Kingsoft Cloud reports Q2 2025 revenue of RMB 2.35 billion, up 24% YoY, fueled by 120% growth in AI business; strong outlook for continued expansion.

OPERATOR - (00:04:11)

Good day and thank you for standing by. Welcome to the Kingsoft Cloud second quarter 2025 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 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star one and one 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 Zhan. Please go ahead.

Nicole Zhan - (00:04:53)

Thank you. Operator. Hello everyone and thank you for joining us today. Kingsoft Cloud second quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com as well as on PR newswear services. On the call today from Kingsoft Cloud, we have our Western CEO, Mr. Zhou Cao and the CFO, Ms. Li Yi. Mr. Zhou will review our business strategies, operations and other company highlights followed by Ms. Li who will discuss the financial performance. We will be available to answer your question during the Q and A session that follows. There will be consecutive interpretation. Our interpretations are for your convenience and reference purpose only. In case of any discrepancy, 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 securities 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 UN's standing, well known or unknown risks, uncertainties and other factors all of which are difficult to perceive and many of which are beyond the Company's control which may cause the Company's actual results, performance or achievements to differ materially from those in the forward looking statements. Further information regarding this and other risk uncertainty of factors include in the Company's filings. With these, the Company does not undertake any obligation to update any forward looking statement as a result of new information, future events or otherwise as required under the 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.

UNKNOWN - (00:06:54)

Dajah Benji Do Ji Ji Su Nang Tongda.

Zhou Tao - CEO - (00:09:36)

Hello everyone. Thank you and welcome all for joining Kingsoft Cloud's second quarter 2025 earnings call I am Zhou Tao, CEO of Kingsoft Cloud. During the past three years the company firmly implemented high quality and sustainable development strategy, fully embraced AI opportunities and our business fundamentals have taken on a completely new look. We have not only achieved growth in both revenue and profitability, but also extensively upgraded our IaaS and PaaS cloud service capabilities for the generative AI era. This quarter our business sustained growth capability was once again verified. The high speed growth of AI intelligent computing business has driven incremental demand for basic cloud services, further accelerating revenue growth. First, our Q2 revenue reached RMB 2.35 billion representing a year over year growth of 24%, a significant acceleration from previous quarter's 11%. Year over year, both public cloud and enterprise cloud achieved year over year growth, among which public cloud increased significantly by 32%, reaching RMB 1.63 billion. Second, our embracement of AI continues to unleash favorable momentum. This quarter, AI growth billing reached RMB728 million, representing a year over year increase of over 120% and a quarter over quarter growth of 39%, accounting for 45% of public cloud revenue. In other words, over the past two plus years, while successfully driving high quality development in our basic cloud business, we have also built and intelligent computing cloud business of nearly equivalent scale. The rapid development of generative AI itself and the demand for its implementation across diverse industry verticals have lifted the ceiling of cloud services market. We will continue to embrace AI, enhance our technical capabilities, refine our intelligent computing products and be a leading player in the era of generative AI. Third, as the sole strategic cloud platform of the Xiaomi and Pingstop ecosystem, we firmly grasp the enormous demands of ecosystem clients and pursue symbiotic growth and mutual success with the ecosystem. This quarter, revenue from Xiaomi and Kingsoft ecosystem reached RMB629 million, up 70% year over year, with its contribution to total revenue Further increased to 27%. In the first half of 2025, revenue from Xiaomi and Kings of the Ecosystem reached RMB 1.13 billion, accounting for 40% of the total annual cap of related party transactions in 2025. Benefiting from the continued prosperity of the Xiaomi and Kingsop ecosystem and ever expanding business opportunities, we are fully confident in further growth of ecological business collaborations in the second half of this year. Now let me walk you through the key business highlights for the second quarter of 2025 in public cloud space. Revenue reached RMB 1.63 billion this quarter, representing a year over year increase of 32%. The development of intelligent computing cloud and basic cloud has been mutually reinforcing with cloud consumption growth from both ecosystem internal and external clients advancing in parallel. In terms of intelligent computing cloud, the solid demand for for training computing power services and the gradually growing demand for inference computing power services have laid a solid foundation for the sustained development of intelligent computing cloud. On one hand, the implementation and application of AI across various industries have begun to emerge. Customers such as large language model companies, Internet audio video services, real time communications, online travel agencies and gaming have added incremental demand for AI rapid inference. On the other hand, the growth in data volume driven by AI has boosted the growth of basic cloud services and growth in such high quality basic cloud services has offset the revenue pressure caused by our proactive scaling down of low margin services. In terms of ecological customers, we deepened our cooperation with Xiaomi integrating the advantageous resources of both parties, providing long term stable and high performance cloud computing services for Xiaomi. We also ensured the smooth launch of Sword Heroes Fate Zero by CSUN Games, a subsidiary of Kingsoft, by providing products and services such as database and cloud.

Ji - (00:16:35)

Elastic Compute.

UNKNOWN - (00:17:25)

Ping. Dai Suh Nanfang E Kadashang the Suji.

Zhou Tao - CEO - (00:18:43)

In enterprise cloud space revenue reached RMB724 million this quarter representing a year over year increase of 10%. In terms of public services sector, we partnered with Kingsoft Office to take the lead in officially releasing the Kingsoft Government AI all in one server, increasing investment in AI plus public services scenarios and providing full stack AI capabilities including intelligent computing services, platform services and large language model services. Through the strong cooperation between kingsoft Cloud and Kingsoft Office, we have successfully integrated AI technology with practical applications in public services sectors. This provides scalable and replicable solutions for customers. Digital transformation in healthcare sector Drawing on our industry leading capabilities in top level planning, comprehensive data governance, robust technology foundation and AI capability, we're continuously building the information capabilities for regional healthcare systems and hospitals in the field of digital health. In this quarter we won the bid for the Changchun Municipal Public Health Information Platform Project facilitating the interconnection and sharing of local health big data. In addition, we're also working on the construction of the Data Lake project of Zhujiang Hospital of Southern Medical University and the Cloud Native Hospital Information System of Zhongnan Hospital of Wuhan University. In the field of enterprise services, we are committed to implementing AI in multi industry scenarios and and complex business models, truly improving enterprise operational efficiency and achieving process intelligence. This quarter we took the lead in cooperating with a major state owned bank to advance the credit report automation project Building a benchmark project in the banking industry, we applied AI capabilities end to end and in complex core business scenarios, enabling intelligence throughout the entire process including data collection, analysis, decision making and report writing which has significantly improved the work efficiency of bank account managers.

Kung - (00:21:24)

Kung Su Ji Su Yun Taiyanjin Woman Jihua Xing Liu Shuntu Ji Fang.

Zhou Tao - CEO - (00:22:29)

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 experiences across our core product offerings. We set up basic cloud and intelligent computing cloud R&D teams separately but collaboratively to improve the AI path capabilities on top of our robust public cloud infrastructure. This quarter we continued to optimize our AI suites using cloud container services as the foundation. We provide out of the box cloud native components such as heterogeneous resource management, AI workload scheduling, intelligent operation and maintenance and resource monitoring, offering full lifecycle support for large language model scenarios. We continue to optimize the capabilities of the StarFlow Training inference integration platform, providing data sets, simulation service capabilities required by the AI industry as well as full lifecycle management of data processing tasks. Our intelligent computing cloud technologies help customers improve model training performance and save unit costs through optimized resource management, data governance, network communication and protection. In addition, we released a new version of kingsoft Cloud Galaxy Stack, supporting multiple mainstream processor platforms and domestic operating systems and improving its case compatibility for private deployment scenarios.

UNKNOWN - (00:24:08)

Tongshu Yun Ji Sangi so Father.

Zhou Tao - CEO - (00:25:13)

Overall, AI is injecting new momentum into cloud computing. While cloud computing in turn is essential to support rapid model training and adoption, we continue to build and upgrade our intelligent computing cloud resources and at the same time leverage our expertise to enhance AI implementation into key sectors like public services, financial services, healthcare and other fields. AI adoption is accelerating in various sectors and its substantial ability to improve productivity, enhance user experience and generate additional revenue streams has been verified. Looking ahead, we firmly believe the market opportunities brought by AI revolution has just begun. We will leverage on the comprehensive capabilities we have accumulated over the past few years by embracing AI, continue to deepen our commitment to the Xiaomi and Kingsoft ecosystem and high quality external customers, and focus on polishing our core products and solution capabilities to create long term value for our customers, shareholders, employees and other stakeholders. In addition, this quarter I would like to extend warm welcome to the company's new CFO, Ms. Li Yi. I will now pass the call to Li Yi to go over our financials for the second quarter 2025. Thank you.

Li Yi - Chief Financial Officer - (00:26:35)

This is Vogu Today class. Thank you all for joining the call today. It's my pleasure to join Kingsoft Cloud. I'm looking forward to working collaboratively with the team to navigate the challenges, capitalize on opportunities and do my best to contribute in the execution of high quality and sustainable development strategy. Thanks for the trust of the board, company and the stakeholders. Now I will walk you through our financial Results for the second quarter of 2025 this quarter our AI strategy continue to be successful, driving business expansion across all products. Total revenues for this quarter will RMB 2,349.2 million, reflecting a 24.2% year over year increase of these revenues from public cloud services were RMB 1,625.3 million, up 31.7% from RMB 1,234.5 million in the same quarter last year. This growth was primarily fueled by a surge in AI related business with growth ceiling hitting over 120% year over year increase to RMB 728.7 million. Revenues from enterprise cloud services reached RMB 723.9 million, up 10% and 1% from R&B 657.2 million in the same quarter last year, primarily driven by high demand for IT delivery services and steady progress on our external enterprise projects. Delivery total cost of renews was RMB 2010 up 27.8% year over year, which was mainly due to our investment into infrastructure to support AI business growth. IP cost costs increased by 10.3% year over year for RMB 728.2 million to R&B 803.1 million this quarter, which was mainly due to our increased purchase catering to our new AI cluster's demand. Depreciation and amortization costs increased From R&B 265.9 million in the same period last year to R&B552 million this quarter, mainly due to depreciation of newly acquired high performance servers to expand our AI business as well as the regular CPU servers to support the computing and storage demands followed by AI related customers as the dataset exploding. Solution development and service costs rose by 14.8% year over year from R&B 491.1 million to R&B 563.7 million driven by expansion in Solution Architecture and delivery personnel to support the revenue growth. Fulfillment cost and other costs were RMB 25.8 million and RMB 65.8 million this quarter respectively. Our adjusted gross profit for this quarter was RMB 350.6 million increased by 8.4% year over year and 7% cut off quarters. It was mainly due to the expansion of our revenue scale and the enlarging contribution from AI business. Adjusted Gross margin was 14.9% in this quarter compared with 70% in the second quarter 2024 and 16.6% last quarter. Our adjusted gross margin has been negatively impacted by the higher cost of salary along with expansion of our AI business, an upfront cost incurred for certain customers for its future revenue activity as well as the price pressure of certain large scale clusters on the expense side. Excluding share based compensation costs, our total adjusted operating expenses were only 560.7 million increased by 1% increase year over year and 31.2% quarter over quarter of which our adjusted research and expenses for RMB 183.1 million decreased by 8.5% from same quarter last year. The decrease was mainly due to the decrease of personal risk resulting by our strategic adjustment for research teams. Adjusted selling and Marketing expenses were $109.5 million decreased by 6.8% year over year. Adjusted general and administration expenses was RMB 268.1 million increased by 12% 8% year over year due to the increase of credit loss resulting from prepayment meditude supply related to the procurement of certain servers. Our adjusted operating loss was RMB 166.8 million narrowed by 11.7% from RMB 188.5 million in the same period last year. The improvement was mainly due to the share based compensation adjustment. However, the adjusted operating loss increased compared with RMB 55.8 million from last quarter. It was mainly due to the increase of credit loss caused by the prepayment made to certain server providers. Our non GAAP EBITDA was RMB406 million increased by 5.7 times of RMB66 million in the same cost last year. Our non GAAP EBITDA margin achieved 73% compared 3.2% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development, strategic adjustment of business structures and our strict control over cost and expenses. As of June 30, 2025. Our cash and cash equivalents total RMB 5,464.1 million provide a strong liquidity position to support operations and AI investment. The increase was mainly due to our public equity offering and private placement with Kingsoft Corporation as well as the prepayment received from strategic customers which will be used to support its further class construction. This quarter all capital expenditures including Those financed by third party reached RMB 1,135 Million and rights of used assets obtained in exchange for balance lease liabilities for RMB 1,665.8 million. Moving ahead AI technology has created a wealth of opportunities for cloud computing. Not only the computing demands brought by modern training and inferencing, we also help enterprise to adopt AI capabilities into the complex business scenarios. Our company as the enabler of AI provide cutting edge technology and computer resources to all kinds of customers, help them to leverage sophisticated AI models and platforms without the need for extensive in house infrastructure and large amount of capital expenditures, significantly lowering the barriers entry and accelerating technological risk across various sectors. Thank you all.

Nicole Zhan - (00:35:06)

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

UNKNOWN - (00:35:17)

Thank you.

OPERATOR - (00:35:19)

Thank you. As a reminder to ask a question, please press *11 on your telephone and wait for your name to be announced. To answer your question, please press one and one. Again, we will now take the first question from the line of when think you from clsa. Please go ahead.

UNKNOWN - (00:36:13)

Out.

Daniel - (00:36:54)

I'll translate the question. So the first question is could management share the outlook and guidance on the revenue outlook for the second half of this year, also the first half of next year? And how is Xiaomi's investment pace in AI and autonomous driving infrastructure? Additionally, what are the AI capacities and what trends can industries like AI Six Tigers and the others do we observe large model vendors load their model iteration and reduce demand for computing consumption? And which other industries show strong AI infrastructure in mind? And second question is regarding the gross margin. This year KCA has adopted more leasing of compute resources and this had already impacted gross margin in the second quarter. And looking ahead, do we expect gross margin continue to decline in the coming quarters as we use more leasing? What is the current proportion of lease capacity in the overall computing resources pool and what is target or preferred racial thank you.

UNKNOWN - (00:38:15)

Gonna take you got cheese bench Daniel.

Zhou Tao - CEO - (00:40:04)

So allow me to translate briefly for this for Mr. Zhou's answer to the first question. So generally speaking, since you were asking about the expectation for the second half growth, I would say that the second half revenue growth we would expect that to be stronger and better than the first half. That's the general holistic revenue top line situation that I would like to share with you. And secondly, since you asked about that Xiaomi, what I can say is that we are in the process of delivering an even larger cluster for Xiaomi's computing power demand without further details about the Xiaomi confidentiality concerns. Thirdly, since we asked about the trend, especially in terms of training versus reference, I would say that after the debut of Deep Seq, the different players in the market started to exhibit different patterns in terms of investment. Some of the players continued to invest heavily in the training of models and that would include Xiaomi as well. Right. But some other players actually have to some extent decreased some of the investment in computing power demand. However, we have also been seeing some of the other large enterprises since last year continue to have even stronger inference computing power demand for inference. So I guess generally speaking it's hard to comment on each player, each customer that we engage with due to customer confidentiality reasons, but I would say that overall speaking the market demand for AI continue to be very strong.

UNKNOWN - (00:42:16)

Sup Credit Digger Maori so Die Moshe Dai Jen Dying so this meeting. The. Sundai Moshe.

Zhou Tao - CEO - (00:45:57)

So in relation to the question regarding gross profit margin and its future trend, I think this is a very good question. I would like to put that into the context of our growth model since last year. If you recall, since last year our old model was purely based on self procurement which comes with a high capex level and also comes with a high gearing ratio. We've been asked a lot of questions by the investor community highlighting to us the potential risk in relation to that model. So since the second half of 2024, given that consideration, we have adjusted and pivoted to some of the new models which we would call the resource pool model or the profit sharing model where capex level would be relatively lower and also we would benefit from lower ratio. So overall speaking because of that shift of that procurement model, although there is a slight decrease of chipping margin, however, I would say we generally achieved the strategic choice that we made for that changing of procurement model and therefore I think it's actually quite a good success. It's a successful result. And since you also asked about the ratio between the self owned assets versus the profit sharing model, I would say that we didn't. We haven't disclosed the particular number in that regard. However, so far I can tell you that the self owned assets still command the majority of those assets on our balance sheet in the future, I would say that in addition to the two models that we already have, we're already exploring a new model which we have applied in one of the key customers, which I would call the agent model, which essentially means that we would do on our customer's behalf. With our help, we would do the procurement, we would do the construction, and we would do the operation on behalf of that customer. So putting this together, we're actually having three models and the particular adoption of any one of these models will purely depend on the demand of those particular customers and the overall balance that we would like to achieve in terms of gearing ratio and capex and indebtedness level. So I would say that in general as we continue to run our different models and their combinations in the next few quarters we'll be more we'll have a clearer picture as to where the gross profit margin margin will stabilize at. But as far as I can see from this point in time, I would say that the gross profit margin margin level relatively will stabilize at where we are right now today. Thank you.

UNKNOWN - (00:48:49)

Thank you.

OPERATOR - (00:48:50)

We will now take the next question from the line of Xiaodong Zhang from cicc. Please go ahead.

UNKNOWN - (00:49:24)

Jesus.

Daniel - (00:49:57)

So thanks management for taking my questions and my first question is regarding our capital expenditure plans. So could management update on your capital expenditure plan for this year and what is the expectation for AI computing power that will be ready to use as a year end? And secondly the year over year revenue growth of industry cloud has reaccelerated from the last quarter order so could you please share some color on the demand and also your delivery pace of the industry cloud clients. Thank you.

Li Yi - Chief Financial Officer - (00:50:38)

For this year's capital expenditure includes self procurement and needs to purchase models. As we mentioned last quarter for the total year is around 10 billion. For the first half of the for the first half of the year actually we have spent around 5 billion as JoJo mentioned now we have three models so we go because we have quite a strong cash position at 31 June. So that is why at this time we will adjust our procurement process and models according to the customer customers demand. So we still think for the whole year the temperature expenditure is around the 10 billion.

Wang Shang - (00:51:44)

She jaw shanian we are tongue the way out so you would kind of Shi Cho face hang Wang Shang woman bid out okay.

UNKNOWN - (00:54:22)

Even. Somaji.

Zhou Tao - CEO - (00:54:50)

So allow me to quickly translate. So first of all I would say that what you observed is correct. The trend for enterprise cloud revenue in Q2 to grow faster than before. Now the first reason I would say is the advent of Deep Seq. To be quite fair, the advent of Deep Seq has a very good and very deep impact in terms of the relatively more traditional industries in China. It's like a customer education process where we're seeing a lot of strong demand coming from the public services, from healthcare, from education, from financial services, et cetera, et cetera. However, we currently still have this pain point which is we're still not at the position where we're able to provide our customers with a very easy to use application. So the final landing or application of the software or AI solution is still not there yet. So the strategy of TeamSoft Cloud, what we internally tell our management is actually we need to refrain the impulse to actually spread out our work and our energy across too much and too many verticals. Rather, we would ask the company, the people to actually focus on a few focus areas where we have relative competitive advantages and then working on those solutions to achieve the so called 021 breakthrough and then further do the one to N spreading out an application. So that's what we're doing now internally in terms of the enterprise cloud and its combination with generative AI. Now you also asked about the trend for the second half. Generally speaking for enterprise cloud, the delivery peak had always exhibited this seasonality that the second half to be better than the first half. So we as we look at the forecast for second half, the growth rate for revenue for the second half of this year, we do expect that to be significantly better and higher than the first half of this year. Thank you.

OPERATOR - (00:57:05)

Thank you. We will now take the next question from the line of song to from CTICs, please go ahead.

Song To - (00:57:29)

Cannot be a candle. So I will translate the question. We see that the current chip supply set is undergoing some changes. H2O resumes supply B330A and other chips will also be sold. But at the same time issues such as chip security vulnerabilities may also suggest that the next development needs to be more cautious. Do we have made strategy adjustments to our chip proceeds such as embracing domestic production? Thank you.

Suan - (00:58:53)

Suan. Yeah. Woman bowed Shimpian food We got Yeshua Koi she.

Zhou Tao - CEO - (01:02:00)

Okay. So actually to your question, we've been given this a lot of thinking and contemplation from a strategy perspective in 2023 as we started to venture into the AI generative AI computing cloud business because this is the general broader picture under the Sino US geopolitical conflict which gave rise to huge uncertainty in the supply chain. So on one hand, now given that backdrop, on one hand we embrace the compliant chips that are supplied in China and on the other hand we had also been closely monitoring and following domestic firms for supply chain. To be quite fair, the restriction for H20 actually happened on the day of our equity follow on issuers and the ensuing lifting of that Restriction happened a few months later. However, we're not too surprised by that because given the backdrop, given the conflict nature. So also we have been in close business cooperation with suppliers for domestic ships in China, starting from one firm to many firms and actually a few of them we have very deep collaboration with. So in summary, although there have been back and forth in terms of supply chain uncertainty, however, there's no material impact to our capabilities to supply and satisfy demands of our customers. Now, also zooming into our particular situation, right, because the majority of our customers are large customers, like key accounts or large customers, and combining the strategy that I talk about so far, our capacity and all the channels that we have built both for domestic chips and also for overseas chips are sufficient to supply their demand. So that is the situation right now in the short term. However, I do think that in the longer term, if there's going to be, for example, like a killer app Genai application where the inference demands for customers experience explosive growth and then the demand from the industry surge significantly, we do think that there's a chance that in the future the supply would not be able to meet the demand. So in short, in the future the balance between supply and demand largely depends on the domestic chips capabilities as well as their performance. Personally, I take a relatively conservative view that I think in the future, if demand should surge like that, there's a chance that the domestic chip supply will not be able to meet the demand in the market in China. But that's for the longer term. Thank you.

OPERATOR - (01:05:05)

Operator, please.

Nicole Zhan - (01:05:08)

Thank you. I would now like to turn the conference back to Nicole Zhan for closing remarks. Thank you. Due to timeline, we conclude our earnings call today. Thank you once again for joining us today. If you have any further questions, please feel free to contact our team. Look forward to speaking with you again next quarter. Have a nice day. Thank you. Goodbye.

OPERATOR - (01:05:32)

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