Kingsoft Cloud (KC) Q2 2025 Earnings Transcript

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Date

Wednesday, Aug. 20, 2025 at 8:15 a.m. ET

Call participants

Chief Executive Officer and Vice Chairman — Tao Zou

Chief Financial Officer — Lili Li

Investor Relations — Nicole Shan

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Risks

Chief Executive Officer Tao Zou stated, "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." He further added, "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."

Lili Li reported that adjusted gross margin "has been negatively impacted by the higher cost of service, along with the expansion of our AI business and upfront costs incurred for certain customers for its interest new activity as well as price pressure of scale clusters."

Takeaways

Total revenue-- RMB 2.35 billion for Q2 2025.

Public cloud revenue-- RMB 1.63 billion public cloud revenue for Q2 2025, up 32% year-over-year, driven by intelligent computing cloud and basic cloud growth and increasing ecosystem client demand.

Enterprise cloud revenue-- RMB 724 million for Q2 2025 attributed to IT delivery services and progress in external enterprise projects.

AI gross billings-- RMB 728.7 million for Q2 2025, climbing over 120% year-over-year, now constituting 45% of public cloud revenue.

Xiaomi and Kingsoft ecosystem revenue-- RMB 629 million for Q2 2025, marking 70% year-over-year growth and now accounting for 27% of total revenue.

Adjusted gross profit-- Up 8.4% year-over-year in Q2 2025 and 7% quarter-over-quarter, mainly from scale expansion and deeper AI business contribution.

Adjusted operating loss-- RMB 166 million for Q2 2025, reflecting improved share-based compensation adjustment offset by increased prepayment to providers.

Non-GAAP EBITDA profit-- RMB 406 million for Q2 2025.

Cash and cash equivalents-- supported by public equity and strategic customer prepayments.

Capital expenditure plan-- with around RMB 5 billion spent in the first half and planned adjustment in procurement models based on demand.

Procurement model shift-- Strategic pivot from pure self-procured assets to mixed models including profit sharing, aiming to manage CapEx and gearing ratios, now adding an "agent model" for targeted client projects.

AI strategy execution-- Management confirmed ongoing investment in intelligent computing, full-stack AI capabilities development, and expanding AI deployment in verticals like public services, finance, and healthcare.

Summary

Kingsoft Cloud Holdings Limited(NASDAQ:KC) delivered accelerated revenue growth, substantially driven by surging AI-related business and increased contributions from major ecosystem customers. The company is actively realigning its capital structure through new procurement and profit-sharing models to balance growth, CapEx, and risk, while management anticipates further top-line and industry cloud segment acceleration in the second half. Adjusted gross margin pressure in Q2 2025 was attributed to up-front service costs and price competition related to scaling, but leadership expects stabilization as new business models mature and more focused vertical expansion is pursued.

CEO Tao Zou said, "the second half revenue growth, we would expect that to be stronger and better than the first half."

Management introduced the agent procurement model, allowing Kingsoft Cloud to procure, construct, and operate on behalf of customers, in addition to traditional and profit-sharing approaches.

Strategy adjustments reflect a response to anticipated supply chain risks from geopolitical events, with current chip sourcing diversified but future domestic chip supply flagged as a potential constraint if demand sharply increases.

Management noted sector seasonality, with the second half of the year expected to outperform the first half for enterprise cloud delivery and revenue.

Industry glossary

Generative AI (Gen AI): Artificial intelligence systems that can create new content, data, or solutions autonomously, often through advanced language models or neural networks.

Intelligent computing cloud: Kingsoft Cloud’s specialized offering for high-performance computing, primarily supporting AI model training and inference workloads.

Profit sharing model: An operational procurement arrangement where cloud infrastructure is provided for clients with cost and revenue shared, reducing direct CapEx outlay.

Agent model: A procurement and delivery structure in which Kingsoft Cloud manages infrastructure acquisition and operations exclusively on behalf of a client.

Full Conference Call Transcript

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.

Tao Zou: [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 pursue symbiotic growth and mutual success with the ecosystem. This quarter, revenue from Xiaomi and Kingsoft ecosystem reached RMB 629 million, up 70% year-over-year. with its contribution to total revenue further increased to 27%.

In the first half of 2025, revenue from Xiaomi and Kingsoft ecosystem reached RMB 1.13 billion, accounting for 40% of the total annual cap of related product transactions in 2025. Benefiting from the continued prosperity of the Xiaomi and Kingsoft ecosystem and ever-expanding business opportunities, we are fully confident in further growth of ecological business collaborations in the second half of this year. Now let me walk you through the key business highlights for the second quarter of 2025. In public cloud space, revenue reached RMB 1.63 billion this quarter. representing a year-over-year increase of 32%.

The development of intelligent computing cloud and basic cloud has been mutually reinforcing with cloud consumption growth from both ecosystem internal and external clients advancing in parallel. In terms of intelligent computing cloud, the solid demand for training computing power services and the gradually growing demand for inference computing power services have laid a solid foundation for the sustained development of intelligent computing clouds. On one hand, the implementation and application of AI across various industries have begun to emerge. Customers such as large language model companies, Internet audio video services, real-time communications online travel agencies and gaming have added incremental demand for AI RAF influence.

On the other hand, the growth in data volume driven by AI has boosted the growth of basic cloud services and growth in such high-quality basic cloud services has offset the revenue pressure caused by our proactive scaling down of low-margin services. In terms of ecological customers, we deepened our cooperation with Xiaomi, integrating the advantageous resources of both parties providing long-term, stable and high-performance cloud continuing services for Xiaomi. We also ensured the smooth launch of [indiscernible] System game, a subsidiary of Kingsoft by providing products and services such as database and cloud elastic compute. Enterprise cloud phase, revenue reached RMB 724 million this quarter, representing a year-over-year increase of 10%.

In terms of public services sector, we partnered with Kingsoft Office to take the lead in officially releasing the kings of the government AI all in one server, increasing investment in AI + public services scenarios and providing full stack AI capabilities, including intelligent computing services, platform services and large language model services. Through the strong cooperation between Kingsoft Cloud and Kingsoft Office, we have successfully integrated AI technology with practical applications in public services sectors. This provides scalable and replicable solutions for customers' digital transformation. In the health care sector, drawing on our industry-leading capabilities in top level planning, comprehensive data governance, robust technology foundation and AI capability.

We're continuously building the inflation capabilities for regional health care systems and hospitals in the field of digital health. In this quarter, we want to bid for the Changchun Municipal Public Health Information Platform project. facilitating the interconnection and sharing of local health big data. In addition, we're also working on the construction of this data lake project of Zhujiang Hospital of Southern Medical University and the cloud-native hospital information system of Zhongnan Hospital of Wuhan University. In the field of enterprise services, we are committed to implementing AI in multiple multi-industry scenarios and complex business models, truly improving enterprise operational efficiency and achieving progress and achieving process intelligence.

This quarter, we took the lead in cooperating with a major state-owned bank to advance the credit report automation project, building a benchmark project in the banking industry. We applied AI capabilities end-to-end in complex core business scenarios, enabling intelligence throughout the entire process, including data collection, analysis, decision-making and report writing, which has significantly improved the work efficiency of bank account managers. In terms of product and technology, we uphold the principle of building success based on technology and innovation, focusing on delivering best-in-class customer experiences across our core product offerings. With our basic cloud and intelligent computing cloud R&D team separately but collaboratively to improve the ASPs capability on top of our robust public cloud infrastructure.

This quarter, we continued to optimize our AI suite using cloud container services as a foundation, we provide out-of-the-box cloud native components such as heterogeneous resource management, AI workload scheduling, intelligent operation and maintenance and resource monitoring offering full life cycle support for large language model scenarios. We continue to optimize the capabilities of the [indiscernible] training inference integration platform. providing data sets, simulation service capabilities required by the AI industry as well as full life cycle management of data process and tests. Our intelligent computing cloud technologies help customers improve model training performance and save unit costs through optimized resource management, data governance, network communication and protection.

In addition, we released a new version of Kingsoft Cloud Galaxy Stack, supporting multiple mainstream processor platform and domestic operating systems, and improving its compatibility for private deployment scenarios. Overall, AI is injecting new momentum into cloud computing while pro continued is essential to support rapid model training and adoption. We continue to build and upgrade our intelligent computing cloud resources. And at the same time, leverage our expertise to enhance AI implementation into key sectors like public services, financial services, health care and other fields. AI adoption is accelerating in various factors and a substantial ability to improve productivity, enhance user experience and generate additional revenue streams has been clarified.

[indiscernible] we firmly believe market opportunities brought by AI revolution has just begun. We will leverage on the comprehensive capabilities we have accumulated over the past few years by embracing AI continue to deepen our commitment to the Xiaomi and Kingsoft ecosystem and high-quality external customers and focused on polishing our core product and solution capabilities to create long-term value while customers, shareholders employees and other stakeholders. In addition, this quarter, I would like to extend a warm welcome to the company's new CFO, Ms. Li, I will now pass the call to Lili to go over our financials for the second quarter 2025. Thank you.

Unknown Executive: 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 as the deficit is.

Solution development and service costs rose by [indiscernible] year-over-year from RMB 491.1 million to RMB [indiscernible] million, driven by expansion in solution architecture and delivery personnel to smother revenue growth. fulfillment costs and other costs were R&D 25.8 million and RMB 55.8 million this quarter, respectively. Our adjusted gross profit for this quarter was RMB [indiscernible]million, increased by 8.4% year-over-year and 7% quarter-over-quarter. It was mainly due to the expansion of our revenue scale and the enlarged contribution from AI business. Adjusted gross margin was iii quarter compared with 70% in the second quarter of 2024 and [indiscernible] last quarter.

Our adjusted gross margin has been negatively impacted by the higher cost of service, along with the expansion of our AI business and upfront costs incurred for certain customers for its interest new activity as well as price pressure of scale clusters. On the expense side, excluding share-based compensation costs, our total adjusted operating expenses were RMB 560.7 million, increased by 1% year-over-year and 31.2% quarter-over-quarter, of which are adjusted Research adjuant expenses were RMB 183.1 million, decreased pie 8.5% from same quarter last year. The decrease was mainly due to the decrease of personnel risk resulting by our strategic adjustments for research teams. Adjusted selling and marketing expenses were RMB [indiscernible] million decreased by 6.8% year-over-year.

Adjusted general and administration expenses was RMB [indiscernible], increased by 12%, 8% year-over-year due to the increase of credit loss resulting from prepayments made to supply related to the procurement of certain servers. Our adjusted operating loss was RMB 166 million by 11.7% from R&D 188.5 million in the same period last year. The improvement was mainly due to the share-based compensation adjustment. However, the adjusted operating loss increased compared with RMB [indiscernible] from last quarter. It was mainly due to the increase of Criteo caused by the prepayment made to certain favor providers. Our non-GAAP EBITDA profit was RMB 406 million, increased by 5.7x RMB 56 million in the same quarter last year.

Our non-GAAP EBITDA margin achieved 73% compared to 3.2% in the same quarter of last year. It was mainly due to our strong commitment to AX loud computing development, strategic adjustment of business structure and our third restrict contrail over cost and expenses. As of June 30, 2025, our cash and cash equivalents total RMB 464.1 million, providing a strong liquidity position to support operations and AI investment.

The increase was mainly due to our public equity offering and private prime with KasofCorporation as well as the prepayment we received from strategic customers, which was used to support a further class instruction This quarter, our CapEx expenditures included those financed by third party reached RMB 135 million and of used assets of 10 in change for last Mr. Bate for RMB 1,664.8 million.

Moving ahead, AI technology has created a real opportunities for cloud computing but only the computing demand both by more than train influencing, we also have bank clients to adopt Air facilities in today to let business scenario or component as an enabler of AI provides cartage technology and computer resources all cans of customers, how do they leverage the first card AI model and platform with ultra for extensive income infrastructure and large amount of capital expenditures significantly launched the various entry and accentuating poor surgical press across war-risk sector. Thank you all.

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

Wenting Yu: [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.

Tao Zou: [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 on sale procurement, which comes with a high CapEx level and also comes with high gearing ratio.

We've been asked a lot of questions by the investor community, highlighting to us the potential risk in relation to that model. So since the second half of 2024, given that consideration, we have adjusted and pivoted to some of the new models, which we would call the resource pool model or the profit sharing loss where our CapEx level would be relatively lower and also, we will benefit from lower in ratio. So overall speaking, because of that shift of that procurement model, although there is a slight decrease of GP margin. However, I would say, we generally achieved the strategic choice that we made for the changing of procurement model.

And therefore, I think it's actually quite a good success. It's a successful result. And since you also asked about the ratio between the self-owned assets versus the profit sharing model, I would say that we didn't -- we haven't disclosed the particular number in that regard.

However, so far, I can tell you that the self-owned assets still command the majority of those assets on our balance sheet in the future, I would say that in addition to the 2 models that we already have, we are already exploring a new model, which we have planned in 1 of the key customers which I would call the agent model, which essentially means that we would do on our customers' behalf with our help, we would do the procurement, we will do the construction, and we will do the operation on behalf of that customer.

So putting this together, we're actually having 3 models and the particular adoption of any 1 of these models will purely depend on the demand of those particular customers. and the overall balance that we would like to achieve in terms of gearing ratio and the CapEx and indebtedness level.

So I would say that in general, as we continue to run our different models and the combinations in the next few quarters, we will be more -- we'll have a clearer picture as to where the GP margin will stabilize as -- but as far as you can see from this point in time, I would say that the GP margin level relatively will stabilize at where we are right now today. Thank you.

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

Xiaodan Zhang: [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?

Tao Zou: [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.

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

Unknown Analyst: [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.

Tao Zou: [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.

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

Nicole Shan: 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. .

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

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