Kingsoft Cloud Holdings Limited

Good day and thank you for standing by. Welcome to Kingsoft Cloud's fourth quarter and full year 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 one and one 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, IR Director of Kingsoft Cloud. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's first quarter and fiscal year 2024 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as on Global Newswire Services. On the call today from Kingsoft Cloud, we have our Vice Chairman and CEO, Mr. Zhou Tao, and the CFO, Mr. Henry He. Mr. Zhou will review our business strategies, operations, and the company highlights, followed by Mr. He, who will discuss the financials and the guidance. He will be available to answer your question during the Q&A session that follows There will be consecutive interpellations. Our interpellations 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 would 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 Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, 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. Information regarding this and other risks, uncertainties, 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 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 not made in RMB. It's now my pleasure to introduce our Vice Chairman and CEO, Mr. Zou. Please go ahead.

Hello, everyone. Welcome to the 4th quarter of the year of Jin Xiangyun. I'm Jin Xiangyun's CEO, Zhou Tao. In this quarter, our high-quality sustainable development strategy continues to produce results. After adjustment, business profits are twisted for the first time. A series of financial indicators have set a new record. First, Our revenue increase is on the ladder On the basis of the same growth of 16% in Q3 This quarter achieved a revenue of RMB 22.3 billion The same increase has reached 30% in the retail industry Among them, the public cloud increased by 34% The industry cloud increased by 23% to achieve a balanced development of two-person driving. Secondly, our profit and loss level has increased rapidly. In this quarter, we have achieved an increase in revenue and profit. The company has turned a turn in the long-term loss of business in history. The net profit and profit target has increased. After adjustment, the net profit and profit achieved profit for the first time. After adjustment, the operating profit rate is 1.1%. Compared to the loss of the same period last year, 10.9% increased by 12%. After adjustment, the net profit amount reached RMB 4.3 billion, which is a new high in history. The same amount increased by 63%. After adjustment, the net profit amount reached 19.2%. After adjustment, The EBITDA rate has also reached a new high of 16% of high double digits. The same ratio has increased by 17.7%. The ratio has increased by 6.3%. This is our increase in income quality, adjust the income structure, implement the discount effect, multiple mistakes, and the happy results achieved. Third, We continue to use AI to lead the transformation. This quarter, the income of the AI business is up to 4.7 billion yuan, which is nearly 500% of the total growth, and 31% of the net growth, and the net income ratio continues to increase to 34%. Fourth, as Xiaomi Jinshan Ecosystem, We are the only strategic cloud platform. We continue to fully embrace Xiaomi Jinshan Ecology's business opportunities in the era of AI. We are proud of the historical opportunities such as Xiaomi cars, mobile phones, IoT, smart manufacturing, and Datas AI. This quarter, Xiaomi and Jinshan Ecology's revenue reached 4.93 billion yuan, which is 76% of the total growth. Hello, everyone.

Thank you and welcome all for joining Kingsoft Cloud's fourth quarter and fiscal year 2024 earnings call. I am Zou Tao, CEO of Kingsoft Cloud. This quarter, our high-quality and sustainable development strategy continued to bear fruitful results. Our non-gap operating profits achieved profitability for the first time and a series of our key financial performance measures reached all-time highs. First, our revenue growth rate has climbed to a new level, building on the 16% year-over-year growth in Q3. We achieved total revenue of RMB 2.23 billion this quarter, doubling year-over-year growth rate to 30%, leading the industry's growth rate. Among this, Public cloud revenue grew by 34% year-over-year, and enterprise cloud revenue grew by 23% year-over-year, achieving a balanced development with dual growth engines. Second, our profitability improvement accelerated. This quarter, we achieved both revenue growth and profitability improvement, marking a turnaround from the company's longstanding history of operating losses. and marching towards the goal of net profit break even. Non-GAAP operating profits turned positive for the first time, with non-GAAP operating margin reaching 1.1%, representing a 12 percentage point improvement compared to a loss of 10.9% year. Non-GAAP growth profits reached a record high of RMB 427.7 million, up 63% year over year. Non-GAAP growth margin was 19.2%. Our non-GAAP EBITDA margin also reached a new high at 16%, representing a year over year increase of 17.7 percentage points and a sequential increase of 6.3 percentage points. These are gratifying results of our comprehensive efforts to improve revenue quality, optimize business structure, and implement multiple cost reduction and efficiency enhancement measures simultaneously. Third, we continue to lead our transformation with AI. This quarter, our AI-related business achieved a gross billing of RMB 474 million, representing nearly 500% year-over-year growth and 31% year-over-quarter-over-quarter growth. its contribution to public cloud revenue further increased to 34%. Fourth, as the sole strategic cloud platform of the Xiaomi Kingsoft ecosystem, we continue to fully embrace the opportunities brought by the AI era within the ecosystem. Thanks to the unique historical opportunities driven by Xiaomi EV mobile phones, IoT devices, smart manufacturing, and WPS AI initiatives, This quarter, our revenues from Xiaomi Kingsoft Ecosystem amounted to RMB 493 million, up 78% year-over-year, with its share of total revenues further increasing to 22%.

Next, I would like to introduce the performance of the fourth quarter of 2024. In terms of revenue, this quarter, we achieved a revenue of RMB 14.1 billion, which increased by 34%. We are proud to be the only strategic cloud platform of Xiaomi Jinshan. The growth of cloud-based businesses brought by the AI era is significant. In December 2024, the shareholders' meeting approved our significant improvement in the amount of Jinshan's revenue from Xiaomi. From 2025 to 2027, the total net profit is 11.3 billion yuan, which is 10 times that of 2023. We are working hard to implement business cooperation. This quarter, the revenue from Xiaomi and Jinshan has increased by 76%. It is expected that the growth trend will continue in 2025. At the same time, AI business continues to grow. This quarter, AI bill revenue has increased significantly to 4.7 billion yuan. with a growth of 31% compared to the previous year, with an income ratio of 34% compared to the previous year, and a leading position in the industry. The number of customers in and out of the ecosystem has increased significantly. In the field of large language models, Internet and AI application products, customers have made breakthroughs. In the era of cloud computing, the company, with its deep industry movement, rapid research and development, and rich algorithmic accumulation, In terms of customer service, technical ability, quality assurance, etc., we have received a high level of credit from customers and industry experts. What is even more remarkable is that our market competitiveness has also been recognized by the head of the company. Under the wave of Shishan Yun, the market share of the company and the reputation of the industry have been significantly improved,

Now let me walk you through the key business highlights for the fourth quarter of 2024. In terms of public cloud services, revenues reached RMB 1.4 billion this quarter, representing a year-over-year increase of 34%, capitalizing on the opportunities presented by Xiaomi's human, car, home, smart ecosystem and the WPS AI penetration. As the sole strategic cloud platform within the Xiaomi Kingsoft ecosystem, we're seeing strong growth potential in the AI era. In December 2024, the shareholders approved a significantly increased revenue contribution from Xiaomi and Kingsoft from 2025 to 2027, to a total of RMB 11.3 billion, representing 10 times the amount in 2023. This quarter, revenue from Xiaomi and Kingsoft increased by 76% year over year, and we're steadily advancing and executing our business cooperation, as we expect the growth momentum to continue in 2025. Meanwhile, our AI-related business continues to gain momentum as well. This quarter, the gross billing of AI-related business reached RMB 474 million, increasing by 31% sequentially and contributing 34% of public cloud services revenue, leading the industry. Both Xiaomi Kingsoft ecosystem and external AI customers increased their usage, and we made breakthroughs in customer acquisition, including large language model customers, and expansion in use cases, including AI application for internet company customers. In the era of AI cloud computing, with in-depth industry insights, advanced R&D investment, and substantial computing power, we have been highly praised in terms of customer service, technology capabilities, and quality assurance by our customers and industry experts. Moreover, our competitive strengths have gained recognition by top peers in the industry. In this wave of intelligent computing cloud, the company's market share and industry reputation have significantly improved, securing a top position in the industry.

In terms of sales, this quarter's actual revenue of 8.2 billion yuan Thank you very much.

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In terms of industry, this quarter's revenue 8.2 billion RMB, a growth of 22.7%. In the public service sector, we use model capability, big data, and co-operative office as the base to implement standardized operation and management solutions. This quarter, we completed the investment construction of the Wuhan Guanggu Cloud platform. Qingshan Cloud will, as a joint operation team, be fully responsible for the operation and informationization tasks in the area, and further strengthen digital resources management and development applications, and ultimately realize the unified planning, construction, and management of digital light stocks. In the field of digital health, in December 2024, Yichang City Central People's Hospital system construction completed the phase-by-phase construction, KDX data center headquartered on-line, Xinshanyun adopted a cloud-based micro-service structure, and Yichang City was solved with a unified data platform. In terms of enterprise cloud services, revenue amounted to RMB 822 million, increasing by 22.7 year-over-year.

In public services space, we promote solutions with standardized operations, leveraging a foundation of model capabilities, big data, and collaborative office tools. This quarter, we completed the construction of the Wuhan Optics Valley Cloud Platform, where, as a joint operating partner, we will be fully responsible for the regional informatization, operation, and maintenance, strengthening the management and application development of data resources. so as to achieve the unified planning, construction, and management of digital optics value. In digital healthcare space, in December 2024, we completed a significant milestone of the system construction of Yichang Central Hospital, and the KDX, which stands for Kingsoft Cloud DataX, data middle platform, has been put into operation. We adopted a cloud native, microservice architecture to solve the multi-campus business collaboration and real-time data integration difficulties of Yichang Central People's Hospital with a unified data platform supporting more than 600 data operations. In addition, in collaboration with Kingsoft Office, we jointly developed an electronic medical record product based on WPS, which has supported 61 medical departments' daily operations of the hospital.

In terms of product technology, we continue to maintain a technical career focused on creating the first-class customer experience of core products. In this quarter, we continue to improve the product capabilities of the cloud, launch the ninth-generation cloud server, be able to effectively support AI machine learning, algorithm reasoning, and other high-calculation intensive scenarios, effectively satisfy the large-scale database, implement data analysis, and strengthen and data security with increased processing. We have officially released the self-proclaimed new flow training platform, which can support the needs of customer development, training, and self-definition. Our self-designed network has achieved large-model training, error investigation, from hour-level to minute-level major breakthroughs, further guaranteeing service stability. In addition, our public cloud

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. This quarter, we continued to enhance the product capabilities of our intelligent cloud computing services. We launched the ninth generation cloud server, which efficiently supports high-performance computing use cases such as AI, machine learning, and inference. It also effectively meets the demands of large-scale databases, real-time data analysis, and has strengthened data security and encryption processing. We officially released our proprietary training and inference platform, namely Xinliu platform, which supports customers' needs for development, training, and customizing images. Meanwhile, our intelligent computing network has significantly reduced the troubleshooting time for large model training from hours to minutes. ensuring service stability. We will continue to strengthen our intelligent cloud computing products and technologies to provide customers with stable and fast computing services. In addition, both our public cloud and enterprise cloud solutions use cases have achieved compatibility with DeepSeq.

Overall, under the strategic guidance of high-quality and sustainable development, Our business fundamentals have been fundamentally improved and entered a new health development cycle. Looking forward to the future, we will simultaneously promote income growth and profit improvement, maintain deep cooperation with Xiaomi Jinshan Ecology, fully understand and explore new AI opportunities, and continue to create value for our customers, shareholders, employees, and other interests. Next, CFO Harry will introduce the fourth quarter's financial performance. Thank you.

In summary, led by the high-quality and sustainable development strategy, our fundamentals have substantially improved, and we have entered into a new era of healthy growth. Looking ahead, we aim to simultaneously expand our revenue scale and improve profitability, deepen cooperation with Xiaomi and Kingsoft ecosystem, comprehensively understand and explore AI opportunities, thereby continuously creating value for our customers, shareholders, employees, and other stakeholders. I will now pass the call to our CFO, Henry, to go over our financials for the fourth quarter 2024. Thank you.

Thank you, Zouzong. Thank you, Mr. Zou, and thank you all for joining the call today. We are very pleased to conclude 2024 with strong financial performance. I will now walk you through the financial results for the fourth quarter of 2024. I would like to highlight the following four areas of the progress. Regarding the performance of this quarter, first of all, we overturned from loss to profit in non-GAAP operating profit for the first time since our inception in 2012, demonstrating our strong execution in our high quality and sustainable development strategy in the past two years. Second, our revenue has been growing for three consecutive quarters year over year. And this quarter, we outpaced all other listed public internet cloud companies and achieved a very good speed growth rate of 30% in total revenue. reaching 2,232.1 million RMB. Third, our AI growth billing increased by around 500% year-over-year to 474 million RMB, accounting for as high as 34% of the public cloud revenue. It has achieved a three-digit year-on-year growth for six consecutive quarters. Fourth, last December, Our shareholders approved the revenue from connected parties of Xiaomi and Kingsoft Group for the next three years of 11.3 billion RMB, around 10 times over the revenue of 2023, providing solid support for companies' revenue and profit growth. We believe we are well on track to support ecosystem's fast-growing demands and build up solid cloud infrastructures to support ecosystem AI development. Particularly in this quarter, we are very pleased to see that our revenue from Xiaomi and Kingsoft increased by 76% year-over-year, verifying the effectiveness of our ecosystem strategy. In terms of outlook, we have been firmly executing our AI strategy as the Xiaomi-Kingsoft ecosystem strategy. Going forward, we're expecting our improvements in both revenue scale as well as profitability. First of all, We believe the revenue growth of our both public cloud and enterprise cloud will accelerate in 2025. Second, we expect our profit profile will continue to expand, and we expect to deliver a positive non-gap operating profit in the full year of 2025. Now, let me dive into the details of our financials. Total revenue of this quarter were 2,232.1 million RMB, reflecting a 29.6% year-over-year increase. Of this revenue from public cloud services were 1,409.8 million RMB, up 34% from 1,052 million RMB in the same quarter last year. This growth was primarily driven by a significant increase in AI-related business, whose growth billing reached 474 million RMB. Revenues from enterprise cloud services reached 822.3 million RMB, up from 670.3 million RMB in the same quarter last year, primarily driven by increased demand in select verticals and growth in the Camelot IT services. Total cost of revenues was 1,806.2 million RMB, up 22.9% year-over-year, which was in line with our revenue expansion. IDC cost dropped by 2.6% year-over-year from 740.4 million RMB to 721.5 million RMB this quarter, reflecting the strategic scaling down of our CDN services and a better RAC utilization. Depreciation and amortization costs increased from 146.9 million RMB in the same period last year to 343.1 million RMB this quarter, mainly due to the depreciation of newly acquired GPU servers. Solution development and service costs rose by 10.8% year-over-year from 502.9 million RMB to 557 million RMB. driven by expansion in Camelot personnel to support revenue growth. Fulfillment costs and other costs were 102.4 million RMB and 82.2 million RMB this quarter, respectively. We have recorded a higher growth rate in our gross profit than the industry. Our adjusted gross profit for the quarter was 427.7 million RMB, up 63% increase year-over-year. with an adjusted growth margin of 19.2%. On the expensive side, excluding share-based compensation and impairments of long-lived assets, our total adjusted operating expenses were 446.4 million RMB, a decrease of 9.8% year-over-year, and a 9.1% quarter-over-quarter, of which our adjusted R&D expenses were 169.6 million RMB, narrowed by 27% from last quarter. Adjusted selling and market expenses were 107.8 million RMB, down from 110.6 million RMB last quarter, representing 4.8% of total revenues. Adjusted G&A expenses were 169.1 million RMB, slightly increased compared with last quarter due to fluctuations of credit loss. Our adjusted operating profit for the quarter turned into profit was 24.4 million RMB compared with a negative 187.6 million RMB in the same period of last year. Our non-GAAP EBITDA profit was 359.7 million RMB compared with negative 27.7 million RMB in the same quarter last year. Our non-GAAP EBITDA margin achieved 16.1% compared with negative 1.6% in the same quarter last year. We believe that our strong commitment to AI cloud computing development, strategic adjustments of business structure, and our strict control over costs and expenses bear fruits, and we are all well on track to further improve our profitability as well as scalability. As of December 31st, 2024, our cash and cash equivalents was totaled 2,648.8 million RMB, providing a strong liquidity position to support operations and AI investments. Meanwhile, with healthy accounts receivable arrangements for AI business, in this quarter, we have achieved a net inflow of operating cash flow reaching 570.2 million RMB. We are able to generate cash internally and organically and support part of our further capital expenditure. Looking ahead, we remain committed to the principle of high quality and sustainable development. We expect accelerated revenue growth on annual basis and a higher and a more stable profitability in the coming years. Thank you.

This concludes our prepared remarks. Thanks for your attention. And we are now happy to take our 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. Our first question comes from the line of Xie Danxiang from CICC. Please go ahead. Your line is open.

曾总,Henry,Nicole,Clark,晚上好。 首先祝贺公司取得了非常亮眼的业绩。 那我们看到公司过去两年在这个GPU算力端的投入也在持续地推动AI收入的一个环比增长。 那公司也在持续地受益于这个精神小米生态的需求释放。 那我这边有两个问题想请教一下。 The first is that we saw the release of this year's DeepSeq R1 model, which actually triggered a very heated discussion in the market. I would like to ask the management to share how to view the change in the industry trend of AI in the near future, and the impact of it on the industrial structure of the cloud computing industry and the market format. What opportunities and challenges do you face today? The second question is that I would like to ask the management to follow up on our plan for a capital investment in 2025. If we face stricter restrictions in the supply chain, what measures will the company take? Let me quickly translate my question. So thanks, management, for taking my questions. And my first question is regarding the industry outlook. So could management share your views on how the recent industry trends in AI are impacting the supply and demand structure and also the market landscape of the cloud computing industry? And what opportunities and challenges does Google Cloud face? And secondly, could management provide an update on the 205 capital expenditure plan? And what measures will the company take to address the possibly more stringent supply side restriction? Thank you.

I'll answer the first question first. I'll see if Liu Tao has anything to add. DeepSeq, from my own understanding, first of all, it's still a universal model. But, This is why it has caused so much attention and vibration. It is mainly my own understanding. The first one proves that Chinese technology talents can also make the world's leading data model. I think this is the influence of the entire Chinese technology company in the world. Or the stubborn return has a great help. The second one is actually what everyone knows Ah, this one also introduced the cost of his own model And the cost of the future deployment of reasoning Uh, there will be a bigger one This one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this one, this At that time, when I was talking about OEM AI, I said that the arrival of the era of AI called the cloud ceiling board to fall off first, not to raise the ceiling board. What I said at that time was to fall off first. So, the release of DeepSeq will accelerate the deployment of the big model in China. Or from another angle, it will accelerate So, So from my point of view, the answer to your question is actually to strengthen the confidence of Chinese people in AI. The first one is to accelerate the science of AI, so that now it is estimated to guide AI and realize the strategic value of AI, whether it is the enterprise or the individual. So this wave should be quickly covered. So this The impact on us must be It will also speed up More people to get to know Jason Yu Understand his strategic intentions and status, okay As for the technical side, I won't expand it, or Liu Hao will help me supplement it. DeepSeq is a big breakthrough in the entire Chinese model industry.

Yes, I would like to add two sentences. One is DeepSeq is actually in their many innovations have been proposed on the project implementation line. These innovations will be very helpful in reducing the cost of return. Then the reduction of the cost of return will further aid the application of large models in the industry. So what Zorong just said is right. We have also seen very hot customers, whether they are government customers or Internet customers of enterprises, who are actively seeking to run the full version of G-Seq and apply it in their internal use scenarios. On the other hand, they are in training to push out the R1 model in a way that strengthens learning. It also drives other model companies around to strengthen the training direction of fortification learning. We also saw our large model customers. In fact, they are actively participating in the competition in the SOTA field with DeepSeq. So maybe we will see in a very short time. Various large model companies are opening up models and improving the model ability of fortification learning. Or the ability of multi-modal fortification learning models. This is actually also. OK, allow me to quickly translate.

So Mr. Zoucao mentioned that DeepSeq by itself is still a general large language model. But the reason that it has caused such widely received discussion is because because it has proved that the technology company in China can also achieve such impact in the world can can also achieve such height in terms of technology and and and the product and therefore has helped the revaluation of Chinese technology companies and secondly as you know uh the fact of deep seek uh the the advantage of dipstick is that it's greatly decreased the deployment cost and this for uh kingsoft cloud is also a beneficial factor as we have seen that this round of deep seek heat has also caused the kingsoft cloud share price to increase a lot so i have actually talked about this back in 2023 where I used to say that the advance of AI has essentially removed the glass ceiling of cloud business. And therefore, the release of DeepSeq R1 actually will accelerate the deployment of large language models in China. And therefore, more enterprises and more individuals will start to use large language models. And therefore, it is a wider pushing power for the advancement and development of AI and cloud industry in China. And kings of the cloud as active and proactive participants of the market will definitely benefit from it. So in summary, I would say that this is essentially a broader sort of education to individuals and industries about the strategic value of large language models and of AI. And therefore, people are increasingly getting to know Kingsoft Cloud as well in that regard. And secondly, as our SVP mentioned, so from technology perspective, the events of DeepSeq has achieved optimization and optimization in engineering methodologies, which enabled the lowering of costs and increasing the penetration of applications. We have been seeing a lot of potential customers, both from the government and enterprises, as well as from the internet space, have increasing application and adoption of AI and DeepSeq models. And secondly, the DeepSeq success has essentially increased the application of enhanced learning in the large language model and AI industry in China in general. So we are seeing increasing competition and increasing technological improvement in the AI space in China. So that includes enhanced learning as well as multi-model use cases. Thank you.

Thank you, Sophia. This is Henry. Happy to answer a second question regarding the capital expenditures. I understand it's a very important one for many of the investors and analysts. So probably there are a few points I want to address here. First of all, before I go into the numbers, I want to mention our total investment into AI is comprised by two parts. First part is our OPEX, which primarily spending to the data centers, which include direct rentals, electricity payments, and all the related expenses. And on this part, Kingsoft Cloud adopts a very efficient asset light model, which means that we don't have to spend a huge amount of money upfront to build the warehouse and the real estate properties ourselves. but we have a very good partnership with long-term arrangements, for example, with telecom companies and other IDC companies, which can reduce our leverage and increase efficiency. So it is the first part. And the second part, which is our capital expenditures, we buy efficiently, acquire the necessary computing powers, i.e. the servers and other network equipment. So basically it's A plus B. So I can share some numbers. In the past four quarters, we have already spent on the part A, which is OPEX on the data centers, around 2.9 billion RMB on the AI data center. And we spent on the part B of the capital expenditures around five to six billion RMB to acquire the necessary computing equipment and the network equipment. So if you're putting those two numbers together, in addition to the research and the development investment as well. So in the past, probably four quarters, we spent around 8 to 10 billion RMB in total. Going forward, I think for the entire investment into the capital expenditures and also the OPEX going forward, I think the 10 billion RMB total AI investment for the full year 2025 is just a start. So my third point is given the strong, important support from our shareholders, including both Xiaomi and Kingsoft Group, as we have already disclosed and approved by the shareholders in December 2024, we have arranged the leasing and other off the balance sheets arrangement to support our ongoing and growing investment into AI on both OPEX and CapEx. And we also want to remind The audience is the existing cash on our balance sheet. It is not the limit of our capacity into AI investment because of the leasing and other alternative financing arrangements we arrange directly with our shareholders. So I think we are in a good position with a strong demand. We basically can on par to increase the investment. And I think given the revenue growth rate, we have already delivered above the industry average. I think our spending will also catch in pace and maybe also accelerated and above industry average going forward, especially for 2025. Thank you.

Thank you, Alfredo. Next question, please. Thank you. Please stand by. Our next question comes from the line of Brian Gong from Citi. Please go ahead. Your line is open.

Mr. Zhou, Henry, Clark, Nicole, leaders, good evening. First of all, congratulations on your very good performance. I have two questions here. The first question is about the expected growth of revenue in 2025. Can you tell us about the driver behind it? For example, how much do you think our AI revenue will grow this year? Like the related transactions between Xiaomi and Jinshan, which you just mentioned, Thanks management for taking my question and congratulations on the solid results. Regarding the expectation for 2025 revenue growth, kind of show your thoughts and break down the drivers and like how much growth we expect for AI-related revenue and how much revenue contribution from Xiaomi and Kingsoft group. And our second question is regarding marketing. Our marketing performed quite well in the first quarter and I'd like to share your thoughts on our long-term profitability trend. Thank you.

Thank you, Brian. This is Henry. Happy to share some color. So as I mentioned in my prepared remarks, I think a few things I just want to emphasize. First of all, in Q4 2024, the 30% top line on the YY growth has exceeded even the top players in the industry. I think that demonstrates all the verticals, including both public cloud and enterprise cloud, and within the public cloud, AI and the non-AI are all growing at a very healthy rate. Without these fundamental support, it is very difficult to achieve this high growth rate. So that's actually the first point I want to mention. The second part is, given we already completed our business strategy adjustments in the first half of 2024. We do have a very healthy splits and a mix of the climate structure. And as you may know that, for example, the CDM business used to contribute much higher rates. And right now it's only probably 10 to 15% or even lower going forward in terms of how you kept looking at that. So I think our growth has been built on a very solid foundation. So that's why in the prepared remarks, I also mentioned that the growth rate, the key words for 2024 is acceleration on a full annual basis. And AI is going to be a very important driver, but other verticals, as I mentioned, in different product lines will contribute healthy growth going forward as well. So it is actually the first question I just want to share. The second part regarding the margin, while we don't have the official guidance for the margin, but as you can see, Our growth margin has been improving very consistent for the past few quarters. And also, I want to mention our operating cash flow in the past three quarters, starting from Q2 2024, has been also positive as well. That is going to be a very important leading indicator for our margin expansion. And given the AI contribution of our entire margin profile, especially for the EBITDA and OP side, we think the EBITDA and operating profit will grow at more fast pace compared with the gross margin. And we're happy to see that our EBITDA margin actually already exceeded the industry average and maybe on the top tier of industry peers. So I think the EBITDA margin improvements, which is also a leading indicator of the OP cash, as well as the free cash flow, will drop down to the operating profit side. So I think our intention from management is two things. First of all, where our intention is to keep a healthy, steady pace of margin expansion for all three key indicators from gross margin, EBITDA margin, and OP margin. And the EBITDA margin and the OP margin will be accelerated and improved a little bit faster than the gross margin. And the third point, given the cash flow is also important, and we are going to keep a very close eye on cash flow margin expansion, that will also give us a good momentum and support to recycle the cash to input the investment into the new incremental AI investment. I think these are probably the few points I just want to mention. Thank you, Brian. Thank you.

We're happy to hear from you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Linlin Yang from GF Securities. Please go ahead. Your line is open.

Mr. Zhou, Mr. He, Mr. Guan, good evening. I'm Mr. Yang. I'd like to ask two questions. One is about, as I mentioned earlier, in addition to Xiaomi and Jinshan Ecology, which is a very important sector for us this year, how do you see the demand for AI推理? And AI推理, for example, how much can it gain this year or next year? The second question is about, because I see our traditional... My first question is about the AI inference. How do you think about the demand of AI inference, and how much contribution will it be? And my second question is, after the equipment in the legacy public cloud business is fully decreased, will it continue to generate revenue? What is your outlook for this part? Thank you.

我先回答第一个问题啊 你刚才谈到就是除了小米集团自身的之外啊 对于整个这个推理需求的这个是怎么看啊 这是我的观点啊 刚才谈到了那个那个上上一个问题他谈到那个deep seek的时候 deep seek的时候我就谈过我的观点 Uh, this wave will definitely accelerate this large model to this 1,200 pages. In fact, uh, uh, uh, uh, after this came out, we ourselves, whether it's from the public cloud, whether it's from the South China Sea, whether it's from the political circle, from the customer side, I think from the perspective of the number of customers, there is actually a very large uh, uh, uh, uh, uh, uh, Uh, what does it mean to be integrated? It seems to have such a trend, but it is a single customer with a large scale. I don't think we have seen it yet. Uh, but for the future, we still have a lot of this confidence, especially some uh, industry customers. So, uh, this is my, my, my, my, based on uh, the current one, one, one, one, one, one, uh, when you just talked about Xiaomi and Jinshan itself, to be honest, is still very, very prosperous. Almost all of Xiaomi's eco-friendly products, including its cars, mobile phones, etc., and its smart home appliances, will be included in the future. Not to mention the office. We just finished the performance today. Anyway, this should not be revealed yet. Okay, allow me to very quickly translate.

So for those demands of influence outside of the Xiaomi and Kingsoft ecosystem, what we have been seeing is, on one hand, as I was responding to the deep seek question earlier, The advent of DeepSync obviously accelerated the application of large language models and AI to various sectors. So we have been seeing a huge amount of increasing in customer numbers, as well as the strong desire and willingness for them to adopt and apply AI applications. However, on the other hand, if you look at the number of the amount of actual business For example, for one single customer, we might be needing a cluster of 128 units or 256 units or even 512 units cluster. This kind of single customer demand we have not been seeing yet. So in summary, the trend of penetration of AI and deep-seq is very clear for inference, but we think it still might take some time for that to be shown on the financial statements. Now, secondly, for your question about the inference demands within the Xiaomi and Kingsoft ecosystem, the answer is that it's going to be very strong. Essentially, all of the products and services across the Xiaomi ecosystem, including the cell phones and IoTs, including the electric vehicles, all of them are going to be supported by AI and large language models. And on the Kingsoft side, needless to say, actually, the Kingsoft office the WPS AI user account has also been increasing quite, quite, quite strong.

Thank you, Yangli. So regarding the question of asset and depreciation, this is Henry. I'm happy to offer also some colors. So I think first of all, if our audience and investors do some analysis and a comparison, Amazon, AWS, including Google and Microsoft are all using five years of DNA policy for the servers and computing powers. So Kingsoft Cloud, we are conservative in terms of managing the financial policy. So right now, regardless of the server's type and equipment, we are using four years of DNA policy, which means that we basically If we compare with five-year, we actually overestimate certain costs. In turn, there is a potential to release certain profitability down the road. So that's actually my first point. My second point is in the late of 2023 and early 2024, we already at that time forecast that the industry will have a major shift from the traditional ICE to the AI cloud. So at that time, we did a full round of internal review of the asset distribution and our internal resources, and we decided to really filter out certain assets from CPUs and the traditional assets. So we did the asset impairments and some of the changes on provisions of asset evaluation. And right now, all the assets on the balance sheets, including the $5 billion capital expenditures required for the computing power in the past few quarters, which currently sitting our balance sheets are all healthy and the revenue and the profit of the generating assets. And it actually can match with our revenue incremental opportunities. So I think right now we do have a kind of healthy asset balance sheets on the left-hand side and also have a good potential to improve the shareholder return and the profitability and the cash on the return, especially the OP cash on the return on the right-hand side. So we think we are in a very good balance on the left to the right, and we can improve the foundation of our business model and efficiency going forward. Thank you.

Thank you. Our next question comes from the line of Wenting Yu from CLFA. Please go ahead. Your line is open.

Thank you for your question. For example, since the beginning of 2024, the price of high-performance AI servers has been declining, and the supply of push servers is relatively poor. In this case, can you share with me the pricing strategy in terms of GPU and revenue? How much impact will such a server change make on our AI and revenue? I'll translate the question. We've seen that prices for high-performance AI service have been falling in 2024, while inference services are relatively well-supplied. And how will this affect our pricing strategy for GPU cloud revenue and its impact on our AI cloud revenue and earnings? Thank you.

Thank you, Wenjing. Thank you, Wenjing. First of all, thanks for the very good question. And as you know, on this quarter, we'll deliver probably, I say probably, I put a big disclaimer, but maybe true, the highest growth rate in the industry for all the public companies in the internet sector, which has cloud business. And number two, given the growth profit, we're already reaching probably also on the top tier across all leading players on this quarter. So you may understand that we want to remain relatively consciousness about our business secrecy and very sensitive information. So we don't want to hurt investor interest because we share too much information on our success tips. So on that backdrop, what I can share is I think we do have have a higher margin compared with traditional cpo centric ice services so i think it's kind of first topic first point the second point is um depends on the client demands we do have a good mix of all kinds of different computing formats which can fit into the client demands and we're charging them as they demand as the demand goes up so it's a supply demand which actually favor Kingsoft Cloud as a very important supplier in this current market. And the number three is the pricing on the GPU. As you know, it actually links to a core production requirement of all our major clients. They use AI and computing as the important production and productivity tools and important embedded functions in their workflows. So in that sense, as you understand, it's always about value. So I think our value proposition has been lifted from a traditional ICE services, which may have a limited ceiling of profitability, to a much higher potential in the current market because of the GPU AI services become so important for our client internal workflow and for their final product. So they're willing to pay a much higher price fees and the pricing because of the necessity of the technology value. So putting all things together, as I mentioned, I think we do have a very different pricing model for the AI-related services, which are higher than the CPU and the traditional AI. And we already shipped our strategy from a traditional IT cloud services company to an AI cloud and a solution services company going forward. So I think that's actually providing very fundamental different changes and approach for the pricing. But as I mentioned, because the pricing is so sensitive and right now we are doing so good compared with industry average, so we don't want to say too much regarding our strategy because it is a business confidential, as you may understand. Thank you.

Thank you, Linting. This concludes our earnings call today. Thank you all once again for joining us. 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.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.