in China, if in China, Northern China, for for their increasing business business operations, but it is not any material impact. The impact, on the other hand, on enter is gradically largeun, especially in Q2, because the basically the control measure is terms of sgope and the timing that its spend have exceed our expectation and that situation has impacted the bidding, the implementation, the deployment and the delivery of our enter projects. But as far as we can see is that since the end of last week, some of the projects that's ongoing, we have already started to resume some of those projects that have been impacted and re still having several weeks towards the end of June . So we are trying to catch up with the time to to meet the of the product target as much as possible. So that leads leads to the guidance that Henry has provided towardstowards the end of the prered remarks.

Thank you.

Thank you. Our next caution comes from the line of Sophie Jun from C: Please go ahead.

This is Sur from C N C, C and thanks management for taking my questions. So we've heard about the use of head count cutting across many tops Tier Internet companies. I just wonder, like many of which, our case case customers. So do we expect any change in their demands and how well the dollar value of those core customers change and accordingly, shall we expect any head count adjustments within case C? Now, just de ending Act BU concentential you nextwith the legle you should. I M a packco ING and the now kindnotof do with on do that's to things in the go. So they think take co next co come and ING and back ual on. Next a list ING cook all our value things N an sho, the govergumment you should going, and then how you should.

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And question. So terms of public CL, we know that the market predominantly foring on the Internet AR rates which some of them are customers So for, for the changes, adjustment that you mentioned, actually we have already expected that and what we see that's happening in this quarter are exactly on holding. According to what we had expected and, as mentioned, in the expectation of those changes, we have active downsize our city business due to the increase volatility of the ccity business. Now, by adjusting downwards the ccity Su planli know we are was able to come on more profitable business which again is consistent with our expectation. And you know, another part of the non ccity business for those customers of ours is that when they are focusing on reduction of their cast, it is also a incentive for them to increase the cloud adoption which is good for their, their cost, a savings and therefore therefore we are observing increase amount for non city business, couly age and certaindly we also have made progress in the first quarter in in terms of new customers for public cloud services in the ENT. I know we didn't particularly ask that but we discuss earlier it only impacted by the coity situation and rol ventasures. And for the second question you ask fact the case the have adjustgments. Since the completion of acquisition of cam last year we have started the integration with cam which includes the integration of the employees, which has largely been completed by and of last year. So as now we have a combined have of roughly one thousand people for case C and am combined together and we expect that number to remain relative, to be stable or with a small decline throughout the, but largely is stable.

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So in I think you very much question and I think answer the first question about the COVID-19 impacts. Essentially the impact is pretty much the concentrated on the enterprise outside. For the public outside the impact does not have any material. The whole suation does not have a a material impact. It to the business especially. We do think maybe there is actually some short ter abseting of the public usage. Just the full, that co factor, factor per say, and for the enterprise side, for the first quarter actually the impact of limited because is mainly after Chinese spring. That impact is to show the resurgence of the co situation to take place. But the fact the second quarter impact was almost covering the full quarter, So it is relatively year. So there are two kind of situation. one is that some of the projects, the projects that's already in process and we essentially you seeing delays of those projects and for those sort of projects because we currently still in June , on the early June , we think you take a look for the, the full year firstperspetorive. We do think there is still time to catch up with the time that Lo, during the, during the quarter, due to the control measures. And for second, the which is essentially the leading process that got delayed during the control measure. We think that you, according to our communication with to a prospect of customers, there is no material change in that risk facts, especially in terms of public service customers and health care customers. We think the risk of missing the full year guidanceis currently, as we can say, is not material. So we think, generally speaking, in the, the basis were too on fact to deliver the, the full year guidance right now and we do not think I think of any necessity to adjust for that, that guidance for the enterpr business.

Now for the, for the public clou side, our communication with our key mion customers, those net customers included, has been very MO and we have a very open most channel communicating with them. So desp, all the changes and challenges that we mentioned, those are things that's not outside of our expectation, for both the, as you can see, and all the evidence by the numbers that we just disclosed in the first quarter. So both the existing customers and new customers there has been aggressively we have to grow for the usage of the nontraffic driven demand. So that that's something that to to know. And also in terms of competitive dynamics, we think that for the veryt industrial verticals that we focusing mainly the, the financial services Internet, the public service in health care, the varied entry in those partictical vertical sha relatively high and we think after this many years of operation our competitive answer has been reinforing. So we think we do not be really material change in this, in this in the enterprise, comareditive dynamics.

Yes okay know if I may also have it to offer a few more data points to help trit.

First of all, if you remember, in the recent this clo and our dollar retention rate for the public cloud clients for last year was around one unfourunteen percent. So even consider the active decrease of the CD revenue contribution but this number is loading basis into the Q1 this year. We still believe above home percent. So that's actually as a base of the growth of the revenue opportunities across the Board of the public cloud clients. And the second point is if you look at our first mix of the revenue of the CD versus the computing business, in Q1 our computing business itself actually delired very solid growth, around 40% on a yoyear basis. That in this number is also above the industry average in Q1, especially in a very difficult market conditions.

So if you are putting the two numbers together you may see re number bus to the fundamental demand of the computing demand for from our Internet client base, actually pretty OK. And if you crossp checked the number without Cove expenditures in Q they year with spend out coming many R, you can tell that the money we spent, basically the servers and high end infrastructures, already started to producing revenue in Q1 immediately. So if there is a lot of risk going Su regarding the demand of the client then our covered expenditure will not be convert ular revenue so quickly and effici Q1, especially for the storage and computing business. I think these are the few numbers you probably can health and form of foundation of the growth, especially from compleing and storage and the relatively higher business from our holy clou clients Thankyou.

But you think thinks very helpful.

Thank you all. Next question comes from Joel ING for Nomura. Please go ahead.

But world that was that was we deal for on uation Y do and C D year year did a P dire course cre jo the whole. The arggover ENT is the woman ion I I contin our water on that. Really that's high. We is outter lower young Girl and is a public in the first CL. Which issue should deliver, a issue which you focus on Ind the whole is the high of you going to begin. This is jo. For my first CL I have two questions. My first question in the last V, can we release, you know, the C V percentage, the total public car for one to 20 to second, one is for short term becauset of the public market situation. Maybe we are focusused on and the price market and the first call into a long term. I get we as to on based on the to real strategy. We, you know, focus on both public and and the firstice car and put Ind into a both sector to deliver pres in understanding correct. Thank you.

Have take on the first question. There are few important ofidation when we think about planning and budgeting. We want to use opportunity to balan now only the CD revenue contribution but also the top client concentration risk C lawso. There are few important dimensions will track on the annual basis. First of all for 20 twent two we are assuming no single client will contributing more than 20% of the total revenue. King of cloud. And the point number two is we want to assume around 20, five percent for run a range of the CD business as a total revenue. King of clou year financial: ly 20 twent two So when we look at that strategy in Q1 I think we have to see that the CD revenue as a contribution of total revenue of have decrease from historical-ically, let's say fiftythe above 50% ahistorical years to around 30% already below percent in Q1. So the a trend is very clear, an important quarters. I think the absolute dollar revalue of the C revenue will remain vality of the stable it and our total ficency on are working and infrastructures. But as a percentage of total revenue we will see gradually coming down that next few quarters. But I think the two important dimension numbers as I mention in the beginning will be important guidance for missing part whole year mix of the combination I.

Thank you all. Next question comes from Alex yo. From JP Morgan, Please as a question.

To see ING H what continue going year in the commission, the condo, how us from your, the uation leading, ING by your, your that leading, your leading or for So your timeing the, your and log fing from the what think one udthe gy the, how should ly G, the and the, jum then coming year here more that or what B the year will push on and jum P, the not the bso my question is to follow up the enterprise clouds demand in this yearbased on your observation, is the budget allocation to ado enterprise clouds very strong demand from the corporate the with were without the co impact, without economic slow down impact, they will be very strongly committed to the adoption of the oud or another highlight the pation of the own business or do they have more flexibility C adoption and if the topline facing pressure from macro, from impact, they are likely to slow down the budget allocation to opt those cloud cloud solutions and I guess the answer has allowed to do? Will they be able to see immediate efficiency improvement or more mization right after the adoption of the cloud solutions or they in the a narrow stage to figure how to use the cloud solution to make the efficiency, make the operation more efficient? Thank you.

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So just just to add one of the prior question of mission was about whether would continue to to will kind of driven of business model going forward and the answer is for sureort certainly and for the for for the for the public. We see that the demand continue to be actually very strong being driven by the cost reduction centensive both those customers or driven by the multi clou the demand. So we continue to be committed to thisso this type of business and for the enterprise side it actually differs along across verticals ST special. I think for example the financial services sector. Although the sector has been developing in in the for many years and we have as just the mention in the prepared remarks have been covering another percent of the top bank top line. Act in trying to there is actually continue to be in the lastastic demand from the those customers but not that demand comes from the demand and requirements for technology and for their business. It's not even you know related to you know their budgeting. So this is the dillastic demand and we can evidence by the fact that the COVID-19 doesn't have and impact to this kind of projects and second one and health care industry which as you can understand it actually increasase the COVID-19 situation actually increasase the demand for health care projects and you know that also increased the granularity of a lot of the health care institutions and government agenci management process and thereby the driving more project as well. The public services side from our communication with the potential customers we haven't really occur about the sufficiency of budgeting and therefore changing more cancellation of those projects. So that's basically because situation.

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Alright, Thank you. Our next question comes from townomsend ru, from ubbs. Please ask your question.

one going butington's he when well, when the Jose then jud Alex that he when she's young, just she guid point its own Wards the whole. I went the the LD do M just way how she justosesen to the Su sides the going a fourll to the courvo J stiny going Son told you high the well he it's a de he when around co the you just in to B since on told when H D ALJ that chinion going she that G she the the you adjusted proofit breake Gi the Chin go ation day guidancenot will don't mean one B. my first question, as it's his relationship with what Alex just passed about. A lot of invester asked how China's macro situation and will impact enterprise cloud adoption hold of the long term. There is any impact? And then it', S. So what vertical specifically? And then the secondd question is asked on behalf invester on the the call he's last. She would like to know what full year guidance the company has given beyond reaching a adjusted, even a breakeven point in fourth quarter, has the company given full year 2022 guidance? Thank you.

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We think that we understand, given the market, really care about mayacgrowth, con the situation in China. From our experience know of our company in the public clou services our customers are may be Internet that customers we feel like it's not going to be materially know the impact as well as the house, the general policy of the government remains stable. From what we can the experience our business for the public clside remains robust and with strong, strong growth. So where relatively know optimistic with that and on the enterprise outside the have mentioned just now the, there hasn't been any significant sign potential customers handceing projects were canceling or changing materially their budget. And we also see that the government have some the incentive make RO economic of policies for the second half of the year and we expect there might also be a WA, the opportunities versus see. So that admittedly that the wholeing control measures in the second quarter have had on impact, but now those impact but mainly about the pace and certainty for that particular period of time and we don't think that to overall speaking for enterprise, the that a part of the business, we remain optimistic.

Yes second, ter as N. the second question: buckets of the profitability. You are right, I think we expecting to hit the quarterly breakeven of the non gap EBITDA margin in q4- 20 20, two and, as we also mentioned, we are in week one of June So in Q2 as in, our growth margin will be likely higher than Q1 Y 20, two and hopefully we we keep upward trend in general of the of the course margin. On the second part, you given were doing lot work on the cost control mix and the diversification of the criments. So hopefully our co clli co, cloud services, including computing storage, and at first ST as a whole the total revenue of the buckets will be generally grow at a higher pace compared with the industry average and the major peersand, the thirarch, while we are not providing official guidance for the full year total revenue.

But as say yo, it mentioned D ING re queeling on track or our total budget internally and a while there is a one time and formly impact Q1 given the COVID-19, but hopefully on a full year basis will remain the same terms of the total targets, internal and workacks celing. That is on that and a snow change of the total budgetand.

Right Thank you, I'll find a cquest in kmong timimmoth. Joel framm, German Sachs. Please have a question.

Other how and say when, show that you and now what you you go into into that now and do. If you do the see that from IO, your DI and I can change all lements and that the you do you in ion, you see that from the your I have exam. You know it had a RA on he ily and I say gman other soci isingand our question is that, and you imagine fortaking that question. My question is on the cost control. Start is actually, as we see in the first quarter, with the big decline in C cost. How much for the decline coming from C ST for Fu year and what other cost contro initiatives we going into eplement for the rest of this year? Thank you.

Yes veryly on sense for, pointed out I think we do, evenielding a very short period of time, which you C o Grids, and solid trend on the results. So you are right, approximately saving our many and beyond C cost. As you know, within the cost item there are leasing expenses- we paid to rent the cabinet- and there are the bandwidth costs which are of the majority of the portion on the IC cost. So the major reason was our adjustments of the CD and business strategies since Q4 last year. But going forward we are still assuming there are few things we're working on- we will have further leverage to decrease the C cost, including there are at a planning of rental of the IC locations, including our budget and a more and abounound technology to saving the energies.

Including a few initiatives were taking to optimize the downloading, upstreaming of the fan wasest capacity and they are using working on that. I franktly don't think that D NA co were go down because, as you know, as spending the CapEx to buying high performance, keep PS and the infrastructures are seen- assuming there is a good capex- that were drive the good revenues. So the D NA expenses- I don't think were- are affecting a lot and that mathematically were not affecting the EBITDA margin as well as that because the D NNA expenses was adding back.

The fulfillment cost and the developments of the solutions, those two items, giving the further integration with a clot where may have further room to reduce the cost of those two items. And that, as were also facing, given we are selling more recurring business and the products were also converting into a higher margin, as we are seeing, there are few important kind, especially in the financial services and health care, were doing or ready phase to Ric. So the initial fulf fulfillment and har expenses will be reduced given the capability and the recurring basis of those revenue.

Regarding the rdsing, we may have some potential room to see a dollar value decrease going forward, while we continue to spend time and resources on a cost strategy and technologies.

The sales and the marketing and the gnaicing. Will we remain relatively flat by cting in? The gna will also have some flatx plated to adjust on.

So we have a very strict, prudent an approach to navigate and prior highest a few different initiatives. But, as seen, those things will be unfolded in the next few quarters. But majority of the war has been completed and Al in placethank.

Right Thank you very much for all your questions, So I'll now turn the call back to nicofor closing remarks.

A you and erk. Thank you once again, Paul. Joint asset, if you have, I includ concludes real free to compare. Look forward just tospeacome with you again. Ex for telfnext. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.

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