Good day, and thank you for standing by. Welcome to the Kingsoft Cloud's Second Quarter 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. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud's second quarter 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 Vice Chairman and CEO, Mr. Tao Zou; the CFO, [indiscernible], Mr. Zou will review our business strategies, operations and other company highlights followed by Mr. Li, who will discuss the financial performance. We will be available to answer your questions during the Q&A session that follows. There will be consecutive interpretation of integrations are for your convenience and the reference purpose only. In case of binding discrete management statement in the original language will. 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 [indiscernible] in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and great market and operating conditions and relate to untangle known or unknown risks uncertainties and other factors of which are difficult to use and many 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, structures or otherwise, as required under the applicable role, in please note that unless otherwise stated all financial fingers mentioned during this conference call, a denominatin RMB. Now my pleasure to introduce our Vice Chairman and CEO, Mr. Zou. Please go ahead. Thank you.

[Interpreted] Hello, everyone. Thank you, and welcome all for joining Kingsoft Cloud's Second Quarter 2025 Earnings Call. I am Zou Tao, CEO of Kingsoft Cloud. During the past 3 years, the company firmly implemented high-quality and sustainable development strategy, fully embraced AI opportunities and our business fundamentals have taken on a completely new look. We have not only achieved the growth in both revenue and profitability, but also extensively upgraded our IS and test cloud service capabilities for the generative AI era. This quarter, our business sustained growth capability was once again verified. The high-speed growth of AI intelligent computing business has driven incremental demand for basic cloud services, further accelerating revenue growth. First, our Q2 revenue reached RMB 2.35 billion, representing a year-over-year growth of 24%, a significant acceleration from previous quarters 11% year-over-year. Both public cloud and Enterprise Cloud achieved year-over-year growth, among which public cloud increased significantly by 32%, reaching RMB 1.63 billion. Second, our embracement of AI continues to unleash favorable momentum. This quarter, AI gross billings reached RMB 728 million representing a year-over-year increase of over 120% and a quarter-over-quarter growth of 39%, accounting for 45% of public cloud revenue. In other words, over the past 2-plus years, while successfully driving high-quality developments in our basic cloud business, we have also built an intelligent computing cloud business of nearly equivalent scale. The rapid development of Gen AI itself and the demand for its implementation across diverse industry verticals have lifted the ceiling of cloud services market. We will continue to embrace AI enhance our technical capabilities, refine our intelligent consumer products and be a leading player in the era of Gen AI. Third, as the sole strategic cloud platform of the Xiaomi and Kingsoft ecosystem, we firmly grasped the enormous demand of ecosystem clients and…

This is [indiscernible]. Thank you all for joining the call today. It's my plan to join Kingsoft Cloud. I'm looking forward to working elaborate with the team to then get the challenges, catalyze on opportunities and do my best contribute into distribution of high-quality and sustainable development strategy, thanks for the trust of the Board, company and the stakeholders. . Now I will walk you through our financial results for the second quarter of 2025. This quarter, our AI strategy continues to be successful, driving businesses fashion across all products Total revenues for this quarter were RMB [indiscernible] 49.2 million, reflecting a 24.2% year-over-year increase. Of these revenues from public cloud services were RMB 1,625.3 million, up 31.7% from RMB 1.234.5 million in the same quarter last year. This growth was primarily fueled by searching AI-related business with gross selling it over 120% year-over-year increase to RMB 728.7 million. Renews for an price cloud services reached RMB 723.9 million, up 10% and from RMB [indiscernible] million in the same quarter last year, primarily driven by high demand for IT delivery services and steady progress from our external enterprise project delivery. [indiscernible] cost of revenues was RMB [indiscernible] million, up 27.8% year-over-year which was mainly due to our investment in infrastructure to support AI business growth. IDC costs increased by 10.3% year-over-year for RMB 328.2 million to RMB 803.1 million this quarter, which was mainly due to our increased purchase category to our new AI clusters demand. Depreciation and amortization costs increased from RMB 265.9 million in the same period last year to RMB 752 million this quarter. mainly due to depreciation of newly acquired high-performance service to define our AI business as well as the regular CPU service to support the community and storage demand order by AI rented customers…

This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Please answer our questions in both ManginChinese and English. -- if possible. .

[Operator Instructions] We will now take the first question from the line of Wenting Yu from CLSA.

[Interpreted] I'll transfer the question. The first question is management share the outlook and guidance on the revenue outlook for the second half of this year. also the first half of next year? And how is Shane's investment pace in AI and otonomo driving infrastructure. Additionally, what are the AI capacity in that trend in industries like tigers and the others, do we observe large model vendors, more iteration and reduced demand for computing consumption and which other industries show strong infrastructure in mind. And second question is regarding the gross margin. This year, case has adopted more leasing of compute sources egos had already impacted gross margin in the second quarter. And looking ahead, do we expect gross margin to continue to decline in the coming quarters? -- as we use more leasing, what is the current proportion of the lease capacity in the overall computing resources pool and what is our target for preferred ratio -- thank you.

[Interpreted] So let me to translate on briefly for Mr. Tao answer to the first question. So generally speaking, you were asking about the expectations for the second half growth. I would say that the second half revenue growth, we would expect that to be stronger and better than the first half. That's the general holistic revenue top line situation that I would like to share with you. And secondly, since you asked about that, Xiaomi. What I can say is that we are in the process of delivering an even larger cluster for Xiaomi's continuing power demand. without further details about the Xiaomi confidentiality concerns. Thirdly, if you asked about the trend, especially in terms of the training versus reference, I would say that assets the debut of [indiscernible], the different players in the market started to exhibit different patterns in terms of investment. Some of the players continued to invest heavily in the training of models and that will include the Xiaomi as well, right? But some other players actually have, to some extent, decreased some of the investment in computing power demand. However, we have also been seeing some of the other large enterprises since last year, continue to have even stronger inference computing power demand for inference. So I guess, generally speaking, it's hard to comment on each player, each customer that we engage with due to customer confidentiality reasons. But I would say that overall speaking, the market demand for AI continues to be very strong. So in relation to the question regarding gross profit margin and picture trend, I think this is a very good question. I would like to put that into the context of our growth model since last year. If you recall since last year, our old model was clearly based…

We will now take the next question from the line of Xiaodan Zhang from CICC.

[Interpreted]. And my first question is regarding our capital expenditure plans. So could management update on your capital expenditure plan for this year? And what is the expectation for AI computing power that will be ready to use at the year-end. And secondly, on the year-over-year revenue growth of Industry Cloud has reaccelerated from the last quarter. So could you please share some color on the demand and also your delivery pace of the industry cloud clients?

[Interpreted] For this year's CapEx expenditure, including sales procurement and lease purchase model -- as we mentioned in the last quarter, it is -- for the total year, it's around 10 billion. For the first half of the year, actually, we have spent around 5 billion. as Jose mentioned, now we have 3 models. So we don't -- because we have quite a strong cash position at the 31st symptom -- so that is why at this time, we will adjust our procurement process and models according to the customers' demand. So we still think the whole year, the tenant is around [indiscernible]. So help me to quickly translate -- so first of all, I would say that what you observed is correct on the trend for enterprise cloud revenue in Q2 to grow faster than before. Now the first reason I would say is the event of [indiscernible] to quite fat, the advent of Deep has a very good and very deep impact in terms of the relatively more traditional industries in China. It's like a customer education process where we're seeing a lot of strong demand coming from the public services, from health care, from education, from financial services sector, et cetera. However, we currently still have this pain point, which is we're still not at the position where we are able to provide our customers with a very easy-to-use application. So the final lending or application of the software or AI solution is soon not there yet. So the strategy of Kingsoft Cloud, what we internally to management is actually we need to refrain the impulse to actually read out our work and our energy across too much and too many verticals. Rather, we would ask the company, the people to actually focus on a few focused areas where we have relative competitive advantages. And then working on those solutions to achieve the so-called 021 breakthrough and then further do the one-to-end spreading out and application. So that's what we're doing now in terms of the enterprise cloud and its combination general. Now you also asked about the trend for the second half. Generally speaking, for Enterprise Cloud, the delivery Tek had always exhibited this seasonality that the second half to be better than the first half. So we -- as we look at the forecast for second half the growth rate for revenue for the second half of this year, we do expect that to be significantly better and higher than the first half of this year.

We will now take the next question from the line of [indiscernible] from Citic.

[Interpreted] So I will translate the question. We see that the current cheap supply side is undergoing some changes age 20 resumes supply, [indiscernible] and other chips will also be sold. But at the same time, issues such as chief security wearability may also suggest that next development needs to be more cautious. So we have made strategy adjustments to our Chief President's ideas such as embracing domestic production.

[Interpreted] Okay. So actually, to your question, we've been given this a lot of thinking and contemplation from a strategy perspective in 2023 as we started to venture into the AI generative AI computing cloud business. because this is the general broader picture under the final U.S. geopolitical conflict, which gave rise to huge uncertainty in the supply chain. -- on one hand, given that backdrop on 1 hand, we embraced the compliance chips that are supplied in China. And on the other hand, we had also been closely monitoring and following domestic firms for supply chain. To be quite fair, the restriction for [indiscernible] actually happened on the day of our equity for our issuers. And the ensuing lifting of that restriction happened a few months later. However, we're not too surprised by that because given the backdrop, given the complete nature. So also, we have been close of business cooperation with suppliers for domestic chip in China, starting from 1 firm to many firms. And actually, a few of them, we have very deep collaboration with. So in summary, although they have been back and forth in terms of supply chain uncertainty; however, there's no material impact to our capabilities to supply and satisfy the demands of our customers. They also zooming into our particular situation, right? Because the majority of our customers are large customers, the key accounts and large customers. And combining the strategy to talk about, so far, our capacity and all the channels that we have built both for domestic chips and also for overseas ships are sufficient to supply demand. So that is the situation right now in the short term. However, I do think that in the longer term, if there's going to be, for example, like a killer app Gen AI application, where the inference demand for our customers experienced explosive growth and then the demand from the industry surged significantly. We do think that there's a chance that in the future, the supply would not be able to meet this demand. So in short -- in the future, the balance between supply and demand largely depends on the domestic chip capabilities as well as their performance. Personally, I take a relatively conservative view that I think in the future, if demand should search like that, there's a chance that the domestic chip supply will not be able to -- will not be able to meet the demand in the market in China. But that's for the longer term.

Thank you. I would now like to turn the conference back to Nicole Shan for closing remarks.

Thank you. Due to time line, we come to our earnings call today. Thank you for us again for joining us today. If you have any further questions, please feel free to contact our team. Look forward to speaking with you again next quarter. Have a nice day. Thank you. Goodbye. .

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.]