On Wednesday, Kingsoft Cloud Hldgs (NASDAQ:KC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Kingsoft Cloud Hldgs reported a total revenue of RMB 2.7 billion for Q1 2026, marking a 37.2% year-over-year growth, driven by significant increases in public cloud (47.5%) and enterprise cloud services.

AI Cloud services played a crucial role in the company's growth, with AI Cloud GROSS Billings reaching RMB 1.0 billion, a 90.1% year-over-year increase, and accounting for over 50% of public cloud revenue.

The company emphasized strengthening its AI cloud infrastructure, leading to enhanced training and inference platform capabilities, and noted strong performance from its ecosystem partnerships, particularly with Xiaomi.

Management highlighted a diverse customer mix, spanning industries such as autonomous driving, fintech, and gaming, which has helped optimize resource utilization and improve profitability.

Kingsoft Cloud plans to continue its high-quality and sustainable development strategy, with a focus on AI-driven growth, and anticipates further investments in infrastructure to support this expansion.

Full Transcript

Operator

Good morning ladies and gentlemen and thank you for standing by for Kingsoft Cloud's first quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Mr. Wayne Wang, Investor Relations of Kingsoft Cloud. Please proceed.

Wayne Wang (Investor Relations)

thank you. Hello everyone and thank you for joining us today. Kingsoft Cloud's first quarter 2026 earnings release was just filed earlier today and is available on our [email protected] as well as on PR Newswire services. On the call today from Kingsoft Cloud, we have our Chairman and CEO, Mr. Joe Tao, CFO Ms. Li Yi, Senior Vice President Mr. Liu Tao, Senior Vice President, Mr. Tiankai Yan, Vice President, Vice President Mr. Wang Zhengzheng and Board Secretary Mr. Clark Tian. Mr. Zhou will discuss our business strategies, operations and other company highlights, followed by Ms. Lee who will discuss the financial performance. They will be available to answer your questions during the Q and A session that follows. There will be consecutive interpretations. All interpretations are for your convenience and reference purposes only. In case of any discrepancy, Management statement in the 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 21E of the securities 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 expectations and current markets and operating conditions 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 US sec. The Company does not undertake any obligation to update any forward looking statement 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 at the nominator in rmb. It is now my pleasure to introduce our chairman and CEO, Mr. Zhou. Please go ahead.

Zhou Tao (Chief Executive Officer)

Good evening everyone and welcome to Kingsoft Cloud's first quarter 2026 earnings call. I am Zhou Tao, CEO of Kingsoft Cloud since the beginning of 2026, the continued adoption of AI coding together with the rapid rise of AI agents have driven AI to evolve from chat oriented to action oriented use cases. This shift is fueling concurrent growth in both model inference and training demand, further expanding the selling of the cloud computing industry. This quarter, kingsoft Cloud remained firmly committed to our high quality and sustainable development strategy. We strengthened our AI cloud infrastructure and enhanced our training inference platform capabilities. In the meantime, we also further deepened our presence in industry specific use cases, fully embracing AI's transformative role in reshaping the world. First, we sustained our momentum of high quality growth. In terms of revenue, we recorded a total revenue of RMB 2.7 billion this quarter, representing a year over year growth of 37.2%. Both public cloud and enterprise cloud services achieved year over year growth. Among them, public cloud revenue reached RMB 2.0 billion a year over year increase of 47.5%. In terms of profitability, our adjusted gross profit reached RMB 351 million, up 8.6% year over year. Adjusted EBITDA was RMB 748 million, representing a year over year increase of 134.7%, with adjusted EBITDA margin reaching 27.6%, a significant year over year improvement of 11.4 percentage points. Second, AI Cloud continued to drive the company's business growth this quarter. AI Cloud GROSS Billings reached RMB 1.0 billion a year over year increase of 90.1%, accounting for over half of public cloud revenue for the first time reaching 50.1%. Notably, our token services delivered exceptionally strong growth with April 2026 revenue skyrocketing to 53 times that of January 3rd. Ecosystem cooperation continued to strengthen this quarter. Revenue from Xiaomi and Kingsoft ecosystem reached RMB's 838 million a year over year increase of 68.9%, accounting for 31.0% of total revenue. As Xiaomi reinforces its investments in the human car, home smart ecosystem and AI advancements, it brings forth more business opportunities for us. We plan to revise the annual caps for the Continuing Connected transactions with Xiaomi. Following the adjustments, the revised annual caps with Xiaomi and Kingsoft for the Continuing connected transactions under the three year framework from 2025 to 2027, we reach RMB 14.2 billion. Now let me walk you through our business highlights for the first quarter of 2026 in terms of public lab services Revenue reached RMB 2.0 billion this quarter representing a year over year increase of 47.5%. First, we continued to closely align with the large scale and highly visible cloud computing demand within the Xiaomi and Kingsoft ecosystem. With a long term and global strategic perspective. We are carefully planning and continuously refining our offerings to build products and solutions with sustainable competitive advantages. Second, we earn broad recognition from customers outside the ecosystem. Leveraging our solid product and technology capabilities and extensive project experience and strong market reputation, we rapidly expanded both our customer coverage and the depth of business corporation. This quarter revenue from our top five non ecosystem customers increased by 66% year over year. Maintaining strong growth momentum, we provided AI cloud services to a leading autonomous driving unicorn enabling rapid deployment and and responsive operations. This supported large scale data processing and efficient end to end neural network training iterations helping the customer capture early market opportunities through our star flow training and inference platform. With best in class resource scheduling, elastic scalability and model deployment capabilities, we effectively supported the token demand of many top tier Internet companies capturing the surge in inference driven demand. Third, we achieved a meaningful optimization of our customer mix as inference applications continue to scale. Our AI business now spans a wide range of industries including Internet AI companies, autonomous driving, logistics, fintech, gaming and video streaming resulting in a more balanced customer mix. This quarter we deeply empowered a leading AI for science customer ensuring its rapid business growth and stable platform operations. We also supported a top logistics technology company in executing large scale code development projects, enabling its engineering teams through flexible multimodal utilization and significantly improving R&D efficiency and innovation capability. This diversified customer mix and business portfolio not only drive revenue growth but also enable us to schedule computing resources more flexibly in off peak periods, improve resource utilization and enhance profitability. In terms of enterprise cloud services revenue reached RMB710 million this quarter representing a year over year increase of 14.7%. In the public services sector, we launched the state owned Cloud Cloud platform in Shenzhen focusing on the core needs of state owned enterprises for high security, strong compliance and strict data confidentiality and fully enabling the digital and intelligent upgrade of office business and management use cases. Leveraging Kingsop Cloud's technology foundation, we adopted an integrated architecture that is provincial platform plus multi prefecture and county platforms to build a supply chain public information platform in Hubei enabling resources efficiency, data interoperability and business collaboration and have now supported the scaled migration of multiple municipal and county level platforms to the cloud. We also partnered with a leading domestic chip manufacturer to build a full stack intelligent computing service system spanning from underlying chips to upper layer applications, advancing the large scale commercial deployment of domestically developed intelligent computing cloud solutions and meeting the demand for for high security and highly controllable computing capabilities. In the digital healthcare sector, we collaborated with Union Hospital affiliated with Tongjin Medical College of Huazheng University of Science and Technology, one of the top ranked hospitals in China, on a data governance project. Through a systematic data management framework, we helped the hospital transition from fragmented management to to standardize the governance, setting a benchmark for the intelligent transformation of large medical institutions. We also signed a contract for a large scale medical consortium platform project based on the Data Middle platform. This project highlights our end to end professional capabilities in planning, designing, construction and operation within the medical consortium space, laying the foundation for large scale replication and rollout across healthcare institutions. In the enterprise services sector, we delivered a green energy operations platform for leading clean energy service provider enabling effective intensive management of large heavy duty truck fleets. We further extended into the broader green and low carbon industrial chain, exploring digital solutions for solid waste management and driving large scale business deployment. In terms of product and technology, we continue to stay committed to a technology driven approach closely aligned with AI cloud demands and have comprehensively upgraded our products and services during the quarter. In response to increasingly diverse model requirements, our Starflow platform significantly expanded its model ecosystem. We added new API services for speech recognition and speech synthesis, expanded image and video generation models and delivered a more refined user management experience. To address growing demand for AI agents, we launched Agent Engine enabling customers to efficiently develop, deploy and manage agents. We also introduced one click agent deployment on our cloud host, supporting mainstream agent applications such as OpenCloud and Hermes, achieving deployment within five minutes and significantly lowering the barrier to adoption for AI training and inference use cases. KS3 cache accelerator now delivers stable millisecond level, low latency balancing performance and cost efficiency to meet the rising demand for private deployment of AI across industries. Our Galaxy Stack platform reached a key milestone adding Star Flow and security modules and completing a full stack closed loop private deployment solution for AI cloud, covering cloud infrastructure, integrated training and inference token services and security guardrails. Overall, in this wave of AI innovation, from text generation to multimodal capabilities, from training to inference, from chatting to real world task execution and from agents to clause, the pace of innovation and deepening applications continues to reinforce our conviction that AI will fundamentally reshape industries across the board. Kingsoft Cloud will continue to uphold its strategy of high quality and sustainable development, increase investment, deepen its focus on core products and solutions, and continuously enhance profitability, creating greater long term value for customers, shareholders, employees and society. Next I will hand over to our CFO, Ms. Li Yi who will walk you through our first quarter financial results. Thank you,

Li Yi (Chief Financial Officer)

thank you Mr. Zhou and Clark and thank you all for joining the call today. I will now discuss the first quarter financial results using RMB as currency. Before we walk through the details of financial results for the first quarter, I would like to highlight the following aspects. First, our review has been consecutively achieved year over year growth for eight quarters, reaching 2,704 million this quarter. For the first time, our AI business became the majority revenue driver, contributing over 50% of our public cloud services revenue and marking a pivotal structural shift in our growth mix. This quarter, our AI business building increased 91% year over year, amounted to 198 million. Second, our adjusted gross profit was 351 million, increased by 7% year over year. Despite all supply chain challenges, our adjusted EBITDA margin was 28%, increased by 11 percentage points year over year thanks to our air revenue growth, third in that of strong demand across diverse sectors. We remain steadfast in investing our infrastructure as our capital expenditures and leased assets obtained in combination grew 38% year over year to 3 billion this quarter and we expect to continue to invest to facilitate further business expansion throughout the year. Now I will walk you through our financial results for the first quarter of 2026. This quarter, total revenue was 2,704 million of these. Real news from public cloud sources were 1,996 million, up 47% from 1,353 million in the same quarter last year. Real news for enterprise revenue services reached 707 million, up 50% from 660 million in the same quarter last year. Total cost of revenues was 2,358 million, up 43% year over year, which was mainly due to our investment into AI computing resources. ITC costs increased by 26% year over year from 723 million to 980. The increase was mainly due to increase of RAC services which served the expanding AI business. Depreciation and amortization cost increased from 379 million in the same quarter of 2025 to 890 million this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and Network equipment which were mainly related to AI business solution development and services. Cost increased by 40% year over year from 505 million in the same quarter of 2025 to 575 million this quarter. The increase was mainly due to the solution personal expansion of Camelot for business cost and other cost was 2 million 51 million this quarter. Our adjusted gross profit for the quarter was 351 million, increased by 7% year over year and decreased by 25% quarter on quarter. Adjusted gross margin decreased from 70% last quarter to 30% this quarter. The decrease was mainly due to the higher cost of silver along with expense of our AI business as well as upfront costs incurred for future revenue generating activities with certain customers. On the expense side, Excluding share based compensation expenses, our total adjusted operating expenses were 455 billion, remaining stable compared with same quarter last year and last quarter of which are adjusted. Ind expenses for $184 million decreased by 8% from same quarter last year. Adjusted selling and market expenses were $112 million, increased by 4% year over year. Adjusted general and earnings Matrix expenses were $151 million, increased by 34% year over year. Our adjusted operating loss was 60 million, increased by 7% from adjusted operating loss of 56 million in the same period last year. The improvement was mainly due to the expansion of revenue scale. Adjusted operating loss margin decreased from 3% in the same period last year to 2% this quarter representing a decrease of 0.6% percentage points. Our non GAAP in Dilap profit was 748 million increased by 135% from 390 million in the same quarter last year. Our non GAAP EBITDA margin achieved 28% compared with 60% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development and strategic adjustment of business structure. This quarter our capital expenditures, including those financed by third parties and right of use as obtained in exchange for financial liabilities were 2,985 million. Looking ahead, we aim to capitalize on the inclusive growth in demand by free further investing infrastructure, enhancing services stability, managing liquidity risk and improving operating efficiency. We remain focused on AI driven strategy providing customers with high value added cloud services. That's all for the introduction of our operational and financial results. Thank you all. This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Please ask your questions in both Mandarin and English if possible. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session if you wish to ask a question, please press Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press Star one one again. We will take our first question and the question comes from Lipping Zhao from cicc. Please go ahead. Your line is open.

Li Yi (Chief Financial Officer)

Jig. Good evening Mr. Zhou and Ms. Li. Thanks for taking my questions and congrats on another strong quarter. So I have two questions. The first one is relating to your StarFlow MAS platform. Ms. Zhou mentioned that the revenue of the mas platform increased 53 times from January to April. Could you share the current revenue scale and margin levels and what's management's outlook on this business? And the second question is about the AI pricing. Compared to the fourth quarter of 2025, have there been increases in the average pricing for the newly signed public cloud contracts in the first quarter and second quarter of this year? If so, by how much? Thank you. Okay, so quickly Translation so our token business actually started off at a relatively small base, let's say end of last year and the beginning of this year. However, traditionally we have already maintained a very strong customer base of very like large scale leading customers. So at the beginning of this year we're starting to meet huge demands coming from such customers in light of the surge of agents demand, the surge of viacomi demand in such use cases. So you know, so obviously it's the demand was huge and very strong, but it's generally, but in a way our business was restricted by the underlying resources that is available. So I would say that obviously we're optimistic about the growth of this business. However we need to, due to that uncertainty we just mentioned, we would like to, let's say see a couple more quarters before disclosing more details to the market of how that business growth. And secondly in terms of margin levels, I would say that the margin levels for this token business inference business in general is higher than traditional cloud computing business. And we do see a lot of improvements in margin from certain perspectives. For example, coming from technology advancement, coming from the optimization of algorithms, coming from the, you know, optimizing that algorithms with the random models, and also optimization and improvement coming from operating models. So I would say we're cautiously optimistic about the margin but again due to still currently in a quick expanding phase, it's not in a static phase. So we will not at this stage talk more about the specific margin numbers. Thank you. English. So in relation to the second question about the about the selling and purchasing price in relationship our business. So yes, as widely recognized, the demand for our cloud computing services have been surging tremendously. So is the pricing from our upstream, which includes from components to holistic servers to other raw materials. So the current consensus of the market, including our customers, is that the price hiking, the price surgeon trend will actually continue. Not only happened already happened in Q1, but also will continue in Q2 and maybe some quarters to follow. So they would believe that the current time point to secure more computing power is actually the right moment to do so. And because of that, the pass through of the price of the cost of pressure coming from our upstream is actually doable and would not affect our negatively. It will not negatively affect our margin

Operator

levels in this current market situation. Thank you. We will take our next question. Your next question comes from the line of Wenton Yew from clsa. Please go ahead. Your line is open.

Li Yi (Chief Financial Officer)

I'll translate the question. The first question is regarding the gross margin in the first quarter. We noticed that the gross margin drop a bit in the first two. And what are the main reasons has the positive effect of the product price increase has been factored in already? And the second question is with the ongoing high demand for computing power, a large model companies are adapting their resource allocation and forming partnerships beyond public stock vendors to GPU rental companies and telcos. How does management see in keysoft cloud compare the position and advantages in this landscape? Thank you. Thank you for your question. For the first cell on the first quarter, the fourth percent margin, we can see a 3 percentage decrease. This is, I think the first factor is the seasonal fact because there is a 30% revenue come from the public cloud, the public enterprises cloud. So that is the first reason. And the second one is the upfront cost incurred for future revenue generation activities with certain customers. For the coming quarters we expect the portfolio margin well recovered to nominal level. Thank you.

Zhou Tao (Chief Executive Officer)

So this is very interesting question. It's very good question. So in fact we observed a relatively interesting change in market landscape starting the second half of 2025. That is some of the used to be competitors are actually becoming cooperation partners in this wake of strong AI demand. And what you mentioned in your question is also. Exactly. It also exemplifies the close cooperation between private enterprises and state owned enterprises. And we think that this demonstrates a couple of things. Number one, this is fundamentally complementary capabilities from or I would say complementary institutions coming from different backgrounds of enterprises which we have mentioned back in the general computing, the CPU computing age. And this is actually manifesting Itself again in this new AI or intelligent cloud era. And secondly, we would think that this is fundamentally reflects the strong discrepancy between or the strong gap, the big gap between supply and demand in today's market. So everybody actually needs to come together and to overcome shortcomings that each one of us have to form holistic and overall solutions to to serve the end customers.

Operator

So again, so your question is more from a competition perspective, but from our understanding and experience, we're actually seeing a more kind of cooperative perspective of the story. So everybody has its shortcomings and we work together to serve the needs of the end customers. Thank you. We will take our next question. Your next question comes from the line of Daily Lee from Bank of America securities.

Daily Lee (Equity Analyst)

Please go ahead.

Operator

Your line is Open.

Daily Lee (Equity Analyst)

Assessment Management. Taking my question, I have two questions here. First question about the the demand outlook for the public cloud, the 1Q results is pretty strong and how do we see the demand trend in Q2 and the second half this year? Regarding the demand mix, how's the trend for inferencing and model training? And the second question is about the contract term with our clients. As the upstream costs are in a rising trend, are we taking like a shorter term? Any change in terms of the contract terms?

Li Yi (Chief Financial Officer)

Thank you. So in terms of AI demand, as we mentioned, it's seasonally strong and you know, looking at the second quarter, we currently have to have a very long list of backlog which is mainly subject to the supply chain restrictions. Now for the, you know, the sectors that drive this growth, we're currently covering quite a few sectors which we have all seen simultaneously having explosively strong demand, you know, starting from the Internet, from large language model AI labs, from autonomous driving and from robotics. And I would say that out of which the autonomous driving and robotics generally tend to have very strong model training requirements and demands. And particularly for robotics, they have also, and also for autonomous driving, actually they have also a lot of data processing or data treatment requirements, demands for the training of their models. And for the inference side of the story, we have the Internet companies and large language model companies coming from their demand for vibe coding and agents such use cases. So this is the general overcap of the overview of the demand side of things. Now since you also mentioned about the contract period, we had relatively standard contractors in the past, but then now in light of this new, you know, the supply chain, the price surge, we currently have more flexible kind of contract period arrangements which maximizes our profit and benefits. Thank you, Thank you,

Operator

thank you. We will Take our final question. Your final question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open.

Timothy Zhao (Equity Analyst)

Shami hajin, shanu, now kanda. And tinja pandan. Thank you management for taking my question and congrats on the very strong results. My first question is regarding your revenue from Xiaomi and the Kinsalt cloud and Kinsalt ecosystem. I noticed that the revenue growth accelerated compared to the fourth quarter of last year. Just wondering is this related to Xiaomi after the Mimo large model launch and especially MIMO v2.5? Have you observed any specific change on the demand for Kings of cloud resources and the breakdown between training and inferences? And after you announced the rate of Harley transaction revenue cap with Xiaomi for this year and next, just wondering how do you think about the utilization rate versus last year? My second question is regarding your CapEx and also lease assets. I noticed that the total amount spent was around 3 billion in the first quarter. Just wondering if you can provide us an update on how you think about this total CapEx number for this year. Thank you.

Li Yi (Chief Financial Officer)

So on the training side, the vast majority of the resource come from the King south will continue to to see growth growing demand in that respect in inference demand especially since the launch of V2, Mimo V2, a lot of underlying resource has been reallocated to do the training for that to do the inference for that model. Now in terms of the prediction for future growth of inference coming from Mimo, we are relatively optimistic. However it's ultimately subject to the return on Xiaomi's side. So personally comment on that but we generally remain optimistic about that forecast benefit. Actually the AI Euro presented huge opportunities for us. Fortunately we launched our Internet computer business back in 2023. We have well established our supply chain capabilities and our supply network is in place now. And Mr. Liu to has mentioned we have seen a surging demand from our strong customer demand. But we have to admit the supply chain capacity is the primary limiting factor for the capital spending for the 2026. And we estimate that our base estimate is to say for the 2026 is around 15 billion to 20 billion at this moment. Thank you. Thank you.

Operator

Thank you. This concludes today's question and answer session. I will now hand back for closing remarks. Thank you operator.

Zhou Tao (Chief Executive Officer)

Thank you again for joining us today. If you have any further questions, please feel free to contact us. Looking forward to speaking with you again next quarter. Have a nice day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.