Kingsoft Cloud Holdings Limited

Ladies and gentlemen, thank you for standing by and welcome to the KingSoft Cloud Third Quarter 2020 Earnings Conference Call. At this time, all participants are in the listen-on mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Mr. Kulshan. Investor Relations Manager of Kingsoft Cloud. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud Server 2020 earnings release was distributed early today and is available on our IR website at ir.ksum.com, as well as on global news services. On the call today from Kingstown Cloud, we have our CEO, Mr. Yulin Wang, and CFO, Mr. Haixian He. Mr. Wang will review business operations and company highlights, followed by Mr. He, who will discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements. Within the meaning of Section 21 of the Security Exchange Act, of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations on the current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to perceive and many of which are beyond the company's control. which may cause the company's actual results, performance, or achievements to differ maturely from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors are included in the company's filing 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 as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in the meeting. It's now my pleasure to introduce our CEO, Mr. Yulin Wang. Please go ahead.

Thank you, Nicole. Thank you for participating in the third quarter of 2020. In the third quarter, our high-efficiency implementation strategy achieved solid performance progress. The total income reached 17.3 billion RMB, which increased by 72.6% in total. Increase in speed maintained the lead in the industry. The progress of the company's enterprise cloud project began to recover and advance. The delivery of the COVID-19 vaccine will be gradually completed. With the high-efficiency execution capability, this quarter, the enterprise cloud income increased by 275.3% to 4.09 billion RMB. Thank you all for joining our third quarter 2020 earnings call.

we're pleased to report another solid quarter as we effectively executed our strategy across our business segments. We generated RMB 1.73 billion in net revenues, representing a 72.6% increase from the same quarter of last year, outpacing the industry average. Our enterprise cloud projects, which had been delayed due to COVID-19, started to get back on track and to be delivered step by step. Our revenues from enterprise cloud services increased by 275.3% year-over-year to RMB 409.1 million. This contributed 23.7% of our total revenues, which was up from 11.4% in the same period last year. As we continue to capitalize on ongoing digitalization and the rapid adoption of multi-cloud strategy, will further penetrate into select verticals across the insight, public services, financial services, as well as healthcare sector we recently expanded into.

The company continues to expand the foundation of high-quality customers with top-level technical capabilities and rich corporate service experience, including Wang Yi, Zhihu, Meidi, Xiaohongshu, and other top audio and video platforms. The scope of the service covers all aspects such as computing, storage, network, big data, and other PaaS services. At the same time, the company successfully ensured the 10th anniversary of Xiaomi's series of live events. The total number of viewing activities exceeded 60.9 million. First, for public cloud business,

we continue to execute our premium customer strategy. We are seeing rapidly increasing demand for multi-cloud services from premium customers. During the third quarter, a meaningful portion of our new customers have already used multi-cloud providers. By leveraging our first-class technique capabilities and a strong enterprise service experience, we continue to expand our premium customer base including NetEase, Zhihu, Media, Xiaohongshu, and certain top audio platforms, including computing, storage, network, big data, and other platforms as service products. Meanwhile, we successfully supported Xiaomi's 10th anniversary live broadcast event, which attracted a total of over 60.9 million views. Thanks to our stable public and technology capabilities and a wide range of value-added services, we have been able to meet the computing and networking needs of our customers who are catering to millions of their own users with live streaming, online transactions, and other services in instant and high-concurrency environments. Going forward, we will continue to execute our premium customer strategy. Based on our experience of providing services for high-tribe, high-concurrent events, we believe we will gain the trust of more premium customers and provide them with more secure and stable large-scale cloud services.

Next is the enterprise. The enterprise is still in a fast-growing stage. We are focusing on the medical field of public services, finance, and new expansion. We will launch an enterprise solution that covers the entire scene. In the field of public service, with the investment of domestic market in basic facilities, the demand for continuous service has increased. For example, in the health data project of Chibi, the company provides medical kits, cloud storage, electronic hardware, and other comprehensive ISE and PAS solutions to customers. The project budget reached 56.8 million yuan. The company also successfully completed the cloud service project of the Ministry of Civil Affairs and the Fucai Center, providing customers with high-reliability computing network and storage support. Helping customers transform from traditional IT architecture to cloud service and take a key step forward, At the same time, Jinshan Yun uses its leading cloud computing capabilities to provide customers with the core data source of the digital government in Wuxi, Jiangsu Province, Kaifeng, Henan Province, Fujian Province, and Fuzhou Province, and other places to carry out business cooperation to build a city data platform.

Moving to the enterprise cloud sector, our enterprise cloud service is growing rapidly. The demands for industry-tailored cloud solutions and other value-added services continue to grow. We mainly focus on the public services and financial services sectors, and recently expanded into the healthcare market. We have launched industry-specific solutions that cover full-stack use cases. In the field of public services, along with China's overall investment in infrastructure, we have seen the demand for recurring services continue to grow. For example, for healthcare big data projects in Hubei province, we provide infrastructure-as-service and platform-as-service integrated solutions, including a hospital information system , cloud storage, and electronic medical records. The total budget for the project is RMB 56.8 million. We also successfully completed the National Charity Lottery Cloud Project of the Ministry of Civil Affairs of China. We provide highly reliable computing network and storage resources. and help the customer take a key step in transforming from traditional IT architecture to cloud services. At the same time, leveraged by our cloud computing capabilities, we are able to contribute to the digitalization of public service sectors. During the third quarter, we cooperated with local governments in provinces such as Jiangsu, Henan, Fujian, and several others to build big data platforms.

In the financial industry, the increased service we provide is getting richer and richer. As a medium-sized cloud service provider, we do not have a potential business conflict with customers. We will provide customers with stable and safe data services for a long time, and accelerate the pace of expanding new customers. For example, a large-scale policy bank data warehouse project, the company provides a large-scale parallel processing database storage solution, which has laid a good foundation for customer database capabilities. At the same time, a large state-owned bank, which ranks fifth in the world, and a national commercial bank, which has nearly 70,000 billion assets, provide safe and stable large-data increased service.

For the financial services sector, we provided more wide-ranging services and increased the proportion of recurring revenues. As a neutral cloud service provider, we have benefited from having no potential conflicts of interest with our customers. We provide stable and secure data services, which help us to gain the trust of our customers and, over time, allow us to gain momentum in large banks. For example, a large policy bank selected us to provide storage solutions for a massively parallel processing database, which helped the bank to significantly upgrade its database capabilities. We have also received a mandate from one of the largest state-owned banks for a big data project and provided secure and stable services to a national commercial bank with nearly RMB 7 trillion in assets.

In the insurance industry, the company successfully signed a long-term human resource Internet high-performance project to provide integrated cloud infrastructure to help the long-term human resource to deal with the increase in business volume during the epidemic. In the insurance sector, we successfully signed an agreement to deliver a high-availability Internet connectivity project for Great Wall Life Insurance.

As a part of this, we built a hybrid cloud that will help them respond to the spike in business volume that they have seen since the pandemic. With more financial services customers moving from on-prem to the cloud, recurring revenues from our enterprise customers will continue to grow. In addition, through our partnership with our invested cloud-native enterprise data warehouse company, Oshu Inc., whose customers include China's large state-owned banks, We expect to strengthen our foothold in the application of cloud-based database technologies in the financial services sector.

In the new medical industry, in the post-pandemic stage, digital medicine has been established as a hard demand. Medical industry projects have high-standardization, one-to-one and continuous operation features. To quickly open the medical industry market, the company signed a long-term strategic cooperation agreement with China Electric. We are also involved in the construction of national and provincial medical industry cloud standard projects nationwide. This quarter, the company has completed the Sichuan Tianfu Health Cloud project, providing full-time service capabilities that cover S, PASS, and DAS, and open medical, health care, and medicine 3-in-1 link scenarios. At the same time, we have delivered the Chongqing Video Cloud Project. This project is the first provincial video cloud with a full-time, real-time gathering in China. can actually gather hospital images and report data, open data services, and meet the needs of customer daily growth.

For the healthcare sector, which we recently expanded into, the move to digital has become essential in the post-pandemic era. Projects in the healthcare sector are highly standardized, easy to replicate, and operate continuously. In order to accelerate our expansion into this market, We entered into a multi-year strategic framework agreement with CECD Commerce Technology to develop cloud projects for the healthcare market at the national, provincial, and municipal levels across the country. During the third quarter, we acted with Sichuan Healthcare Project to provide full-stack service capabilities covering as-past and data-as-a-service tasks. that connect and integrate data across hospitals, insurance companies, and the pharmaceutical industry. In addition, we deliver a picture-archiving and communication system, or PACS, in Chongqing. This is the first large-scale real-time PACS that has been implemented at a provincial level in China and allows doctors to conveniently archive, retrieve, and share digital medical images. across hospitals so as to meet increasing needs for continuous operations among customers.

最后介绍我们的产品技术的进展。 公司不断打磨核心技术以便更好的赋能行业解决方案。 公司增强视频云编码能力。 凭借金山云自主研发的KSC-265编码方式, 在解决卡顿问题的同时,大幅降低贷款成本。 云计算部分,我们发布了无服务器容器实例服务, Customers do not need to purchase underlying resources, they can be deployed in seconds and use them for a long time. Provide large-scale, extremely flexible computing capabilities. Satisfy the customer needs of sudden visits and event-driven business scenarios. In terms of edge computing, we continue to improve the edge computing platform and successfully integrate multiple real-time interaction RTCs and cold-flow live customers. Looking forward to the future, we will pursue a strong and high-quality customer strategy, grasp the rapid development opportunities of cloud computing, further consolidate the market positioning of our medium-sized cloud service providers, and expand the market scope.

Lastly, we're into our product and technology fronts. We continue to strengthen our cutting edge technologies to empower our industry-specific solutions. To further improve our video capabilities, we have been strengthening our priority coding technology. For example, we developed the coding technology KSC265 in-house to ensure that our customers can deliver smooth video streaming. while reducing bandwidth costs. In terms of computing, we launched a new service that allows customers to deploy container applications directly without purchasing the underlying infrastructure. Through this service, we provide scalable and flexible computing capabilities that meet customer demands, especially for mission-critical situations when reliability is essential. such as when traffic surges, workload specs, or for special events. For edge computing, we continue to improve the functionality of our edge computing platform and have successfully acquired several real-time communication, or RTC, and live broadcast customers. Looking forward, we will strengthen our premium customer strategy, capture the many opportunities around cloud computing, expand our market share, and further consolidate our position as a leading mutual cloud service provider. I will now pass the call over to Henry to go over our financials for the quarter. Thank you.

Thank you Yilian and Nicole. Hello everyone. I will now discuss our financial performance of the third quarter. Please be reminded that all the numbers quoted here are in RMB. Please also refer to our earnings release for our detailed financial results. To begin with, I would like to highlight the following points. First of all, our previous revenue guidance was from 1.67 billion to 1.74 billion RMB. We are pleased to report that our total revenue of 1.73 billion RMB of this quarter arrived at the top end of our guidance. More importantly, it represents acceleration of revenue growth at 72.6% on a year-over-year basis, which makes us one of the fattiest growing players in the cloud industry in China. Number two, enterprise cloud services remains as one of the key drivers of our top-line growth. Our enterprise cloud services revenue this quarter was 409.1 million RMB. representing an increase of 257.3% year-over-year and 6.2% sequentially. That contributes 23.7% of the total revenue of this quarter, compared with 11.4% in the same quarter last year. Number three, we are seeing continuous margin improvement. Our adjusted EBITDA margin has now improved for nine consecutive quarters. and our adjusted gross profit has been positive for five consecutive quarters. To be specific, our adjusted EBITDA margin increased to negative 1.5% this quarter from negative 10.2% in the same period of last year, representing an improvement of 8.7 percentage points. Our net loss is also narrowed to 169.1 million RMB this quarter, from $241.9 million of Q3 last year. Number four, our business is sufficiently funded at this moment. As of September 30, 2020, our cash position is 6.8 billion RMB. We raised 1.63 billion RMB of net proceeds in our fall-off offering in September. Our public flows is 22.2% of our total outstanding shares, up from 14.8% immediately after the IPO. We are happy with the higher public vote rate, better liquidity, and a strengthened high-quality shareholder base. And lastly, based on a recent announcement from MSCI, we are going to be included in the MSCI China Index, which will be implemented after market close of November 30, 2020. We are also recently included in a number of technology-related indices by Dow and S&P. Now I will go through the details of financial results. Our public cloud services revenue increased by 48.1% year-over-year to 1.3 billion RMB. Thanks to the fast revenue growth of premium customers, the usage from our public cloud customers continues to grow on both year-over-year and sequential basis. We have successfully attracted several important customers in education and diversified internet sub-verticals who have already used multi-cloud vendors. Enterprise car service revenue increased by 257.3% to 409.1 million RMB, contributing 23.7% of our total revenue in the third quarter this year, increased significantly from 11.4% in the same period of last year. With the fast growth of enterprise car service revenue, we are improving our overall revenue mix and increasing the recurring portion of our revenue. Cost of revenue increased by 64.4% year-over-year to 1.62 billion RMB. IDC cost increased by 51.2% year-over-year to 1.06 billion RMB. But as a percent of total revenue decreased from 70% of Q3 last year to 61.3% this quarter. We are achieving greater economic scale and improving efficiency of resources. Depreciation and amortization costs maintained relatively stable at 156.5 million RMB on a year-over-year basis. We reviewed the useful life of equipment on an ongoing basis, and effectively July 1, 2020, we changed our estimates of useful life for our certain electronic equipment from three years to four years, which is commonly adopted by the industry in general. The longer use of life is due to increasing purchase of high-end equipment, continuous improvement of our software, and enhancement in our capability of operations. Other costs consist of third-party software purchase or softening costs and channel costs associated with both public cloud and enterprise cloud, as well as other equipment costs catered to enterprise services. Other costs were 388.2 million RMB, and the staff costs were 11.2 million RMB. As we continue to expand the revenue scale and improving efficiency of our resources, we expect IDC and the DNA cost as a percentage of total revenue will gradually decrease. Adjusted growth profit was 114.8 million RMB compared with 20.6 million RMB in Q3 last year. The adjusted growth margin was 6.6% in the third quarter this year, which is the fifth quarter with a positive growth margin. thanks to the economical scale and operating leverage. Total operating expenses increased to 355.7 million RMB, up 19.1% in Q3 last year. The increasing was mainly due to the increase in share-based compensation, expenses of legal, accounting, and other administrative and compliance costs as a public company. Excluding share-based compensation, adjusted R&D expenses as a percentage of total revenue decreased from 15% in Q3 last year to 8.9% this quarter. Adjusted selling and marketing expenses as a percentage of revenue decreased from 7.9% in Q3 last year to 4.8% this quarter. Adjusted G&A expenses as a percentage of revenue decreased from 4.8% in Q3 last year to 3.7% this quarter. Our adjusted EBITDA is negative 26.3 million RMB compared with negative 102.0 million RMB in Q3 last year. Adjusted EBITDA margin also improved from negative 10.2 percent of Q3 last year to negative 1.5 percent of Q3 this year. As of September 30, 2020, we had a cash equivalence and a short-term investment of 6.8 billion RMB. During this quarter, our capital expenditure was 473 million RMB. We have sufficient liquidity and will continue to be prudent in managing capital expenditures into infrastructures and technology research, maintaining a healthy balance sheet. Moving to the outlook, we are currently expecting net revenue for the fourth quarter of 2020 to be between 1.88 billion RMB and 1.95 billion RMB. However, this outlook is based on current market conditions and reflects the company preliminary estimates, which are all subject to change. This concludes our prepared remarks, and thank you for your attention. And we are now happy to take your questions. Operator, please go ahead.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on the telephone and wait for a name to be announced. If you wish to cancel your request, please press the pounder hash key. Please ask your questions in both Mandarin and English if possible. Once again, it's star one if you wish to ask a question. We do have a few questions in the line of AC Chen from Goldman Sachs. Please go ahead.

Hi, Mr. Yu Lin, Mr. Henry, Nicole, good evening. First of all, congratulations on the company's strong performance. Thank you for accepting my question. I have three questions. The first one is mainly about the public cloud business. In terms of the vertical field, such as video cloud, game cloud, education cloud, and so on, what is the demand or usage situation in the past three seasons? Can you share it with us? Including the four seasons, will we have an accelerated growth similar to last year's Q&Q? This is the first question. The second one is actually about the corporate cloud. We just heard a lot of exciting projects. Maybe in this group, we see that the income has reached 24%. If we look back, will this ratio still maintain a rapid increase? This is the second one. The third one, actually, in the end, I just want to understand that our operating profit group has a very strong performance. This profit rate has a very rapid increase. Then I'll take a look at us. In fact, COGS, in addition to IDC and DNA spending, The cost is relatively high, but R&D is relatively low. So can you share with us the main reason behind this? Is it related to the development and cost allocation of our enterprise cloud? And then, for example, what kind of trend will we see in 2021? Thank you, management, and congratulations again for the strong results. I have three questions, and the first one is about the bi-vertical performance in the public cloud services. For example, the video gaming education vertical, what kind of demand trend you're looking at into the second half of 2020, and can we expect similar kind of Q&Q pickup versus last year into the fourth quarter? And second one is about the enterprises cloud. Well, this quarter enterprise cloud is contributing to 24% of the revenue. And can we expect some more kind of pickup in the contribution going forward for this segment of the business too? Last one is just to understand a little bit more a strong result in operating profit. We see our actually fast ramp up in operating margin in the quarter, and when we look into the details, it looks like we are actually spending a little bit more in COGS, whereas saving in R&D. Just to understand a little bit more, is it more related to our enterprise cloud business development in terms of cost allocation, that into fourth quarter or next year, how can we look at the trend? Thank you. Thank you so much.

Thank you. The first question is in the business field of public cloud. In fact, since June, the epidemic in China has been under very good control, and most of the living cities have resumed production. Therefore, our income has continued to rise. This shows that the habits and needs of everyone who brings online living to the epidemic have actually continued. For example, online meetings and online education. So our video cloud, especially the education cloud, after entering the third and fourth quarter, we believe that it will still maintain this stable high-speed growth. The second one is about the changes in the competitive environment. Now, before the epidemic, whether before the epidemic or after the epidemic, the demand for cloud services is actually growing at a high speed. The demand for the whole industry's health development is very high. At the same time, on the one hand, due to the competitive pattern, it is actually relatively stable at the moment. Then the technical demand for multi-cloud deployment is getting more and more satisfied. So, including our main cloud service providers, they are all maintaining a healthy growth. And the price of cloud services is now relatively stable. So, the entire competitive environment is still relatively stable. This is in the public language. And then in the case of enterprise cloud, we see that in this quarter, our enterprise cloud is in a stage of high-speed development. The first reason is actually because during the epidemic, a large number of enterprise cloud This demand is still a part of the pressure we mentioned in Q1 and Q2, that is, there are some projects after the end of the epidemic, in fact, everyone is accelerating this part of the business to be able to do this deployment and implementation. So in fact, in Q3, our many projects actually the delivery is accelerated, so the corporate cloud is in this phase of rapid development. At the same time, we can see that we are also introducing the project of Hubei Chibi in the public service field. We are in the financial industry, our large bank projects, a national policy bank, a state-owned bank, and a national commercial bank project are all in progress. In fact, including in the medical field, we have completed the interaction work of the health cloud in Sichuan and Chongqing. Then we will sign a contract with Zhongdian to promote more of this medical cloud market in the future. So the medical cloud, in fact, has achieved a relatively high-speed development after the epidemic. In the public cloud sector, since June 2019 has been well controlled in China and the lives returned to normal, our revenues do grow very healthy even on a sequential basis.

The pandemic has changed many habits of people as more and more people got used to online services. For example, we still use online conferences and online education. We believe the video cloud, gaming cloud, and education cloud will keep growing in the future. The demand for cloud services has been growing even before COVID-19. With the strong demand, the price of public cloud is stable in the current stage. And due to the multi-cloud technology requirements, major players, including us, all grow very healthy. And for the enterprise clouds, we have seen very strong demands in the market. As we mentioned earlier, we noticed projects have been delayed due to the COVID-19, and some of the projects have failed and delivered in the third quarter or in the future, the fourth quarter. We have also mentioned the healthcare big data project in Shibi, Hubei province, and the several big data projects for the banks, for example, the policy, state-owned banks, the large-scale state banks, and the nationwide commercial banks. And in the healthcare sectors, we have seen that there are elastic demands After the pandemic, we have signed contract with CEC e-commerce technology, and in the future, we'll deliver more projects in this sector along with our partnerships.

Thank you. And I'll be happy to take on the third question asking regarding the open margin. So there are probably three or four other points I want to mention. First of all, definitely there's no change from the allocation of cost perspective. and there's almost no impact regarding enterprise cloud revenue growth. However, I want to mention the primary driver, as you know, our company strategy is the premium customer, and also we stay very focused on the key verticals. And that actually can dramatically improve our efficiency to extend into our new technology. And as you know, because we have extended and penetrated the relationship to our major clients, and we actually do understand what their needs, and we can actually make more efficient regarding how we deploy our R&D resources. So I think the premium customer strategy and stay very focused on the key verticals and the generating recurring revenue are the key reasons you are seeing R&D costs become more efficient. And the third point, as you probably remember, we did our IPO back in May and also did a follow-on in September. So in the early half of this year, so the R&D costs, as you know, we have over 60% of the personnel related to R&D functions. So they were actually part of the SBC cost as a part of the R&D expenses as reported. So these are the one time of impact. And after Q2 and Q3, it's more normalized trend that you're seeing a normalized level of R&D expenses. And the third reason I'll mention this, we are happy to see our enterprise cloud revenue increasing as a percent of total revenue. And we do actually, as we mentioned, even we call it enterprise revenue, but we do leverage our public cloud-related fundamental technology to deploy it into a private environment of a client. So they do a great synergy across both segments to leverage relatively similar and online similar technology we already have. So I think these are the few things explaining our online driver of the improvement on OP margin. So looking forward, as we mentioned, these are the fundamental drivers and the nature of the business model. Hopefully, assuming everything stays the same and the market environment is stable, we are going to have to see that the margin expansion is likely to improve going forward as well. Thank you, Elsie.

Got it. Thank you, very clear. Thanks much.

Thank you. We have our next question from the line of Kenna Wong from Credit Suisse. Please go ahead. Karina Wong, your line is open. You may ask your question now. Thank you. Karina Wong, your line is open from Credit Suisse. You may proceed with your question. Thank you.

Operator, we may go to the next one, and I will get back to Kina. Thank you. Thank you.

We have our next question from the line of Li Pingchao from CICC. Please go ahead.

玉玲总,Henry总,晚上好。 感谢接受我的提问。 我这边也有三个问题。 首先第一个问题是关于这个头部三家会员网, 艾斯服务提供上我们观察到这个金山云, 这个季度收入成长是最快的。 In particular, you can see that the growth of 3Q is relatively slow. Why is there such a difference? And how do we maintain our fast-growing trend in the next few seasons? The second question is that we have recently observed that Toteo is building its cloud service. I wonder if this will have an impact on our revenue in the Toteo business. Good evening. Thanks for taking my questions. I have three questions for you. The first one is Among the top three internet eye service providers, we noticed that KC achieved fastest growth. And we noticed that Tencent Cloud's 3Q revenue growth is relatively slow. Why there is such a difference and how can we maintain the growth momentum for next quarters? And second question is about ByteDance. We noticed ByteDance started their own cloud business and will this affect our revenue growth from back-end? And third question is related to our investment. We noticed that the company invested in OSU Keji, and what will be the other fields that we wanted to invest in in the future? Thank you.

Okay, thank you. The first question is about the growth of ICOs in China. In the case of J3 Cloud, our own strategy has always been to focus on the industry and focus on high-quality customers. In this way, our own efficiency in the industry has always been relatively high. Especially this year, with the development of the industry, the speed of the top customers in the cloud is accelerating. So we have achieved a very good sustainability growth ability. The more important thing is that as the demand for multi-cloud deployment and the constant improvement of capability, Jinshan Cloud, as a medium-sized cloud company, has achieved greater performance and made more customers willing to choose us to become their supplier. This is one of the important reasons why we think that our increase in speed remains the leading factor in the industry. The second one you talked about, the self-sufficiency jump, Our first template.

For your first question, we think we focus on the work codes and consistent on our premium customer strategies. We are highly efficient among other peers. And we have seen that in this year, the premium customer has accelerated their deployment of public cloud services. And also as we talk about the multi-cloud strategy, as this is technology capability requirements, we think As leading mutual cloud provider services, cloud service providers, more customers would like to select us to be their second vendors. For the second question about ByteDance, to our knowledge, the cloud service provided by ByteDance is now the same from us. We are now in the same field. still keep a very close and healthy relationship with our customers and will keep this relationship in the future. And for the third question, I'll let Henry answer it. Thank you.

Thank you, Brenda. I'm happy to take on the last question. So as you know, if you've seen the history of all the major global cloud providers, including Google Cloud, Amazon in history, The organic growth and investment into R&D is important, but also given the industry is growing very fast, and we do want to capture all the necessary opportunity for us. So the external partnership including minority investment, control investment, and maybe the commercial partnership is very important for the cloud company like us, for us to grow rapidly and catch the market opportunity. That's why Oshu is only one example, but also as we disclose in the healthcare space, we also have a partnership with CEC to expanding the healthcare digital cloud. And we actively review all the potential opportunities from potential M&A and minority investment perspective. And the second point regarding this name in particular, So what we can share is, as you probably saw, the financial services is actually a very important vertical. And we all actually really appreciate that in that vertical, these are the big 2B clients. They have great quality and always pursue for the high and best in class technology. So we actually partnered with our investment company to deliver a holistic solution for the major banks in China. to certain projects. And as you know, we are already seeing this trend in more mature markets such as U.S. as you probably saw a similar name like Snowflake is also working on enterprise level data warehouse technology as well. So we do think that it's going to be a great opportunity in this direction for us to capture the relationship and the potential revenue opportunity on a going basis. And many of the opportunities will be also recurring opportunities as well. The last point I want to mention, even though we look at opportunity actively, We want to remain very prudent in terms of how we spend cash and manage our capital expenditures. So we will not revise up and down regarding our capital expenditure plan, but we also budget some part of the capital expenditure plan to capture the external investment opportunities. Thank you, Bernard.

Thank you. Thank you. We have our next question coming from the line of Tina Wong from Credit Suisse. Please go ahead.

Thank you, Guanlin Chen. I wanted to ask two questions. The first one is about other articles in the Internet business. The company continues to promote online education, reading, and other segments, articles. Next, we can expect that the ratio of Perfect Cloud to V6 will gradually decrease. Does the company have a similar goal, that we can expect the ratio of V6 to Perfect Cloud to decrease, or some milestones? This is the first question. Second, we also observed that in the enterprise cloud, healthcare is a very important factor. And from the industry, we also heard that Jinsan Yun has a very strong advantage in this area. And then there is a priority here. I want to say that next, I went to Sichun, Chongqing, and then I also heard from Director Wen about some future projects. But from which direction can we see that The first question that you're asking about the diversify the internet business, how much it will account for the private cloud business in the long run or going forward, any milestone or target we could expect. The next one is about the healthcare cloud. I think this is a, we see that in the industry, Kingsoft Clouds actually established a very key competitive positions in this area, how much we could expect this subset could drive the further growth in the enterprise cloud. Thank you.

Thank you. The first question you asked is, will the proportion of video videos in other industries, such as virtual learning, other industries, such as virtual learning, other industries, In fact, with the development of mobile Internet, especially video-based products, in fact, more industries, including online education, e-commerce, and online work, their products are basically more and more in the form of video. So although we have expanded our industry and customers in the Internet, the ratio of video-based products has not dropped. It is still a very high proportion in our public domain. And with future 5G and ultra-high-definition video and other in-depth video applications, we expect that the proportion may increase. Secondly, with the expansion of our business cloud revenue, we have seen a 1.2% increase from 2017 to 23.7% in this quarter. In this business cloud application, because of the product form, the video cloud used is relatively small. From the perspective of the entire company, the overall revenue ratio of the video industry has continued to decline. This quarter has actually dropped to less than 50%. This is the first question. The second question is about the medical and health cloud situation. At the end of the epidemic, China has entered a new stage of planning and development in the construction of medical and health cloud. Thank you.

Thank you, Tina, for your first question. With the education growth very healthy and we gain momentum in other non-video customers, we still think the video format is the mainstream in our customers, including education and office and e-commerce. They are still using video as a main format in their products. So, in general, we think the contribution from our video cloud will not largely decrease especially in the future when the 5G comes and the high definition and low latency requirements of cloud video, of video clouds, we think the demand will still grow in the future. But for our enterprise clouds, it contributes from 1.2% in 2017 and increased to 73.7% in this quarter. Video is not a very commonly used format in traditional enterprises. So for the total revenues, we think the revenues from video cloud will keep decreasing as a percentage of the total revenues. In this quarter, the percentage has decreased to below 50 percent. And for your second question, the healthcare sector is one of our key focus articles. And after the pandemic, we think people get to the new normal and started to plan for the new future. We have mentioned some projects in Chongqing, Sichuan, and also our cooperation with CEC, the e-commerce technologies. We think we all make great progress in this project, and we believe we'll be a leading player in China in the healthcare sectors. Thank you.

Thank you.

Thank you. We have our next question from the line of Alex Nell from J.P. Morgan. Please go ahead.

Thank you, Director Guan. I have a few questions. The first one is, Mr. Yulin, can you talk about the outlook for next year's income? I understand that you haven't finished your budget for next year. What are some of the key trends? In the first half of this year, the video company's loan demand is very high. If there is no such factor next year, will there be more pressure on the income growth in the first half of the year? For example, there are some new breakthroughs in the medical industry. Will the growth of this year's enterprise still maintain the same pace as next year? If you can't discuss next year's income outlook as much as possible, can you at least give us some key trends My first question is regarding 2021 revenue outlook. I understand you guys probably have not finished your 2021 financial budget. But if you are not able to talk about the qualitative outlook for 2020, quantitative outlook for 2021, for some of the key trends, can you help us rationalize the 2021 trends? For example, is the COVID lead to the revenue high base in first half this year? which will make the first half difficult to grow for your public cloud business. Another example is given the fact that you guys have made more progress into healthcare enterprise cloud market, to what extent will that help the hyper growth of the current enterprise cloud business? Thank you. And the second question is about industry pricing for both public cloud and enterprise cloud. Can you talk about the year-to-day trends for these two markets in terms of pricing? Thank you.

We believe that based on our current customer base, the base of high-quality customers, and the increase of our current business, we believe that the overall income of our company will remain far higher than the average increase of the public cloud industry in China. We are very confident about this. The second point is that both the public cloud and the corporate cloud will continue to grow at a high speed, because as China's epidemic ends in June, we see our The demand for public-private Internet customers did not slow down with the end of the epidemic. Everyone's online needs, including video education, etc., have been protected after the epidemic, and they are still growing at a high speed. In addition, in the enterprise market, with the end of the epidemic, not only in medical, but also in the field of public service and finance, the demand is very, very abundant. The third question is about the price trend that you just mentioned. I just answered another question from one of our colleagues. Currently, in the public sector, as the competitive industry is more stable and the demand for diversity is more and more valued and satisfied, the price trend in the public sector is relatively stable. In the industry, because the market of the Chinese industry is getting bigger and bigger, so actually from the perspective of competition, it is not very strong. Everyone is now going to meet the needs of customers and meet the problems of time. So in fact, price competition is not the main problem in the industry, so the price is also relatively stable. Thank you.

Thank you for your first question. We are still working on the budget for next year, so it's still too early to comment on the outlook for 2020. But for the trends, I'd like to share some colors. First, we expect our total revenues to maintain a higher growth rate compared with China's public cloud market in general. In the public cloud, we're still seeing after the pandemic, public cloud usage are still increasing. Many of the habits have been kept after the pandemic, and the video education and the gaming sectors, they are all growing very healthy. And for the enterprise cloud sectors, not only the healthcare sector, we also have public service sectors. financial service sectors, they all experience high growth in this year. And looking forward to the 2020, we think how to fulfill the strong demands from these markets are our first class targets. We think the enterprise cloud market is a very huge market and there are still many opportunities lying ahead. And for your second question, we think the public cloud prices are comparatively stable as we have a more stable market environment. And as we talk about multi-cloud technology requirements, the demand for cloud services is increasing in this sector. And for the enterprise cloud, the market is much more larger than the public cloud services. So we haven't seen very fierce competition in this field, then the dust-based price is comparatively stable.

Thank you, Professor. Thank you. We have our next question from the line of Brian Gong from Citigroup. Please go ahead.

Hello, Mr. Yu Lin, Mr. Wang, Mr. Henry, and Mr. Lin. Thank you for accepting my question. My first question is to ask about the situation of the margin, because our margin has improved very well this year. I would like to ask how we will see next year. Is it possible that the trend will be similar to this year? This is the first question. The second question is still to ask about the long term. If we look at it separately, for example, by 2024, I will translate myself. My first question is regarding the margin. So our margin has improved recently this year. So I'm wondering can management elaborate to your view Our margin improvement pace for 2021, will it be similar to this year? And my second question is for the long-term revenue breakdown, say for 2024 or 2023, what's the revenue breakdown would look like for enterprise delivery computing storage? And also, what's your view for that CDM could contribute to the total revenue at that time? Thank you.

Thank you, Brian. Happy to address your question. So first of all, regarding the margin, I think you are definitely right. I think our nature of the business, I think the benefit of economic scale has gradually unfolded, and that reflects to our fundamental nature of the reason for margin improvement. So, as you know, our adjusted margin, especially the EBITDA margin, is demonstrating upward trend in general, and we also achieved continuing improvement of the quarterly EBITDA margin in the past nine quarters. We are basically expecting our EBITDA margin will continue to expand. And as you know, there are fewer drivers. So in the short term, it's really about the improvement of the operating efficiency and how we make sure the efficiency of the IT resources and R&D resources is deployed. However, for the long term, there are also more factors to be able to push our margin even further. For example, there will be a continuous increase of the number of the premium customers as we are adding the new premium customers every quarter. and also the scale effect to be carried out. And we are also expanding the value adding product offerings, so the value adding part will be even more as a part of the total revenue. And also we see a trend of the more recurring revenue streams coming from Enterprise Cloud clients that actually make it more effective of our margin. And the penetration of the financial service and healthcare is also important because those are high quality clients that always carry and are less price sensitive. So I think because of the backdrop of the development of cloud industry in general, we're confident to ride down the trends of the long-term profit margin improvements, along with other major cloud providers in China as well. So to a second question regarding the revenue mix, I think let's say in 2023 or 2024, I think our view is as we see the increasing portion of the enterprise revenue, I think we're likely to reach, let's say, around one-third of the revenue, roughly speaking, of the total revenue will be coming from enterprise cloud. And the remaining two-thirds will be the public cloud revenue. And out of the public cloud revenue by 2023 or 2024, we do think roughly speaking maybe less than 50% will be coming from the cloud delivery. And the remaining let's say 30-40% will be coming from cloud computing related services. And the remaining piece will be the storage and other services. So one more example I also want to mention as Yuling Zong just mentioned as well, we don't call this CDN because all the kind of adding part of the video cloud related technology, charged and reported out of the cloud delivery product segments. So that's also including the recurring and value-adding product services to that extent. And we also have to report that approximately this quarter, the cloud delivery revenue and the video-related services has already dropped below 50% of the total revenue, demonstrating the better mix of the revenue streams and also the better quality of the revenue as well. Thank you, Brian.

Thank you. We have our next question from the line of Thompson Wu from UBS. Please go ahead.

谢谢大家的时间,王总,Henry总,Nicole. 我有三个问题,但我知道我们现在时间有限, 所以希望我的问题是比较简单一些。 第一个问题其实是从一个投资人配合在心上, 他就是想帮他确定一下就是刚刚在王总的presentation, 他就想確定這些項目是有簽約到在三季度 還是revenue是new book在三季度 這個是第一個問題 第二個問題就是關於公司的OPEX費用 如果看3Q 如果算好就是OPEX 剪掉這個stock-based compensation expense 好像quarter on quarter 從2Q到3Q這個比例 所以revenue比例這個降低蠻多的 這個是主要是從operational, with operating leverage, 還是從疫情發生有一些特色的那個settings, 比如說像那個marketing and travel,沒有。 第三個最後的問題就是關於公司的CQ guidance, 能不能多說明一下就是我們要怎麼看, 就是公務員跟這個線友的增長在CQ, 公務員在系統相關會不會有一些seasonal增長, Thank you.

Yeah, thank you. This is Henry. I think I will take the first and second question, and our CEO will expand on the last question regarding the 4Q guidance and the color. So first of all, regarding the project, so as you definitely noticed that we do make the major milestone to keep the momentum for the important projects, as we mentioned in the prepared remarks. So on the other hand, as you also know, we do apply a very conservative revenue recognition policy. which means we book full revenue at completion of the four projects. So some of the projects we mentioned in the prepared remarks, we already did our work. But as the CEO mentioned, we definitely make efforts to deliver on time, and we will only be booking our revenue at full completion of the certain projects. Some of the projects we mentioned have been completed in Q3, and some of the projects we make enough efforts and will be on track to be delivered in the following quarter to come. And it is actually pretty natural for most of the cloud companies to keep track of the progress of the Enterprise Cloud projects. And that's actually one thing. And another thing I want to mention that when we look at our backlog, even though we have not disclosed that, but we do feel there is a strong demand from different and a variety of the clients in the enterprise cloud space. And we have been already working on some of them, even though we cannot disclose the names. As you probably noticed, we cannot say all the names of the clients. But we do have a strong backlog to support the potential revenue streams to come in the following quarters. And to the second question regarding Share Based Compensation or SBC cost, aka. So as you know, typically for a company to prepare for the listing, the booking of the cost of SBC typically happens a quarter or on the quarter of the IPO. So that's why we do observe a relatively little spike of SBC cost back in Q1 and Q2 this year before our IPO, and it actually declined gradually in Q3. That actually reflects the underlying change of the expenses to our underlying operations. on an ongoing basis. So we do not think that the SBC costs in Q1 and Q2 will be at the same level for the following quarters to come, and that actually is going to be one of the drivers to continuous improvement of the adjusted EBITDA and the OP margin going forward in the next few quarters. Thank you. And for the third question, I will pass it on to our CEO, Yuli. Thank you.

Yes, the last question. I didn't hear it very clearly. You asked about the development situation of Q4's enterprise cloud. This year, due to the impact of the epidemic, some of the previous two Q's enterprise cloud projects have been delayed in terms of implementation progress. Q3 and Q4, we are also talking about improving our implementation speed and efficiency. So far, we have been able to The projects that can be completed are actually projects that are already in progress. So there is actually not much of an accident. So the key point is whether these projects can be completed and delivered within a certain time frame. The projects are all projects that are in progress. So we will pay close attention to the progress of the project and strive to complete it as expected. From the current situation, if there is no other major impact, including the outbreak of the epidemic, Thank you for the last question.

We think due to the COVID-19, some of our enterprise cloud projects have been delayed in the first two quarters and we are improving our efficiency to deliver these projects in the second half. For the two full guidance, we think most of the enterprise cloud, they have already started to deliver in this quarter, so we can expect to complete in the next quarter. And the question is that we can only book the revenue upon the completion of full delivery of those projects and those services. We think despite large uncertainties, we are very confident on our guidance in the first quarter. Thank you.

Thank you, operator. Thank you. Ladies and gentlemen, I would now like to hand the conference back to your presenters today. Please continue.

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

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may all disconnect your lines now.