Good day and thank you for standing by. Welcome to the Kingsoft Cloud Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] And pleased be advised that today’s conference call is being recorded. [Operator Instructions] I would like to hand the conference over to the first speaker for today, Ms. Nicole Shan. Thank you. Please go ahead.

Thank you, [indiscernible]. Hello everyone and thank you for joining us today. Kingsoft Cloud second 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 your companies and the reference purpose only. In case of any discrepancy, management statement 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. 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 CEO, Mr. Yulin Wang. Please go ahead.

[Foreign Language] Thank you, Nicole and thank you all for joining our second quarter 2021 earnings call. In the second quarter, we generated RMB2.17 billion in total revenues, which was a new quarterly record for us. It was 41.6% increase year-over-year and also a significant acceleration from the 30.4% year-over-year increase in the first quarter. Our Public Cloud services revenues increased for the sixth consecutive quarter since our IPO and hit a record of RMB1.55 billion, which is an increase of RMB159 million over the first quarter. Our Enterprise Cloud services revenues reached RMB622.1 million representing an 152.8% increase over the same period of 2020 and an acceleration from 131.3% year-over-year increase in the first quarter. Overall, we continue to effectively execute our premium customer strategy as the largest independent cloud service provider in China, Our new position helps us attract, develop, and maintain long-lasting, stable, in-depth, and multi-dimensional relationships with an expanding group of premium partners. Now, let me walk you through our performance of our major verticals. I'll start-off with Public Cloud. Despite a challenging market environment, we delivered solid progress during the quarter. On customer front, our existing customer base remained stable with a solid year-over-year increase in their usage, while continued to make significant progress attracting a diverse group of new customers. Today, we're pleased to announce that Kingsoft Cloud had entered into a comprehensive partnership framework agreement with volcano engine under ByteDance in an effort to jointly provide services to enterprises digitalization and seize the huge market opportunities from China's cloud computing market. Kingsoft Cloud leveraging our rich sales resources and capabilities will help Volcano Engine sell its PaaS and SaaS products in at the same time promote our iOS products. We will also jointly work on business development partners. In addition, we successfully supported…

Thank you, Yulin. Before diving into the details, I would like to offer a few highlights for the past quarter. Our total revenue of RMB2.17 billion in Q2 sets a new quarterly revenue record for our history, representing approximately 42% year-over-year growth, which was acceleration from 30% year-over-year in the first quarter of 2021. Revenues from Public Cloud services was RMB1.55 billion, a quarter-over-quarter increase of RMB158.9 million, representing the sixth consecutive quarters revenue increase since our IPO as well as a decent step-up of incremental quarterly revenue. Revenues from Enterprise Cloud services was RMB622.1 million, representing approximately 153% year-on-year growth, another significant acceleration compared to the 131% year-on-year in Q1 2021. Our strong and accelerated topline growth in Q2 is underpinned by the following factors resulting from fundamental strategies and advantages. First of all, under the strategy of serving premium customers, we have established robust and multi-dimensional relationship with our premium customers. Revenues from our top three customers achieved healthy year-on-year growth. Revenue from our largest customer achieved a quarter-on-quarter growth as well. The cross-selling initiatives of our PaaS-level products has been successfully executed. In the meantime, while the total revenue from our top 10 customers has increased in dollar value on a year-over-year basis, the percentage of the revenue contribution to the company in total has gradually and a slowly decreased quarter-by-quarter, which we believe is a very good sign and a trend for derisk the client concentrations. Second, our strategy of being a neutral and a pure play cloud service provider, we demonstrate strong customer acquisition capabilities under the multi-cloud deployment backdrop, driven by progressing vendor strategies being adopted by leading internet companies. For example, we have started to provide a Public Cloud services to Meituan, a successful leading internet client. Lastly, we have always adopt a…

This concludes our prepared remarks. Thanks for your attention. We're now happy to take your questions. Please ask your question in Mandarin first and then in English, if possible. Operator, please go ahead. Thank you.

Yes, thank you. [Operator Instructions] Our first question is from the line. Sheldon Zhang [ph] -- Brian Gong of Citigroup. Please go ahead.

[Foreign Language] I will translate myself. Thanks management for taking my questions. I have two questions. First one is on the Public Cloud side, how should we see the segment's growth in the second half, especially considering lots of regulatory headwinds for the internet? And the second question is about the management give more details about our cooperation with [indiscernible]. And does that mean [indiscernible] cloud product will integrate our as as-products and how will this cooperation contribute to our revenue over long run? Thank you

Okay, thank you for your question. So, in relation to the first question about how we think about the growth of Public Cloud business revenue in the second half of this year, there are a few points. First of all, we have already seen that the second quarter Public Cloud revenue has already increased around RMB160 million quarter-over-quarter compared to the first quarter. This is not the only the sixth consecutive growth -- quarterly revenue growth for the Public segment, but also significantly, the absolute dollar amount increase is also significantly higher than the past levels. And therefore we're becoming more confident for the growth of the second half of our business of this year. In particular, there are several reasons that we are more comfortable -- we're more confident about it. First is that we have managed to maintain a very stable relationship with top customers, including ByteDance with the usage of volume become also very stable. This forms a very sustainable revenue foundation for Public Cloud service segment. And the second point is that under the heavy regulations, especially for the industries like online education, because we have maintained a very disciplined approach to vertical focus, the impact to our to our business is actually non-material. All of this -- the sector exposure for online education is in lower -- low single-digit. And thirdly, the current regulatory backdrop is actually beneficiary to us, because we can better leverage our neutrality positioning and under the multi-cloud deployment, the general trends we're able to penetrate further into the pan-internet customers and to make the new revenues. The Meituan case is just -- just shows how we can further penetrate in this segment. And you second question about our relationship -- about our cooperation with ByteDance. First of all, I would like to make a clarification. The cooperation is not with TikTok, but actually with ByteDance. Secondly, the way that we cooperate with them is that we will integrate our iOS [ph] products and together with the PaaS and SaaS from Volcano Engine to altogether provide an integrated one-stop shop solution for the potential customers. We will also exploit and do business development together with ByteDance -- with Volcano Engine to do potential marketing to new customers. And thirdly, I think it's hard to quantify the potential revenue as of now because we have just started this framework of agreement. And even Volcano Engine has only started this for one or two months. So, we currently do not expect the revenue contribution from this cooperation to have material impact for the second half of this year. Thank you.

Thank you. Operator, next question please.

Thank you. Our next question is from the line of Sheldon Zhang [ph] of CICC. Please go ahead.

[Foreign Language] So, my first question is regarding our recent acquisition. So, could you please update us on the consolidation progress of Camelot? And also in the longer term what type of the targets will we look at for our acquisition in the future? So, my second question is regarding our guidance on EBITDA margin in upcoming quarters. Thank you.

Thank you, Sophie [ph], for the question, happy to address two of the questions. The first question regarding our acquisition of Camelot, as we discussed in the prepared remarks, is our business, especially the implementation capabilities, will be significantly improved and enhanced by this acquisition. So, it's a business and strategy-driven deal. And also we're happy to see the 14 with over 20 years of experience management team join us and will deliver their know-how in the space as well as their solid client relationship. So, regarding the progress, as we announced the deal on the 2nd of August, and right now, we are doing all the necessary regulatory approvals, internal approvals, before we close the deal. So, we are hoping, if everything goes well, which is we believe it will go with that direction, will be closed and by the end of this year, sometime will be in Q4. So, however, as you know, the timing will depend on the approval process and also the pacing of the closing for other mechanical process. So, -- but we believe there'll be no major bottlenecks before we close the transaction. And once we close the transaction, the team and other kind of process will be integrated into our business and the financials will be consolidated into Kingsoft Cloud, which we do think there will be a positive impact to the Kingsoft Cloud financials. Regarding the future investment, there are a few key things that we will continue to explore and will enhance our capabilities from the following categories. First of all, we're looking into the innovative technology ventures to really enhance our matrix of the product offerings and services. And that will be basically enhance and upgrade our cross-selling capabilities and extending our revenue opportunities with existing clients. So, as you…

Thank you. Our next question is from the line of Zoe Zhu [ph] of UBS. Please go ahead.

[Foreign Language] So, I have two questions. The first question is about our acquisition of Camelot, how do we think about its impact of gross margin, given that this company can help us to improve our implementation efficiency? The second question is also about gross margin. So, China has launched the critical infrastructure protection law and business security law. So, how do we estimate the related costs to complying with this two policy?

[Foreign Language] Thank you, Wendy. I would like to offer the three perspectives regarding the cost impact of the acquisition. First of all, the company Camelot has over 16 delivery hubs around nation in China. So, their local teams has been very experienced and very close to the clients, especially in those sophisticated projects. So, those local team will dramatically say for example, the travel expenses and local delivery cost. So, that will be reflecting to the cost of the delivery of projects. Point number two, over 94% of the current revenue of Camelot are recurring, which means two things. First of all, they do have their proprietary products and some of them are standardized. So, by adding into those components as the module within the Enterprise Cloud projects, that will be also improving our contribution margin. Second, given the company is growing at a double-digit on a year-over-year basis, we do believe the incremental revenue will be also receiving a better economy scale even on a standalone basis. So, the third point, Camelot currently has about 213 premium customers, which follow the same definition of Kingsoft Cloud of 2020. And we actually analyze the overlapping premium customer base of Camelot and Kingsoft Cloud. And the majority of the 213 premium customers, especially the top quanta of those customers, have great overlap was [indiscernible] at this moment, which means we can leverage and cross-sell or upsell our current projects and we can enhance a deepening our multi-dimensional client relationships, including our top 10 clients by leveraging the Camelot team as well. So, that will also reduce our sales costs for the recurring projects and further sales cost also for the new engagement of the new projects. So, by combining the three factors I just mentioned, the contribution and benefits of Camelot acquisition will be coming to contribution margin, the percentage of recurring revenue, sales and marketing costs, and the local travel expenses. So, those will be also reflecting to both gross margin and EBITDA margin of Kingsoft Cloud. Thank you.

And also allow me to translate on what Mr. Yulin wang answered about the -- in relation to the -- of data security. So, like we've always talked about, we believe that cloud computing is a very important constituent of information technology sector. And therefore, the regulation on information security and data security is very important. We do believe that a regular -- orderly regulation is beneficial for the long-term and healthy development of an industry. So, even though that short-term regulation might impact some of the players or the industry and people will need to adapt to that, we still believe that in the mid to long-term, it's going to be beneficial for the growth of the company. And like we said in the prepared remarks, some of the points shows that both our business model and our methods and our approach towards data security and privacy shows that we're very well-prepared in this regard. Number one, we really focus on corporate science rather than serving a lot of individual developers and therefore, the personal data information security does not relate to us -- to that great extent. And secondly, what we provide is computing environment and the data that are stored or processed in that environment belong to the customers and not us. And certainly on majority of our Enterprise Cloud business of this project are deployed privately and therefore, there's physical separation, which enhances data security. And lastly, we really advocate the full lifecycle data security and protection mechanisms, with all the internal control methods, including the data security and privacy committee and the general counsel office, et cetera. So, we do think that in light of this, we're pretty well-prepared in facing the regulatory developments. And since you asked about the expenditure, in this regard, we do believe that will continue to build our capability and security, including human resources and spending on financial resources on this, but we do not expect this will cause any material financial impact for our financial results. And also I'd like to mention that in light of these regulations, the more -- maybe more -- some of the clients may choose to adopt for private cloud or hybrid cloud, which we can provide as well. So, this could also benefit for our customer acquisition efforts. Thank you.

Thank you. Our next question is from the line of Thomas Chong of Jefferies. Please go ahead.

[Foreign Language] Hi management. Thanks for taking my question. Congratulations on the strong results and I have two questions. My first question is regarding the acquisition of Camelot. So, could you please share some details about the current margin for Camelot? Any word on financial results of Camelot be consolidated by KC in the first quarter next year? And my second question is, could you please provide some clarity about the revenue contribution from premium Public Cloud customers? And how should we think about the competitive landscape of Public Cloud and Enterprise Cloud? And how should -- how do you think about a trending ARPU? Thank you.

Thank you. I'm happy to take on the first two questions regarding the acquisition of Camelot, I think all the necessary information has been disclosed in our previous announcement in the 6-K Form, but happy to share some additional color on this call. First of all, given Camelot's revenue and most of that are recurring, and also they do have their propriety products. So, I think at this moment, their gross margin or internal contribution margin, at least, are on the double-digit territory. Point number two regarding the timing of a consolidation, we are hoping, as we mentioned, there's no major roadblocks for receiving the necessary regulatory approvals and internal approvals. We're hoping the deal will be closed in -- sometime in Q4 this year. So, I think the latest time of financial consolidation will be Q1, but hopefully, we hope that timing can be move and pushed a little bit ahead if everything goes well. We're happy to share the updates when the things are confirmed. So, regarding the revenue contribution of the Public Cloud clients, as we mentioned in the prepared remarks, while we're happy to see our top three clients are contributing on a year-over-year basis, have a higher dollar revenue contribution and our largest customer has also sequentially on the quarter-over-quarter also seeing revenue increase, but given our total revenue are increasing as improving at a faster pace. So, mathematically, our top 10 clients are contributing a lower percentage of total revenue of Kingsoft Cloud quarter-over-quarter, but on a gradually pacing. So, I think that will be derisk our client concentration from that perspective. So, speaking to your question, I think right now, we have to say that there's no major client has been contributing a majority revenue of Kingsoft Cloud over 30% and we do feel like the revenue contribution as a percentage perspective are healthy and moving to the right direction. And also, as you see from the total company revenue mix of Enterprise Cloud this year, it will be likely around 30% of the total revenue if we do follow that on track. So, our total company's revenue mix will be also moving to a healthy combination. So, that actually the few things regarding Enterprise. Regarding the total revenue going forward, I think we are going to see the major breakthroughs of the previous backlog as we discussed early will be gradually booked into the revenue as we are seeing the continued implementation and also the delivery of those projects. So, some of the announcements and public information regarding some of the great bits of our Enterprise projects has been currently implemented on track and also with the Camelot addition will be helping going forward to accelerate those implementation schedule. Thank you.

Thank you.

Thank you. Our next question is from the line of Joel Ying of Nomura. Please go ahead.

[Foreign Language] For the long-term, management will make guidance total revenue in Public Cloud and Enterprise Cloud mix, [indiscernible]. So, as we acquired Camelot, we're just focused on Enterprise Cloud and as of now, Enterprise Cloud -- Public Cloud already attribute 29% on total revenue for 2021. So, what's our guidance? Are we getting a mix going forward into 2022 and into long-term? Thank you.

Thank you, Joel, happy to share some additional color as well. So, as you can see, the three major fundamental driver of the revenue growth, number one is our Public Cloud, majorly from our new accounts, as well as the solid base of existing accounts. Number two is our organic growth of Enterprise Cloud revenue and number three, is the gradual conversion of the backlog of RMB3.8 billion from Camelot going forward. But I want to mention that all three streams are actually all growing, obviously, at a different pacing, but they actually are growing. So, depends on the timing of closing the Camelot transaction, we're going to have a final views regarding how the three different speeds can convert into a final mix. I think that will be the -- kind of the natural results. But I think our focus from management team perspective is to make sure that our Public Cloud, our organic Enterprise Cloud, and additional opportunities from Camelot can all grow. So, I think right now, frankly speaking, is going to be a bit early to give a final view regarding the guidance of the mix, because the timing of the closing has not been fixed yet. But hopefully, given that even Camelot today's revenue is also growing at also a double-digit in that perspective. So, hopefully, after the consolidation, as late as Q1 next year, it will significantly adding to the business opportunity to Kingsoft Cloud. And I think for next year, the percentage of Enterprise Cloud will be growing as well. However, our Public Cloud revenue in dollar value, we believe, we'll be also seeing a good growth for next year as well. Thank you.

Thank you very much.

Thank you. And that's the end of our question-and-answer session. Now, I'd like to hand the conference back to the management. Please continue.

Thank you operator. 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. Thank you.

Thank you. And this concludes today's conference call and thank you for participating. You can now all disconnect.