Q4 2024 Kingsoft Cloud Holdings Ltd Earnings Call
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Speaker Change: Good day, and thank you for standing by welcome to King South clouds fourth quarter and full year 'twenty 'twenty four earnings conference call.
Speaker Change: At 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: Good question during the session you will need to press star one and one on your telephone you will then hear an automated message advising Johan is raised.
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Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Nicole Shan IL director of King soft cloud. Please go ahead.
Speaker Change: Thank you operator, Hello, everyone and thank you for joining US today, you saw clubs first quarter and fiscal year 'twenty earnings release was distributed earlier today and is available on our IR website at IR day. Okay. That's why you Wouldnt dotcom as well as on global Newswire services on the call today from Kings Hill.
Speaker Change: Wow, we have over one China deal, there's little Chao and our CFO Mr. Harry Mr. Don will review, our business strategies operations and the company highlights followed by Mr. Ho, who will discuss the financials and the guidance there would be available to answer your question during the Q&A session that follows.
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Speaker Change: Before we begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 19th of people at the money and as defined in the U S. Probably Securities Litigation Reform Act of 1995 its.
Speaker Change: These forward looking statements are based upon management's current expectations and current market and operating conditions and relate to you. Instead of you well know are well known.
Speaker Change: Certainties and other factors Oh, we are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ maturity from those in the forward looking statements.
Speaker Change: Information regarding these and other risks uncertainties or factors are included in the company's filings with the U S. SEC The company. That's now 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.
Speaker Change: I'd say all financial figures mentioned during this conference call did not meet your RMB. It's now my pleasure to introduce our chairman and CEO. Mr. Etzel. Please go ahead.
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Speaker Change: Hello, everyone. Thank you and welcome all for joining kings of cloud fourth quarter and fiscal year 2024 earnings call I am told how the all options on the cloud.
Speaker Change: This quarter, our high quality and sustainable development strategy continues to bear fruit for results.
Speaker Change: Our non-GAAP operating profit.
Speaker Change: <unk> profitability for the first time.
Speaker Change: <unk> a serious of our key financial performance measures reached all time highs.
Speaker Change: First our revenue growth rate has climbed to a new level building onto 16% year over year growth in Q3, we achieved total revenue of RMB, two 3 billion this quarter doubling year over year growth rate to 30%, leading the industry's growth rate.
Speaker Change: Among this public cloud revenue grew by 34% year over year.
Speaker Change: Enterprise cloud revenue grew by 23% year over year.
Speaker Change: Treating a balance that development with dual growth engine.
Speaker Change: Second our profitability improvement accelerated there.
Speaker Change: This quarter, we achieved both revenue growth and profitability improvement.
Speaker Change: A turnaround from the company's long standing history of operating losses.
Speaker Change: And marching towards the goal of net profit breakeven.
Speaker Change: non-GAAP operating profit turned positive for the first time with non-GAAP operating margin, which at one 1% representing a 12 percentage point improvement compared to a loss of $10.
Speaker Change: In the same quarter last year.
Speaker Change: non-GAAP gross profit reached a record high of RMB $427 7 million.
Speaker Change: Up 63% year over year.
Speaker Change: non-GAAP gross margin was 19, 2%.
Speaker Change: non-GAAP EBITDA margin also reached a new high at 16% representing a year over year increase of $17 seven percentage points and a sequential increase of six three percentage points.
Speaker Change: These are gratifying results of our comprehensive efforts to improve revenue quality optimized business structure and implement multiple cost reduction and efficiency enhancement measures simultaneously.
Speaker Change: Third we continue to lead our transformation with AI.
Speaker Change: This quarter, our AI related business achieved a gross billing of RMB $474 million, representing nearly 500% year over year growth and 31% year over quarter over quarter growth is.
Speaker Change: Its contribution to a public cloud revenue further increased to 34%.
Speaker Change: Fourth as the sole strategic cloud platform of the Xiaomi kicks off the ecosystem, we continue to fully embrace the opportunities brought by the AI era within the ecosystem.
Speaker Change: Thanks to that unique historical opportunities driven by Xiaomi, EV mobile phones, and Iot devices, smart manufacturing and WPS AI initiatives. This quarter, our revenues from Xiaomi Kim herself ecosystem amounted to RMB $493 million up 78% year over year.
Speaker Change: With its share of total revenues further increasing to 22%.
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Speaker Change: Now, let me walk you through the key business highlights for the fourth quarter of 2024.
Speaker Change: In terms of public cloud services revenues reached RMB, one 4 billion this quarter, representing a year over year increase of 34%.
Speaker Change: Capitalizing on the opportunities presented by sell me human car home smart ecosystem and the WPS AI penetration.
Speaker Change: So strategic cloud platform within the Xiaomi Kingsolver ecosystem, we are seeing strong growth potential in the AI era.
Speaker Change: In December 2024, the shareholders approved a significantly increased rapidly contribution from xiaomi and teens up from 2025% to 2027% to a total of RMB 11, 3 billion, representing 10 times the amount in 2023.
Speaker Change: This quarter revenue from Xiaomi and kings of increased by 76% year over year, and we are steadily advancing and executing our business cooperation.
Speaker Change: We expect the growth momentum to continue in 2025.
Speaker Change: Meanwhile, our AI related business continues to gain momentum as well this quarter. The gross billing of AI related business reached RMB 474 million, increasing by 31% sequentially and contributing 34% of public cloud services revenue leading the industry.
Speaker Change: Both xiaomi ecosystem and external AI customers increase their usage and we made breakthroughs in customer acquisition, including large language model customers and expansion of use cases, including AI application for Internet company customers.
Speaker Change: In the era of AI cloud computing with in depth industry insights advanced R&D investments and substantial computing power, we have been highly priced in terms of customer service technology capabilities and quality assurance by our customers and industry experts.
Speaker Change: Moreover, our competitive strengths have gained recognition by top tier in the industry.
Speaker Change: In this wave of intelligent computing cloud the company's market share and industry reputation have significantly improved securing a top position in the industry.
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Speaker Change: In terms of enterprise cloud services revenue amounted to RMB 822 million, increasing by 22 seven year over year in public services space, We promote solutions with standardized operations leveraging a foundation of model capabilities Big data and the collaborative opic to us.
Speaker Change: This quarter, we completed the construction of that one uptick valley cloud platform as a joint operating partner, we will be fully responsible for the original info monetization operation and maintenance strengthening the management and application development of data resources, so as to achieve and unified plenty construction and management of digital.
Speaker Change: Optics value.
Speaker Change: In digital health care space.
Speaker Change: Number 2024, we completed a significant milestone of the system construction of each health Central hospital in the K G X, which stands for King South to cloud data acts. They don't meet our platform has been put into operation.
Speaker Change: We adopted a cloud native micro services architecture to solve the multi campus business collaboration and real time data integration difficulties of each Allen Central People's Hospital with a unified data platform supporting more than 866 hundred data operations.
Speaker Change: In addition in collaboration with Kings off the office, we jointly developed an electronic medical record product based on WPS, which has supported 61 medical departments daily operations of the hospital.
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Speaker Change: In terms of products and technology, we uphold the principle of building success based on technology and innovation.
Speaker Change: Focusing on delivering best in class customer experience across our core product offerings.
Speaker Change: This quarter, we continued to enhance the product capabilities of our intelligent cloud computing services.
Speaker Change: We launched the ninth generation cloud server, which efficiently supports high performance computing use cases, such as AI machine learning and in Paris.
Speaker Change: It also effectively meets the demands of large scale databases real time data analysis and have strengthened data security and encryption processes.
Speaker Change: We officially released.
Speaker Change: Proprietary training and inference platform, namely seemingly old platform, which supports customers me put development training and complementary and customizing images.
Speaker Change: Meanwhile, our intelligent computing network.
Speaker Change: Medically reduced the troubleshooting time to launch motto training from hours to minutes, ensuring service stability.
Speaker Change: We will continue to strengthen our intelligent cloud computing product and technology to provide customers with stable and fast computing services.
Speaker Change: In addition, both our public cloud and enterprise cloud solutions use cases.
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Speaker Change: In summary, led by the high quality and sustainable development and strategy, our fundamentals have substantially improved and we have entered into a new era of healthy growth.
Looking ahead, we aim to simultaneously expand our revenue scale and improve profitability deepened cooperation with xiaomi and kicks off ecosystem comprehensively understand and explore AI opportunities, thereby continuously creating value for our customers shareholders employees and.
Speaker Change: Other stakeholders I will now pass the call to our CFO Eric to go over our financials for the fourth quarter 2024. Thank you.
Speaker Change: Okay.
Speaker Change: Hey, you guys at all thank you <unk> and thank you all for joining our call today.
Speaker Change: We are very pleased to come to 'twenty to 'twenty four with strong financial performance.
Speaker Change: Now I'll walk you through the financial results for the fourth quarter of 2024.
Speaker Change: I would like to highlight the following four areas of the progress.
Speaker Change: Regarding the performance of this quarter.
Speaker Change: First of all they overturned from loss to profit a non-GAAP operating profit for the first time since our inception in 2012.
Speaker Change: Demonstrating our strong execution and our high quality and a sustainable development strategy in the past two years.
Speaker Change: Second.
Speaker Change: Our revenue has been growing for three consecutive quarters year over year and this quarter. We outpaced all other listed public Internet companies and achieved a very good speed growth rates of 30% in total revenue.
Speaker Change: Reaching $2232 1 million RMB.
Speaker Change: Sure.
Speaker Change: Our AI gross billing increased by around 500% year over year to 474 million.
Speaker Change: Accounting for as high at 34% of the public cloud revenue.
Speaker Change: It has achieved a three digit.
Speaker Change: Growth for six consecutive quarters.
Speaker Change: Fourth.
Speaker Change: Last December our shareholders approve the revenue from connected parties of Xiaomi and it keeps up good for next three years.
Speaker Change: Seven points or 8 billion RMB around 10 times over the revenue of 2023.
Speaker Change: Riding solid support for our company's revenue and profit growth.
Speaker Change: We believe we are well on track to support ecosystems fast growing demands and a build up solid cloud infrastructures to support ecosystem and AI development.
Speaker Change: Particularly in this quarter, we're very pleased to see that our revenue from Xiaomi and a keen yourself increased by 76% year over year.
Speaker Change: Verify the effectiveness of our ecosystem strategy.
Speaker Change: In terms of outlook.
Speaker Change: <unk> been executing our strategy and the Xiaomi ecosystem strategy going forward, we're expecting our improvements in both revenue scale as well as profitability.
Speaker Change: First of all we believe the revenue growth of our both public solid at enterprise child will accelerate in 2025.
Speaker Change: Second we expect our profit profile, while continuing to expand.
Speaker Change: And I would expect to deliver a positive non-GAAP operating profit in the full year of 2025.
Speaker Change: Now, let me dive into the details of our financials.
Charter revenue of this quarter were $2232 1 million RMB, reflecting a 29, 6% year over year increase.
Speaker Change: Of this revenue from public cost services, while 1400 zero 9.8 million RMB up 34%.
Speaker Change: 1050, 2 million RMB in the same quarter last year.
Speaker Change: This growth was primarily driven by a significant increase in AI related business.
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Speaker Change: 74 million RMB revenue from enterprise top evidenced reached $822 3 million RMB up from 673.
Speaker Change: 3 million RMB in the same quarter last year.
Speaker Change: Mainly driven by increased demand in selected verticals and a growth in the Camelot <unk> services.
Speaker Change: Total cost of revenues was 1800, <unk> 6.2 million RMB up 22, 9% year over year, which was in line with our revenue expansion.
How do you see cost dropped by two 6% year over year from 744 million RMB, two $721 5 million RMB this quarter, reflecting the strategic scaling down of our CDN services and a better utilization.
Speaker Change: Depreciation and amortization cost increased from $146 9 million RMB in the same period last year. She was $343 1 million RMB this quarter, mainly due to the depreciation of newly acquired GPU servers.
Speaker Change: <unk> development and the service costs rose by 10, 8% year over year from $502 9 million RMB, two 557 million RMB driven by expansion in catalog personnel to support revenue growth.
Speaker Change: Fulfillment costs and other costs, while 100 zero 2.4 million RMB and $82 2 million RMB this quarter respectively.
Speaker Change: We have recorded a higher growth rate and our gross profit than the industry.
Our adjusted gross profit for the quarter were $427 7 million RMB.
Speaker Change: 63% increase year over year with an adjusted gross margin of 19, 2%.
Speaker Change: On the expense side, excluding share based compensation and impairment of long lived assets or total adjusted operating expenses were $446 4 million RMB, a decrease of nine 8% year over year, and a nine 1% quarter over quarter.
Speaker Change: Of which our adjusted R&D expenses were $169 6 million RMB narrow by 27% from last quarter.
Speaker Change: Adjusted selling and marketing expenses were $107 8 million RMB down from 110.6 million RMB last quarter.
Speaker Change: Representing four 8% of total revenues.
Speaker Change: Adjusted SG&A expenses were $169 1 million RMB slightly increased compared with last quarter due to a fluctuation of credit loss.
Speaker Change: Our adjusted operating profit for the quarter turn into profit.
Speaker Change: Was $24 4 million RMB compare it with a negative $187 6 million.
Speaker Change: Neil at RMB in the same period of last year.
Speaker Change: Our non-GAAP EBITDA profit was $359 7 million RMB compared with <unk> 27.7 million RMB in the same quarter last year.
Speaker Change: Our non-GAAP EBITDA margin achieved a 16, 1% compared with Mac just 1.6% in the same quarter last year, we believe that our strong commitment to AI cloud computing development strategic adjustments of business structure at our strict control of our costs and expenses bear fruits.
Speaker Change: We are all well on track to further improve our profitability as well as scalability.
Speaker Change: As of December 31, 2024, our cash and cash equivalents was totaled 2648 point in many RMB, providing a strong liquidity position to support operations and AI.
Speaker Change: Meanwhile, with healthy accounts receivable arrangements for AI business in this quarter, we have achieved a net inflow.
Speaker Change: Operating cash flow, reaching 570.
Speaker Change: Point 2 million RMB, we are able to generate cash internally and organically and support part of our further capital expenditure.
Speaker Change: Looking ahead, we remain committed to the principle of high quality and a sustainable development, we expect accelerated revenue growth on annual basis, and a higher and more stable profitability in the coming years. Thank you.
Speaker Change: Okay.
Speaker Change: This concludes our prepared remarks, Vince buyouts in Asia, and we are now happy to take out questions. Please ask your question in Belgium, angry Chinese and English.
Speaker Change: So operator. Please go ahead. Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one N. One again.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Jordan Shang from CIC. Please go ahead. Your line is open.
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Ali: Thanks management for taking my questions and my first question is regarding the industry outlook.
Ali: Could management share your views on how the recent industry trend and AI are impacting the supply and demand structure.
Ali: And also the market landscape of the cloud computing industry, and what opportunities and challenges that the clinical coffees and secondly, Ashford management provide an update on the timberland side capital expenditure plan and wealth managers will the company take to address the possible and more screening supply site at restriction. Thank you.
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Speaker Change: John Sean Let me a canelo, Tom what you call answer there's a comment though that gee that shoots hanging off at any particular time. So how do you view that you can go up on the mountain <unk> with that I'm not necessarily come out good job I'm wasn't going through that <unk> got most of your money.
Speaker Change: Global.
Speaker Change: Josh as you know I'm watching the 90, how much diesel onto that as of yet.
Speaker Change: I don't know what your high end unequaled in Egypt, So it and I think those SG&A actually another one like what you see when you get a banca eligible donors.
Speaker Change: Okay allow me to quickly right. So.
Mr Delco mentioned that.
Speaker Change: <unk> by itself is still a <unk>.
Speaker Change: General lots about which model, but the reason that it has caused us such widely received discussion is because.
Speaker Change: Is because it has both.
That's the technology company in China can also achieve such impact.
Speaker Change: In the work content can also achieve such high in terms of technology.
Speaker Change: And the product and therefore has helped.
Speaker Change: The revaluation.
Speaker Change: Any technology company.
Speaker Change: And secondly at little or no.
Speaker Change: The fact I'll be quick.
Speaker Change: The advantage of <unk> is that greatly decreased the deployment costs and then for <unk> can you talk to cloud is also a beneficial factor as we have seen that this round of <unk>.
Speaker Change: He has also caused the share price the increase along.
Speaker Change: So I have actually talked about this back in 2023, where I used to say that the advent of AI.
Speaker Change: They remove the glass ceiling of cloud business and therefore be a.
Speaker Change: The release of these big Iron one.
Speaker Change: Akshay will accelerate.
Speaker Change: Appointment of lots of them with models in China, and therefore, more enterprises and more individuals will stocks to use.
Speaker Change: Last night with the model and then therefore it is a wider.
Speaker Change: Wishing kind of power for the advancement and development of AI.
Speaker Change: AI and the cloud industry in China and pick up the cloud at the active and proactive participant up the market will definitely benefit.
Speaker Change: From it so in summary, I would say that this is essentially a broader sort of education to individuals and industries about the strategic value.
Speaker Change: The last time that model kind of AI.
Speaker Change: So and therefore people are increasingly getting to know the crowd as well in that regard and secondly at our.
Speaker Change: They'll call mentioned, so from technology perspective.
Speaker Change: The events of Keepsake has achieved optimization and.
Speaker Change: Optima optimization in engineering methodologies, which enabled the lowering of costs and increasing the penetration of applications. We have been seeing a lot of them.
Speaker Change: Potential customers, both from the governments and enterprises as well as from the Internet space have been cruising application and adoption of AI and dipstick models.
Speaker Change: And secondly, the diptych success has essentially increase the application of enhanced learning in the last language model in AI industry in China in general So we are seeing increasing competition and increasing technological improvement in the in the AI space in China.
Speaker Change: That could enhance the learning.
Speaker Change: Automotive multi model.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Henry.
Speaker Change: Happy to answer your second question regarding the capital expenditures on a very important one for many of the.
Speaker Change: Investors and analysts so probably they are probably a few points I want to address here.
Speaker Change: First of all before I go into the numbers I want to mention.
Speaker Change: Our total investment into AI.
Speaker Change: Is comprised by two parts first part is our Opex, which primarily spending to the Datacenters, which include the Rex rental electricity payments and other related expenses.
Speaker Change: And on this part Kingcup cloud adopt a very efficient asset light model, which means that we don't have to spend huge amount of money upfront to build the warehouse and the real estate properties, our shelf, but we have a very good partnership with a long term high regimen for example, with telecom companies and other.
Speaker Change: IDC companies, which can reduce our leverage and increase the efficiency. So it is the first part on the second part which is our capital expenditures, we buy efficiently acquire.
Speaker Change: Unnecessary computing powers I E. The servers and other network equipment. So basically it's a plus b. So I can share some numbers in the past four quarters. We have already spent on the part eight which is opex on that.
Speaker Change: Data centers around 2.9 billion RMB on AI data center and it we spend on the part B of the capital expenditures around $5 6 billion RMB to acquire the necessary computing equipment in our network equipment. So if you're putting those two numbers together.
Speaker Change: In addition to the research and development investment as well so in the past probably four quarters. We spent around eight to 10 billion RMB in total.
Speaker Change: Going forward I think for the entire investments into the capital expenditures and also on Opex going forward I think the 1 billion sorry, the 10 billion RMB.
Speaker Change: RMB total AI investment for the full year 'twenty or quantify it is just a starch.
Speaker Change: So my third point is given the strong important support from our shareholders, including both Xiaomi and Keith a group as we have already disclosed and approved by the shareholders in December 20th on you for we have a range.
Speaker Change: Leasing and other off the balance sheets of regiment to support our ongoing and growing investment into AI on both Opex and Capex.
Speaker Change: We also want to remind.
Speaker Change: The audience is that existing cash on our balance sheet. It is not the limit of our capacity into AI investment because of the leasing and other attorney to financing I regiments, we arrange directly with our shareholders. So I think we are in liquid position with a strong demand we basically on par.
Speaker Change: To increase the investment and I think given the revenue growth rates, we have already deliver above the industry average I think our spending will also catch in pace and it may be at OXXO accelerated and above industry average going forward.
Speaker Change: Especially for 225, thank you.
Speaker Change: That will.
Aggressively.
Speaker Change: Thank you.
Speaker Change: Please standby.
Speaker Change: Okay.
Brian Gong: Next question comes from the line of Brian Gong from Citi. Please go ahead. Your line is open.
Speaker Change: Total Henry Clark nickel According golf.
Speaker Change: I also think once it get I'll call it yeah Joe.
Speaker Change: What's still to go and seek legal one tissue Kuan yew.
Speaker Change: So the <unk> some of their own.
Speaker Change: Sachin Shah took a pass holder to the crowd control, Virginia actual wound journal.
Speaker Change: Sure.
Speaker Change: Xiaomi, which is ambitious for credential companion Xing Qi.
Speaker Change: Require stitches Union uncle Shannon.
Total OXXO.
Speaker Change: Steve Lindsey Calvin with nutrition shelf from Croatia, a woman Jacob.
Speaker Change: Margin compression if.
Speaker Change: Peter I'll call. It shall we shall women that are trying to go to the D&B no growth at all.
Speaker Change: Russell.
Speaker Change: <unk> financial measurements.
Speaker Change: Thanks for taking my question and congratulations on the solid results regarding the expectation for 2017 revenue growth to do.
Speaker Change: Kind of share your thoughts and breakdown the travelers and like how much our growth we expect for AI related revenue.
Speaker Change: And how much stronger contribution from Sheldon and clean.
Speaker Change: Clean Salt group.
Speaker Change: And I'll say from customer base regarding marketing.
Speaker Change: Wage hour.
Speaker Change: Our marketing from quite a well first quarter and.
Speaker Change: Imagine the share you are salts or our long term profitability trend. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Henry: Thank you Brian This is Henry happy to share some color.
Henry: So as I mentioned in my prepared remarks, I think a few things are just wanted to.
Henry: First of all.
Henry: In Q4 'twenty to 'twenty four.
Henry: 30% topline on a Y O Y growth has exceeded even the top players in the industry I think that demonstrates all the verticals.
Henry: Including both public cloud enterprise cloud kind of within the public cloud.
Henry: I and II are all growing at a very healthy rate without.
Henry: These fundamentals support it is very difficult to achieve that high growth rate. So that's actually the first point I want to mention.
Henry: The second part is given.
Henry: We already completed our.
Henry: Business strategy adjustments in the first half of 2024.
Henry: We do have a very healthy splits in the mix of the climate structure.
Henry: And as you May know that for example.
Henry: Sure.
Henry: The CDM business used to contribute to much higher rates and right now is only probably 10% to 15% or even lower going forward in terms of how you're.
Henry: Looking at that so I think our growth has been built on a very solid foundation. So thats why in the prepared remarks I also mentioned that the growth rate the keywords for 'twenty 'twenty four is acceleration on a full annual basis and AI is going to be a very important driver, but other verticals as I.
Henry: Mentioned in different product lines will contribute healthy growth going forward as well. So it is actually the first question I just wanted to share.
Henry: Second part regarding the margin, while we don't have official guidance for the margin, but as you can see our gross margin has been improving very costly.
Henry: Consistent for the past few quarters and also.
Henry: Also want to mention our operating cash.
Henry: Cash flow in the past three quarters, starting from Q2 plenty of Fannie four has been also positive as well that is going to be a very important leading indicator for our margin expansion and giving the AI contribution of a.
Henry: Margin profile, especially for the EBITDA and <unk> side.
Henry: We think the EBITDA and operating profit will grow at more fast pace compared with a gross margin and we're happy to see that our EBITDA margin actually already exceeded the industry average and it may be on the top tier of industry peers. So I think the EBITDA margin improvements, which is also a leading indicator of the op cash.
Henry: As well as the free cash flow will drop down to the operating profit side. So I think our intention for management is two things first of all we're our intention is to keep a healthy steady pace of margin expansion for all three key indicators from gross margin EBITDA margin <unk> margin and the EBITDA margin the op margin.
Henry: It will be accelerated and improved a little bit faster than the gross margin and a third points given the cash flow is also important and we're going to keep a very close eye on the cash flow margin expansion that would also give us a good momentum in the support to recycle the cash to input.
Henry: Investments into the new incremental AI investment as you know these are probably a few points I just wanted to measure. Thank you Brad.
Henry: Thank you very helpful.
Henry: Thank you.
Henry: We will now move on to next question.
Speaker Change: Our next question comes from the line of Linlin Yang from GF Securities. Please go ahead. Your line is open.
Henry: Okay.
Henry: So long.
Henry: Tom.
Henry: Understood.
Henry: No Joseph.
Henry: Please go.
Henry: Go ahead.
Henry: With Xiaomi Jan Kees has from Pasco Vishal.
Speaker Change: Massimo Cathy will AI training schedule.
Andrew: Go ahead Andrew.
Henry: Okay.
Henry: Yes.
Henry: Oh.
Speaker Change: Diego and tissue client needed to handle women trend of Douglas Shelby.
Speaker Change: Ladies and gentlemen.
Joe Jolson: With us Joe Jolson, and Shanghai Jewelers have dwell on that.
Speaker Change: <unk>, probably touched on I'm sure we will.
Chantal Guillermo: Chantal Guillermo <unk> from Dawson.
Speaker Change: Now agenda item <unk>.
Chantal Guillermo: My first question.
Chantal Guillermo: Yes.
Chantal Guillermo: C&I in Permian.
Chantal Guillermo: You think about the demand.
Chantal Guillermo: AI inference and how much how.
Chantal Guillermo: How much.
Chantal Guillermo: Sure.
Chantal Guillermo: Got it.
Chantal Guillermo: And my second question.
Chantal Guillermo: After the equal.
Chantal Guillermo: Legacy public cloud business is pony.
Chantal Guillermo: Okay.
Chantal Guillermo: Yes.
Chantal Guillermo: With revenue.
Chantal Guillermo: Sure.
Chantal Guillermo: <unk>.
Chantal Guillermo: While these parks.
Chantal Guillermo: Thank you.
Chantal Guillermo: What's not clear that the ego and Ti.
Chantal Guillermo: Okay.
Chantal Guillermo: And you've kind of tightened balances have taught us army just emphasis and that's the way.
Chantal Guillermo: So you can go to the treaty.
Speaker Change: She told us.
Susan Macau: Susan Macau.
Speaker Change: Yeah.
Speaker Change: Congrats patent on that Nick.
Speaker Change: So sorry, you're going to get a canonical people see crystal.
Speaker Change: So you will see quite a bit.
Speaker Change: So you boy you didn't wait jostle superpower motion.
Speaker Change: Got it.
Speaker Change: Sure how about you.
Speaker Change: The song.
Speaker Change: <unk>.
Speaker Change: Tier two electrical woman to send out.
Speaker Change: Cornelia Haag, Shanghai Swanson, our CFO.
Speaker Change: Cook with hook.
Speaker Change: <unk>.
Speaker Change: What's the tons from core short I don't think it's out with what she said.
Speaker Change: So you'd have to go to the.
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Speaker Change: Visits from coastal attentions from Cui muscle.
Speaker Change: You sound like a student to solve.
Speaker Change: So your boss into our Nielsen that oxygen Teng <unk> mode, particularly because somehow like Honda.
Speaker Change: <unk>, Hi, Mayo Kendall.
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Speaker Change: Qualify towards Omega choose question, that's from Cui Muslim sheet cohort at all.
Speaker Change: All of them with you.
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Speaker Change: How should it change.
Speaker Change: Youll see some this year.
Speaker Change: I really hope.
Speaker Change: So you know.
Speaker Change: What Luke.
Speaker Change: <unk> got you got you got you got a pundit fanning.
Charlie Campbell: Charlie Campbell.
Charlie Campbell: Jeremy Hudson Chinanet.
Peter: Hi, Peter.
Peter: She's a hydro baxalta Chico soil, the xiaomi that someone had a timeshare.
Peter: What have achieved crossover.
Peter: Because you've had a long time.
Peter: <unk> this year.
Peter: Will it always so cheap.
Peter: 2220.
Peter: But I'm going to conclude our single oriented nickel.
Peter: Yes.
Jeff: Yeah, Jeff and then.
Peter: You've got <unk>.
Peter: <unk>.
Peter: She says.
Peter: Some of it yes, yes, it's been quiet.
Peter: Hello.
Peter: Yes, <unk> higher nature.
Peter: Theaters.
Peter: Okay.
Peter: Okay.
Peter: Okay allow me to very quickly translate so.
Peter: For those demands of influenced outside of the Xiaomi <unk> top ecosystem, what we have been seeing is on one hand.
Peter: I was responding to the deep sea question earlier.
Peter: Advent, a dipstick, obviously accelerated the application of blackjack with models.
Peter: AI to various sectors that we have been seeing a huge amount of inquiry going in customer.
Peter: Numbers as well as the spa desire and willingness for them to adopt and applying AI applications. However on the out of hand.
Peter: If you look at the number of.
Peter: The amount of actual business for example for one single customer we might be meeting.
Peter: A cluster of 128 units for 256 units or even 512 units Costa did kind of single customer demand, we have not seen yet.
Peter: The trend of penetration of AI and big ticket very clear inference, but we think it might take some time for that too.
Peter: To be shown on the financial statements now secondly for your question about the interest demand within the Xiaomi in terms of the ecosystem. The answer is that it's.
Peter: It's going to be very strong.
Peter: Essentially all of the products and services across the xiaomi ecosystem, including the cell phones, and Iot is including the electric vehicles all of them are going to be supported by AI at lunchtime with models.
Peter: And for all the teams at the sites.
Peter: Needless to say actually the team across all states.
Peter: AI the WPS AI user.
Peter: <unk> has also been increasing quite quite quite strong.
Elliot: Thank you Elliot so regarding your question of <unk>.
Elliot: Asset depreciation Hi, this is Henry.
Elliot: Happy to offer also some colors.
Elliot: So.
Elliot: I think first of all.
Elliot: If our audience and investor.
Elliot: Do some analysis and a comparison.
Elliot: Amazon AWS, including Google and Microsoft are all using five years off the M&A policy for the servers and computing powers. So janesville caller, we are conservative conservatism in terms of managing the financial policies right now.
Elliot: Regarding regardless of the servers type in equipment, we are using four years of getting your policy, which means that we basically.
Elliot: If a compared with five year, we actually overestimate certain costs.
Elliot: <unk> there is a potential to release certain profitability down the road. So that's actually my first point.
Elliot: My second point is.
Elliot: In the late <unk> 'twenty to 'twenty three in early 2024, we already at that time, our forecast that the industrial will have a major shift from the traditional ice to the AI cloud. So that's why at that time, we did a full round of internal review of the asset distribution and our internal risk.
Speaker Change: Yes, I know, we decided to really filter out certain assets from Cpus in the traditional assets, So where did the asset impairments in the some of the changes in provisions of iteration and the right now all the assets on our balance sheets, including.
Speaker Change: The 5 billion capital expenditures required for the computing power in the past few quarters.
Speaker Change: Which card just sitting on our balance sheets are all healthy and their revenue at a profit at the generating assets and <unk> and.
Speaker Change: And it actually can match with our revenue incremented opportunities. So I think right now we do have a kind of healthy asset balance sheets on the left hand side and also have a good potential to improve shareholder return and our profitability and our cash on a return, especially the op cash on a return on the right hand side. So we I think we are there.
Speaker Change: Good balance on the.
Speaker Change: The left to the right antibody to improve but the foundation.
Speaker Change: Business model and efficiency going forward. Thank you.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of <unk> <unk>.
Speaker Change: CLSA. Please go ahead your line is open.
Speaker Change: Sorry, John can you call Michelle Holway, She's got a great offer issuance I guess again with you in any way.
Speaker Change: I appreciate that this company is yes, now what you Daniela Glenda Please answer Josh Joshi of women Chewy, Dol carcinoma, asking which it appears your <unk> earnings.
Speaker Change: She also shutdown that they're all trading at Wuxi <unk> It sounds like industrial tool now Joseph Zannino, Paul Thanks, Alexandra Shulman, GPU shoulder Zambian that Jacob <unk>, John Legere fortunate.
Speaker Change: Jakob Bill I didn't want my AI mutual route with attention to that the Isa <unk>.
Speaker Change: I'll translate the question.
Speaker Change: We've seen that prices for high performance as others have been falling in 2024, while interest service are reasonably well supplied and how will this affect our pricing strategy for chips, new cott revenue and its impact on our AI cloud revenue and earnings. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Owen.
Speaker Change: First of all thanks for the very good question and.
Speaker Change: As Youll know on this quarter with deliver.
Speaker Change: Billy I say, probably put a big disclaimer, but may be true.
Speaker Change: The highest growth rate in the industry.
Speaker Change: All the public companies in the Internet sector, which has club business and number two given.
Speaker Change: The gross profit we already had region.
Speaker Change: Probably also on a pop here across all leading players on this quarter. So you may understand that we want to remain relatively cautiousness up all of our businesses secrecy and very sensitive information. So we don't want to hurt investor interest because with share too much information on our success tips.
Speaker Change: So on that backdrop, what I can share is.
Speaker Change: I think we do have a higher margin compared with traditional CPU centric services. So I think its kind of first topic first point the second point is.
Speaker Change: It depends on the client demands we do have a good mix of all kinds of different competing formats, which can fit into the client demands and we're charging them tested as demand goes up so it's a supply demand, which actually favor kings of cloud as a very important supplier in this current market.
Speaker Change: Number three is.
Speaker Change: The pricing on the GPU.
Speaker Change: You'll know it actually link to a call production requirements of all of our major clients. They use AI in the computing as a important protection and protected pivoted towards an important embedded functions in their workflow. So in that sense as you understand is always about value.
Speaker Change: I think our value proposition has been lifted from a traditional ice services, which may have limited the ceiling of profitability to a much higher potential in the current market because the GPU because of the GPO AI services becomes so important for our cloud internal workflow and afford that final product.
Speaker Change: So they are willing to pay a much higher fee than the pricing because of the necessity of the technology value. So putting all things together as I mentioned I think we do have a very different pricing model for the AI related services, which are higher than the CPU and the traditional AI and they were already shift our strategy from a traditional IP cloud.
Speaker Change: This company to an AI cloud and a solution and services company going forward. So I think that's actually providing a very fundamental different changes in approach for the pricing, but as I mentioned, because the pricing is so sensitive and right now we're doing so good compared with the industry average. So we don't want to say too much regarding all the strategy because it is a business confidential as the only honest.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you and this concludes our earnings call today. Thank you all once again for joining us if you how any further questions. Please feel free to contact US look forward to speaking with you again next quarter have on that day.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].