Q2 2022 Kingsoft Cloud Holdings Ltd Earnings Call
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Good day and thank you for standing by welcome to Kingstone Cloud second quarter. Two tells you that 'twenty two earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I'll ask a question during this session you in each press star one one on your telephone.
Please be advised that today's conference is being recorded.
And now I'd like to hand, the conference over to Mr. Nicols, Sean I, our manager asking soft out. Thank you. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us today yourself, while second quarter 2022.
Earnings release.
Earlier today and is a little bit on our IR website at IR <unk> com as well as our global Newswire services on the call today from himself well, we have our wet seal.
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Mr. Don will review, our business strategy operations and company highlights followed by Mr. Ho, who will discuss the financials and the guidance it will be available to answer your question during the Q&A session. Therefore erode because.
Orientation.
For your convenience.
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In case of any of these scripts managements $10 million of language.
Before we begin I'd like to remind you that this conference call contains forward looking statements.
Of section 21 E of the Securities Exchange Act 19 surgical.
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Forward looking statements are based upon management's current expectations and current market and operating conditions and relate to a U S study well known unknown risks.
These 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 or achievements to differ materially from those in the forward looking statements further information regarding these and other risks uncertainties or factors are included in the company's filings with the U S.
D C. The comedy doesn't does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise except as required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this conference call.
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It's now my pleasure to introduce our chairman and CEO .
Mr. Zhao. Please go ahead.
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Hello, everyone. Thank you all for joining kings up cloud second quarter earnings call and it is my great pleasure to be with you today.
For a long time I have been involved in the overall management of the company as Vice Chairman and that experience has given me in depth understanding of the company's strategy business and team.
Since taking over as CEO in August I have been in close communication with the board of directors the management team.
14 to discuss our development strategy and conduct a strategic evaluation of our business under the current new circumstances.
At the same time I have also performed a deep dive into our frontline business operations and made visits to our customers and partners.
I'm delighted to report that the senior management team remains stable and committed in our day to day business operates as usual now I'd like to share some thoughts on our business before briefly taking you through our performance for the second quarter.
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Sales kicks off pilots and cooperation we have established several core strategy as our business develops.
The first one is to focus on and explore a core industry vertical with great potential, including the Internet finance healthcare and public services sector.
And develop landmark projects and industry specific solutions.
The second one is to further advance our products and technologies in house long term relationships with customers through so curious services and help our customers grow.
Third we firmly adhere to a neutral position to provide customers with long term trusted cloud services amid multi club landscape.
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We seek to have them.
Our professional solution and project deployment capability, including integrating with the resources from catalog and the wider ecosystem to provide customers with one stop digital transformation services.
Through the implementation of this strategy, we have been able to achieve rapid growth generated annual revenues close to RMB 10 billion and to thrive to become a first tier top service provider.
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Despite the challenging external operating environment since the second half of 2020. One we have also seen clear medium to long term opportunities brought about by digital transformation across industries.
According to a recent Mckinsey report China has the second largest of cloud computing market in the world behind only the United States.
And China's public cloud market is expected to grow to USD 90 billion in 2025.
The 32 billion in point in 'twenty one.
The 45 year plan has also made a clear call to build digital economy advantages and Holistically, it's strengthened our research and development of cloud computing system in our core software technology, particularly in smart health care and public services.
In addition, there has been a growing demand for the end to end the cloud solution and services from enterprise cloud customers.
All of these serve as powerful drivers for the long term development of the cloud services market.
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At this stage, we're facing the challenges head on.
As we do so we will keep our original aspiration of building business led by technology firmly in mind.
Technology is trying to lead to product trends, which will in turn drive our sales capability and establish overall competitiveness.
As long as we excel at our core technologies and products, we will be able to hold our ground amidst a highly dynamic environment, thereby achieving the long term sustainable development at the company and creating greater value for our customers shareholders and employees.
Going forward, we will focus more on core technology areas, including computing storage network and big data in.
Handheld product trends.
We focus more on a scalable and replicable products that deliver the ultimate customer experience.
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In terms of business development.
We will continue to focus on penetrating selected industrial verticals, while cautiously exploring new areas.
On one hand, the Internet finance healthcare and the public service sectors are the pillars of our business, where we have accumulated in depth expertise and experience.
We will continue to focus on these industries refine a replicable product and services and managing the balance between scale and profit.
On the other hand, we won't give up flooring new areas.
We will capitalize on the advantages of the Xiaomi and King felt ecosystems as well as a replicable technology and products to steadily opened up new space for growth after prudent strategic analysis of potential new verticals the prospect for cloud computing.
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In terms of sales, we are committed to engaging with customers through our model driven by integrated solution.
Unlike in mature market, such as the United States. Many of the traditional industry in China have complex business scenarios and our latest daughter in digitalization.
The cloud computing ecosystem still has a long way to develop.
As a result customers cannot satisfy their business needs by simply purchasing and combining cloud products.
To address the common pinpoint we adapt to the Chinese customers' point of view.
In other words, instead of being product driven we adopt a turnkey solution driven approach by integrating our own proprietary products and technology.
Partners products and technology as well as catalog deployment capability.
Delivering one stop solution with readily accessible and tangible value to our customers.
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Lastly, and very importantly.
We will ramp up its collaboration with our strategic shareholders.
As we all embracing digitalization trend.
As an important xiaomi and kicked off the group portfolio company, we have always offered quality cloud services too and in turn received strong support from these two strategic shareholders.
Going forward, we will explore collaboration opportunities across various dimensions.
Including Digitalization research and development and seven.
To promote thriving kicked off and tell me ecosystem in a win win manner.
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These are our thoughts on strategy we.
We will continue to make improvements and maintain active communication with all stakeholders as we implement our business strategy.
On behalf of the company I would like to thank all of our customers shareholders employees and ecosystem partners for their steadfast support at every stage of our journey.
We will remain focused on development and committed to delivering long term value to our stakeholders.
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Now, let me walk you through our performance in the second quarter.
Our total revenues were RMB, one 9 billion in second quarter.
Revenues from public cloud, what RMB, one 3 billion, primarily due to the company's proactively scaling down of CDN services.
Excluding CDN services computing storage services increased by five 3% year over year.
Revenues from enterprise cloud amounted to RMB $620 million in Q2.
Largely stable from the same period last year, but lower than our expectation.
This was primarily due to the resurgence of Covid between April and June which slowed it down projected deployment process.
Our adjusted gross profit this quarter was RMB $68 4 million, representing an adjusted gross margin of three 6%.
Adjusted EBITDA margin was negative seven 7% this quarter. The decrease in margin was mainly due to the impact on revenue from Covid resurgence among other factors, which were more material than our previous estimate.
Although our cost saving measures yielded remarkable result, a profit margin decreased due to the lower than expected revenues.
Despite the significant short term results pressures, our board and our management team are committed to long term development actively managing our operations to face current challenges.
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On business front in the Internet sector, we provided exclusive and a full spectrum of cloud services, but J F. Three origin. She is on games blockbuster MMORPG, including computing power database and deliberate innate.
Enabling a smooth gaming experience for players.
We also deployed multi active architecture for WPS and our proprietary data center in Tianjin, ensuring business continuity with highly available and highly reliable cloud services.
In addition in this quarter, we entered into an agreement with.
Chinese E grocery platform to provide a full suite of cloud migration services.
We also signed into a partnership with not being a Chinese smart mobility company, providing reliable cloud computing services and jointly developing a one stop solution integrating <unk> paas and SaaS layers for the automobile industry.
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Moving to the enterprise cloud business.
And as part of the donor shows his one project, which entails transporting data from different parts of China to the western regions.
Page and computation, we took the lead in constructing an underlying data platform for the Guam.
The Hong Kong, Macau, Greater Bay area, which.
Which is one of the eight national computing power hub.
The platform will serve as the underlying infrastructure for broad entities data processing and analytics needs in the area.
The platform is equipped with a number of functions empowering data cleaning comprehensive data governance data quality assessment, preprocessing and compliant and secure data sharing.
That's another national hub in Gansu Province.
We developed the integrated computing power scattering platform and the thing young computing resource scheduling and center.
The project will coordinate computing power between the east and the West originally to enterprises outside of Gansu Province.
While providing computing power for local businesses within the province.
In public services space, we deployed high performance servers cloud hosts several covenants and storage resources for the highest in agitation cloud.
Ensuring uninterrupted learning during Covid related school suspension.
In the financial services sector.
We continued to deepen our cooperation with top banks are.
Offering additional products, such as Galaxy cloud big data and storage.
Taking the data Lake project of a leading commercial bank as an example, the data Lake helps our customer a carryout historical data storage and integrated computing and support high concurrency large scale upload and download of unstructured file.
In the meantime, we built an intelligent system to provide all the bank state of analysts with self service data analytics and data mining services.
Significantly improving data response efficiency.
In the health care sector, we continued to promote five models through our successful lighthouse project.
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Province level health care cloud model demonstrated in the Hubei health care cloud.
The province level medical image cloud model demonstrated in the chancel imager cloud.
The municipality level regional integrated model demonstrated in the city in Jiangsu.
The City County integrated Health care organization model demonstrated in should be.
And the hospital level model in great a tertiary hospitals in Wuhan and counsel.
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Overall, the complex external environment has put our short term performance under pressure.
Despite the headwinds we firmly believe that cloud computing is the foundation that drives digital transformation.
We will remain committed to our all in cloud strategy and stay positive about our leading position in the cloud service industry.
Okay.
I will now pass the call of our two hours.
He took all of our financials for the quarter. Thank you.
Oh yeah.
Thank you everyone and welcome everyone for joining our call today now I will walk you through the financial results for the past quarter.
Our total revenue was $1 91 billion RMB in Q2.
That revenue is from public cloud, where at 1.29 billion and RMB. The changes were primarily due to the company as proactive as getting down our CDN business.
What is gross billing decreasing by 30% on a Y O Y basis, why the gross billing from our computing and storage increased by 5% year over year.
Revenue from enterprise cloud was $616 6 million RMB.
We managed to deliver stable revenues from enterprise cloud year over year, as we navigated through a difficult operating environment of COVID-19 resurgence across the country, where the slowdown the bidding on a project at prominent process.
The COVID-19 impact on our business between April and June was more serious than our previous estimates.
As new bidding of sand at the appointment process for enterprise cloud projects both slowed.
Meanwhile, some of the Internet customers pause that is spending and have dialogues with the new customers leads were also affected this quarter temporarily.
Impacting our revenue growth.
Nonetheless, our cost saving measures you would expect our results leading to a quarter over quarter decrease.
$252 6 million RMB in total cost savings.
And $8 7 million RMB in non-GAAP , R&D sales and marketing expenses.
Our profit margin decreased slightly sequentially due to the slower than expected revenues and we expect such impact to be largely reflected in Q2 and Q3 of this year.
What's the overall market environment, returning to normal we believe that our business will gradually begin to stabilize in Q4 and hard work.
In terms of cost total cost of revenue decreased by 12, 1% quarter over quarter to 184 billion RMB. The ITC cost decreased by 81 3 million RMB from last quarter to 1.03 billion RMB this quarter at mailing cost sets of bandwidth.
Cabinet cost and a decrease trend was in line with our adjusted of CDN services.
So let me ask you about I'm unsatisfied with cost increased slightly quarter over quarter to a $489 8 million RMB the concepts of payments to our solution design development and our services personnel.
Appreciation and amortization cost remained stable at $249 one minute.
Fulfillment costs were $24 7 million RMB this quarter, which was in line with the trend of enterprise call services revenue.
Due to the impact from probably locked out off line deployment has been setup fulfillment cost presents the cost of purchasing technologies products and services from third parties to fulfill the demand of our solutions.
Other costs were $48 6 million this quarter.
The adjusted gross profit this quarter was six to $8 4 million RMB, representing an adjusted gross margin.
Three 6% this quarter.
Adjusted EBITDA margin was negative seven 7% this quarter. The decrease of margin was mainly due to the impact of revenue from Korea resurgence among other factors that are Paris estimates.
In terms of expenses, excluding share based compensation total.
Total adjusted operating expenses were 500 070 million RMB decreasing by three 1% from $523 2 million RMB in Q1.
Well I think that adjusted R&D expenses was 198 million RMB compared with $221 7 million RMB last quarter.
Adjusted selling and marketing expenses were 121 million RMB compared with $127 6 million RMB last quarter.
Adjusted G&A expenses increased slightly from 174.0 million RMB last quarter to $196 1 million RMB, which was primarily due to the one time off.
Compensation expenses for personnel adjustments.
That's up 230 quantifying it too we had a cash and cash equivalents and the short term the investments amounting to $5 4 billion.
Providing a sufficient liquidity for operations.
Expenditure for this quarter was 459 million RMB.
Which primarily consists of cash payments for the service we ordered previously.
For the full year of 'twenty, two we expect to keep our total Capex plan.
In the ranch Worthing, one 5 billion RMB.
In terms of the share repurchase program, we're pleased to announce that we intend to adopt a share repurchase agreement with potential size no more than 30 million U S. Dollar.
During a 90 day window subject to agreements to be finalized with the repurchase agent.
This action is persuade too and a part of the 100 million in U S. Dollar repurchase program authorized by the board and announced earlier in March 2022.
The timing and structure and the dollar amount of repurchase program will be subject to among others. The market conditions terms to be agreed with relevant repurchase agent.
Their trading process of Etfs, and the relevant securities rules and regulations.
We believe this demonstrates our continued in a waiving efforts to align share price with long term value of that business.
Finally, we are on track with our Hong Kong stock exchange listing plant and have submitted the prospectus filing.
Finally on July 27th.
Despite the recent positive progress in our negotiations on the Sino U S. Auditing corporations continue to seek dual primary listing status in both Hong Kong and the U S to proactively manage potential risks, we will closely monitor the market dynamics and proceed prudently at the right time.
A final decision in timelines are subject to both regulatory approvals and market conditions.
Looking ahead, we expect our total revenue to be between $1 95 billion RMB and 2.15 billion RMB for the third quarter of 'twenty to 'twenty, two representing a quarter over quarter increase of 2.3% to positive.
12, 8%.
All of these forecasts and our comments are based on our current and preliminary views of the market and operational conditions, which are subject to change.
This concludes our prepared remarks, thanks for your attention and we are now happy to take out from Citi. Please ask a question on your both men ran in English If festival operator. Please go ahead. Thank you.
Thank you as a reminder to ask a question. Please press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Once again Thats star 112 questions.
Our first question comes from the line of Brian Gong from Citi. Please ask your question.
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I will translate myself thanks, Matt.
Thanks for taking my questions I have two questions first is that our regarding our third quarter revenue guidance.
Okay, that's our assumption.
Oh, there's a revenue scale or public cloud and also the enterprise cloud.
And secondly, Mcmanus dress the mention that you will see the slower bidding precise of enterprise cloud projects haul is the latest trend of English in the mall space and how do you expect.
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Tendering pace you know the rationale for the year and the Hollywood does that impact your revenue I had thank you.
Thank you, Brian I'm happy to take on the first question guys showing up without going to the Eagle and hereby sankyo the country.
The whole so to start with as we explained I think in the Q2, especially the I'll call. It impacting a sit up ageing are in fact quite a lot of the business department process, So looking towards <unk>.
I think there are something on changed there or something that we executed on track and there are something still with some uncertainties I love to kind of elaborate a one by one first of all I think our plan to keep a relatively a scaling.
Scaling the size of the CBS . This pass no change which were communicated earlier. This year. So if you look at a dollar value and the total size of our business I think in Q3 are our CDN business will keep a relatively stable, but on a Y O y basis will be still around about 30% or about 25 to 30.
Y O Y decline for the CDN business.
And for the.
The core part of the public cloud, which actually we are providing services.
Storage and computing to the key into that client as well as some diversified not into that plant while using our product cartilage also we're seeing that as a very positive sign.
I think for that part we are going to see a sequential increase.
Of the public cloud of usage on the cloud computing and storage in Q3, I think that well see some trans actually picking up on the enterprise, we keep relatively prudent and cautious in Q3 as you probably understand the public side the enterprise part of it.
Need to have some faces to be deployed that final to execute it. So when we look at our backlog, yes do various draw in a robust and the core part of the backlog for this year, given the timing and pacing I think a majority of that important projects will be completed in Q4.
For this year.
With that I think in Q3, our enterprise cloud will have gradually to cry.
This will increase.
Compared with Q2 for the enterprise cloud so that's actually form the basis of a sequential increase of the total revenue compared with Q2 the mix of that revenue will keep a relatively stable lets see deal will be relatively lower.
The enterprise cloud robust on the backlog and most of them will be delivered in Q4. So I think execution is on track and the revenue conversion will be taking some time for this year.
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Some of the human body to.
So somebody is negligible.
City Hall.
Wasn't it.
So essentially.
So those are two of them with him.
Yeah, I'll do a collaborative project one one but to the cohorts are surviving a downturn when I kind of take.
Johnny High suite.
Sorry, you didn't suggest in the region.
Yeah.
Hello.
I'd love to.
Great.
Yeah.
Okay.
Okay.
Right. So just to briefly translate for Mr. Phil So as you rightly pointed out on and as we reported in the prepared remarks the call.
It impacted during between April and June .
Especially the lockdown.
And hop cities in Beijing and Shanghai.
Has inevitably creates created the delay of our enterprise cloud bidding and and.
And deployment activities in process.
Currently we can see for sure that's a commercial and business activities has improved and this is something that we can see so I would say that for the third quarter and fourth quarter.
But with our with the absence of other major cities Lockdown measures are we would say that the recovery speed is something that we can be expected. However, it is still very difficult to have a comprehensive estimate about the ongoing and lasting impact.
Impact of Covid situation.
Specialty under the backdrop that the global macro economy continued to be very weak and remain uncertain.
At the nature of our business is to be business, if I could.
Hum performance are under challenges under the overall macroeconomic conditions, it's hard for us to deliver a much better result.
And therefore, I would say that at.
At least from what we can see from business activities in July and August .
The pressure to be quite honestly, we expect that pressure will be continuing for a period of time stretching into the future. Thank you.
Thank you Nick.
Question comes from the line of Thomas Chong from Jefferies. Thomas Please ask your question.
Well as I said, one eight days.
What else the Golden television is the last one year.
Yes, it's a CAGR in Ohio.
So I'm, sorry that didn't come back.
Could you nobody.
Somebody else and somebody on the eco Pan.
Sure Glenn you are going to go home and get it out a dose at each of them were trading thing.
Essential.
Okay.
They go away like you saw unless you can Uh huh.
Yeah.
Uh huh.
Well certainly you saw that so sure.
But at same time I saw you just wanted to say Oh, well this is not true.
Let's see so most of your whole Asia Korea for Ebola.
Okay.
You also have the Honda jet.
The yields on that ship.
The spending maybe sometimes is a hydrogel cook.
Okay, who saw the figures on the design build.
Since yesterday.
Yes.
The EBITA.
Even the Prime Minister Modi is hung up because we saw level at the same time. So it was in the news.
Thanks management for taking my questions. My first question is about the competitive landscape in the.
And the enterprise cloud side do we see any changes in terms of the competitive landscape.
We are seeing more.
And my second question.
The pandemic outbreak and the global headwinds that we're facing.
Talk about that.
The met coal situation globally is still challenging so I just wanted to get some cost management qualitatively speaking when should we expect.
Based on this back to the corporate level and back toward normal situations.
Any color would be great and is that really impacting the app or the number of customers and my final question is about the timing that we should expect.
Adjusted EBITA pool Beach.
Thank you.
Oh, it was enough without the yugo.
So as we're going into the familiar enough with unions that mentioned that there's some good things.
Oh, especially the Heartlands here.
Uh huh.
And you also sort of pencil in something.
Uh huh.
Donna.
With me, it's sort of yeah, so swap.
Was it the movement to the P&L.
With some of that.
So in case of a woman.
And then they've Oh, you are pushing them to go through to the person that will figure for your political Parkway.
Yeah.
So in the mid <unk>.
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So I saw that there was sort of a dual barber.
But some of them go to the ER.
Sure the way more put out to go from here to a woman. She is in the budget of the Mexican peso mailbox. This is Peter.
Two what's opinions are behind us.
Cynosure that too soon.
Bush's sounion this July .
Ginger Pinks, you thought you should be.
Bulk of it all too well, what I said, what do I mean, Susan that women don't go you'll see the leads which it is being shipped since it fell to 30.
But even in a high price formula that you can do so you didn't use to do.
What was your pet's names that tend to push them.
With a good thing.
But it seemed to me.
So the total to be similar.
19, Jackson's trying to find out what she thought hurdles.
You would have some pension that they're good.
They've got to be afforded.
Do you think maybe when they actually get a number for you.
I think of sodium pentothal younger so you will see the same currency Vangorp you felt like that that you have.
And got them to go with a promise.
So what I'm, saying.
Sure sure.
As a hobby.
That's it.
Palmer.
Theater, you Harsha chemo.
In terms of furniture female.
Fashion the way with some folks.
So any thoughts there as well.
It took us two tend to go to China.
So on a comp two years ago.
So those two are kind of what are the Arizona cover that shouldn't sugar or sugar, Hungary, Caetano do Sul Oh.
Sounds good.
Well Michel going she's a woman.
Final finishes.
Yeah.
So even though it was unclear right. We also promote from Corona <unk> chip you mean for their character.
So sorry, just to be so.
To go to the higher.
That won't come back yet.
So with that we will probably I mean, not so some work to go and do all sorts of things.
The cheaper one silver Watson boutique.
Uh huh.
Five times in Minnesota.
Sure.
But of course, you are seeing that.
You don't you worry about is what you guys are going to be.
Doshi all sorts of Wow. This is what you have on the practice.
Adoption both of them together those yours shouldn't.
Some of them. She is all you need a cool while she said simply sort of a dog.
To sum it up on time, so far I'm talking about.
She's a go live of course everyone's home.
Favorite things are trading a lot to go.
Got it got us out of there.
Mail is actually dependent on when we go back sort of hanging at the door.
So if you.
So much of your diagnosis.
Yeah sure legal Palmer can lead us to that.
Oh, Yeah, Michael what I'm I'm sorry.
I'm going to cover the phone with you Michael Sousa.
What's your favorite before you'll see purported vignette wonder in Algeria.
Women want to warn.
Because it took us.
I figure I'd take a bigger hit.
It took us a little.
One deadline.
But you know really well, but it really isn't the Arctic circle.
Continues as all parties are somehow he can queue. So soon is what based on even a reasonable hope.
So you know what I mean.
What sort of fighting that used to come up with our culture.
To put her in a junior box.
Hunting the most it for so long it's weird I want me a quick tissue to cheaper to go too far.
Switching to put a figure.
They go through the Honeywell.
Hello.
Yeah, I'm going to do for them.
Bob I think to your point at which we didn't see much sequential without using Chattanooga.
So so far.
Well, good or bad, but I've been on board.
So the things that I think that's one.
To go was arguing with variance when eastern Suez, you mean, donlin gold guidance at all to go get paid pilot.
To pick up here.
So in the.
Boardwalk Coty soon so that it can be a problem. So you talked about what good here right now.
One is to support.
So while.
We are wrong.
Because someone else.
Nick.
Sounds good.
So it is your passion.
Try me up without using 10, Oh, Nicaragua, the kobalt tools hung up on what they're going to pick up.
The way it is.
So be it either goes up because you don't know what it actually is a secret but I'll go through.
But if.
We've also opened some oh I know.
Can you talk about the way a song cheeseburger needed to go when Kibaki, Carlos <unk> totally different whether it be a waste.
Nice job.
You are not going to go higher the pilot that you go through your body appear hot water.
So when you got them all variety of volatility this year.
So once you're done.
So the so so it's a three to a causal.
Cortisol threshold silver to gold goes up.
You've got three tortuga to Maui soon to me that you've got you got you, but you guys aren't part of you got somebody that you have of course.
So Philadelphia that particular figure.
We're gonna here, so anyway, I think I think I can easily.
Got.
That's encouraging to us.
But I don't know why.
Okay.
Yeah, so as far apart, so we could possibly some good or.
The time it seemed to me, yes, it could be to that.
So we have good evidence of the final sort of the poorer that's.
That's what they know how to you which is a junior ones have all through the through the audio Hawk casino.
Yes.
Is it harder to your question.
Yes.
So I think the father of finance. So it does have to go with them what are they know where to find it'll get handle on the.
<unk> heard me, if we shouldn't read a pillow well known.
Along the way.
Of course geology suggests danner treatable. So here you go.
He was sold and all the time.
So not to figure out how to kind of not just the so what.
So most of them without even scholar one other thought on that suddenly the citadel.
One journalist.
So I'm not going to reach of course as you try to ship.
<unk> been so when you're going to be honest, even part of the Melissa Danielle.
Uh huh.
The colder and a source of opportunity Kashagan.
Yeah.
Sure.
Oh, okay.
Are you going to put on the Eagle Ford So let me briefly translate.
Mr itself. So in terms of competitive landscape. My brief answer is that from my perspective during the past 10 years since our inception, we believe fundamentally theres no material change in terms of competition because as we started out we were competing with Ali Baba and Tencent cloud business and more recently there.
A player Julian the game, including Chinese like Huawei, but ultimately all of them are giant companies whereby in any short period of time. It is not likely that our scale can actually match with theirs.
However.
The fact that that we have developed and grown rapidly in the past 10 years has shown that we have considerable comparable advantages even in this market and playing with the Giants.
The one key reason is that the nature of the to be at two <unk> service industry.
Because the nature of this industry is that the selling single product does not really deliver value to the enterprise customers.
The company has to jointly develop solutions together with the customer to really develop and deliver value to their customers.
And therefore, it is never a winner takes it all market for <unk> service companies.
So our medical would it be a horse race, where whereby our competitor might have 20 to 30 horses, while we focus deeply on a three to five courses, which can rates really well I think in the in the past, especially five years.
The growth of our businesses in particular in financial services.
In health care has has been demonstrating this point.
In particular in the health care space, We believe our solutions and products are actually leading the game.
So I think in the future we will continue to focus on.
Our focus on a limited number of verticals and to deliver value to the customers.
And to answer your second question.
It's actually very difficult for me to.
Or when or if we are ever going to be able to revert to a status before the pandemic.
It is quite apparent that the COVID-19 has changed a lot of things.
Prevailing.
From our daily life to a larger and geopolitical struggles. However, if you're only referred to the revenue and financial aspect of it I would say that the largest impact of the COVID-19 situation.
To the cloud service industry in China is that the players in the market is shifting quickly from the rather aggressive pursuit of top line growth to pursuit of more balanced growth and profitability.
We have observed our competitors for example, Alibaba and Tencent cloud to adopt such adjustments and we have also reported in the prepared remarks that we're also adjusting to a more balanced growth rather than emphasizing revenue only we believe that this also gives more comfort to you.
Investors and other stakeholders.
As we are by doing so switching to a more sustainable development model. Thank you.
Since that time is on the oil without going kind of emptied out it sounds like you're I would take them sort of question regarding the profitability path.
Yes.
So we understand earlier this year, while I think about this year's total budget and the pacing of improving profit margin before the April end of May after call. It impact. Our initial intention is two things first of all we want to actually improving the efficiency.
Cutting loss certain nodes in the region, especially if on the CDN business. Those are two major drivers that were you were set earlier to seeing improving sequential improvement. After both profit gross margin EBITDA margin and we are budgeting for Q4 on a single quarter.
Basically hopefully our non-GAAP EBITDA margin with some profit.
However, the coalbed happening this quarter, obviously affected the pacing of implementing a third and a measure us and also the marketing environment also reduced certain demands for search and high quality products demand from some customers.
So I think at this moment, we're seeing.
Flat, especially on the gross margin side for this quarter.
Hopefully I think we are seeing improving gross margin hopefully for the next two quarters.
And we understand that actually are very important for ourself, but also for the shareholders and the market to see our results quarter over quarter to improving gross margins that reflect the quality of the products and the value of a lot.
Technology.
However, I also want to put aside that given our strategy today as we discussed earlier by Mr. So that will continue and especially the more focus on the investments into the R&D and the R&D personnel. So I think we would make some adjustments and true up in terms of all the internal budgets.
Some high quality products investments and of the people investment in next two quarters that may affect certain R&D expenses, and and <unk> and in the related expenses in those two items on a marginal basis.
So I think the expenses the budgets always follow the strategy and the business demands individuals and I think we've said earlier in our remarks today, we have laid out clearly in regarding the priorities, but I wanted to pursue in the next two quarters. So as a result, I think our have to attention as a summary first of all a way of well.
Try our best to improve that gross margin on a quarter over quarter basis. This is no change and then point number two we will make necessary investments into the R&D for let's call it two quarters and especially for high quality products. So if that will have some impact I think the timing of the EBITDA margin may be delayed.
Early or later, but that is only about a timing and I think if we make the right investment on our products and the customers of our EBITDA margin was breakeven.
Thank you.
Thank you very much for all your questions. We have now reached the end of the question and answer session. I will now turn the conference back to MS. Nicole Shanshal closing remarks.
Thank you Rob Reinhart. Thank you once again for joining US today. If you have any further questions. Please feel free to contact us.
Forward to speaking with you again next call here.
Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yes.
Okay.
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