Kingsoft Cloud Holdings Limited (KC) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Kingsoft Cloud’s First Quarter 2020 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. [Operator Instructions] Please be advised that this conference is being recorded today. I will now like to hand the conference over to your speaker today, Ms. Nicole Shan. Thank you. Please go ahead.

Thank you, operator. Hello, everyone and thank you all for joining us today. Kingsoft Cloud’s first quarter 2020 earnings release was distributed early today and is available on our IR website at ir.ksyun.com as well as on Globe Newswire Services. On the call today from Kingsoft Cloud we have Mr. Yulin Wang, Chief Executive Officer; and Mr. Haijian He, Chief Financial Officer. Mr. Wang will review business operations and company highlights followed by Mr. He, who will discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows. Before we begin, I like to remind you that this conference contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defect in the U.S. Private Securities Litigation Reform Act of 1994. This forward-looking statements are based upon management’s current expectations and current market and operating conditions and are related to events that involve known or unknown risks and 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 materially from those in the forward-looking statements. Further information regarding this and other risks and uncertainties factors are included in the company’s filings with the U.S. SEC. The company doesn’t undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under the applicable law. Finally, please note that unless otherwise stated, our figures mentioned during this call are in renminbi. It’s now my pleasure to introduce our Chief Executive Officer, Mr. Yulin Wang. Please go ahead.

[Foreign Language] Thank you, Nicole, and thank you all for joining us for our first earnings call as a public company. We were successfully listed on NASDAQ on May 8, 2020, a significant milestone in our company history and a new chapter for us. Since the inception, we help in building strong relationships with enterprise customers with high-quality services. As a public company, we are now committed to create value for our shareholders. We have built a solid foothold in the cloud-based game and video verticals and have strategically expanded our presents into financial and traditional enterprises. We focus on select fast growing verticals, from here to our technology driven approach, to growing our business and are committed to providing the cloud services and solutions to our primary customers. With the focus and full commitment on our cloud business, we are able to avoid potential conflicts of interest and maintain a unique neutral position in the cloud industry. As enterprises are paying more attention about data security and to avoid potential conflict of interest, more and more leading enterprises are adopting multi-cloud strategy, which has further entertained our rapid growth due to our neutral position. Before I begin, I like to express our deepest sympathies to all those affected by the current global pandemic situation. We will continue to support our clients and their communities. Our cloud-based services are critical to business during this difficult economic environment. The pandemic has a top reliance on digital solutions and remote working abilities. Many customers have approached us since the outbreak in need of more efficient cloud services deployment and technological support, which gives us confidence in the business development in a mid to long-term, while at the same time, ablating our profile in the cloud market. [Foreign Language] We had an outstanding quarter with total revenues reaching RMB1.39 billion, an increase of 64.5% from the same period of last year, mainly driven by our focus on select strategic verticals and primary customers. I’ll now share some highlights. Turning to the video sector of the industry. Our holistic AI-driven video cloud solutions that have built our industry leading edge computing platform helping deployed extensively and continue to grow rapidly. Reliance on any the reclamation of our above high-capacity and elastic cloud delivery network is continuing to drive the adoption of our business applications. For example, in January 2020, our platform was used to provide backend technological support for spring festival Gala. The most watched TV show in China that air during the Chinese New Year holiday. We have these multiple cloud broadcast stations and transcoding parameters that have a disaster recovery system deploy and engineering dispatch system and achieve second level emergency response [indiscernible] In addition, we would have first in the sector to support Quick UDP Internet Connections, or QUIC loud streaming solution, which can significantly reduce licensee and interpreted and smooth video streaming experience. For the games – for the game sector, we officially launched a cloud-based game trial platform, in this February, which provides a full stack cloud-based game solution covering IaaS and PaaS. In cooperating with game companies, we are now providing players with cloud-based gaming experiences through this game cloud platform and anticipate that there will be more expensive adoption going forward. In addition, we help again to implement our go-to-market strategy for our cloud-based game solutions during the quarter, providing high-quality services across the – industrial revolution, including game developers, distributors and operators. Malware is sub verticals of internet industry beyond video and gaming. We have also made solid progress. For example in education vertical, we provided a digital interactive classroom solution to a leading online education company during the quarter, including IaaS and PaaS level of services, this solution facilitates online live teaching and ensure a smooth transition for students from offline to online during the pandemic. [Foreign Language] We continue to power traditional enterprises as they shift their IT infrastructure to the cloud. For example, to meet growing demand from cloud services from traditional enterprises during the COVID-19 outbreak. We launched eight dynamic mitigation solutions. These solutions cover sectors such as emergency supplies management, collaborative office systems, remote education and remote healthcare. One example was our development of an emergency supplies management system in January 2020, which was offered to public health care organizations on the front lines of virus containment across 30 provinces and cities in China. The decisions would deploy a certain way of charge was part of our commitment to maintain the highest level of coverage social responsibility, or CSR. Meanwhile, our protest and technologies are increasingly being recognized by public services organizations and enterprises for their quality and the reliability. And we have used the opportunity to accumulate reach services experienced. In addition, we provided cloud technology to enhance the control room of a leading domestic utility infrastructure enterprise during the quarter, including KDL, deep learning platform and inherent identification model development services, which has been highly recognized by the customer. We will continue to actively invest in opportunities around the theme of constructing new infrastructure, which includes the fifth generation big data center, AI industry and IoT. We are committed to employing enterprise with our cloud services. In the financial service sector, we have increased our investment into the research and development of the distributed database and maintain our competitive advantages in this era. We continue to empower financial institutions and internet companies, as well as traditional enterprises with our strong acknowledged cloud abilities. As example, during the quarter, we deployed Galaxy Stack our priority public cloud architecture within the client’s internal IT infrastructure to a leading domestic internet bank. [Foreign Language] Now onto our AIoT segment that was launched in 2019 in cooperation with Xiaomi and their expensive IOT ecosystem. We have established our phase for our IoT product and so its capabilities. Liaoning Province is probably [indiscernible] community project, which begins to deliver a precise during the quarter. This is a first local small community covering both indoor and outdoor environments. Since enterprises, communities and cities seek to adapt infrastructure-enabled by intercompany devices and solutions. This field will create new market opportunities in the future. Going forward, we will continue to focus on deepening our solution offerings across the different workflows, improving operational efficiency, achieving high quality, sustainable growth, and increasing shareholder value. We firmly believe in the growth potential of cloud solutions and our confidence in our ability to capture them. [Foreign Language] I will now turn the call over to Henry to go over our financials for the quarter. Thank you.

Thank you, Yulin and thank you, Nicole. Hello everyone. I will discuss the financial performance of this quarter. Please be reminded that all announced currency here will be RMB. Please also refer to our earnings release for detailed information. Before we go through the details, I would like to highlight the following four points. First of all, in our F-1 prospectus, we provided revenue outlook of the first quarter of 2020 which ranged from RMB1.35 billion to RMB1.4 billion. The total revenue of this quarter finished at the top end of range at RMB1.39 billion, representing an increase of 64.5% year-over-year and exceeding the growth of the public cloud industry in China in general. Second, we achieved the positive gross profit for the third consecutive quarter. And adjusted gross margin has continued to improve gradually for seven quarters. As a result, the adjusted gross margin increased rapidly from negative 5.3% in Q1 2019 to positive 5.3% in the Q1 2020, an improvement of 10.6 percentage points. Number three, adjusted EBITDA margin increased as well, up from negative 12.9% in the Q1 2019 to negative 2.8% in the Q1 2020, an improvement of 10.1 percentage points. Adjusted EBITDA margin continued to improve steadily for seven consecutive quarters. Lastly, we have maintained a healthy balance sheet and sufficient liquidity. As of March 31, 2020, we had cash and cash equivalents, term deposits of RMB1.97 billion. On 8 May, we have raised US$551.3 million of the net proceeds from the IPO. Going forward, we will continue to remain and maintain the healthy balance sheet and ensure sufficient investments into R&D and IT infrastructures. To summarize, we are pleased to have maintained the high revenue growth rate and significantly improved our profitability. Growing economic of scale have been already benefiting our performance. Now I will go through the details of the financial results. Our public cloud service revenue increased by 58.4% year-over-year to RMB1.21 billion. The increase is primarily due to the increasing demand of a cloud service from internal verticals. Our top line performance has shown good level of resilience nature of our cloud business model in the middle of the challenging environment. Growth in the users and time spent on those two verticals, including video and gaming verticals, as well as a growing demand for our technologies contributed into the revenue growth. Enterprise cost service revenue increased by 118.8% year-over-year to RMB181.6 million. Enterprise cost service revenue accounted for nearly 13.1% of our total revenue in the first quarter, up from 9.8% in the same period of 2019, indicating a more diversified revenue mix. We are pleased to see that traditional enterprises increasingly shift on premises IT budget to the cloud. Our robust financial results this quarter reflect this trend and demonstrate that a diversified revenue streams will continue to drive future growth for us as we have [indiscernible] Cost of revenue increased by 48.2% year-over-year to RMB1.3 billion. IDC costs increased by 36.1% year-over-year to RMB920.2 million, but as a percentage of total revenue decreased from 80% during the same period last year to 66.2% in the first quarter of this year. D&A costs increased by 51.3% year-over-year to RMB204.8 million, but as a percentage of total revenue, D&A cost declined from 16% during the same period last year to 14.7% in the first quarter of this year. Staff costs were RMB13.1 million and other costs were RMB182.1 million during the quarter. As we continue to advance our cloud technology, we are seeing the continuous improvement of efficiency of our IT resources, and as a result, IDC costs and D&A expenses, as a percentage of total revenue will gradually decrease potentially. Adjusted gross profit reached RMB74.2 million, compared to adjusted gross loss of RMB44.6 million in the same quarter of 2019. Our adjusted gross margin turn a positive in the third quarter of 2019, and it further improved to 5.3% this quarter. Thanks to economic scale and operating leverage, we are rarely pleased to see our profitability continue to improve. Total operating expenses increased to RMB359.6 million, up 69.4% from the same period 2019. Operational leverage and efficiency improved during this quarter, and as operating expenses excluding the impact, our share-based compensation has continued to decline. R&D expenses were RMB195.7 million, representing a 57.3% increase year-over-year. The increase was primarily due to our business development and increased headcount in R&D personnel. We have built our business around our core team of outstanding engineers. As of March 31, 2020, we had 1,213 R&D personnel accounting for approximately 60% of total employees. We believe our robust technology expertise and engineering focus will further enhance our position as the largest independent cloud service provider in China and drive greater operational leverage and efficiency over time. Selling and marketing expenses were RMB88 million, representing 66.5% increase year-over-year. G&A expenses were RMB76 million, representing 116.3% increase year-over-year, which was primarily driven by the increase of share-based compensation expenses. Adjusted EBITDA reached negative RMB39.4 million, compared to negative RMB108.8 million in the same quarter of 2019. Adjusted EBITDA margin also improved steadily, reaching negative 2.8% in the first quarter from negative 12.9% in the same quarter of 2019. Adjusted net loss, which exclude a share-based compensation, foreign exchange impact and a change in the fair value of financial instruments and other income expenses were negative RMB243.4 million, compared with negative RMB225.3 million in the same period of 2019. As of March 31, 2020, we had cash and cash equivalents, term deposits of RMB1.97 billion. We will maintain a prudent approach towards capital expenditure as a healthy balance sheet. In this quarter, our capital expenditure was RMB282 million. We received the net proceeds of US$551.3 million from our IPO early last month. The proceeds will be mainly used to further investment in upgrading and expanding our infrastructure, technology and product development, expansion of our ecosystem and supplement our working capital. Moving to the outlook, we’re currently expecting the revenue for the second quarter of 2020 to be between RMB1.5 billion and RMB1.54 billion, representing a year-over-year increase of 60% to 65%. Assuming our resource utilization and the benefits of economic of scale to continue, we expect adjusted EBITDA margin to be breakeven sometime to what end of this year, either in the fourth quarter or in December. However, the above outlook is based on the current market conditions and reflects the company’s preliminary estimates, which are all subject to change, as uncertainties of COVID-19 enduring effect. Finally, before we conclude the prepared remarks, I would like to talk about a recent deal passed by the U.S. Senate. Our auditor Ernst & Young Hua Ming LLP is an independent public accounting firm registered with a Public Company Accounting Oversight Board or the PCAOB, and is a part of the Ernst & Young global networks, which show the global commonly technology, tools, methodology, training, and quality assurance monitoring. Our financial statements are prepared in accordance with U.S. generally accepted accounting principles or U.S. GAAP. Ernst & Young Hua Ming LLP has conducted the audits of our consolidated financial statements, including in our registration statements, in accordance with the standards of the PCAOB and issued on qualified opinion that our consolidated financial statements represent fairly in all material respects our financial positions, results of operations and cash flows in conformity of U.S. GAAP. There is the existing framework for PCAOB to contact detail inspection of audit engagements of accounting firms registered with the PCAOB. China Securities Regulatory Commission, SEC, and PCAOB are engaged ongoing dialogue with respect to the types of information permitted to be exchanged on issuers with Chinese operations, while remaining – while maintaining compliance with applicable laws. We have a very solid track record since we found a company in 2012. Before the completion of our listing as a subsidiary of Kingsoft Group, whose shares are listed on the stock exchange of Hong Kong, our financials were fully consolidated by Kingsoft Group over past eight years. During the IPO process, we have been communicating with SEC abetting team who observed and no material concerns on our registration statements, where have been compliance with security laws of the safe and meet all the applicable filings and disclosure requirements with SEC. We have also been in compliance with all other applicable laws and the regulation in all material aspects. To conclude, we are committed to transparency and integrity to shareholders. We’ll like to meet high standard as a good citizen of the global capital markets.

This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Operator, please go ahead.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Alexia Quadrani from JPMorgan. Please go ahead.

[Foreign Language] Good evening, management. Thank you for taking my question and congrats on a strong quarter out of the IPO gate. My question is about the industry dynamic opposed to COVID-19 in China. Now that we are entering into a post-COVID-19 stage, could you share us with your observation in terms of the industry dynamic in China current market? Specifically, we are interested in the demand for cloud consumption from video operators, as well as the pricing trends for CDN in China. And also we would like to hear your thoughts on the enterprise cloud demand. Have you been seeing different behavior among the large enterprise now the – we are posted the COVID-19. Thank you.

[Foreign Language] Thank you. I will translate for Mr. Wang. Well, thanks for asking the question. We think the pandemic has increased over industrially significantly from two aspects versus a utility and the second is the new emerging demands. For the utility, in the internet industry, in general, the first quarter is not always the peak season in the year. However, because of that pandemic, we have seen a demand searched from the video and the gaming verticals. The usage has been booming in the first quarter. Also in the – other verticals, in the internet industry, for example, the e-commerce and online education, we have seen some new demands from customers in this area. For the enterprise cloud services, many enterprises and the organizations have seeing the convenient and value of the cloud services. This can help the public service organizations to improve the difficultness and healthcare efficiency. However, because of the pipeline of this – this kind also it is different from the public also. It takes some time for our customers demand to convert into our revenues. And the second question, you talk about to the enterprise. In general, we adapt a primary customer strategy. So our primary customer, they focus more on the technology and the stability of our services. So they are not very price sensitivities – we operate price fluctuation and volatility in this quarter. Thank you.

Thank you. We have our next question from the line of Kenneth Fong from Credit Suisse. Please ask your question.

[Foreign Language] Congratulations on the very strong set of results. I have a question on the GP margin having seen that over the past eight, nine quarters, you have seen a very significant progression on the GP margin front. How should we think about the driver going forward? And we also see like on the education, e-commerce, which normally consume data during daytime has been the variable buzzing top of demand. Would it further help the existing capacity utilization and hence will be a further driver on margin? Thank you.

Hey, thank you, Kenneth. This is Henry. So I can take on those questions. As we introduced in our prepared remarks, you probably notice that both of our gross margin, as well as the EBITDA margin has been improving for seven consecutive quarters. And these are the two indicators are not only measure the fundamental IT resource utilization rates, but also our SG&A and internal operation management efficiency, to the extent. So to your question, because we actually just started to enjoy the benefits of economic of scale, which are evidence by the gross margin now turned to positive, since Q3 of last year. So we do believe we’re assuming a very, very early age to enjoy that benefit. And I think there’s definitely going to be an upside potential for further improvements of the profitability from both gross margin and the bottom line perspective. And the fundamental driver are not only by the – for example, the data pattern that we basically see our traffic, but also the fundamental technology that we’re build in-house. As we mentioned, over 60% of person now are working in a cutting-edge technology, which are not only serving for today’s client needs, but also for the technology climate demand for the full years to come. So that’s why we believe that technology driven the profit margin expansion are the primarily faster. We’ll see that potential uplift going forward. To your question, we’re definitely also seeing a diversification of the different verticals within the internet space, as you mentioned, definitely correctly. The online education and other verticals, for example, e-commerce, the data usage is throughout a day. We’ll definitely see different patterns. And these would definitely be one of the reason where help push up the profit margin and further improve the margin profile. But as I also mentioned, I think in-house, we’re building the technology and also the diversification of a client base themselves will also be both go hand-in-hand. So we’re definitely, we’re not only be a passive mode to waiting for further diversification on client demand, but also we have the proactive approach that use more and a better technology to further improve the utilization of the efficiency. So to conclude my response, I would think that as you would probably see the supply/demand dynamics in the China cloud market, we’re also favor the independent cloud company like us. And we’re definitely enjoyed our trends to make sure that were relatively stable environment in a market structure. So we can kind of deliver better – and the better service for the client. Thank you, Kenneth.

Thank you very clear. Congrats again.

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

[Foreign Language] Some of your larger cloud players in China, cloud platforms and their investments over the next three to five years particularly in the cloud, can you talk a little bit more about your investments now with a fresh run of capital coming in for your business over the next three to five years? And that’s the first question. And the second question is, just about some of the disclosures you’ve been around a number of premium customers in ARPU. Will you be providing that information going forward? [Foreign Language]

[Foreign Language]

Yes, thank you, Yulin. And also just to compliment on the second point, and then Nicole can help translate. So for the capital expenditures, as we mentioned right now, we do have sufficient balance sheets. We have, we almost are debt free, so we do have a very great capital structure that can deploy. But also with that’s on one side, we want to remain a very prudent approach to manage our balance sheets given the market environment and all the challenges we are aware. But on the second perspective, we all will go in parallel to make sure that we are going to make it a sufficient investment into a key technology that will drive the substantial conversation with the client going forward a few areas that our CEO mentioned in the prepared remarks. So out of the $515 million actual proceeds, we definitely will make sure it’s going to invest into upgrading and expanding to our IT infrastructures for about 50%. And we’ll definitely use about one quarter of the actual proceeds to further invest into the key technologies, for example, AIoT, big data and other cloud technologies. For the remaining 15%, we’re definitely looking into the areas, we’ll be basically solidify the ecosystem players and also maybe potentially looking into the global expansions. The remaining 10% will be supplement to our working capital. So again, I think we’re definitely looking into how to balance the capital we have, but also I want to make sure the sufficient investment into the technology will be very important. And it’s going to be the key driver to drive the potential revenue growth. Nicole please translate. Thank you.

Thank you, Henry. [Foreign Language] I will translate for Mr. Wang. We think that the cloud business is a long-term investment theme. Most of our competitors have their appliance to build a new infrastructure. However, in this industry, we have already kept investing. The new infrastructure has clarified the objective and give – the corporations have a clear track on this cloud services. And we have already invested in our infrastructure and technology. Henry has already introduced our detailed plan. And for the customers, because we didn’t disclose any data for the – or the number of customers we define this as a annual number and we will be closing our 2020 outlook in the April next year. However, for the operational level, we think the customers are very healthy growing. Thank you.

Thank you. We have our next question from the line of Leping Huang from CICC. Please ask your question.

[Foreign Language] So I have two questions for the management. The first one is related to the competition. So recent years Huawei has put a lot of efforts on their cloud business. So would the competition from Huawei impact our enterprise clients acquisition. And my second question is related to our revenue growth and CapEx budget. As KC has around RMB6 billion cash at hand after IPO could management share the current revenue growth target and CapEx budget? Thank you.

[Foreign Language] Thanks for the question. I’ll answer the first question. We think the market of cloud business is simple and clear. And we think the market is very huge. So the competitor has a much pressure on us. There are only very few top players in this industry. And you can see from our full year and the first quarter 2020 data, our revenue growth is very strong. Second, we are a technology-oriented company. We are engineering house oriented. So our big data and video streaming technology has been highly recognized by our customers within the cloud internet based public cloud technology. And we haven’t done much on the hardware industries. So we believe our revenue grows will keep going and I will let Henry to add more about for the second question. Thank you.

Thank you. I would like to give a few color regarding the – your question regarding the CapEx and the top line growth. On the CapEx you’ll probably notice that after disclosing the F1 the past two years, our capital expenditure were roughly about RMB1 billion each year. And going forward, I think to support our revenue growth, as well as investment into the key technology, we’re definitely seeing increasing trend of capital expenditures each year, but based on the baseline of the previous two years as a base case. So we do see a potential increase on the capital expenditure levels. But having said that as we mentioned, we definitely want to remain very prudent about how and where we want to spend the capital expenditures. Historically we spent CapEx largely for improving and purchase of IT infrastructures, example, the servers and all the users. And going forward, I think we’re still going to relatively – remain relatively similar in terms of how we look at the spending and where we’re going to spend. So I think going forward, you can look at our historical basis and we grow reasonably based on that. And two, your question regarding the revenue, we expect our top our revenue for the second quarter will be around RMB1.2 – sorry, RMB1.5 billion to RMB1.54 billion for the second quarter, which implying about 60% to 65% yield via increase. I think that’s definitely going to be a very healthy growth rate, and definitely our intention to remain that our top line growth faster – relatively faster than a public cloud market in China in general, I think that’s our intention. So we do want to also remain rather a good balance amount of top line growth the past for the profitability of the bottom line, and to speed up the margin expansion as well as our cash and the balance sheet position. I think we definitely proven that, we have the capability of managing the performance in a historical period of time. And going forward we definitely look at a set of variables that would deliver a balance to the financial performance of the company. Thank you.

Thank you. We have our next question from the line of Ziyi Chen from Goldman Sachs. Please ask your question.

[Foreign Language] My question is about enterprise cloud businesses. So can management share a little bit more color on the seasonality of this segment? And also maybe how should we think about the revenue growth into the rest of the quarters? And can we expect accelerated trend in the growth trajectory here? And meanwhile, can you also share a little bit more on the long-term competitive advantage and opportunities to Kingsoft Cloud? Thank you.

Thank you. This is Henry happy to take your question. Thanks for paying detailed attention to the results appreciate that. What I’d like to mention on the first question, the fundamental demand from the traditional enterprise to move from on-premises IT to a cloud has been very strong. There’s no change about it. And especially in a COVID-19 situation, many of the traditional enterprise clients realize the true technology actually can help them to dissolve the real world issues. So, however, on the other side, as we probably also mentioned, and the disclosed in F1 perspectives, we actually taken a very, very prudent and conservative revenue recognition method, which means upon delivery and completion of the projects, which are primarily made up revenue from the enterprise cloud segments upon their completion and delivery, check will recognize the revenue for the projects. As you mentioned, probably many of the cities in China they were actually reopened only after April. So even though most of our projects were pretty much on track and many of the project were already started in Q3 and Q4 last year, are actually started because of travel bans and inconvenience to do the onsite completion check and the delivery checks before the March end. We basically will not be able to recognize the revenue before end of March. I think that’s basically because of the prudent revenue recognition definition that we already adopted. But however, I want to point out that number one, as you currently see that our year-over-year growth rate of enterprise cloud is very strong. Number two, even with a quarter-over-quarter performance of enterprise cloud is not that fast, but we do see a diversification of the revenue stream from enterprise cloud has been improving as well. And that will also become a part of the driver for the potential growth of the total revenue as well. My second point is, I think looking forward, as I mentioned for Q2, we are going to still see a very strong revenue as we provided guidance previously. We are going to see a potential and probably better performance from enterprise cloud carry on the same trends going to Q2. So I think overall my feeling is that fundamental demand is very strong in the long-term. And especially as you see the fundamental initiatives from all the kind of sematic approaches actually will have more focus on this area and that will drive our potential revenue growth going forward. And to your question about the acceleration, I think we will look at it on a year-over-year basis. And we definitely we’re looking at on the diversification from the revenue from enterprise cloud. And I think the opportunity from this area, and this segment definitely will be very strong. And for the areas, as we mentioned, I think for the financial services, for the traditional enterprises and some of our public service sectors are probably primary areas. We definitely will be focused on because we have other core large enterprise clients. And we do see the recurring client revenue and client relationship will help us to push our revenue from the segments. Thank you.

Thank you.

Thank you. I will not like to hand the conference back to Ms. Nicole Shan for any closing remarks. Please continue.

Thank you, operator. Thank you everyone for joining us today. If you have any further questions, please feel free to contact us. Our contact information for IR can be found on today’s press release. That’s all, have a good day. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Thank you.