Q3 2024 Kingsoft Cloud Holdings Ltd Earnings Call
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Speaker Change: Good day, and thank you for standing by welcome to the King stuff clouds third quarter 2020 full earnings conference call.
Speaker Change: This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one and one on your telephone.
Speaker Change: We'll then have an automated message advising you'll have just raised to withdraw your question. Please press star one and one again please be advised that today's conference is being recorded.
Speaker Change: I'd like to turn the conference a virtual speaker today Nicole <unk>. Please go ahead.
Speaker Change: And you know Heidi Hello, everyone and thank you for joining us today and sell cloud. So called her full earnings release was distributed earlier today and is available on our IR website at IR adult T. S Y U M dot com as well as our global Newswire, though is this on the call today from Keith So we have our watch.
Speaker Change: Or under seal and it's therefore, Mr. Jorge Cool Mr. Zhang will review, our business strategy operations and the company highlights followed by Mr. Ho, who will discuss the financials and the guidance.
Speaker Change: A little about you as a real question during the Q&A session that follows there'll be come back to integration our integration I'll boil culminates in the reference corporates only cancel any discrepancy management statement in the original language will prevail before we begin I'd like to remind you that this conference call has forward looking statements.
Speaker Change: Within the meaning of section 21 E of the Securities Exchange Act of 1934 at the money and as defined in the U S. Private Securities Litigation Reform Act of 1995. These forward looking statements about management's currently at Asia, where market operating conditions and relate to events that involve no no risk.
Speaker Change: Certainties and other factors I wish I had difficult with a D and many of which are beyond the companys control, which may cause you to come in as the actual results performance or achievements to differ maturity from those in the forward looking statements whether information regarding these and other risks uncertainties or factors are included in the Companys filings with us.
Speaker Change: The U S. D C. The company does not undertake any obligation to update any forward looking statement as a result of new information future events or otherwise except as required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this conference call are denominated in RMB is now my pleasure.
We introduced our watch on that and the CEO. Mr. <unk>. Please go ahead. Thank you.
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Speaker Change: Hello, everyone. Thank you and welcome all by joining <unk>.
Speaker Change: Third quarter 2024 earnings call.
Speaker Change: I am the CEO.
Speaker Change: CEO of Kings up cloud.
Speaker Change: This quarter, we continued to see strong results from our unwavering commitment to high quality and sustainable development strategy.
Speaker Change: First of all revenue.
Speaker Change: Accelerated growth trajectory.
Speaker Change: Following solid year over year and month over month, while in Q2, we have seen our year over year growth rate right.
Speaker Change: This quarter.
Speaker Change: Outpacing the industry average.
Speaker Change: This momentum stems from the strategic adjustments, we made in 2022 to diversify our revenue structure leveraging our first mover advantage.
Speaker Change: Both our public cloud and enterprise cloud businesses achieved double digit year over year ago.
Speaker Change: Given by a dual engine strategy, resulting in a stronger foundation for continued development.
Speaker Change: Second.
Speaker Change: Our profitability is improving at an even faster pace.
Speaker Change: After turning EBITDA positive for the first time in Q1, and reaching a margin of three 2% in Q2.
This quarter it has accelerated to a double digit margin up 10%.
Meanwhile, our adjusted operating loss margin.
Speaker Change: Significantly narrowed from 16, 2% in the same quarter last year to 7% this quarter.
Speaker Change: Further solidifying our path towards high quality development.
Third.
Speaker Change: We continue to lead the transformation with AI.
Speaker Change: The proportion of AI revenue as a percentage of our public cloud business has continued to grow 31% this quarter.
Speaker Change: Over the past five consecutive quarters AI revenue has consistently shown triple digit year over year.
Speaker Change: And this quarter, we saw a remarkable six nine fold increase compared to last year outpacing the industry growth.
Our strong profit margins.
Speaker Change: Distribution demonstrate.
Speaker Change: Inability up as well.
Meanwhile, we're also exploring new AI business models.
Speaker Change: Having entered into a deep collaboration with shine when China's leading comprehensive professional services firm.
Speaker Change: Leveraging our full stack AI expertise, we're building a one stop platform that integrates lots model training inference applications development and long term operational capabilities.
Speaker Change: Sure.
Speaker Change: We're fully capitalizing on the unique historical opportunity within the <unk> ecosystem.
Speaker Change: Tom E D. A Iot gaming lost language models to WP Fai this quarter, our revenues from the ecosystem have increased by 36%.
Speaker Change: We have witnessed with positive growth across all our Thomas business lines, among which notably its automotive business has strong market recognition.
Speaker Change: The solid strategic cloud platform within the Xiaomi in Kingstone ecosystem, we're fully committed to supporting Xiaomi is autonomous driving on device and cloud based models among other areas to meet their expanding cloud service needs.
Speaker Change: Thanks to our industry, leading and rapid growth of AI revenue.
Speaker Change: Optical AI use cases within the xiaomi in terms of the ecosystem.
Speaker Change: We're able to see the opportunities arising from the market structural changes.
Speaker Change: Amid a declining market share for other Internet service providers, our market share has steadily increased.
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Speaker Change: Now, let me walk you through the key business highlights for the third quarter 2024.
Speaker Change: This quarter came about at made solid progress in revenue scale profitability and operating cash flow.
Speaker Change: Our revenues reached RMB 189 billion, marking a return to double digit growth with a 16% year over year increase.
Speaker Change: The growth in revenue from our high value added products and services.
Speaker Change: The pressure off that the pressure from the proactive adjustments in our CDN business.
Speaker Change: Adjusted gross profit amounted to RMB $308 million.
Speaker Change: 56, 7% year over year.
Speaker Change: Adjusted gross margin increased to 16, 3% representing a year over year increase of four two percentage points.
Speaker Change: Despite a slight quarter over quarter decrease primarily driven by fluctuations in CDN business profitability.
Speaker Change: Adjusted EBITDA reached RMB $185 million with an adjusted EBITDA margin of nine 8%.
Speaker Change: To improve quickly following the positive turnaround in EBITDA in Q1, and showing a significant year over year increase of 13 percentage points.
Speaker Change: Net operating cash inflow amounted to RMB 228 million once again, demonstrating our strong cash generating ability from operating activities.
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Speaker Change: In terms of public cloud services revenues reached RMB 118 billion this quarter, representing a year on year increase of 16%.
As the sole strategic cloud platform within the Xiaomi and piece of the ecosystem.
Speaker Change: Cloud business opportunities within this ecosystem are fundamental to our growth.
Speaker Change: This quarter total revenue contribution from <unk> com grew by 36% year over year.
Speaker Change: As Xiaomi AI fully empowers his entire ecosystem covering human car and home coupled with the advancement of WPS AI.
Speaker Change: Growth potential our cloud service business driven by the AI era is unprecedented.
Speaker Change: We are actively capitalizing on the fast growing opportunities in autonomous driving and AI within the ecosystem.
Speaker Change: Besides our AI business continues to gain momentum.
Speaker Change: This quarter AI revenue surged to RMB $362 million increased by 11% year quarter over quarter and accounting for 31% of public cloud revenues.
Speaker Change: Additionally, us as an industry leader.
Speaker Change: We have built a substantial computing powers resource pool, leading the industry in large scale supercomputing network capabilities.
Speaker Change: Capable of supporting the networking pathology of supercomputing clusters, and the scale of 10000 nodes.
Speaker Change: <unk> computing resource pool enables us to simultaneously deliver the integration and commissioning of supercomputing clusters, while offering the full range of public cloud products.
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Susan: Josh <unk>, who is also in the tier twos.
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Susan: Moving on to enterprise cloud services.
Susan: <unk> amounted to RMB $710 million.
Susan: Presenting at year on year increase of 16, 7%.
Susan: In public services.
Susan: We have actively pursued opportunities within public services cloud and state owned enterprise cloud.
Susan: Focusing on two key use cases, namely government and enterprises.
Susan: We are promoting standardized operations leveraging a foundation built on large model capabilities big data and collaborative office to us.
Susan: This quarter, we started large language models projects ensure high Tech zone.
Susan: <unk> training, a large bottle dedicated to government audit work in collaboration with our customer and team South office tailor modules.
Susan: We also supported the Shenzhen National High Tech Industrial Innovation center in completing the construction of the great data.
Susan: Data element positioned platform.
Susan: Facilitating trustworthy data declaration.
According to the 'twenty 'twenty, four China Central and state owned Enterprise market Research report released by a domestic authoritative institution.
Susan: We have been recognized in the leaders quadrant with our project quality and product capabilities on par with those of domestic leading peers.
Susan: In financial service base, we reached an agreement with a well known joint stock Bank for real time data service projects business.
Susan: Initiatives will assist in the bank in constructing a real time publication and subscription model.
Susan: Optimizing real time data collection and management as well as creating a low code development platform for real time data to improve development efficiency and quality.
Susan: We also established a real time data application center to achieve rapid configuration and management of business applications.
Susan: Besides hemlock business remains stable with significant strides made in the construction of Xiaomi as exclusive service center in Wuhan, which have now exceeded 500 staff members.
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Speaker Change: <unk>.
Speaker Change: In terms of product and technology.
Speaker Change: We upheld the principle of building based on technology and innovation.
Speaker Change: <unk> on delivering best in class customer experience across our core product offerings.
Speaker Change: In AI space, we launched a cloud native fully managed fully managed platform designed for Aig's data cleaning use cases.
Speaker Change: This platform offers quick startup and shutdown capability is easy to use and provide elastic scalability to meet the dynamic demands of data cleaning tasks.
Speaker Change: Our AI quantify application platform is aimed to addressing the needs of AI application development and different use cases, helping to accelerate the creation of AI application through low cost solutions.
Speaker Change: Additionally, in our industry report published by the domestic authoritative institutions seek the kingdom.
Speaker Change: <unk> is a cloud model as a service.
Speaker Change: Service is recognized in the market leaders quadrant.
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Speaker Change: <unk> CFO, Harry with our that is our strategy to target tissue.
Speaker Change: In summary.
Speaker Change: After two years of steadfast implementation of the high quality and sustainable development strategy.
Fundamentals have entered assay for houses upward progress.
Speaker Change: Looking forward.
Speaker Change: The continued to enhance our profitability and cash generating capabilities.
Speaker Change: Deepening cooperation with Xiaomi <unk> ecosystem.
Speaker Change: Strengthen we'll have research center and develop a comprehensive understanding of new AI and explore such opportunities, thereby continuously create value for our customers shareholders employees and other stakeholders.
Speaker Change: I will now pass the call over to our CFO Henry to go over our financials for the third quarter 2024. Thank you.
Speaker Change: Okay.
Henry: Thank you <unk> and thank you all for joining our call today.
Henry: I will now walk you through our financial results for the third quarter of 2020 four.
Henry: I would like to highlight three areas of progress.
Henry: Regarding the performance of this quarter.
Henry: First of all in this quarter the company achieved a double digit year over year growth in total revenue.
Henry: <unk> $1885 6 million RMB.
Henry: Which is two times after Heidi.
Henry: High single digit average growth rate of the industry.
Restoring the high speed of growth of the revenue.
Henry: Our three aspects, we would like to highlight.
Thanks to the first mover advantage of our revenue structure adjustments starting from 2022 <unk>.
Henry: Differentiated from situation of our competitors in the market.
Henry: Both of our public cloud.
Henry: And industry colleagues have already benefited from the development trend of AI business.
Henry: Achieving double digit year over year growth respectively.
Henry: This has laid out a solid foundation for the balance the growth of the future business.
Henry: Second.
Henry: And this quarter, our AI gross billing reached 362 million RMB accounting for as high a 31% of the public cloud revenue.
Henry: It has achieved a three digit year on year growth for five consecutive quarters.
Henry: Exceeding the industry average level.
Henry: Third we have repositioned the business strategy of the company.
Henry: Regarding the strong performance of Xiaomi as new EV cars as well as kings of games in the WPS AI.
Henry: The ecosystem business progress has exceeded market expectations.
Henry: <unk> to an excess of demand of customers within the <unk> ecosystem revenue growth of our ecosystem customers.
Henry: In a single quarter has exceeded 36% year on year.
Henry: Lay a good foundation for the growth of ecosystem customer in the future.
The proportion of public call revenue contributed by the ecosystem clients in this quarter has already reached 28%.
Second in terms of profit.
Henry: The expansion of our gross profit and EBITDA profit far exceeds the industry average.
Henry: Compared with adjusted gross profit margin of only three 6% in the quarter before the accompanying carryout business structure adjustments and AI transformation in Q2 of 2022.
Today, we have reached a four five times growth.
Henry: The margin expansion to 16, 3%.
Henry: Adjusted EBITDA profit margin has been significantly improved from a loss of eight 6% in Q2 of 2022 to a profit of nine 8%.
Henry: With increase of 18 four percentage points.
Henry: The company revenue structure adjustments in our strategic transformation have achieved a remarkable result.
Henry: Thirdly, due to the effects of progress of high quality business and our strong cash flow contribution.
Henry: About the successful transformation of AI business in this quarter, we have achieved a net inflow of operating cash flow.
Henry: 228 million RMB.
Henry: In terms of the outlook.
Henry: We have achieved a turning point.
Henry: Our successful strategy and also xiaomi King's our ecosystem strategy.
Henry: Going forward for the fourth quarter of 2024.
Henry: Happy to provide the following guidance for the.
Henry: Performance of Q4.
Henry: First of all thanks to the parallel to drivers of both public cloud and enterprise cloud, we will continue to deliver healthy growth for Q4.
We expect to achieve accelerated growth rate for the total revenues in Q4 of 294 exceeding the average growth rate of the industry.
Henry: Second.
Henry: We expect our profitability will continue to improve.
Henry: The adjusted operating profit.
Henry: We expect to deliver significant accelerated improvement in Q4.
Sir for the AI business and the Xiaomi King's our ecosystem strategy, we believe the revenue contribution and we're continuing to grow.
Henry: As a result, we will continue to take more market share from competitors going forward means.
Henry: Meanwhile, given the promising growth of AI and the cloud demand from both Xiaomi and <unk> subgroup.
Henry: Coming connected party transaction applications with our shareholders and our stock exchange of Hong Kong.
Henry: Applying for revenue to be generated from Xiaomi and <unk> group for the next three years with a cap of 11 3 billion RMB 10 times over the historical revenue of $1 1 billion RMB in the financial year of 2023.
Henry: <unk> solid support for our company revenue and profit growth.
Henry: Now, let's dive into the details of our financial results.
Henry: Total revenue of this quarter or $101885 6 million RMB, reflecting a 16% year over year increase of Rick which revenues from public cloud services, while $1175 5 million RMB up 15, 6% from $1016 6 million.
Henry: RMB in the same quarter last year.
Henry: This growth was primarily driven by a significant increase in AI related revenues, which reached 362 million RMB, partially offset by the scaling down of CDN services due to higher bandwidth costs and our price adjustments with third end customer.
Henry: Revenue from enterprise cloud reach 710 million RMB up from $608 5 million RMB in the same quarter last year.
Henry: Merrily driven by increased demand in selected verticals and our growth in Camelot IP solutions.
Henry: We have continued to enhance our cost control by expanding our supply base and optimizing procurement cost.
Henry: It has improved both service quality enterprising.
Henry: Total cost of revenue was $1582 2 million RMB up 10, 7% year over year, but remained stable quarter over quarter.
Speaker Change: How do you see cost dropped significantly by eight 7% year over year from $737 seven minute.
Speaker Change: RMB, two $673 8 million RMB this quarter, reflecting the strategic scale.
Speaker Change: Scaling down of our CDN services and batch frac utilization dipped.
Speaker Change: Depreciation and amortization costs increased from $200 4 million RMB in the same period of last year to 297 5 million RMB this quarter maybe.
Speaker Change: Mainly due to the depreciation of newly acquired GPU server.
Speaker Change: Solution development in our service costs rose by 73% year over year from $425 3 million RMB 499 million RMB driven by expansion in Camelot personnel to support revenue growth.
Speaker Change: Film costs and other costs were $59 5 million RMB $52 3 million RMB this quarter respectively.
Speaker Change: Our adjusted gross profit for the quarter were $307 6 million RMB 56, 7% increase year over year with an adjusted gross margin of 16, 3%.
Speaker Change: On the expense side, excluding share based compensation and impairment of long lived assets. Our total adjusted operating expenses were $491 2 million RMB.
Speaker Change: Increase of two 6% year over year, and 11, 5% quarter over quarter.
Speaker Change: Of which our adjusted R&D expenses were $232 3 million RMB up 16, 1% from last quarter.
Speaker Change: Due to higher personnel cost.
Speaker Change: Adjusted selling and marketing expenses were $110 6 million RMB down from $117 5 million RMB last quarter.
Speaker Change: Representing five 9% of total revenues.
Speaker Change: Adjusted SG&A expenses were $148 3 million RMB is significantly lower than $237 7 million R&D last quarter.
Speaker Change: Reflecting strong cost control and a reduction in credit losses.
Speaker Change: As of September 32024, our cash and cash equivalents totaled $1617 9 million RMB, providing a strong liquidity position to support our patients NII investments.
Speaker Change: Our capital expenditure on the assets of <unk> through the financial leading reached 122 billion RMB majority of which are used to invest in our servers to support AI business.
Looking ahead, we remain committed to the principles of high quality and a sustainable of the relevant risks.
Speaker Change: We expect ongoing revenue growth driven by deeper collaborations with xiaomi on at Kings of ecosystems.
Speaker Change: The expansion of AI related gross billings.
Speaker Change: And a continued reduction of low margin <unk> business.
Speaker Change: We also expect to achieve another milestone with an adjusted operating profit in the near future. Thank you.
Speaker Change: Concludes our prepared remarks, Centralia Tangshan lab now happy to take your question. Please ask your question in boats, Mandarin Chinese and English if possible.
Speaker Change: Sir Please go ahead. Thank you.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one and one on your telephone and wait.
Speaker Change: For your name to be announced to withdraw your question. Please press star one and one again.
Speaker Change: We will take our first question.
Speaker Change: And the question comes from the line of <unk> Zhang from CIC. Please go ahead. Your line is open.
Yes.
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Glenn: Can we assume that EBITDA level.
Glenn: That being said that once you did seem to me that when we actually see the correction now Glenn you come to your house you take them at the EBITDA level.
Speaker Change: So can we hold the team here and we don't take the two ships shouldn't click out long term no question one of things that thanks. So thanks management for taking my questions and I've got two questions here. So first of all on the revenue contribution from Xiaomi and kicks off group has been continuously increasing over the past quarters. So could you please share with us.
Speaker Change: Your views on the growth potential success.
Speaker Change: Customers at all at your service strategy and.
Speaker Change: Secondly could you please share your outlook on adjusted EBITDA margin as well as operating margin taking into consideration the depreciation and amortization expenses.
Speaker Change: The rising AI related capex. Thank you.
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Speaker Change: Teva tickets on kind of Kandahar Youll see subsidiary into the Xiaomi, So that's helping out.
Speaker Change: T somewhat late onset had undergone.
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Speaker Change: June quarter, so as you would see somewhat.
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Speaker Change: Yes, so as you remember the season, so we feel that our clients.
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Speaker Change: And that's what the end demand.
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Speaker Change: Hello is it way assumption to them sooner.
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Speaker Change: <unk>.
Speaker Change: Hi, Susan.
Speaker Change: So you got to figure out how to price.
Speaker Change: Hello.
Speaker Change: So I was just a very quickly translate Mr. <unk>.
Speaker Change: So yes.
Speaker Change: I've seen.
Speaker Change: The business opportunities coming from the Xiaomi <unk> ecosystem has been <unk>.
Speaker Change: Greetings.
Speaker Change: Definitely.
Speaker Change: This is thanks to the.
Speaker Change: The unprecedented.
Speaker Change: Yes.
Speaker Change: Since last year.
Speaker Change: Synergies and of course the business.
Speaker Change: AI related business opportunity itself with Xiaomi.
Speaker Change: Corporation has been developing the past.
Speaker Change: You would have seen from the company.
Speaker Change: Our results released yesterday, which would have to be historically strongest results.
Speaker Change: The Xiaomi <unk> delivery has been very strong.
Speaker Change: So therefore, the cloud service utilization and use case is centered around the growth of xiaomi.
Speaker Change: Is a has a solid foundation for growth.
Speaker Change: And also I have mentioned that on the WPS office site.
Speaker Change: They have been centered around an AI capabilities to promote new AI related functions as well as solid growth in paid customers.
Speaker Change: Function at this all have been driving the cloud usage.
Speaker Change: On the cloud side, which is our revenue.
Speaker Change: So the conclusion is.
Speaker Change: But the solid growth of the Xiaomi in terms of ecosystem their business laid solid foundation for the revenue growth for the business opportunity of cloud and we believe that we are.
Speaker Change: Still very good business momentum to further grow market.
Speaker Change: Okay.
Scott: Thank you Scott.
Speaker Change: Second I saw that I, probably will comment on our second question regarding the margin expansion.
Speaker Change: So as I mentioned in my prepared remarks, I think the.
Speaker Change: Sequencing. We are seeing is our continued expansion from the gross margin to the EBITDA margin then drop to the.
Speaker Change: Operating profit.
So back in 2022 at a time, our gross margin was at Toledo is only around 3% and this quarter, we're reaching to a certain level. We think is getting even closer to the top tier player in the market in terms of the gross margin in the near term and for the EBITDA margin and you can also notice that.
The EBITDA margin has converted from a loss of eight 6%.
Speaker Change: In Q2 on a two to a positive around 10% this quarter and I think the expansion the speed of expansion of EBITDA margin will be faster than the gross margin expansion.
Speaker Change: And.
Speaker Change: In addition, I think our LTM EBITDA margin given the AI has already contributed around one third of the total parking revenue, which is also higher than the major peers on the street.
Speaker Change: And I think given the reason our EBITDA margin will continue to deliver a much higher expansion speed compared with the peers.
Speaker Change: Of the industry as well.
Speaker Change: So in addition to speak about the operating.
Speaker Change: As youll notice our expensive of control on our cost cutting in terms of operations as well as improving the efficiency and operations all contributed to the operating line as well. So I think we are hoping for the near term, we're going to deliver a positive surprise to.
Speaker Change: Two of the shareholders you may see.
Speaker Change: Accelerated in.
Speaker Change: Significant improvement of the operating profit in a very near term.
Speaker Change: Hopefully we can keep that track after we.
Made a breakeven in the near term, but at this moment, we are not providing formal guidance.
Speaker Change: For the timing of our hopefully we can keep the speed and expansion from the gross margin to EBITDA and then to the operating profit.
Speaker Change: <unk> you may observe.
Speaker Change: Thank you.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Speaker Change: We will take our next question.
Speaker Change: And your next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: Yes.
Speaker Change: Hi, guys good morning Francesco.
Speaker Change: No.
Speaker Change: Kelvin.
Speaker Change: Sure Kelly.
Speaker Change: You go to a higher short end element.
Speaker Change: And I apologize if you do that.
Speaker Change: The AI.
Speaker Change: Chummy internationally.
Speaker Change: Crude oil if we touch on Kinder fungi, nalco, which embodies salomon.
Speaker Change: AI the showroom.
Speaker Change: <unk>, which is the traditional route to you on that.
Speaker Change: Rajeev I'd say on the flip side of your women should how to Egypt.
Speaker Change: Do you need a friction.
Speaker Change: They are all gaucher enrollment capex that you go to Atlanta.
Speaker Change: Real quickly.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Two months.
Speaker Change: Sure.
Speaker Change: What are you seeing with Sean.
Speaker Change: Sure Nicole sequence of all Ms Shirley.
Speaker Change: I mean that you could see why now.
Chuck: Thank you Chuck.
Speaker Change: Thank you management for taking my questions I have two questions here the.
Speaker Change: First is regarding.
Speaker Change: The margin profile of your AI ban as well as revenue.
Speaker Change: From Xiaomi Kings Hill.
Speaker Change: So just wondering how the margins.
Speaker Change: Comparison to the overall margin profile of public cloud.
Kindly just wondering on your outlook for the Capex for this year and next year and how we plan to utilize the resources either on our balance sheet off balance sheet.
Speaker Change: To meet the funding resources demand to grow our BNS and I.
Speaker Change: Especially the AI ban it thank you.
Speaker Change: Okay.
Thank you Tim.
Speaker Change: So happy to take on those two questions.
Speaker Change: The first question as you well know we are not disclosing the separate line of gross margin for each of the product line given that.
Speaker Change: So some of sometimes through each customer they may use multiple different business segments. So it's a bit difficult to separate it out.
Happy to provide some.
Speaker Change: High level guidance on that overall AI related the computing.
Speaker Change: Related products delivering much higher gross margin.
Speaker Change: Whereas the traditional.
Speaker Change: The public cloud services, including the traditional storage and networking.
Speaker Change: And our entire public cloud.
Speaker Change: Gross margin is higher than the enterprise cloud and in most cases, but however, as Mr. <unk> mentioned in his prepared remarks. The reason why this quarter, we're delivering much stronger and robust topline growth as well as the margin expansion as our both public cloud and enterprise cloud have achieved double.
Speaker Change: <unk> digit Y O y growth, which is unlike other peers on the market.
Cost, we actually did our business strategy adjustments much earlier back in two years ago. So we do see both parallel growth driver has been very solid for this quarter, so coming back to your <unk>.
Speaker Change: The question I think if we want to a pecking order that different products I think the current revenue contribution for the incremental revenue, especially the AI deliver double digit gross margin and a double digit EBITDA margin.
Speaker Change: And the traditional public cloud also deliver decent.
Gross margin as well.
Speaker Change: But when you look at the EBITDA margin in the AI is also doing a very good margin as well.
Speaker Change: Our traditional non public cloud services, especially for a CDN as you know we have.
Speaker Change: Already planned out does getting dollars at plant.
We actually execute very effectively so for.
For the margin contribution from Cvs has been a very effective and are well on our budget.
Speaker Change: So it did have a very in light of the budget. So these are the the first question I probably want to mention that.
Speaker Change: Second part is given the Capex I think.
Speaker Change: So the one part I want to mention this we actually have.
Speaker Change: <unk> already secured many of the original.
Speaker Change: Capex resources, including the banks financial leasing companies as well as the state owned enterprises, which actually can cooperate with us to invest together into the.
Speaker Change: The <unk> investment, but more importantly, as I mentioned also in my prepared remarks for the next three years.
Speaker Change: We are currently applying for the cap of the related party transaction from both Xiaomi and Kings of around 11 3 billion RMB for next few years.
10 times over this year's number so from that budgets, we are going to look into more closer financial support from shareholders and we are confident we will not dilute the public shareholders in terms of the additional.
Speaker Change: Share issuance or the potential transactions may be dilutive to the public shareholders will keep that in mind.
Speaker Change: <unk> is a strong support from both business and the Capex from the major two shareholders will be very important for our company growth as well as the margin expansion and a robust financial position for the next few years and then we have our internal discussion for an annual budget meeting as well as <unk>, we will talk about that in a later quarter and you may find that.
Speaker Change: We will maintain a very robust away to managing both leverage as well as the investment of speed to the AI investment. Thank you.
Speaker Change: Yes.
Speaker Change: This concludes today's question and answer session I will now hand back to Nicole <unk> for closing remarks.
Nicole: Thank you all right. Thank.
Speaker Change: Thank you the last of the Gainesville, Julian asked today you viewed how any further question. Please feel free to contact IR team look forward to speaking with you again next call her telling US day. Thank you bye.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].