Kingsoft Cloud Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 20, 2024

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the KingsoftCloud's 4th Quarter and Fiscal Year 2023 Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question Please note that today's conference is being recorded. I would now like to turn the conference over to Nicole Shan, IR Manager of KingsoftCloud.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's 4th quarter and fiscal year 2023 earnings release was distributed earlier today and is available on our IR website at ir. Ksyuan.com as well as our global newswire services. On the call today from Tingsong Cloud, we have our Vice Chairman and CEO, Mr.

Speaker 1

Zou Tao and CFO, Mr. Huang Ren Hong. Mr. Zou will review our business strategies, operations and the company highlights, followed by Mr. Hu who will discuss the financials and guidance.

Speaker 1

They will be available to answer your questions during the Q and A session that follows. There will be consecutive interpretations. Our interpretations are for your company's and reference purpose only. In case of any discrepancies, management statement in the original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.

Speaker 1

S. Private Securities Litigation Reform Act of 1995. These forward looking statements are based upon management's current expectations and same market and operating conditions and relate to U. S. Standing in unknown risks, uncertainties and other factors, all of which 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 materially from those in the forward looking statements.

Speaker 1

Further information regarding these and other risks, uncertainties or factors are included in the company's filings with the U. S. SEC. The company does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise except for a repair under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB.

Speaker 1

It's now my pleasure to introduce our Vice Chairman and CEO, Mr. Zou. Please go ahead, Zou.

Speaker 2

Hello, everyone, and thank you all for joining Kingstalk's Q4 fiscal year 2023 earnings call. In 2023, we continued to uphold the principle of high quality and sustainable development and accomplished significant achievements. For the full year of 2023, adjusted gross margin was 12.2%, a significant increase of 6.8 percentage points, up from 5.4% in 2022. Adjusted gross profit was RMB860 1,000,000, almost doubling the amount of RMB445 1,000,000 in 2022. Normalized adjusted EBITDA was negative 3.4%, another significant improvement from negative 8.9% in 2022.

Speaker 2

During the year, we started building our success based on technology and innovations, forging our reputation throughout the entire business process, enhancing our operations management and building in the strength. We have been strategically adjusting our business mix and proactively embracing the new AI era, therefore laying solid foundation to long term sustainable development in 2024 and beyond. Now, I will walk you through the business highlights for the Q4 2023. This quarter, we achieved dual improvement in both our revenue and profitability measures. In particular, total revenues reached RMB1.72 billion, increasing 60 6.0 percent quarter over quarter.

Speaker 2

Adjusted gross margin recorded a major increase of 3.1 percentage points quarter over quarter to 15.2%, marking the 6th quarter of consecutive improvement. Adjusted gross profit reached RMB262 1,000,000, increasing 55.8% year over year. Normalized adjusted EBITDA margin was negative 1.6 percent, representing a significant improvement of 8.5 percentage points year over year. In terms of public cloud services, revenues were RMB1.05 billion, representing an increase of 3.5 percent quarter over quarter. Excluding CDN Business, public cloud revenue increased by 11.8% quarter over quarter with efforts on our 3 priorities for public cloud services, namely the Xiaomi and Kingsoft ecosystem, AI Business and CDN strategic adjustments.

Speaker 2

First of all, as the sole strategic cloud platform within the Xiaomi and Kingsoft ecosystem, we continue to serve the demand in the ecosystem well, especially with respect to the highly visible and tangible demand in training and inference from Xiaomi EV and WPS AI, seizing opportunities in structural industry trends. This quarter, revenues contributed by Xiaomi and Kingsoft Ecosystem reached 16%, representing an increase of 5 percentage points year over year. Secondly, we vigorously developed our AI business with remarkable agility to emerging industry trends. Besides the AI opportunities from the Xiaomi and Kingsoft ecosystem, we have been fully penetrating leading independent AI companies in China, providing long term secured high performance computing power, which is highly sought after in the market. Our AI business represented approximately 8% to our public cloud revenues or an increase of 82% quarter over quarter.

Speaker 2

Besides, we have signed a loan facility agreement with Kingsoft Corporation, obtaining a credit line of RMB1.5 billion dedicating to the development of AI business. Thirdly, we continued to push forward our strategic adjustments of CDN business. This quarter, CDN revenues decreased by nearly 10% compared to last quarter and CDN revenue as a proportion of total revenue has decreased to approximately 23%. The revenue share of our largest CDN customer was 12% in this quarter. Top customer concentration has been fundamentally alleviated.

Speaker 2

Moving on to Enterprise Cloud Services. Total revenues were RMB670 1,000,000, increasing by 10.2% quarter over quarter. In public service space, we actively seized opportunities of Public Services Cloud and SaaSx Cloud. We implemented standardized operation and maintenance with core components such as large language model, big data and workspace collaboration, targeting use cases in public service and enterprise application domains. With Beijing, Wuhan and Zhuhai as our basis, we have built benchmark projects radiating to other large and medium sized cities.

Speaker 2

This quarter, we successfully joined hands with Shenzhen State Owned Assets Cloud to facilitate the digitalization and intelligence evolution of local state owned enterprises. In healthcare space, we continued to promote the 5 business models and make new breakthroughs, Inheriting and developing experience from the cooperation with Shanghai Reijin Hospital, we replicated and scaled our medical digital capabilities to more renowned hospitals, including Wuhan Union Hospital, Zhongnan Hospital affiliated to Wuhan University and the Fuwei Hospital affiliated to Chinese Academy of Medical Sciences. In financial services space, we continued to deepen our business cooperation with large state owned banks, improving our big data products and service capabilities and win the base of big data platform project for leading state owned bank and trust. Turning to Camelot. During the quarter, Camelot exhibited stable and healthy revenue and profitability, signing up 4 new customers, while maintaining robust relationships with existing major clients.

Speaker 2

In terms of product and technology, we uphold our principle of building success based on technology and innovation, delivering best in class customer experience across our core product offerings. In computing space, we continued to upgrade our core products in focusing on improving stability and domestic environment compatibility. This quarter, we launched our elastic bare metal compute product EPCX7 with significantly improved computing memory, network and storage performance. In storage space, to better serve high performance use cases such as decoupling of computing and storage, AI, computer graphic rendering, we have released the extreme version of object storage service equipped with high performance, dynamic scaling and out of the box features. In big data space, we upgraded our cloud native lakehouse platform with maximum throughput improvement by 4 times for batch processing tasks, better supporting use cases of autonomous driving AI and data models.

Speaker 2

In enterprise cloud space, our Galaxy stack platform ranked in the market leader quadrant of both the private cloud market and the private cloud system platform market in the research report released by CCID Consulting, a great recognition of the products and services capabilities. This quarter, GalaxyStack platform released another update version, adding 6 cloud products and more than 100 functions, perfecting the comprehensive enterprise cloud system, which powers our end to end service of cloud building, cloud migration, cloud usage and cloud management. In terms of AI, our MassMutual Trust Dedicated Zone solution was awarded the most innovative AI solution by China Internet Economy Forum 2023. Our AI product center deepened research cooperation with Kingsoft's office to strengthen model research capabilities and serve enterprise use cases. Moving on to talent strategy.

Speaker 2

Wuhan Research Center has been quickly expanding. By the end of 2023, total employees in Wuhan exceeded 500, accounting for 1 third of total R and D teams and half of them hold graduate degrees. Our Beijing Wuhan dual R and D centered strategy attracts talents for our long term development and ensures R and D intensity as we stick to our build success based on technology and innovations principle, while managing R and D expenses effectively. In summary, we have achieved great milestones in executing high quality and sustainable development strategies with our profitability measures improving continuously. Looking forward, we will keep our original aspiration and long term strategy to create value to our customers and society through our business services, embrace AI opportunities and continue to improve our profitability.

Speaker 2

Leading with increasing management efficiency, we will keep imposing strict cost and expense control, enhanced talent training and expansion of Wuhan Research Center and further improve the company's operating efficiency. I will now pass the call over to our CFO, Henry, to go over our financials for the Q4 fiscal year 2023. Thank you.

Speaker 3

Thank you, and welcome, everyone, for joining the call. Now I will walk you through the financial results for the Q4 fiscal year 2023. Upholding the strategy of a high quality and sustainable development, we are pleased to close the year 2023 with meaningful milestones on enhancement of revenue quality, margin expansion and operating efficiency. For the 4th quarter, we delivered another quarter of steady profitability improvement. Our adjusted gross profit continued to grow for the 6th consecutive quarter and achieved RMB262.5 million, increased by 55.8 percent year over year, representing adjusted gross margin of 15.2%, which is a record high for the company and significantly improved 3.1 percentage points compared with last quarter.

Speaker 3

Our normalized adjusted EBITDA narrowed from negative RMB216,300,000 in the same period of last year and a negative RMB44.1 million in the last quarter to negative RMB 27.7 million this quarter. As a result, normalized adjusted EBITDA margin further narrowed from negative RMB 10.2 percent in the same period last year and a negative 2.7 percent in the last quarter to a negative 1.6% this quarter. Our total revenue were RMB1722.5 million this quarter, increased by 6% sequentially, of which revenues from public cloud services were RMB 1052,000,000, representing an increase of 3.5 percent compared with RMB1016.6 million in the last quarter. The increase was primarily due to the expansion from AI related revenues and partially offset by our strategic scaling down of our CDM business by approximately 10% quarter over quarter, contributing around 23% of total revenues. Revenues from enterprise cloud services were RMB 670,300,000, representing an increase of 10.2% from RMB6008.5 million in the last quarter as more projects are scheduled for delivery towards the end of the year.

Speaker 3

We continue to enhance our cost control measures. Especially in Q4, we refined the procurement process of CDM Business. Total cost of revenues decreased by 25.4 percent year over year to RMB1469.3 million. IDT costs decreased significantly by 30% year over year from RMB 1057,600,000 to RMB740.4 million this quarter. The decrease was in line with our adjustments with CDN Services.

Speaker 3

Depreciation and amortization costs decreased by 39.2 percent from RMB241.7 million to RMB146.9 million. The decrease was mainly due to previous impairments of our long lived assets. Solution development and services costs increased by 8% from RMB465.8 million to RMB502.9 million this quarter. This increase was mainly due to business expansion of Camelot. Fulfillment costs and other costs were RMB9.4 million and RMB69.7 million this quarter, which are in line with our enterprise cloud project quality control strategy.

Speaker 3

Adjusted gross profit of this quarter increased by 55.8 percent year over year to RMB262.5 million, representing adjusted gross margin of 15.2% this quarter compared with 7.9% in the same period of last year and 12.1% last quarter, making another record high as well as the 6th consecutive quarter of steady margin improvement. In terms of expenses, excluding share based compensation and impairment of long lived assets, our total adjusted operating expenses were RMB494.8 million, decreased by 32.2 percent year over year and 1.9% from last quarter, of which our adjusted R and D expenses were RMB162.5 million, decreased by 13.2% from last quarter as we continue to focus on utilizing our Beijing Wuhan dual research center and welcome new graduate campus recruiting employees. Adjusted selling and marketing expenses were RMB 106,700,000, representing a decrease of 6.5 percent from RMB114,100,000 last quarter. Adjusted G and A expenses increased by 11.1 percent from RMB203.1 million last quarter to RMB225.6 million. The increase was mainly due to the year end payment to vendors.

Speaker 3

As of December 31, 2023, our cash and cash equivalents and the long term investments amounted to RMB 2,300,000,000, providing us sufficient liquidity for operations. We have entered into a loan facility agreement with Kingsoft Corporation with a cap of RMB 1,500,000,000. It will dedicatedly support our AI business development and it will demonstrate the confidence and commitment of our Ego system embracing the future of AI. The capital expenditure for this quarter was RMB 1,415,800,000. As we invested in our infrastructure to build a sustainable AI business.

Speaker 3

Our operating cash flow once again recorded a net inflow reaching RMB 16,800,000. Since the Q2 this year, we have been generating net inflow for 3 consecutive quarters. It resulted from our margin improvements as well as our enhanced internal cash management. For the full year 2023, our total revenue were RMB 7,047,500,000. Non GAAP gross profit increased to RMB 859,900,000 in 2023, almost doubled from RMB 445,200,000 in 2022.

Speaker 3

Non GAAP gross margin increased to 12.2 percent in 2023 from 5.4% in 2022. Such increases was primarily because of the combination of revenue mix and our effective cost controls. Testifying the success of our high quality and sustainable development strategy. Non GAAP EBITDA was negative RMB242.1 million compared with negative RMB 726.2 million in 2022. Non GAAP EBITDA margin was negative 3.4 percent compared with negative 8.9% in 2022.

Speaker 3

Looking ahead, we believe the positive trend in profitability will persist as we continue to pursue a high quality and sustainable development strategy and unlock synergies within the Xiaomi and Kingsoft Group ecosystems, as well as integrate our AI technology and ecosystem in the new era. Thank you.

Speaker 1

This concludes our prepared remarks. Thank you for your attention. And we are now happy to take your questions. Please ask your questions in both Mandarin and English

Operator

And the questions come from the line of Sheldon Zhang from CICC. Please ask your question. Your line is open.

Speaker 4

So thanks management for taking my questions. And my first question is regarding the AI strategy. So the company has been actively investing in AI for the past year. So could management give us some color on the market competency of your AI related products and solutions as well as on this year's CapEx plan and revenue expectation? And my second question is on gross margin.

Speaker 4

So KC has achieved significant gross margin improvement last year, partially attributable to the change in your revenue mix. So as your CDN business adjustment is approaching the end, what do you think of the gross margin improvement pace going onward? Thank you.

Speaker 3

I think in terms of the margin expansion, I think there are 3 fundamental drivers for the margins. I think you point out correctly. The first one obviously is the continuous mix change of the CDN business versus others. So as you see that the CDN business itself actually going through a cycle, but right now we are in a kind of more stable period that we are going to see a potential stability of the CDL revenue contribution as well as the client usage patterns that will contribute naturally to a margin expansion. I think that's contributed 1 third of the margin improvement.

Speaker 3

The second thing I also want to mention, probably didn't notice or want to point out is, so our measures and the new management initiatives, for example, including renegotiation, supply chain contracts with our suppliers to cutting down the cost basis, that actually is not happening on one day or single month of the year, as you can expect. It actually spent over, for example, the full year from last year, right? And those contracts and the repricing on a cost basis will be effective on a rolling basis, right, from January to December of last year. And you're actually extrapolating those trends towards 2024, those good benefits and the positive impact from the renegotiation and the lower cost basis will actually carry the continuous benefits to our margin and cost into 2024. I think that part will contribute in the second one third of the margin expansion.

Speaker 3

The third is also you probably didn't notice is really about we actually, as Sussou mentioned in the prepared remarks, is getting the better quality of the projects, not only about the cloud project itself, but also on the enterprise side, as well as those verticals, including the financial service, healthcare and certain high quality public cloud projects as well. And those projects, as we signed with the contract, some of them are still in the backlog and that will be unleashed and delivered in 2024. And in history, especially in 2023, we're actually seeing the good experience and a good trends that those enterprise car projects, the single level contract revenue contribution has expanded from, let's say, mid single digits in history a few years ago to double digits. And right now, we are seeing those trends actually continue to be improved. So the enterprise cloud margin expansion and high quality initiatives and the strategy we set since 2022 has already seen some good results.

Speaker 3

So this part actually contributing the last one third of the margin expansion. So to conclude, I think we do see a positive trend, even though I understand, Xiaodong, your concern maybe in Q4, you do see a very good Q on Q jump of the margin about 3 percentage points. But I think we are in the very good momentum and in a confident way that in Q1 and going forward, given the three reasons I just mentioned, our gross margin will continue to be seeing a good result going forward.

Speaker 2

So, allow me to also translate for the total handover for the second question. So the first question is about the competitiveness of our AI products. So, as you correctly commented, indeed in the last year, we have comprehensively worked very hard on expanding our AI business. However, it would be hard and less prudent for me to directly comment on the competitiveness of our AI products versus other of our peers. However, I would say that because of our unique positioning of our neutrality and independence, we have if you look at it from the results, we have becoming a preferred choice of cloud service provider by a large amount of independent AI, a large language model AI companies.

Speaker 2

And that is exactly because we don't do our large language model and build our large language model ourselves. And therefore, in this round of opportunities, we have seen, as a result, we are already covering a significant number of independent AI companies becoming our customers. And you also asked about the future investments in terms of CapEx. I would say that a rule of thumb is we will be continuing to investing based on the demands and the pipeline of the customers we have. However, the specifics as regards to the specific amount and specific dollar amount and the tempo of such investments is relatively difficult for me to comment at this stage.

Speaker 1

Operator, please go ahead.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Daley Lai from Bank of America Securities. Please ask your question. Your line is open.

Speaker 5

I have two questions. First one is about the AI business. Could you share some color about the supply and demand trend recently? And how do we see the growth drivers for the AI and Polycoms business going forward and the key drivers? And secondly, my second question about the margin trend.

Speaker 5

Looking into 2024, how do we see the margins such as the adjusted EBITDA margin and some costs like a share based compensation cost trend? Thank you.

Speaker 2

So, yes, you mentioned that the situation of demand for GPU chips more than supply, which has been the key thing for last year. And that is why during the past year, we have also been trying our best to meet the clients our customers' demand. While the situation this year, there's no changes, right? On one hand, the production of some many China chips have been alleviating to some extent of the issue. However, we have also seen other factors, especially geographic tension factors, deteriorating the situation.

Speaker 2

So overall speaking, we see that since the AI market is still booming and demand continues to increase, the overall theme of the demand and supply balance is still that the demand is largely not exceeding that of the supply. And we do not expect that kind of relationship to have any material change in the near term in the future. Now in terms of our responses on strategy to this situation, on one hand is that we're working with some of the firms that have computing powers within China to building dedicated computing powers on together. And the second thing that we do is to follow-up with new products that are within compliance premises being allowed to supply in China market. And in terms of growth drivers, there are basically 2 types of growth drivers.

Speaker 2

One is old commerce existing or let's say old customers, which are mainly characterized by the independent AI, large language model customers that we have been serving recently. And the second type is new customers, which are typically not the independent AI, large language model companies. However, those companies that are ready to leverage the capability of large language models to empower their existing business, for example, EV customers. Currently, we see that the growth driver coming from existing customers to taking a higher proportion. However, we do expect that in the future, the potential for new customers' demand has higher growth potential.

Speaker 2

And Mr. Liu Tang, our SVT also added that there are several types of growth drivers. One is the Internet companies training their own models and using their in house models and by using the inference capability of the computer power to use their in house models. And secondly is the advance and the launch of Zohra that leading to a wave of demand coming from the video side of things. And the third part would be the new companies like Mr.

Speaker 2

Doutou mentioned, EV autonomous driving kind of demand. Thank you.

Speaker 3

Yes. Thank you. So I will take on the second question. I appreciate you noticed on the expansion on the margin side. So I think there are a few kind of major directions we're trying to achieve going forward at the same time.

Speaker 3

First of all, is we're aiming to keep Q on Q expansion on the gross margin side, right. So this actually is driven by the cost cutting on the supply chains and the better automation on the resources we have and cutting certain loss making computing regions and certain disposal for certain equipments that we don't think will fit into today's client requirements. So all the combination of actions were contributing to the margin expansion of the gross margin. And as I explained to the first question, those efforts has already in place and we're going to see those impact will be gradually delivered going forward next year quarter as well. So the first, as I mentioned, is really about expansion

Speaker 2

on a

Speaker 3

Q on Q basis on the gross margin. So the second part is really about narrow and better managing the expenses and operation expenses, including, for example, the better management of the human capital costs, including the internal efficiency and streaming line order internal management initiatives. That was actually well contributing for the expansion of the EBITDA margin. So as you can see, our expenses between the line of the gross margin and EBITDA margin continue to optimize and reduce as well in the past few quarters. So that has proven the management team has already got some good experience and practice those skills pretty well.

Speaker 3

And we think we can carry on that in the next few quarters. So our second aim is to improve the EBITDA margin on a consumer basis. So we are confident to see as we make our efforts, our EBITDA margin will be getting to approaching the breakeven in a short term of time. And the third is we're also adding to another KPI for ourselves in terms of the internal management. We're trying to not only making the EBITDA margin breakeven, but we're also trying to making the company with a better quality of revenue and continuous optimize the revenue mix and picking the right clients and also expanding the AI exposures will be in a very good position to have the possibility to see a good trend of OP margin expansion as well.

Speaker 3

So I think these are the three goals we are trying to achieve in 2024. While we are not in a position today to give a clear guidance about timing of the EBITDA margin breakeven as well as the profitability on OP margin side, we are confident to say that all initiatives in place will see that in good results going forward in next few quarters probably we can observe. And to your question with the SBC cost, one thing I want to note is that based on accounting rules, the SBC cost was booked based on the share price at a time when the ESOP and the shares was granted to the employees, not on a vesting period of time. So when the share price was high, those costs will be booked and amortized in next few years. So I don't think given the volatility of the capital markets for many of the shares today, the SBC line is reflecting the true value, I.

Speaker 3

E, the market value of the ESOP value we granted to the employees. So those value will be need to be revisited and recalculated if you want to do a model. But putting all things together, the company has adopted a very prudent way of granting and investing the shares as you may see from the announcements. And also we're extending third investing schedules to keep the company employee working a bit longer and with a better incentive. So as you can see from 2022 to 2023, our SBC cost has declined from roughly RMB360 1,000,000 in 2022 to drop about half to RMB180 1,000,000 in 2023.

Speaker 3

So I think we are with a prudent attitude from issuing, granting and investing the ESOP. And I think going forward, you're going to see a better and a narrow line between the GAAP and non GAAP margin as well. Thanks.

Speaker 1

Operator, we'll remind the last question, please.

Operator

Thank you. We are now going to proceed with our last question. And the question comes from the line of Yanis Liu from Goldman Sachs. Please ask your question. I would quickly translate myself.

Operator

Could management talk about the strategic planning for enterprise cloud in 2024? And the second question is, we have seen some news of peers price competition in public cloud in early 2024. And could management tell us more about the latest competitive landscape and also looking for cloud's competitive advantages? Thank you.

Speaker 2

So we think that is I think this is a very good question. And we have been conducting internal discussions around exactly the question you raised. So a few opportunities I would like to share with you. The first one is you might have noted that recently a large number of digital asset companies across China has been established and that basically led to a wave of state owned asset companies migrating onto cloud and using more clouds. And the second, which I think is probably a large opportunity that is happening this year is the measure of digital assets are showing on the balance sheet.

Speaker 2

And we should call this year of 2024 to be the 1st year of this opportunity because of the government policy recently promulgated. We have also been making communications with the Shanghai Digital Asset Exchange and also with professional parties, for example, like auditing firms. We do think that it represents a significant opportunity for cloud service companies and for us because all of these digital assets will be running on the cloud infrastructure and digital asset and those data assets cannot run by itself. So in our words, it's the integration of cloud service and digital assets. So all this whole chain of data production, of data transaction, etcetera, are going to be supported by the cloud and therefore all of this represents opportunities

Speaker 3

for us.

Speaker 2

So it's not opportunity with respect to any particular industry, but a general, but probably a large opportunity that we can expect to see in recent years. So the second question relates to the price competition in the market. So I would like to share with you 2 of my core views. The first one is we have actually been experiencing price pressure since the day of our founding. Every year, we have been seeing different kinds of price pressure coming from various of our peers in different kind of products.

Speaker 2

However, at the end of the day, we do not really see any of those price cuts by our peers have any material or significant impact to the market. And from our own performance results, we have also achieved for 6 consecutive quarters of profitability improvement. Now I would like to say that we think the reason for that is pricing obviously is one important factor for customers to consider. However, it is far from the most important factor. And from our own experience and also as evidenced by our achievements in the past 6 quarters, focusing on the satisfaction of customers is actually the most important thing.

Speaker 2

And I would like to also like to say that my view about this kind of large amount of price cuts by tiers It's more towards the end of marketing and PR measures. In fact, some of these price cuts are based on catalog price. However, a lot of the transaction price that cloud service providers have agreed with potential customers are already deeply discounted and already way below the price cut level that we are seeing today. And also our SVP, Liutao, also added that this round of price cuts from our peers mainly focuses on the customers, which are relatively small in scale and are paying their cloud usage fees on annual basis. And this group of customers actually do not overlap with the customers that PingSoft Cloud enjoys.

Speaker 2

And therefore, it does not have any material impact to our pricing strategy or our business performance. Thank you.

Operator

We have no further questions at this time. I would like to hand back to Nicole Shan for closing remarks.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to come hang up. Look forward to speaking with you again next quarter. Have a nice day. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for

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Key Takeaways

  • Q4 total revenue reached RMB1.72 billion, up 6.0% sequentially, with public cloud services rising 3.5% (11.8% ex-CDN) and enterprise cloud up 10.2%.
  • Gross margin hit a record high 15.2% in Q4—six consecutive quarters of improvement—while normalized adjusted EBITDA margin improved to –1.6% from –10.2% year‐over‐year.
  • AI business grew rapidly, representing ~8% of public cloud revenues (up 82% Q/Q), supported by a dedicated RMB1.5 billion credit line to expand high‐performance computing for independent AI and Xiaomi/Kingsoft ecosystem customers.
  • Strategic scaling down of CDN business reduced its revenue share to ~23% (–10% Q/Q) and lowered top‐customer concentration to 12%, aiding margin enhancement and risk diversification.
  • Investments in new products and R&D drove technology leadership, evidenced by the launch of the EPCX7 compute service, high‐performance object storage, 4× faster lakehouse platform, and expansion of the Wuhan research center to over 500 staff.
A.I. generated. May contain errors.
Earnings Conference Call
Kingsoft Cloud Q4 2023
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