Kingsoft Cloud Holdings Limited Q1 2023 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Kings of Cloud first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there's going to be a question and answer session.
If you wish to ask a question, please press star 11 from your telephone. I would not like to end the conference.
Confront over to the AR manager, Nicole Shum. Please go ahead, Mar. OK, we have one morefully left, so we can go ahead and save that one for somebody else.
Thank you, operator. Hello everyone and thank you for joining us today. Kinstap Cloud's first quarter 2023 earnings release was distributed earlier today and is available on our IR website at IR.ksyun.com as well as on global news web services.
On the call today from Kings of Cloud, we have our Vice Chairman and CEO Mr. Zhou Tao and our CFO Mr. He Haizan. Mr. Zhou will review our business strategies, operations and company highlights, followed by Mr. He who will discuss the financial data guidance. It will be available to answer our questions during the Q&A session that's on the line.
statements within the meaning of Section 21e of the Security Exchange Act of 1934 as defined in the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expeditions and current market and operating conditions.
I relate to events that involve no or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ maturely from those in the forward-looking statements.
Further information regarding this and other risks, uncertainties, or factors are included in the company's filings with the US SEC. The company 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 know that, unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It is now my pleasure to introduce our Vice Chairman and CEO , Mr. Zou. Please go ahead. Thank you.
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Hello everyone and thank you all for joining KingSoft Cloud's first Q1, 2020-23 earnings call.
We continued to uphold the principle of high quality and sustainable development.
build success based on technology and innovation, forge our reputation throughout the entire business process with customer centricity.
and enhance our business and operations management. During the quarter, our profitability further improved.
Revenue reached RMB 1.86 billion, in line with our guidance.
Adjusted graph margin increased to 10.4%, a historical high and 6.6 percentage points higher than the same period last year.
This is also the fourth consecutive quarter that we have recorded a sequential improvement in adjusted gross margin. The gross profit reached RMB $194.4 million, a historical high and up 133% year over year.
Normalized adjusted EBITDA margin was negative 5.9%, which is a significant improvement of 4.2 percentage points higher than the last quarter.
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Next, I will provide some updates on our progress across four key areas, public clouds, enterprise cloud, product and technology, and latest business updates.
I will provide some updates on our progress across four key areas Public Cloud, Enterprise Cloud, Product and Technology and latest business updates. I will start with Public Cloud Services.
Revenue was RMB 1.15 billion with a gross margin of 2.1%, significantly higher than the negative 3.4% gross margin in the same period of 2022.
Uploading the overall strategy, we emphasized three main goals for public cloud services, namely supporting the Xiaomi and Ting
optimizing our customer structure.
and improving our cost and efficiency profile.
On the first point, we are committed to our original vision and fundamental of firmly supporting the Xiaomi and Kingsoft ecosystems with first-class products and technologies that help drive sustainable revenue, profit, and reputation. In this Quorum, we are committed to our original vision and fundamental of firmly supporting the Xiaomi and Kingsoft ecosystems with first-class products and technologies that help drive
Revenue from the Xiaomi and Kingsoft ecosystems increased year over year, represented an increasing portion of our total revenues and with a healthy margin.
To ensure that we maintain our respective reputation, we proactively reached out to customers to better understand how we can improve services experiences and adjust our services accordingly.
Second, optimizing our customer structure is a critical component of our strategy to build differentiated business approach and boost profitability.
We have focused on expanding our customer base among medium-sized businesses.
strategically withdrawing from lock making project for larger customers.
During the quarter, we negotiated or signed deals with dozens of medium-sized customers, including growth sector companies such as EV Vehicle to Everything, also known as V2X service providers, for example, Navin
Third, we implemented strong cost reduction and efficiency improvement initiatives and enhanced supply chain management. During the quarter, we increased our resource utilization rate by eliminating redundancies.
reducing rigid minimum bandwidth commitments, and relocating and consolidating IDC REX. We also leveraged our diverse channels to build a computing power resource pool that relies on a combination of directly owned and leased assets.
enabling us to nimbly match the demand elasticity of different clients while protecting our profitability.
These initiatives provided a strong foundation for improving the financial performance of our public cloud business for this quarter.
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Moving on to Enterprise cloud services. Revenue was RMB 710 million with a gross margin of 24%. A significant improvement from 16% in the same period last year.
We continued to implement strict project management measures in terms of customer quality, business sustainability, accumulation and reuse of core capabilities, and profit margins. Our public services cloud businesses expanded further.
During the quarter, we renewed the contract for the Beijing Public Service Cloud for the 9th year and expanded our footprint to Shandong, Shanghai and other regions.
Of the years of development, we have gradually built a mature business model of public services cloud that generates healthy and sustainable margins and a wealth of opportunities for value added data projects.
In digital health, we are strengthening the five business models we deploy, namely the Regional Healthcare Cloud Model, the Medical Image Cloud Model, the Integrated Healthcare or Organization Model, the Regional Integrated Model, and the Smart Hospital Model.
These models allow us to tap into market opportunities with differentiated approach, accumulate and reuse our capabilities.
During the quarter, we made milestone progress in our deaths, also known as data at the service product portfolio, penetrating the hospital market through our data management platform, adapting to made-in-chime assistance, and leading a major national R&D project on biology and information in...
institutions such as industrial bank and China's city bank. Health-existing find solve new challenges and focus on technical areas where we have unique advantages such as big data.
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In terms of product innovation, we live up to our model of building success based on technology and innovation, by constantly and rapidly iterating our product.
and providing a vaccine-class customer experience across our core offerings. Our
In cloud computing, our container instances officially started to support the elastic scaling of container clusters, hosting customers' own data centers, enabling unified management of on- and off-cloud resources.
Ensuring a smooth scaling into the cloud, storing spikes in usage. This solution can reduce all end off-cloud better with cost by around 80%.
For such achievements in cost performance and efficiency, it is honored as one of InfoQ's top 10 cloud-native innovation solutions. In cloud storage, our object storage product is gaining more and more recognition from the market.
Jumping to fourth place, in the fourth quarter of 2022, China's software-defined storage report published by IDC Research, with its market share doubling compared with 2021. We also launched an all-flash array object storage product, which doubles read and write performance.
particularly well suited to application scenarios such as AIGC and the separation of computation and storage in big data, providing tiered storage solutions with top-up aligned performance at a high cost efficiency.
In the Enterprise Cloud space, we upgraded Galaxy stack to solve Cloud usage and management pain points for enterprise customers.
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and the trust and appreciation of an independent AI company. Third, we provide a sufficient amount of GPU server resources to customers quickly and quickly.
Second, we stand strictly neutral in large language model space.
This position enables us to retain the food trucks and preference of the many independent AI companies that use our platform.
Third, with a combination of directly owned and leased assets, we're able to offer sufficient GPU server richels to meet our customer's needs.
In general, the achievements of the past few quarters have shown the vitality of our strategy.
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We will continue to follow these strategic directions, and in practice, we will continue to create value for our customers, shareholders, employees and society by using the strategy well. In summary, our results over the past few quarters have shown that there are many positive developments in the market. We have seen a significant increase in the number of
demonstrates that our strategy is yielding results.
As we prepare to meet future opportunities and challenges at all, we will nimbly execute on this strategy to create value for our customers, shareholders, employees, and society.
I would now pass the call over to our CFO Henry to go over our financial for the first quarter of 2023. Thank you. Thank you, Zouzou. And welcome everyone for joining the call. Now I will walk you through the financial results for the first quarter of 2023.
Guided by the high quality and the sustainable development strategy, we are pleased to see that our profitability further improved sadly in the first quarter.
Our adjusted growth profit continued to grow for the fourth consecutive quarter and achieved record high of 194.4 million RMB, increased by 133% year over year, representing adjusted growth margin of 10.4%.
Along with our strict expenses control, our normalized adjusted EBITDA margin improved from negative 6.6% in the same period last year and a negative 10.2% in the last quarter to a negative 5.9% this quarter.
Our total revenue was 1,864.4 million RMB this quarter.
which were in line with our previous outlook.
Within that, revenue from public cloud services was 1,163.7 million RMB. Compare with 1,380.8 million RMB in the same period of blast year.
The decrease was manning due to our proactive adjustments of the CDM business as well as impact from our clients structure adjustments.
Revenue from Enterprise Cloud was 710 million RMB, compared with 792.5 million RMB in the same period of last year.
The decrease was mainly due to the January infection of COVID-19, seasonality impact, and the product quality control.
We continue to enhance our cost control measures. Total cost of revenue decreased by 20.2% over year, to 1,670.2 million RMB.
IDC costs decreased significantly by 21.4% year-over-year from 1,110.3 million RMB to 872.4 million RMB this quarter.
Depertuation and ammitation cost decreased by 8.7% from 246.1 million R&B in the same period of last year to 224.6 million R&B this quarter. Salution development and services cost decreased by 11% from 476 million R&B.
to 423.6 million RMB this quarter. For fulfillment costs and other costs, were 120 to 0.7 million RMB, and the 26.9 million RMB this quarter.
representing a just-for-course model of 10.4%.
Compare with 3.8% in the same period of last year. The significant amount of improvement demonstrates the success of our strategic adjustments of our revenue mix, optimize enterprise-car product selection, and efficient cost control measures, and re-infer our strong commitment.
to improving our profitability and delivering high quality and sustainable development. To help the market and investors better understand our business and our past two profitability, we separate these clothes of growth margin and growth profit for public cloud and enterprise cloud in order to better reflect our business nature.
Within our business life, gross profit of public cloud services was 24.8 million RMB, which was significantly improved from the growth loss of 47.2 million RMB in the same period of last year. Gross margin of public cloud services were 2.1% compared with net give 3.4% in the same period of last year. The improvement was mainly due to the proactive scaling down of the ideas.
was mainly due to our more stringent enterprise-powered product selection strategy.
In terms of expenses, excluding share-based compensation and impairment of long-lived assets.
Our total adjusted operating expenses.
or 595.8 milliron b decreasing by 18.3 percent from 729.6 milliron b last quarter.
Within that adjusted R&D expenses was $220.6 million decreasing by 15.4% from last quarter.
Adjust the selling and marking expenses worth 100.04.2 milliron B compared with 118.4 milliron B loss quarter. Adjust the GNA expenses decreased largely by 22.3% from 370.9 milliron loss quarter to 289.1 milliron B.
As of March 21st, 2023, our cash and the cash equivalent and shortening investments amounted to 4.5 billion R&B, providing us a significant and sufficient liquidity for operations.
The capital expenditure for this quarter was 44.6 million B, which primarily consists of payments for service.
We have been taking control of our procurement of traditional servers, such as the ones being used for CDN's business.
While for high performance service, especially in the recent popular AIGC areas, we're being actively operating, cooperating with our suppliers in various ways to access the resources needed.
will be an O-Cax model. Meanwhile, due to the payment schedule, certain cash payment for servant purchases including the service will be used for the AIGC business, which we ordered earlier this year, will be gradually reflecting sequentially in the falling quarters.
Lastly, we have recently released our ESG report for 2022 to present a very in-depth review of the company's progress in the last year in ESG practice.
We've also noticed that recognition from rating agencies and scrolling up the company increased from certain well-known ESD agencies. We have taken great pride in educating the highest ESD standard.
We'll continue to strengthen our ESG governance and engage with our partners to amplify our positive impact in the cloud industry and the society.
We will continuously strengthen our ESG governance and engage with our partners to amplify our positive impact in the cloud industry and society, thereby delivering long-term value for our shareholders.
Looking ahead, we will continue to pursue our high quality development strategy and unlock synergies within the Xiaomi and the Kinsok Group Eagle system.
while staying agent to capture new opportunities in the new era of AI technology at the moment.
We expect our total revenue to be between 1.85 billion RMB to 2.0 billion RMB for the second quarter of 2023.
Why are these forecasted comments of a based on current and preliminary views on a market and operational conditions?
which are subject to change. With which we firmly believe that given the time, the effect of ongoing strategy initiatives and the new business opportunities, especially in the EICC areas, were continuing to amplify and reflect our financial results in the mid-to-long term. Thank you.
Thank you, this concludes our remarks. Thanks for your attention, and we are now happy to take our questions. Please ask our questions in both Chinese and English, if possible. Our presenters, please go ahead. Thank you. So, ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star 11.
on your telephone. We are now taking the first question.
And the first question from Xiaodong Zhang from CACC. Please go ahead. Your line is open.
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our GT margin. We have seen a meaningful sequential improvement in the growth profit margin for the first quarter. So is this improvement sustainable and what is our expectation for the segmental growth profit margins in the mid to long term? Thank you.
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Okay, so indeed we have noticed our tier players so-called large scale price cuts and we have analyzed it carefully. In terms of conclusion, I would say that it's impact to our current products and services.
are limited and there's actually no material impact to our current offerings of products and services.
Now, as to in the future, whether we have anything similar in terms of pricing strategy, we should say that the tier players catalog price cut is actually limited. If we just take a close look at the specific products that are included in this action.
And we also do not think that it has any material impact to the industry as of now. So our feeling is that this action is more geared towards PR purposes.
not think that it has any material impact to the industry as of now. So our feeling is that this action is more geared towards PR purposes. Thank you.
Thank you, Sophia. I'm having to take on the second question regarding the growth profit. As you mentioned, we are very happy to see that, especially starting from the second half of last year, the company has adopted quite an important initiative to expand our growth profit, which you probably can see in the recent results. Have a good time.
achieved very positive results. But also I want to put the data into the contacts in the past set quarter sexually.
If you remember, the lowest point on the course margin was back in Q4 of 2021. At that time, if you remember, our course margin on a company level was only about 1.2%.
And in the past six quarters, especially the second half of last year, we sequentially increasing the growth margin to today's about 10.2%, which is actually almost 7 to 8%, 7 to 8 times higher than the P4 product on your one. It reflects your combination of
a few important reasons and the drivers. First is really the better mix of the products, including our efforts to cutting back certain low profit and margin products.
And also increasing the diversification of the top clients and media-sized clients as well, which actually giving King South Cloud a better positioning in terms of the pricing power and the terms and commercial terms we negotiated with customers.
as well. So all those efforts are the coming, as the combination of those impact to our growth margin. But more importantly, it's really our internal strategy and imaginance quality in terms of how we control how we deliver how we execute the enterprise cloud projects and how we make sure in terms of the
the PMO office can actually take in a very good role in managing the cost and the efficiency of enterprise cloud. So that's why on this quarter, we're first time to separate the growth margin of enterprise cloud and public cloud. As you can see, both business lines has a making of positive growth margin, and we're having...
sequentially on the quarter to over quarter basis. So I think we are confident to see that the trend going forward, giving the few things, we already see the good results. We want to continue to do that. Second, I think the potential of the growth margin expansion of the public cloud will be more propelled compared with enterprise cloud. So we're going to make sure that the potential
the growth margin of the company level will continue to grow as well. The last point I think will also take a very, very careful view regarding the growth versus the profitability. So it doesn't say that margins, the only one factor we're trying to keep a focus, but also well will balance in something.
The growth opportunities in terms of, for example, the recent AR opportunities, where we're making sure we have enough resources to invest. And on the same time, we're going to make sure our growth margins are continually improved. And our CEO , Joe, mentioned, we will make a very rational decision and a nod to going to follow any on rationale trends in terms of pricing cuts and other things that are reflecting.
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And the next question from Brian Gong from CT. Let's go ahead.
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party already on our cloud. And also do we have enough to queue those tricks to meet the day and Monday in the future. Thank you.
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Okay, so I'm going to answer a question separately since you mentioned both public cloud and the enterprise cloud. In the public cloud space, as you know, we mainly serve internet customers or quality internet customers. The public cloud services to help them.
And as you also mentioned in the second question, the current wave of AIGCO AI is in itself a very good wave of opportunities for us. As we have commented, we'll continue to leverage our neutrality positioning, which is well-manifacted in the fact that we're able to engage with a large number of independent AI developers.
and also the effect of our coordinated and strategic approach with King South and Xiaomi ecosystem. It's also very good.
So this is about a public cloud opportunities. In terms of enterprise cloud, because we have three, basically different, major verticals, namely public cloud, public services, digital health and finances, I'm gonna answer to you separately. So in the first part is the public services cloud. Our overall strategy in this line of business.
is to actually shrink and to focus a little bit in terms of your graphical locations first. So in terms of project number, you might see the number of projects decreasing, but the profitability will be increasing and will be focusing on the core, some of the core regions, for example, Beijing and Ubea provinces. We believe that in the medium to long term,
such approach, which namely is to shrink and to enhance our technology capabilities and services first, and then to expand is a healthier way of growth. And technically in terms of digital health, as we commentated in the prepared remarks, we're enhancing and we're pushing forward the five models.
of digital health business. We see it accelerating not only in terms of profitability but also in terms of revenue scale. So that's basically about the the enterprise cloud site. Okay.
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and the other users will be able to be able to use the data. As to your second question as to how many large-language model providers or companies are running on our platform, I have to say that I apologize we cannot answer your question in details. This is due to the fact that first of all the confidentiality
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That's your third question about our GPU chips reserves. The short answer to the conclusion is it's definitely good to have more. We have been seeing great inclusions from such customers and expecting to expand the AI-related business. You know that in a market, 100 has been essentially banned by the US side.
And we also see very tight supply on 800 markets. But as I commented earlier, we're adopting flexible and combined channels to satisfy session needs. And that would include, first of all, directly owning such a chip or GPU service, and especially in terms of leaving such assets. So what we can say is that we definitely try our best to meet such needs and to satisfy our existing entities.
And we actually keep quite positive regarding the growth prospect. Given in Q1, as you know, the part of the China was affected in COVID and many of the bidding process giving the two sessions, if you remember, back in March, was affected as well on the time. So as we actually promised, I'll probably want to quote us earlier. So on this corner, at the first step,
and that the money we spend and how we actually control the balance of the growth on profits. The second point is maybe some of you also noticed that in Q1, our cat X number was a little low. I think that's also not reflecting implication on the growth in terms of the spending because on a cash flow category we actually haven't.
the orders, but the timing of those events has not had accounts on the cashier items in Q1, and many of the new opportunities are coming in April and in May, actually, I'm working on those opportunities as well. I think these are the two hot points, hopefully it can be helpful for you. For the next quarter, hopefully we can give you more color regarding the backdrop, and you can see the growth opportunities in your more kind of quantitative ways are coming forward.
Thank you. Let's work up for. Thank you for your question. I'm now for the question. I will hand back to conference on the course of proposing remarks.
Thank you operator. Thank you, Lester Gainesville, Johnny, and I today, if you have any further questions, please feel free to contact us. Look forward to speaking with you again next quarter. Thank you, have a nice day.
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