Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross margins improved significantly from low single digits to 17%, indicating better profitability.
- AI services revenue contribution to public cloud increased from 0% to 26%, showcasing strong growth in a high-potential area.
- Quarterly costs and expenses decreased by approximately RMB300 million, representing 15% of quarterly revenues, demonstrating effective cost management.
- Revenue from high-value-added products and services has grown, offsetting the pressure from the proactive adjustment of CDN services.
- Net operating cash inflow amounted to RMB150 million, highlighting strong cash-generating ability from operating activities.
Negative Points
- Depreciation and amortization costs increased from RMB202.1 million to RMB265.9 million, mainly due to the depreciation of new servers.
- Adjusted selling and marketing expenses rose to RMB117.5 million from RMB97.9 million last quarter, representing 6.2% of total revenues.
- Adjusted G&A expenses increased to RMB237.7 million compared to RMB178.7 million last quarter.
- The company is still phasing out low-margin businesses, with CDN services revenue contribution decreasing from approximately 40% to 20%, which may impact short-term revenue.
- Capital expenditures for the quarter were RMB654.8 million, reflecting significant investments in infrastructure, which could strain financial resources if not managed properly.
Q & A Highlights
Q: Could you please update us on your CapEx guidance for the next two quarters? And could you give us some color on the ROI of your AI investments? And how is your expectation for the AI revenue contribution for the full year?
A: (Haijian He, CFO) Most of our CapEx, over 95%, is related to AI investments. While we can't provide full-year CapEx guidance, we have expanded our financing channels, including support from Kingsoft Group and National Policy Banks. This allows us to invest heavily in AI without being limited by our current cash balance. The ROI on AI investments is high, with AI business GP margins significantly higher than other parts of the business. We expect AI revenue to continue growing, driven by sectors like electric vehicles and robotics.
Q: What is the driver behind the strong revenue growth from Xiaomi and Kingsoft Group, and what is the AI-related revenue contribution from these groups?
A: (Haijian He, CFO) Revenue from Xiaomi and Kingsoft Group increased by 36.9% year-over-year, contributing RMB370 million this quarter. This growth is driven by AI-related revenues, which make up about half of our total AI revenue. We expect this trend to continue, potentially requiring an increase in the related party revenue cap in future shareholder meetings.
Q: Can you share any thoughts on the outlook for the CDN business line, given the proactive downscaling?
A: (Tao Zou, CEO) We distinguish between standard CDN business, which has lower margins, and higher-margin CDN services like live broadcasting acceleration. We aim to maintain a minimum of RMB300 million in standard CDN revenue per quarter while expanding higher-margin CDN services.
Q: What are the key financial metrics and their improvements this quarter?
A: (Haijian He, CFO) Our adjusted gross margin reached 17.1%, marking eight consecutive quarters of growth. Adjusted gross profit was RMB333.4 million, and adjusted EBITDA was RMB60.6 million with a 3.2% margin. Total revenues were RMB1,891.8 million, a 3.1% year-over-year increase. AI revenues grew to RMB326 million, making up 26% of public cloud services revenue.
Q: How is Kingsoft Cloud leveraging AI in its business strategy?
A: (Tao Zou, CEO) We focus on three dimensions: supply of computing power, inference (AI application), and training. Current financials show significant growth in computing power supply, but future potential lies in training and AI application. Key sectors include electric vehicles and robotics, with substantial opportunities in autonomous driving and AI-empowered robots.
Q: What are the key areas of progress in Kingsoft Cloud's financial metrics?
A: (Haijian He, CFO) We have seen consecutive increases in gross profit, gross margin, EBITDA profit, and EBITDA margin. This quarter, our adjusted gross margin reached 17.1%, and adjusted gross profit was RMB333.4 million. We also recorded a net inflow of operating cash flow amounting to RMB151.2 million.
Q: What are the strategic priorities for Kingsoft Cloud's public cloud services?
A: (Tao Zou, CEO) Our priorities are the Xiaomi and Kingsoft ecosystem, AI businesses, and supply chain. Revenue from Xiaomi and Kingsoft reached 20%, and AI revenue surged to RMB326 million, accounting for 26.3% of public cloud revenues. We have also built a comprehensive supply chain system to manage procurement costs effectively.
Q: How is Kingsoft Cloud performing in the enterprise cloud services sector?
A: (Tao Zou, CEO) Revenues from enterprise cloud services reached RMB657 million. We are actively pursuing opportunities in public service cloud and state-owned enterprise cloud, leveraging our core components like big data and workspace collaboration. We have also been recognized as a leader in the China e-government cloud market.
Q: What are the key technological advancements Kingsoft Cloud has made recently?
A: (Tao Zou, CEO) In AI, we have integrated products like bare metal and object storage to create a holistic solution for data cleansing. In enterprise cloud, our Galaxy Stack platform offers a low-cost, high-density cloud solution, achieving significant cost reductions and increased instant density.
Q: What is Kingsoft Cloud's long-term strategy for sustainable development?
A: (Tao Zou, CEO) We aim to enhance profitability and cash-generating capabilities, deepen cooperation with Xiaomi and Kingsoft ecosystem, strengthen our Wuhan Research Center, and explore new AI opportunities. This strategy is designed to create long-term value for our customers, shareholders, employees, and other stakeholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
