Q3 2024 Kingsoft Cloud Holdings Ltd Earnings Call
Good day, and thank you for standing by welcome to the King stuff Clouds third quarter 2024 earnings Conference call.
This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I'll ask a question. During this session you will need to press star one and one on your telephone you will then have an automated message advising you'll have them 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: Now I'd like to turn the conference so virtual speaker today, Nicole <unk>. Please go ahead.
Nicole: Thank you 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 Docs. He asks why you wouldn't go com as well as our global Newswire. So is this on the call today from Kingsville club, we have our <unk>.
Nicole: Trauma and the CEO, Mr Tao and it's therefore, Mr. Jorge.
Nicole: Mr. Zhang will review our business strategy operations and the company highlights followed by Mr. Ho, who will discuss the financials and the guidance there a little bit a little go to answer your question. During the Q&A session that follows there will be come back to integration our integration I'll boil, calling it referenced corporates only cancel any discrepancies.
Imagine my statement in the original language will prevail.
Nicole: We begin I'd like to remind you that this conference call has forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1930 people 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 pet Asia corn market.
Nicole: Operating conditions.
Nigel: Nigel you instead, you won't know.
Nigel: Risks uncertainties and other factors I wish I difficult to predict and many of which are beyond the company's 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 further information regarding these and other risks uncertainties or factors are included in the comedy and swap.
Nigel: Whereas 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 on their appetite.
Speaker Change: 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 chairman and CEO Mr. Joe.
Mr. Joe: Please go ahead. Thank you.
Mr. Joe: Okay.
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Speaker Change: Hello, everyone. Thank you and welcome all for joining <unk> third.
Speaker Change: Third quarter 2024 earnings call.
Speaker Change: I am the CEO.
Speaker Change: CEO of Kings of cloud.
Speaker Change: This quarter, we continued to see strong results from our unwavering commitment to high quality and sustainable development strategy.
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: Percentage this quarter.
Speaker Change: Our pacing 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.
Speaker Change: Given by a dual engine strategy, resulting in a stronger foundation for continued development.
Speaker Change: Second 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.
Speaker Change: This quarter it has accelerated to a double digit margin of 10%.
Speaker Change: Meanwhile, our adjusted operating loss margin.
Speaker Change: Maybe can really narrowed from 16, 2% in the same quarter last year.
Speaker Change: The 7% this quarter.
Speaker Change: Further solidifying our path towards high quality development.
Speaker Change: 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 at 31% this quarter.
Speaker Change: Over the past five consecutive quarters.
Speaker Change: Our 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.
Speaker Change: Okay.
Speaker Change: Strong profit margins.
Speaker Change: Our distribution demonstrates the sustainability of this problem.
Speaker Change: 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: Together <unk>.
Speaker Change: <unk>, our full stack AI expertise, we're building a one stop platform that integrates lots model training.
Speaker Change: Application development and long term operational capabilities.
Speaker Change: Sure.
Speaker Change: We're fully capitalizing on the unique historical opportunity within the Xiaomi and kings of ecosystem.
Speaker Change: From EV AI gaming.
Speaker Change: Gaming lodging language model to WP Fai this quarter, our revenues from the ecosystem have increased by 36%.
Speaker Change: We have witnessed the positive growth across all our Thomas business lines, among which notably its automotive business has done a strong market recognition.
Speaker Change: The solid strategic cloud platforms within the Xiaomi in Kingstone ecosystem, we're fully committed to supporting Xiaomi is autonomous driving on device and cloud based models.
Speaker Change: Other areas to meet their expanding cloud service needs.
Thanks to our industry, leading and rapid growth of AI revenue and the practical AI use cases within the xiaomi in terms of the ecosystem, we're able to seize the opportunities arising from the market structural changes.
Speaker Change: Amid a decline in market share or other internet service providers.
Speaker Change: Our market share.
Speaker Change: Definitely increase.
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Speaker Change: Now, let me walk you through the key business highlights for the third quarter of 2024.
Speaker Change: This quarter King of cloud has 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 pressure from the proactive adjustments in our CDN business.
Speaker Change: Okay.
Speaker Change: Adjusted gross profit amounted to RMB $308 million.
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 the 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: <unk> 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 revenue reached RMB, one $1 8 billion this quarter, representing a year on year increase of 16%.
As the social such as 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.
As Xiaomi AI fully empowered his entire ecosystem covering human car and home coupled with the advancement of WPS AI.
Speaker Change: Growth potential positive is 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 yeah.
Surged to RMB $362 million increased by 11% quarter over quarter and accounting for 31% of public cloud revenues.
Speaker Change: <unk>.
Speaker Change: As an industry leader.
Speaker Change: We have built a substantial computing powers resource pool, leading the industry in large scale supercomputing network capabilities.
Supporting the networking topology of supercomputing clusters, and the scale of 10000 notes.
<unk> computing resource pool enables us to simultaneously deliver the integration and commissioning of supercomputing clusters by offering the full range of public cloud products.
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Speaker Change: Overall, the enterprise cloud services.
Speaker Change: Revenue amounted to RMB $710 million.
Speaker Change: Representing a year on year increase of 16, 7%.
Speaker Change: In public services.
Speaker Change: We have actively pursued opportunities within public services cloud and state owned enterprise cloud.
Speaker Change: Our two key use cases, namely governments and enterprises.
Speaker Change: We're promoting standardized operations leveraging a foundation built on large model capabilities big data and collaborative office to us.
Speaker Change: This quarter, we started lots of language models projects ensure high Tech zone jointly training a large bottle dedicated the government audit work in collaboration with our customer and team South office tailored for Joseph.
Speaker Change: We also supported the central National High Tech Industrial Innovation center in completing the construction of the great data.
Speaker Change: Data out of monetization platform.
Speaker Change: Facilitating trustworthy data simulation.
Speaker Change: According to the 'twenty 'twenty, four China Central and state owned Enterprise market Research report released by our domestic authoritative institution.
Speaker Change: We have been recognized in the leaders quadrant with our project quality and product capabilities on par with those of domestic leading peers.
Speaker Change: In financial service base, we have reached an agreement with a well known joint stock Bank for real time data service projects. This initiative will assist in the bank in constructing a real time publication and subscription model.
Speaker Change: 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.
Speaker Change: We also established a real time data application center to achieve rapid configuration and management of business applications.
Speaker Change: Besides hemlock business remained stable with significant strides made in the construction of Xiaomi exclusive service center in Wuhan, which has now exceeded 500 staff members.
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Joe: Yes.
Joe: In terms of product and technology.
Joe: We upheld the principle of building for task based on technology and innovation.
Joe: And on delivering best in class customer experience across our core product offerings.
Joe: In AI space, we launched a cloud native fully managed fully manage the platform designed for ITC data cleaning use cases.
Joe: This platform offers quick startup and shutdown capability is easy to use and provides elastic scalability to meet the dynamic demands of data cleaning tasks.
Joe: Our AI on the fly 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 code solution.
Joe: Additionally, in our industry report published by the domestic authoritative institution CCI team.
Joe: Things are cloud model as a service.
Joe: Service is recognized in the market leaders quadrant.
Joe: So here yet.
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Speaker Change: In summary.
Speaker Change: After two years of steadfast implementation of the high quality <unk>.
Speaker Change: <unk> development strategy.
Speaker Change: The fundamentals of <unk>.
Speaker Change: I think for houses upward progress.
Speaker Change: Looking forward.
Speaker Change: With the continued to enhance our profitability and cash generating capabilities.
Speaker Change: Deepen cooperation with Xiaomi <unk> ecosystem.
<unk> will have research center and develop a comprehensive understanding of new AI and explore such opportunities, thereby continuously creating 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.
Okay.
Speaker Change: Thank you <unk> and.
And thank you all for joining our call today.
Speaker Change: I will now walk you through our financial results for the third quarter of 2024.
Speaker Change: I would like to highlight three areas of progress.
Speaker Change: Regarding the performance of this quarter.
Speaker Change: First of all in this quarter the company achieved a double digit year over year growth in total revenue.
Speaker Change: Region, $1885 6 million RMB.
Speaker Change: Which is two times of the highly high single digit average growth rate of the industry.
Speaker Change: Starring the high speed of growth of the revenue.
Speaker Change: There are three aspects, we would like to highlight.
Speaker Change: Thanks to the first mover advantage of our revenue structure adjustment starting from 'twenty to 'twenty two.
Speaker Change: Differentiated from situation of our competitors in the market.
Speaker Change: Both of our public cloud.
Speaker Change: And industry costs have already benefited from the development trend of AI business.
Speaker Change: Achieving double digit year over year growth respectively.
Speaker Change: This has laid out a solid foundation for the balance the growth of the future business.
Speaker Change: Second.
Speaker Change: In this quarter, our AI gross billing reached 362 million RMB accounting for as high a 31% of the public cloud revenue.
Speaker Change: It has achieved a three digit year on year growth for five consecutive quarters.
Speaker Change: Exceeding the industry average level.
Speaker Change: Third we have repositioned the business strategy of the company.
Speaker Change: Regarding the strong performance of Xiaomi as new EV cars as well as kings of games in the WPS AI.
The ecosystem business progress has exceeded market expectations.
Speaker Change: <unk> to an excess of demand of customers within the Xiaomi honour of kings of ecosystem revenue growth of our ecosystem customers.
Speaker Change: In a single quarter has exceeded 36% year on year.
Speaker Change: Laying a good foundation for the growth of ecosystem customer in the future.
Speaker Change: The proportion of public call revenue contributed by the ecosystem clients in this quarter has already reached 28%.
Speaker Change: Second in terms of profit.
Speaker Change: The expansion of our gross profit and EBITDA profit far exceeds the industry average.
Speaker Change: 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.
Speaker Change: Today, we have reached a four five times growth.
Speaker Change: The margin expansion to 16, 3%.
Speaker Change: The adjusted EBITDA profit margin has been significantly improved from a loss of eight 6% in Q2 of 2022 to a profit of nine 8%.
With increase of 18 four percentage points.
The company revenue structure adjustments in our strategic transformation have achieved a remarkable result.
Speaker Change: Thirdly, Q2, the effective progress of high quality business and our strong cash flow contribution.
Speaker Change: About the successful transformation of AI business in this quarter, we have achieved a net inflow of operating cash flow.
Speaker Change: 228 million RMB.
Speaker Change: In terms of the outlook.
Speaker Change: We have achieved a turning point.
Speaker Change: While our successful <unk> strategy and also Xiaomi King soft ecosystem strategy.
Speaker Change: Going forward for the fourth quarter of 2024.
Speaker Change: Happy to provide the following guidance.
Speaker Change: Performance of Q4.
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.
Speaker Change: We expect to achieve accelerated growth rate for total revenues in Q4, 294 exceeding the average growth rate of industry.
Speaker Change: Second.
Speaker Change: We expect our profitability will continue to improve.
Speaker Change: The adjusted operating profit.
Speaker Change: We expect to deliver significant accelerated improvement in Q4.
Speaker Change: Third for the AI business on the Xiaomi King's our ecosystem strategy. We believe the revenue contribution will continue to grow.
Speaker Change: As a result, we will continue to take more market share from competitors going forward, meaning.
Speaker Change: Meanwhile, given the promising growth of AI and the cloud demand from both Xiaomi <unk> subgroup.
Speaker Change: Coming connected party transaction applications with our shareholders and our stock exchange of Hong Kong.
Speaker Change: We're applying for revenue to be generated from Xiaomi and a king subgroup 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.
Speaker Change: Providing solid support for our company revenue and profit growth.
Speaker Change: Now, let's dive into the details of our financial results.
Speaker Change: Total revenue of this quarter or $101885 6 million RMB, reflecting a 16% year over year increase.
Speaker Change: Rick which revenue was from public cloud services, while $1175 5 million RMB up 15, 6% from $1016 6 million RMB in the same quarter last year.
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 certain customers.
Speaker Change: Revenue from enterprise cloud reach 710 million RMB up from $608 5 million RMB in the same quarter last year.
Speaker Change: Primarily driven by increased demand in select verticals and our growth in Camelot <unk> solutions.
Speaker Change: We have continued to enhance our cost control by expanding our supply base and optimizing procurement cost.
Speaker Change: It has improved both service quality enterprising.
Speaker Change: 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 dip.
Speaker Change: Depreciation and amortization cost increased from 204 million RMB in the same period of last year to 297 5 million RMB this quarter mainly.
Speaker Change: <unk> due to the depreciation of newly acquired GPU servers.
Speaker Change: Solution development in our service costs rose by 74, 3% 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.
Adjusted G&A expenses were $148 3 million RMB is significantly lower than $237 7 million last quarter.
Speaker Change: Reflecting strong cost control and a reduction in credit losses.
Speaker Change: As of September 30 of 2024, our cash and cash equivalents totaled $1617 9 million and providing a strong liquidity position to support our patients NII investments.
Speaker Change: Our capital expenditure on the assets of <unk> through the financial leasing reached 122 billion RMB majority of which are used to invest in servers to support the business.
Speaker Change: Looking ahead, we remain committed to the principles of high quality and sustainable development.
Speaker Change: Ongoing revenue growth driven by deeper collaborations with xiaomi on at Kings of ecosystems Fedex.
Speaker Change: Further expansion of AI related gross billings and.
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 following on Tien.
Speaker Change: <unk> now happy to take your question. Please agile constrained boats, Mandarin Chinese and English if possible.
Speaker Change: 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 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: Another question comes from the line of <unk> Zhang from CIC. Please go ahead. Your line is open.
Speaker Change: Okay.
Speaker Change: Okay telephone Henry Clark, Colin Shanghai, Okay traditional epsilon okay.
Speaker Change: How do you guys have kind of awkward syndicated shouldn't handmade quota sugar content can be extracted that decision that sounds great. Thanks that was helpful.
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Speaker Change: Thank you Shannon.
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Speaker Change: Thank you.
Speaker Change: And you're trying to think about going through that system.
Speaker Change: Actually see the correction now when you come to your house, you taken with the EBITDA level.
Randy: Thank you Randy.
Speaker Change: They will take the two ships you can click at long term no question one of things that links.
Speaker Change: Thanks management for taking my questions and I've got two questions here. So first of all on the revenue contribution from Xiaomi in case of crude has been continuously increasing over the past quarters. So could you. Please share with us your views on the growth potential success straight through to the customers at all at your service strategy and search.
Speaker Change: Could you please share your outlook on adjusted EBIT margin as well as operating margin taking into consideration the depreciation and amortization expenses and the rising AI related capex. Thank you.
Speaker Change: Okay.
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Speaker Change: On the pension.
Speaker Change: It turns out the glasses Shimon.
Speaker Change: Xiaomi and popular high bar or they cannot based on sort of the sort of it sounds each from Taiwan.
Speaker Change: So when we consolidate the TRP before contract rather than only a patent on it.
Speaker Change: That's always so machines under <unk>, you can see from Shanghai.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: She has really took a xiaomi as impatient product.
Speaker Change: Yeah.
Speaker Change: Great.
Speaker Change: So in a way.
Speaker Change: So it took us on kind of mutually condo.
Speaker Change: You will see a subsidiary into the xiaomi to sort itself out.
So somewhat late onset had anita.
Speaker Change: Tickets oriented.
Speaker Change: <unk> hundred 83 Street as Amit mentioned Josh.
Speaker Change: We don't think that they had to do that.
Speaker Change: <unk> will go from here.
Speaker Change: Legal name them from assumption placebo wouldn't do that.
Speaker Change: Generic <unk>.
Speaker Change: To the.
Yes, so to me that we are AI took effect.
Speaker Change: The Union border.
Speaker Change: <unk> will have to go.
Speaker Change: Added to the timing of aluminum.
Speaker Change: Your parents or does it go.
Speaker Change: For June quarter, so you'd see similar.
Purchase intent to grow.
Speaker Change: Youll natural liquids as you remember the season.
So you did a crime.
Speaker Change: TBD.
Speaker Change: And Thats what.
Speaker Change: Within the momentum.
Speaker Change: Mark.
Speaker Change: <unk>.
Hello, Sam.
Speaker Change: Samsung <unk> suitable to loosen.
Speaker Change: Hi, Sid will follow soon as.
Speaker Change: So you got to figure out how to price.
Speaker Change: Great.
Speaker Change: Yeah.
Speaker Change: So I will just translate what Mr. <unk>.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: The business is coming from the Xiaomi Ncsoft ecosystem has been increasing very quickly and suddenly.
Speaker Change: Thanks to the.
Speaker Change: I'm precedented syndicates.
Speaker Change: In five years.
Speaker Change: Synergies and of course, the business the AI related business opportunities. It felt with Xiaomi NTT Corporation has been developing the past.
Speaker Change: As you would have seen from the Xiaomi.
Speaker Change: 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: Where they have been centered around an AI capabilities to promote new AI related functions as well as solid growth in paid customers.
Speaker Change: A function at this all have been driving the club usage.
On the top side, which is our revenue.
Speaker Change: So the conclusion is that the solid growth of the xiaomi in terms of ecosystem their business laid solid foundation for the revenue growth for the business opportunity.
Speaker Change: <unk> cloud and we believe that.
Speaker Change: We are still in the very good business momentum to further drop okay.
Speaker Change: Thank you Scott.
Speaker Change: Factors that probably will comment on the second question regarding the margin expansion.
Speaker Change: So as I mentioned in my prepared remarks, I think the sequencing. We are seeing is our continued expansion from the gross margin to the EBITDA margin chart.
Operating profit.
Speaker Change: So backing coatings on a tool at a time our gross margin was at Toledo is only around 3%.
Speaker Change: This quarter, we are reaching to a certain level, we're seeing 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% in.
Speaker Change: In Q2 and on a two to a positive of 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: <unk>.
Speaker Change: In addition, I think our <unk> 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: All 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.
Speaker Change: Two of the shareholders you may see.
Speaker Change: Accelerated.
Speaker Change: A significant improvement of the operating profit in a very near term.
Speaker Change: And hopefully we can keep that track after we.
Speaker Change: 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.
Speaker Change: And keep the speed and expansion from the gross margin to EBITDA and then to the operating profit.
Speaker Change: Trent you may observe.
Trent: Thank you.
Trent: Yeah.
Thank you we.
Trent: 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: Hi, guys.
So do you mind just show that.
Speaker Change: Now what if any audio tailwind.
Speaker Change: <unk> sure Kelly Scott.
Actual and element.
Speaker Change: And I apologize you towards that.
Speaker Change: So you can be international.
Speaker Change: The judge in the job now call it two ways.
Speaker Change: Salomon.
Speaker Change: So AI the showroom.
Speaker Change: Shelby.
Speaker Change: They're shown to you on that.
Speaker Change: And I should say on the flip side, how do you pick one.
Speaker Change: Do you have any of those friction in Ohio.
Speaker Change: Dr Gaucher going on with Capex that you go to Atlanta, you Aman.
Speaker Change: Virtually deal shorter.
Speaker Change: Sure.
Speaker Change: She might support that.
Speaker Change: Sure.
Speaker Change: You said you wanted to kind of showing our coach sequence of all Ms. Felicia.
Speaker Change: I mean that you could see.
Speaker Change: <unk> financial.
Speaker Change: Thank you management for taking my questions I have two questions here the.
Speaker Change: Firstly is regarding.
Speaker Change: The margin profile of your AI ban as well as revenue.
Speaker Change: From Xiaomi and <unk>.
Speaker Change: So just wondering how the margins.
Comparison to the overall margin profile of public cloud.
Speaker Change: Currently just wondering 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.
Speaker Change: Especially the AI ban it thank you.
Speaker Change: Okay.
Speaker Change: Thank you Tim.
So happy to take on those two questions.
Speaker Change: The first question no we are not disclosing the separate line of gross margin for each of our product line given as you know sometimes that each customer they may use multiple different business segments. So it's a bit difficult to separate it out but I'm happy to provide some.
Speaker Change: High level guidance on that overall AI related the computing.
Speaker Change: Related products are delivering much higher gross margin.
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.
Speaker Change: 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 enterprise cloud have achieved double digit Y O Y growth, which is unlike other peers on the market.
Speaker Change: Because 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 Rev.
Speaker Change: Revenue contribution for the incremental revenue, especially the AI.
Speaker Change: Double digit gross margin and a double digit EBITDA margin.
Speaker Change: And the traditional public cloud also deliver decent.
Speaker Change: 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'll know we have.
Speaker Change: Already planned out that's getting dollars as planned.
Speaker Change: Actually execute very effectively so for.
Speaker Change: 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 line 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 additional.
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.
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 transactions from both Xiaomi and a king soft around 11 3 billion RMB for next few years.
Speaker Change: 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 army shareholders will keep that in mind.
Speaker Change: The 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 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 speeds to the AI investment. Thank you.
Speaker Change: This concludes today's question and answer session I will now hand back to Nicole Shannon for closing remarks.
Nicole Shannon: Thank you.
Speaker Change: Thank you I will answer the Gainesville, Julian US today, if you how any further questions. Please feel free to contact IR team look forward to speaking with you again next quarter Helena. Thank you bye.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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