Kingsoft Cloud Holdings Ltd (KC) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kingsoft Cloud's First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that this conference is being recorded today. I would 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 earlier today and is available on our IR website at ir.ksyun.com as well as on GlobeNewswire 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 accompanying 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'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 1994. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events stating known or unknown risks, uncertainties and other factors of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ 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 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, all 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)

[Interpreted] Thank you, 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 corporate history and a new chapter for us. Since the inception, we have been building strong relationships with enterprise customers for 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 presence into financial and traditional enterprises. We focus on select fast-growing verticals, fully adhered 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 underpinned our rapid growth due to our neutral position.

Before I begin, I'd like to express our deepest sympathies to all those affected by the current global pandemic situation. We will continue to support our clients and the communities. Our cloud-based services are critical to business during this difficult economic environment. The pandemic has accelerated corporate reliance on digital solutions and remote working capabilities. 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 the mid to long term, while at the same time, updating our profile in the cloud market.

We had an outstanding quarter with net revenues, reaching RMB 1.39 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 will now share some highlights.

Turning to the video sector of the industry. Our holistic AI-driven video cloud solutions that are built on our industry-leading edge computing platform have been deployed extensively and continue to grow rapidly. Reliance on and the recognition of our (inaudible) high capital and the [electric] cloud delivery network is continuing to drive the adoption of our business application. For example, in January 2020, our platform was used to provide back-end technological support for Spring Festival Gala, the most watched TV show in China that airs during the Chinese New Year holiday. We have built multiple low-broadcast stations and transcoding characters, set up a disaster recovery system, deploy an intelligent dispatch system and achieve second level emergency response to (inaudible). In addition, we were the first in the sector to support Quick UDP Internet Connections, or QUIC, a livestreaming solution, which can significantly reduce latency and ensures a quick, uninterrupted and smooth video streaming experience.

For the game sector, we officially launched a cloud-based game trial platform in February, which provides a full set cloud-based game solution carrying IaaS and PaaS. In cooperating with game companies, we are now providing players with cloud-based gaming experiences through this game (inaudible) and anticipate that there will be more extensive adoption going forward. In addition, we have begun to implement our go-to-market strategy for our cloud-based game solutions during the quarter, providing high-quality services across the inherent industry value chain, including game developers, distributors and operators.

Among various sub verticals of Internet industry beyond video and gaming, we have also made solid progress. For example, in the education vertical, we provided a digital interactive classroom solution to a leading online education company during the quarter, including IaaS and PaaS level services. This solution facilitates online live teaching and ensure a smooth transition for students from offline to online during the pandemic.

We continue to support traditional enterprises as they shift their IT infrastructure to the cloud. For example, to meet the growing demand for cloud services from traditional enterprises amid COVID-19 outbreak, we launched 8 pandemic mitigation solutions. These solutions cover sectors such as emergency supplies management, collaborating office systems, remote education and remote health care. One example was our development of an emergency supplies management system in January 2020, which was offered to public health care organizations on the frontline of various commitments across 30 provinces and cities in China. The decision to deploy a certain product free of charge was part of our commitment to maintain the highest level of corporate social responsibility or CSR.

Meanwhile, our products and technologies are increasingly being recognized by the public service organization and enterprises for their quality and reliability, and we have used the opportunity to accumulate rich service experience. 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, an intelligent identification model development services, which have been highly recognized by the customer. We will continue to actively invest in opportunities around the theme of constructing new infrastructure, which includes the fixed generation big data center AI industry and IoT. We are committed to employing enterprises with our cloud services.

In the financial service sector, we have increased our investment into the research and the development of distributed database -- driven-based and maintain our competitive advantages in this area. We continue to empower financial institutions and Internet companies as well as traditional enterprises with our strong technological capabilities. As an 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.

Now on to our AIoT segment that was launched in 2019. In cooperation with Xiaomi and their extensive AIoT ecosystem, we have established a base for our AIoT product and as well its capabilities. One example is the Yangtze River or City Smart Community project, which began to deliver [profits] during the quarter. This is the first local smart community covering both indoor and outdoor environments. Since enterprises, communities and cities seek to adopt infrastructure enabled by interconnected devices and solutions. This field will create new market opportunities in the future. Going forward, we will continue to focus on deepening our service offerings across the line workloads, improving operational efficiency, achieving high-quality sustainable growth and increasing shareholder value. We fully believe in the growth potential of cloud services and are confident in our ability to capture them.

I will now pass the call over to Haijian He to go over our financials for the quarter. Thank you.

Thank you, Yulin. Thank you, Nicole. Hello, everyone. I will discuss the financial performance of this quarter. Please be reminded that all announced [quarter] here will be in RMB. Please also refer to our earnings release for detailed information.

Before we go through the details, I would like to highlight the following 4 points. First of all, in our F-1 prospectus, we provided revenue outlook of the first quarter 2020, which ranged from RMB 1.35 billion to RMB 1.4 billion. The total revenue of this quarter finished at the top end of the range at RMB 1.39 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 a positive gross profit for the third consecutive quarter and that adjusted gross margin has continued to improve gradually for 7 consecutive quarters. As a result, the adjusted gross margin increased rapidly from negative 5.3% in Q1 2019 to positive 5.3% in Q1 2020, an improvement of 10.6 percentage points.

Number three, adjusted EBITDA margin increased as well, up from negative 12.9% in Q1 2019 to negative 2.8% in Q1 2020, an improvement of 10.1 percentage points. Adjusted EBITDA margin continued to improve steadily for 7 consecutive quarters.

Lastly, we have remained a healthy balance sheet and a sufficient liquidity. As of March 31, 2020, we had cash and cash equivalents and term deposits of RMB 1.97 billion. On 8th May, we have raised USD 551.3 million of the net proceeds from the IPO. Going forward, we will continue to remain and maintain a healthy balance sheet and ensure sufficient investments into R&D and IT infrastructures.

To summarize, we are pleased to have maintained a high revenue growth rate and significantly improve our profitability. Growing economic 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 RMB 1.21 billion. The increase is primarily due to the increasing demand of a cloud service from Internet verticals. Our top line performance has shown good level of resilience nature of our cloud business model in the middle of a challenging environment. Growth in the users and time spent on those 2 verticals, including video and gaming verticals as well as growing demand for our technologies, contributed into the revenue growth.

Enterprise cloud service revenue increased by 118.8% year-over-year to RMB 181.6 million. Enterprise cloud 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 the traditional enterprises increasingly shift their on-premise IT budgets to the cloud. Our robust financial results this quarter reflect this trend and demonstrate that the diversified revenue streams will continue to drive future growth so as we scale up.

Cost of revenue increased by 48.2% year-over-year to RMB 1.3 billion. IDC cost by 36.1% year-over-year to 922 -- RMB 920.2 million, but as a percentage of total revenue decreased from 80% during the same period last year to 66.2% in the first quarter this year.

D&A costs increased by 51.3% year-over-year to RMB 204.8 million. But as a percentage of total revenue, G&A costs declined from 16% during the same period last year to 14.7% in the first quarter this year.

Staff costs were RMB 13.1 million, and other costs were RMB 182.1 million during 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 RMB 74.2 million compared to adjusted gross loss of RMB 44.6 million in the same quarter of 2019. Our adjusted gross margin turned positive in the third quarter of 2019 and further improved to 5.3% this quarter. Thanks to the economic scale and operating leverage, we are very pleased to see our profitability continue to improve.

Total operating expenses increased to RMB 359.6 million, up 69.4% from the same period 2019. Operational leverage and efficiency improved during this quarter as operating expenses, excluding the impact of share-based compensation continue to decline. R&D expenses were RMB 195.7 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 a 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 it drives greater operational leverage and efficiency over time.

Selling and marketing expenses were RMB 88 million, representing 66.5% increase year-over-year. G&A expenses were RMB 76 million, representing 116.3% increase year-over-year, which was primarily driven by the increase of share-based compensation expenses.

Adjusted EBITDA reached negative RMB 39.4 million compared to negative RMB 108.8 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 share-based compensation, foreign exchange impact and a change in the fair value of financial instruments and other income and expenses were negative RMB 243.4 million compared with negative RMB 225.3 million in the same period of 2019.

As of March 31, 2020, we had cash and cash equivalents and term deposits of RMB 1.97 billion. We will maintain a prudent approach towards capital expenditures as a healthy balance sheet. In this quarter, our capital expenditure was RMB 282 million. We received the net proceeds of USD 551.3 million from our IPO early last month. The proceeds will be mainly used to further investments in upgrading and expanding our infrastructure, technology and product development, expansion of our ecosystem and a supplement of working capital.

Moving to the outlook. We are currently expecting the revenue for the second quarter of 2020 to be between RMB 1.5 billion and RMB 1.54 billion, representing a year-over-year increase of 60% to 65%. Assuming our resource utilization and the benefits of economic scale to continue, we expect adjusted EBITDA margin to be breakeven sometime towards 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 the uncertainties of COVID-19 are still in effect.

Finally, before we conclude our 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 part of the Ernst & Young global network, which drove the global common technology tools, methodology, training and quality assurance monitoring. Our financial statements are prepared in accordance with the U.S. generally accepted accounting principles, or U.S. GAAP.

Ernst & Young Hua Ming LLP has conducted the audit of our consolidated financial statements, including in our registration statement in accordance with the standards of the PCAOB and issued unqualified opinion that our consolidated financial statements represent fairly, in all material, respects our financial stations, results of operations and cash flows in conformity of U.S. GAAP. There is an existing framework for PCAOB to conduct detailed inspection of audit engagement of the accounting firms registered with PCAOB. China Securities Regulatory Commission, SEC and PCAOB are engaged on an ongoing dialogue with respect to the types of information permitted to be exchanged on the issuers with Chinese operations, while remaining -- while maintaining compliance with applicable laws. We have a very solid track record since we formed the 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 8 years. During a due process, we have been communicating with SEC vetting team who observed no material concerns on our registration statement. We have been in compliance with security laws of the states and meet order applicable filings and disclosure requirements with SEC. We have also been in compliance with all other applicable laws and regulation in all material aspects.

To conclude, we are committed to transparency and integrity to shareholders and would 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.

(Operator Instructions) We have our first question form the line [Alexio] from JPMorgan.

(foreign language) Congrats on a strong quarter out of the IPO date. My question is about the industry dynamic post the COVID-19 in China. Now that we are entering into a post-COVID-19 stage, could you share us what's your observation in terms of the industry dynamic in China cloud market? Specifically, we are interested in the demand for cloud consumption from video operators as well as the pricing trend 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 larger enterprise now that we are post the COVID-19?

(foreign language)

[Interpreted] Thank you. I will translate for Mr. Wang.

Thanks for asking the question. We think the pandemic has increased our industry very significantly from 2 aspects versus 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 the pandemic, we have seen a demand surge 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 demand from customers in this area.

For the enterprise cloud services, many enterprises and organizations have seen the convenience and valuable cloud services. This can help the public service organizations to improve the city governance and health care efficiency. However, because of the pipeline, this kind of service is different from the public cloud services. It takes some time for our customers' demand to convert into our revenues. And the second question, you talked about the CDN price. In general, we adopt 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 haven't seen very obvious price fluctuation volatility in this quarter. Thank you.

We have our next question from the line of Kenneth Fong from Crédit Suisse.

(foreign language) Congratulations on the very strong set of results. I have a question on the GP margin. Having seen that over the past 8, 9 quarters, we 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 very robust in terms of demand. Will it further help the existing capacity utilization, and hence, will be a further driver on margin?

Thank you, Kenneth. This is Henry. So I can take on this question. As we introduced in our prepared remarks, you probably noticed that both of our gross margin as well as the EBITDA margin has been improving for 7 consecutive quarters. And these are the 2 indicators are not only measure the fundamental IT resource utilization rates, but also our SG&A and the internal operation management efficiency to that extent. So to your question, because we actually just started to enjoy the benefits of economic scale, which are evidenced by the gross margin have turned positive since Q3 last year, so we do believe we're still in a very, very early age to enjoy that benefit, and I think there's definitely going to be an upside potential for further improvement of the profitability from both gross margin and 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 building in-house. As we mentioned, over 60% of the personnel are working in a cutting-edge technology, which are not only serving for today's client needs, but also for the technology, client demand for the further years to come. That's why we believe the technology-driven the profit and margin expansion are the primary force that 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 we mentioned, definitely correctly.

The online education and other verticals, for example, e-commerce, the data usage throughout the day, we'll definitely see different patterns. And these will definitely be one of the reasons we'll help push up our 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 the client base themselves will also be both go hand-in-hand. So we definitely will not only be a passive mode to waiting for further diversification of client demand, but also we have the proactive approach that use more and better technology to further improve the utilization of the efficiency.

So to conclude my response, I would think that, as you probably see, the supply demand dynamics in the China cloud market will also favor the independent cloud company like us. And we will definitely enjoy that trend to make sure the relatively stable environment in the market structure, so we can kind of deliver better and a better service for the client. Thank you, Kenneth.

Very clear. Congrats again.

We have our next question from the line of Thompson Wu from UBS.

(foreign language) Some of your larger cloud players in China have talked about some of their investments over the next 3 to 5 years particularly in the cloud. Can you talk a little bit more about your investments now with the fresh run of capital coming in for your business over the next 3 to 5 years? 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)

Yes. Thank you, Yulin. And also just to complement on the second point, and then Nicole can help translate. So for the capital expenditures, as we mentioned, right now, we do have a sufficient balance sheet. We have -- we're almost debt-free. So we do have a very great capital structure that can deploy. But also we're definitely -- on one side, we want to remain a very prudent approach to manage our balance sheet, given the market environment and all the challenges we are aware. But on a second perspective, we all will go in parallel to make sure we are going to make a sufficient investment into a key technology that will drive the substantial conversation with our clients going forward, a few areas that our CEO mentioned in the prepared remarks.

So out of the USD 550 million of IPO proceeds, we definitely will -- we'll make sure it's going to invest into upgrading and expanding to our IT infrastructures for about 50%, and we will definitely use about 1/4 of the IPO proceeds to further invest into the key technologies, for example, AIoT, big data and other cloud technologies. For the remaining 15%, we are definitely looking into the areas will 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 want to make sure that sufficient investment into the technology will be very important, and it's going to be the key driver to drive the potential revenue growth. And Nicole, please translate. Thank you.

Thank you, Henry. And thank you, Thompson, for question. I will translate for Mr. Wang.

[Interpreted] We think that the cloud business is a long-term investment theme. Most of our competitors have their plans for the new infrastructure. However, in this industry, we have already keep investing. The new infrastructure has clarified the objective and give -- the corporations have a clear effect on this cloud services. And we have already invested in our infrastructure and technology. Henry has already introduced our detailed plans. And for the customers, because we didn't disclose any data for the ARPU or the number of customers, we define this as an annual number, and we will disclose in our 20-F in the April next year. However, for the operational level, we think the customers are very healthy growing. Thank you.

Our next question from the line of Liping Zhao from CICC.

(foreign language) So I have 2 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 will 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 RMB 6 billion cash at hand after IPO, could management share the current revenue growth target and CapEx budget?

(foreign language)

[Interpreted] Thanks for your question. I will answer the first question. We think the market of cloud business is stable and clear, and we think the market is very huge. So the competitors has -- haven't made much pressure on us. There are only very few top players in this industry. And you can see from our full year and first quarter 2020 data, our revenue growth is very strong. Second, we are a technology-oriented company. We are engineering-oriented. So our big data and video streaming technology has been highly recognized by our customers. We think the cloud is Internet-based public cloud technology. And we haven't invested much on the hardware industry, so we're building -- our revenue growth will keep going. And I will like Henry to add more for the second question. Thank you.

Thank you. I would like to give a few color regarding your question regarding the CapEx and the top line growth. On the CapEx, you'll probably notice that as we disclosed in F-1, the past 2 years, our capital expenditure were roughly RMB 1 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 trends of the capital expenditures each year. But based on the baseline of the previous 2 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 capital expenditures. Historically, we spend CapEx largely for improving and purchase of IT infrastructures, for 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 history historical basis and we'll grow reasonably based on that.

And to your question regarding the revenue, we expect our top line revenue for the second quarter will be around 1.2 to -- sorry, RMB 1.5 billion to RMB 1.54 billion for the second quarter, which implying about 60% to 65% year-over-year increase. I think that's definitely going to be a very healthy growth rate and definitely we -- our intention to remain at our top line growth faster, relatively faster, than the public cloud market in China. In general, I think that's our intention. So we do want to also remain rather -- a good balance among the top line growth, the path for the profitability of the bottom line and the speed of the margin expansion as well as our cash and balance sheet position. I think we've definitely proven that we have a capability of managing the performance in a historical period of time. And going forward, we definitely will look at a set of variables that will deliver a balanced financial performance of the company.

We have our next question from the line of Elsie Cheng from Goldman Sachs.

(foreign language) My question is about price 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 an 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, Elsie. This is Henry, happy to take your question. Thanks for paying a detailed attention to the results. I appreciate that. I would like to mention on the first question, the fundamental demand from the traditional enterprise to move from on-premise IT to a cloud has been very strong. There's no change about that. And especially in the COVID-19 situation, many of the traditional enterprise client realized the true technology actually can help them to dissolve the real work issues.

So however, on the other side, as we probably also mentioned and disclosed in F-1 prospectus, we've actually taken a very, very prudent and conservative revenue recognition method, which means upon delivery and completion of the projects, which are primarily made of the revenue from the enterprise cloud segments. Upon the completion and delivery check, we will recognize the revenue for the project. As you mentioned, as you probably know, many of the cities in China, they were actually reopened only half April. So even though most of our projects were pretty much on track and many of the projects were already started in Q3 and Q4 last year, are actually started. But because the travel bans and the inconvenience to do the on-site completion check and the delivery check before the March end, we basically will not be able to recognize revenue before end of March. I think that's basically because of the prudent revenue recognition -- definition that we have already adopted.

But however, I want to point out that: number one, as you correctly 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 trend going to Q2. So I think overall, my feeling is that fundamental demand is very strong and is a long term. And especially as you see the fundamental initiatives from all the kind of thematic approaches actually, we'll have more focus on this area, and that will drive our financial 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 will look 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 the probably primary areas, we definitely will be focused on because these are the core large enterprise clients, and we do see the recurring client revenue and client relationship will help us to push our revenue from the segment. Thank you, Elsie.

I would now like to hand the conference back to Mr. 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.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]