Q1 2024 Kingsoft Cloud Holdings Ltd Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to Kingsoft Cloud's first quarter 2024 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. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would like now to turn the conference over to Nicole Shan, IR Director of Kingsoft Cloud. Please go ahead.
Speaker Change: Good day, and thank you for standing by and welcome to the King soft clouds first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During this session you would need to press star one.
One on your telephone you will then hear an automated message of bites in your hand just.
Speaker Change: To withdraw your question. Please press star one one again.
Speaker Change: Be advised that today's conference call is being recorded I would like now to turn the conference over to Nicole Sean I, Our director of King's off Cloud. Please go ahead.
Nicole Shan: Thank you, Operator. Hello, everyone, and thank you for joining us today.
Speaker Change: Thank you operator.
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Nicole Shan: Kingsoft Cloud's first quarter 2024 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as on global newswire services. On the call today from Kingsoft Cloud, we have our Westerman and CEO, Mr. Zhou Tao, and CFO, Mr. Henry He. Mr. Zhou will reveal business strategies, operations, and company highlights, followed by Mr. He, who will discuss the financials and guidance. You will be available to answer your questions during the Q&A session that follows.
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Nicole Shan: There will be consecutive interpretations. All interpretations are for your convenience and reference purposes only. In case of any descriptions, management, and the original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934 as amended and as defined in the U.S. Private Security Litigation Reform Act of 1995.
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Speaker Change: Let me begin I would like to remind you that this conference call forward looking statements within the meaning of section 21 years of the Securities Exchange Act of 1930 floor at the money.
Speaker Change: In the U S Securities Litigation Reform Act of 1995.
Nicole Shan: These forward-looking statements are based upon management's current expectations and current market and operating conditions, and they relate to events that involve known or unknown risk, uncertainty, and other factors, many 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 assumptions to differ materially from those in the forward-looking statements. Further information regarding this and other risks and certain health factors is included in the company's findings with the USFDC, a company that does not now 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.
Speaker Change: These forward looking statements are based around manage that's growing in Asia and current market and operating conditions.
Speaker Change: That's well known or unknown risks.
Speaker Change: And others.
Speaker Change: Oh, we are difficult to predict and millennials, which are beyond the company's control, which may cause the company's actual results.
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Speaker Change: Further information regarding these and other risks uncertainties.
Speaker Change: Are included in the comments by them at least the U S. SEC. The company does not undertake any obligations to update any forward looking statement as a REIT.
Speaker Change: Out of new information future events or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this conference call are denominated in RMB.
Nicole Shan: Finally, please note that, unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Vice President for the White Chairman and CEO, Mr. Zhao. Please go ahead. Thank you.
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Unknown Executive: Welcome to Kingsoft Cloud's 1st quarterly conference in 2024. Thank you for... Kingsoft Cloud High-Quality Sustainable Development Strategies After more than a year of unwavering optimization and adjustment, on the basis of steady growth of the. We welcome the first time since the establishment of Kingsoft Cloud that, after adjustment, EBITDA has won for the first time. This milestone marks the profitability of Kingsoft Cloud. Zhao Xue, Unknown Executive, Brian Gong, Huiqun Li, Yucen Liu, Kingsoft Cloud, to establish a strong foundation for long-term sustainable and healthy development in 2024 and in the future.
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Unknown Executive: Hello everyone, and thank you all for joining Kingsoft Cloud's first quarter 2024 earnings report. This quarter, Kingsoft Cloud's high quality and sustainable development strategy has achieved fruitful results. After more than a year of unwavering optimization and adjustment, and alongside our continuous and steady increase in gross profit margins, we have achieved the milestone of turning adjusted EBITDA positive for the first time since the establishment of Kingsoft Cloud. This milestone demonstrates Kingsoft Cloud's profitability and growth sustaining ability, marking the commencement of a new stage of development. It establishes a robust foundation for our long-term sustainable and healthy progression into 2024 and beyond.
Speaker Change: Hello, everyone and thank you all for joining Kingscott cloud third quarter 2024 earnings call.
Speaker Change: This quarter King of cloud high quality and sustainable development strategy has achieved a fruitful results.
Speaker Change: More than a year of unwavering optimization and adjustments and alongside our continuous and steady increase in gross profit margin.
Speaker Change: <unk> achieved the milestone of turning adjusted EBITDA positive for the first time.
Speaker Change: The establishment of the cloud.
Speaker Change: This milestone demonstrates cancer clouds profitability and growth sustaining ability.
Speaker Change: The commencement of a new stage of development.
Speaker Change: It establishes a robust foundation.
Speaker Change: Long term sustainable and healthy progression into 2024 and beyond.
Unknown Executive: Let me introduce the performance of the first quarter of 2024. Thank you.
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Unknown Executive: Kingsoft Cloud continues to reach double growth in income scale and profitability. 17.8, has increased by 3.1%. After the adjustment for the 31st quarter, the gross profit amounted to RMB3 billion, growing 53.8% in the same period last year. 16.8% 1.6 [inaudible]! After adjustment, EBITDA profit reached RMB 33.19 million. After adjustment, it reached 1.9%, an increase by 8.9% compared to the same period last year.
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Unknown Executive: Now, I will walk through the business highlights of the first quarter of 2024. This quarter, we continued to achieve dual improvements in both our revenues and profitability. In particular, our total revenues reached RMB 1.78 billion, increasing 3.1% quarter over quarter. Adjusted gross profit for the quarter reached around RMB 300 million, increasing 54% year-over-year. Adjusted growth margins saw a significant boost, rising by 1.6 percentage points quarter over quarter to reach 16.8%, marking the seventh consecutive quarter of consecutive improvement. Adjusted EBITDA reached RMB 33.19 million with an adjusted EBITDA margin of 1.9%, representing a significant improvement of 8.9 percentage points year over year.
Speaker Change: Now I will walk through the business highlights of the first quarter of 2024.
Speaker Change: This quarter, we continued to achieve dual improvement in both our revenue and profitability.
Speaker Change: In particular, our total revenues reached RMB 178 billion, increasing three 1% quarter over quarter.
Speaker Change: Adjusted gross profit for the quarter reached around RMB 300 million, increasing 54% year over year.
Speaker Change: Adjusted gross margin so a significant boost rising by one six percentage points quarter over quarter to reached 16, 8%, marking the seventh quarter of consecutive improvement.
Adjusted EBITDA reached RMB $33 $109 million with an adjusted EBITDA margin of one 9% representing a significant improvement of eight nine percentage points year over year.
Unknown Executive: , 11.9 Huanbitong's 12.9% CDN9% We are making progress in the three areas of Xiaomi, ecology, AI, and CDN. [inaudible] [inaudible] Xiaomi Shuqi Jiaofu, WSAA Shuangyehua Kaiqi Hou, Zhilong Jiashu.
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Unknown Executive: [inaudible] Benito 19% from Xiaomi and Qingshan; we fully believe in the strategic skills brought by AIGC. [inaudible] The total revenue of AI is 1.6 billion RMB. 93% 13.5% Customers and industries are diversified and improved. [inaudible] We continue to invest in infrastructure. 12 On the other hand, we are optimistic about AI-enabled, 100-page-long historical information infrastructure to set up Jinshan Intelligent Full-time Employment Agency and seize the opportunity to digitize business and professional services.
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Unknown Executive: Third, CNN, [inaudible], But the total income ratio is stable at 23%. We will continue to strengthen CDN's profitability and promote the sale of high-added value products to the outside world and control the purchase cost internally to expand the scope of supplier coverage and seek the best price and service combination in the market.
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Unknown Executive: In terms of public cloud services, revenues reached RMB 1.19 billion this quarter, representing an increase of 12.9% quarter over quarter. Excluding CDN business, public cloud revenues saw a 9% quarter over quarter increase. We have seen positive outcomes across our three priorities for public cloud services, namely the Xiaomi and Kingsoft ecosystem, AI Business, and CDN Strategic Adjustment. First of all, serving as the sole strategic cloud platform within the Xiaomi and Kingsoft ecosystem.
In terms of public cloud services revenues reached RMB 119 billion this quarter, representing an increase of 12, 9% quarter over quarter.
Speaker Change: Excluding the CDN business.
Speaker Change: Cloud revenues, so a 9% quarter over quarter increase.
Speaker Change: We have seen positive outcomes across our three priorities for public cloud services, namely the Xiaomi and <unk> ecosystem AI.
Speaker Change: AI business.
Speaker Change: CDN strategic adjustment.
Speaker Change: First of all serving as the sole strategic cloud platform within the Xiaomi MTN south ecosystem.
Unknown Executive: We firmly grasp the cloud business opportunities within the ecosystem, especially after the launch of Xiaomi SU7 and the commercialization of WPS AI, which led to strong demand for computing power in autonomous driving and AI office use cases.
Speaker Change: Firmly grasp that cloud business opportunities within the ecosystem.
Speaker Change: Especially after the launch of <unk> <unk>, seven and the commercialization of WPS, AI, which led to a strong demand for computing power in autonomous driving and AI office use cases.
Unknown Executive: This quarter, revenues contributed by Xiaomi and Kingsoft ecosystem reached 19%, representing an increase of four percentage points year over year. Secondly, we have been proactive in seizing the strategic opportunities brought about by the amount of AIGC and have made significant strides in our AI business. This quarter, AI revenue surged to RMB 160 million, an increase of 93% quarter over quarter, accounting for 13.5% of public cloud revenues. This expansion further diversified our customer industry distribution.
Speaker Change: This quarter revenues contributed by Xiaomi and kings of ecosystem reached 19%, representing an increase of four percentage points year over year.
Speaker Change: Secondly, we have been proactive in seeking strategic opportunities brought about by the brown of Aig's and have made significant strides in our AI business.
Speaker Change: This quarter AI revenue surged to RMB $116 million, an increase of 93% quarter over quarter.
Accounting for 13, 5% of public cloud revenues.
This expansion further diversified our customer industry distribution.
Unknown Executive: On the one hand, we continue to invest in infrastructure, with capital expenditure exceeding RMB 1.2 billion this quarter, establishing a high computing power resource pool with substantial scale. On the other hand, recognizing the historic opportunity of AI empowering various industries, we have established Kingsoft AI as a wholly owned subsidiary, seizing the opportunities in the intelligent digital transformation of enterprises and professional services.
Speaker Change: On one hand, we continue to invest in infrastructure with capital expenditure exceeding RMB, one 2 billion this quarter, establishing a high computing power resource with substantial scale.
Speaker Change: On the other hand, recognizing the historic opportunity of AI empowering various industries.
Speaker Change: Have established cadence of AI as a wholly owned subsidiary seizing the opportunities in intelligence and digital transformation of enterprises and professional services.
Unknown Executive: Thirdly, we continued to push forward our strategic adjustment of CDN. This quarter, CDN revenue remained stable compared to the last quarter, accounting for 23% of total revenue. We remain committed to enhancing profitability of CDN by promoting high-value-added product sales externally, rigorously controlling procurement costs internally, expanding supplier coverage, and optimizing market price and service offerings.
Speaker Change: Thirdly, we continued to push forward, our strategic adjustment of CDM business. This.
Speaker Change: This quarter CDN revenue remained stable compared to the last quarter accounting for 23% of total revenues.
Speaker Change: We remain committed to enhancing profitability of TVN.
Speaker Change: Promoting at high value added product sales externally.
Speaker Change: Rigorously controlling procurement costs internally expanding supply of coverage and optimizing market pricing and service offerings.
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Unknown Executive: 5.9 In the field of public service, we actively seize the opportunities of China Cloud and China Cloud., [inaudible] This quarter, the Wuhan Kingsoft Cloud we are providing for construction is in operation. To provide a fully-fledged centralized computing storage platform for the East Lake High-Definition Region of Wuhan, collect data, explore data sharing, and provide convenient public cloud infrastructure services for science and technology enterprises in the High-Definition Region. In addition, we also continue to pay attention to the trend of the development of data asset charts. Organizational experts discussed digital assets and data elements at this seminar.
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Unknown Executive: Moving on to enterprise cloud services, revenues amount to RMB 590 million.
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Speaker Change: Moving on to enterprise cloud services revenues amounted to RMB $590 million in.
Unknown Executive: In the public service space, we have actively pursued opportunities within the public service cloud and state-owned assets. Implementing standardized operation and maintenance, we have leveraged our core components, such as model capabilities, big data, and workspace collaboration, targeting applications in the public service and enterprise domain. During this quarter, we initiated a trial operation for the Wuhan Optics Valley Cloud that we constructed, providing an independent and controllable centralized computing and storage platform for the entire Wuhan East Lake high-tech development zone.
Speaker Change: In public space, we have actively pursued opportunities within public service trial and stayed on at the cloud.
Speaker Change: Maintain standardized operation and maintenance, we have leveraged our core component such as motto capability deep data and workplace collaboration.
Speaker Change: Targeting applications in the public service and enterprise demand.
Speaker Change: During the quarter, we initiated as trial operation, but it will have an uptick without a cloud that we constructed providing independent and controllable centralize the computing and storage platform.
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Unknown Executive: This platform has assisted in collecting data, exploring data sharing, and providing convenient public cloud infrastructure services for science and technology innovation enterprises in the high-tech zone. In addition, we have remained attentive to the trend of data asset inclusion on balance. Recently, we convened a seminar on data assets and data elements, engaging experts and scholars from various institutions, such as data exchanges, accounting firms, big data centers, and data research institutes, to discuss topics such as policy interpretation, data assetization, and state-owned enterprises, cloud services, as well as data asset inclusion practice, closely following the business opportunities of data authorization.
Speaker Change: This platform has assisted in collecting data exploring data sharing and providing providing convenient and public cloud infrastructure services for science and technology innovation enterprises in the Hi Tech.
Speaker Change: In addition, we have remained attempted to dependent of data at that inclusion on balance sheet.
Speaker Change: Recently, we convened a seminar on data assets and data elements engaging access and Scarlet.
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Speaker Change: Following the business opportunity of data as a foundation.
Unknown Executive: In the healthcare space, our DAS platform, Medical Imaging Cloud Platform, and Integrated Electronic Medical Records Platform have all passed evaluations and been selected as one of the first batch of high-quality development panorama of digital medical products and services by China Academy of Information and Communication Technology. This showcases our achievements in product innovation and service capabilities in the medical artificial intelligence industry. In the financial services space, we provide object-to-storage expansion services for a leading joint stock bank with comprehensive storage capabilities such as object storage, file storage, and big data gateways while making full use of existing clusters.
Speaker Change: In healthcare space, our Das platform medical imaging cloud platform and integrated electronic medical record platform have all passed evaluations and being selected as one of the first batch of high quality development Panorama of digital medical product and services by China Academy of information and <unk>.
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Speaker Change: This showcases our achievements in product innovation and service capabilities and a medical artificial intelligence industry.
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Speaker Change: We provide object storage expansion services for a leading joint stock bank with comprehensive storage capability, such as object storage file storage and big data gateways, while making full use of existing process.
Unknown Executive: Turning to Camelot, this quarter witnessed stable and healthy revenue and profitability. We have signed up four new well-known customers while maintaining robust relationships with existing major customers, from the perspective of overall ecosystem business development. Camelot has launched a dedicated cooperation service plan with Xiaomi and Kingsoft ecosystem customers, exploring new models of talent and business cooperation.
Speaker Change: Turning to catalog this quarter witnessed stable and healthy revenue and profitability, we have signed up for new well known customers, while maintaining robust relationships with existing major customers.
Speaker Change: From the perspective of overall ecosystem business developments catalog has launched a dedicated cooperation service plan with Xiaomi and picked up the ecosystem customers exploring new model of tallow and business operations.
Unknown Executive: [inaudible] focusing on the first-class customer experience of core products. In terms of AI, we have accumulated the technology and a large amount of service experience in the transaction 256 and 512 nodes. , Kingsoft Cloud launches a new version of the Cloud Platform, which includes 84 new features, including hardware, performance, and monitoring capabilities., At the same time, the new version of the operating platform focuses on business, and calculates the operational situation of cloud resources such as full-volume mobile phones, cloud computers, and networks. High efficiency and precise operation so that our customers can use the cloud more intelligently and economically.
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Unknown Executive: In terms of product and technology, we uphold our principle of building success based on technology and innovation, focusing on delivering best-in-class customer experiences across our four product offerings. In the AI space, we have accumulated technology and extensive service experience in deploying 256 and 512 node clusters, achieving automation in large-scale cluster deployment, acceptance, and operation and maintenance management. In the enterprise cloud space, the Galaxy Stack platform released an updated version of its operations and maintenance platform, adding 84 new hardware and performance monitoring capabilities to assist customers in refined statistical management.
Speaker Change: In terms of product and technology, we uphold our principle of building based on technology and innovation focusing on delivering best in class customer experience across our core product offering.
Speaker Change: In the AI space, we have accumulated technology and extensive service experience in deploying 250 and 512 no profit.
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Unknown Executive: At the same time, the new version of the operation platform calculates the usage of cloud resources, such as cloud hosts and networks, for all tenants from a business standpoint, enabling efficient and refined operations. This enhances our intelligence and precision in cloud migration, cloud management, and cloud usage for our customers.
Speaker Change: At the same time newer version of the operation platform calculate the usage of cloud resources, such as cloud hosting and network for all tenants from a business standpoint, enabling efficient and refined operation Nathan.
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Unknown Executive: Our high-quality sustainable development strategy is steadily implemented., in the past two quarters. 7, [inaudible] focus on high-value products and services, embrace AI, promote technological progress, and continue to improve profitability., [inaudible], Next, let's welcome Seth and Harry to introduce the first quarter's financial results. Thank you.
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Unknown Executive: In summary, our high-quality and sustainable development strategy has been steadily implemented, achieving the milestone of turning EBITDA positive for the first time. Additionally, revenues have also achieved continuous growth in the past two quarters, and our gross profit margin has improved for seven consecutive quarters. Looking forward, we will remain committed to our long-term strategy, focusing on high-value-added products and services, embracing AI opportunities, promoting technological advancement, and continuing to enhance profitability by increasing management efficiency, maintaining a strict cost and expense control, enhancing talent training, and expanding our Wuhan R&D center.
Speaker Change #106: In summary, our high quality and sustainable development strategy has been steadily implemented achieving the milestone of turning EBITDA positive for the first time.
Speaker Change #106: Additionally, revenues have also achieved continuous growth in the past two quarters and our gross profit margin has improved for seven consecutive quarters looking.
Speaker Change #106: Looking forward, we will remain committed to our laws, having strategy focusing on high value added products and services embracing AI opportunities promoting technological advancements and continuing to enhance profitability.
Speaker Change #106: By increasing management efficiency, maintaining a strict cost and expense control enhancing talent training and expanding our R&D center. We are confident that we will continue to create value for our customers shareholders employees and other stakeholders.
Unknown Executive: We're confident that we will continue to create value for our customers, shareholders, employees, and other stakeholders. I will now pass the call over to our CFO, Henry, to go over our financials for the first quarter of 2024. Thank you. Xie Xie, Zou Zou
Speaker Change #107: I will now pass the call over to our CFO Henry to go over our financials for the first quarter funding plentiful. Thank you.
Haijian He: Thank you, Mr. Zou, and welcome everyone to join the call. Now, I will walk you through the financial results for the first quarter of 2024. We are very pleased to see our adjusted EBITDA margin turn profit for the first time, with our adjusted gross margin significantly improving for seven quarters, verifying the well-executed of our strategy of high quality and sustainable development. Having successfully achieved profitable EBITDA margin, we would like to highlight the following three key efforts we have made to yield the results. First of all, we strategically adjusted our revenue mix under the guidance of high quality and a sustainable development strategy. During the past year, we proactively scaled down our CDN services with a low margin profile.
Speaker Change #108: Hey, Joe.
Henry: Thank you <unk> and welcome everyone joining the call now I will walk you through the financial results for the first quarter of 294.
Henry: We are very pleased to see our adjusted EBITDA margin and profits for the first time with our adjusted gross margin has been cost activity and truly in for seven quarters.
Henry: While refining the well executed our strategy of high quality and a sustainable development.
Henry: Having successfully achieved profitable EBITDA margin, we would like to highlight the following three key efforts, we have made to yield results.
Henry: First of all we're strategically adjusted our revenue mix under the guidance of high quality and a sustainable development strategy.
Henry: During the half year, we're scaling down our per activate our CDN services with low margin profile.
Haijian He: This quarter, City & Services contributes around 23% of our total revenue compared with over 50% in the peak time looking back into 2020. Meanwhile, we expand our revenue from our high-margin AI business, achieving 160 million RMB this quarter, contributing around 13% of our public cloud revenues. Second, Both of our public cloud and enterprise cloud services improved their margins in 2023 and quarters beyond compared with 2022. Since last year, we focus on high-margin products and services, and we select carefully about our clients, which yields a better margin profile. We'll be taking strict measures and a supply chain strategy to cut down on costs and expenses.
Henry: This quarter CDN services contributes around 23% of our total revenue compared with over 50, extending the peak time looking back into 2020.
Henry: Meanwhile, we expand our revenue from high margin business, achieving 160 million RMB this quarter.
Henry: Contributing around 13% of our public cloud revenues.
Henry: Second.
Henry: Both of our public cloud and enterprise cloud services improve their margins in 2023, and a quarter to be up compared with 2022.
Henry: Same client that we're focused on high margin products and services.
Henry: Carefully about our clients, what's the year at a better margin profile.
Henry: Third.
Henry: Having taking a strict measures and our supply chain strategy to cut down our costs and expenses.
Haijian He: We have streamlined our procurement process and enlarge our supply pools to achieve higher cost effectiveness. We also closely monitor the daily operation expenses. These key initiatives bear fruits in this quarter by recording EBITDA profits, and we believe these are still potentials in the future. And we will keep our commitment to improving our profitability.
Henry: We have streamlined our procurement process and a lot of the platform to achieve higher cost effective.
Henry: We also closely monitor that daily I appreciate expenses.
Henry: These key initiatives bear fruits in this quarter by recording EBITDA profits and we believe these are still potentials in the future.
Henry: And we will keep our commitment into improving our profitability.
Haijian He: Our adjusted gross profit continued to grow to 299.1 million RMB, increasing by 53.8% year-over-year, representing an adjusted gross margin of 16.8%, which is a record high for the company and improved 1.6 percentage points compared with last quarter. Our adjusted EBITDA narrowed from negative 130.5 million RMB in the same period of last year and a negative 27.7 million RMB in the last quarter to positive 33.2 million RMB this Adjusted EBITDA margin further narrowed from negative 7% in the same period of last year and negative 1.6% in the last quarter to positive 1.9% this quarter.
Our adjusted gross profit continue to grow to $299 1 million RMB increased by 53, 8% year over year, representing an adjusted gross margin of 16, 8%.
Henry: Which is a record high for the company and improved one six percentage points compared with last quarter.
Henry: Our adjusted EBITDA narrowed from negative 135 million RMB in the same period of last year, and a negative $27 7 million RMB in the last quarter to a positive $33 2 million RMB this quarter.
Henry: Adjusted EBITDA margin further narrowed from negative 7% in the same period of last year and a negative one 6% in the last quarter to positive one 9% this quarter.
Haijian He: Our total revenue was 1,775.7 million RMB this quarter, an increase of 3.1% sequentially, of which revenues from public cloud services were 1187.4 million RMB, representing an increase of 12.9% compared with 1052 million RMB in the last quarter. The increase was primarily due to the expansion from AI-related revenues and the relatively stable scale of the obsidian business. Revenues from enterprise cloud services were 588.2 million RMB, representing an increase from 670.3 million RMB in the last quarter, as fewer projects were scheduled for delivery during the Chinese New Year holiday period.
Henry: Our total revenue or 1707 to $5 7 million RMB this quarter increased by three 1% sequentially.
Henry: Which revenues from public cloud services.
Henry: <unk> $1187 4 million RMB, representing an increase of 12, 9% compared with 1050 2 million RMB in the same quarter last in the last quarter.
Henry: The increase was primarily due to the expansion from AI related revenues and the relatively stable scale of our CDN business.
Henry: Revenue from Enterprise Cloud services were $588 2 million RMB, representing a decrease from 673 million RMB in the last quarter at.
Henry: As fewer projects are scheduled for delivery during the Chinese new year holiday period.
Haijian He: We continue to enhance our cost control measures, expanding our coverage of suppliers to search for better service quality and procurement prices. Total cost of revenues decreased by 11.2% year over year, and the relatively stable quarter to 1482.4 million RMB. IDC costs decreased significantly by 11.9% year-over-year from 872.4 million RMB to 768.5 million RMB this quarter.
Henry: We're continuing to enhance our cost control measures expanding our coverage of suppliers to search for better service quality and procurement prices.
Haijian He: The decrease was in line with a scaling down of CDN services; depreciation and amortization cost decreased by 18.3% from 224.6 million RMB in the same quarter last year to 183.5 milliRMB this quarter. The decrease was mainly due to the previous impairment of long-lived assets and partially offset by the depreciation of new services and new servers we acquired. Solution development and services cost increased by 5.3% year-over-year from 423.6 million RMB to 446.0 milli-iron digit score. The increase was mainly due to the solution personnel expansion of Camelot.
Total cost of revenue decreased 11, 2% a year over year and the relatively stable quarter over quarter to $1482 4 million RMB.
Henry: Or is it cost decreased significantly by 11, 9% year over year from 872 Formula RMB.
Henry: Two $768 5 million RMB this quarter.
Henry: The decrease was in line with our scaling down of our CDN services.
Henry: Depreciation and amortization costs decreased by 18, 3% from $224 6 million RMB in the same quarter last year.
Henry: So $183 5 million RMB this quarter.
Henry: The decrease was mainly due to the impairment of long lived assets and a partially offset by the depreciation of new services New service our clients.
Henry: Solution development and services costs increased by five 3% year over year from 423 6 million RMB.
Henry: Two of 446.0 million R&D this quarter.
Henry: The increase was mainly due to the solution personnel expansion of Camelot.
Haijian He: Fulfillment costs and other costs were 36.1 million RMB and 48.3 million RMB this quarter, respectively. Adjusted gross profit for this quarter increased by 53.8% year-over-year to 299.1 million RMB, representing an adjusted growth margin of 16.8% this quarter, compared with 10.4% in the same period of last year and 15.2% last quarter, making another record high, as well as the 7th consecutive quarter of steady margin improvement. In terms of expenses, excluding share-based compensation and impairments at long-term assets.
Henry: Fulfillment costs and other costs was $36 1 million RMB and a $48 3 million RMB this quarter respectively.
Henry: Our adjusted gross profit for this quarter increased by 53, 8% year over year to $299 1 million RMB.
Henry: Representing adjusted gross margin of 16, 8% this quarter compared with 10, 4% in the same period of last year at 15, 2% last quarter, making another record high.
Henry: Yes.
Henry: Quarter of steady margin improvement.
Henry: In terms of expenses.
Henry: Excluding share based compensation and impairments of long lived assets. Our photo adjusted operating expenses were $469 6 million RMB decreased by 21, 2% year over year at five 1% from last quarter of which our adjusted R&D expenses.
Haijian He: Our total adjusted operating expenses were 469.6 million RMB decreased by 21.2% year-over-year and 5.1% from last year, of which our adjusted R&D expenses were 193.0 million RMB, which increased by 18.8% from last quarter. The increase was mainly due to our continuous investment in technology. Adjusted selling and marketing expenses were 97.9 million RMB, representing a decrease of 8.3% from 106.7 million RMB for R&D last quarter. Adjusted G&A expenses were decreased by 20.8% from 225.6 million RMB last quarter to 178.7 million RMB. The decrease was mainly due to strict control over data operational expenses and a decrease in bad debt provisioning.
Henry: 193.0 million R&D increased by 18, 8% from last quarter.
Henry: The increase was mainly due to our continuous investments into technology.
Henry: Adjusted selling and marketing expenses were $97 9 million RMB.
Henry: Presenting a decrease of eight 3% from 100 zero X seven minute RMB last quarter.
Henry: Adjusted G&A expenses decreased by 28% or $225 6 million RMB last quarter to $178 7 million RMB.
Henry: The decrease was mainly due to with a strict control or what data operational expenses and a decrease of bad debt provisions.
Haijian He: As of 31st, 2024, our cash and cash equivalents amount to $1.8 billion RMB, providing us liquidity for operations and investments into the AI era. The capital expenditure for this quarter was 1,212.2 million RMB, as we invested in our infrastructure to build a sustainable AI. In April, we released our ESG report for 2023, providing an exact review of the company's progress in last year's ESG practices, including business ethics. Responsible Operations, Talent Development, Green Development, Sustainable Supply Chain, and Corporate Responsibility
Henry: F 31, 2024, our cash and cash equivalents amounts to $1 8 billion RMB, providing us liquidity.
Speaker Change #110: <unk> added investments into AI era.
Speaker Change #110: The capital expenditure for this quarter were $1212 2 million RMB.
Speaker Change #110: We invested in our infrastructure to build a sustainable AI business.
Speaker Change #110: Yes.
Speaker Change #110: In April we released our yes to report for 2023, providing an in depth review of the Companys progress last year.
ESG practices exclude including business ethics.
Speaker Change #110: <unk> cooperation talent development growing development sustainable supply chain and corporate responsibility.
Haijian He: In 2023, we were awarded as a member of the top 88 companies in the first edition of S&P Global Sustainable Yearbook China Edition. We are also rated as a single A rating in MSCI ESG ratings, and live in all ADR stocks of China. We will fulfill our social responsibility and create value for our customers, employees, shareholders, suppliers, and the whole society. Looking ahead, we will uphold the principle of high quality and sustainable development.
Speaker Change #110: In 2020.
We're awarded as a member out of a total top 88 companies in.
Speaker Change #110: In the first edition of S&P Global sustainable Yearbook, China edition.
Speaker Change #110: We are also right. It is a single a rating in MSCI ESG rating.
Leaving in the all in.
Speaker Change #110: All ADR stock or China.
Speaker Change #110: But we will fulfill our social responsibility at accretive value to our customers employees shareholders suppliers and our whole society.
Speaker Change #110: Looking ahead upheld the principle of high quality and a sustainable development, we keep taking initiatives to improve our revenue quality cutting our costs and expenses and improve our profitability.
Haijian He: We keep taking initiatives to improve our revenue quality, cut down costs and expenses, and improve our profitability. The breakeven of EBITDA is a good beginning for us, and we expect more balanced and healthy business performance and financial results in the future. Thank you.
Speaker Change #110: The breakeven of EBITDA as well beginning for us.
Speaker Change #110: Back to the more balanced and healthy business performance and our financial results are coming in the future. Thank you.
Unknown Executive: This concludes our prepared remarks. Thanks for your attention. We are now happy to take your questions. Please ask your questions in both Mandarin and English, if helpful.
Speaker Change #111: Our prepared remarks, thanks for your attention we are now happy to take your questions. Please ask your question in those memory in the English is counsel operator. Please go ahead. Thank you.
Operator: Operator, please go ahead. Thank you. Thank you.
Operator: Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for the first question. Our first question comes from Xiaodan Zhang with CICC. Your line is now open.
Speaker Change #112: Thank you to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker Change #113: To withdraw your question. Please press star one one again, one moment for the first question.
Speaker Change #114: Our first question comes from Dan <unk> with CIBC. Your line is now open.
Speaker Change #113: Okay.
Xiaodan Zhang: Good evening, Chairman Zhou, Henry, Clark, and Nicole. Thank you for accepting my question.
Speaker Change #115: Total Henry Clark Nicola Shaw.
Xiaodan Zhang: We can see that the company achieved a turning point in the first quarter of the year. I would like to ask the management team how they expect to improve profitability in the next quarter. I would also like to ask the management team to share our plans to deal with cloud computing in the near future, as well as a continued strategy to reduce the price of some big star companies. Now, I will quickly translate my question.
Speaker Change #115: Hello.
Speaker Change #116: Now carnival.
Speaker Change #117: We think with Sidoti.
Speaker Change #118: Can you talk about <unk> do you think you Danielle quick.
Speaker Change #121: I will now it sounds from Jefferies. Your line is Honda you hosted you too <unk> got <unk> J code can you tell us what you'd see that anyone is also quite helpful. Sachin shortly <unk> Deutsche <unk> <unk> interest.
Speaker Change #119: Interest on bulk water Thomasine <unk> ox.
Speaker Change #120: Tissue Dow Jones added program now.
Speaker Change #122: No question the phase <unk>.
Xiaodan Zhang: So, thank management for taking my questions, and I have two questions here. First of all, what is your expectations for the adjusted EBITDA margin improvement pace for the subsequent quarters? And secondly, how are you going to cope with the increasingly aggressive pricing strategies of ICANN large-language model vendors? Thank you.
Jane: Sure. Thanks management for taking my question Jane I got two questions here first of all what is your expectations for adjusted EBITDA margin improvement pays for the subsequent quarters and secondly, how are you going to cope with the increasingly aggressive pricing strategy ICM large language model <unk>. Thank you.
Unknown Executive: Okay, the first question will be answered by Harry.
Speaker Change #125: Our diesel and electric.
Haijian He: Thank you. I'll probably take on the first question. So, as we mentioned in the prepared remarks, we're actually happy to see that during the 12 years of history of Kingsoft Cloud, this is actually the first quarter we hit the EBITDA margin breakeven. And the underlying drivers, as we mentioned, are very clear. And we believe that those drivers will continue to unleash value and profits in the coming quarters, namely, a better mix of revenue from different views, right, a high margin contribution from the AI business, and the revamping of the supply chain tactics, which actually we're changing many of the suppliers to remain competitive on the cost side.
Speaker Change #124: Thank you.
Speaker Change #126: The honest from Texas the team so I'll, probably I'll take on the first question.
Speaker Change #127: So as we mentioned in the prepared remarks, we're actually happy to see.
Speaker Change #128: During the trough years of history of any of our cloud is actually the first quarter.
Speaker Change #128: EBITDA margin breakeven.
Speaker Change #128: Breakeven and underlying drivers as we mentioned are very clear.
Speaker Change #128: Yes.
Speaker Change #128: We believe that those those drivers will be continue to unleash the.
Speaker Change #128: The value added profit in the fourth quarter.
Speaker Change #128: Namely the better mix of the revenue.
Speaker Change #128: It can be used by the high margin contribution from the AI business.
Speaker Change #128: The revamping of the supply chain tactics, which actually were changing many of the suppliers to remain competitive in our cost side and also we improved the internal operating efficiencies <unk> Premier shipping tunnel.
Haijian He: And also, we improve internal operation efficiency by streamlining certain internal operation initiatives and processes. So these are the things that obviously, other companies may do the same, but I think we do them in a better, committed way, and we will continue to do so for a long way. And also, if we're looking forward, we believe part of the benefits of the profit from initiatives we already took will continue to have a result in the coming near quarter.
Speaker Change #128: Operation initiatives and process. So these are the same obviously other company may be the same but I think we do a better <unk>.
Speaker Change #128: Committed way and then we carry gorilla carried far long way.
Speaker Change #128: And also for if were looking forward, we believe partial of the benefits on the profit from the initiatives. We already took well continue to have the.
Speaker Change #128: Our results in the coming year quarters and in addition, as you can see that.
Haijian He: And in addition, as you can see, we also have better trends to go with the higher growth on the top line. So I think that will also give a good kick to the bottom line of profitability as well. So in short, I think we are not going to say it's going to achieve one-time profitability down the EBITDA line. It will be consistent, and it will probably carry along in the following quarters.
Speaker Change #128: We also have the better trends to go with the higher growth on the top line. So I think that it will also give a good kick into the partner lie at the profitability as well. So in short I think we are not going to say, it's going to onetime profitability on the EBITDA line, there will be a consistent and it will be.
Speaker Change #128: <unk> probably carry a law.
Haijian He: And we also see that the improving better growth margin will also kick down to the EBITDA margin line as well. So I think sequentially, we'll see a better growth margin carry forward, and also there will be a narrowed spread between the growth margin and EBITDA margin. So we'll probably see a more accelerated trend of the EBITDA margin improvement as well. I think there are two things we can share.
Speaker Change #128: The following quarters and we also see the improving better gross margin were awesome.
Speaker Change #128: So the EBITDA margin line as well so.
Speaker Change #128: I think sequentially you see a better gross margin carryforward and also will be a narrower spread between our gross margin and EBITDA margin. So you'll see a probably a more accelerated trends up the EBITDA margin improvement as well I think there are two things we can share obviously.
Haijian He: Obviously, we're not going to give numeric guidance on the EBITDA margin going forward, but I think we're going to achieve kind of the industry's top level of the tier players in a very similar ballpark member of the growth margin and EBITDA margin line. And what I can kind of commit is the EBITDA margin break-even for this quarter is not going to be a one-time-off event. So we're pretty confident both growth margin and EBITDA margin will continue to improve in several quarters down the road as well. Thank you.
Speaker Change #128: We're not going to give a kind of numeric guidance on the EBITDA margin going forward.
Speaker Change #129: Welcome to achieve.
Speaker Change #129: The industry's top level the tier players.
Speaker Change #129: In a very similar ballpark member of the gross margin and EBITDA margin lie and what I can commit is.
Speaker Change #129: The EBITDA margin breakeven for this quarter, it's not going to be a onetime also events.
Speaker Change #130: Craig competence.
Speaker Change #130: Gross margin EBITDA margin will contribute to improved in several quarters down the road as well. Thank you.
Unknown Executive: I'll answer the second question first. Liu Fang, you can go first.
Speaker Change #130: Okay.
Speaker Change #131: <unk> was simply that.
Speaker Change #132: So that the schools.
Speaker Change #133: Sure So it's either one.
Unknown Executive: [inaudible] ??????????? ????,??,?????,?????? [inaudible] So, of course, this is also expected. It can be said that China's first large-scale model has reached a certain level of maturity. Everyone thinks it can be commercialized. This is one. The second one also marks the official start of the knockout match. This is from the beginning of this year to the beginning of the first half of the year.
Speaker Change #132: Tennessee.
Speaker Change #132: Fox about chocolate.
Speaker Change #134: Sorry about that.
Speaker Change #134: Our growth this year Arlington linger.
Speaker Change #134: Battle to fight.
Speaker Change #134: Thanks.
Speaker Change #135: Alright, I think thats, a good year, Sheila it's Omar clean.
Speaker Change #135: Clearly clearly clearly paid off.
Speaker Change #135: The dealer toward a promise of Thunder.
Speaker Change #135: <unk>.
Speaker Change #135: Lula.
Speaker Change #136: Cleanup Saviola, especially you got target Ikea Delta.
Speaker Change #137: Hi, Sheila.
Speaker Change #137: Figure continue these cases of us sorry minus by more about China.
Unknown Executive: We have done research on this trend. So to be honest, it's just a little bit earlier than we expected. I didn't expect this to be so big.
Speaker Change #137: Which I think is unchanged with total for the period.
Speaker Change #137: So a sofa.
Speaker Change #137: So as a bureau again.
Speaker Change #137: Again, very solid and India.
Unknown Executive: This is our understanding of this phenomenon. But to be specific, the first one is to be honest; this is a model that manufacturers use to attract customers and dominate the market. Yucen Liu, Huiqun Liu, Kingsoft Cloud,,. I think we all know the model effect, especially those who have worked in our office. Everyone has their own strengths. It's not about who is better.
Speaker Change #137: Okay.
Speaker Change #137: A bigger business.
Speaker Change #137: Because I sit however.
Speaker Change #138: That's correct.
Speaker Change #139: <unk> got to the social office on margins, So I'll mail of Samuel.
Speaker Change #139: <unk> financial results yielded nonetheless.
Speaker Change #139: Sure.
Speaker Change #139: <unk>.
Speaker Change #139: Hello.
Speaker Change #139: With a more detailed work those fees goes both preclinical.
Speaker Change #139: <unk> clinical Youtube, but one of the table.
Speaker Change #139: The global economy.
Speaker Change #140: There's a comment akshay for physical.
Unknown Executive: So the price has become a key factor. This shows that this is a way for model manufacturers to increase their market share. Kingsoft Cloud does not provide large-scale model integration services.
Speaker Change #140: So there's a chalk leg of Columbia got some greater than usual.
Speaker Change #140: This is a Sunday as assistant module.
Speaker Change #140: We have a settlement.
Speaker Change #142: Hello, John.
Speaker Change #141: Good evening.
Speaker Change #143: <unk> Portugal.
Speaker Change #143: Alison.
Unknown Executive: We provide computing services for these large-scale model manufacturers. Yes, I hope everyone can understand this concept. For example, we don't make canned products. We are providing services to the people who make cans. The price of the cans we make is different from ours.
Speaker Change #144: In general while this sort of showcase because it's all about more so thats kind of our table so thoughtful.
Speaker Change #143: Okay.
Speaker Change #145: Yeah, So Sheila Canaccord.
Speaker Change #145: Gotcha.
Speaker Change #145: When we created it took.
Speaker Change #145: Took us some time, Uruguay while vessel.
Speaker Change #145: All right.
Greg: Well this is Greg.
Greg: Hello.
Greg: Florida.
Greg: Total adequate but have you started off the boat.
Unknown Executive: I hope you don't confuse this concept. It's like saying, ah, the price of big models. How about we provide services on the cloud? Of course, it has an impact on us. Thank you very much for what you just said. Uh, it's already in the elimination phase. We have talked many times about our identity as a cloud company. So in the past year, most of the large-scale startups have been our clients. So, the problem we are really concerned about is elimination competition. We don't want our clients to be eliminated in the end.
Greg: Subsequent young Hollywood was is still on target.
Greg: Yes.
Greg: So I'm watching that.
Speaker Change #147: Got you.
Speaker Change #147: In Florida than there probably wasn't the English.
Speaker Change #147: 200 dollar.
Speaker Change #148: Hi, Thanks.
Speaker Change #148: Yeah.
Speaker Change #148: <unk>.
Speaker Change #148: Figure while vehicles of $1 2 million.
Speaker Change #148: To go through the settlement.
Speaker Change #148: So its Alcoa Corp. After the Union Hall.
Speaker Change #148: But also that little tiresome tolerance levels.
Speaker Change #148: Sure.
Speaker Change #148: So you know I guess.
Speaker Change #148: A few of them in terms of bundled over digital.
Speaker Change #148: The fifth highlight.
Unknown Executive: This is what we are really concerned about. This is also likely to happen in the future. From our point of view, in the following two years, including the first half of this year, we have continued to receive a relatively large amount of financing., It's not like if you start running, you'll fall. I think you can still run a few steps.
Speaker Change #148: Goodbye.
Speaker Change #148: Yes.
Speaker Change #148: So quick fashion.
Speaker Change #148: The liquidity of the total shares.
Speaker Change #149: Delegate I cannot commit Alibaba co.
Speaker Change #148: Cohort.
Speaker Change #148: Great.
Speaker Change #150: I'm in for <unk>.
Speaker Change #150: So cheap.
Speaker Change #150: Quarter over quarter.
Speaker Change #150: To the source.
Speaker Change #151: Got it.
Speaker Change #151: Total oven.
Speaker Change #151: Jingle that tells a dichotomy.
Speaker Change #151: Sure.
Speaker Change #151: Those types of products whether.
Unknown Executive: This is not a problem, at least within the next two years. This risk is controllable. [inaudible] The signing of the contract is a two-to-three-year-long contract, so we think that within our contract period this kind of risk is controllable, okay? Controllable. Of course, three to five years later, I think it's impossible for China to have so many newspapers for such a long period of time. It's also impossible to know exactly what they are.
Speaker Change #151: But at the height of the policy with us they will give it that is without <unk>.
Speaker Change #152: And so labor Francesca cocco them.
Speaker Change #152: So on tumors.
Speaker Change #152: Sure.
Speaker Change #153: Are you extending it already.
Speaker Change #153: But it sounds like.
Speaker Change #153: So over the whole Chile.
Speaker Change #154: That's helpful color.
Speaker Change #155: Our filing.
Speaker Change #155: Finally at home.
Speaker Change #154: Okay.
Speaker Change #156: Whats our total pokemon current receiver.
Speaker Change #157: Total bullshit.
Unknown Executive: China has been developing cloth for more than 20 years. Whether it's IM,, Sushi,?? www.youtube.com.uk to be true season, to be true season. [inaudible] So this is a big trend, and I think China's big model development will definitely go through this stage, right? Liu Daoyang
Speaker Change #157: So it's a little hotel product that the offline.
Speaker Change #158: We are interested.
Speaker Change #158: Okay.
Speaker Change #158: Total.
Speaker Change #158: I don't know.
Speaker Change #158: It will be placebo.
Speaker Change #158: You will see that.
Speaker Change #159: Got it.
Speaker Change #159: Pick a fight out cheap.
Speaker Change #160: How are you.
Speaker Change #161: Hi, Walter what's arguably backups.
Speaker Change #161: The syndrome.
Speaker Change #161: As a cohort cortisol.
Speaker Change #162: Our general counsel.
Yes.
Speaker Change #162: Typical to placebo.
Speaker Change #162: However for Neil.
Speaker Change #163: Sorry about that.
Speaker Change #163: Should we think about what.
Speaker Change #163: What we're going to continue to work with a bunch of.
Speaker Change #164: <unk> continues to lead the data.
Speaker Change #163: Sure.
Unknown Executive: Okay, okay. So I'll just very quickly summarize and translate. So to be quite honest, it is something that we had expected already. As I mentioned, people have noted the price cuts for large language models offered by ByteDance, Alibaba, and Baidu, and they have also commented on this, which is a sign that the large language model development in China has entered a stage of relatively maturity, which I would call the round of competition, which eliminates some of the players.
Speaker Change #163: Yes.
Speaker Change #163: Okay.
Speaker Change #165: So I'll just quickly summarize and translate.
Speaker Change #165: So to be quite honest, but it is something that we had expected already as I mentioned people have noted they are priced.
Speaker Change #165: That language model offered by <unk>.
Speaker Change #165: <unk> Alibaba and Baidu and have also accommodate on this.
Speaker Change #165: Which is a sign that the law.
Speaker Change #165: Last one which model development in China has entered a stage of relatively mature, which I would call the round of competition, which eliminates some of the players. However.
Unknown Executive: However, I think it's important to mention one point that what we at Kingsoft Cloud do is different from what these large language model players do, because we actually provide services and computing power to the large language model players, but we don't do large language modeling ourselves. And therefore, the importance for us is that what we're closely looking at is whether these customers of ours, namely the independent large language modeling players in the market, are going to be able to survive this competition and remain players in the market.
Speaker Change #165: However, I think it's important to mention one point that what we have seen some cloud do it different from what this last language model players too because we actually provide services.
Speaker Change #165: <unk> power to the last language our motto.
Speaker Change #165: Players, but we don't do a lot less language model ourselves and.
Speaker Change #165: And therefore, the importance for us is.
Speaker Change #165: But we are closely looking at is whether they are customers of ours.
Speaker Change #165: Namely the independent launch language model of players in the market are going to be able to survive. This competition and remain a player in the market from the current situation. We have seen that many of them have secured a very large amount of financing.
Speaker Change #165: In Britain path.
Speaker Change #165: Therefore, overall, we evaluate the situation, but if customers to be relatively robust in the next one or two years, which is well within our contracted period.
Unknown Executive: From the long-term standpoint, we do think that this is a stage of development of the large language model in China that is going to come, which is it's not going to be that sustainable for all kinds of players to remain on the table. However, we do think that vertical application models, for vertical application models, there's a good chance that many of them will be able to have their own niche and unique markets in the market competition.
Speaker Change #165: From the long term standpoint, we do think that this is Asia.
<unk> element of last language model in China that is going to come which is.
Speaker Change #165: Not going to be that's sustainable for all kinds of.
Speaker Change #165: To remain on the table. However, we do think that vertical application models.
Speaker Change #165: From a vertical application model is a good chance that many of them will be able to have their own niche and a unique market.
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Speaker Change #165: In the in the market competition.
Speaker Change #165: Thanks.
Operator: Operator, next question please, thank you.
Speaker Change #166: I appreciate that consciously Keith please standby for the next question.
Operator: Please stand by for the next question. The next question comes from Timothy Zhao with Goldman Sachs. Your line is now open.
Speaker Change #167: The next question comes from.
Speaker Change #167: Timothy Zhao with Goldman Sachs. Your line is now open.
Timothy Zhao: Okay, thank you for accepting my question, Guan Yiceng. My question is about our AI and AI-related investment. I see that in this quarter, our AI-related income, whether from a Q2Q or a stand-alone perspective, actually has a more obvious increase. Can you please share with us, Guan Yiceng, what is the main source of the increase in AI revenue? If we look at it from a demand perspective and from a GPU perspective, what are the things that we have done? Another related question is: we just talked about our entire CapEx, which has already cost $1.2 billion. I don't know if we have any related guidance for this year's CapEx. I will translate it very quickly.
Speaker Change #168: The consequence on digital with Hewitt.
Speaker Change #170: Thank you Sheila.
Speaker Change #169: Sure Glenn told Rudolph now.
Speaker Change #169: Okay.
Speaker Change #171: <unk> <unk> from Q <unk>.
Speaker Change #172: <unk> top of that kind of twofold.
Speaker Change #172: <unk> now completed.
Alex Yao: Thanks, Alex Yao Womens condom to go forward.
Alex Yao: With <unk>, we are the leash irobot. So when we go futures on that kind of heating elements Jolla Goldman before Gpus will pay that kind of element.
Alex Yao: Sure.
Alex Yao: The only way you become one of them.
Alex Yao: Sure <unk>.
Alex Yao: With all of them.
Capex too.
Charlotte: Charlotte now up to about that opinion.
Charlotte: <unk> <unk> capex.
Speaker Change #175: I'm glad that you yet.
Speaker Change #175: No.
Speaker Change #176: Thank you management for taking my question. My question. Please regarding AI in the retro relevant investments do we noticed that the AI revenue ratio from Google.
Chris: <unk> growth either from an absolute number perspective as a percentage of revenue Chris wondering if management can share any.
Chris: Cotter on what is driving that very significant revenue growth and secondly.
Chris: Okay.
Speaker Change #178: You're already spending around $1 2 billion RMB.
Speaker Change #178: Capex I was just wondering if management has any guidance into that.
Speaker Change #179: Total capex for this year. Thank you.
Haijian He: Thank you, Tim. I'll probably take on part of the question, and our SVP, Leo Tao Zou, will probably give more color on the business side as well. So regarding the investment, I think we are probably still in the early stage, and there's still a lot of opportunities we want to invest in the right client. As we mentioned, we want to carefully select the client.
Tim: Thank you Tim.
Speaker Change #181: Part of the crusher at our SVP.
Speaker Change #182: Automobile kind of or give more color on the business side as well.
Speaker Change #183: So regarding the investments.
So I think we are probably in the us during the early age and there's still a lot of opportunities we want to invest into the right client as we mentioned.
Speaker Change #183: It looks like the client, but after we have commenced to decline.
Speaker Change #183: As we get even more clients better.
Speaker Change #183: And then make more investment.
Haijian He: But after we commit to the client, as we're getting to know the client better, we will continue to make more investments. So the 1.2 billion RMB for this quarter, I think it's only part of the demands we receive from the clients, and we'll continue to invest more in the following quarters, which we think will result in higher revenue in the following quarters. But on the other hand, given that the AI business itself is carrying a better margin, and the supply-demand trend in the market is more balanced.
Speaker Change #183: So the $1 2 billion before this quarter I think is only part of the demand. We received from the clients that are are continuing to invest more in the following quarters, which we think will result in a higher revenue in the following quarters, but on the other hand, given the AI business itself is carry a better margin and the supply.
Speaker Change #183: And the trend in the market is more balanced so we actually are changing the way we use our money.
Haijian He: So we are actually changing the way we use our money. As you probably realize, not only are we using our equity capital, but we also leverage different sources, including financial leasing, including some operational leasing, including bank borrowing, and other partnerships with, for example, suppliers that will provide a certain credit to us as well. So I think we're going to explore as many channels as possible to extend the capital we have.
Speaker Change #183: Probably going to realize that.
Speaker Change #183: Not only are our using our equity capital, but also where leverage different sources, including the <unk>.
Speaker Change #183: Financial leasing, including some operational leasing, including the bank borrowing and other partnership with for example, with our suppliers and we'll provide a set of credit swap as well. So I think we're going to explore that.
Speaker Change #183: That money.
Speaker Change #183: Channels as possible to the extent of the capital we have.
Haijian He: So the thing I want to mention is we don't want to set a cap about how much we want to invest in AI just because of the cash we have on the balance sheet, right? So I think you can multiply different levels of the ceilings on the cash number we have today. So I think that's a second question. So if you put a total number on 2024, I think the total investment, including the CapEx, including the investment in the R&D expenses we put into the AI team, including different ways we have flexible ways to work with suppliers, I think the total investment is a few more times multiplied by this quarter's number. I think that's probably the ballpark number I can give.
Speaker Change #183: The thing I want to mention we don't want to set a cap.
Speaker Change #183: About how much we have one thing in that.
Speaker Change #183: Turning to AI, just because the cash we have on the balance sheet right. So I think you can multiple different.
Speaker Change #183: Different level after.
Speaker Change #183: The ceilings.
Speaker Change #183: On the cash number we have today, so I think thats.
Speaker Change #184: I also have a question. So if you put a total number on those 2024.
Speaker Change #184: I think the total investments, including the Capex, including investments in the R&D expenses will put an AI team.
Speaker Change #184: Including different ways, we havent flexible ways to work with our suppliers.
I think I was hoping that maybe lay out for this year, we're going to be.
Speaker Change #184: A few more.
Speaker Change #184: <unk> multiplied by this quarter's number I think thats, probably the ballpark number I can give and that will yield again, a better and a much higher revenue in the following quarters.
Haijian He: And that will yield, again, a better and much higher AI revenue in the following quarters. And for the opportunity of the AI business, one thing I just want to start and Liu Tao Zou can add on the following point is, so the demand from client actually carried a more diversified way. So not only one vertical from, for example, the big model company, but also, as you can see, as AI business get into the year two, last year's year zero, get into the year two, more clients and different type of clients will use the AI computing power, not only for the computing itself, but also will carry with applications, data, scenarios, the more different verticals, including internet, including probably the financial services, the legal, and auditing, and other, for example, public sector clients will all probably use that.
Florida opportunity of the AI business of Western I'll, just I'll start and.
Speaker Change #185: How long can add on the following points.
Speaker Change #186: So the demand from client accident carried a more diversified away so.
Speaker Change #186: The only one vertical from for example, and I think model company, but also as you can see.
Speaker Change #186: And it's getting to the year tour at Lafayette narrow it down into the year too.
Speaker Change #186: More clients.
Speaker Change #186: Different type of the clients will use the AI computing power.
Speaker Change #186: Not only for the computing itself, but also with carrier with applications data scenarios multiple verticals, including internet, including probably the financial services.
Speaker Change #186: Illegal.
Speaker Change #186: And audit team and other for example, public sector clients will probably use that.
Speaker Change #187: And does that actually those revenue will gradually come in in our book into different.
Speaker Change #187: The products, we have today, so I think probably that's the better mix and diversified revenue streams, we are happy to see in the following quarter as well.
Haijian He: And actually, those revenues will gradually come in and break into different products we have today. So I think probably that's a better mix and diversified revenue streams we're happy to see in the following quarters. Tao Zou, Xiaodan Zhang, Haijian He, Yucen Liu, Kingsoft Cloud
Speaker Change #187: What element teams all the way up.
Speaker Change #187: Yes.
Unknown Executive: Yeah, we just mentioned that we have many revenue streams from different types of companies. For example, the big AI companies are now building face clusters on our cloud. So as we mentioned in the report, we have built about 256 or even 512 clusters. So all these kind of companies will expand their new clusters on the cloud. So we were expecting that in the new quarters, they will have better requirements. And also, we can see that the off-grid companies have requirements not only for the off-grid technologies but also for the language modeling technology.
Speaker Change #187: Okay.
Yes, we can.
Speaker Change #187: Just to mention that we have.
Speaker Change #187: Many he comes from different type of companies.
Speaker Change #188: <unk> AI companies now bleeding.
Speaker Change #188: Leading the base confidence economic cloud as though as we mentioned on the reports we have fielded to up to 156112 doctors. So this all of this is the kind of company to zero.
Speaker Change #188: There are new customers on cloud, so we weren't expecting in the new quarter. So we leave.
Speaker Change #188: And also we can see that the offline companies that you have there.
Speaker Change #188: Requirements not only on the Asgard with technologies, but also maybe.
Unknown Executive: And also, we have some customers from internet companies; they are training their own language models. And now, not only can we provide cluster services for them, but we can also help them to train their own models and even deal with their new methods. And also, we can see some PC companies, which are something like pictures and videos, they are also having increasing requirements. So these requirements, we were expecting an increase on that. Thank you.
Speaker Change #188: With models.
Speaker Change #188: And also we have some customers from the Internet companies.
Speaker Change #188: Premiums in our own.
Speaker Change #188: Model.
Speaker Change #188: Now we are not only can provide services for them and also we can help them with cleaner our models now that you've been dealing with a new patents. So and also we can see some tc can be of switches.
Speaker Change #188: Something must be tremor videos via also having to increase the requirement.
Speaker Change #188: No.
Speaker Change #190: This is <unk>.
Speaker Change #189: As expected.
Speaker Change #191: Thank you.
Speaker Change #192: Thank you operator.
Nicole Shan: I have no further questions at this time. I would now like to turn the call back over to Nicole Shan for closing remarks.
Speaker Change #193: I show no further questions at this time.
Speaker Change #194: I'd now like to turn the call back over to Nicole Sean for closing remarks.
Nicole Shan: Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day.
Nicole Shan: Thank you operator, and the Alaska again for joining US today, if you have any further attachment rates there Chris Mccann therefore to speaking with you again next quarter. Thank you.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change #196: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change #196: Okay.
Speaker Change #196: [music].
Speaker Change #196: Yeah.
Speaker Change #196: [music].