Q3 2023 Kingsoft Cloud Holdings Ltd Earnings Call

Yeah.

Good day, and thank you for standing by walking through the Kinks of clients third quarter 2023 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.

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Again.

Please be advised that today's conference is being recorded I would now.

I'd like to turn the conference so that your speaker today Wayne Wang Investor Relations manager of Kings Hill site. Please go ahead.

Thank you operator.

Hello, everyone and thank you for joining us today.

Thanks, Doug.

Third quarter earnings release.

On a year to date and is available on our website IR docs.

As well as on global Newswire services.

On the call today from Kings of Clos, We have Weiss chairman and CEO, Mr. Tom <unk> and CFO, Mr. Henry hub, Mr. Joel will review, our business strategy operations and company highlights followed.

Mr Ho, who will discuss financials and guidance.

They will be available to answer your questions during the Q&A session that follows.

Consecutive interpretation.

All interpretations, California.

And preferences.

In case of any discrepancy management statement into our regional languages.

Before we begin I would like to remind you that this conference call contains forward looking statements within the meaning of section 20 <unk> of the Securities Exchange Act of one 934 as amended and as defined in the private Securities Litigation Reform Act of 1995 days.

Forward looking statements are based upon management's current expectations and current market and operating conditions and relate to events that.

No unknown risk 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 materially from those in the Florida Keys Stevens.

Further information regarding this and auto risks uncertainties or factors are included in the company's filings with the U S. SEC.

The company does not undertake any obligation to update any forward looking statements as a result of new information future events or out.

Device, except as required.

Applicable law.

Finally, please note that unless otherwise stated all financial factors mentioned during this conference call are denominated in RMB.

Now next pleasure to introduce <unk>, Vice Chairman and CEO. Mr. Chow. Please go ahead.

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Hello, everyone and thank you all for joining kings of clouds, the third quarter of 2023 earnings call.

During the quarter, we continued to uphold the principle of high quality and sustainable development deal of success based on technology, and innovation and forge all reputation throughout the entire business process with customer Centricity.

We have enhanced our operations management and proactively embraced the new AI era.

This quarter our profitability further improved total revenues reached RMB, one 3 billion.

Adjusted gross margin increased for the fifth consecutive quarter to <unk>, 1%.

Adjusted gross profit reached RMB $196 million, increasing by 57, 5% compared with the same quarter last year.

Normalized adjusted EBITDA margin was negative two 7%, which represents a significant improvement of seven six percentage points from the same quarter last year and 0.6 percentage points from the previous quarter.

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In terms of public cloud services revenues were RMB 1.02 billion with a gross margin of four 7% significantly higher than the negative one 6% compared with the same quarter last year.

We continued to focus on three priorities for public cloud services, namely the Xiaomi and can't stop the ecosystem AI business and CDN strategic adjustments.

First of all we continue to serve Xiaomi and T cell ecosystem, well and coordinate enterprises within the ecosystem to systematically sort out their cloud planning and fulfill their cloud demand.

This quarter Xiaomi and kings of contributed 17% to a revenue an increase of two two percentage points quarter on quarter and three six percentage points year on year.

Our model driven by Xiaomi business the capacity of its dedicated cluster has expanded significantly and xiaomi has become our largest customer.

Thanks, all of its revenue in September increased by nearly 50% compared to January driven by its AI business.

Secondly, we proactively developed our AI business.

Currently there is a strong demand for AI business with tens of customers, who have signed contracts with us or in the process of business discussion.

AI related capital expenditure in this quarter exceeded RMB $400 million exceeding the total of the previous three quarters and have increased for two consecutive quarters.

With our continued investment and efficient execution, our AI defense revenue surged by over 70% compared to last quarter.

The healthy gross profit margin.

Thirdly, we continued to push forward, our strategic adjustments in CDN business.

This water CDN revenue decreased by nearly 20% compared to last quarter and CDN revenue as a percent proportion of total revenue has decreased to about 30%.

Revenue share of our largest CDN customer has significantly decreased from 16, 2% in the previous quarter to 12% in this quarter.

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Moving on to Enterprise Cloud services total revenues were RMB six 9 million, while rough margin has maintained at a healthy level of more than 24%.

In public.

We opted to focus on core areas such as public services cloud stayed on assets cloud and application filed.

The improving the end to end model from cloud migration cloud views to cloud management, forming a product matrix centered on big data large models as well as WPS collaborations.

Therefore, we have been the partner for the Beijing public services cloud for nine consecutive years, winning a strong reputation to deliver secure reliable and easy to use systems and services, resulting in 24 contract renewals this quarter and forming a virtuous cycle.

In digital health space, we continued to promote the five business models and make new breakthroughs.

As the only cloud service provider, we participated in the revision of a national level health care standard setting project, gaining a first mover advantage as demonstrated by our business model technical capabilities and our corporate achievements in the regional Health club space.

We have collaborated with Kings office to develop an electronic medical record editor for the National Health Commission and successfully completed the task.

While continuously delivering the rating hospital projects. We have also successfully signed a contract for the inflammation construction project of the People's Hospital, a few high in high Tech.

Making new progress in the hospital space.

In the financial services space, we continued to defend our business cooperation with large state owned banks and complete the delivery of the existing existing project as scheduled while winning new projects.

We also actively participated in the selection stage of AI models, a large state owned banks.

Turning to a catalog during the quarter catalog business is stable signing up five new customers, while maintaining robust relationships with existing major client is profitability has been rising again steadily.

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In terms of product and technology, we uphold our principle of building success based on technology and innovation by delivering best in class customer experience across our four product and.

In computing space, we continue to upgrade our core products, focusing on improving stability and domestic environment compatibility.

We have also identified eight major product and technology co construction products with key leading Hudson.

So as you accurately match customer demand planning and deepen collaborative development.

In storage space, we have released a new version of object storage significantly optimizing REIT performance and a small I O scenarios with an overall performance improvements of over 50% approaching the theoretical limit.

In big data space, our cloud native Big data platform has significantly improved its compatibility with how to effectively achieving smooth migration of hadoop tasks.

In enterprise cloud faith, we focus on the end to end positioning.

Cloud migration cloud <unk> and cloud management continuously optimizing the user experience in terms of ease of use openness and efficiency building a unified presentation of operational data in a management topic and once again upgrading the one cloud multi CPU compatibility can provide more domestic.

Government support capabilities.

Our Galaxy stack platform has obtained leadership great designation, the highest level of certification international authoritative cloud benchmarking evaluation testifying that our dedicated cloud service capabilities our partner in China.

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We embrace the new AI era in a comprehensive approach.

Terms of customers, we aim to fully align with AI cloud plenty from Xiaomi and cancer of the ecosystem.

In the meantime, leveraging our new composition to proactively meet the motto training and inference demand from a large number of independent AI companies.

In terms of business model, while the general AI computing services is taking off we preemptively explore one stop AI cloud transformation services aiming to become the AI enabler in select verticals.

In terms of R&D, we make efforts in three directions talent products and solutions.

Is that pushing our AI R&D center to support the research from three major capability areas, including application algorithm and platform.

We also upgraded our core storage database network and other products with eight ITC facing features and continue to perfect. Our mass mutual trust designated zone solution.

In terms of supply chain facing the uncertainty of the international market, we actively explore a domestic supply chain alternative channels.

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Moving on to talent strategy, Firstly, it's about building, our Beijing, Wuhan do R&D Center.

In less than a year since its founding last October through voluntary relocation of key R&D staff from Beijing, and Wuhan local recruitment I'll hand team has quickly grown to over 500 people accounting for approximately 50% of our total R&D personnel.

Secondly, we're promoting the implementation of the high potential talent program, which aims to identify and nurture the future backbone of our company.

Thirdly, despite the uncertainties in make our economy, we continued to increase campus recruitment efforts to forge a talent base and foundation for the company's long term development.

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In summary, the continuous and steady improvement in our profitability over the past seven quarters has strengthened our belief in the strategies and the directions, we have children.

With both opportunities and challenges ahead of US we will continue to uphold the strategy of high quality and sustainable development leverage on technology reputation and operational management to drive progress maintain our risk awareness optimized business structure embrace AI opportunities and continue to improve profit.

Ability, thereby creating value for our customers shareholders employees and society.

I will now pass the call over to our CFO Henry to go over our financials for the third quarter of 2023. Thank you.

Yes.

Thank you Amin and.

And welcome everyone for joining our call.

I will walk you through the financial results for the third quarter of 2023.

Under the strategy of a high quality and a sustainable development. We are pleased to deliver another quarter of steady profitability improvement.

Our adjusted gross profit continue to grow for a.

Fifth consecutive quarter and achieved $196 3 million RMB, Inc.

Increased by 57, 5% year over year, representing adjusted gross margin of 12, 1%.

Which is a record high for the company.

Our normalized adjusted EBITDA narrowed from negative 200, there are 2.0 million RMB in the same period of last year, and a negative $59 9 million RMB.

In the last quarter to negative $44 1 million RMB this quarter.

As a result normalized adjusted EBITDA margin further narrow from negative 10, 3% in the same period last year and an active three 3% in the last quarter to negative two 7% this quarter.

Another solid step towards EBITDA breakeven.

Our total revenue.

<unk> thousand $625 2 million RMB this quarter.

Revenue for our public cloud services.

We're at $1016 6 million RMB, representing a decrease of nine 5% compared with 1000 113.0 million RMB in the last quarter.

This is primarily due to the strategic.

Getting out of our CDN business by approximately 20% in a quarter over quarter, and partially offset by announced CDP public cloud.

Revenue from Enterprise call services, where 600 zero $8 5 billion RMB, representing a slight decrease of two 2% from 622.0 minute.

Same period of last year as we continued to be stringent on our project selection.

We're continuing to enhance our cost control measures.

Total cost of revenue decreased by 22, 6% a year over year to 1429 0.0 made RMB.

Do you see cost decreased significantly by 31, 6% year over year from $1078 3 million RMB, two $737 7 million RMB this quarter.

Depreciation and amortization cost decreased by 21% from 250 to $3 7 million RMB in the same period of last year to $200 4 million RMB.

Solutia development data services costs decreased by 4% year over year from $443 1 million RMB, two $425 3 million RMB this quarter.

Fulfillment costs and other costs were $25 7 million R&D and a $39 9 million RMB this quarter respectively.

Adjusted gross profit of this quarter increased by 57, 5% to $196 3 million RMB, representing adjusted gross margin of 12, 1% this quarter compared with six 3% in the same period of last year, making another record high as well as our fifth consecutive quarter of steady.

Margin improvement.

Each of our business lines achieved margin improvement on a year over year basis.

Gross profit of public cloud services, or $48 1 million RMB, which was significantly improved from the growth loss of $22 1 million RMB in the same period of last year.

Gross margin of the public cloud services were four 7% compared with negative 131, 6% in the same period last year. The improvement was mainly due to our success and AI business.

Proactive scaling down of our CDN services and adjustments of our client structure.

Gross profit of enterprise cloud services, while $147 3 million RMB compared with $143 8 million in the same period of last year.

<unk> Enterprise cloud services was 24, 2%, representing a slightly increase from the already healthy margin level of 23, 1% in the same period last year as we continue to carry out a stringent and project selection.

In terms of expenses.

Excluding share based compensation and impairment of long lived assets. Our total adjusted operating expenses were 500 zero $4 5 million RMB decreased by six 2% from $538 1 million RMB last quarter of which.

Our adjusted R&D expenses were $187 2 million RMB increased by two 7% from last quarter as we continue to focus on our technology powerhouse and a welcome new graduate campus Accordingly employees.

Adjusted selling and marketing expenses were $114 1 million RMB, representing a decrease of 11% from $128 3 million RMB last quarter.

Adjusted SG&A expenses also decreased by 10, 7%.

$227 5 million RMB last quarter to $203 1 million RMB.

As of June 30, 'twenty or 'twenty, three our cash and cash equivalents in short term investments amounted to $2 6 billion RMB, providing us sufficient.

Sufficient liquidity for operations.

Expenditures for this quarter was $415 3 million RMB as we invested in our infrastructure to build a sustainable AI business.

Our operating cash flow less again I recorded a net inflow recording $20 4 million RMB. It resulted from our market improvements as well as our Ping has internal cash management.

Looking ahead, we will continue to pursue our high quality and a sustainable development strategy and unlock synergies within the Xiaomi <unk> subgroup ecosystems.

While staying agile to capture new opportunities in a new era of AI. Thank you.

This concludes our prepared remarks, thank you for your attention now.

Now happy to take your questions. Please ask your question and with both Mandarin English impossible.

Operator, Please go ahead.

Thank you as a reminder to ask a question you will need to press star one and one on your telephone.

Pure <unk> to be in.

To withdraw your question. Please press star one on one.

Hey, Don.

Yes.

We will take our first question. Your first question comes from the line of <unk> Zhang from CIC.

Your line is open.

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So my first question is regarding our AD strategy I'm talking from cloud has become the first choice for some of the industry, leading independent large language model providers when they select high spenders. So what is the growth trajectory for these type of clients in the recent quarters and how would the recent supply.

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Kelly could management share your most recent guidance on the timing of adjusted EBITDAR margin breakeven. Thank you.

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Hello.

The first part of the answer was provided by Mr. Paul and so to answer your question the customers that we have signed and engaging in business with ATA meeting them and leading a leading players in the AD market.

Apart from DBA and they have relatively strong capital.

Yes.

And business scale.

Roughly their starting point of the business cooperation usually starts about 128% to 256 server units.

And likely to expand to 500 and tough.

Of our units.

Our service.

And because they're on because our final goal is to move to the last language models and different parameters mutually amounting to hundreds of aliens. So.

The required resources of computing power.

So at the level.

At the level that is above 500, <unk> several units and above.

So for the on.

For the uncertainties that you asked about the external environment.

People CN as well as <unk>.

I've noticed that as well that since October.

Export control from the United States.

As created quite a impact to the industry, including the industry in China, and we are no exception.

Over.

Unfortunately, we have foreseen will have actually a plethora of discounting and have made some preemptive actions.

So due to our preemptive a preemptive planning.

We have actually got on the limited impact.

From that from that export control. However, how do we see this from the medium to long term.

I think it depends on a couple of factors, including the performance of media in China Gpus as well as the production capacity. So I think all in all in a short time in the future for example, in one or two quarters the impact to team up the cloud should be limited I think it's a relatively under control in the longer term.

We also actually relatively confidence because we have seen some of the positive progress that Chinese achieving industry has made during the past year.

So as I mentioned in the prepared remarks, we are seeing both opportunities and challenges.

In the future because we have obtained a large number of independent AI customers were.

We're relatively comfortable with the with the potential impact.

Okay.

I will take on the second question. So there are actually the two different drivers first of all some of you.

Remember.

We actually hit quite dramatically back then back off late part of 2021 given the.

The slowdown into that consumer business.

The <unk> impact on the press call sector.

Later part of 'twenty than it was at that time, our gross margin was only one 2%.

As you all noticed that today that will increase about one 2% to 12% on the gross margin side. So that actually is a fundamental results of our collective efforts around improving the efficiency of the resources we have.

Improving the.

Client selection and credit quality, so putting that aside that will give us about 10 times up off the gross margin percentage. So.

Part of that as you probably also noticed that the spread between the gross margin and EBITDA margin.

I think the largest spread probably about the last year.

Around about 19% 20%.

But this quarter as you may see the spread has been also narrowed.

About 20% to only 14%.

It remains on expenses control side, we also reduced significantly in terms of how we spend our result this research our spend on the travels already spent on the.

General management purposes, so putting everything together the two fundamental driver from the business as well as how we improve the operational efficiency has given us leading.

Leading to today's improvements on the EBITDA margin improvement.

And subject to a question and I think given all the initiatives and our strategy. We already are putting to place those impact the reality will gradually be released.

Quarter by quarter, so its not going to be a onetime off thing for this quarter, it's going to be carried out for the next few quarters steadily and our attention. We are hoping to improve both gross margin as well as narrowing the spread between the gross margin EBITDA margin and Thats a good quarters, while as you may understand the management team will not be giving our guidance for the <unk>.

EBITDA margin of breakeven at this moment, but as you can see the trend has been steady for the past four quarters.

Hopefully keep that trajectory and the pacing of improving the margin hopefully we can report a breakeven not only on the EBITDA margin, but also all other items.

In the near future as well, so just give us a bit of time and that we can we can probably deliver those results.

Two expectation thank you.

Thank you.

We will take our next question.

Your next question comes from the line of Tim T cell from Goldman Sachs. Please go ahead. Your line is open.

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Thank you. Thank you management for taking my question.

I have two questions both regarding the public health sector.

First one is regarding the AI ban is can management share more color.

The AI ban is in terms of its revenue contribution.

Is the profitability level, either growth profit margin or EBITDA margin and as you mentioned in the third quarter or you spent around 1 billion K passing the AI ban is just wondering if Mike has any guidance into your capex into fourth quarter and next year.

Including the AI ban it and.

And second question is regarding the CDN business as we understand it that yourself.

Oral competitive environment in China.

Monday's quiet dynamic just wondering.

For the CDN or are we going to see more addressed methane.

Next few quarters and after a transplant what is management view.

Midterm normalized gross profit margin level.

Of the public health business. Thank you.

Secretary of Mercer hiring here are probably take all the first crusher on that I would just add myself briefly.

So that I can comment as well.

So regarding the AI business contribution the first point is on the Capex. So last quarter was spent in my script I mentioned is about 415.

RMB 400 level.

On our third quarter, but go back to your first point regarding the contribution at a revenue margin or a few <unk> first of all.

As you know following very fundamental basic economic principle rise it really driven by two things one is the supply demand about us and the second is about the technology, we offer and the products we offer right. So as we all know that today.

Really it's about the.

The buyers.

So on the set of market right. So if you do have a railroad bust infrastructure and resources and it can provide a very robust a service that product sort of size class definitely willing to pay.

For the client is also giving them a cutting edge advantage when they try to compete at a training model to a certain level, where they've got competing.

I think in a world class stage, so that actually convert to a very good logic for us to have a better margin compared with other kind of resources driven services. Historically, so we also observed a second phenomenon.

<unk> also willing to pay for value added part of the services.

Only by charging them fundamental resource a usage basis.

So by giving them the best practice and I give them a value added service that product, we can share certain value with our clients and that embedded into part of the pricing.

So those are the two fundamental reasons that we believe the higher margin from the AI business will carry out for the future as well as a second point at a third point is right about contribution right. So the reason we didn't give a percentage for this quarter is everyday counts for this quarter.

Given we have a strong client demands and given we are also providing enough sufficient resources for client.

And each quarter, we do see a very good growth trajectory at this moment.

You look at because the third quarter. It means from first of July until the 30 September I right. Now we're already end of November. So today's situation is very different with the first of July and we do believe if we look at a tail impact of the third quarter the growth trajectory and the incremental revenue either on a weekly basis is very significant.

<unk> contribution to total revenue, but if you combine as a total quarter for the third quarter alone.

This number will be really misleading to a third of the way that that's definitely does not account for the full credit of the AI business for us.

Second point, the third point regarding the capex direction out of guidance.

So as we've probably talked last quarter as well.

Do you believe this part of the Capex is a very good growth driver for us. So the more we spend the more incremental revenue will come for sure in the mall and a better gross margin will come to follow as well. So even you'll see we spent about 400 million in this quarter for Capex.

We're seeing that trend for next quarter and maybe the early part of next year. This number will continue to increase.

Mathematically you will have a direct linkage for those spending convert to a new revenue for next year. I think you can do the math, but what I'm not going to get that answer, but we can see that trend is very visible as well. So I think these other three parts.

To give you color given the importance of this crush I would translate myself as well.

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Okay.

I'll quickly translate for in relation to a second question about the CDN strategic adjustments.

We have actually started the adjustment in October.

30, <unk> and we have an internal deadline of June 32024.

And I can say this we are continuing to do some adjustment according to the market conditions currently.

Get in the CDN revenue on a quarterly basis is around 500, RMB 500 million RMB and it might continue to scale down to somewhere between 300 to 400 million RMB per quarter.

And thereby reaching a relatively stable status.

After June 30.

Next year and in relation to your question about the.

Profit margins for the public cloud.

Some of it is business.

Two components, one is CDN and one is.

The so called Pan Internet.

Second the Sirius after I've mentioned and as to the third quarter next year, we expect that the strategic adjustments to have.

And by then we would hope.

Margin of this business line to revert to the relatively healthy level that was as of the fourth quarter of 2022 now for the Pam Internet space.

We are still seeing the margin.

Including both the GP margin and as well as the operating profit margin.

Definitely yeah, the gradually improving I've mentioned one of the uncertainties is the GPU supply and obviously in the AI space does the demand significantly significantly outpaces that up demand outpaces, our supply and if that can be either.

If that supply chain issue can be resolved completely obviously the improvement of our business as well as margin in the AI and thereby depend internet space will be much faster, but even with that uncertainty. We are already seeing relatively good progress in terms of margin improvement and business scale expansion. Thank you.

Yeah.

Thank you that's very helpful.

Yes.

Thank you.

We will take our final question.

Please standby.

Your final question comes from the line of Catherine that you from Citi. Please go ahead. Your line is open.

Oh My God.

<unk> would you like to see that Katrina.

Banco Kieran.

Thank you Bonnie.

Thank you Tom.

You bet, John John Keybanc.

Don't know what they want when they ship.

Sure Jonathan.

Or is that changed.

Got it.

Hi, Good evening, Thanks management for taking my question. This is.

Kitchen, that's you're asking on behalf of Brian Gong from Citi.

Management can share with us the old pool of revenue.

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Revenue growth.

Thank you.

Yes Catherine.

Katrina.

So.

After we.

Realistic.

A dual listing in Hong Kong, we actually didn't publish our commencement guidance, but have to shed some color as well as we moving towards the year end of 2023.

First of all as you know even today right now how about 25%.

20% to 25% buyback quite different quarter.

The revenue is coming from the CGM business, our CEO of total mentioned as well.

Kind of in a face off.

Adjustments from <unk>.

Client mix for all the products, we offer and that's why as we control the cost with procure that bandwidth as well so but if you look at that business. The first priority as we tried to change the mix and the structure of the kind of products right. So we've tried to remain relatively stable.

Just the combination of the clients and products within the business. So.

So that's actually what we're trying to do in next two or three quarters right. So that's kind of a first factor probably can consider but we're not going to see dramatic changes or swings.

That business, but Chad change at a better structure of that.

First half the second harvest as I mentioned.

The new money in our capital expenditure spending to the AI right.

The infrastructure, we build for clients.

And the math, we're caught up model as a services solution set of services with the client as well as.

The value add part of <unk>.

Projects with two for the clients. So those are actually come out of the one of the probably the one.

Priority for next year to grow the revenue and if you do a quick math I put this way is.

$302 spend this year youre going to see probably a one off.

A relatively around that $1 of the incremental revenue of policy for the next year right. So that's the kind of mathematical connection given a capex converts to.

Products and products to cover its choosing incremental revenue. So thats. The second part so we can do a bit of kind of analysis on that.

Third part is really about our very stable enterprise business as you can see that.

Our sub.

Sub Camelot is delivering relative stable revenue for next year I think given the macro environment has been kind of improving so you are going to also to see that revenue contribution will come up we're going to see a relatively.

Growth as well and our health care public sectors and the financial services Enterprise Cloud. We also see certain growth given we already have some flagship products in place for this year and if we can replicate that from 38% to therapy from client to client base going forward for next year. So.

<unk>, we can remain around 30.

In terms of the GPO contribution on a project level replicate that two more projects for next year. So if you combine those three things.

<unk> CDN, but better mix.

Spending on Capex color to incremental revenue for the public cloud.

Y O Y growth, we're coming off as well as the stable.

Revenue and profits, but a growing revenue for enterprise cloud for financial services. So on so forth putting together.

Kind of are confident to see without any kind of big changes on the picking environment. Our topline revenue for next year, you may see kind of back to the YY growth Q on Q growth as well and.

Tim mentioned in the previous question as well, we are hoping to getting to a certain point that not only the EBITDA will be breakeven.

And the next near future.

So we're going to see the op side is going to putting OPEC backed.

Back pocket.

I have an intention to bring a better profitability for the shareholders as well.

But the last point I want to mention this.

We also will keep a very close eye on the competitive landscape means our peers and our competitors are trying to do a better quality of the work compared with other peers, but also we're happy to see we may next quarter or two where they are catching up on the gross margin side.

The next few quarters, but also in the wildfire on the growth side with the latest casual even better than competitiveness as well because we did a few things.

Since last year, when Ceos, who would have come to the office and we actually have a few things in place and those efforts are.

I think two or three quarters earlier than our major competitors youll, probably see the recovery work doing appropriate sooner than others.

Well.

Thank you.

Thank you very helpful.

Thank you I would now like to turn the conference back for closing remarks.

Thank you operator. Thank you. This one is the need for joining us today. It is if you have any further questions. Please feel free to contact us looking forward to speaking with you again next quarter have a nice day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Okay.

[music].

Okay.

[music].

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Sure.

[music].

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Yeah.

Good day and thank you for standby Slatkin, Inc. Third quarter 2023 earnings conference call.

At this time.

Sarah Nielsen only.

After the Speakers' presentation, there will be a question and answer session.

To ask a question Jobin. This session you will need to press star one and one on your telephone.

We have an automated message advising youll have this waste to withdraw.

Your question. Please press star one.

Hey, Kevin.

Please be advised that today's conference is being recorded I would now like to turn the conference over to your speaker today Wayne.

<unk> Investor Relations manager of Kings Hill site. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining us today.

Off cloud third quarter earnings release.

Distributed earlier today and is available on our IR website at IR <unk> TFS, while you and dot com as well as on global Newswire services.

On the call today from Kings of cloud, we have our vice chairman and CEO, Mr. Tom <unk> and CFO, Mr. Henry hub, Mr. Joe will review, our business strategy operations and company highlights followed.

Mr Ho, who will discuss financials and guidance.

They will be available to answer your questions during the Q&A session that follows.

Consecutive interpretation.

All interpretations, California company.

San Francisco.

In case of any discrepancy management statement into original language.

Before we begin I would like to remind you that this conference call contains forward looking statements within the meaning of section 20 <unk> of the Securities Exchange Act of 934, as a mandate and as defined in the private Securities Litigation Reform Act of 995.

These forward looking statements are based upon management's current expectations and current market and operating conditions and relate to events that.

Involve known 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.

Pharmacy or achievements to differ materially from dosing to forward looking statements.

Further information regarding this and other risks uncertainties or factors are included in the company's filings with the 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 note that unless otherwise stated all financial factors mentioned during this conference call are denominated in RMB.

He is now next pleasure to introduce our vice Chairman and CEO. Mr. Chow. Please go ahead.

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Hello, everyone and thank you all for joining <unk> third quarter 2023 earnings call during.

During the quarter, we continued to uphold the principle of high quality and sustainable development build success based on technology and innovation and forge our reputation throughout the entire business process with customer Centricity.

We have enhanced our operations management and proactively embraced the new AI era.

This quarter our profitability further improved total revenues reached RMB 163 billion adjust.

Adjusted gross margin increased for the fifth consecutive quarter to 12, 1%.

Adjusted gross profit reached RMB $196 million, increasing by 57, 5% compared with the same quarter last year.

Normalized adjusted EBITDA margin was negative two 7%, which represents a significant improvement of seven six percentage points from the same quarter last year and 0.6 percentage points from the previous quarter.

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The CDM cohorts RMB.

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In terms of public cloud services revenues were RMB 1.02 billion with a gross margin of four 7% significantly higher than the negative one 6% compared with the same quarter last year.

We continued to focus on three priorities for public cloud services, namely the Xiaomi and cancer of the ecosystem AI business and CDN strategic adjustments.

First of all we continue to serve xiaomi entering south ecosystem, well and coordinate enterprises within the ecosystem to systematically sort out their cloud planning and fulfill their cloud demand.

This quarter Xiaomi and kings of contributed 17% to our revenue an increase of two two percentage points quarter on quarter and three six percentage points year on year.

Among them driven by Xiaomi business the capacity of its dedicated cluster has expanded significantly and xiaomi has become our largest customer.

Some of it is revenue in September increased by nearly 50% compared to January driven by its AI business.

Secondly, we proactively developed our AI business.

Currently there is a strong demand for AI business with tens of customers, who have signed contract with us or in the process of business discussion.

AI related capital expenditure in this quarter exceeded RMB $400 million exceeding the total of the previous three quarters and have increased for two consecutive quarters.

With our continued investment and efficient execution, our AI defense revenue surged by over 70% compared to last quarter with a healthy gross profit margin.

Thirdly, we continued to push forward, our strategic adjustments in CDM business.

This water CDN revenue decreased by nearly 20% compared to last quarter and CDN revenue as a percent proportion of total revenue has decreased to about 30%.

The revenue share of our largest CDN customer has significantly decreased from 16, 2% in the previous quarter to 12% in this quarter.

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Moving on to Enterprise Cloud services total revenues were RMB $609 million, while rough margin has maintained at a healthy level of more than 24%.

In public.

We opted to focus on four areas.

Public services cloud stayed on assets cloud and application filed further improving the end to end model from cloud migration cloud used to cloud management, forming a product matrix centered on big data large models as well as WPS collaborations.

Therefore, we have been the partner for the Beijing public services cloud for nine consecutive years, winning a strong reputation to deliver secure reliable and easy to use systems and services, resulting in 24 contract renewals this quarter and forming a virtuous cycle.

In digital health space, we continued to promote the five business models and make new breakthroughs this quarter as the only cloud service provider. We participated in the revision of a national level health care standard setting project, gaining a first mover advantage as demonstrated by our business model technical capabilities and our corporate achieve.

In the regional Health club space.

We have collaborated with kings of office to develop an electronic medical record additive for the National Health Commission and successfully completed the task.

While continuously delivering the rating hospital project. We have also successfully signed a contract for the inflammation construction project of the People's Hospital are still high in high Tech deal, making new progress in the hospital space.

In the financial services space, we continued to defend our business cooperation with large state owned banks and complete the delivery of the existing <unk> existing project as scheduled while winning new projects. We also actively participated in the selection stage of AI models, a large state owned banks.

Turning to our catalog during the corner camera business is stable signing up five new customers, while maintaining robust relationships with existing major client is profitability has been rising again steadily.

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Tom working historically.

In terms of product and technology, we uphold our principle of building success based on technology and innovation by delivering best in class customer experience across our for our product offering.

In computing space, we continue to upgrade our core our products focusing on improving stability and domestic environment compatibility.

We have also identified eight major product and technology co construction products with key leading customers still have to accurately match customer demand planning and deepen collaborative development.

In storage space, we have released a new version of object storage significantly optimizing read performance and a small io scenarios with an overall performance improvements of over 50% approaching the theoretical limit.

In big data space, our cloud native Big data platform has significantly improved its compatibility with how to effectively achieving smooth migration of hadoop tasks.

In enterprise cloud faith, we focus on the end to end positioning of cloud migration cloud used in cloud management continuously optimizing the user experience in terms of ease of use openness and efficiency building a unified presentation of operational data in a management target and once again upgrading.

One cloud multi CPU compatibility to provide more domestic environment support capabilities.

Our Galaxy stack platform has obtained leadership great designation, the highest level of certification international authoritative cloud benchmarking evaluation have defined that our dedicated cloud service capabilities our partners in China.

India has seen AI should that go.

When it goes away too familiar about AI.

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We embraced the new AI era in a comprehensive approach in terms of customers. We aim to fully align with AI cloud planning from Xiaomi and cancer of the ecosystem and the <unk>.

Leveraging our new composition to proactively meet the mono training and inference demand from a large number of independent AI companies.

In terms of business model, while the general AI computing services business is taking off we preemptively explore one stop AI cloud transformation services aiming to become the AI enabler in select verticals.

In terms of R&D, we make efforts in three directions talent products and solutions.

Is that pushing our AI R&D center to support the research from three major capability areas, including application algorithm and platform.

We also upgraded our core storage database network and other products with Aig's facing features and continue to perfect. Our mass mutual trust designated zone solution.

In terms of supply chain facing the uncertainty of the international market, we actively explore a domestic supply chain alternative channels.

Jim if I may.

Sure.

That's all.

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<unk> hundred <unk> capital.

Moving onto talent strategy, Firstly, it's about building, our Beijing, Wuhan do R&D Center.

In less than a year since its founding last October through voluntary relocation and our key R&D staff from Beijing, and Wuhan local recruitment our Wuhan team has quickly grown to over 500 people accounting for approximately 50% of our total R&D personnel.

Secondly, we are promoting the implementation of the high potential talent program, which aims to identify and nurture the future backbone of our company.

Thirdly, despite the uncertainties in macro economy, we continued to increase campus recruitment efforts to forge a talent base and foundation for the Companys long term development.

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Chip.

In summary, the continuous and steady improvement in our profitability over the past seven eight quarters has strengthened our belief in the strategies and the directions, we have children.

With both opportunities and challenges ahead of US we will continue to uphold this strategy of high quality and sustainable development leverage on technology reputation and operational management to drive progress maintain our risk awareness optimized business structure embrace AI opportunities and continue to improve profit.

Ability, thereby creating value for our customers shareholders employees and society.

I will now pass the call over to our CFO Henry to go over our financials for the third quarter of 2023. Thank you.

No.

Thank you Amin and.

And welcome everyone for joining our call.

I will walk you through the financial results for the third quarter of 2023.

Under the strategy of a high quality and a sustainable development, we're pleased to deliver another quarter of steady profitability improvement.

Our adjusted gross profit continue to grow for the.

Fifth consecutive quarter and achieved $196 3 million RMB, Inc.

Increased by 57, 5% year over year, representing adjusted gross margin of 12, 1%.

Which is a record high for the company.

Our normalized adjusted EBITDA narrowed from negative 200, there are 2.0 million RMB in the same period of last year, and a negative $59 9 million RMB.

In the last quarter to negative $44 1 million RMB this quarter.

As a result normalized adjusted EBITDA margin further narrow from negative 10, 3% and the same period last year and an active three 3% in the last quarter to negative two 7% this quarter.

Making it another solid step towards EBITDA breakeven.

Our total revenue were $1625 2 million RMB this quarter.

Revenue from public cloud services.

We're at $1016 6 million RMB, representing a decrease of nine 5% compared with 1000 113.0 million RMB in the last quarter. This.

This is primarily due to the strategic.

Getting down of our CDN business by approximately 20% in a quarter over quarter, and partially offset by announced CDP public cloud services.

Revenue from Enterprise Cloud services, where 600 zero $8 5 billion RMB, representing a slightly decrease of two 2% from 622.0 minute.

Same period of last year as we continued to be stringent on our project selection.

We're continuing to enhance our cost control measures.

Total cost of revenue decreased by 22, 6% a year over year to 1429 zero made RMB.

Do you see cost decreased significantly by 31, 6% year over year from $1078 3 million RMB, two $737 7 million RMB this quarter.

Initiation amortization costs decreased by 21% from 250 to $3 7 million RMB in the same period of last year to $200 Formula RMB.

Solutia development Ana services cost decreased by 4% year over year from $443 1 million RMB, two $425 3 million RMB this quarter.

Fulfillment costs and other costs were $25 7 million RMB and a $39 9 million RMB this quarter respectively.

Adjusted gross profit of this quarter increased by 57, 5% to $196 3 million RMB, representing adjusted gross margin of 12, 1% this quarter compared with six 3% in the same period of last year, making another record high as well as our fifth consecutive quarter of steady.

Margin improvement.

Each of our business lines achieved margin improvement on a year over year basis.

Gross profit of public cloud services, or $48 1 million RMB, which was significantly improved from the gross loss of $22 1 million RMB in the same period of last year.

Gross margin after public cloud services were four 7% compared with negative 131, 6% in the same period last year. The improvement was mainly due to our success and AI business.

Our active scaling down of our CDN services and adjustments of our client structure.

Gross profit of enterprise cloud services, while $147 3 million RMB compared with $143 8 million in the same period of last year.

Gross margin of enterprise cloud services was 24, 2% representing a slight increase from the already healthy margin level of 23, 1% in the same period last year as we continue to carry out a stringent and project selection.

In terms of expenses.

Excluding share based compensation and impairment of long lived assets. Our total adjusted operating expenses were 500 zero $4 5 million RMB decreased by six 2% from $538 1 million RMB last quarter.

<unk> of our adjusted R&D expenses were $187 2 million RMB increased by two 7% from last quarter as we continue to focus on technology powerhouse and a welcome new graduate campus recruiting employees.

Adjusted selling and marketing expenses were $114 1 million RMB, representing a decrease of 11% from $128 3 million RMB last quarter.

Adjusted SG&A expenses also decreased by 10, 7% from $227 5 million RMB last quarter to $203 1 million RMB.

As of June 32023, our cash and cash equivalents in short term investments amounted to $2 6 billion RMB providing us.

Sufficient liquidity for operations.

Capital expenditures for this quarter.

$415 3 million RMB as we invested in our infrastructure to build a sustainable AI business.

Our operating cash flow less again, I recorded a net inflow recording $20 4 million RMB.

Got it from our market improvements as well as our enhanced internal cash management.

Looking ahead, we will continue to pursue our high quality and a sustainable development strategy and unlock synergies within the Xiaomi <unk> subgroup ecosystems, while staying.

<unk> to capture new opportunities in a new era of AI. Thank you.

Sure.

This concludes our prepared remarks, thank you for your attention now.

Now happy to take your questions. Please ask your questions in both Mandarin and English with topical <unk>.

Operator, Please go ahead.

Thank you as a reminder to ask a question you will need to press star one and one on your telephone.

Pure name to BMO.

To withdraw your question. Please press star one on one.

Okay.

Yeah.

Okay.

We will take our first question. Your first question comes from the line of <unk> Zhang from CIC.

Your line is open.

Okay.

Hey, Brian.

I would now like you know what.

Sure.

Okay.

Tell me if I'm wrong.

Corridor, along Broadway the pulpwood I believe.

Okay.

Thank you Jessa.

Okay.

Hello, Paul.

Michael <unk> from Keybanc, you go you'll know shouldn't albertson CUSIP number.

Glenn is hopefully we will come back to us in laser quantum Brian that we're trading that super form BARDA will have.

We can with it.

Gary will then ship our adjusted EBITDA on a cruise ship casino shore now doing the whole Shinzo Jake Jake.

I guess the EBITDA margin is with that Shannon is.

Now women decade, greater Shankill, Keisha boil down all quite sort of hangs out events.

My first question is regarding our AI strategy.

King from Quad has become the first choice for some of the industry, leading independent large language model providers when they select high spenders. So what is the growth trajectory for these type of claims in the recent quarters and how would the recent supply constraint impact our AI strategy.

Tony could management share your most recent guidance on the timing of the adjusted EBITDA margin breakeven. Thank you.

Oh <unk> Nick.

Shen your does it help to grow quite nicely.

When it's all possible.

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It got cold with airlines on that sort of thing.

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English rather previously on the <unk> yesterday on we'd argue than.

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Since you have that just to get a sortation wired borgwarner, particularly in Shanghai to them to go deal with Novozymes.

And last year.

So you can try to answer them immune to it.

Okay.

<unk> CFO.

Mike What do you think assumption that Geneva.

So you can kind of just what it says.

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That does conclude.

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How much of that kind of took a.

You can calculate you can.

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How long do you think.

Sure.

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But as I said, how long time, there won't be a true leadership position the tinder so in the Canada.

Would you look towards particular.

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To withdraw.

For the quarter.

No.

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No.

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So.

The first part of the answer was provided by Mr. O'neill, Paul and so to answer your question the customers that we have signed and engaging in business with other leading number at leading a leading player in the AD market.

<unk> BBA.

And they have relatively strong capital strength.

And business scale.

Roughly their starting point of the business corporations, usually starts about 128% to 256 server units and likely to expand to 500 and top server units.

Our service.

And because they're on because our final goal is to move to the last language models and different parameters mutually amounting to hundreds of billions. So.

The required resources of computing power.

Also at the level.

At the level that is about 512 several units and above.

So for the full.

For the uncertainties that you asked about the external environment.

People that have CNS glad you'll have noticed as well that since October.

Our export control from the United States has created quite a impact to the industry, including that industry in China and we are no exception. However.

Fortunately, we have four C will have actually a pause saw this coming and have made some preemptive actions.

So due to our preemptive preoperative planning, we have actually gotten the limited impact from that from the export control. However, how do we see this from the medium to long term.

It depends on a couple of factors, including the performance of median China's Gpus as well as the production capacity. So I think all in all in the short term in the future for example, in one or two quarters the impact to team up with class should be limited I think is a relatively under control in the longer term.

We also actually relatively confidence because we have seen in some of the positive progress Chinese achieve industry has made during the past year.

As I mentioned in the prepared remarks, we are seeing both opportunities and challenges.

I had in the future because we have obtained a large number of independent AI customers.

We're relatively comfortable with the with the with the potential impact.

Okay. Thank you.

Our take on the second question.

So there are actually the two different drivers first of all some of you may <unk>.

Remember.

We actually hit quite dramatically back then back off late part of 2021 given the.

The slow down into that a consumer business as well as the <unk> impact on the press call sectors. In the later part of 'twenty than it was at that time, our gross margin was only one 2%.

As you all noticed that today that will increase by one 2% to 12% on a gross margin side. So that actually is a fundamental reason.

All of our collective efforts around improving the efficiency of the resources we have.

Improving the client.

Client selection and quality so putting.

Putting that aside that will give us about 10 times up off the gross margin percentage.

So.

On top of that as you probably also noticed that the spread between the gross margin and EBITDA margin.

<unk>, the largest spread probably about the last year rather.

Around about 19% to 20%.

But this quarter as you may see the spread has been also narrowed.

About 20% to only 14%.

Which means on expenses control side, we also reduced significantly in terms of how we spend our result this research our spend on the travels how we spend it on the.

The general management purposes.

So putting everything together.

<unk> fundamental driver from the business as well as how we improve the operational efficiency has given us.

Leading to today's improvements on the EBITDA margin improvement.

And somebody to a question I think given all the initiatives that our strategy, we're already putting to place those impact the reality will gradually be released.

Quarter by quarter, so its not going to be a onetime off thing for this quarter, it's going to be carried out for the next few quarters steadily.

In our attention we are hoping to improve both gross margin as well as narrowing the spread between the gross margin EBITDA margin. After few quarters, while as you may understand the management team will not be giving our guidance for the formal EBITDA margin of breakeven.

This moment, but as you can see the trend has been steady for the past four quarters, and hopefully keep that trajectory and the pacing of improving the margin.

We can report a breakeven not only on the EBITDA margin, but also our other items in the near future as well so just.

Just give us a bit of time and that we can we can probably deliver those results.

Two expectation thank you.

Thank you.

We will take our next question.

Yeah.

Okay.

Your next question comes from the line of Timothy <unk> from Goldman Sachs. Please go ahead. Your line is open.

Uh huh.

Thank you for that you know what you mean Youll got Kelvin talked at that point would you Joanna.

Do you guys look on AI.

Now converting to yelp when its home.

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Sure Tim.

Shawn so a $1 18, docomo that elevated electronic sell through on the higher should we kind of see kind of an antibody to.

<unk> <unk> with Evercore.

Hello, John.

<unk> high blood glucose control.

You go to <unk>.

Thank you.

Thank you management for taking my question.

I have two questions both regarding the public health sector.

First one is regarding the AI ban is can management share more color.

<unk> in terms of its revenue contribution.

Is that profitability level, either growth profit margin or EBITDA margin and as you mentioned in the third quarter. Her you spent around 1 billion K passing the AI ban is just wondering if micro has any guide.

Guidance into your Capex into fourth quarter and next year.

Including the AI ban.

Yes.

Second question is regarding the CDN business as we understand it that yourself.

The oral competitive environment in China.

Segment is quite dynamic.

Wondering.

For the CDN or are we going to see more drugs methane.

Our next few quarters and after a transplant what is management view.

Midterm normalized gross profit margin level.

Of the public health business. Thank you.

Secretary Mr. Henry here, probably take on the first crusher on that note yesterday myself briefly.

So they'll can comment as well.

So regarding the AI business contribution the first point is on the Capex. So last quarter was that in my script I mentioned is about 415.

RMB 400 level.

On our third quarter, but go back to your first point regarding the contribution at a revenue margin or a few things.

Sure first of all.

As you know following very fundamental basic economic principle rise it really driven by two things one there's a supply demand about us and the second is about the technology, we offer and the products we offer right. So as we all know that today.

Really it's about.

The buyers are.

So on a set of market right. So if you do have a railroad bust infrastructure and resources and it can provide a very robust service that product sort of size class definitely willing to pay.

For the client is also giving them a cutting edge advantage, while they try to compete at a training model to a certain level of they've got competing.

I think in a world class stage, so that actually convert to a very good logic for us to have a better margin compared with other kind of resources driven services. Historically, so we also observed a second phenomenon.

<unk> also willing to pay for value added part of their services.

Only by charging them fundamental resource usage basis.

So by giving them the best practice and I give them a value added service that product, we can share certain value with our clients and that embedded into part of the pricing against them. So those are the two fundamental reasons that we believe the higher margin from the AI business will carry out for the future as well as a second point at a third plant in Israel.

About contribution right. So the reason we didn't give a percentage for this quarter is every day counts for this quarter.

So Kevin we have a strong client demands and given we also provided enough sufficient resources for our clients and each quarter, we do see a very good growth trajectory at this moment, but when you look at because the third quarter. It means from first of July until the 30 September I ran our already end of November So today's situation is.

Different was the first of July and we do believe if we look at a tail impact of the third quarter the growth trajectory and the incremental revenue either on a weekly basis is a very significant contribution to total revenue, but if you combine as a total quarter for the third quarter alone.

This number will be really misleading to a certain way that that's definitely does not constitute a forecast of the AI business for us. So that's my second point, a third point regarding the capex direction out of guidance.

So as we've probably talked last quarter as well.

Do you believe this part of the Capex is a very good growth driver for us. So the more we spend the more incremental revenue will come for sure in the mall and a better gross margin will come to follow as well. So even you'll see we spent about 400 million in this quarter for Capex.

We're seeing that trend for next quarter and maybe the early part of next year. This number will continue to increase and mathematically you will have a direct linkage for those spending come back to a new revenue for next year. I think you can do the math, but what I'm not going to give that answer but we can see that trend is very visible as well. So I think these other three parts.

To give you color given the importance of this crush I would translate myself as well.

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AI data that isn't necessarily some true up with us.

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So thiago.

Okay.

Quickly translate for in relation to a second question.

About the CDN strategic adjustments.

We have actually started the adjustment in October.

And we have an internal deadline of June 32094.

And I can say this we are continuing to do some adjustment according to the market conditions currently we.

In the CDN revenue on a quarterly basis is around 500, RMB 500 million RMB and it might continue to scale down to somewhere between 300 to 400 million RMB per quarter.

And thereby reaching a relatively stable status.

After June 30.

Next year and in relation to your question about the.

Profit margins for the public cloud.

Services business.

Two components, one is CDN and one is the so called Pan Internet.

Second the Sirius after I've mentioned and as to the third quarter next year, we expect the strategic adjustments to have.

And by then we would hope the <unk>.

Margin of this business line to revert to the relatively healthy level that was as of the fourth quarter of 2022 now for the Pam Internet space.

We are still seeing the margin.

Including both the GP margin and as well as the operating profit margin.

Definitely yeah, the gradually improving our Ed mentioned one of the uncertainties is the GPU supply and obviously in the AI space does the demand significantly significantly outpaces that of demand at the outpacing some of supply and if that can be either.

Fly changes she can be resolved completely obviously the improvement of our business as well as margin in the AI and thereby depend internet space will be much faster, but even with that uncertainty. We are already seeing relatively good progress in terms of margin improvement and business scale expansion. Thank you.

Yeah.

Thank you that's very helpful.

Okay.

Thank you.

We will take our final question.

Please standby.

Your final question comes from the line of Katrina Xu from Citi. Please go ahead. Your line is open.

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But anything from a woman from you guys.

Sure.

You bet John John.

Sure John.

Well nishu.

Jonathan.

Or is that too soon.

Good evening, Thanks management for taking my question this is kitchen.

Kitchen, which you're asking on behalf of Bryan Goldberg.

Can management share with us.

Oh Wow.

Outlook.

Okay.

And the way that we can expect positive revenue growth.

Thank you.

Yes Catherine.

Katrina.

So.

After we.

Released it.

Listing Hong Kong, we actually did and publish our commencement guidance, but have to shed some color as well as we are moving towards the year end of 2023.

First of all.

No even today right now how about 25% 12%.

On a 5% buyback, but if a quarter.

Revenue is coming from the CDM business.

Our three year total mentioned as well so.

In the face of.

Some adjustments from client mix for all the products, we offer and that's why as we control the cost with procured a bandwidth as well so but if you look at that business.

First priority as we tried to change the mix and the structure of the climate products right. So we've tried to remain relatively stable, but we just the.

The combination of the clients and products within the business. So.

So that's actually what we're trying to do in next two or three quarters right. So that's kind of a first factor probably can consider but we are not going to see dramatic changes or swings from that business, but Chad change at a better structure of that so that's first half the second harvest as I mentioned.

New money in our capital expenditure spending to the AI right.

The infrastructure, we build for clients.

And the math, we're caught up modest a services solution set of services with the client as well as.

The value add part of the projects, we do for our clients. So those are actually a couple of our b one of the probably the one.

I already for next year to grow the revenue and if you do a quick math I put this way is every three or two dollar spend this year youre going to see probably $1 or relatively around that $1 of the incremental revenue of policy for the next year. So that's the kind of mathematical connection given a capex converts to.

Product set products to cover its true incremental revenue for the second part. So we can do a good kind of analysis on that.

Third part is really about our very stable enterprise business as you can see that.

Our sub Camelot is delivering relative stable revenue for next year, I think given the macro environment as being kind of improving so you are going to also to see that revenue contribution of our come up we're going to see a relatively.

For us as well and our health care public sectors and the financial services Enterprise Cloud. We also see certain growth given we already have some flagship products in place for this year and that we can replicate that from city to city being tracked from client to client base going forward for next year.

Hoping we can remain around 30.

In terms of the GPO contribution on a project level replicate that two more projects for next year. So if you combine those three things.

Stable CDN, but better mix.

Spending on Capex can lead to incremental revenue for the public cloud.

<unk> growth for <unk> as well as the stable revenue and profits, but a growing revenue for enterprise cloud for financial services. So on so forth.

Putting it together.

We have kind of a confident to see without any kind of big changes on the picking environment. Our topline revenue for next year, you may see a kind of back to the YY growth Q on Q.

Growth as well.

Tim mentioned in the previous question as well, we are hoping to getting to a certain point that not only the EBITDA will be breakeven.

<unk>.

The next near future, but also we're going to see the op side is going to putting out back.

Back pocket.

I have an intention to bring a better profitability for the shareholders as well.

But the last point I want to mention this.

We also will keep a very close eye on the competitive landscape means our peers and our competitors who are trying to do a better quality of the work compared with other peers, but also we're happy to see where May you know next quarter or two where they are catching up on the gross margin side.

In the next few quarters, but also in the wildfire on the growth side with the latest casual or even better than the competitiveness as well because we did a few things.

Since last year, when Ceos, who would have come to the office and we actually have a few things in place and those efforts are I think two or three quarters earlier than our major competitors youll, probably see the recovery work to incorporate sooner down as well. Thank you.

Yeah.

Thank you that's very helpful.

Thank you I would now like to turn the conference back for closing remarks.

Thank you operator, thank you once again for joining US today. It is if you have any further questions. Please feel free to contact us looking forward to speaking with you again next quarter.

Nice day.

This concludes today's conference call. Thank you for participating you may now disconnect.