KC - Earnings call transcript Q3 2024 | Kingsoft Cloud Holdings Limited

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Operator

Good day, and thank you for standing by. Welcome to the Kingsoft Cloud's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] 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.

Nicole Shan

Thank you, Heidi. Hello, everyone, and thank you for joining us today. services. XXXX on was ir.ksyun.com our as Globe quarter and earlier as third on available is IR Newswire Cloud's earnings distributed release today well Kingsoft website at

we who On the followed have CEO, the and company Zou CFO, will highlights, Mr. and will by financials Henry Tao; from strategy, review call Kingsoft our Mr. our Chairman business discuss and today the Vice the He. Zou, He, Mr. to are answer any that purpose Mr. available questions Cloud operations convenience guidance. during be original session be the case discrepancy, They reference Q&A your follows. our in consecutive language the will of and statement In only. interpretation. for will will management's There prevail. All and interpretations your

I'd of a new future except under of The and to this any are undertake to applicable obligation otherwise, materially the included XXXX. and regarding update from operating and differ that uncertainties contains you Reform which to the company's predict market begin, defined based of we as involve control, the company events this the meaning U.S. Section all relate actual to other uncertainties with information, as achievements or statements. Further current which remind amended risks, to does statements law. and which known statements U.S. forward-looking factors, company's information Securities Exchange current XXE like the as many are These that management's beyond in not difficult as or and required call or company's Securities XXXX SEC. those of of and are performance may Act filings of cause the within results, the unknown and Litigation the in Private other forward-looking of conference Act conditions risks, expectations forward-looking events are statements forward-looking or any upon Before factors result in

our stated, all Mr. this financial denominated the now otherwise call are that RMB. It's note please Chairman in conference introduce during CEO, figures unless Finally, Vice mentioned and to pleasure Zou. my

Tao Zou

you, Cloud's Earnings welcome Tao, Kingsoft Thank Call. Zou everyone. Cloud. and CEO for [Interpreted] Hello, Quarter Third of joining I XXXX all am Kingsoft

our see we sustainable quarter, continued results to the from and strong commitment development high-quality to unwavering strategy. This

all, accelerated on of is First trajectory. an revenue growth

and seen Following revenue this first-mover solid achieved in in development. XX% public rate year-over-year foundation Both quarter, to a average. made structure, diversify cloud dual year-over-year XXXX by to our we businesses engine outpacing This we industry driven the growth from double-digit year-over-year advantage. month-over-month strategy, stems growth, QX, have leveraging rise for momentum strategic our our adjustments in the our and resulting continued enterprise cloud stronger a growth

improving time and margin narrowed towards last profitability positive a double-digit in XX%. has to solidifying an Meanwhile, operating of QX at X.X% to in our this year adjusted of high-quality X% quarter, margin our a quarter same from further this QX, path turning XX.X% development. is margin Second, the the loss in significantly even pace. our After EBITDA first it for faster quarter, reaching accelerated has

we Third, XX% to a to AI quarter. The with the of continued percentage this of AI. public continued grow business lead transformation proportion to have cloud revenue our as

outpacing consistently past increase X.X-fold shown growth. quarter, quarters, to industry's remarkable Over revenue compared X AI the this the we a has consecutive year, saw triple-digit And growth. year-over-year last

leading to capitalizing with we ShineWing, AIoT, this opportunity customer AI sustainability development firm. China's Kingsoft within AI demonstrates distribution and we WPS Xiaomi profit new model of entered the services large our into also a language professional operational growth. Meanwhile, deep long-term from the AI. strong Together, one-stop a fully margins EV, are and expertise, the ecosystem stack exploring building collaboration models models, training, and historical comprehensive leveraging we're integrates on having application capabilities. Fourth, Our platform unique business that are gaming, inference, large full

have from increased year-over-year. revenues the our quarter, by This XX% ecosystem

have business fast We across garnered witnessed among recognition. lines, automotive have its growth market strong all business which, notably, of Xiaomi's

changes. to practical within market for platform decline in Xiaomi's the As the rapid sole areas, our cases fully ecosystem, increased. the able the cloud AI Kingsoft expanding of we're market to has use cloud Kingsoft market Xiaomi we're arising and providers, service Thanks on-device needs. and seize other and strategic Internet driving, cloud-based share the to steadily other committed structural and autonomous meet among service ecosystem, cloud Xiaomi within the industry-leading models, growth Amid from opportunities their and our share supporting revenue AI to a

Now walk third the the quarter XXXX. business key through you let me highlights for

made progress Cloud cash solid and revenue This quarter, flow. in operating profitability scale, has Kingsoft

business. Adjusted RMB continuing decrease, driven revenues amounted with year-over-year. business XXX the CDN positive XX.X% billion, to value-added of to profit up fluctuations cash of proactive with representing to demonstrating revenue again in activities. RMB improve our products return Our gross gross operating reached QX inflow XX.X%, once by and the to year-over-year growth from XX% the margin percentage in to in Adjusted a increase. pressure X.XX percentage services million a primarily XXX double-digit a ability amounted XXX significant profitability. points. showing an adjusted marking the margin year-over-year million, growth increase year-over-year from cash-generating XX CDN a Net RMB in RMB high strong and EBITDA our million, reached in despite of from points turnaround -- the quickly operating our pressure increased quarter-over-quarter EBITDA Adjusted increase slight EBITDA X.X%, offset The adjustments X.X offers following

RMB of cloud of increase a reached billion public this year-on-year X.XX XX%. services, terms quarter, revenues In representing

the Xiaomi Kingsoft sole this to and within platform cloud the are the within strategic opportunities growth. As our cloud business ecosystem, fundamental ecosystem

XX% revenue Xiaomi total from This Kingsoft and by contribution quarter, grew year-over-year.

service Xiaomi's business the is cloud human, of driven and car advancement entire era covering of coupled growth the empowers fully its the AI, AI by AI As potential home, WPS ecosystem unprecedented. with

opportunities on business in are AI within the We capitalizing and AI our ecosystem. Besides, to driving fast-growing autonomous continues momentum. gain actively the

us This public of cloud to by accounting increased revenues, for industry revenue RMB surged XX% quarter, XXX as positioning XX% leader. AI an and million, quarter-over-quarter

We a supercomputing resource capable simultaneously full in of clusters built substantial supporting networking nodes. scale the capabilities integration cloud computing the of of of resource commissioning deliver public leading have at power the the This offering pool, large-scale enables supercomputing to XX,XXX range the products. network supercomputing of topology industry us pool while and clusters, computing

pursued services. focusing namely, cloud RMB Revenues Moving and and on cases, state-owned In government use within public a increase to representing services actively X cloud of key public enterprises. to XXX million, have year-on-year amounted space, opportunities services we cloud, on enterprise XX.X%. enterprise

promoting leveraging We data office on built big are a and standardized collaborative operations, foundation capabilities, large tools. model

jointly for High-Tech Zhuhai government This large language quarter, Office Zhuhai. dedicated office we collaboration with in Kingsoft to training projects model large models and a started tailored our work in Zone, customer

optimizing Shenzhen constructing capabilities In and in We the quality have XXXX authoritative with subscription development as on and bank completing joint Research to peers. projects. will real-time elementization for Industrial development financial real-time leaders' real-time Center a the of Innovation Enterprise initiative State-Owned model, quality. data data service well stock trustworthy management real-time domestic bank a data for Report construction leading well-known also our quadrant in data Bay services National the released publication Greater platform China circulation. According par to data Area supported and with we assist This project as been product the with recognized institution, we High-Tech by and an a creating domestic the and Market those collection in reached space, agreement the improve Central of local efficiency platform, facilitating a

We Xiaomi's also data exclusive remained construction now established significant has center service XXX which application real-time applications. and to made with in strides members. business Camelot center business in of exceeded staff management achieve rapid a configuration of the Besides, Wuhan, stable

technology platform In success terms principle core technology, AI cloud-native customer cleaning of innovation, meet launched on space, for elastic platform easy demands and and building offerings. the AIGC cleaning best-in-class quick our product delivering on experience to the data shutdown uphold use we capabilities, across to start-up and use scalability designed focusing data cases. provides of product dynamic a This In offers managed tasks. we of based and fully it's

of platform creation solutions. use of cases, to the to needs low-code through application development applications [indiscernible] accelerate application AI in is helping aimed different AI addressing the Our AI

an recognized in phase published is Model-as-a-Service industry by of market the upward the report development CCID, healthy Kingsoft of in entered the service after quadrant. In a Additionally, Cloud's domestic X high-quality sustainable fundamentals growth. summary, strategy, authoritative steadfast have leaders' institution, implementation Kingsoft Cloud and of years

opportunities, third call Looking the forward, we strengthen comprehensive and shareholders, continue explore with cooperation continuously develop our value and our customers, our the Research quarter thereby you. over capabilities, CFO, will for and pass Xiaomi cash-generating deepen profitability financials Center to go Henry, AI understanding such XXXX. to new ecosystem, enhance employees stakeholders. I Kingsoft of creating other Wuhan and the Thank now our for to over will

Haijian He

you, thank all you would I progress. through today. I to Zou, call the our will Thank now X the areas for Mr. of walk for XXXX. and third financial of joining like the quarter results you highlight

Regarding we of which revenue, growth X,XXX.X achieved in a high-speed year-over-year in to reaching the rate first that the quarter, total of RMB average industry, X double-digit of growth revenue. There performance all, the highlight. like is of the high-single-digit of million, aspects this the are growth Xx quarter, restoring this company the would

differentiated XXXX, market. our from from industry a business. first-mover advantage us have of the AI the solid the in benefited the already of our growth to development respectively. growth starting laid year-over-year cloud from situation public adjustments achieving This trend future of Both business, foundation out revenue balanced thanks for double-digit of has First, our competitors cloud and of structure the

public gross year-on-year as in a XX% high level. billing for far for Second, AI X industry cloud growth our consecutive achieved as accounting XXX revenue. this X-digit quarters, RMB It exceeding of reached million, the the average quarter, has

the repositioned of have business the we strategy Third, company.

laying reached our the foundation exceeded Games ecosystem performance contributed has Kingsoft Xiaomi EV the the ecosystem Regarding future. The excessive for as customers by proportion within revenue well the market XX%. exceeded and clients the customers already in of ecosystem in growth as XX% in WPS cloud Kingsoft business cars the has a revenue Xiaomi's has single growth year-on-year, AI, of good quarter Thanks the demand of customers strong the this progress and public to of ecosystem, a quarter of expectations. new ecosystem

of adjustments in profit with profit, have company EBITDA compared a the we profit transformation business the reached profit a the growth QX a to and XXXX margin AI of exceeds Today, of XX.X structure X.Xx profit XX.X%. XXXX. of has and improved structure percentage EBITDA remarkable only margin expansion of results. quarter terms adjusted The AI adjusted in from margin far have average loss gross X.X% QX our transformation significantly of of The been increase carried the and of achieved strategic of out Second, in to industry company profit the before expansion adjustments points. gross X.X% in X.X% revenue with

flow net effective brought high-quality flow cash the of achieved in the inflow and reaching to AI contribution business progress due Thirdly, strong million. operating successful this of about transformation RMB quarter, have we cash business of by a XXX

In terms turning for successful of ecosystem achieved Xiaomi also our and Kingsoft point a have we the strategy. strategy outlook, AI

provide Going to following happy forward, the for of QX. performance for fourth quarter guidance the we are XXXX, the

growth all, parallel enterprise thanks of deliver will and healthy cloud, both QX. public to for of continue First cloud drivers X the to we

the QX the rate rate of We growth exceeding industry. average total achieve accelerated the for XXXX, to revenues in growth expect

our expect will to we improve. profitability Second, continue

QX. deliver to For the expect adjusted we significant in accelerated operating improvement profit,

the for to grow. and revenue strategy, the will continue contribution we Kingsoft business the Third, believe ecosystem Xiaomi AI

for are support profit generated billion RMB and will and with and a of XXXX, the for AI the for XXx and of XX.X to result, Group X.X shareholders upcoming share more take RMB be revenue with providing the billion, exchange Xiaomi connected X stock Kingsoft cloud transaction given demand forward. competitors Kong, continue from promising years the applying over from historical we a As financial applications solid company from we Meanwhile, cap in in Xiaomi Group Hong market for Kingsoft of revenue both growth our revenue and growth. of to next party year going

from last of X,XXX.X into was in primarily AI-related results. solutions. XXX.X million, to same year, IT selected services of revenues XXX the million, RMB primarily XX.X% XX% partially X,XXX.X scaling enterprise by financial a growth details million cloud down RMB This higher due RMB Camelot increase the from of demand with were quarter in the same last quarter in X,XXX.X certain which year-over-year growth million, in and the costs increased public quarter reached a our revenue offset services bandwidth price and up Now which RMB driven XXX customers. Revenues RMB in year. this from increase, by RMB million, revenues, adjustments million the significant were let's reflecting driven cloud CDN dive up verticals Total of from reached by

but service enhance to XXX which our personnel X,XXX.X supply remained XXX.X quarter, the the pricing. XX.X XXX.X optimizing and year costs quarter-over-quarter. rose RMB cost Total costs down expansion by to support has of CDN depreciation million, expanding to million period IDC continued were X.X% service this XX.X RMB and increased revenue mainly both utilization. Depreciation have by newly and servers, growth. base million development XXX.X rep GPU revenue million, improved and XX.X% respectively. year-over-year to by control this our of reflecting costs RMB and driven by last quarter batch to RMB million our up of Fulfillment in acquired stable from year-over-year significantly million same to procurement due We and RMB year-over-year, XX.X% the costs million and costs quarter, XXX.X RMB Camelot strategic million was this services RMB XXX.X from RMB from in of cost million other quality dropped solution RMB costs, scaling amortization

was adjusted Our the RMB gross adjusted million, gross with quarter for an XX.X% of margin a increase XX.X%. year-over-year profit XXX.X

our down lower compensation a XXX.X credit X.X% million personnel side, quarter decrease from Adjusted XX.X% significantly expenses quarter, were RMB strong and selling of adjusted RMB RMB representing marketing excluding in and quarter, and up X.X% to share-based of XXX.X G&A of from cost million than reduction and year-over-year expenses revenues. Adjusted last expenses million, XXX.X costs. XX.X% expenses R&D were XXX.X last XXX.X our RMB total last control XXX.X million, the long-lived assets, were higher reflecting million, quarter-over-quarter, losses. operating due of On were expenses impairment total a adjusted RMB million, which RMB

cash X,XXX.X a operations XXXX, of support our and cash position RMB strong As equivalents totaled to investments. AI XX, September liquidity million, providing and

reached majority assets Our to RMB leasing X.XX of and expenditure servers capital obtained AI support in to financial invest business. used the through which are billion,

remain of we development. committed and to ahead, sustainable high-quality Looking principle the

further deeper driven expansion gross ongoing revenue low-margin AI-related expect and continued collaborations business. by We Xiaomi of growth billings with reduction a of ecosystems, and CDN Kingsoft

Thank operating you. We profit in also near expect in to milestone the achieve adjusted another future.

Nicole Shan

This attention. for remarks. Thanks concludes our your prepared

in Operator, your Please please We questions. are now happy Chinese to Mandarin and take Thank possible. go English, you. question ask ahead. if your both

Operator

first line Instructions] We [Operator the will And Zhang take our Xiaodan CICC. of question. question the comes from from

Xiaodan Zhang

here. [Interpreted] I've questions got X

of Xiaomi Kingsoft over first the from So continuously revenue all, has and been the past Group quarters. contribution increasing

you secondly, as of well expenses us with could your adjusted strategic rising into amortization as CapEx? and please margin the share growth EBITDA outlook AI-related your consideration taking on you potentials your and operating And please as views customers could So share well margin depreciation the those as the service strategy? on

Tao Zou

Xiaomi been last unprecedented increasing opportunity Kingsoft quickly This steadily. coming business opportunities have AI business the year, of is Corporation and and the Kingsoft And [Interpreted] So thanks business opportunities. course, AI ecosystem seen, you very the fast. with developing been and the itself fairly from since -- AI-related the have to opportunities yes, Xiaomi as the the have

you be from EV strong. delivery historically very which yesterday, As to results, results the strongest the has seen been would is Xiaomi release the Xiaomi have said

which cases solid Xiaomi been growth use mentioned functions our cloud been all the centered also, foundation WPS capabilities for AI the and driving in where utilization promote customers of service well usage have cloud the have have growth solid the on as is And -- that to the cloud is revenue. I they side, functions, AI has therefore, Office AI-related on centered a as So around grow. around side, the this to paid new

this solid conclusion growth momentum still the And the growth business very Kingsoft grow. in opportunity are laid Kingsoft So foundation of and is ecosystem, and revenue the we for for the believe good we Xiaomi solid business that their to the business further of Cloud.

Haijian He

second comment margin will the the regarding on probably question expansion. I

from think margin seeing profit. gross mentioned then the in continued the are my is drop to the EBITDA expansion I to remarks, as So our we the operating prepared I sequencing margin

the that market So player quarter, it's margin We this will expansion top as given to speed addition, be closer X/X level. think around XXXX, X%. the margin little even in a of XXXX revenue, think the think deliver QX on in faster which industry our X.X% near-term. And around the in expansion a at the of And our terms we certain than time, tier property Street. expansion. margin XX% gross positive contributed And you And in major around peers of gross was are I will peers reaching back speed reason, the also only I in to the the already well. as think that gross EBITDA given the is -- loss I margin, of getting has to as EBITDA the can of a expansion margin the to margin that with from EBITDA of the a EBITDA for also compared margin, notice total the converted than EBITDA margin this higher the our has AI much quarter. And higher in the continue

operations control about well. cost as operating you all in as the as noticed, contributed expense as cutting the well in operating addition, you as line our the and terms efficiency So margin, improving speak to operations the of in

So surprise deliver a I we for shareholders. to positive we're the can hoping think the near-term

we from may to and the as hopefully, keep in keep But to in hopefully, EBITDA guidance profit that But expansion formal the significant we breakeven trend the operating margin of gross then at near-term. observe. after providing a can and operating we're you this And improvement the the accelerated made moment, track timing. can see the a the not and may for profit we speed You very near-term.

Operator

Sachs. And question your from comes line next the from Zhao Timothy of Goldman

Timothy Zhao

[Interpreted] I have questions here. X

your The Xiaomi the as revenue first and from is AI as Kingsoft of well regarding the margin business profile Group.

either plan So just and the secondly, the overall demand to wondering outlook funding our profile off-balance and for we wondering or business? margin sheet the in the how to CapEx and this for resources year on your order cloud. to of to next And just how resources compares balance margin the especially business public on year AI grow utilize the meet sheet the

Haijian He

those So questions. happy to take on X

line are sometimes we customer, know, you separate know, you may of business product margin the use segments. as question, each given, first for of not as multiple line disclosing the The each they gross different

separate a his expansion it's and our to provide peers in growth much I'm market why that. Overall, compared remarks, in cases. And on top-line reason have the much to as the gross higher products gross other because back and with we are on ago. robust the strategy quarter cloud bit in earlier traditional difficult So business as cloud Zou high-level mentioned the is we're Tao and higher services, achieved growth, is enterprise public prepared double-digit that. enterprise cloud cloud Mr. both margin as also much than some margin this our But traditional which years public the public delivering unlike the cloud storage networking. however, But well Y-o-Y happy including is did stronger our AI-related, delivering guidance margin X computing-related adjustments entire actually most

this solid growth parallel quarter. do both for very has driver been So we see

public the margin I is as lines, I gross the to traditional But you good So coming current margin, EBITDA as I revenue, double-digit the delivered think back revenue well. also we question, margin. also delivering margin and especially gross different the a the order think the EBITDA AI, if a very pack contribution think AI in delivered for when at double-digit product your decent incremental margin the margin to well. a look cloud And want

for down we traditional CDN, which very non-public know, already as have we Our the effectively. cloud planned, out services, the actually scaling you especially executed planned as

contribution has and from well been CDN on our So effective for very margin budget. the

So we with delivered very budget. in line the

first -- the question mention. probably the these I to are want So

about us to for invest But both of including The RMB as the state-owned years, my investment. X the years, the currently think year's cooperate transaction GPU the leasing is as the one can we this around additional part actually mention mentioned resources, XXx the Xiaomi and already and I next is more have party into want Kingsoft of given from secured actually number. next CapEx banks, second together in prepared well cap with AI we related also companies X remarks, many part the XX.X the I I to the billion over importantly, as is CapEx, for for enterprises, are applying which financial which the

And margin potential So to from share public major support the from very expansion as are for keep position that We'll our we next And the the financial the from later financial for to mind. as robust confident meeting the the And that will we AI both that shareholders X both company public strong we talk to dilute the transactions look not issuance terms are dilutive since that budget, leverage quarter we few have going discussion closer as support CapEx well as we additional the the managing more investment internal maintain be the or well about will a the in our in as shareholders. from budget annual in very into speed investment. shareholders. important business way the may for will and you be and well shareholders and to will we the of years. may growth that robust find

Operator

now today's to answer will This back question closing Nicole and remarks. for concludes Shan hand session. I

Nicole Shan

you once today. joining again operator. us you, for Thank Thank

next Have nice again IR forward If any speaking Bye. with to quarter. a feel questions, Thank you. Look you day. have further please free to contact team. you

Operator

conference today's participating. you call. Thank for concludes This

by [Interpreted] an transcript marked now of this interpreter were the may You live on present disconnect. [Portions that call.] are spoken

Kingsoft Cloud Holdings Limited (KC) 19 Nov 242024 Q3 Earnings call transcript