Good morning ladies and gentlemen, and thank you for standing by for Kingsoft Cloud First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After managements prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I would now turn the -- host for today’s call, Miss. Nicole Shan, Investor Relations Manager of Kingsoft Cloud. Please proceed Nicole.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud first quarter 2021 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 CEO, Mr. Yulin Wang; and CFO, Mr. Haijian He. Mr. Wang will review our business operations and accompanying highlights, followed by Mr. He, who will discuss the financials and guidance. He will be available to answer your questions during the Q&A session that follows. There will be consecutive interpretation. All interpretation are for all companies and the reference purpose only. In case of any discrepancy management statement, then in 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 21-E of Security Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectation and the current market and operating condition and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements, as a result of new information, future events or otherwise, except as required under applicable law. Please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our CEO, Mr. Yulin Wang. Please, go ahead.

[Foreign Language] Thank you, Nicole. And welcome you all for joining our first quarter 2021 earnings call. In this quarter we generated RMB$1.81 billion in total revenues among which public cloud and enterprise cloud accounted for RMB1.39 billion and RMB420 million, respectively. In addition to successfully executing our strategy of serving premium customers, we continued to improve our large-scale, highly stable and high-performance enterprise-level products and solutions that cater to growing demand across verticals including the internet, healthcare, financial services and public services sectors. [Foreign Language] Interest in public cloud, for many years we have offered secured, stable and comprehensive solutions to safeguard our customers spring festival gala campaigns providing them massive viewership globally with smooth high definition and interactive experience. We offered solutions including live streaming, on-demand streaming and electronic web packet campaign where our value added product such as Smart [Indiscernible] KFC 265 coder were fully utilized. Our new customer acquisition, Cloud we want a big data hybrid power projects for certain mobile internet unicorn company providing the company with products and services including [Indiscernible]service, leading it to operation and maintenance and shifts elastic capacity expansion as well as multi several hybrid cloud deployment and further reduces IT cost. In this quarter, we also signed letters of intent with several large player internet companies which laid the solid foundation to our medium to long-term revenue growth. In addition, our gaming ground we’re first to see revenue generation from cloud gaming to sign an agreement with Mihoyo to provide fast level cloud gaming for block buster game, gaming and their impact. Together with Mihoyo, we are dedicated to providing brand new whole game experience to gamers. [Foreign Language] We also published our cloud enabled product portfolio and launched two containers that enable customers to fully leverage the advantages of…

Thank you, Yulin. Thank you, everyone. I will now discuss our financial performance for the first quarter of 2021. Please be reminded that all numbers quoted here are in RMB. Please also refer to our earnings release for detailed financial results. To begin with, I would like to highlight the following points; first of all, our total revenue were RMB1.8 1 billion this quarter. Revenue from public cloud services were RMB1.39 billion. Due to our high quality services and robust relationships with our premium customers, revenue from public cloud services has been increasing for five consecutive quarters. Our enterprise cloud revenue were RMB420 million, representing an increase of 131.3% year-over-year. Second, we achieved a record high quarterly adjusted gross profit of RMB122 million in Q1. Our adjusted gross margin for this quarter increased from 4.9% last quarter to 6.7% this quarter. The margin improvement was mainly due to the benefits received from investments into major enterprises cloud verticals last quarter, such as healthcare, financial services, and a stable contribution of public cloud revenue and margin service. Third, we expect our total revenue to be between RMB2.13 billion and RMB2.23 billion for the second quarter of 2021, representing a year-over-year increase of 39% to 45%, implying a reacceleration in Q2 2021. It reflects our success at engaging new customers and expanding our scope of services with existing customers. By December last year, our backlog of enterprise cloud revenue was RMB2.8 billion with the amount of customer’s procurement process after Chinese New Year holidays. Our backlog number keeps increasing certain new projects such a project in healthcare, financial services has been the addition to the backlog number of mentioned above. Lastly, our business is sufficiently funded as at the moment as of March 31, 2020. 2021 our cash position was RMB5.46 billion.…

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

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Gong of Citigroup. Your line is open. Please go ahead.

Yes, thank you management for taking my question. My first question is regarding the public cloud sort of those things slowed down in first quarter. And I understand that last year was a high base and there was some record for reissuing first quarter this year. But does management thinks that the whole public cloud industry is slowing down? And for us, I just heard that we have, partnered. We have just signed some contracts or partnership with some big internet companies, [Indiscernible] what of course are those new customers eyeing. And this is my first question. And my second question is that the management shares, the backlog order amount for our enterprises out. And do you think you know this slowdown on public cloud industry, our competitors could become more aggressively under price on their personal sector, or [Foreign Language]

Thank you Yulin. So thank you, Brian, for your question. So on the first question, you're probably right; you're right that the high base of the public cloud revenue last year was probably one of the reason when you look at the year-over-year growth of the public cloud run in Q1 this year. However, what we also highlighted that is our revenue from our core base of our premium customers, especially our top end customer has been very solid and robust. And in addition, we also made some good progress in engaging with new customers in our public cloud segments. So that's why as a result our public cloud revenue has expanded and growth sequentially for five consecutive quarters, as we mentioned. However, as you'll probably also notice that in industry in general, and in China, the regulatory environment, especially in Q1 has been quite, quite volatile and has a certain impact to the revenue in the public cloud of segments, especially, a few examples. For example, the content review certain mechanism from regulatory perspective has some impact to our streaming clients, which actually indirectly will affect the use it or public cloud resources. And also, as you know, the policies in the online education verticals also made many of our customers pretty much very cautious and prudent, adopting new promotional efforts, which actually should have increased our demand from analytical perspective. But we do believe those impact will be short term. And we do see that as a signal that in Q2, for our cloud revenue and usage, we'll see kind of acceleration in Q2, coming forward, as many of the factors we mentioned, were short term and seasonal impact. And speaking about enterprise cloud so in Q1, we delivered over 130% on the year-over-year growth, which we do…

Thank you, that’s very helpful.

Thank you. Our next question is from the line of [Indiscernible] of CICC. Your line is open. Please go ahead.

[Foreign Language] And so my first question is regarding the public cloud business. So as we can see that the acquisition of new customers in the first quarter was undergone headwinds from the regulatory in the internet industry. So what will be our major focus for product diversification for the public cloud business? My second cloud is regarding the enterprise cloud business. So the enterprise cloud business recorded a solid growth in the first quarter. So what do we think of the growth potentials for the three main segments for enterprise cloud on, i.e. the healthcare, financial services and public sector And what would be an ideal business structure and gross margin profile for the three segments? And my third question is regarding the gross margin. So where will be our expectation for the gross margin going onwards for the next few quarters? Thank you.

[Foreign Language]

Thank you, Yulin. Thank you, Sofia for these three questions. Translate for the first two and I'll take on the last one. And the first one regarding a public cloud. I think you probably have already mentioned that there were seasonal kind of regulatory impact on a Q1. But we want to highlight that our engagement and progress to the new customers, even some of them are starting with a low and small volume, but they are actually strategically important for our new customer strategy. We are making those progress on track in Q1, even though as we mentioned, the initial first phase of the testing or the initial trial version, the volume has been small. But we are seeing the great progress in connecting with a new and important customer with us. So speaking about diversification of the product lines and services, I just want to use a few examples. For example, in Chinese New Year live show performance events. As you all know, it is not only capture the live show video contents, but also there's a lot more interaction components in those events such as there are pockets events, and such as kind of massive and a scalable multi-line connections, direct connections in Chinese New Year events,, i.e. in the maximum peak time, we do see over 15,000 lines of direct connections in those video services. And those end users scenarios has helped us to diversify our product services, because these are the end demand from our customers. So to add one more data point, in addition, as you know, our cloud delivery revenue last year, the first two quarters last year was over 50%. And we do see as a percentage of total revenue, our cloud delivery revenue has dropped below 50%. And we do see…

Thank you. Very clear.

Thank you. Next question is from the line of Joel Ying of Nomura. Your line is open. You may proceed.

[Foreign Language] So my first question is, what is current contribution from the three biggest customer from our public cloud sector? And what about the CDN contribution for the company in 1Q? And because we think the overall Chinese cloud market is going to slow down a little bit for 2021. So any potential changes or structural strategy will help us to gain better growth from public cloud especially in 2021? So my second question is about adjusted EBITDA. I think the adjusted EBITDA margin has been broken even in one month, maybe December in 2020. But it still go negative for 1Q, 2021. So I guess is that about net bonus or something related to personnel expenses? And what should we expect for full year and for second quarter 2021? So my third question is about the market competition dynamics. I think while we move up quickly in public cloud market last year in China gaining market share. So does company thinks that will be a major competitor or major threat to the cloud market or to the public cloud market or to enterprise cloud market as well for Huawei, considering Huawei as a major competitor or threat to the peers? Thank you.

[Foreign Language]

Thank you, Joel for question. I'll go through first three questions and translate for Yulin and take the question on EBITDA margin. So for the project customers, as Yulin mentioned, the usage of our top premium customers has been stable in Q1. Given our public cloud revenue sequentially, you see some growth. So as a percentage of the total revenue of public cloud, those top premium customers as a percentage will see slower decline as a percentage point. So, on the CDN perspective, and as you know, the more and more customers are actually diversifying their demands across different business lines including storage computing and delivery. And the CDN revenue as a percentage of total revenue has also seen gradually decline as well. So I think that's one data point, I want to highlight is from Q1 last year to Q1 this year, the CDN revenue as a percentage of total revenue has declined around about 8% to 10% on a percentage point. Second point on the growth. So as you know, we are making progresses of the new customers and are engaging with them. And given the value of independency and neutrality we're engaging with new customers that actually who value our position as independent cloud provider. And for Q2, we have seen confidence that those in conversations and initial engagement with the new customers will gradually monetize and gradually become a revenue in a public cloud sector. And I think these are the major efforts that we are making in Q1, and we will carry further result for the following quarters. And the third point regarding the competitive landscape. I think the key line and we want to mention that, it's really about kind of strengthening and improving the capability not only from our technology solutions, but also…

Thank you very much for my question.

Thank you Next question is from the line of Kyna Wong of Credit Suisse. Please go ahead. Your line is open.

[Foreign Language] The first one is actually wanted to look at the overall China product cloud growth in first quarter. And given that the company has been outgrowing their peers, major peers in the market. Just wanted to see if like this trend or this performance will continue in the first quarter? The second question is about the new customers been in the first quarter, given the company has been share with us about some new customer needs. And so we could check the momentum on a new customer contribution. And the third thing about -- because given the regulatory tightening in the internet sector in China, if there's any like the impact to the long term investment for the company, et cetera, in the CapEx side? Thanks.

[Foreign Language]

Thank you, Kyna for questions you just asked. On the first one, I think you're right. We have been growing faster compared with the peers in the public cloud segment. For Q1, given the reasons we've already mentioned, we think that our business progression have been in line with the industry of the public cloud market in China in general. And I think for certain peers, I think even in Q1, I think we're growing marginally faster than them. And looking forward, I think we still want to position ourselves as one of the player in a public cloud market. We can grow relatively faster than the selective peers as well. So for the second question as related to this point as well is, probably to understand for certain confidentiality and sensitive reasons, we may not disclose the names. But certain new accounts we're talking to have spanning from the live streaming video, the localized services, e-commerce and education, and we are making certain progress with them. Even though the revenue opportunity and usage in Q1 given those clients are relatively prudent and cautious. So it has not fully converted into a full revenue opportunity. But given we already have the client and a commercial relationships, and for some of them, we already have the technology testing completed. Hopefully for the following quarters, you will see a reacceleration of the public cloud revenue going forward. On the third question regarding the CapEx. You'll probably notice that in Q1 on $1 value perspective, our CapEx were lower than Q4 last year. That was our pre-judgment about certain impacts in Q1, including the Holiday Seasons, but also including potentially about logistics and supply chain issues. We have the pre-judgment call that we actually purchased enough and a sufficient hardware equipment service back in Q4, primarily last year. So that's why if you remember in Q4 last year, our CapEx was about $4 billion. So that will be basically prepare for enough inventory for this year's public cloud infrastructure and for the leading sales opportunities of the public cloud clients as well. So these are actually reflecting together. And for the plan for this year's CapEx, we think that there's also the same level as we previously communicated. We think around $1.5 billion CapEx will be a reasonable level to expect for this year. Thank you.

Thank you. The next question is from the line of Thompson Wu of UBS. Please go ahead. Your line is open.

[Foreign Language]. The first question is, in your 2Q guidance can you give us a firmer range for the growth in your premium and enterprise cloud revenue growth. Last week, we talked about a large customer loss in their public cloud business, in their international market. Is there any impact for Kingsoft Cloud in your domestic public cloud business? The third question is, there's been recent developments in China's, I guess, reseller or system integration or distribution of CDN business. Can you talk about Kingsoft Cloud's likes capabilities from a competitive perspective? Thank you.

[Foreign Language]

Thank you, Thompson. I'll translate for the first two questions. So Yulin also answer the question regarding the guidance and the breakdown. So for the international business, as you probably know that even back in late part of 2019, we have some views even at that time, there will be a certain volatility in terms of the global geopolitical situation. So that's why we made a very prudent approach that regarding our internal budgeting, regarding the way we're engaging with our customers, et cetera. So, that's why, even though we already in early time have certain planning for certain regional business exposures and footprints for Kingsoft Cloud, but the actual revenue for our international business has been very, very small at this moment. So that's why those geopolitical impact to our international revenue, and the total company revenue will be very, very limited. And to your question, we also noticed that for our peers, they were affected by their major customer for their global business. But, as you probably know -- to add on one more point, as you know, that the ice level and infrastructure resources for the international business and domestic business in China has two different setup and a different network, different capacity and different licenses requirements. So that's why the redundancy or the idle resources from the global infrastructure will not be translate directly into the kind of oversupply of any potential kind of the capacity for the Mainland China business from a cloud player perspective if it is a question or the concern they want to ask. So for the second question. In our view, I think we are seeing the trend that given a cloud is a scalable business and there's a nature for the benefits of economic scale, the concentration of the top…

Thank you. Our next question comes from the line of Elsie Cheng of Goldman Sachs. Your line is open. Please go ahead.

[Foreign Language] So I just have a small question here on the cloud public cloud growth into the second half, as well as sort of the directional color on the full year, because we do see some of the headwinds into the first half of the public cloud space. Just wondering if we can provide some of the additional color into the second half, and how should we think about the fundamental drivers as well as some of the directional expectations on a number? Thank you.

[Foreign Language]

Yes, I think the other question on this question. There are three major reasons, or the major drivers. First of all is for our top tier customers their existing usage has seen a trend of growing historically, and for this year, we not only focus on new customers, but also the existing premium customers, their utility, their usage and their revenue has been increasing, that actually formed a solid base for our total public cloud services revenue for this year. And given those are the premium customers, so they are actually making the investment to their own business, for example, adding the new features and the new product lines and the new applications for their business. So their demand and their growth and investment into their own business and user scenarios work, basically the foundation for our growth opportunity from those existing premium customers. The second point is regarding the new customer expansion. So I think from commercial sales, relationship and technology compatible testing, and also both engagement, I think, as you mentioned, we're making some progress. And taking certain kind of initiatives to engaging with the new customers, that's actually going to be the second driver. And many of those areas and efforts will be basically morning highs and gradually a push down to the kind of revenue and realize the revenue opportunity. And the third pass through is really about the new product feature and the requirements. So that means that not only for the new but also existing customers, they're the new area of the usage, such as cloud gaming, as we mentioned in the prepared remarks, that in sight from Q1, as a leading pioneer in cloud gaming areas. And in gaming industry in general, we are seeing a good traction, that some of the leading gaming companies already deploy their gaming products through the cloud companies. And those are already bringing us a meaningful level of the cloud gaming revenue in Q1. And we think that those revenue will seem a good level of expansion for the remaining months to go for this year. I think this is only one of the example. I think in the area of BI [ph] and other IoT or 5G related areas will be also the important areas where we'll see the new demand and new technology can generate and translate to the revenue opportunity. Thank you.

Thank you.

Thank you. And I like to have the conference back to the presenters. Please continue.

Thank you operator and thank you once again for joining us today. If you have any further questions, please feel free to come back. Look forward to speaking with you again next quarter. Have a nice day. Thank you.

Thank you. This concludes today's conference call and thank you for participating.