KINGSOFT CLOUD(KC) - 2021 Q2 - Quarterly Report

Second Quarter 2021 Financial Performance Kingsoft Cloud reported strong Q2 2021 financial performance, driven by significant revenue growth in public and enterprise cloud services, improved profitability, and a positive Q3 outlook Key Financial Highlights Kingsoft Cloud reported strong Q2 2021 financial results with significant year-over-year revenue growth driven by both public and enterprise cloud services, with gross profit and margins also seeing increases Q2 2021 Financial Highlights | Metric | Q2 2021 (RMB million) | Q2 2021 (US$ million) | YoY Change (%) | Q2 2020 (RMB million) | | :-------------------------- | :-------------------- | :-------------------- | :------------- | :-------------------- | | Total revenues | 2,173.7 | 336.7 | 41.6% | 1,534.8 | | Public cloud services revenue | 1,550.8 | 240.2 | 20.5% | 1,287.1 | | Enterprise cloud services revenue | 622.1 | 96.4 | 152.8% | 246.1 | | Gross profit | 118.5 | 18.4 | 46.8% | 80.7 | | Gross margin | 5.5% | N/A | +0.2 pp | 5.3% | | Non-GAAP gross profit | 121.4 | 18.8 | 44.9% | 83.8 | | Non-GAAP gross margin | 5.6% | N/A | +0.1 pp | 5.5% | Management Commentary Management highlighted strong Q2 performance with accelerated year-on-year growth across all segments, driven by premium customer relationships and strategic enterprise cloud execution - The company delivered a very strong second quarter with accelerated year-on-year growth for the Company as a whole and for each business segment[2] - In public cloud services, Kingsoft Cloud solidified relationships with existing customers and successfully engaged new customers like Meituan, emphasizing its strategic focus on serving premium customers, neutrality positioning, and technical prowess[2] - In enterprise cloud services, the company focused on top-notch execution and implementation of benchmark projects in select industry verticals and regions, leveraging this experience and reputation to scale the business, with synergies expected from the Camelot integration[2] - Total revenues of RMB 2.17 billion in Q2 set a new quarterly revenue record, representing approximately 42% year-over-year growth, an acceleration from 30% year-over-year growth in Q1 2021[2] - Public Cloud Services revenue was RMB 1.55 billion, marking the sixth consecutive quarterly revenue increase since the IPO[2] - Enterprise Cloud Services revenue was RMB 622.1 million, representing approximately 153% year-on-year growth, a significant acceleration compared to 131% year-on-year growth in Q1 2021[2] Detailed Revenue Analysis Total revenues reached RMB 2.17 billion, an accelerated 41.6% YoY increase, driven by 20.5% growth in public cloud and 152.8% surge in enterprise cloud services Q2 2021 Revenue Breakdown | Revenue Segment | Q2 2021 (RMB million) | Q2 2021 (US$ million) | YoY Change (%) | Q2 2020 (RMB million) | | :------------------------ | :-------------------- | :-------------------- | :------------- | :-------------------- | | Total Revenues | 2,173.7 | 336.7 | 41.6% | 1,534.8 | | Public cloud services | 1,550.8 | 240.2 | 20.5% | 1,287.1 | | Enterprise cloud services | 622.1 | 96.4 | 152.8% | 246.1 | | Other revenues | 0.8 | 0.1 | N/A | N/A | - Increase in public cloud services revenue was mainly due to stable relations with top premium customers and more comprehensive PaaS capabilities, such as real-time communication and edge computing[3] - Increase in enterprise cloud services revenue was mainly due to strong market demand and capabilities to provide industry-specific solutions, especially in financial services and healthcare industries[3] Cost of Revenues and Operating Expenses Cost of revenues increased by 41.3% in line with revenue growth, while operating expenses saw mixed changes, primarily influenced by share-based compensation adjustments Q2 2021 Cost of Revenues and Operating Expenses | Metric | Q2 2021 (RMB million) | Q2 2021 (US$ million) | YoY Change (%) | Q2 2020 (RMB million) | | :------------------------------ | :-------------------- | :-------------------- | :------------- | :-------------------- | | Cost of revenues | 2,055.2 | 318.3 | 41.3% | 1,454.0 | | IDC costs | 1,255.5 | 194.5 | 28.3% | 978.4 | | Depreciation and amortization | 183.1 | 28.4 | -15.9% | 217.5 | | Selling and marketing expenses | 96.1 | 14.9 | -12.5% | 109.8 | | General and administrative expenses | 110.6 | 17.1 | -35.1% | 170.4 | | Research and development expenses | 232.3 | 36.0 | 0.7% | 230.8 | - Decrease in selling and marketing expenses and general and administrative expenses was mainly due to a decrease in share-based compensation expenses[5] - Research and development expenses remained flat primarily due to an increase in salaries and social insurance fees, partially offset by a decrease in share-based compensation expenses[5] Profitability and Loss Metrics The company significantly narrowed its operating loss by 25.5% and net loss by 47.5% YoY, with Non-GAAP net loss remaining stable and improved loss per share Q2 2021 Profitability and Loss Metrics | Metric | Q2 2021 (RMB million) | Q2 2021 (US$ million) | YoY Change (%) | Q2 2020 (RMB million) | | :-------------------------- | :-------------------- | :-------------------- | :------------- | :-------------------- | | Operating loss | (320.5) | (49.6) | -25.5% | (430.3) | | Net loss | (220.6) | (34.2) | -47.5% | (420.1) | | Non-GAAP net loss | (235.6) | (36.5) | -0.9% | (237.7) | | Non-GAAP EBITDA | (55.3) | (8.6) | -54.0% | (35.9) | | Non-GAAP EBITDA margin | -2.5% | N/A | +0.2 pp (QoQ) | -2.3% | | Basic and diluted net loss per share | (0.07) | (0.01) | -63.2% | (0.19) | Balance Sheet and Cash Position As of June 30, 2021, Kingsoft Cloud maintained a stable cash and short-term investments position, with total assets increasing slightly from December 31, 2020 Selected Balance Sheet Items (as of June 30, 2021) | Metric | Jun 30, 2021 (RMB million) | Jun 30, 2021 (US$ million) | Mar 31, 2021 (RMB million) | | :--------------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Cash and cash equivalents and short-term investments | 5,474.9 | 848.0 | 5,455.8 | | Outstanding ordinary shares | 3,355,861,263 | N/A | N/A | Selected Balance Sheet Items (in thousands) | Metric | Dec 31, 2020 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total assets | 11,929,214 | 12,329,295 | 1,909,564 | | Total liabilities | 3,689,164 | 4,526,357 | 701,045 | | Total equity | 8,240,050 | 7,802,938 | 1,208,519 | Business Outlook For the third quarter of 2021, Kingsoft Cloud anticipates total revenues to be between RMB 2.58 billion and RMB 2.7 billion, projecting an accelerated year-over-year growth rate of 49% to 56% - For the third quarter of 2021, the Company expects total revenues to be between RMB 2.58 billion and RMB 2.7 billion[5] - This forecast represents an accelerated year-over-year growth of 49% to 56%[5] - The forecast reflects the Company's current and preliminary views on market and operational conditions, which are subject to change[5] Non-GAAP Financial Measures and Reconciliations This section details the company's use of Non-GAAP financial measures and provides reconciliations to their U.S. GAAP equivalents Use of Non-GAAP Financial Measures Kingsoft Cloud uses Non-GAAP measures (gross profit, gross margin, EBITDA, net loss, and their respective margins) as supplemental tools to assess operating performance and formulate business plans, acknowledging their limitations compared to U.S. GAAP - Non-GAAP measures used include Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP EBITDA, Non-GAAP EBITDA margin, Non-GAAP net loss, and Non-GAAP net loss margin[7] - These measures are used by management to evaluate operating performance and formulate business plans, and to facilitate investors' assessment[7] - Non-GAAP gross profit excludes share-based compensation allocated in the cost of revenues[7] - Non-GAAP net loss excludes share-based compensation, foreign exchange (gain) loss, other gain, and other (income) expense, net[7] - Non-GAAP EBITDA excludes interest income, interest expense, income tax expense, and depreciation and amortization from Non-GAAP net loss[7] - These non-GAAP measures have limitations as analytical tools, do not reflect all items of income and expense, and may differ from those used by other companies[7] Reconciliation of Gross Profit and Margin The reconciliation shows adjustments made to GAAP gross profit to arrive at Non-GAAP gross profit by excluding share-based compensation expenses, resulting in a Non-GAAP gross profit of RMB 121.4 million and a Non-GAAP gross margin of 5.6% for Q2 2021 GAAP to Non-GAAP Gross Profit Reconciliation (in thousands) | Metric | Jun 30, 2020 (RMB thousands) | Mar 31, 2021 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Gross profit | 80,744 | 116,503 | 118,482 | 18,350 | | Share-based compensation expenses | 3,009 | 5,499 | 2,961 | 459 | | Adjusted gross profit | 83,753 | 122,002 | 121,443 | 18,809 | GAAP to Non-GAAP Gross Margin Reconciliation | Metric | Jun 30, 2020 | Mar 31, 2021 | Jun 30, 2021 | | :---------------------- | :----------- | :----------- | :----------- | | Gross margin | 5.3% | 6.4% | 5.5% | | Adjusted gross margin | 5.5% | 6.7% | 5.6% | Reconciliation of Net Loss and EBITDA The reconciliation details adjustments from GAAP net loss to Non-GAAP net loss and subsequently to Non-GAAP EBITDA, with Q2 2021 Non-GAAP net loss at RMB 235.6 million and Non-GAAP EBITDA at RMB -55.3 million GAAP to Non-GAAP Net Loss Reconciliation (in thousands) | Metric | Jun 30, 2020 (RMB thousands) | Mar 31, 2021 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Loss | (420,056) | (382,209) | (220,598) | (34,167) | | Share-based compensation expenses | 175,148 | 123,113 | 76,092 | 11,785 | | Foreign exchange loss (gain) | 2,883 | 48,375 | (71,277) | (11,039) | | Other gain | — | (5,782) | (15,357) | (2,378) | | Other expense (income), net | 4,342 | (1,926) | (4,464) | (691) | | Adjusted net loss | (237,683) | (218,429) | (235,604) | (36,490) | Non-GAAP Net Loss to EBITDA Reconciliation (in thousands) | Metric | Jun 30, 2020 (RMB thousands) | Mar 31, 2021 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Adjusted net loss | (237,683) | (218,429) | (235,604) | (36,490) | | Interest income | (20,937) | (17,746) | (18,927) | (2,931) | | Interest expense | 1,791 | 3,866 | 6,689 | 1,036 | | Income tax expense | 1,697 | 3,286 | 3,469 | 537 | | Depreciation and amortization | 219,227 | 180,466 | 189,123 | 29,291 | | Adjusted EBITDA | (35,905) | (48,557) | (55,250) | (8,557) | Non-GAAP Margin Reconciliation | Metric | Jun 30, 2020 | Mar 31, 2021 | Jun 30, 2021 | | :---------------------- | :----------- | :----------- | :----------- | | Net loss margin | -27.4% | -21.1% | -10.1% | | Adjusted net loss margin| -15.5% | -12.0% | -10.8% | | Adjusted EBITDA Margin | -2.3% | -2.7% | -2.5% | Company Information and Disclosures This section provides essential company background, forward-looking statement disclaimers, exchange rate details, and contact information About Kingsoft Cloud Holdings Limited Kingsoft Cloud Holdings Limited is a leading independent cloud service provider in China, offering a comprehensive and reliable cloud platform with extensive infrastructure, cutting-edge products, and industry-specific solutions across public and enterprise cloud sectors - Kingsoft Cloud Holdings Limited (NASDAQ: KC) is a leading independent cloud service provider in China[11] - The company has built a comprehensive and reliable cloud platform[11] - The platform consists of extensive cloud infrastructure, cutting-edge cloud products, and well-architected industry-specific solutions across public cloud and enterprise cloud[11] Safe Harbor Statement The announcement contains forward-looking statements subject to risks and uncertainties, made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995, with no obligation to update them - This announcement contains forward-looking statements made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[10] - Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially[10] - Kingsoft Cloud does not undertake any obligation to update any forward-looking statement, except as required under applicable law[10] Exchange Rate Information All Renminbi (RMB) amounts translated into U.S. dollars (US$) in this press release are for convenience, using a rate of RMB 6.4566 to US$1.00 as of June 30, 2021 - Translations of certain Renminbi (RMB) amounts into U.S. dollars (US$) are provided solely for the convenience of the reader[9] - The translation rate used is RMB 6.4566 to US$1.00[9] - This rate was the noon buying rate in effect on June 30, 2021, as certified for customs purposes by the Federal Reserve Bank of New York[9] Conference Call Information Kingsoft Cloud scheduled a conference call on August 25, 2021, to discuss Q2 financial results, with details provided for registration, dial-in, and replay access - A conference call was held on Wednesday, August 25, 2021, at 8:00 A.M. Eastern Time to discuss the financial results[6] - Participants could register online to receive dial-in numbers, a direct event passcode, and a unique registrant ID[6] - A telephone replay of the call was available through September 2, 2021, and a live and archived webcast was accessible on the Company's investor relations website[6] Investor and Media Inquiries Contact information for investor and media inquiries is provided, including direct contacts for Kingsoft Cloud Holdings Limited and Christensen in both China and the US - For investor and media inquiries, contact Kingsoft Cloud Holdings Limited (Nicole Shan) or Christensen (Mr. Eric Yuan in China, Ms. Linda Bergkamp in US)[13] Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated balance sheets, statements of comprehensive loss, and statements of cash flows for the specified periods Balance Sheets The unaudited condensed consolidated balance sheets present the company's financial position as of December 31, 2020, and June 30, 2021, showing increases in accounts receivable and short-term bank loans, and goodwill recognition Unaudited Condensed Consolidated Balance Sheets (Selected Items, in thousands) | Metric | Dec 31, 2020 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | ASSETS | | | | | Cash and cash equivalents | 3,424,674 | 2,954,619 | 457,612 | | Accounts receivable, net | 2,334,871 | 3,461,127 | 536,060 | | Short-term investments | 2,693,019 | 2,520,325 | 390,349 | | Goodwill | — | 112,751 | 17,463 | | Total assets | 11,929,214 | 12,329,295 | 1,909,564 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Short-term bank loans | 278,488 | 590,019 | 91,382 | | Accounts payable | 2,057,355 | 2,651,795 | 410,711 | | Total liabilities | 3,689,164 | 4,526,357 | 701,045 | | Total equity | 8,240,050 | 7,802,938 | 1,208,519 | Statements of Comprehensive Loss The unaudited condensed consolidated statements of comprehensive loss detail the company's revenues, costs, operating expenses, and net loss for the three and six months ended June 30, 2020, and 2021, showing total revenues of RMB 2.17 billion and a net loss of RMB 220.6 million for Q2 2021 Unaudited Condensed Consolidated Statements of Comprehensive Loss (Selected Items, in thousands) | Metric | Jun 30, 2020 (RMB thousands) | Mar 31, 2021 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Public cloud services revenues | 1,287,139 | 1,391,833 | 1,550,777 | 240,185 | | Enterprise cloud services revenues | 246,081 | 420,032 | 622,145 | 96,358 | | Total revenues | 1,534,755 | 1,813,532 | 2,173,687 | 336,661 | | Cost of revenues | (1,454,011) | (1,697,029) | (2,055,205) | (318,311) | | Gross profit | 80,744 | 116,503 | 118,482 | 18,350 | | Total operating expenses | (511,024) | (468,639) | (438,947) | (67,983) | | Operating loss | (430,280) | (352,136) | (320,465) | (49,633) | | Net loss | (420,056) | (382,209) | (220,598) | (34,167) | | Basic and diluted net loss per share | (0.19) | (0.11) | (0.07) | (0.01) | Statements of Cash Flows The unaudited condensed consolidated statement of cash flows summarizes cash activities for Q2 2021, reporting net cash used in operating activities of RMB 263.7 million, net cash used in investing activities of RMB 56.4 million, and net cash generated from financing activities of RMB 502.4 million Unaudited Condensed Consolidated Statement of Cash Flows (Selected Items, in thousands) | Metric | Jun 30, 2020 (RMB thousands) | Jun 30, 2021 (RMB thousands) | Jun 30, 2021 (US$ thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | (2,568) | (263,650) | (40,834) | | Net cash used in investing activities | (2,673,218) | (56,366) | (8,730) | | Net cash generated from financing activities | 4,006,944 | 502,448 | 77,819 | | Net increase in cash and cash equivalents| 1,331,158 | 182,432 | 28,255 | | Cash and cash equivalents at end of period | 3,310,487 | 2,954,619 | 457,612 |