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spk00: Good day and welcome to Kingsoft Cloud's fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only 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 then one on your touchtone telephone. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, this call is being recorded. I would like to turn the call over I'm Nicole Shan, IR Manager of Kingsoft Cloud. You may begin.
spk07: Thank you, Michelle. Hello, everyone, and thanks for joining us today. Kingsoft Cloud's post-quarter and fiscal year 2021 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as on Global Newswire's services. On the call today from Kingsoft Cloud, we have our CEO, Mr. Yulin Wang, and the CFO, Mr. Henry He. Mr. Wang will review our business operations and company highlights, followed by Mr. He, who will discuss the financials and the guidance. They will be available to answer your question during the Q&A session that follows. There will be consecutive interpretations. Our interpretations are for your convenience and reference purpose only. In case of any discrepancy, 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 Security Exchange Act of 1934, as amended and as defined in the U.S. Private Security Delegation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and the current market and operating conditions, and they relate to events that involve known or 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. Further information regarding these and other risks and certainties or factors are included in the company's filings with the US SEC. The company does not undertake any obligation to update any forward-looking statements. As a result of new information, future events are otherwise accepted as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our CEO, Mr. Yu Dingwang. Please go ahead.
spk06: Thank you, Nicole. Hello, everyone. Welcome to the 4th quarter of 2021, the 4th quarter of 2021, the 4th quarter of 2021, the 4th quarter of 2021, In the fourth quarter, the total revenue of the company reached RMB 26.6 billion, which increased by about 38%. The total revenue of the company was 15.3 billion, and the revenue of the industry reached 11.3 billion, which increased by 111%. In 2021, the total revenue of the company was RMB 90.6 billion, which increased by 38%. The total revenue of the company was 61.6 billion, and the revenue of the industry was 29 billion.
spk02: Thank you, Nicole, and thank you all for joining our fourth quarter and fiscal year 2021 earnings call. In the fourth quarter, we generated RMB 2.66 billion in total revenues, representing an increase of 38% year-over-year. Our public cloud services revenues reached RMB 1.53 billion, and our enterprise cloud services revenues reached RMB 1.13 billion, up 111% year-over-year. For the full year of 2021, our total revenues reached RMB 9.06 billion, an increase of 38% year-over-year, among which our public cloud and enterprise cloud services revenues reached RMB 6.16 billion and RMB 2.90 billion, respectively.
spk06: 2021 is a year full of challenges and opportunities, especially in the second half of the year, due to the impact of the market, environment, regulation of new rules, and the epidemic, the flow of demand has slowed down compared to the past. Internet companies are also more cautious about new business investments. From the customer's point of view, we are proud of the strategy of the company's high-quality customers. Even in the case of economic fluctuation, we maintain a stable relationship with customers. By the end of 2021, the number of high-quality customers reached 593. in 2020. But in order to respond to the changes in the market environment and customer demand, the company strategically organizes all kinds of business and takes active measures. We believe that high-quality growth is the basis of long-term development. Growth is still our primary job. We want to allocate more resources to the core computing products with good profitability to achieve the growth of core business faster than the industry.
spk02: 2021 was a year full of challenges and opportunities. The internet sector faced the pressures from market headwinds, new regulations, and the pandemic, especially in the second half of the year. Within public cloud services, traffic-driven demand continued to grow, but at a slower pace as internet companies began to take a more cautious approach to investing in new businesses. On the customer front, we continued to execute on our premium customer strategy amid the challenging environment, and we successfully maintained robust customer relationships. As of the end of 2021, the number of our premium customers increased to 593 from 322 in the year of 2020. Nevertheless, to proactively embrace changes and better align ourselves with the evolving market environment, we conducted a strategic review of our business and carried out repositioning initiatives. High-quality growth is at the heart of our priority and the foundation of sustainable long-term development. We intend to optimize resource allocation to our core cloud services, which enjoy healthy margins to achieve above-industry core business growth.
spk06: At this stage, we have begun to adjust to CDN's services, adapt to market demand changes, We took the initiative to optimize the efficiency of the bottom-level resources and the team. We predicted the disadvantages of CDN, balanced supply and profit indicators, and maintained the healthy and sustainable development of the CDN product line. At the same time, we gradually increased the use of products such as computing, big data, database, and other high-price products to strengthen the technical barriers of the company, thereby improving the use of annuality. But due to the impact of the bottom-level supply relationship and contract deadline restrictions, the adjustment of resources takes a certain time. The company will complete this adjustment as soon as possible under the guidance of maximizing investment revenue. Although this adjustment has caused a negative impact on the income and overall profit of the fourth quarter, we expect that the interest rate and EBITDA profit rate after the first quarter of 2022 will be better than the profit situation of the fourth quarter of 2021. At the same time, this change will also play a role in the long-term development of the company, and build on the basis of income structure and profit. It is expected that the EBITDA profit rate after adjustment will turn positive in the fourth quarter of 2022.
spk02: Currently, we have already started adjusting our CDN services. Adapting to the slowdown in CDN demand, we are optimizing our underlying resources, downsizing CDN nodes, improving team efficiency in an effort to balance scale and profitability, and facilitate healthy and sustainable growth. In addition, we gradually optimize resources allocation to our higher margin services, including computing, big data, and database products and solutions, as we continued to strengthen our technology competitiveness and improve customer stickiness. Due to supply-side temporary rigidity resulting from contract term restrictions, it will take some time to fully adjust the relevant resources. We aim to complete the process as soon as possible to maximize our financial results. While the adjustments had a negative impact on our public cloud revenue and overall margin in Q4, we expect to see our adjusted gross margin and EBITDA margin improved in the first quarter of 2022 compared with Q4 of 2021. Moreover, the adjustment is expected to provide a solid foundation for medium and long-term growth with a healthier revenue structure and higher profitability. we expect our quarterly adjusted EBITDA margin to turn positive in the fourth quarter of 2022.
spk06: With a successful track record and years of experience,
spk02: we have established close relationships with a large premium customer base. This positions us at the advantageous front line of tapping into our customers' deeper needs by exploiting and cross-selling our rich offering portfolio. During the quarter, we selectively expanded our high-value-added video services and explored business scenarios and projects with high computing power needs, which we can offer.
spk06: In the video industry, the company helps video customers
spk02: In video space, we provided cloud elastic computing and other computing products to our client, Kuaishou, a leading short video platform in China, and facilitated the establishment of its live streaming source station in Beijing, featuring comprehensive capabilities, including but not limited to recording, data storage, transcoding, and dispatching. The station has helped Kuaishou improve the user experience of its live streaming business.
spk06: In the travel industry, the mobile car has become the exclusive service vehicle of this Winter Olympics. As a mobile car digital partner, the company provides a variety of cloud services, helping to provide stable online travel services, including comprehensive consultation services, and the construction of cloud-based business infrastructure such as container services, micro-service engines, DevOps, and digital computing.
spk02: Turn to the intelligent mobility sector. Our customer, Shouqi Car Hailing, served as the exclusive taxi service provider for the Beijing Winter Olympic Games. As a digitalization partner of Shouqi, we provided a full suite of cloud services to help it deliver its stable and smooth online mobility experience. We provided comprehensive consulting services and developed an integrated container service-based cloud-native architecture. Our solution deployed several key technologies, including microservices engine, DevOps, function computing, and covered five major areas, including software R&D processes, computing resources, architecture framework, data storage and processing, as well as security.
spk06: On the gaming front, the cubic meter cloud gaming program, which we launched together with Xiaomi, Migu Interactive Entertainment, and Welllink, made its official debut on Xiaomi TV and Xiaomi phones.
spk02: We are proud to provide professional full-stack cloud gaming solution and to serve as cloud computing power provider.
spk06: In terms of industry, we benefit from the digital development trend. The revenue of the industry continues to grow rapidly. Previously, we were very happy to announce that Wang Shouhu will be the CEO of the company, and will be in charge of the operation management of the public service business, as well as the operation management of KLAIT. KLAIT will help KLAIT to integrate and improve the efficient development of the industry. Moving to the enterprise cloud business, our revenues maintain fast growth benefiting from the continued trend of digital transformation.
spk02: Earlier this year, we announced the appointment of Mr. Shouhu Wang as our president in charge of public service business unit while he continued to be responsible for Camelot operations and management. The appointment will accelerate the integration of Camelot into the company and promote the efficient growth of our enterprise cloud services. Shouhu joined Camelot in 2016 and is currently responsible for its overall operation and management. Before that, he worked as a vice president at IBM Global Headquarter. He has over 27 years of experience and expertise in corporate governance and management consulting.
spk06: In the past few months, we have carried out the integration and sharing of product technology between the two parties. CREIT has reached the first cooperation with Jinshan Office. In addition, the company and CREIT are jointly following up on the Internet, new sales, large consumption, and many other industries. And it has been in Beijing, Gansu, Jiangsu, Hubei, The integration with Camelot, we have made progress in terms of resources sharing of each other's technology, products, and customer base over the past few months.
spk02: As part of Kingsoft Cloud, Camelot has started the first cooperation with Kingsoft Office Software. The company and Camelot have been jointly engaging customers ranging from the internet, new retail to consumer sectors, and jointly work on solution deployment in places including Beijing, Gansu, Jiangsu, and Hubei provinces. We expect this year to be a year of accelerated integration of our resources including technology, products, solutions, talents, and customer base, thereby deepen our customer engagement and propel the rapid growth of our enterprise cloud business.
spk06: Recently, the national integrated large data center system completed the overall layout design, and the east-west calculation project was officially launched. As a cloud service company with core technical capabilities, we are also in the project. Currently, we have completed the construction of one of the ten national data center groups, the Gansu Qingyang Data Center Group.
spk02: With the approval of top-down planning of national integrated data center cluster systems, the construction of Dongshu Xisuan, or transporting data from eastern regions to western regions for storage and calculation, is officially launched. As a leading cloud company with core technology capabilities, we are taking part in this project. So far, we have built a data center and delivered as the first pilot project for the Qingyang Cluster in Gansu Computing Hub, which is one of the 10 national clusters. At the same time, we are also deploying big data projects in computing hubs, including the Guangdong, Hong Kong, Macau, Greater Bay Area, and the Yangtze River Delta region.
spk06: In addition, as Beijing's public service cloud provider, we provided intensive cybersecurity support and services
spk02: to the public service platform during the Beijing 2022 Winter Olympics. We implemented various cybersecurity protection measures, including resource guarantee, automatic alarm service, on-site support service, and cybersecurity guarantee services. By doing so, we safeguarded the efficient and stable operations of over 300 public service systems for more than 20 departments and bureaus. I will now pass the call over to our CFO, Henry, to go over our financials for the quarter.
spk05: Thank you, Yulin, and welcome everyone for joining the call. Before diving into the financial details, I would like to walk you through the following summaries for the past quarter. Our total revenue reached 2.66 billion RMB in Q4, representing a strong revenue growth of 38.3% year-over-year. Our core cloud business, including computing, storage, and enterprise cloud services, increased by 61.4% this quarter. The growth margin of this quarter declined sequentially due to the adverse impact from our CDM product. Despite the challenging market environment, we were able to remain stable relationships with our premium customers, including leading internet clients. However, as the new technology budgets from the internet sector clients in general have been increasing at a slower pace than expected, starting from second half of last year, the demand to us has been softened and affected our public cloud revenue on the top line, and also affected our resource efficiency connected to our bottom line. Our CDN services had adverse impact on our gross profit in total. We are in the view that surge impact is temporal and it's being addressed by a few optimization initiatives already adopted. We expected to see our adjusted gross margin and adjusted EBITDA margin to improve in Q1 2022 compared with Q4 2021. We will also take more active cost control measures, implement optimal resource allocation plans and improve our overall operational efficiency to achieve adjusted EBITDA break-even in Q4 2022. As of December 31, 2021, we had cash equivalents and short-term investments amounting to 6.71 billion RMB, providing us sufficiently for operations. We will maintain our disciplined approach to CapEx and also expect to keep our four-year capex plan in the range of $1 billion to $1.5 billion for 2022. Now I will go through our financials in more detail. In Q4, cost of revenue grew 44% year-over-year to 2.63 billion RMB. The major cost component was IDC costs, consisting of bandwidth and cabinet costs. During the quarter, we continued to incur IDC costs we committed in earlier of 2021, despite a weaker-than-expected demand. Further, we disposed of some lower-utilized IDC resources, costing certain one-time-off expenses. As a result, IDC costs grew 20.2% year-over-year to 1.32 billion RMB in Q4. Depreciation and amortization costs were 227.3 million RMB. Staff costs were 361.8 million RMB, The increase reflected staff costs of delivering enterprise cloud projects by Camelot. Other costs increased by 30.4% to 720.7 million RMB, which was mainly due to the revenue growth and offset by the cost-saving synergies from Camelot and improving deployment efficiency. In terms of expenses, we have carried out integration with Camelot to maximize synergies, including organizational alignment and integration based on our business needs and a part of research plans. It cost one-time expenses for the quarter. The impact expected to gradually decrease starting from Q1 2022, and expenses as a percent of total revenue expected to be at a similar level with previous quarters. Total non-GAAP operating expenses were 538.4 million RMB, increasing sequentially from 432.8 million in Q3, excluding share-based compensation and a DNA, adjusted R&D expenses were 244.4 million RMB. As a percentage of total revenue, R&D expenses decreased slightly from 9.5% in Q3 to 9.2% this quarter. Adjusted selling and marketing expenses were 124.8 million RMB. As a percentage of total revenue, they increased from 4.2% in Q3 to 4.7% this quarter. Adjusted G&A expenses were 169.2 million RMB. As a percentage of total revenue, they increased from 4.2% in Q3 to 6.4% this quarter. As of December 31, 2021, we had sufficient cash and cash equivalents and short-term deposits amount to 6.71 billion RMB. During this quarter, the capex was 107.2 and the four-year capex was 735 million RMB. In addition, to provide our shareholders with greater liquidity and production, we have already launched the preparation for a dual primary listing in main board of Hong Kong Stock Exchange. We are one of very few Chinese ADRs with a simple one-vote single-class share structure. Before our spin-off IP on Nasdaq in 2020, we had been a subsidiary of Kings of Group for almost a decade, whereby Kings of Group itself in Hong Kong is a listed company with transparent track record of disclosures, including ours. While the ongoing exploration is subject to various factors from regulatory approvals and market conditions, we believe the above-mentioned factors presents us favorable conditions. Based on prevailing market practice and the listing rules, assuming a successful due primary listing, the Hong Kong listing status will not be contingent on U.S. listing status. And the case would be for secondary listing as defined in Hong Kong listing rules. We could be eligible to be included as a constituent of Hong Kong Composite Index Series potentially. We may also be eligible to be added into China Hong Kong Stock Next in the future. Through the process, we expect to grab opportunities to further cooperate with our strategic partners, enlarge a more diversified shareholder base, and improve liquidity for shareholders. In the meanwhile, we have always maintained close and multidimensional cooperation with our strategic shareholders, namely Kingsoft Group and Xiaomi. Recently, to further strengthen our capital ties, we signed a strategic cooperation and anti-dilution agreement with both parties, According to the agreement, Kingsoft Group and Xiaomi will have the right to participate in our subsequent capital market financing transactions and increase their investment on a parodial basis, subject to regulatory approval and market conditions. Finally, in terms of data security and privacy, we have attained the enterprise privacy and data governance certification from trustee. Privacy protection has always been one of our key priorities. We have been and will remain committed to managing data in compliance with laws and regulations, industry best practice, and the leading international standards to provide a stable and a secure data environment for our stakeholders. The company is also preparing the 2021 ESG report, which is expected to be published in May. We do understand our shareholders focus on company revenue and a profit outlook. especially during the volatile market environment. We would like to offer more details to help our shareholders to understand the company priorities and objectives. First of all, we expect our total revenue to be between 2.05 billion RMB and 2.15 billion RMB for the first quarter of 2022, representing a year-over-year increase of 13% to 19%. We deprioritized our investment into CDM products and improved mix of high-quality cloud product offerings. As a result, the revenue of CDM products could be declined by approximately 20% to 25% year-over-year in Q1 2021. We expect revenue from our core cloud services, including high-quality computing services and enterprise cloud services, to remain rapid and healthy growth. increasing by around 49% to 55% year-over-year in Q1 2022. Second, we also interviewed that our profitability is expected to improve starting Q1 2022. The adjusted growth margin and adjusted EBITDA margin will be higher in the first quarter of 2022 compared with Q4. On the stable market condition assumptions, we expect our quarterly adjusted EBITDA margin to turn break-even by Q4 2022. We will continue to remain prudent on capex plan. We expect our four-year capex for 2022 will be between 1 to 1.5 billion RMB, which will be sufficient to support the sustainable growth of our high-quality product offerings. We would like also to point out that on a typical cloud economic model, generating revenues from existing demands only require relatively small size of maintenance capex. The capex plan for 2022 will be prioritized to meet the new incremental demands of high-quality products, of which the company has a good level of discretion to adjust under different market conditions. Finally, we are hearing voices from shareholders, and the company is in the view that current market valuation significantly deviates from our long-term intrinsic value. The company is currently actively exploring variable capital market options and tools, including but not limited to adopting share repurchase programs to deliver long-term values to our shareholders. All these forecasts and comments above are based on our current and preliminary views of the market and operational conditions, which are subject to change. Thank you.
spk07: Thank you. This concludes our prepared remarks. Thanks for your attention, and we are now happy to take your questions. Please ask your question in both Mandarin and English if possible. Operator, please go ahead. Thank you.
spk00: As a reminder, if you'd like to ask a question, please press star then 1. If your question has been answered and you'd like to move yourself in the queue, press the pound key. Our first question comes from Brian Gong with Citi. Your line is open.
spk03: Good evening, management. Thanks for taking my question. I have two questions. First is that how should we look at public cloud growth for the full year 2022 given the micro-softness? Will there be a restructure to be done, and how will we drive strong growth on computing and storage services? And the second question is on enterprise cloud. Can management share growth outlook about this segment? What would be the organic growth look like? And what would be Camelot growth rate? Thank you.
spk02: Brian, would you like to just briefly translate your question into Chinese?
spk03: Oh, sure, sure, sure. I will translate myself. Thank you, Manager Teng, for accepting my question. I have two questions. The first one is, how do we see the growth rate of the public cloud in 2022? When will our restructure end? And how do we drive to make the calculation and storage of these two businesses maintain a high-speed growth? The second question is about our industry cloud. Can you please share the outlook of the growth of the industry cloud in 2022? One is the internal growth, and the other is the growth of Camelot. Thank you. Okay, thank you.
spk06: This is the situation with Google Cloud. The main customers of Google Cloud are mainly in the Internet industry. In the Internet industry, we can see that since the second half of 2021, In fact, the development of the entire industry is still slowing down. The main reason is actually the policy supervision factor. From the current situation, it is expected that the entire industry in 2022 will still be a cautious attitude. Especially large Internet companies are currently focusing more on their core business product file growth. But for the expansion of the new business direction, it is actually more cautious. From this point of view, we think it is cautious to increase the demand of public cloud. But on the other hand, because all the Internet companies are focusing on core business infrastructure, this will lead to an increase in the demand for public cloud. At the same time, especially for the excess demand, which leads to their cost to customers, The optimization is still relatively obvious, so from what we have seen so far, we ourselves have seen the situation of Q3 and Q4, including the forecast for 2022, we think that the increase in our public cloud should still be relatively optimistic. In contrast, the adjustment of CDN's business is that we ourselves have made appropriate adjustments from the number of users in the industry and there is no significant change in the market. And in 2022, there is still an increase. The current problem is that the policy-adjustment of the business has led to the fluctuation of the business. The fluctuation of the business will reduce the efficiency of our resources and products, directly affecting the situation of our profitability. So in this case, we and our customers have made some adjustments to the business, including for the improvement of efficiency. In addition, we also actively gave up some relatively low-efficiency nodes and resources, and also gave up some fluctuating and unstable numbers of business. So for CDN's business, we just heard Harry talk about it. are currently being adjusted. However, the other issues such as calculation and storage have been affected by relatively little, and are still improving with a very stable situation. So, what we see is that in 2022, especially in Q1, after the adjustment of CDN, we actually had a relatively obvious decline. However, non-CDN and other public cloud and industry cloud are still maintaining a very fast The second question is about the adjustment you just asked about. Because of the supply chain cycle and the continuity of our customer service, we have done about the same on the overall framework of Q4. Then in terms of Q1, we think most of it should be able to be adjusted. So in fact, from Q1, our various indicators began to improve. Then we also talked about it at the beginning. We are confident and optimistic that Q4 in 2022 can achieve This EBITDA transfer Then the situation of the industry cloud is actually different from the public cloud situation and the Internet industry is actually different The entire industry cloud of customers actually includes ah ah financial medical public service ah actually includes various industries we now see actually from 2021 Q4 to 2022 is actually still showing a A relatively fierce growth in demand. The demand for information innovation in the whole of China is actually increasing. The current problem is actually the impact of the epidemic, causing the uncertainty of the industry cloud to increase. So in fact, the demand is huge. But uncertainty is now a problem we are facing. So we now think it is a huge space. But as an enterprise, we may have to do a certain balance on the risk of operation. development and growth, we will still have more PN documents that will evaluate the risk of the project, quality, implementation cycle, and the possible environment or the impact of the epidemic on us. Then overall, our business between Q4 and KLAIT last year has already been integrated. So now we see that our industry project is actually the product resources of Jinshan Yun and KLAIT, and the customer resources have been connected together. Thank you.
spk02: Allow me to briefly translate what the CEO answered. So in terms of public cloud, we think that our view is actually similar to a lot of the larger firms in the internet space, which obviously we're experiencing a slowdown in 2021 of the demand from the internet space, which constitutes the majority of our public cloud business customer space. However, I think on one hand, we're seeing the demand slowing down, but on the other hand, because of this, these customers in the internet space are also doing cost cutting, which migrating and increasing the use of public cloud will actually benefit them from saving cost. And therefore, the general observation and what we see is that new demand for public cloud services seems to be slowing down. However, the usage percentage, we actually do believe that there's a potential for that number to increase. And for that same reason, we do see that from 2022 to 2023 and 2024, on a medium term timeframe, we do feel that we're relatively optimistic for the growth of public cloud service The situation around CDN is a little bit different because basically we see that the time spent on videos actually remained quite okay. However, the issue is actually around the uncertainty and the volatility of the business, which caused our efficiency and our profit margin to decrease. So therefore, that brought about the adjustment that we talked about in the prepared remarks. and to get rid of some of the lower efficiency resources and CDN nodes. However, it is also worth pointing out that in the computing and storage side of the business within the public cloud business, It is much less impacted, and we're still seeing robust growth. As Henry commented just now, while the CDN business were adjusting downwards, the non-CDN business is still growing significantly and at a fast pace. In terms of enterprise cloud, we do still see a very strong growth demand. from the fourth quarter of 2021 throughout to 2022. We think the issue is with the COVID situation. We do believe that the demand is there. There's tremendous demand for industry cloud, for enterprise cloud. However, the issue is that the COVID situation increased the uncertainty of such projects. So what we as an enterprise need to do is to comprehensively evaluate enterprise cloud projects in all this demand, huge demand in the market, from the parameters of implementation cycles from project quality, et cetera, and to balance out that business scale and profitability and robot growth of this business. And in terms of our integration with Camelot, we have actually made great inroads into integration with Camelot in the fourth quarter of last year. So actually, we are jointly working on engaging with customers starting that time, which we also see great potential in improving and growing the business. Thank you.
spk03: Thank you. That's very helpful.
spk00: Our next question comes from Lupine Zhao with CICC. Your line is open. 月英总,Henry总,晚上好。 感谢接受我的提问啊。 我这边有两个问题。 第一个问题是关于行业云的这个竞争嘛。 因为我们也看到像阿里啊,腾讯啊,包括华为云在行业云的这个参与度是越来越积极啊。
spk08: 我不知道咱们公司在这个打单的过程中 是否有明显的感觉到竞争的加剧 而且我们目前公司专注的这个行业领域 比如说像医疗啊 金融啊 公共服务啊 这些竞争格局有没有一些变化 同时对我们行业云的这个margin啊 会不会有一些影响 然后第二个问题是 关于我们这个公有云产品的 我不知道能不能请管理层就是介绍一下2022年 我们这个产品研发主要会专注在哪些方向 那我自己快速翻译一下 Thanks for taking my questions. I have two questions here. So first is about the competition. As we can see that Alu Tencent and Huawei are becoming more and more active in enterprise cloud. So is the competition heating up in the verticals like healthcare, financial industry, and public service, etc. And will this impact the company's enterprise cloud margin in the coming quarters? And secondly, it's about public cloud. So what's management's key R&D focus in 2022? Thanks. Thank you.
spk06: First, let's talk about the industry. I just... We also mentioned that the market space of China's industry cloud is still huge, and it is obvious that the demand for various industries is actually increasing. So we think that in China, in 2022, the industry cloud actually has a huge increase and space. In this case, the problems that we and other cloud manufacturers are facing right now are actually the problem of satisfying the needs of customers. This is a matter of time. From Q4 last year to now, the problem we are facing is actually not a matter of competition. The first problem is that because of the epidemic and some related changes in the environment, the implementation progress of everyone's projects is a problem. The second one is that because the demand for the industry There are more and more industries that are involved, so we can see whether we can meet the needs of customers now. Because the industry cloud is more complex than the public cloud. In terms of complexity, delivery cycle, and local service, there are actually a lot of differences. So in fact, the current competition is basically based on the improvement of one's own ability. The second one is to look at the current external environment changes. And then our own advantages are actually still very obvious. The first one is that the areas we are focused on, such as medical, financial and public services, are still the fastest-growing industries in the entire industry in China. It's been done for a long time and it's one of the most mature industries. Because we have been focused on it for a while, we actually have better customer and product advantages. The second reason is that the integration between us and Kite last year was actually very fast. In this way, we are currently leading in terms of the delivery capability of this year's project and the service capability in the later stage in the industry. Especially now that the situation of the epidemic is not very stable, the delivery and service capability in China's cross-region is actually a very strong advantage for us now. This is in terms of industry. As for Gong Youyun's products, there are two main aspects. The first is that the original S-shaped products are now mainly improved in terms of size, ability, and performance. Secondly, as customers use them more and more maturely, the products in big data, database, container, engine, and other fields are actually growing very quickly, so we will continue to invest in this area. Because these products are not a new product from zero to one. The continuity of cloud computing products is actually very good. So we are actually on the basis of the existing will make our products more stable and more powerful. The second one is related to industry cloud. Currently, we are all adding products that are mature and widely used in the public cloud field. How can we make it closer to the needs of industry customers in the use of industry cloud, and make the development, implementation, and delivery cycle of the project faster, and the later service and operation smoother? This is actually the current product
spk02: So in terms of competition that you mentioned for enterprise cloud or industry cloud, as I mentioned just now, the market demand is huge. To be quite honest, at the current stage, the key issue to be resolved is really to meet the demands of the customers, rather than worrying about the competition in this explosively growing market. Two of the things, one is the COVID situation complicated the issues at hand, which impacts the deployment speed and increases the uncertainty of project delivery. And secondly, because there are so many verticals and so many industries for digital transformation and for the adoption of industry and enterprise cloud, the explosive growth of such demand requires the cloud service providers to enhance their local services to meet the needs of such clients. So that actually means that each cloud vendor's own capabilities is more important. Now shifting to our own competitive edges, there are several things I would like to highlight. One is that we have entered into the three verticals of our choice, namely public services, financial services, and healthcare. And we have had already quite significant accumulation of expertise and know-how, and have achieved one of the fastest growth rates in the Chinese market. So we have already accumulated customer and product and solution advantages in that regard. And secondly, our integration with Camelot has been relatively speedy. And therefore, that greatly enhanced our capability of servicing clients, of delivering, and in particular, of cross-region service capabilities. And that is particularly advantageous to us under the situation of COVID disruption. In terms of R&D focus, Our view is that the technology evolution of cloud services is not something like from zero to one. The continuity of the technologies of products are generally good. So it is a continuous process of providing more stable and more powerful solutions and products. So we will continue to focus on for ICE products the, you know, upgrading the scale and performance and capability. And in particular, as some of the application moves on to the path level, we are doing our research, R&D focus on big data analytics database and containers. And another point I would like to mention is that it is becoming increasingly important to combine the technology in public cloud services with the needs of industry clients with the explosive growth of industry cloud, which will have a significant impact in the delivery speed and the stability and the operation of those projects once they are adopted. Thank you.
spk00: Okay, thank you. Our next question comes from Thomas Chong with Jefferies. Your line is open.
spk01: Thanks, management, for taking my questions. I have three questions. My first question is about the update of the regulatory environment. And second, it's about the growth rate in the first and the second half, given the macro headwinds and the COVID situation. And my first question is about our long-term margin assumption. Thank you.
spk06: This is also very important. The second is for the whole industry. The monitoring measures look at us at present. There is no more clear information about this. It is said that, for example, the relevant monitoring of the industry or what kind of measures will be made. It should still be in the Internet. In fact, it is still not very clear. And then, but the traditional demand for industry cloud. In fact, we also see that the support system related to the government is still quite large, including the central budget. Like the relevant policies have come out. On the other hand, we are still optimistic about the overall situation, including in the case of medium-sized stocks. We also saw that some of the country's policies and spirit are gradually being released. So this is the current situation regarding policies. The second is the increase in our own business. As we just talked about, in fact, the entire industry, The demand for public cloud or industry cloud is actually very high. In the first half of the year, I think relatively speaking, because whether it is the industry or our cloud company, in fact, they are still adjusting to some of the rapid changes in the second half of 2021. So maybe in the first half of 2022, we are actually adjusting. If the relevant policy or environment is clear, we can see that the innovation capacity and demand of the entire industry is still very high. So we think that this year's increase will be a little slower than last year, but in the second half of the year, it should be able to recover. This is related to our own situation. In fact, as I just mentioned, it is mainly aimed at the current This adjustment is almost complete, so we are actually improving the stability of the business. By improving the stability of the business, improving our own efficiency, and improving the financial index, we think we have achieved very rapid progress. So just now, when Harry was talking about our financial part, The Q4 should be a big adjustment period for us. And then in Q1 of 2023, the relevant indicators have begun to improve gradually. And then we are optimistic and confident about the overall transition from Q4 to EBITDA this year. By next year, we believe that in terms of business efficiency and profits, we will enter a very rapid stage of improvement. Thank you.
spk02: So in terms of regulatory environment, I'd like to answer this question from several perspectives. And the first is the compliance of ourselves as a business. We maintain daily communication and frequent communication with our regulators, which we continue to maintain the highest regulatory and compliance standards to ourselves. And then secondly is the general regulatory policies to the internet sectors. On that regard, we haven't seen more clear signals from the regulators. However, on the industry cloud or enterprise cloud side, we continue to see government policy support, including the Dongshu Xisuan, which is transporting data for Western computation project. The third level of this question is the general attitude from the government towards Chinese ADRs, which we are happy to see some of the stabilizing signals which we need to continue to monitor. In terms of growth and profitability, looking forward, We do think that for the first half of 2022, it is likely to be still an adjustment period where companies, especially internet companies, will continue to adjust for the policy changes that happen in 2021. However, we do believe that as the general environment, the policy guidance becomes clear, we're still confident with the innovation capability of the sector in general, and then which we believe will further drive the recovery and growth of the industry and also our business in the second half of the year. Now, in terms of ourselves, as we mentioned, the adjustment and repositioning of the business, we have made great inroads and progress in that regard, and we have almost completed the adjustments in order to improve our efficiencies and stability and also improving our financial performance. We do think that the improvement of our financial performance stability is well on track in 2022 and confident of the EBITDA growth, adjusted EBITDA margin breaking even in the fourth quarter of 2022. And we do think that in the following year will also prove to be a year of improving margin profile. Thank you.
spk00: Our next question comes from Joel Ying with Nomura. Your line is open.
spk04: Thank you, Guanyin. I have two questions. First of all, I would like to know, in 2021, how much is the GDP of the public cloud? And how much is the GDP of the public cloud? And how much is the GDP of the public cloud? And how much is the GDP of the public cloud? And how much is the GDP of the public cloud? I actually have two questions. The first one is What is the percentage of the CDM business as of total public cloud business in 2021? And what's our expectation for 2022? And second question is, how many employees do we have at this moment by end of 2021? And how much percentage it's about for R&D staff? And how many we are going to recruit in 2022? Thank you.
spk05: Yeah, sure. Yeah, thank you, Joe. This is Henry. If you're really looking back for the past few years, you may already observe the trend that the CDN business has declined gradually as a percentage of our total revenue. For the year of 2021, our CDN revenue as a percentage of total revenue already declined below in the range of 30 to 40%. to further reduce the revenue contribution from the CDM products carried out into the year of 2022. So I have actually two major objectives. First one is we want to cutting back even while we have the main relatively stable relationships with our top clients. In terms of dollar value, but in terms of percentage, I think in 2022, the CDM business will contribute, hopefully, less than 20% or 25% to 25% of the total revenue. That will give us more diversified revenue streams and offer a relatively higher quality of the revenue contribution. So this is actually the first point. But again, I think when we evaluate which kind or which region or which nodes we adjust, we are looking deeper. into our client relationships and also we're looking into the cross-selling opportunities into the computing and the storage and we will not harm our relationships with the clients as well as losing a lot of opportunities into cross-selling for other products. So to a second question, as you probably already remember that last year we completed acquisition of Camelot, which as Yiling mentioned, gave us a great outreach in a nationwide network for delivery, especially in a challenging COVID environment. And then we're also making some adjustments in the process of realizing our synergies in terms of the team integration. So there are a few information we can share. First of all, for the overlapping functions, we did some active adjustment and alignment and team integrations that actually will give us more efficiency of the delivery capacity. And in terms of the total R&D personnel, as we disclosed in our IPO prospectus, which are actually very stable percentage and levels, Over 60%, 6-0% of Kingsoft Cloud employees are R&D-related functions. And our total employee size, including the Camelot team, has increasing significantly by end of last year if you compare with the number of 2020. And I think that will give us a great capacity to deliver our services from the original cloud, cloud-native technology like us, but also give our client higher quality of services And also, we can provide a wider range of product and research in-house. So I think that gives us not only a capacity, but also more flexibility to adjust more investment into the cloud-native technology, especially moving to the PaaS and SaaS functions, including the containers, dockers, big data, and the database, as Yulin just mentioned. Thank you.
spk04: YILAN ZHUANJIA- Thank you, Henry.
spk00: Our next question comes from Kyna Wong with Credit Sweets. Your line is open. Thank you for giving me the opportunity to ask a question.
spk09: I have two questions. The first one is CapEx's expectation, which is 10 to 15 billion in 2022. How will it break down? Because some of the self-builders in it, some of the IDC's self-builders, will it change? Because now the entire Businesses are focusing on high-value cloud services, but the previous CDNs may need to be adjusted. When some resources need to be adjusted, will you increase the ITC? This is the first question. The second question is, I see that cost of revenue, There is an increase based on the bandwidth lock-up usage, which is a part of the bandwidth that has been signed in the beginning of the year. In the beginning of 2022, this part should still be able to be re-signed on the operating platform. So let me translate myself. The first question is about the capacity breakdown. How much will be the self-built IDC and business restructuring implemented? for 2022. And the second one is about one of the costs involved in lock-up usage of bandwidth that actually cost the redundancy of underlying resources. We believe it could be some contract that you sign with the operator about the bandwidth. Where should we expect the end of the lockup period? And we should consider that the overall cost structure will improve in 2022 after you have a new contract review with the operator. Thanks.
spk06: The first thing you just asked about is the expectation of CapEx, especially in 2022. According to the growth of our business, because of the cloud computing, its business planning actually has a relatively precarious preparation and construction cycle for a production data. So in fact, the planning and actual execution of CapEx investment in our company over the years are still very accurate. It's just that in 2021, due to some major adjustments in the industry policy, some of our early-year plans have had some fluctuations. I just mentioned that we started to make some adjustments to our business in Q4 last year. Currently, it is mainly in CDN. In fact, the current situation is still the case. In fact, including CDN, the demand for business is still very large, and it is growing, but its fluctuation will make our the efficiency and efficiency rate have changed. So we actually gave up some low-efficiency businesses on this right adjustment. Businesses with relatively high volatility and some nodes with relatively poor efficiency. This rhythm was basically completed in Q4 last year and Q1 this year. In addition, there are some resources related to IDC and bandwidth. This is your second question. This is actually related to some supply chain contracts and another very important issue is the continuity of customer service. So it is relatively necessary for a period of time. At present, this work has also been basically completed. So this will make us start from Q1. Our overall interest rate and EBITDA interest rate are actually a process of continuous improvement. And then its efficiency is what we just talked about. We are actually relatively optimistic that in Q4 this year, the overall EBITDA will be able to make a turnaround. The second one is CapEx's other investment in the public sector and industry, because it has still maintained a very rapid growth. It's just that last year when we were in Q4, because of the epidemic, there were some reasons for the allocation of resources, we were relatively cautious, so compared to Q4 every year, our investment in CapEx in Q4 in 2021 will be a little less. This is mainly a matter of rhythm. In 2022, this will actually enter a normal So Tina, to answer your question,
spk02: Based on the nature of cloud computing business, there's always a lead time which we need to consider and plan in order to prepare the resources for providing the service. And in previous years, our budgeting and actual money spent, our CapEx and money spent, have been relatively accurate. It is really only last year, because of the overall market volatility, that there's some adjustments. And as mentioned earlier in answering other questions, the adjustment mainly focuses on the CDN business, whereby, in fact, the demand is still there and huge. However, from our perspective, it is because of the increased volatility that decreases our efficiency and profitability. And therefore, we are downsizing that business. However, that adjustment have largely completed in the fourth quarter and with some of them remaining to be completed in the first quarter of this year. So as you rightly pointed out, because the underlying resource for the IDC does require a cycle for renegotiation. And that has primarily been completed as well. So we do expect to see a margin improvement starting the third quarter of this year. And in terms of CapEx, the self-constructing, the self-owned IDC CapEx have been ongoing as planned. And for every year, the fourth quarter has been relatively has been relatively less than the other quarter due to seasonality in terms of CapEx. However, last year it's a little bit less because of the adjustment that we conducted. So we were a little bit cautious in the pacing of that. However, we will catch up with that in this year. Thank you.
spk00: There are no further questions. I'd like to turn the call back over to Nicole Shan for any closing remarks.
spk07: Thank you, Michelle. And thanks, everyone, 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.
spk00: This does conclude the program. You may now disconnect.
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