Kingsoft Cloud Holdings Ltd (KC) 2025 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Kingsoft Cloud's fourth-quarter and full-year 2025 earnings conference call. (Operator Instructions) 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, IRD of Kingsoft Cloud. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's fourth quarter and fiscal year 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com as well as on PR Newswire services.

On the call today from Kingsoft Cloud, we have our Chairman and CEO, Mr. Zou Tao; CFO, Li Yi; Senior Vice President, Mr. Liu Tao; Senior Vice President, Mr. He Haijian; Vice President, Ms. [Wang Ja]; and Associate Vice President, Mr. Kaiyan Tian. Mr. Zou 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 questions during the Q&A session that follows.

We will be conducting an interpretation. Our interpretation are for your convenience and reference purposes only. In case of any discrepancy, management statement in 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 US Private Securities 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, 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 these 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 statements as a result of new information, future events, or otherwise, except as required under applicable law.

Finally, please note that, unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB.

It's now my pleasure to introduce our Chairman and CEO, Mr. Zou. Please go ahead.

(interpreted) Hello, everyone, and thank you, and welcome to Kingsoft Cloud's fourth-quarter and fiscal year 2025 earnings call. I am Zou Tao, CEO of Kingsoft Cloud.

Since the beginning of 2025, the global AI industry has reached a series of milestones from the democratization sparked by the DeepSeek moment to the active competition among multimodal software models, from the leap of embodied AI into the physical world to open closed loop capability of understanding and execution. AI is evolving with unstoppable momentum, linking across models, agents, computing power to industrial applications, reshaping every sector.

As a tightly integrated component of the AI five-layer take, cloud computing is now meeting an unprecedented surge in demand for intelligent computing. This year, we stay committed to our high-quality and sustainable development strategy, embracing the opportunities in AI era, strengthening our capability through solid execution. We have delivered impressive results, achieving strong financial performance while forging lasting business trends.

First, we recorded a historical high quarterly revenue, reaching RMB2.76 billion, representing a year-over-year growth of 24%, among which revenues from public cloud services increased by 35% to RMB1.9 billion. Our intelligent computing services keep driving our growth. The gross billing of AI business reached RMB926 million, representing a 95% year over year and contributing 49% of our public cloud services.

Second, growth in our ecosystem and external business segment is progressing hand in hand. On one hand, our ecosystem partnerships remain strong and continue to deepen. This quarter, Xiaomi and Kingsoft ecosystem revenue reached RMB804 million, a 63% year-over-year increase, accounting for 29% of total revenue. For the full year 2025, related party transactions with Xiaomi and Kingsoft ecosystem partners reached 94% of our net annual cap, almost hitting the limit.

On the other hand, our external customers including leading enterprises across a wide range of high-growth industries, also shown confidence in our products and services accounted for around 70% of total revenue. Furthermore, revenue from our top five non-ecosystem customers grew by 44% year over year, sustaining strong growth momentum.

Last but not least, profitability continued to improve this quarter with adjusted gross margin increasing quarter over quarter to 17.1% and adjusted operating margin reaching 2.0%. We have achieved operating level profitability two quarters in a row, and our self-funding capability has shown sustained and significant year-over-year improvement.

Now, I would like to walk you through the key business highlights for the fourth quarter of 2025. In terms of public cloud services, revenue reached RMB1.9 billion this quarter, representing a year-over-year increase of 35%. From a customer perspective, in 2025, AI continued pushing its boundaries, driving industries to fully embrace it, diversifying our customer base.

Beyond leading AI enterprises and Internet giants, we now also serve automotive manufacturing, autonomous driving, embodied AI, and fintech sectors, et cetera. We've solidified our cooperation within the Xiaomi and Kingsoft ecosystem while capturing new external opportunities.

From product and services perspective, we keep pushing the limits of cluster scale, supporting large-scale training and explosive inference demand. Notably, in this quarter, we delivered a new inference cluster for a top video streaming platform, serving over 100 million users.

We also secured a major fintech customer using our token-based inference service, who speak highly of our stable model and consuming power services.

On supply chain front, despite market uncertainties, our well-established and resilient supply chain, built through years of experience, allowed us to plan ahead strategically and stock key components dynamically to ensure sustainable business growth.

Now in terms of enterprise cloud, revenue reached RMB859 million this quarter, a significant quarter-over-quarter increase of 18%. Driven by the AI Plus policy, industrial intelligence solutions have become a key growth driver. The demand for specialized vertical models, real-world application, and strict data compliance makes cloud services more essential than ever in advancing industrial Intelligence.

The AI business of enterprise cloud is paving the way for steady long-term growth, not only representing $1 trillion market opportunity, but also playing a critical role in driving the technological leap across industries. As a B2B cloud service provider with solid technology expertise and enterprise service capabilities, we are well positioned to capture these industrial transformation opportunities.

In the area of enterprise services, we achieved key breakthroughs in high-end manufacturing industry. We provided stable and high-performance computing service to the top enterprises to support their process in intelligent manufacturing, industrial vision, and AI R&D.

In health care space, we launched a data agent-based AI application in health care intelligent operation process, marking a paradigm shift from digitalization to intelligence. This analysis through natural dialogue platform enables natural language insights into DRG cost control, moving hospital management from retrospective specifics to proactive intervention.

While significantly lowering the barriers to data application, we have further solidified our technical moats and differentiated competitive advantages in high-value medical AI scenarios.

In public services area, we partnered with telecom operators to provide sustainable and stable high-performance computing clusters for the public services sector, successfully entering key markets like Shanghai.

We believe that by leveraging Kingsoft Cloud's deep vertical expertise and enterprise service experience, intelligent computing opportunity in the enterprise cloud segment represents a massive industrial frontier, generating synergies with our public cloud business.

In terms of products and technology, we are building a next-generation computing services system for LLM training, inference, and industrial intelligence, offering full stack capabilities from computing services to Model-as-a-Service.

Our technology upgrades from basic cloud computing to an AI-first, AI-native cloud architecture contributing for digital and intelligent transformation across sectors. We focus on the technologies catering to model training and inference scenarios aiming to provide highly stable, highly efficient, and ready-to-use intelligent computing services.

This quarter, our StarFlow platform keeps upgrading with the launch of MCP, aka, Model Context Protocol, product optimization, and AI search features to help enterprises develop and deploy AI agents through a unified platform building a new ecosystem centered around agent-based operations.

For enterprises with private deployment demand, our Galaxy Stack provides heterogeneous GPU management, network and intelligent container scattering capabilities. We also feature full stack localization with indigenous adaptation to empower intelligent transformation across verticals.

Standing at the new starting point, looking ahead, we're truly excited by the limitless possibilities that lie before us. We will remain committed to our high-quality and sustainable development strategy. By embracing the immense opportunities presented by the AI era, developing along with the industry and refining our core technology, we will continue to capture the market opportunities both within and beyond our ecosystem, optimizing the operations of our assets to enhance profitability and thereby create value for our customers, shareholders, employees, and society.

I will now pass the call to our CFO, Ms. Li Yi, to go over our financials for the fourth quarter and fiscal year 2025. Thank you.

Thank you, Mr. Zou and Clark, and thank you all for joining the call today. Before we walk through the details of financial results for the fourth quarter and fiscal year 2025, I would like to highlight the following aspects.

First, our revenue has achieved record high, RMB2,761 million this quarter, representing a year-over-year growth rate of 24%. Within that, revenue from public cloud services was RMB1,902 million, increased by 35% from RMB1,410 million in the same quarter last year. Unprecedented explosive demand for our AI business grew 95% year-over-year billings growth, which totaled RMB926 million.

Second, profitability has seen substantial improvement. Driven by shift in our revenue structure, our adjusted gross margin continued its upward trend, rising to 70% from 60% in the previous quarter. Adjusted EBITDA margin reached 28%, up 12 percentage points from 16% in the same quarter last year, though down from 33% last quarter. The year-over-year growth was fueled by a large contribution from AI-related business, while participation represents the primary cost component.

The sequential decrease was mainly due to a loan recurring subsidiary received last quarter, which established a high baseline. Notably, we have achieved adjusted operating profit for two consecutive quarters, reaching RMB55 million this quarter, which was a 2% margin. These results validate our ability to monetize intelligent cloud opportunities and our strategic focus on high-quality enterprise services.

Third, our cash and cash equivalent achieved RMB6,018 million, raising our ability to further support the investment in the AI business.

Now, I will walk you through our financial results for the fourth quarter of 2025. This quarter, total revenue were RMB2,761 million. Of these, revenues from public cloud services were RMB1,902 million, up 35% from RMB1,410 million in the same quarter last year. Revenues from enterprise cloud services reached RMB859 million due to seasonally strong quarters, which was characterized by a high volume of project completion.

Total cost of revenues was RMB2,296 million, up 27% year over year, which was mainly due to our investments into infrastructure to support intelligent cloud business growth. IDC costs increased by 30% year over year from RMB725 million to RMB812 million this quarter. The increase was mainly due to the increasing mix of racks, which serves the expanding AI business.

Depreciation and amortization costs increased from RMB323 million in the same quarter of 2024 to RMB741 million this quarter. The increase was mainly due to depreciation of newly acquired and leased servers and network equipment, which were mainly allocated to our AI business. Solution development and service costs increased by 50% year over year from RMB557 million in the same quarter of 2024 to RMB642 million this quarter. The increase was mainly due to the solution personnel expansion. Fulfillment costs and other costs were RMB461 million this quarter.

Our adjusted gross margin for the quarter was RMB471 million, increase to 10% year over year and 20% quarter on quarter. It was mainly due to the expansion of our revenue scale, the enlarged contribution from AI business, and the cost control of IDC racks and servers. Adjusted gross margin increased from 60% last quarter to 70% in this quarter, which was mainly due to the high contribution from enterprise cloud.

On the expense side excluding share-based compensation costs, our total adjusted operating expenses were RMB451 million, increased by 3% year over year and increased 9% quarter-on-quarter, of which our adjusted research and development expenses was RMB181 million, increased by 7% from same quarter last year. Adjusted selling and marketing expenses were RMB111 million, increased by 3% year over year. Adjusted general and administrative expenses were RMB168 million, decreased by 1% year over year.

Our adjusted operating profit was RMB55 million, increased by 124% for adjusted operating profit of RMB24 million in the same period last year. The improvement was mainly due to the expansion of our revenue scale and gross profit as well as the expense control. The total expense as a percentage of revenue keeps decreasing. Adjusted operating profit margin increased from 1% in the same period last year to 2% this quarter.

Our non-GAAP EBITDA margin was RMB785 million, increased by 180% from RMB360 million in the same quarter last year. Our non-GAAP EBITDA margin achieved 28% compared with 60% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development, taken adjustment of business structure, strong control our costs and expenses.

This quarter, our capital expenditures, including those financed by third parties and right-of-use assets obtained in exchange for finance lease liabilities, were RMB496 million. For the full year 2025, our total revenue achieved landed at RMB559 million, increased by 23% from RMB785 million in 2024, among which revenues from public cloud services were RMB6,634 million, increased by 33% year over year.

Revenues from enterprise cloud services was RMB2,925 million, increased by 5% year over year. Adjusted gross profit was RMB1,542 million, increased by 40% from RMB1,358 million last year. Adjusted gross margin was 60% decreased from 70% in last year, which was mainly due to the high cost for servers and other hardware equipment. Adjusted operating cost was RMB152 million, narrowed significantly from RMB431 million.

Adjusted operating profit margin was minus 1.6% from minus 5.5% last year. Adjusted EBITDA profit was RMB2,336 million, increased by 366% from RMB631 million last year. The adjusted EBITDA margin was 24%, improved by 60% from 18% last year.

Looking ahead, we aim to capitalize on the explosive growth in demand and further investing in infrastructure, enhancing service stability, managing liquidity risk, and improving operating efficiency. We remain focused on AI-driven strategy, providing customers with high-value added cloud services.

That's all for the introduction of our operational and financial results. Thank, you all.

Thank you. Operator, this concludes our prepared remarks. We are now happy to take your questions. Please ask your question in both Chinese and English, if possible. Operator, please go ahead. Thank you.

(Operator Instructions) Liping Zhao, CICC.

(interpreted) Good evening, Mr. Zou and Ms. Li. Thanks for taking my questions and congrats for the very good 4Q results. I have two questions here. First, Xiaomi recently launched the MiMo V2 Series models, which have received positive market feedback. How should we view our role and positioning within Xiaomi's AI strategy? And what strategies will be implemented around Xiaomi and Kingsoft service going forward?

And secondly, how does the management view the current pricing uptrend in the cloud service industry? Has the company already adjusted prices for AI computing services, or are there any relative plans in place? To what extent are those price adjustments driven by demand or driven by the upstream procurement cost pass-through? Thank you.

(interpreted) Okay. The answer comes from our CEO, Mr. Zou Tao. So a little bit of background. So back in 2024, I think that was in August, we had an internal discussion around the development of AI model for the whole Xiaomi and Kingsoft ecosystem.

So the idea was that the whole Xiaomi-Kingsoft ecosystem will form a team or portfolio of solutions where -- a whole system where Kingsoft will stay disciplined and not really developing our own large language models, which is left to -- for Xiaomi to develop. So the MiMo model, and its widely recognized performance, it's actually an implementation and manifestation of our overall AI strategy within the Xiaomi-Kingsoft ecosystem.

And secondly, back in 2025, so one year later, from the internal discussion session from a KC perspective, we formed a strategy that's called [1 plus N]. So the 1 here actually refers to the Xiaomi MiMo model, which is the key to KC's inference strategy.

So in the future, we will continue to adhere to the strategy, which essentially means that within the ecosystem, we will continue to serve the Xiaomi and Kingsoft ecosystem. And for external customers, we will also try to monetize our Model-as-a-Service capabilities, thereby not only in the training area that we were able to make our revenue and profit, but also will make our contribution in the inference era that is approaching. Thank you.

(interpreted) So the answer comes from our SVP, Mr. Liu Tao. So a bit of background again. So in the Q3 of last year, we had anticipated the significant pricing of increase from the supply chain side. And therefore, we have dynamically and strategically stocked up some of the key components. So we did have -- so we were actually prepared for this which was unfolding today.

Now in terms of the price hike that you were asking, so we stick to two principles. Number one, for some of the customers and the business where we already have contracts in place and where we have the stocking of the underlying resources, we tend to not increase the pricing. However, for some of the new customers, new contracts, especially with significant increase of usage, there's going to be significant price hiking in these kind of scenarios.

Now also in terms of profitability, one thing is that we will actually try to pass through some of the upstream cost increases to our customers. And secondly, depending on the demand, right, we'll also try to increase some of the price to reflect and increase our profit.

Operator, next question, please.

Wenting Yu, CLSA.

(interpreted) The first question is that some of your cloud service partners have announced their cloud business more towards approach from the traditional server rental and also the subscription model. So will KC adopt a similar strategy? And how do you view the impact of this trend on industry competition and long-term profit margins?

And the second question is regarding the impact from the Volcano Engine. It is adopting a relatively low price strategy. And how do we view the impact on the industry and potentially our business this year? Thank you.

(interpreted) Okay. So regarding your question on the shifting to Model-as-a-Service strategy, we have noticed some of the other peer companies who have released their results earlier than us mentioned this. However, my view is that this is not actually some new concept.

It is actually one of the inevitable stage of the development of AI as well as large language model from the training that we do to create them to a certain state that they become applicable and workable in our day-to-day work and life.

So in relation to our own inference related work -- Model-as-a-Service work, we actually launched the StarFlow platform, as we mentioned in the prepared remarks, last year. And because we are a neutral platform, we were able to host essentially all of the open source models, including all the models from Xiaomi for some to provide Model-as-a-Service business, where this is essentially actually the fastest growing business in the history of the company.

Actually, so we talked about Xiaomi MiMo model earlier. The way that we're providing services for Xiaomi MiMo model is also a Model-as-a-Service business. And also for some of the large language model customers that we use to -- and we're still providing training services to them, we also provide the Model-as-a-Services business to them as well to cater their inference needs.

Now to your second question about the price change for Volcano Engine, I haven't really noticed that particular piece of news. However, the general market dynamics today is that, on one hand, we're seeing explosive growth on the demand side.

And we're seeing particularly high price hiking from the supply chain side. So I do not personally think that under such circumstances, changing price to a lower level would actually be implemental and applicable in the real world.

Now what I have focused more is the price hiking information from, for example, AliCloud. We have worked with them together. We have been in the industry together for many years, and this is the first time that we've seen them hiking their price.

And also in addition from our, SVP, Mr. Liu Tao, there is a difference between the catalog price and the actual price that the companies that, us, as cloud players, and our customers engage into. So the change in catalog price is more of a marketing purpose. And it does not necessarily mean the actual price the company to enter into business.

Timothy Zhao, Goldman Sachs.

(interpreted) Thank you for taking my question. My first question is on your financial outlook. Just wondering if you can share some color how we should think about the revenue, EBITDA, operating profit, growth outlook for this year? And also on the CapEx expenditure plan, what is your thoughts considering the balance sheet and also the prepayment from certain customers. Do you think it's possible to further raise your CapEx plan given the rising AI demand?

And secondly, it's is regarding the third-party revenue in the AI outlook. I'm just wondering if you can share more detailed color on what specific products or what type of customers are driving the third-party AI growth. And also, what is the breakdown and outlook between the mix of AI training versus AI inferences. Thank you.

All right. I will take the CapEx first. For 2026, we expect total CapEx and controlled assets to exceed RMB10 billion, represent expansion from 2025 level. On funding structures, we expect approximately half our CapEx is to be covered by customer prepayment arrangement, which will significantly reduce fund requirements.

Additionally, we plan to access more assets through short- and long-term leases with payment structure and operating cash flows to minimize upfront capital incompetence.

For the funding position and financing lease, we currently have no equity finance plan. 2026 capital expenditure are secured three -- four channels: first, proceeds from our 2025 financing; the second, customer operating receives; and the third, strategic customer prepayment; and the fourth, commitment created facilities from banks and financial lease institutions.

Incremental resource requirements will be made primarily through leasing to preserve balance sheet flexibility. For the outlook for the guidance for 2026, we expect our growth rate will be accelerating, and the pace of the EBITDA rate will improve much better in 2026 as well.

(interpreted) So if you look at the past results as discussed in the prepared remarks, so the top five non-ecosystem customers combined revenue on a year-over-year basis revenue growth was 44%, which is really strong growth. So those would include Internet companies, autonomous driving, and robotics.

And then in terms of looking forward into the year of 2026, we do see extremely large demand coming from outside of the ecosystem and, to some extent, that such demand is actually higher than the demand from our ecosystem. So the final wrapping of financial results coming from that demand will actually be dependent on how much resources we're able to secure and deliver to such customers.

Now from the perspective of products and solutions, we're actually seeing more than half of the potential demand coming in for inference versus training. And then for the StarFlow platform, which we discussed earlier, it's growing really fast for that business. And we're seeing better profit margins coming from that particular business. And this is a result, of course, from the very good application -- a very good application and increasing penetration for agents and applications.

Due to time constraint, this concludes our Q&A session. Thank you, once again, for joining us today. If you have any other questions, please feel free to message us. We look forward to speaking with you again next quarter. have a nice day. Thank you, all.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.