Kingsoft Cloud Holdings Limited

Good day and thank you for standing by. Welcome to the Kingsoft Cloud's third quarter 2024 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 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan. Please go ahead.

Thank you, Heidi. Hello, everyone, and thank you for joining us today. InSouth Cloud's third quarter 2024 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com. as well as our global newsware services. On the call today from Kingsoft Cloud, we have our Vice Chairman and the CEO, Mr. Zhou Tao, and the CFO, Mr. Henry He. Mr. Zhou will review our business strategies, operations, and company highlights, followed by Mr. He, who will discuss the financials and the guidance. There will be available to answer your question during the Q&A session that follows. There will be conductive integration. Our integrations are for your convenience and reference purpose only. In case of any discrepancies, management's 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 the money and as defined in the U.S. Priority Security Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectation and current market and operating conditions. and relate to events that involve no or no risk, uncertainties, and other factors 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 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 US SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise except 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 Vice Chairman and the CEO, Mr. Zhou. Please go ahead. Thank you.

Hello, everyone. Welcome to today's meeting. This is the third quarter of 2024. I'm Zhou Tao, CEO of Q3. In this quarter, we will continue to work on high-quality, sustainable strategic beliefs, beliefs, and execution. First of all, our revenue will accelerate growth. Based on Q2 achieving the same rate of growth as before, Q3's growth rate will reach 16% and reach the same level as the industry. This is due to the early development of revenue structure in 2022. This quarter, both public and industry clouds have achieved the same growth of two-digit numbers. The two-person drive and development base are more solid. Next, our profit level is increasing rapidly. On the basis of EBITDA's Q1 Q2 3.2% transfer rate, Q3 acceleration increased to 10% of double-digit. After adjustment, the operating loss rate increased by 16.2% to 7% compared to the large-capacity reduction, further increasing the development of high-capacity. Third, we continue to use AI to lead the transformation. The proportion of AI business revenue to the public sector continues to increase to 3.1%. Continuous achievement of quarter-high-speed growth. Over the past five seasons, AI has increased by more than three times. This season, AI has increased by 6.9 times, leading the industry by more than three times. We are also exploring a new model of AI business. We are working with China's leading comprehensive professional service companies, to achieve in-depth cooperation. We rely on the full-time ability of our AI to build its large-model training, reasoning, application development, and long-term operation capabilities. Fourth, we fully embrace the great historical opportunities of Xiaomi Jinshan Ecology. From Xiaomi cars, AIoT, games, large models, to WPS, AI, In this quarter, our revenue from Xiaomi Jinshan Ecology has increased by 36%. In particular, we see that Xiaomi's entire line of business has achieved rapid growth, especially in the automotive industry, which has been highly recognized by the market. As the only strategic cloud manufacturer of Xiaomi Jinshan Ecology, we will do our best to support Xiaomi's pricing, and the demand for cloud services to increase in other businesses. With the rapid growth of AI income in the leading industry and the clear development of AI application scenarios in Xiaomi Jinshan Ecosystems, we first seized the opportunity to change the market structure. In the context of the decline in market responsibility of other cloud service providers, our market responsibility has steadily increased.

Hello, everyone. Thank you and welcome all for joining Kingsoft Cloud's third quarter 2024 earnings call. I am Zou Tao, CEO of Kingsoft Cloud. This quarter, we continue to see strong results from our unwavering commitment to the high quality and sustainable development strategy. First of all, revenue is on an accelerated growth trajectory. Following solid year over year and month over month growth in Q2, we have seen our year-over-year growth rate rise to 16% this quarter, outpacing the industry average. This momentum stems from the strategic adjustments we made in 2022 to diversify our revenue structure, leveraging our first mover advantage. Both our public cloud and enterprise cloud businesses achieved double-digit year-over-year growth, driven by a dual-engine strategy, resulting in a stronger foundation for continued development. Second, our profitability is improving at an even faster pace. After turning EBITDA positive for the first time in Q1 and reaching a margin of 3.2% in Q2, this quarter it has accelerated to a double-digit margin of 10%. Meanwhile, our adjusted operating loss margin has significantly narrowed from 16.2% in the same quarter last year to 7% this quarter, further solidifying our path towards high quality development. Third, we continue to lead the transformation with AI. The proportion of AI revenue as a percentage of our public cloud business has continued to grow to 31% this quarter. Over the past five consecutive quarters, AI revenue has consistently shown triple-digit year-over-year growth. And this quarter, we saw a remarkable 6.9-fold increase compared to last year, outpacing the industry's growth. Our strong profit margins and customer distribution demonstrate the sustainability of this growth. Meanwhile, we're also exploring new AI business models having entered into a deep collaboration with Shine Wing, China's leading comprehensive professional services firm. Together, leveraging our full stack AI expertise, we're building a one-stop platform that integrates large model training, inference, application development, and long-term operational capabilities. Fourth. We are fully capitalizing on the unique historical opportunity within the Xiaomi and Kingsoft ecosystem. From EV, AIoT, gaming, large language models, to WPS AI. This quarter, our revenues from the ecosystem have increased by 36% year-over-year. We have witnessed the fast growth across all of Xiaomi's business lines, among which, notably, its automotive business has garnered strong market recognition. As the sole strategic cloud platform within the Xiaomi and Kingsoft ecosystem, we're fully committed to supporting Xiaomi's autonomous driving, on-device, and cloud-based models among other areas to meet their expanding cloud service needs. Thanks to our industry-leading and rapid growth of AI revenue and the practical AI use cases within the Xiaomi and Kingsoft ecosystem, we're able to see the opportunities arising from the market structural changes. Amid a decline in market share for other internet cloud service providers, our market share has steadily increased.

Next, I will introduce you to the performance of the third quarter of 2024. In this quarter, Jinxiaoyun, in terms of revenue, profit, The cash flow has made substantial progress. The revenue of RMB 18.9 billion is the same as the rapid growth of the two-digit number, reaching 16%. The growth of our high-value products and services has eliminated the pressure caused by the active adjustment of the CDN business. After adjustment, the net profit of RMB 3.1 billion is the same as the growth of 56.7%. After adjustment, the interest rate reached 16.3%, and the share price increased by 4.2%. The share price fell slightly, mainly due to the influence of the fluctuation of the credit level in the CDN business. After adjustment, EBITDA reached RMB1.9 billion. After adjustment, the EBITDA rate reached 9.8%. On the basis of EBITDA transfer in the first quarter, the share price continued to stabilize, and the share price increased by 13%.

Now, let me walk you through the key business highlights for the third quarter of 2024. This quarter, Kingsoft Cloud has made solid progress in revenue scale, profitability, and operating cash flow. Our revenues reached RMB 1.89 billion. marking a return to the double-digit growth with a 16% year-over-year increase. The growth in revenue from our high-value added products and services offers the pressure, offset the pressure, from the proactive adjustments in our CBN business. Adjusted gross profit amounted to RMB $308 million, up 56.7% year-over-year. adjusted gross margin increased to 16.3%, representing a year-over-year increase of 4.2 percentage points, despite the slight quarter-over-quarter decrease primarily driven by fluctuations in CDM business profitability. Adjusted EBITDA reached RMB 185 million with an adjusted EBITDA margin of 9.8%, continuing to improve quickly following the positive turnaround in EBITDA in Q1, and showing a significant year-over-year increase of 13 percentage points. Net operating cash inflow amounted to RMB 228 million, once again demonstrating our strong cash-generating ability from operating activities.

In terms of public funds, this quarter we achieved a revenue of 11.8 billion yuan, with a 16% growth rate. As the only strategic cloud platform for Xiaomi Jinshan Ecosystem, the opportunity to use cloud in an ecosystem is our foundation. This quarter, the total revenue contribution from Xiaomi and Jinshan has increased by 36%. With Xiaomi AI fully renewable, human, vehicle, and eco-friendly, Jinshan WPS AI business is advancing, The growth potential of cloud service businesses brought by the AI era is vast. We actively grasp the high-speed growth opportunities of eco-entrepreneurs in the manufacturing and AI fields. In addition, AI businesses continue to grow. In this quarter, AI revenue has increased dramatically to 3.6 billion yuan, with a growth of 11% compared to the previous year, and the share of the public sector has reached 31%. In terms of public cloud services,

Revenues reached RMB 1.18 billion this quarter, representing a year-on-year increase of 16%. As the sole strategic cloud platform within the Xiaomi and Kingsoft ecosystem, the cloud business opportunities within this ecosystem are fundamental to our growth. This quarter, total revenue contribution from Xiaomi and Kingsoft grew by 36% year-over-year. As Xiaomi's AI fully empowers its entire ecosystem, covering human, car, and home, coupled with the advancement of WPS AI, the growth potential of cloud service business driven by the AI era is unprecedented. We are actively capitalizing on the fast-growing opportunities in autonomous driving and AI within the ecosystem. Besides, our AI business continues to gain momentum This quarter, AI revenue surged to RMB 362 million, increased by 11% year quarter over quarter, and accounting for 31% of public cloud revenues, positioning us as an industry leader. We have built a substantial computing power resource pool, leading the industry in large-scale supercomputing network capabilities. capable of supporting the networking topology of supercomputing clusters at the scale of 10,000 nodes. This computing resource pool enables us to simultaneously deliver the integration and commissioning of supercomputing clusters, while offering the full range of public cloud products.

In terms of the industry, this quarter's actual income is 7.1 billion yuan, with a growth of 16.7% In the field of public service, we actively grasp the project opportunities of Zhengwu and Guoziyun. For the two types of application scenarios of Zhengwu enterprises, we use model capability, big data, co-operative office as the base, and promote standardized operation. This quarter, we started to build a large model project of Zhuhai High-Range Area, and we have a joint training program with the client Xinshan Office business model. In addition, we also assist Shenzhen State's high-tech industry innovation center to complete the construction of a data-optimized platform in Dawan District to assist in the implementation of data-based traffic. In the 2024 China Central State Market Research Report published by the National Authorities Agency, the project quality product capability and domestic leading industry manufacturers. In the financial field, we and the well-known shareholder banks have achieved a real-time data service project to assist the industry in building a real-time data release subscription model, optimize the collection and management of real-time data, build a real-time low-digit development platform, improve development efficiency and development quality, to build a real-time data application center to achieve the rapid configuration and management of business applications. In addition, the開特 business has stabilized and strengthened the construction of the Xiaomi Wuhan exclusive service center. The number of centers has exceeded 500.

Moving on to enterprise cloud services, revenues amount to RMB 710 million, representing a year-on-year increase of 16.7%. In public services space, we have actively pursued opportunities within public services cloud and state-owned enterprise cloud. Focusing on two key use cases, namely government and enterprises, we are promoting standardized operations, leveraging a foundation built on large model capabilities, big data, and collaborative office tools. This quarter, we started large language models projects in Zhuhai high-tech zone, jointly training a large model dedicated to government office work in collaboration with our customer and Kingsoft office, tailored for Zhuhai. We also supported the Shenzhen National High-Tech Industrial Innovation Center in completing the construction of the Greater Bay Area Data Elementization Platform, facilitating trustworthy data circulation. According to the 2024 China Central and State-Owned Enterprise Market Research Report released by a domestic authoritative institution, we have been recognized in the leaders quadrant with our project quality and product capabilities on par with those of domestic leading peers. In financial services space, we reached an agreement with a well-known joint stock bank for real-time data service projects. This initiative will assist the bank in constructing a real-time publication and subscription model, optimizing real-time data collection and management, as well as creating a local development platform for real-time data to improve development efficiency and quality. We also established a real-time data application center to achieve rapid configuration and management of business applications. Besides, Camelot's business remains stable, with significant strides made in the construction of Xiaomi's exclusive service center in Wuhan, which has now exceeded 500 staff members.

In terms of product technology, we will continue to maintain our technical prowess, focusing on creating the first-class customer experience for core products. In terms of AI, we will launch the cloud-based full-time management platform. For AIGC, Data cleaning scenarios provide a quick start and stop, easier to use, and a full control service for cleaning tasks that require a flexible shrink. Our AI Hanhai application platform only satisfies the needs of AI application development in different scenarios, and assists the implementation of AI application construction with low code. At the same time, in the industry report released by SIDI in China, Jinshan Yun, Mars Services,

In terms of product and technology, we uphold the principle of building success based on technology and innovation, focusing on delivering best-in-class customer experience across our core product offerings. In AI space, we launched a cloud-native, fully managed platform designed for AIGC data cleaning use cases. This platform offers quick startup and shutdown capabilities. It's easy to use and provides elastic scalability to meet the dynamic demand of data cleaning tasks. Our AI Hanhai application platform is aimed to addressing the needs of AI application development in different use cases, helping to accelerate the creation of AI application through low-code solutions. Additionally, in an industry report published by the domestic authoritative institution CCID, Kingsoft Cloud model as a service is recognized in the market leaders quadrant.

Overall, after two years of strong implementation of high-quality sustainable development strategies, the basics of Kingsoft Cloud have entered the path of healthy development. Looking forward to the future, In summary,

After two years of steadfast implementation of the high-quality and sustainable development strategy, Kingsoft Cloud fundamentals have entered a phase of healthy upward growth. Looking forward, we will continue to enhance our profitability and cash-generating capabilities, deepen cooperation with the Xiaomi Kingsoft ecosystem, strengthen Wuhan Research Center, and develop comprehensive understanding of new AI and explore such opportunities. thereby continuously creating value for our customers, shareholders, employees, and other stakeholders. I will now pass the call over to our CFO Henry to go over our financials for the third quarter of 2024.

Thank you. Thank you, Mr. Zhou, and thank you all for joining the call today. I will now walk you through our financial results for the third quarter of 2024. I would like to highlight the three areas of progress. Regarding the performance of this quarter, first of all, in this quarter, the company achieved a double-digit year-over-year growth in total revenue, reaching 1,885.6 million RMB, which is two times of the high single-digit average growth rate of the industry. Restoring the high-speed growth of the revenue There are three aspects we would like to highlight. First, thanks to the first mover advantage of our revenue structure adjustments, starting from 2022, differentiated us from situation of our competitors in the market. Both of our public cloud and industry cloud have already benefited from the development trend of AI business, achieving double-digit year-over-year growth respectively. This has laid out a solid foundation for the balanced growth of the future business. Second, in this quarter, our AI growth billing reached 362 million RMB, accounting for as high as 31% of the public cloud revenue. It has achieved a three-digit year-on-year growth for five consecutive quarters, exceeding the industry average level. we have repositioned the business strategy of the company. Regarding the strong performance of Xiaomi's new EV cars, as well as Kingsoft Games and the WPS AI, the ecosystem business progress has exceeded market expectations. Thanks to the excessive demand of customers within the Xiaomi and Kingsoft ecosystem, the revenue growth of our ecosystem customers in a single quarter has exceeded 36% year-on-year. laying a good foundation for the growth of ecosystem customer in the future. The proportion of public cloud revenue contributed by the ecosystem clients in this quarter has already reached 28%. Second, in terms of profit, the expansion of our growth profit and EBITDA profit far exceeds industry average. Compared with adjusted growth profit margin of only 3.6% in the quarter, before the company carried out business structure adjustments and AI transformation in Q2 of 2022. Today, we have reached a 4.5 times growth of the margin expansion to 16.3%. The adjusted EBITDA profit margin has been significantly improved from a loss of 8.6% in Q2 of 2022 to a profit of 9.8%. with an increase of 18.4 percentage points. The company revenue structure adjustments and AI strategic transformation have achieved remarkable results. Thirdly, due to the effective progress of high quality business and a strong cash flow contribution brought about by the successful transformation of AI business in this quarter, we have achieved the net inflow of operating cash flow reaching 228 million RMB. In terms of the outlook, we have achieved a turning point for our successful AI strategy and also Xiaomi Kingsoft ecosystem strategy. Going forward, for the fourth quarter of 2024, we are happy to provide the following guidance for the performance of Q4. First of all, thanks to the parallel two drivers of both public cloud and enterprise cloud, we will continue to deliver healthy growth for Q4. We expect to achieve accelerated growth rate for the total revenues in Q4 2024, exceeding the average growth rate of industry. Second, we expect our profitability will continue to improve for the adjusted operating profit. We expect to deliver significant accelerated improvement in Q4. Third, For the AI business and the Xiaomi Kingsolv ecosystem strategy, we believe the revenue contribution will continue to grow. As a result, we will continue to take more market shares from competitors going forward. Meanwhile, given the promising growth of AI and cloud demand from both Xiaomi and Kingsolv Group, for upcoming connected party transaction applications with our shareholders and stock exchange in Hong Kong. We are applying for revenue to be generated from Xiaomi and the Kingsoft Group for the next three years with a cap of 11.3 billion RMB, 10 times over the historical revenue of 1.1 billion RMB in the financial year of 2023, providing solid support for company revenue and profit growth. Now, let's dive into the details of our financial results. Total revenue of this quarter were 1,885.6 million RMB, reflecting a 16% year-over-year increase, of which revenues from public cloud services were 1,175.5 million RMB, up 15.6% from 1,016.6 million RMB in the same quarter last year. This growth was primarily driven by a significant increase in AI-related revenues, which reached 362 million RMB, partially offset by the scaling down of CDN services due to higher bandwidth costs and price adjustments with certain customers. Revenue from Enterprise Club reached 710 million RMB, up from 608.5 million RMB in the same quarter last year, primarily driven by increased demand in selected verticals and a growth in Camelot IT solutions. We have continued to enhance our cost control by expanding our supply base and optimizing procurement cost, which has improved both service quality and pricing. Total cost of revenue was 1,582.2 million RMB, up 10.7% year-over-year, but it remained stable quarter-over-quarter. IDC cost dropped significantly by 8.7% year-over-year, from 737.7 million RMB to 673.8 million RMB this quarter, reflecting the strategic scale, scaling down of our CDN services and the batch rep utilization. Depreciation and amortization costs increased from 200.4 million RMB in the same period of last year to 297.5 million RMB this quarter, mainly due to the depreciation of newly acquired GPU servers Solution development and service costs rose by 70.3 percent year-over-year from 425.3 million RMB to 499 million RMB, driven by expansion in Camelot personnel to support revenue growth. Fulfillment costs and other costs were 59.5 million RMB and 52.3 million RMB this quarter, respectively. Our adjusted growth profit for the quarter was 307.6 million RMB. a 56.7% increase year-over-year, with an adjusted growth margin of 16.3%. On the expenses side, excluding share-based compensation and impairment of long-lived assets, our total adjusted operating expenses were 491.2 million RMB, a decrease of 2.6% year-over-year, and 11.5% quarter-over-quarter, of which our adjusted R&D expenses were 232.3 million RMB, up 16.1% from last quarter, due to higher personnel cost. Adjusted selling and marketing expenses were 110.6 million RMB, down from 117.5 million RMB last quarter, representing 5.9% of total revenues. Adjusted G&A expenses were 148.3 million RMB, significantly lower than 237.7 million RMB last quarter, reflecting strong cost control and a reduction in credit losses. As of September 30, 2024, our cash and cash equivalents totaled 1,617.9 million RMB, providing a strong liquidity position to support operations and AI investments. Our capital expenditure and assets of 10 through financial leasing reached 1.22 billion RMB. majority of which are used to invest in servers to support AI business. Looking ahead, we remain committed to the principle of high quality and sustainable development. We expect ongoing revenue growth, driven by deeper collaborations with Xiaomi and Kingsoft ecosystems, further expansion of AI-related growth feelings, and a continued reduction of low-margin CDM business. We also expect to achieve another milestone in adjusted operating profit in the near future. Thank you.

This concludes our prepared remarks. Thanks for your attention. We are now happy to take your questions. Please ask your question in both Mandarin, Chinese, and English if possible. Operator, please go ahead.

Thank you. Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will take our first question. And the question comes from the line of Xiaodan Zhang from CICC. Please go ahead. Your line is open.

The first one is that we see that in the past quarter, the revenue contribution ratio of our customers in the ecosystem has been continuously increasing. I would like to ask the management to share with us how we see the potential growth of the ecosystem customers, especially Xiaomi and Jinshan Group, as well as a service strategy for our ecosystem customers. The second question is that this year, in the first quarter, we have also achieved a turnaround in the profit rate of the gold adjustment EBITDA, and in the past quarter, we have also been continuously improving. So thanks management for taking my questions and I've got two questions here. So first of all, the revenue contribution from Xiaomi and Kingsoft Group has been continuously increasing over the past quarters. So could you please share with us your views on the growth potentials of those strategic customers as well as your service strategy? And secondly, could you please share your outlook on adjusted EBITDA margin as well as operating margin, taking into consideration the depreciation and amortization expenses and the rising AI-related capex? Thank you.

Okay, let me answer the first question. Indeed, as you can see, the income of Xiaomi Jinshan is steadily rising. Yes, this is mainly due to the growth of AI business since last year. But fundamentally, it is because of the growth of Xiaomi and Jinshan's business itself. Yesterday, Xiaomi also released its financial report. You can see it. Mr. Lei said it is the strongest financial report in history. Yes. So, we just had the second meeting. I just talked about the content. As Xiaomi Jinshan's only strategic cloud provider, we are also using the development of Xiaomi Jinshan itself to grow together. Yes. So, it is around This expansion, we can also see that Xiaomi, especially this year, the number of transactions of Xiaomi cars is also steadily increasing. Mr. Lei also talked about this yesterday. So as Xiaomi's autonomous driving surrounds the expansion of AI, whether it is on the machine or storing the capacity of cloud in all aspects, we believe it will also be a steady improvement. Since last year, uh, uh, uh, So I will just very quickly translate what Mr. Zou said. So, yes, as you have seen, the business opportunities coming from the Xiaomi and Teamsoft

ecosystem has been increasing very quickly and steadily. This is thanks to the unprecedented AI opportunities since last year, since the AI opportunities. And of course, the business, the AI-related business opportunity itself with the Xiaomi and Kingsoft Corporation has been developing fairly fast. As you would have seen from the Xiaomi results released yesterday, which is set to be historically strongest results. The Xiaomi EV delivery has been very strong. So therefore the cloud service utilization and use cases centered around the growth of Xiaomi has a solid foundation to grow. And also I have mentioned that on the WTS office side, where they have been centered around AI capabilities, to promote new AI-related functions, as well as the solid growth in paid customers for AI functions. These all have been driving the cloud usage on the cloud side, which is our revenue. So the conclusion is the solid growth of the Xiaomi and Kingsoft ecosystem, their business laid solid foundation for the revenue growth and for the business opportunity of Kingsoft Cloud And we believe that we are still in this very good business momentum to further grow. Thank you.

Thank you, Clark. Thank you, Sheldon. I probably will comment on a second question regarding the margin expansion. So as I mentioned in my remarks, I think the sequencing we are seeing is our continued expansion from the gross margin to the EBITDA margin, then drop to the operating profit. So back in 2022, at that time, our gross margin was as little as only around 3%. And this quarter, we're reaching to a certain level we think is getting even closer to the top tier player in the market in terms of the gross margin in the near term. And for the EBITDA margin, you can also notice that the EBITDA margin has converted from a loss of 8.6% in Q2 2022 to a positive around 10% this quarter. And I think the expansion, the speed of expansion of EBITDA margin will be faster than the gross margin expansion. And in addition, I think our EBITDA margin, given the AI, has already contributed around one-third of the total public revenue, which is also higher than the major peers on the street. And I think given that reason, our EBITDA margin will continue to deliver a much higher expansion speed compared with the peers of the industry as well. So in addition, as you speak about the operating margin, as you'll notice, our expensive control and the cost cutting in terms of operations as well as improving efficiency in operations all contributed to the operating line as well. So I think we're hoping for the near term we can deliver a positive surprise to the shareholders, you may see accelerated and significant improvements of the operating profit in the very near term. And hopefully we can keep that track after we made a breakeven in the near term. But at this moment, we're not providing formal guidance for the timing, but hopefully we can keep the speed and expansion from the gross margin to EBITDA and then to the operating profit as a trend you may observe. Thank you.

Thank you. We will take our next question. And your next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open.

Okay. Thank you for accepting my question. I have two questions that I would like to ask. The first one is that I see that since this year, the number of AI and the number of small and medium-sized ecosystems has increased relatively strongly. Can you please share with us what is the rate of profit corresponding to the income from AI and from Xiaomi and Jinshan compared to the rate of profit from other public cloud? The second one is about our KPAC's outlook and how we can use some resources in and out of our table to meet our needs. Thank you, Benjamin, for taking my questions. I have two questions here. The first is regarding the margin profile of your AI business as well as the revenue from Xiaomi and Kingsong Group. So just wondering how the margin compares to the overall margin profile of public health. And secondly, just wondering on your outlook for the CAPEC for this year and next year and how we plan to utilize the resources either on the balance sheet or off balance sheet to meet the funding resources demand, you know, to grow our BNS and especially the AI BNS. Thank you.

Thank you, Tian. So happy to take on those two questions. The first question, as you know, we are not disclosing the separate line of growth margin for each of the product line, given, as you know, sometimes each customer, they may use multiple different business segments, so it's a bit difficult to separate that. But I'm happy to provide some high-level guidance on that. Overall, the AI-related computing-related products are delivering much higher growth margin compared with the traditional AI the public cloud services, including the traditional storage and networking. And our entire public cloud growth margin is higher than enterprise cloud in most cases. But however, as Mr. Zotao also mentioned in his prepared remarks, the reason why this quarter we're delivering much stronger and robust top line growth as well as the margin expansion is our both public cloud and enterprise cloud have achieved double digits YRY growth, which is unlike other peers on the market, because we actually did our business strategy adjustments much earlier, back in two years ago. So we do see both parallel growth travel has been very solid for this quarter. So coming back to your margin question, I think if we want to pack and order the different products, I think the current revenue contribution for the incremental revenue, especially the AI, deliver a double-digit growth margin and a double-digit EBITDA margin. And the traditional public cloud also deliver a decent growth margin as well. But when you look at the EBITDA margin, I think the AI is also doing a very good margin as well. Our traditional non-public cloud services, especially for the CDN, as you know, we have already planned out the scaling down as planned, which we actually execute very effectively. So for the margin contribution from CDN has been very effective and well on our budget. So we're very in line with the budget. So these are the first question I probably want to mention. The second part is, given the capex, I think the one part I want to mention is we actually have already secured many of the additional capex resources, including the banks, financial leasing, companies, as well as the state-owned enterprises, which actually can cooperate with us to invest together into the GPU and AI investment. But more importantly, as I mentioned also in my prepared remarks, for the next three years, we are currently applying for the cap of the related party transaction from both Xiaomi and Kingsoft around 11.3 billion RMB for the next three years, which is about 10 times over this year's number. So from that we are going to look into more closer financial support from shareholders, and we are confident we will not dilute the public shareholders in terms of the additional share issuance or the potential transactions that may be diluted to the public shareholders. We'll keep that in mind. And the strong support from both business and CapEx from the major two shareholders will be very important for company growth as well as the margin expansion and the robust financial position for the next few years. And we have our internal discussion for the annual budget meeting as well. I think we will talk about that in a later quarter. And you may find that we'll maintain a very robust way to managing both leverage as well as the investment speed to the AI investment. Thank you.

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

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

This concludes today's conference call. Thank you for participating. You may now disconnect.