AI Integration Drives Growth and Efficiency Gains Across Tech Companies in Q1 2025

uCloudlink (UCL) Q1 2025 Earnings Call Transcript | The Motley Fool

Yimeng Shi said that Service segment cost margins are slightly lower than in the same period last year (Q1 2025 vs. Q1 2024), attributing this to a shift in sales mix, particularly increased outbound roaming by Chinese travelers in Q1 2025, which negatively impacted overall service margins. Gross margin on services was 57.3% in the first quarter of 2025, compared to 65% in the same period of 2024. Total operating expenses (excluding share-based compensation) rose to $9.9 million (53% of revenue) in Q1 2025, up from $8.5 million (47%) in Q1 2024, driven by higher marketing and sales costs for new business lines. Operating cash inflow was $0.2 million in the first quarter of 2025, compared to $1.9 million in the same period of 2024, and adjusted EBITDA was $1.4 million in the first quarter of 2025, compared to $1.7 million in the same period of 2024, both signaling reduced near-term cash generation. Total Revenue: $18.6 million in total revenue for the first quarter of 2025, up 3.4% from the same period in 2024, with service revenue of $14.2 million, rising 4.9% in Q1 2025 and accounting for 75.7% of total revenue. Gross Profit: Gross profit was $9.7 million in the first quarter of 2025, representing a decrease of 3.1% from $10 million in the same period of 2024, as overall gross margin contracted to 51.7% (down from 55.2%), and gross margin on services declined 7.7 percentage points in Q1 2025. Geographic Mix: Japan contributed 40.4%, China 31.2%, North America 12.9%, and other regions 15.5% of revenue in Q1 2025. Average Daily Active Terminals (DATs): Average daily active terminals (DATs) were 308,863 in the first quarter of 2025, representing a decrease of 0.3% from 309,906 in the same period of 2024, with notable 12x year-over-year growth in GlocalMe IoT DATs in Q1 2025. There was a significant year-over-year increase in the live and SIM divisions in the first quarter of 2025 compared to the same period of 2024. Segment Mix: uCloudlink 1.0 accounted for 56.2% of DATs in Q1 2025, while uCloudlink 2.0 made up 43.8% of DATs in the first quarter of 2025. Adjusted Net Income: Adjusted net income loss of $0.4 million in the first quarter of 2025, compared to $1.3 million in the same period of 2024. Adjusted EBITDA: Adjusted EBITDA was $1.4 million in the first quarter of 2025, compared to $1.7 million in the same period of 2024. Operating Cash Flow: Operating cash inflow was $0.2 million in the first quarter of 2025, compared to $1.9 million in the same period of 2024. Cash Position: $31.1 million in cash and equivalents (GAAP) as of March 31, 2025, up from $30.1 million at year-end. Capex: Capital expenditures were $0.3 million in the first quarter of 2025, compared to $0.6 million in the same period of 2024. Product Launches: Four new solutions spanning IoT, SIM, pet connectivity, and mobile fixed broadband were showcased and planned for commercial launch in May-June 2025, with scaled production to commence in the third quarter. AI Integration: AI is being embedded in multiple products to enhance operational efficiency and user experience. Guidance: Revenue guidance for the second quarter of 2025 is $23 million-$25 million, representing an increase of 2.7% to 11.6% compared to the same period in 2024. Partner Engagement: Advanced commercial discussions are underway with multiple major operators worldwide; several partnerships are expected to close within months. Transparency Commitment: Management announced intent to begin regular disclosure of segmented user account numbers starting in the third quarter. Regulatory Milestone: Subsidiary was approved by China MII for pilot operations of value-added telecommunications services, joining a select first batch alongside major multinationals. Management emphasized that all four business lines -- IoT, SIM, pet connectivity, and mobile fixed broadband -- will be commercially available in the coming quarter, potentially broadening revenue sources and customer base. The company highlighted strong early market validation and growth rates in its IoT, SIM, and live solutions, including a projected active terminal growth rate exceeding 100% for new business lines in Q2 FY2025. Strategic focus included leveraging proprietary hyperconnectivity and AI technologies, as well as targeting operational efficiencies. Geographic revenue shifts showed China increasing to 31.2% of the mix, offset by a lower share from North America in Q1 2025. For the first quarter of 2025, capital expenditures were $0.3 million, compared to $0.6 million in the same period of 2024. Management positioned the forthcoming user and engagement metrics as key markers of ongoing business transformation and expansion. Chief Executive Officer Chen said, "Year 2025 marks our transformation year during which our business expanded from a single line protocol to four protocols." Product launches at MWC 2025 and MVNO World Congress drew "widespread recognition as game-changing innovations," with management citing imminent commercial deals as a result. Management expects a steady 10% growth rate for its global mobile fixed broadband business beginning in Q3 2025. Management described PetPhone as "receiving exceptional market validation in the pet care market, indicating that it will attract more users in the future" and is channeling sales through pet retail, mobile operators, and electronics distributors. DATs (Daily Active Terminals): The average daily count of devices actively using the company's data services; key operational performance metric. uCloudlink 1.0/2.0: Business models with 1.0 focused on international data (primarily cross-border travelers) and 2.0 on local connectivity for domestic users. Cloud SIM: A technology enabling dynamic allocation of SIM resources over the cloud, providing seamless multi-network connectivity without physical SIM changes. MVNO (Mobile Virtual Network Operator): A wireless communications provider that does not own network infrastructure but leases capacity from traditional operators. GlocalMe: The company's brand for global portable WiFi devices and connectivity solutions integrating cloud SIM architecture. China MII: China's Ministry of Industry and Information Technology, the body regulating telecommunications licensing and value-added services. Mr. Chen will begin with an overview of our recent business highlights. Mr. Shi will then discuss our financial and operational highlights for the quarter. They will all be available to take your questions in the Q&A section that follows. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors, and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Please also note that uCloudlink's earnings press release and this conference call include discussions of unaudited GAAP financial information and unaudited non-GAAP financial measures. uCloudlink's press release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable audited GAAP measures. I will now turn the call over to Mr. Chen. Please go ahead. Chaohui Chen: Thank you, Daniel, and good morning or evening, everyone. We kick off 2025 with a solid performance as our expanding global ecosystem continues to gain traction and build momentum. Total revenues during the quarter were $18.7 million, in line with the guidance, representing an increase of 3.4% year-over-year. Despite significant and increased investments in new product marketing and sales initiatives, we maintained a strong financial position, delivering adjusted net income of $0.4 million and a positive operating cash flow of $0.2 million. Our 1.0 international data connectivity services business continued its robust growth, with full-speed 5G network coverage now available in 90 countries and regions. This expansion further strengthened our market share and reinforced our leading position in the long-term market. A notable highlight this quarter was the showcasing of our newest innovative solutions for people, IoT, pets, and MWC Barcelona 2025, including the Eastern Trail, Cloud SIM Kit, PetPhone, New Go G50 Mask, and the G40 Pro. These new and exciting technologies have been integrated into our broader series of GlocalMe and GlocalMe Insight solutions, driving growth and increasing visibility and interest among consumers, global operators, enterprise customers, and business partners. With this strong tailwind starting from the second quarter of this year, our emerging business non-local meeting GlocalMe IoT are all projected to achieve active terminal growth. Active terminal growth rate is exceeding 100%, significantly contributing to our expansion and growth going forward as we build our global market data traffic sharing marketplace. Also, we expect that our global mobile fixed broadband business will steadily grow by approximately 10% starting in the third quarter of 2025. We will begin regular disclosure of our key metrics, including user account numbers segmented by business lines, to provide greater transparency and allow investors to carefully track our progress in user growth. Following our MWC showcase, we are already capitalizing on high-value opportunities by engaging in advanced commercial discussions with multiple major operators worldwide, with several partnerships expected to be finalized in the coming months. At the recent MVNO World Congress 2025, the premier exhibition for the MVNO industry, our four latest solutions were unveiled, generating widespread recognition as game-changing innovations. These solutions are scheduled for commercial launch in May and June 2025, with scaled production expected to begin in the third quarter. In parallel, we have begun deploying AI intelligence to enhance operational efficiency and embedding it into a number of our solutions to improve the user experience and ensure seamless global connectivity. Alongside AI, our proprietary hyperconnectivity positioning technologies continue to break barriers in connectivity, revolutionizing the digital experience for IoT, people, and pets worldwide. At CES 2025, our UniCore was honored with the Best of CES 2025 Breakthrough Award by Android, underscoring our commitment to innovation. Additionally, one of our subsidiaries hit a significant milestone as one of the first batch of 13 fully invested companies to receive approval from China MII for pilot operations of value-added telecommunication services. Our inclusion in the first batch alongside renowned multinational corporations such as Deutsche Telekom, Siemens, Airbus, and HSBC reflects the growing impact we are having in the sector. This will enable us to provide Chinese consumers with a more diversified range of value-added telecom services and solutions to better meet growing digital lifestyle needs. This marks a significant step in expanding our global footprint and delivering cutting-edge connectivity solutions. I will now review highlights for each of our key performance areas. I will start with GlocalMe, where we just unveiled our first pet connectivity solution at MWC 2025. PetPhone is a revolutionary addition to the digital ecosystem, offering fun AI pet interaction, GPS for safety, and AI smart guardian health monitoring. PetPhone is receiving exceptional market validation in the pet care market, indicating that it will attract more users in the future. It enables pet owners to communicate with their pets via the GlocalMe app, allowing them to call, send voice messages, play music, and even set routines like feeding times and play reminders. Pets can even initiate calls. This device tracks exercise, running distance, calorie burning, and activity levels, fostering a healthy lifestyle for pets. Pet owners can also join and create communities globally to engage with others like never before. This innovative, groundbreaking device redefines the bond between pets and their owners and will enhance MVNO mobile network operator subscriber acquisition and revenue growth going forward. Alongside PetPhone, our UniCore Plus solutions provide additional secure and reliable connectivity for daily life, freeing users from cumbersome devices via seamless and convenient experiences. Turning to the GlocalMe IoT business, we introduced the Cloud SIM Kit, an all-in-one game-changing IoT solution. This revolutionary plug-and-play IoT solution was designed to deliver instant global full-speed 4G and 5G connectivity for IoT and smart devices. This innovative solution can be seamlessly integrated into existing devices with the same SIM slot, such as smartphones, CPE, and other IoT-enabled hardware. It is cost-effective, enterprise-grade, and offers superior network quality, ensuring the best coverage without the need for any hardware or software modifications. The plug-and-play nature of our Cloud SIM technologies transforms ordinary devices into enhanced connected assets. It offers a globally scalable asset with flexible carrier switching and competitive economics, empowering the IoT ecosystem with seamless and reliable connectivity. We have already achieved significant penetration in the automotive infotainment and camera markets, especially among mainstream Chinese vehicle brands, which are advancing breakthroughs in specialized segments like security and dashboard cameras. Daily active IoT terminals increased twelvefold year-over-year in 2025 Q1, with positive user feedback. Our GlocalMe SIM business just unveiled another game-changing revolutionary leap in SIM technology, the eSIM Chip. Positioned as the best second SIM you can have, it enhances both domestic and international coverage by providing consumers with a single SIM solution for seamless local and global connectivity. It addresses core challenges faced by MVNO and mobile network operators, such as poor network performance and limited international roaming, and empowers tier-two and tier-three operators and MVNOs unable to build independent networks widely to deliver superior services and expand their market reach. The eSIM Chip offers enterprise-grade security, global coverage, and better pricing, eliminating costly international roaming and delivering reliable high-speed connectivity across multiple networks. Lastly, our people-centric GlocalMe mobile fixed broadband business just unveiled the new Go G50 Smart, a hyperconnectivity 5G mobile WiFi hotspot with AI-driven smart sky-to-ground connectivity. This device enhances network quality through AI-powered real-time congestion detection, ensuring seamless connection regardless of where you are. Our advanced hyperconnectivity technologies deliver high-speed connections and reliable networks wherever users go, without the limitations of traditional roaming or carrier restrictions. The upgraded G40 model is supposed to be three times faster than traditional 4G devices. It's the world's first enabled in-flight WiFi connectivity, integrating WiFi networks across various environments such as homes, airports, offices, and cafes. All four business lines are now market-ready and will be commercially available in Q2 2025, attracting strong interest from partners, including global pet store chains, signaling significant market expansion potential as we engage in commercial discussions. As we innovate business lines and increasingly diversify our revenue streams to a mix of value-added services and mobile data traffic solutions that fit into our marketplace, our user base is gradually diversifying and scaling up. With our expanding product portfolio, deepening partnerships, and AI integration, we are confident in driving growth through the remainder of the year. As we mature, regular disclosures of key metrics later, which will begin in 2025 Q3, we will better reflect the direction our business is heading and provide investors with a clear understanding of the strategic progress we are making in building a comprehensive global mobile data traffic sharing marketplace. Year 2025 marks our transformation year during which our business expanded from a single line protocol to four protocols, and the user figures to be released in Q3 will be crucial indicators of this transformation. With the optimization for the future in mind, I will conclude with our guidance for the next quarter. For the second quarter of 2025, we expect total revenue to be between $23 million to $25 million, representing an increase of 2.7% to 11.6% compared to the same period of 2024. I will now turn the call over to Mr. Shi. Yimeng Shi: Thank you, Mr. Chen. Hello, everyone. We will go over our operational and financial highlights for the first quarter of 2025. Average daily active terminals (DATs) is an important operating metric for us as it measures customer usage trends over the period and is reflective of our business performance. In the first quarter of 2025, average DATs were 308,863, of which 17,803 were owned by the company, and 291,060 were owned by our business partners, representing a decrease of 0.3% from the 309,906 in the first quarter of 2024. The average daily active terminals in the first quarter came from 296,597 from the global mobile and fixed broadband business, 621 from the live business, 5,219 from the GlocalMe SIM business, and 6,426 from the GlocalMe IoT business, compared to 308,375, 201, 829, and 501, respectively, in the first quarter of 2024. During the first quarter of 2025, 56.2% of the DATs were from uCloudlink 1.0 international data connectivity service, and 43.8% were attributed to uCloudlink 2.0 local data connectivity service. In March 2025, the average daily data usage per terminal was 1.59 gigabytes. As of March 31, 2025, the company had served 2,878 business partners in 63 countries and regions. The company had 183 patent applications, with 169 approved and 14 pending approval. The number of approved SIM cards was 391,000 globally as of March 31, 2025. Total revenue for the first quarter of 2025 was $18.6 million, representing an increase of 3.4% from $18.1 million in the same period of 2024. Revenue from services in the first quarter of 2025 was $14.2 million, representing an increase of 4.9% from $13.5 million in the same period of 2024. Revenue from services as a percentage of total revenue was 75.7% during the first quarter of 2025, slightly up from 74.7% during the same period last year. Geographically speaking, during the first quarter of 2025, Japan contributed 40.4% of our total revenue, China contributed 31.2%, North America contributed 12.9%, and other regions and countries contributed the remaining 15.5%, compared to 40.9%, 25.3%, 15.8%, and 17%, respectively, in the first quarter of 2024. Overall gross profit was $9.7 million in the first quarter of 2025, representing a decrease of 3.1% from $10 million in the first quarter of 2024. Overall gross margin in the first quarter of 2025 was 51.7% compared to 55.2% in the same period of 2024. The gross margin on services was 57.3% in the first quarter of 2025, compared to 65% in the same period of 2024. The gross margin on the sale of products was 34.3% in the first quarter of 2025, compared to 26.2% in the same period of 2024. Excluding share-based compensation, total operating expenses were $9.9 million or 53% of total revenue in the first quarter of 2025, compared to $8.5 million or 47% of total revenue in the same period in 2024. We recorded an adjusted net income loss of $0.4 million, compared to $1.3 million in the first quarter of 2024. Adjusted EBITDA was $1.4 million in the first quarter of 2025, compared to $1.7 million in the same period of 2024. For the first quarter of 2025, we achieved an operating cash inflow of $0.2 million, compared to $1.9 million in the same period of 2024. For the first quarter of 2025, our capital expenditures were $0.3 million compared to $0.6 million in the same period of 2024. We maintained a solid balance sheet with cash and cash equivalents of $31.1 million as of March 31, 2025, up from $30.1 million as of December 31, 2024. With that, operator, please open up for Q&A. Operator: Thank you. We will now begin the question-and-answer session. Today's first question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead. Theodore O'Neill: Thank you, and congratulations on the results for the quarter and your outlook. My first question is about the PetPhone product. Can you give us any highlights into the regions or the demographics of the customers you expect will be the most likely to be early adopters of this product? Chaohui Chen: Yes. I think we were long in about a launch execution. We first launched the PetPhone in this industry, so it caused a lot of interest. Since we will launch this product at the end of May for commercial launch, we have many products. There are three main types of users. The first one is via the channel, via channel or a part of the channel, like a pet channel. So we approach a lot of pet channels, like in Europe, in Asia, and also in the US, like a charity. So we are already in commercial progress. So it's quite encouraging, and I think we will be closed recently, so in Q2. That's the first channel. The second channel is via carrier, via mobile virtual operator or virtual operator. So, we help them to promote the eSIM or SIM card into our PetPhone and help the carrier to acquire pet users. So it can create new revenue for carriers, not only just from traditional people IoT, now it's expanding to pet users. So we already have several carriers near finalizing the contract with us to share our PetPhone product. The third is our traditional electronic channel. So they are also interested in selling our product. So I think so far, everything's progress and testing is so good. Now waiting for our commercial version available at the end of this month. Theodore O'Neill: Oh, that's very helpful. My second question is about the tariffs that are being raised and lowered. I'm wondering if changes in all these tariffs are having any impact on your business? Yimeng Shi: So the question regarding the tariffs, so far, we don't have implications by these tariff barriers between the US and China. We have stock products in the US as a channel, so that's available for our sale for a while. And also, we have other sources to manufacture in other areas. We recruited manufacturers outsourcing other manufacturers' terminal devices in Taiwan and other countries where we have lower tariffs between the US and these countries. So we expect that the US market is a growing market for our new business lines like PetPhone and IoT solutions. So we prepare these solutions and have plans to manufacture our products to overcome these tariff barriers between the US and China. Theodore O'Neill: Okay. Thank you very much. That completes my questions. Operator: Thank you. And our next question today comes from Vivian Zhang with Diamond Equity Research. Please go ahead. Vivian Zhang: Hello. Thank you so much. Firstly, can you explain in detail the reason for the increase in the cost of services and whether you would take any measures to control this cost extension? Yimeng Shi: Yes. You have two relevant points. One is regarding the cost of service that's reflecting, as we discussed, the service cost margins are a little bit lower than the same period last year. This is because the mixtures are set of different sales categories across regions and countries. For instance, in the first quarter of this year, our outbound roaming service for our Chinese outbound travelers increased significantly. And these Chinese outbound travelers rent our terminals, WiFi hotspot terminals, for their roaming connections traveling outbound. So in that case, there's revenue or service generated by the Chinese outbound traveler, which has a significant weight in overall service. So that's something impacting our overall service margins a little bit lower than the same period last year. This is to answer your first question regarding the service. And the second is regarding the expenditures related to the expansion of banners. Yes. As we disclosed, in the first quarter of this year, we spent more expenditure than the first quarter of last year. The extra expenditures are on sales and marketing for this new business. So we attended quite a lot of market exhibitions worldwide. And we invested over more than $1 million compared to last year on this marketing and promotions. We believe this expenditure on marketing will bring more volumes of the business in future periods. So I think that's the revenues related to the new business line will come into account later this year or next year. And one other metric, as we disclosed, is daily active terminals related to these three new business lines. Especially for IoT, daily active terminals increased twelvefold compared to last year's same period. So this year, we expect the three new business lines, IoT, SIM, and the live series, their daily active terminals number will increase over one year compared with last year. So we are on the right track to deploy our strategies from one business line MBB expansion to four business lines to grow. We believe that we follow the right strategies to support growth. Vivian Zhang: Okay. I see. That makes sense. My next question is about the partnership you mentioned. Can you please share some information on the areas of collaboration you expect to see in the coming months? Chaohui Chen: In the last question, I already mentioned some partners. In the past, our partnership was more like international data and local mobile broadband, with more partners in the airport and MVNO. Since we have three new product lines, our partners have become more diverse. For example, first is our carrier customers switching to our product line. For example, our mobile virtual operator and tier-two, tier-three carrier operators are now very interested in our SIM Kit and SIM Trial. They see this as a pilot protection product because we bring international roaming to mobile virtual operators. This never happened in the industry for mobile virtual operators. First. And second, we have tier-two, tier-three carriers, including their long-term power and service quality. Normally, compared with tier-one carriers, tier-two, tier-three carriers have lower quality and network partners. Now, working with us, they can be superior to the number one carrier for the quality of roaming. And also, we can help the carrier and tier-two and mobile virtual operators compromise their network coverage locally. So normally, they have few investments in the base station. They have poor coverage. With our solution, now under their coverage, they can use their original SIM card. Outside their coverage, they can use our SIM card and data traffic. So that's quite helpful to improve our quality for roaming and create new revenue. That's for our SIM Kit and SIM Trial. But our new product for PetPhone is very popular, no matter if it's tier-one or tier-two carriers or MVNO carriers. They all like this solution because we create new revenue for these partners. So that's the first product in the industry. Carrier-promoted products are much faster than traditional other channels. So they can, for example, buy data and keep a free device. We help them to develop that to gain new users from the pet market. Also, our UniCore and live series products can enhance customer loyalty and manage customer retention to become more loyal. So we help the customer to get more revenue from retention and from the combination of the original SIM card and our live product with a bundled package. This means that last year, we had very few carrier partners. And now, since the MWC and last week's MVNO World Congress, we have gained a lot of interest. So recently, I think we will close some deals with these carriers. You can wait for our IR in the coming months. Finally, we also invest in our traditional mobile broadband product. Our traditional product is mainly used for travel, for people traveling outside. But now our new product has one device, one account, to let our users, not only for travel but also at home, at the office, even in-flight. They don't need to switch the account and the device. Just one device, one account, they can enjoy the best network quality worldwide and the best connection. Also, they can get the most cost-effective solution. For example, at home and office, we prefer to use free WiFi, office WiFi, or home WiFi. But once the WiFi coverage is poor, we can back up with the 4G and 5G network. That means we can provide the best connection and cost-effectiveness in the world with one device and one account. So here, also, small enterprise users and travel users are interested in working with us. So I just shared this information about the new partners and new channels working with us. Vivian Zhang: Okay. Got it. That's very helpful. Thank you. That's all my questions. Yimeng Shi: Thank you. Operator: This concludes the question and answer session. I would like to turn the conference back over to Daniel Gao for any closing remarks. Daniel Gao: Thank you once again for joining us today. If you have further questions, please feel free to contact uCloudlink's Investor Relations through the contact information provided on our website or speak to our investor relations firm. We look forward to speaking to you again on our next quarterly call. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Kanzhun (BZ) Q1 2025 Earnings Call Transcript | The Motley Fool

GAAP Revenue: GAAP revenue was RMB 1.92 billion for Q1 2025, representing 13% year-over-year growth driven by both key account and small-sized account expansion. Net Income: Net income (GAAP) was RMB 510 million for Q1 2025, up 112% year-over-year; adjusted net income reached RMB 764 million for Q1 2025, up 44% year-over-year. Adjusted Operating Income: Adjusted operating income was RMB 690 million for Q1 2025, with an adjusted operating margin of 36%, up 13 percentage points year-over-year. Gross Margin: 83.8% gross margin for Q1 2025, a 1.1 percentage point improvement year-over-year. Paid Enterprise Customers: 6.38 million paid enterprise customers for the twelve months ended March 31, 2025, up 12% year-over-year. Average Verified Monthly Active Users: 57.56 million average verified and monthly active users on the BOSS Zhipin app for Q1 2025, up 24% year-over-year; March 2025 monthly active users approached 65 million. User Composition Shift: Blue-collar new users comprised over 45% of total users in Q1 2025; blue-collar revenue share exceeded 39%. Geographic Revenue Growth: Tier 3 and lower city revenue contribution increased by 3 percentage points to over 23%. ARPPU: ARPPU increased by 5% year-over-year, mainly due to increased payments from key accounts. Cost Structure: Total operating costs and expenses decreased by 8% year-over-year to RMB 1.5 billion in Q1 2025; Sales and marketing expenses dropped by 15% year-over-year to RMB 491 million. Share-Based Compensation (SBC) Expenses: Share-based compensation expenses decreased by 13% year-on-year in Q1 2025 and 10% quarter-over-quarter to RMB 252 million, declining for the third consecutive quarter. Cash Position: RMB 14.8 billion cash position as of March 31, 2025. Net Cash from Operating Activities: Net cash provided by operating activities reached RMB 1.0 billion for Q1 2025, up 11% year-over-year. AI Rollout to Users: AI-powered job explanations and interview robot were fully launched for all users in Q1 2025, with the interview bot targeting students and young professionals with up to three years' experience. AI Impact (Recruiter Side): Enterprises using the AI agent reported a 25% improvement in recruitment efficiency in Q1 2025; AI communication assistant served over 9 million conversations in large-scale testing. Guidance for Q2 2025: Projected total revenue of RMB 2.05 billion to RMB 2.08 billion for Q2 2025, representing 7.0%-8.5% year-over-year growth. Full-Year Profitability Emphasis: Management expressed confidence in reaching this target. Capital Allocation: Share repurchase program remains active; other shareholder return measures are under evaluation. Kanzhun Limited (BZ -3.24%) reported significant expansion in both user base and profitability for Q1 2025, as management emphasized operational leverage stemming from intensified focus on high-impact strategic priorities. The business benefited from robust blue-collar user and revenue growth, rising penetration in lower-tier cities, and effective cost containment across core expense categories. AI adoption advanced with mass rollout of several user- and recruiter-facing automation features, which measurably improved engagement and efficiency but will be commercialized gradually. Management provided specific guidance for continued revenue growth and reaffirmed its annual non-GAAP operating profit target, alongside ongoing buybacks and further shareholder capital return considerations. CFO Yu Zhang highlighted, "Net margin improved to 26.6%, up 12 percentage points year-on-year, while our adjusted net margin increased to 39.7%, up 8.6 percentage points year-on-year." The company reported that the paying ratio among active enterprise users rose sequentially, suggesting an improving labor supply-demand balance versus the prior quarter. CEO Peng Zhao stated, "For the recruiters who have great scale used our AI recruitment function, efficiency of achievement increased by 25%" and added, "The AI communication assistant has cumulatively served over 9 million conversations during our massive gray scale test." Post-Chinese New Year, monthly active users in March 2025 nearly reached 65 million. ARPPU: Average Revenue Per Paying User, a key metric indicating monetization per transacting customer within a specified period. SBC: Share-Based Compensation, referring to company expenses associated with equity-based employee awards. Blue-collar: Roles typically associated with manual labor or service industries, as differentiated from white-collar professional or management positions. Peng Zhao: [Interpreted] Hello, everyone. Thank you for joining our company's first quarter 2025 earnings conference call. On behalf of the company's employees, management team and Board of Directors, I would like to extend our sincere gratitude to our users, investors and friends who have continuously believed in and supported us. In response to key investor concerns, I would like to report on a few main topics. First, we have remained focused on driving profitability with encouraging results. Second, regarding the ongoing tariff war, which is a concern for many. My observation is that its impact on our business has not intensified. Third, we have continued to make solid progress on the AI front. Let me start with an overview of our financial performance. In the first quarter, the company achieved a GAAP revenue of RMB 1.92 billion, up 13% year-on-year. Our net income reached RMB 510 million, reflecting a 112% year-on-year growth. The various uncertainties of recent years have promoted the company to formulate a strategy, which is to focus intensely on very few high-impact priorities to enhance operational certainty. Based on this, at the end of last year, we clearly proposed to guarantee profits. Excluding other income such as wealth management income, our adjusted operating income was RMB 690 million for the first quarter. Adjusted operating margin was 36%, up 13 percentage points year-on-year compared to 23% in the same period last year. Overall, this achievement demonstrated the company's capability to implement strategic goals and exceptional operational leverages. Increasing profitability involves both cost control and revenue growth. With respect to cost, there are 2 things worth mentioning. First is the decrease of SBC expenses. Our share-based compensation expenses this quarter were down by 10% quarter-on-quarter. As a proportion of revenue, this represents a narrowing of nearly 4 percentage points year-on-year. We have previously predicted that the longer-term passes since the IPO as well as the growth of our revenue, the impact of SBC expenses on profits will decline in both absolute value and percentage. This trend will continue. Second is the improvement of marketing efficiency. From January to April this year, the company added over 15 million verified new users. In the first quarter, the average verified and monthly active users on the BOSS Zhipin app reached 57.56 million, up 24% year-on-year. Post-Chinese New Year, monthly active users in March approached 65 million. The average number of achievements per user continuing to increase both quarter-on-quarter and year-on-year. We maintained robust user growth despite the decrease in marketing expenses benefiting from the 2-sided network effects of our model and our continued focus on improving user satisfaction. Our core revenue growth drivers are still the growth of users and the increase in penetration rate. Therefore, revenue growth and user growth showed a highly correlated structural change. First, blue-collar new users accounted for over 45% of our total users in the first quarter, driving their shares of revenue up to more than 39%. Second, alongside with the higher growth rate of new users among Tier 3 and lower tier cities, the revenue contribution from Tier 3 and below goes up by 3 percentage points to over 23%. Third, revenue from enterprises with fewer than 100 employees hit a record high contribution for the period due to the higher growth rate of the smaller size companies. Many people are concerned about the impact of the tariff war. We also take it seriously. So far, our overall conclusion is with regard to the job seeking and equipment supply and demand relationship, no severe impact of the war has been observed so far. In general, we observed that hiring demand from enterprises has continued to show recovery trend since Chinese New Year. From January to April, average new job postings grew 17% year-on-year, while the paying ratio improved sequentially, boosting total paid enterprise customers in the 12 months ended March 31 to 6.38 million, up 12% year-on-year. From industry perspective, recruitment demand for blue collar workers represented by urban service sectors such as catering and retail has been continuously and steadily rebounding since April. Manufacturing recruitment has demonstrated resilience despite the impact of tariffs with the number of new job postings maintaining year-on-year growth in April. Meanwhile, recruitment demand for white collar has also stabilized and begun to recover with industries such as advertising, professional services, Internet, finance and automotive leading in year-on-year growth rate. Since last quarter, market has been very concerned about AI. We also attach great importance to AI in our own daily operations in the recent 3 years. In this quarter, in terms of products and services, we continue to deepen application of AI technology and expand the scale and the penetration rate of AI testing users. Now allow me to spend on our AI developments. We'll break it down into 3 key aspects: AI 2C to job seekers, AI 2B to recruiters and AI to Management. First, AI 2C. The first item is the gray scale testing also known as phased rollout we mentioned in our last earnings call, which is after our user conduct their search, we do not only need to give the result, but also provide an explanation by AI, why the result is what it is. Initial outcomes showed promising results and we have now rolled out to all users. The second thing of AI 2C, which we also mentioned during our last call, is our AI-powered interview robot designed to help users practice interview skills. Our experiments have shown that it can meaningfully enhance recommendation systems understanding of individual user behaviors and the outcome is quite significant. Now we have officially launched it for all students and young people with up to 3 years of work experience. Moving on to AI to recruiters. One is the application of AI technology which has, to some extent, supported our exploration in closed-loop services. The result is in the first quarter, the number of enterprises we provide like placement services grew by about 30% quarter-over-quarter. We are now starting to see some [indiscernible]. The other one is an agent, which can interact with the users That agent can guide enterprise users to convey their personalized recruitment demand and proactively search for suitable candidates across the platform. The agent is still evolving, but we have witnessed that this agent can effectively improve the matching accuracy. Enterprise users who have used the agent are seeing a 25% increase in achieve their efficiency -- recruitment results. That said, we remain extremely cautious about broadly expanding the robots role of allowing it to somehow -- even somehow partially replace human recruiters. Our current strategy is as follows: First, we placed no limits on building the core member capabilities. Second, we are extremely prudent about when and how readily we will deploy the robot. Third is AI to Management. First thing -- are 2 things to talk about. First thing, the reformation of weekly reports. Now after one finished their weekly report, we have our proprietary AI system to help create a concise summary version, which can still be revised by you. That way, you have 2 reports sent to your hirer. One is the summative AI plus modified. The other one is your original merger. The -- until now, the supervisor's behavior is trying to check the contract for the first, then move on to the longer one. So that's just some basic applications today. The value to help realize the value is, the AI will start your historical weekly reports and also read across weekly reports from related departments. If there are too many projects that have not closed the loop or the content is empty or there are too many big words that AI will remind you. This is a supplement to human capabilities. The second thing on AI tool Management is the use case for talent evaluation. When we merely rely on humans for performance appraisal even so-called 360 degrees, there might be interference from 2 noisy sources. The first thing is forgetfulness, for example, a person's previous contributions will be downplayed and the recent performance will be more important, it's quite human natural, but this might not be appropriate as a long-term evaluation. The second thing is also quite according to human nature. So homo sapiens will see what others want you to see, while superior may consciously or unconsciously future and change their subordinates information before presenting it upward. However, AI is objective under the premises of protecting employees' privacy and dignity, AI can see the objective changes in past performance data. AI will not like an employee because it likes his character or will not evaluate him badly because it dislikes the employee. So AI is neutral and impartial in terms of human resource applications. To sum up, for the AI to job seekers to enterprise users and to management, these 3 aspects, our exploration and the research are equally important. To sum up, the first quarter of 2025 was solid. On the whole, we are positive for the year ahead, and we will continue to work hard. That concludes my part of the call. I will now turn it over to our CFO, Phil for the interview -- for the review of our financials. Yu Zhang: Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results. of the first quarter of 2025. We are delighted to report a solid start to the year, characterized by continuous expansion in our user base and engagement and sustainable revenue growth. In this quarter, our revenues reached RMB 1.9 billion, representing a 13% year-on-year growth. We experienced a decent spring recruitment season with continuous improvement in enterprise hiring demand, evidenced by the growth of our cash collections, which has bottomed out from the last quarter. Revenues from key accounts and small-sized accounts both contributed to higher growth rates in the quarter. Our paid enterprise customers grew by 12% year-on-year to 6.4 million in the trialing 12 months ended March 31, primarily driven by the growth of enterprise users. Paying ratio among active enterprise users increased on a sequential basis, as the supply demand situation of the labor market improved from previous quarter. ARPPU increased by 5% year-on-year, mainly due to the expansion of paying amounts from key accounts. Moving to the cost side. Total operating costs and expenses decreased by 8% year-on-year to RMB 1.5 billion in the first quarter. Share-based compensation expenses dropped by 13% year-on-year and 10% quarter-over-quarter to RMB 252 million, shrinking for the third consecutive quarters. Excluding share-based compensation expenses, adjusted operating costs and expenses decreased by 6% year-on-year to RMB 1.2 billion. And our adjusted operating margin reached 36%, up by 13 percentage points year-on-year. A showcase of our disciplined cost control and high operating leverage, despite Q1 normally having the lowest margin within the full year due to seasonality. Cost of revenues increased by 5% year-on-year to RMB 311 million this quarter. Gross margin went up by 1.1 percentage points to 83.8% compared to the same period of last year. As a testimony of our AI arbitration to improve our operating efficiency. Sales and marketing expenses decreased by 15% year-on-year to RMB 491 million during this quarter, primarily due to decreases in advertising and marketing expenses and employee-related expenses. However, our strong brand recognition enhanced the marketing efficiency and superior user engagement guaranteed that we can still maintain robust user growth momentum. Our R&D expenses decreased by 9% year-on-year to RMB 424 million in this quarter and was relatively stable sequentially. This decrease was primarily driven by lower employee-related expenses and reduce the public cloud expenses related to AI. Our G&A expenses were RMB 266 million in this quarter, remaining relatively stable, both year-on-year and quarter-over-quarter. Our net income reached RMB 512 million in this quarter, up 112% year-on-year, while adjusted net income increased by 44% to RMB 764 million. Net margin improved to 26.6%, up 12 percentage points year-on-year, while our adjusted net margin increased to 39.7%, up 8.6 percentage points year-on-year. Net cash provided by operating activities reached RMB 1.0 billion in this quarter, up 11% year-on-year. Our cash position totaled RMB 14.8 billion as of March 31 2025. Our strong cash generation and robust cash position provides financial flexibility to execute growth initiatives and enhance shareholder returns. And now for our business outlook. For the second quarter of 2025, we expect our total revenues to be between RMB 2.05 billion and RMB 2.08 billion with a year-on-year increase of 7.0% to 8.5%. Please note, this growth rate will also bottom up this quarter, driven by continued improvement of cash direction growth in the year. That concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead. Operator: [Operator Instructions] We will now take our first question from the line of Eddy Wang from Morgan Stanley. Eddy Wang: [Foreign Language] I have 2 questions. The first one is that would you please give us the brief of how the hiring demand evolved over the past months from the start of the tariff war till it eases? And have we seen any signs of the recovery in current demand recently? And the second question is that, if I remember correctly, after May last year, macro weakness coincided with a graduation season has led to a deterioration of recruitment demand. How does the current recruitment demand trend in April and May compared with the same period last year? And have we seen different trends among different industries and different sizes of the enterprises? Will such trend continue into the gradual season in June and July? Peng Zhao: [Interpreted] Thank you for your question. About the first one, which is tariff war concerning. We are still looking from the supply and demand perspective of job-seekers posting job expectations and recruiters post the job postings. So this is the -- has the most importance to our platform. In general speaking, the improvement, the recovery of recruitment trend, continued recruitment trend is still the case that is undoubtfully. The view we talked during our prepared remarks, which is quite serious that in general speaking, the tariff war impact on our overall supply and demand relationship is still quite limited. Objectively speaking, we have a quite diversified industry and location distribution. So the export-related industries, both in terms of revenue and numbers of job posting contribution are quite low. If we look at the detailed numbers, for example, in April and May, the total number of new job postings and active job postings have kept a good growth rate. We haven't been seeing any significant pull back compared to March. For industries which affected bigger by the tariffs, such as export-related jobs, so we saw some slowing in terms of growth rate in the beginning of April, but it has recovered after mid-May. The second question regarding the overall recruitment market. So the overall supply and demand ratio has continued to improve in this year. Let's take a detailed look after the day -- after May compared to the same days after the spring festival. So this year, we saw better growth trend compared to last year between -- after May, especially after Labor Day holiday and after spring festival. Let's look at some detailed numbers. So in April till today, since April till today, the newly -- number of newly posted jobs and number of recruiters who posted jobs -- the sequential trends are better compared to last year. Among which the blue collar sector, especially urban service blue collar sector, the year-on-year growth rate continue to enlarge from March to May. And about our prediction for June and July graduation season, it's hard to say we can predict precisely. But according to my personal feeling, it could be okay. We see this coming. And that's my answer to your question, Eddy. And operator, let's move on to the next one. Operator: Our next question comes from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: [Foreign Language] Two questions here from my side. First, we understand that the company has been internally testing the AI features for both enterprises and the job seekers. Could management share what is the feedback so far? And what is the plan for the company to launch the AI monetization features. Secondly is considering the latest macro environment as well as the monetization rate as well as user growth. Just wondering how does management see the RMB 3 billion non-GAAP operating profit target for this year? And into the second half, what are our leverage to make sure this RMB 3 billion target is achievable and what is the longer-term margin expansion I think, room for the company? And additionally could management share about our plan for capital allocation? Peng Zhao: [Interpreted] Thank you for your question. I will take the first one regarding AI and our CFO will answer the second question regarding the margin. So about AI, it's good to summarize that our series of phased out AI product testing has quite positive feedback, we have just mentioned. And this is based on that we have been continued to be very cautious in terms of using AI. And I think analysts and the investors who are familiar with us knows our views. And we just mentioned that some of our testing products have already opened to all of our users, it's a gradual process. And regarding the monetization, I would like to share 2 data with you. For the recruiters who have great scale used our AI recruitment function, efficiency of achievement increased by 25% under the same amount of conversations. The AI communication assistant have accumulatively served over 9 million conversations during our massive gray scale test. So the job seekers who have been responded by the AI communication assistant, chief achievement rate increased by 15%. So in principle, the AI products can improve the efficiency, increase your user experience and saving some time. But in reality, we are still quite cautious. So my view is we might be relatively gradually and slowly on the AI adoption of monetization, but it must be some [ remnant ]. Yu Zhang: So I'd like to answer the profitability and margin question. So as Jonathan mentioned in the prepared remarks earlier, even under current conditions with many external uncertainties. The company's overarching goal for this year is to secure a solid bottom line growth first, then try our best to grow faster with our business. In first quarter, we had a good start, and we managed to reduce cost to improve overall efficiency for most cost and expenses items. Our marketing fees dropped in absolute amount versus last year, but we still achieved satisfactory new user growth. We had higher revenue but our sales guide -- number of our sales dropped. Headcount for R&D, administrative cost and operation functions kept stable. Our internal AI tools kicked in for the platforms operation and verification jobs, which leads to improvement of our gross margin. You should know that our margin in the first quarter is the lowest due to the seasonality with all the measures mentioned above. There is still room to improve in second quarter -- second half of the year. So we are confident with our RMB 3 billion non-GAAP operating profit target for the full year. This is a comment for the profitability and margin. And regarding the shareholder return topic, the company currently has more than USD 2 billion cash and equivalents on hand. We consider shareholder returns a very important topic, and we like to do whatever fits us. Currently, our share repurchase program is still ongoing, and we definitely will continue. At the same time, we are studying and doing some assessment for other means, other measures to increase our shareholder return. So please stay tuned. We would like to do it step by step. Wenbei Wang: Okay. That's our answer to those 2 questions, and operator, let's move on to the next question. Operator: Next question comes from Wei Xiong from UBS. Wei Xiong: [Foreign Language] First, with the wider adoption of AI in human resources industry, are we seeing any changes or expecting any potential changes in the competitive landscape? And can we leverage AI to actually further expand our service offerings. And secondly, could management share more updates regarding our blue collar recruiting business. What are the key KPIs for this year? And how is our progress in the new businesses, such as placement services. Peng Zhao: [Interpreted] About your first question of how AI will impact the competitive landscape. My view is relatively conservative. So my assessment is for this generation of AI technology and all the AI application we can observe from the market, we haven't seen any revolutionary or disruptive changes. So the competitive landscape is relatively stable. But I also have some predictions that if globally amongst the human resource industries, there is a new generation of AI products can change the overall landscape, then there must be pushed by the new generation of AI technology, which may be like the 1.5 or 2.0 generation. And no, we haven't observed any revolutionary changes of the industry, and we still place very high importance of AI and AI-related investment. For example, last year, since -- actually since 2023, we have bought more than RMB 1 billion of chips, which is enough for us to conduct self-drive research and small-scale influence. In terms of AI science, we still maintain a small-scale lab for us to be able to conduct pretraining of our own model and replicate all those open source models. In fact, we are actually quite confident that in terms of using AI science for AI application, our business scenario are actually quite suitable to applicate the power of AI, for AI to have some impacts on our business. Compared to the first emergence of ChatGPT, when we felt a little bit panic or curious at that time. Now we have more certainty on the AI technology can actually help with our business and with more real feelings. And the more topic of view to share that a lot of online recruitment platform have long been pursuing the closed loop placement service. Now with the health of AI technology, we have more certainty to confirm that whether we can achieve cost closed-loop service in a big scale or not. And with blue collar sector user, new user contribution more than 45%, revenue contribution more than 39% and increased the revenue contribution from third tier and below cities. So this aspect actually are becoming more and more important for our daily operations. And if we want -- one word to summarize our future efforts to serve the blue collar and the lower-tier city users is our service and products will be more simple and clear. And in terms of placement business, especially on the blue collar placement, we have been spending a lot of resources and time. The key point is to guarantee the efficiency and reliability of your results. So if AI application can really help with those 2 aspects, then we do feel some confidence in this prospect, and that's why we want to further invest in this area. And that's my answer to your question. Wenbei Wang: Operator, I think that's the last one due to the time constraint. Operator: Thank you. Yes. Due to time constraint, that concludes today's question-and-answer session. So at this time, I'll turn the conference back to Wenbei for any additional or closing remarks. Wenbei Wang: Thank you, operator, and thank you, everyone, for joining our call today. And if you have any further questions, please contact our IR team directly or TPG Investor Relations. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

iQIYI (IQ) Q1 2025 Earnings Call Transcript | The Motley Fool

Content costs rose 10% sequentially to RMB 3.8 billion, which management said "may lead to short-term costs" as they pursue long-term growth strategies. Online advertising revenue declined 7% sequentially to RMB 1.3 billion, attributed to "macro headwind seasonality." Overseas business revenue "is still at a relatively low percentage" of total revenue, with future growth dependent on expanded financial resource allocation, which management cited as a limitation. Total Revenues: RMB 7.2 billion, up 9% sequentially, driven by long-form drama performance and diversified content offerings. Membership Services Revenue: RMB 4.4 billion, up 7% sequentially, supported by key drama releases. Online Advertising Revenue: RMB 1.3 billion, down 7% sequentially, reflecting seasonal macroeconomic impacts and lower ticket volume. Content Distribution Revenue: RMB 628.7 million, up 55% sequentially, driven by a greater volume of distributed titles. Other Revenues: RMB 830.9 million, up 24% sequentially, driven by growth in certain business lines. Non-GAAP Operating Income: RMB 458.5 million, up 13% sequentially, with a 6% non-GAAP operating margin. Operating Cash Flow: Net cash provided by operating activities was RMB 339 million, marking twelve consecutive quarters of positive operating cash generation. Content Costs: RMB 3.8 billion, up 10% sequentially, reflecting higher investment in premium original dramas. Total Operating Expenses: RMB 1.4 billion, up 8% sequentially, primarily due to additional marketing spending. Convertible Debt Reduction: Outstanding principal balance declined from RMB 2.9 billion to RMB 1.17 billion year over year, indicating proactive debt management. Micro Drama Growth: Over 300% increase in daily time spent and 110% increase in daily unique micro drama users when comparing December to the first week of April. App Segmentation Strategy: The main iQIYI app now focuses on paid micro dramas and long-form video subscriptions, while the iQIYI Lite app supports free micro dramas and advertising monetization. AI-Driven Product Enhancements: The launch of the AI-powered "I Jump" feature allows users to skip video highlights, and AI chatbots have facilitated over one million interactions since their launch in April. International Revenue: Premium content drove pricing revenues up 48% year over year. Micro Drama Monetization: Top titles surpassed RMB 1 million in revenue sharing within one week, while the average production cost per micro drama was under RMB 1 million. Operational Profitability Overseas: Management stated the overseas segment has been profitable over the past couple of years. iQIYI, Inc. (IQ -7.26%) management outlined a strategy to grow market share in both long-form and micro drama formats while leveraging AI features to enhance user experiences and support revenue diversification. International expansion continued, but future overseas growth depends on increased investment and the gradual scaling of local content and operations across markets. Chief Financial Officer Jun Wang said, "the result of our efforts to optimize the capital structure is very clear," emphasizing a sequential increase in non-GAAP operating income. Chief Executive Officer Yu Gong stated future investment in strategic areas such as content and user experience "may lead to short-term costs," but is designed for sustainable, long-term value creation. Management noted the sequential declines in advertising revenue were due to "macro headwind seasonality" and positioned upcoming premium content as a catalyst for a rebound. Chief Content Officer Xiaohui Wang stated their drama strategy would now focus on "releasing high-quality shorter episodes of premium dramas" along with increased quantity and diversity of titles. Micro Drama: Ultra-short scripted video series, often produced at low cost, designed for fast consumption and high user engagement, typically via mobile apps. Convertible Debt: Bonds or loans that can be converted into a predetermined amount of the company's equity, generally used as a financing mechanism. Non-GAAP Operating Income: Earnings from core operations excluding costs determined not to reflect normal, recurring business (e.g., stock compensation, restructuring), used as an alternative performance measure. AI-Powered User Features: Platform enhancements leveraging artificial intelligence to personalize video experiences and automate user engagement tools (e.g., AI video highlight navigation). Yu Gong: Hello, everyone, and thank you for joining us today. We delivered our fourth quarter, gaining sequential growth in both total revenue and profits. This was built by a strong response in our long-form premium content and strategic investment in vertical format, macro dramas. Actually, it's actually investing this position as a go-to platform for users, making a blend of long-form and short-form entertainment. Creating exciting opportunities for future commercialization and this will strengthen our confidence and commitment to drive even deeper upgrades across our business model and the content ecosystem in response to evolving market and user demand. For the call long-form video content, we are committed to delivering engaging and ultra-solid content as we reflect in our strong iron on top-tier drama. Notably, getting away from our flagship Langham filter brand The Path, the ten thousand IT companies in Dax Squad, where the demon hunters romance we'll do and move like this takes. Alright? Are you attention? Both achieve this call? Okay. Over nine thousand and six hundred. Looking ahead, we are dedicated to focusing on premium content with strong commercial value while also upholding excellence. Additionally, we will further enhance our production mechanism to deliver shorter, faster-paced, and more competitive storytelling than the softness strongly with all of this. So this user-centric approach, we are confident in our ability to unleash our full creative potential and foster our content ecosystem for micro dramas. We made notable progress on HE Light microcombers, now the second in terms of daily time spent and the first in the number of daily unique visitors. This clearly shows they are growing in captivating audiences, reinforcing our confidence in further unlocking their full potential. Moving forward, we are committed to expanding our microgrammar for the federal placing a strong asset on premium micrograms by enhancing original production and acquisition capabilities. At the same time, we aim to effectively monetize their growing traffic through advertising and e-commerce. Beyond our content ecosystem, we are leveraging technology innovation to improve user experience. A standout example is the launch of our AI part I jump feature, Telkom, which transforms how users engage with long-form videos with a simple swipe up all done on their mobile screen. Users can afford less escape between key highlights in each episode without missing any exciting moments. Delivering a user-centric microgramer-like experience tailored to the enterprise. Pace. Where we have it. Highlight points. Are generated by AI-based videos on the personalized behaviors of each user. As all the investors are aware, the market is becoming increasingly unpredictable as it continues to evolve. However, in fact, what I know environment, the ability to create sustainable value is emerging as a well and available asset. With this implies we are wrapping up our investments in strategic areas such as enriching our content ecosystem and enhancing the user experience. While this investment may lead to short-term costs, they are designed to deliver long-term benefits. Now let's move on to the details of our core business segments. Starting with long-form videos, which serve as the foundation of our content ecosystem. Maintain leadership in those core drama categories. At the current top spot in terms of total viewership market share during the quarter. Or coming through in licensed data. Our strong performance was highlighted by Rakuten in our seller mode as we have now ten days of five distinctive signature brands. Each featuring unique company genres. In the suspense genre, our brand achieved a remarkable milestone with a relief of a Okay? As the first title to surpass the ten thousand IT chain in data score. It also generated the third highest single and sole revenue in our history. Just behind the mega hit there's no cloud and my hero husband, In the government general, Lavalanche Hotel, brand made notable progress in this quarter. Expanding our portfolio of content for the net female audiences with the release of four captivating titles autograph, Our in-house produced a fantasy drama of worldwide. Mid-stage nine hundred and six nine thousand and six hundred or more than Romano's drama, the FSC. I n e was not only a success in the domestic market, but also the best performing modern drama, c drama. Overseas platform. All masterpiece sales are at the edge of town. For the type of thing, that's for the specializing in cancer. Right? Adoption and really take direct debuted. Is for the title North War. The drama adapted from mobile literature of past winning novel. Has further strengthened our reputation for top-notch drama. Lastly, our micro custom filter and last one Delta, Xiao Ru Yu Chong. Focus on innovation ignore video dramas errors. With and accommodate. With activity. Building on the success of past the huge such as to the with another with our time. And the greater normally at one p point o. This brand accepts to release an expansion client here. Turning to Moby's. We continue to dominate the category during the quarter with the highest viewership market share according to investment. Premium content has a strong long tail effect. It can it's sub twenty five either that's true. During Chinese New Year. The firm boosted the viewership of the original Sneaking as the most watched movie on our platform this quarter. In addition, our original production fleet forecast logo to achieve the strong brand new and build shape. Its passion. Right? Among male users to action and the prime Gerald. When it shows during the first of the quarter, a flagship multi thousand IP become a far more stable fee. Twenty percent made a strong comeback. Sustaining strong traffic and positive quarter of month. Our brand new IP the blooming journey, it will benefit excels with a key top line index score of over eight thousand. Attracting audiences in lower-tier cities. And among older audience beyond. Commercial financial viewers. In terms of animations during the first of the quarter, we continue to improve our production capability. Key titles such as super pure twenty-one and the growth of season food. Generated positive user feedback during the quarter. Moving on to our content strategy and the pipeline. In our core drama category, our focus is on creating a well-evidence of content mixed with that. Online commercial success with database. I send it Excellent. We are committed to three key drivers, realistic the spend, and the signal focused drama. To cater to past the pace view habits, we are enhancing our content creation strategies. This includes reducing the episode cost for long-form drivers. And increasing the number of high-quality drop dramas. With each episode lasting five to twenty minutes. This change is well explained. The volume of diversity of our offering. In which the user experience and the draft deeper audience engagement. Our drama pipeline features an exceptional lineup of post-care content. The already released that these are hunters' rawness and I mean, log in. Path delay. Quite a bit. Gather. One spread. Okay? Adding to that, I said asset. Asset segment, the highly anticipated field in Jiangxi a dream with a missing a dream. Will be released soon. In the general, Our results debuted breaking the shadow. And alive. That can also look forward to upcoming releases including justifiable defense, And form with luck advantage from the with now. No actual crime. Additionally, the new science fiction suspense drama was a wonderful work by Indian will be released shortly as well. Online app of realistic drama includes highly anticipated title. Such as the swiping slack. We are increasing investments in operational production focusing on theatrical releases with strong focus on the sequential multiplier. Our low original production manual. Have already actually have the box office Randall. Of over RMB five hundred and forty million. We have six more titles scheduled for the article release soon as the rest of the year. Including the Shadows Edge of controlling Additionally, we are boosting support for online movies. With revenue sharing model. That was line up include eight Orange Store, online movie, such as ultimate mission, Northeast brother student street. Hong Kong. Covering popular general such as mathematics. Martial arts, comedy, and action. For licensed theatrical movie, we launched several hits. Including Legends of the Conquer and detective Chinatown. One nine zero Tong Hai Yuu. Both of which have successfully their actual rents during the Chinese New Year and now and now performing well on our platform. So where it shows we will maintain our focus on producing top-quality programs. While introducing exciting new content. This includes sequels to a beloved classic like and the draft of China two thousand and twenty-five. Alongside flash IP such as Xing Acer, Yaro, Hingsheng, and the real quality show. As now as you. Building on the successful building on the success of the growing journey. We also plan to launch a second season data in this year. For animation, we are dedicated to increasing revenue contribution from our original production. Especially high-quality Chinese animation. We also aim to broaden our collection of enduring viruses and optimize our operations. To maximize IP value. Major titles to be launched include animation, over the divide rules. Empress, Moreover, we are invited to announce that the highly acclaimed Japanese animation One Piece, control. Have resumed error in the dedicated fund base. For children's conference, we will concentrate on IP commercialization and develop our comprehensive IP ecosystem. That spans the IPO life cycle. Offering all edge cloud services tailored to parents, child, audiences. Undespected title include Princess Doran Yi season four, Cabinet on the fourth. Food truck, Xiaopu which have demonstrated the potential using our Continental System harnessing, this powerful momentum. We are quite the two amplifying our investments in micro drama content. And strengthening user acquisition efforts. We have three key objectives that we attracting our user base and boosting business. Resilience by increasing microgrammers into our content ecosystem. Secondly, we proceed micro dramas as a catalyst for attracting new users and a driving membership revenue growth. Especially in under a lower-tier cities and among older audiences. We are actively exploring monetization opportunities for our micro drama soon initiative. Benchmarking and commerce. We have successfully achieved the first objective by revamping our apps and the rapid delay, expanding our macroeconomic and fellow to over fifteen thousand titles now. We have available for free and the other half exclusive to members. Of react to us, provisioned differently in terms of design and the target. Audience. The main IT app focuses primarily on long-form video and mainly do this subscription model. With microgrammers serving as complementary value add. The IT lite app, properly focus on free micro dramas and many types. Then. Some advertising and e-commerce. This meaningful progress has driven impressive growth in both daily build time and unique data for microgrammers with substantial increases of over three hundred percent and one hundred and ten percent with Pactiv Lab. When comparing the first week of April to December. In the future. Actually, last will be represented at IKEA MacKoh dramas and we are confident that this transformation will tap into its full potential. For a pioneer, the concept of dedicated Chinese New Year slate from microgrammers. Released in twenty-eight premium titles. Hit like my sweet home and the place come into my park. By consistently delivering premium customer, we are reinforcing our position at we are going to plan for macro dramas. As a micro drama, we continue to evolve the growing user demand for premium type of online profectile with our core SaaS with export tax increment trans brand and a loyal user base. We are uniquely positioned to cover your life. On this plant. Coupled with all extensive resources. Talent, team, and advanced technologies. We deliver unique value to the macroeconomic industry. With that, we are continuing our select in pacing enhancing our ability to produce original mark micro drama. Well, it's probably innovative gyros to broaden our content offering. With an initial tech include notable projects such as that are around one hundred classic Hong Kong movies and producing and an extensive series of legal educational content. All to be developed as micrograms. Additionally, we are integrating technologies like AI and workflow production to improve both efficiency fair and correlated Building on this initial case, we are collaborating with partners to foster a thriving industry ecosystem. In March we hosted the first half microclimate delivery flight light. A thermostat, a blue together hundreds of farm maintenance. Actors creators, and industry professionals. The event sparked meaningful interest from our head our headings eager for future collaboration. As the first-ever ceremony, dedicated to the macroeconomic industry, is not only enhanced output profile, but also reimbursed our low as our key industry player. Moving on to membership services. Revenue regained growth momentum during the quarter, increasing seven percent in the sequential rate. To RMB four point four billion. This will help healthy growth in subscriber base in q one. Supported by the strong performance of key titles such as Jupin'Away, more life, mistakes, and the number four. I will try your program number remain analysis and thanks to our improved operating initiatives. Our strategy is focused on developing a membership business that caters to a broad audience. Expands our subscriber base delivers enhanced value, and ultimately accelerates revenue growth as the core of membership business is essential content. Is drive We strive to boost once. Of number acquisition and retention by maintaining consistent, low operating long-form content. And engaging macro farmers. We continue stressing our membership plans in November, delivering a greater value to our membership members. Yeah. Refining product position, comparing. To connect with our broader user base. The family-oriented premium app segment plan saw excellent growth after we introduced free unlimited ease. Price package benefits. Means well or add a supported basic membership plan. Designed to offer exceptional value and a lower price. Which historic adoption price. Younger generation and users from low care IT. Leave this service in new members with many join as the first-time subscribers. We focus on enhancing web browser larger chain and the driver upgrades. Long-term members now enjoy greater discounts while premium at seminars members receive free price package to conversions with expanded options like express package. Contents the insurance program, tomorrow. Who purchased this, with added benefit. This step makes all membership services more attractive and available supporting steady revenue growth and a strong membership community. Moving on to advertising business. AdWords advertising revenue in the first quarter is creates a sequential decline of one point three billion other than the macro prior q one and the ticket volume, low season compared to q four. For burner app, our top-tier commerce and the warranty showed remain strong for analog handsets. With content-driven and over half of the revenue. Notably the SQL to on cloud six IP become a further c lead advertising sales while the new IP are growing in Germany. And the Panasonic camera. Mode line, mid-chip. Generated, widespread positive feedback, looking ahead. Brand and the ads are showing encouraging signs of a potential rebound driven by premium content we plan to drive and sell by leveraging premium dramas and a generous perfect Telstra brand. So while you showed with our focus on delivering high-impact projects and expanding vehicle opportunities for classic IPs. Additionally. We aim to launch a money path meaning warranty shows, micro climbers, and customized advertising programs, providing innovative and tailored advertising solutions. On the performance side, we captured buckets from new high-potential customers in the Internet services and allocation sectors Further, that was refined. Other times, time service. In addition. Incorporating API into advertising content creation has boosted our ROI by over twenty percent compared to last developed with our AI The future focus is on continuously enhancing our technologies and the platform capabilities to drive new revenue growth across Internet service. Services. Ecommerce, gaming, and application. Furthermore, we plan to see its growth opportunities in microcommerce and deepen the integration of APIs, maximize monetization efficiency. Commitment to enhancing ad efficiency is further demonstrated by the recent launch of our API-driven Qiju app placement platform, by integrating results from both our long-form and micro drama ecosystem This platform imparts both brand and performance as with sophisticated smart marketing solutions. Moving on to technology and products. We continue to announce video production soon in the realization. Enhancing both efficiency and creativity. For example, by scaling up the reuse of digital assets, in major original dramas like Batman, Disney, Fox, And without that, we have a luxury with those production time. And cost without a confirmed missing quality. Moreover, our cutting-edge tech to speech TTS, doubling solutions designed to combine emotion of pain as exhibited have already been applied to the integration upgrade for both long-form and macro dramas. On the user front, we are harnessing symbols. AI will redefine the entertainment experience in addition to a newly launched I jump filter measured earlier. They also interest deal with other AI-powered products to enhance user engagement. Our AI-powered chatbot platform called OVA, Launched in the last April features around one thousand AI characters from our popular IPs. And have engaged with users of over one meeting. One hundred and million tons. Recently, we introduced the personal AI assistant Holdong. Within the platform. Which users can use to do to discover content discover cloud, and control playback. Additionally, we launched our senior mode feature even for Motorola. Builders. Complain about earlier paid mode divided for younger audiences. Moving on to our business performance in widgets, outside of Midland China. We maintained strong growth momentum in the first quarter, with social revenues increasing by over thirty percent year over year and the average daily number of fast charging members reaching new high. Moreover, we are thrilled to see dramas gaining traction with our wider global audiences. According to Google trends data worldwide search for Deepgram. Please select. Reached a five-year high even surpassing first before Karim Drama. Or Original production have planned a key role in this growing international affair. With four of the top ten overseas drama the past six months. Coming from iQIYI, Inc. Our modern drama the best of team. Fast run cars, on our international platform is publishing a new revenue benchmark. For this channel. Additionally, our original Chinese animation super pro also achieved the highest single data for Chinese admission within the first week of over six release The influence of our premium content travel and our pricing revenues by forty-eight percent year over year. Our original Thai drama yield one gained a substantial traction from brand advertiser, while our training variety show become a farmer Also, to interest from overseas class. Looking at We are focused on expanding our investment in original production to create high-quality content. Tailored to international audiences. While integrating five core dramas into our global confluence. At the same time, we aim to deepen collaboration with local partners and further enhance our brand improves across key market. Last but not least, actually, consistently pushed the boundaries of business innovation and evidence by our pursuit of new opportunities and exploration of untapped horizon. We are leveraging cutting-edge digital technologies to seamlessly integrate all IPs depending on their lifecycle and unlocking greater control. We recently expanded our footprint to offline experience part. The first IT is LAN is set to open in year. With a second project underway in Kaifeng, in addition of VR immersive sensors are expanding rapidly. Feature popular IP factor, and Three details of Tom Dennis j. And the last between Phil and the Devo. Tangential These VR alternatives are now available in over fifty stores. Across nearly thirty cities. We believe this immersive entertainment experience will deepen user engagement with our content and IPs. On the e-commerce front, the rest of new content formats such as microgrammers combined with consumption they narrow down the vertical content and use it. Opportunity in the sector to cultivate the car pick her life. On this opportunity. We have launched trail operations for IT e-commerce. By leveraging our robust IP portfolio intensive artist resulted and high-quality member base. We hold distinct along the edge in this space. This year, there are concentrating on building a solid foundation for content retrieval in e-commerce. With the goal of driving accelerated growth and in the year ahead. Continue to evolve, we remain committed to investing in our content ecosystem and elevating the user experience. This is a strategic effort that enables us to accelerate our content. Flywheel traffic, resilience, they are a foundation for sustainable growth. And the delivery. Long-term value to all six holders. Let me pass on to Jun Wang for go through our financial performance. Jun Wang: Thank you, Mr. Yu Gong, and hello, everyone. Now let's take a look at the Q1 key numbers. In the first quarter, total revenues were RMB seven point two billion, up nine percent sequentially. Membership services revenue reached RMB four point four billion up seven percent sequentially. The increase was primarily driven by the strong performance of the long-form dramas. For online advertising revenue, decreased by seven percent sequentially to RMB one point three billion primarily due to macro headwind seasonality. Account and distribution revenue reached RMB six hundred and twenty-eight point seven million up fifty-five percent sequentially. Driven by more common titles distributed during the quarter. Other revenues increased by twenty-four percent sequentially to RMB eight hundred and thirty point nine million primarily driven by growth of certain business lines. Moving on to costs and expenses. Content cost was RMB three point eight billion up ten percent sequentially, driven by a higher number of premium dramas launched during the quarter. Total operating expenses were RMB one point four billion up eight percent sequentially primarily driven by higher marketing spending. Earned profit and cash flow our non-GAAP operating income was RMB four hundred and fifty-eight point five million up thirteen percent on a sequential basis. The non-GAAP operating margin was six percent. The net cash provided by operating activities totaled RMB three hundred and thirty-nine million, positive for twelve consecutive quarters. As of the end of the first quarter, we had cash equivalent restricted cash short-term investment and the long-term restricted cash included in the prepayment and other assets the total of RMB five point seven did. In addition, the company had a loan of five hundred and twenty-two point five million US dollars to PAG recorded under amount due from other parties. When reviewing our financial performance, the result of our efforts to optimize the capital structure is very clear. Over the past two years, we have acquired our time to this goal through a series of initiatives to lower our debt levels optimize repayment schedules, and amend our debt restructure more manageable. Notably, the total outstanding principal balance of our convertible home has sharply declined dropping from two point nine billion at the end of the first quarter back in two thousand twenty-three to one point one seven billion this year. And of the current outstanding balance, they are red five hundred twenty-two point five million as we mentioned earlier. Will result through equivalent loan arrangements with a creditor. And we continue to optimize the debt structure we have also achieved a substantial reduction in net interest expense which has declined from two hundred twenty-three million RMB to one hundred and fifty-five million RMB in the first quarter of this year it decreased by over thirty percent year over year. For detailed financial performance, and data, please refer to our press release on our IR website. Now we will open the floor for Q&A. Operator: Thank you. If you wish to ask a question, please If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Queue if you have additional questions. Your first question is from Shi Quingshan from CICC. Please go ahead. Shi Quingshan: Thank management for taking my question my question about micro dramas. Confirmation some operational updates on Michael dramas in the prepared remarks. A management elaborate a little more on the latest developments of micro dramas and outline the key focus points for its future development. Thank you. Yu Gong: Just go back. I'm sure our CEO Mr. Yu Gong, is answering this question. First of all, the users have gradually developed the habit of watching MicroGometrics on iQIYI, Inc. We now have over fifteen thousand micrograms titles, with free content and a member exclusive content that each attend network about half. and brand positioning. Our two mobile apps have also developed very distinct The main IT app focuses on members who are for free model, primarily featuring paid micro dramas, while the IT Lite app primarily focuses on free micro drama supporting my advertising. This development app I mentioned earlier have driven rapid growth in both user time spent and user base for micro dramas. While significantly enhancing the user stickiness. So when we compare the April to December of last year, the number of high heavy microgramming users, I think, which are users who spend eighty percent of their time watching micro drama, have increased about three times. We just stepped into the micro drama, this field. For not so long. And then I just started our original production. And seeing some in because of product. For example, recently released original micro drama called China Hotel in as capable of scorching love. Ranks first in IT's micro drama viewing time for several consecutive weeks. And I also successfully entered the ADX top ten list, which is a well renowned list. In the micro drama field. So amount the acquirer to talk to your title, for example, like, my sweet home, and Please Come Into My Heart each achieved revenue sharing milestone of over one million RMB within a week. And these progress reflecting the high user recognition and a appreciation of high quality microcommerce. I'll there's some background that I would like to share with everyone. For example, the custom cost for each micro zone title on average cost less than one million RMB. And the top tier, titles usually will be less than two million. RMB. Per title. Oh, so you do. May Jordan or Troy will call you back later. Mhmm. So as such, the within the week, the revenue share dollar, RMB, reached one million. It's actually a very sizable amount on my income. Going forward, there are two areas we're focusing on. First is to have more and better quality microcommerce and, second, to invest more user acquisition user voice. In addition, we'll try more ways to monetize the growing traffic for example, advertising and also e-commerce. Awesome. Thank you. Operator: Thank you. The next question is from Vicky Way from Citi. Please go ahead. Vicky Way: Thanks management for taking my question. What management share some color about the change of long video content strategy and the nation and the rationale behind it. Thank you. Yu Gong: Thank you. I will invite a chief content officer, Mr. Xiaohui Wang, to answer this question. Of all, non-core video are the cornerstone of iQIYI, Inc.'s content ecosystem. And our commitment to this remains unwavering. Dramas are at the core of long-run videos. So to better cater to involving user preferences, our future drama strategy will focus on two key areas. First of all, releasing high-quality shorter episodes of premium dramas and second, producing more high-quality short dramas. With each episode lasting five to twenty minutes. Going forward, the total number of drama titles will increase. Accompanied by enhanced content quality and greater diversity. This approach will not only improve the flexibility and stability of conference scheduling, but will also reduce reliance on individual titles and effectively mitigate food. Thank you. Operator: Thank you. The next question is from Maggie Ye from CLSA. Please go ahead. Maggie Ye: Would you please share more details on the of our overseas business, such as membership and content distribution as well. From a financial perspective, what is the current situation of the overseas business in terms of revenue and profit contribution, and how shall we expect from the over what shall we expect from overseas business in the next one to three years? Yu Gong: We started our overseas business in the second half of two thousand twenty. Two thousand nineteen. And after that, we experienced three years of COVID. So there were some difficulties in terms of, you know, getting hep counts and also, travel plans to between mainland China and overseas. So the development of our actually quite lower than expectation. But after COVID, in the recent two years, the business has been going through a very rapid development phase. But, however, we do have some restrictions in terms of the financial resources So there's some limitations to the development. In addition to what I mentioned in the opening remarks that we experienced rapid growth in terms of the annual growth, also subscriber count, etcetera. There are some very important progress we made Very importantly, that we kinda figure out the right content mix for each region overseas and also what can we do from the content mix to drive user growth and also to drive revenue performance. And more importantly, in addition to that, we also take it out how we can really operate in each region. For example, how we can promote content to acquire a better user growth and also in terms of the user growth, how we can improve that as well. In terms of the content mix for our overseas business, that's the Chinese content actually accounts for about half of the content, and the other half are the local content. Based on the data that we collected, the training video content actually value that are increasing in the global market, which is very beneficial to our overseas business. Growth. Right now, currently, the revenue contribution from the overseas market is still at a relatively low percentage. But it also depends on the future investment into the overseas business, limited to for example, the scale of our financial support and also the financing of sources. So these are the areas where we look out for the overseas As the CFO just added to our CEO's comment, So what we took from the past few years are really valuable revenue growth as well as the right content mix as well as the operating takeaways from each market, and these are the key takeaways in the past few years. Of course, these are under a very disciplined investment cycle that we did in over the past few years as well. And from the management accounting credit, the overseas business is profitable in the couple of years. And in the future going forward, of course, maintaining profitability is important. However, it doesn't have to be a meaningful amount. What we want is to invest take that profit, and invest into the business. Hopefully, it will drive a greater growth opportunity in the future. Thank you. Thank you. Operator: Thank you. There are no further questions at this time. I'll now hand back management for closing remarks. Yu Gong: Thank you, everyone, for participating on the call today. And if you have any questions, don't hesitate to contact us. Thank you and see you next quarter. Operator: Thank you. Goodbye. Thank you. So that does conclude our conference for today. Thank you for participating. You may now disconnect.

Kingsoft Cloud (KC) Q1 2025 Earnings Call Transcript

TAKEAWAYS SUMMARY Kingsoft Cloud (KC -7.79%) management highlighted continued acceleration of AI-related business, with deployments such as the Xiaomi (XIACY -2.83%) large language model training on Kingsoft Cloud infrastructure. Strategic capital allocation to AI computing clusters is expected to further support revenue growth, with official service launch anticipated in Q2 2025. The company disclosed that, beginning in the second half of 2024, pricing dynamics and profit-sharing models have started to compress gross margins for newer artificial intelligence (AI) infrastructure projects with non-key customers. Executives signaled no meaningful short-term impact from chip restrictions due to inventory, but flagged the potential for a more pronounced mid- to long-term industry effect. The firm refrained from providing formal top-line guidance but emphasized expectations for improved operating and EBITDA margins during the second half of 2025. INDUSTRY GLOSSARY Full Conference Call Transcript Operator: Good day, and thank you for standing by. Welcome to the Kingsoft Cloud Holdings Limited First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one and one again. 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, IR Director of Kingsoft Cloud Holdings Limited. Please go ahead. Nicole Shan: Thank you, Operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud Holdings Limited's first quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as on the via newswire services. On the call today from Kingsoft Cloud Holdings Limited, we have our Vice Chairman and CEO, Tao Zou, and the CFO, Haijian He. Mr. Zou will review our business strategies, operations, and the company highlights, followed by Mr. He, who will discuss the financial performance. They will be available to answer your questions during the Q&A session that follows. There will be consecutive interpretation. Our interpretations are for your convenience and reference purposes only. In case of any discrepancy, management statements in the original language will prevail. 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 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 market 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 these and other risks, uncertainties, or factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Vice Chairman and CEO, Tao Zou. Please go ahead. Tao Zou: Thank you. Hello, everyone. Thank you, and welcome all for joining Kingsoft Cloud Holdings Limited's first quarter 2025 earnings call. This quarter, we continued to steadily advance our business to the target on high quality and sustainable development, centering on key areas of AI. First, we recorded year-over-year revenue growth of 11%, reaching RMB 1.97 billion. Both public cloud and enterprise cloud achieved year-over-year growth, among which public cloud increased by 14%, reaching RMB 1.35 billion. Second, we continued to drive progress with AI. This quarter, AI gross billing reached RMB 525 million, representing a year-over-year increase of over 200% and a quarter-over-quarter growth of 11%, further contributing 39% of public cloud revenue. In addition, this quarter, we are accelerating the construction of our computing clusters with more flexible capital deployment, which is expected to launch service officially in the second quarter, further boosting our AI business revenue. Third, as the only strategic cloud platform of the Xiaomi and Kingsoft ecosystem, our business cooperation with the ecosystem progressed smoothly. This quarter, revenue from Xiaomi and Kingsoft ecosystem reached RMB 500 million, up 50% year over year, with its contribution to total revenue further increasing to 25%. By fully integrating the strength of both parties and jointly expanding cloud infrastructure for the AI era, our collaboration with Xiaomi and Kingsoft in the AI space continued to progress and deepen. Finally, in terms of profitability, this quarter, our non-GAAP gross profit was RMB 327 million, representing a year-over-year increase of 9.6%. Non-GAAP EBITDA margin reached 16.2%, an increase of 14.3 percentage points year-over-year, mainly attributable to the continued increase in the proportion of AI business revenue. However, we also witnessed that our profits have experienced some fluctuation while non-GAAP gross margin declined by 2.6 percentage points quarter-over-quarter to 16.6%. The decline in gross margin was mainly due to declined profit contribution from a lower proportion of enterprise cloud revenue as well as the impact of front-loaded investments of computing resources. The non-GAAP operating profit was impacted by the decline in gross profit, resulting in the loss of RMB 55 million this quarter. Non-GAAP operating margin was negative 2.8%, representing an improvement of 4.4 percentage points compared with a loss of 7.2 percentage points in the same period last year, and turned from a profit to a slight loss quarter-over-quarter. Despite quarter-over-quarter fluctuations in financial performance this quarter and the headwinds of both market pressure and supply chain uncertainties, we remain firmly on track with our long-term strategy and continued to move forward with confidence. We have strengthened our foundation in ecosystem cooperation, computing infrastructure deployment, and AI application, advancing the strategic layout of our company's overall AI cloud services. Now, let me walk you through the key business highlights of the first quarter of 2025. In the public cloud space, revenue reached RMB 1.35 billion this quarter, representing a year-over-year increase of 14%. Our AI business, as a key growth driver, reported a significant increase in gross billings to RMB 525 million, up over 200% year-over-year and 11% quarter-over-quarter, accounting for 39% of public cloud revenue, continuing to lead the industry. Based on steady usage growth in ecosystem customers and foundation model customers, computing demands for AI applications in Internet customer business scenarios, such as online education and online travel, also made breakthroughs. In the construction of clusters, we efficiently coordinated and responded quickly to the demand schedule of key customers, creating a benchmark case of delivering full-spectrum cloud services for large-scale clusters within the quarter. In addition, with flexible capital cooperation models, we ensured sufficient underlying computing power supply to support the rapid growth of our AI business. In the enterprise cloud space, revenue reached RMB 616 million this quarter, representing a year-over-year increase of 5%. Affected by seasonal slowdowns in project delivery and acceptance process, enterprise cloud revenue declined quarter-over-quarter. By industry, in the public service sector, we are advancing the application of AI in public service clouds and state-owned asset clouds. Actively embracing the AI-driven trend, Kingsoft Cloud Holdings Limited has built a rich set of model resources through an open-source model marketplace while providing a one-stop model toolchain that covers key processes, including data processing, model fine-tuning, model evaluation, and model quantization. We remain committed to delivering full-process one-stop AI services to help customers deeply optimize model performance in their business scenarios. In the healthcare sector, we initiated the construction of a platform for mutual recognition and sharing of test and examination results in Wuhan. Kingsoft Cloud Holdings Limited's medical imaging cloud capabilities, which have been deployed in regions such as Jiangsu and Chongqing provinces, will once again validate our capabilities. Our capabilities also expanded from imaging scenarios to test and examination scenarios and have been further replicated and extended to the entire Hubei province market. 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. This quarter, we continue to enhance the product capabilities of our intelligent cloud computing services. Our Xinyu training and inference platform, as a one-stop AI development and deployment platform, remains committed to providing enterprises with efficient, elastic, and cost-effective model training and inference services. The integration of high-quality models, including the one from Xiaomi, will further expand the platform's ecosystem capabilities and help customers apply AI technologies in scenarios such as natural language processing, multimodal interaction, and intelligent decision-making. Overall, our AI business continued to grow rapidly, and our cloud services have entered a new development cycle. In the public cloud space, we strengthened our capabilities in infrastructure training, inference platforms, and AI tools to help customers reduce training costs and improve stability, convenience, and efficiency throughout model development, fine-tuning, and usage. In the enterprise cloud space, with a focus on AI, data, and office productivity, we provide one-stop model solutions and services under the trend of enterprise AI plus scenario development. Looking ahead, we will maintain deep cooperation with the Xiaomi and Kingsoft ecosystem, fully understand and explore new AI opportunities, and continue to create value for our customers, shareholders, employees, and other stakeholders. I will now pass the call to our CFO, Haijian He, to go over our financials for the first quarter of 2025. Thank you. Haijian He: Thank you, Mr. Zou, and thank you all for joining the call today. I will now walk you through the financial results for the first quarter of 2025. This quarter, our AI strategy continued to drive our growth and laid a foundation for future development. Total revenues for this quarter were RMB 1,970.0 million, reflecting an 11% year-over-year increase. Out of this, revenues from public cloud services were RMB 1,353.5 million, up 14% from RMB 1,187.4 million in the same quarter last year. This growth was mainly fueled by a surge in AI-related business, with the billing reaching RMB 525 million. This quarter, our capital expenditure reached RMB 605 million. Revenues from enterprise cloud services reached RMB 616.5 million, up 5% from RMB 588.2 million in the same quarter last year, primarily driven by increased demand in industry solutions. However, we have witnessed a 25% sequential decrease in enterprise cloud revenues, which was mainly due to the seasonality impact. Total cost of revenue was RMB 1,651.7 million, up 11% year-over-year, which was in line with our revenue expansion. IDC costs dropped by 6% year-over-year from RMB 768.5 million to RMB 722.8 million this quarter, reflecting our execution on cost control and better resource utilization. Depreciation and amortization costs increased from RMB 183.5 million in the same period of last year to RMB 378.5 million this quarter, mainly due to the depreciation of newly acquired high-performance servers to expand our AI business. Solution development and service costs rose by 13.3% year-over-year from RMB 446.0 million to RMB 505.2 million, driven by expansion in Camelot personnel to support revenue growth. Fulfillment costs and other costs were RMB 3.1 million and RMB 42.1 million this quarter, respectively. Our adjusted gross profit for the quarter was RMB 327.7 million, a 9.6% increase year-over-year, while a decrease of 23.4% quarter-over-quarter. Adjusted gross margin was 16.6% in this quarter, compared with 16.8% in the first quarter of 2024 and 19.2% in the fourth quarter last year. Our adjusted gross margin has been negatively impacted by the seasonality of enterprise cloud services and higher upfront investments into servers and racks for AI business. On the expenses side, excluding share-based compensation, our total adjusted operating expenses were RMB 427.3 million, a decrease of 9% year-over-year and a 4.3% quarter-over-quarter. Of which, our adjusted R&D expenses were RMB 200.8 million, increased by 4% from the same quarter last year. Adjusted selling and marketing expenses were RMB 107.8 million, increased by 10.1% year-over-year. Adjusted G&A expenses were RMB 118.7 million, decreased significantly by 13.6% year-over-year due to the decline of credit loss. Our adjusted operating loss was RMB 55.8 million, narrowed by 56% from RMB 127.0 million in the same period of last year. The improvement was mainly due to the increase of gross profit and a decrease of credit loss expenses. However, the adjusted operating profit turned to a loss from last quarter, which is mainly due to the decrease of gross profit in this quarter. Our non-GAAP EBITDA profit was RMB 318.5 million, increased by RMB 8.3 million from RMB 33.2 million in the same quarter of last year. Our non-GAAP EBITDA margin achieved 16.2%, compared with 1.9% in the same quarter last year, mainly due to our strong commitment to AI cloud computing development, strategic adjustments, business structure, and our strict control over cost and expenses. As of March 31, 2025, our cash and cash equivalents totaled RMB 2,322.7 million, providing us a strong liquidity position to support operations and AI investments. Looking ahead, our cloud infrastructure is ready to serve in a short time. The demand from ecosystems and other AI application scenarios not only fuels our business growth but also reinforces our confidence in this trajectory. With demand for AI cloud service continuing to grow, we are well-positioned to capture and capitalize on AI capital opportunities. Thank you. We are now happy to take your questions. Operator: Please ask your question in both Mandarin Chinese and English because of consecutive interpretation. Operator, please go ahead. Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. We will now take the first question from the line of Brian Gong from Citi. Please go ahead. Brian Gong: I will translate myself. Thanks to management. So one is, you know, for both public cloud and the enterprise cloud, the growth seems a little bit weaker than our previous expectation. What are the reasons behind this? And how should we see the full-year growth right now? And secondly, recently, Xiaomi released its own large language model. How does management leverage this, and what's the latest demand from Xiaomi? Tao Zou: Thank you very much for your question. So in relation to the first question about the growth speed, in terms of both public cloud and enterprise cloud, as we noted in the prepared remarks, especially for the enterprise cloud, the seasonality is quite evident. That includes impact for both our own enterprise cloud services as well as the business from Camelot. Because, obviously, Q1, there's the factor of the Chinese New Year. A lot of customers for enterprise cloud business are still doing their budgeting. Now in terms of the public cloud, as we mentioned before, the public cloud business of Kingsoft Cloud Holdings Limited focuses mainly on key customers, which typically are large customers. And they have their own cycle of the construction of the clusters before they can actually get online and generate revenue. So in fact, in the first quarter, we have delivered a 512-node cluster to our key customers. However, that delivery time point was only at the end of March, and therefore, the revenue and profit reflection in the financial numbers will only be shown in the next quarter, which is the second quarter, Q2. Now in relation to your question about the model from Xiaomi, in fact, the Xiaomi's 7 billion parameter model was actually trained from our cluster. And in fact, the tremendous growth of Kingsoft Cloud Holdings Limited's AI business has much to do with the demand coming from Xiaomi. In the long-term perspective, the tremendous demand for model inference coming from Xiaomi still has significant potential. However, since we are serving Xiaomi, the pace of Xiaomi's demand has a lot to do with when and the amount the revenue and profit will show on our financial statements on a quarterly basis. Operator: Thank you. We will now take the next question from the line of Sheridan Suncroft from CICC. Please go ahead. Sheridan Suncroft: Thanks, management, for taking my questions. First of all, I noticed that Kingsoft Cloud Holdings Limited and Kingsoft Office have recently jointly launched an AI all-in-one model machine for the government affairs sector. How do you view the business opportunities in the government affairs AI field? And also, could you introduce the pricing models of this all-in-one machine? Secondly, could you please update on the non-GAAP OP margin outlook for the subsequent quarters? Thank you. Tao Zou: So let me quickly translate. As rightly pointed out, the market for AI in the office automation targeting the government space has been developing very fast, and therefore, that's the reason why Kingsoft Cloud Holdings Limited and Kingsoft Office have come together to jointly develop and offer a plan or a solution to such a market, which has been actually validated by the market. So that integrated solution is actually an integration of both software and hardware, and notably, in the software portion, there's the AI component that helps them become more efficient in office scenarios. And this is targeted for Chinese government agencies in various layers of various tiers. Now in terms of the pricing question you asked, it actually varies based on the different configuration of hardware that we are providing to the customer. So the pricing can actually vary by quite a lot. Haijian He: Thank you for the question on the margin side. I think probably a few things I want to point out. Given the seasonality in Q1, as probably many of you understand, our primary OPEX is the human capital expenses, so the salaries, compensation, bonuses, and so on. So in Q1, basically, not only do we need to incur the normal salary payment, but also there's a bonus and also certain kinds of employee benefits also incurred in Q1 during the holiday seasons, as you understand. Given the revenue side was affected by the delay of certain projects, and also the top-line growth has been affected by seasonality, the variation of the top-line growth largely affected the bottom line. So the cost structure, especially on salary and compensation, is relatively fixed. That's why it's kind of affecting the OP margin in Q1. It's kind of very straight line given the better margin profile, for example, the AI projects and our relationship with our ecosystem partners, especially for Xiaomi, as our CEO, Mr. Zou, just mentioned, the big project we're likely to deploy on the way, and it will be largely booked starting from Q2 going forward. So, hopefully, our top-line growth will drive a better margin expansion in the following quarters. So we are in the view that our OP margin will be better in the following quarters. It depends on the top-line growth, the pacing of that, and the scale of the revenue quality in the following quarters. But on the other hand, we also want to point out that the EBITDA margin will likely be better compared with the OP margin given the nature of the AI business. So as the AI business penetration becomes higher in the public cloud services, hopefully, the EBITDA margin can be recovered a little bit faster than the OP margin side. So I think I will encourage the audience to probably closely track our gross margin profile and EBITDA margin profile as well as the R&D cost, which are primarily linked to the expenses and the compensation and salaries of employees. I think these are factors that are going to be the leading indicator for the OP margin going forward for the following quarters. So while we don't give a formal guidance, I understand Brian also mentioned this, for the full-year top-line revenue in the call today, by the way, in the view that the margin profile in the following quarters likely, especially in the second half of this year, will be better than the first half of this year. And at this moment, we don't give a kind of formal management guidance for the top line, but the margin profile will continue to be better, especially in the second half of this year. Thank you. Operator: Thank you. We will now take the next question from the line of Thomas Chong from Jefferies. Please go ahead. Thomas Chong: Thanks, management, for taking my question. My first question is about the AI CapEx and the OpEx breakdown. Can we have an update, like, last quarter? And my second question is about our quarterly CapEx, like Q2. Is the chip ban issue affecting the sequential momentum in CapEx? And my first question is more about the industry landscape. Given that customers are now using more, like, distilled models, smaller models, rather than large models, would that affect the cloud revenue? Thank you. Haijian He: Thank you, Thomas. I will take the first two questions, and I defer to CEO, Mr. Zou, for the second and third questions. The first question regarding the capital expenditures. So I have mentioned, in this quarter, our total CapEx was RMB 605 million for the first quarter of this year. So if the audience remembers, since last year, we actually diversified the way we're financing the investment into AI, especially infrastructure construction. So our own cash to be used for the CapEx is one part, but also we are going to, for example, doing the financial leasing, operation leasing with our partners, for example, Xiaomi as well. But also, we are going to get financing, for example, the bank loans and certain leasing agreements with the state-owned banks in China locally, as well as some leasing companies in China as well to arrange certain off-the-balance-sheet financing arrangements. So I think these are the three ways that we're financing the total AI infrastructure demand. So out of that, I think the reason you probably point out that total CapEx for this quarter is kind of RMB 600 million for this quarter. But I think our total investment into AI because we also start to lease certain servers from third parties to reduce our burden to pay out of pocket from our own cash. So there's a certain leasing and rental agreement we actually start to negotiate and set up with third parties starting from Q1. So, hopefully, for next quarter, we're going to give some updates regarding our total spending, including both our own cash out of pocket, but also the leasing agreement that we'll start to arrange with third parties. So this is going to be the total investment of the AI infrastructure from our definition. So I'm likely to have some updates for next quarter because we just start to arrange those agreements with third parties to ensure to reduce and save and to be more efficient in terms of our own cash management. So I think right now, we give the number on total CapEx, but the leasing plus the CapEx and plus our own cash will be another update for next quarter. And also given the OpEx, you know, as I'm mentioning, our R&D expenses for this quarter are around RMB 200 million. And the sales expenses are around RMB 108 million, and the management SG&A is around RMB 119 million. So if you're putting the three numbers together, it's roughly about RMB 400 million on the OPEX side, including R&D, sales marketing, and SG&A. This probably can give you a kind of color regarding the total OpEx plus CapEx on a quarterly basis. Thank you. Tao Zou: So, basically, to translate from Mr. Zou's response to the chip ban question. So honestly and very frankly, there surely will be an impact. Right? However, this is actually not the first time for similar kinds of restrictions being imposed on chips. So we have experienced similar things before. And so before this round of restrictions actually hit us, we have had some inventory and storage, so, therefore, the short-term impact is not that material. However, from a mid to long-term perspective, there will be a meaningful impact for both Kingsoft Cloud Holdings Limited as a company and for the industry as a whole as well. We mentioned before since 2023, we have already strengthened our cooperation with Made in China computer resources. And that kind of cooperation we have managed to continue since then. And in light of similar restrictions, we have made and we have been well prepared for the gradual substitution of made in China computing resources should restrictions continue to be more restrictive. So the conclusion, the basic conclusion is that there's no negative impact on revenue and profitability for Kingsoft Cloud Holdings Limited. And the reason has been as follows. The first one is for the traditional HashiCorp model customers, their models have been a hundred billion parameter large language models. And it has historically been using our computing power for training and inferences, and this part is actually not impacted. Secondly, for the more traditional Internet space customers, they have actually always been using relatively smaller models, including the 30B and 10B kind of parameter amounts for our business. So this for us is actually an incremental amount for our revenue development. And thirdly, in the future, for the Xiaomi and Kingsoft ecosystem, we also expect to have extra positive impact coming from the more prevailing usage of relatively small models because more of the model inference would originally come from outside of the Kingsoft Cloud Holdings Limited computing power infrastructure from other companies. Actually, when Xiaomi and Kingsoft started to adopt more medium-sized or smaller-sized models, they're actually starting to use more of Kingsoft Cloud Holdings Limited computing resources. So that's actually another part of potential incremental revenue and profit for us. Operator: Thank you. We will now take the next question from the line of Wenting Yu from CLSA. Please go ahead. Wenting Yu: So the first question is, can management share the recent gross margin trends for AI cloud leasing services? Previously, we observed aggressive price competition in the industry mainly focused on model API pricing. Are we seeing the pricing pressure extend to the AI server leasing business as well? And the second question is, following the open sourcing of R1 by Deepstick, how do we see the latest dynamics of model training demand? While there is incremental demand for post-training models, the open-source release of R1 may also lead to some model vendors abandoning further iteration. So how should we evaluate these two factors and their overall impact on the industry? Tao Zou: In relation to the AI cloud service margin or pricing pressure question, let me respond to you from two dimensions, which are internal and external. So externally, as you rightly pointed out, we're actually seeing sort of market concentration for AI players as our customers, and therefore, they do have some impact on our new projects, which we entered into more recently. And the impact would largely depend on the project size. However, for the old long-term contracts that we have signed in the past, those projects that we entered into in the past, there's no meaningful, no material impact. Another point I want to point out is that starting from the second half of 2024, we're increasingly leveraging the so-called resource pool supply chain to expand our infrastructure. So the strategy basically is for top key customers, we use our own cash and dry powder and CapEx to build the infrastructure to provide cloud service to them. However, for non-top customers, we're increasingly using leveraging the partners who will supply us with the servers and computing resources. And we jointly together provide cloud service to these customers. And because these are partners that provide resources, we actually also have to share some of the profit with them. So this is like a partnership in a profit-sharing model. And for that reason, that new or emerging supply chain model has also to some extent, negatively impacted the gross margin level of the company. In response to your question regarding the impact of open source of Deepstick R1 on the demand for model training, my answer to you is that this is coming from our SVP, Ms. Linlin Yang. So the old batch of large language model companies, it's open in ten and large language model companies, we do have seen their demand shrinking to some extent due to the success of Deepstick. However, the contracts that we entered with them are long-term contracts, which we have entered in the past. So as we responded in the first question, the impact is very limited. However, there's also a group of other companies than those large language model companies. Some of them are coming from the Internet space, some from other emerging industries. They are inspired by the success of Deepstick. And also think that by using relatively manageable resources, they will also potentially be able to train and owe a state-of-the-art model. So therefore, we're seeing increasing demand coming from these customers as well. So all in all, we don't see a negative impact from the success of the Deepstick model. Operator: Thank you. There are no further questions at this time. This concludes today's conference call. Thank you for participating.

Sunlands (STG) Q1 2025 Earnings Call Transcript | The Motley Fool

Net Revenue Decline: Hangyu Li reported, "Net revenues (GAAP) decreased by 6.8% to RMB 487.6 million in Q1 2025, down from RMB 523.2 million in Q1 2024." citing a decline in gross billings for post-secondary courses as the driver for the decrease in net revenues. Net Income Decrease: Hangyu Li stated, "Net income for Q1 2025 was RMB 75.2 million, compared to RMB 112.7 million in Q1 2024." indicating a substantial year-over-year decline. Net Revenue: In the first quarter of 2025, net revenues decreased by 6.8% to RMB 487.6 million from RMB 523.2 million in the first quarter of 2024, primarily due to lower gross billings from post-secondary courses. Net Income: RMB 75.2 million, representing a 15.4% net margin and marking the sixteenth consecutive profitable quarter. Gross Profit Margin: 85.2% gross profit margin. Total Enrollments: 169,083 new student enrollments, with new student growth driven by course portfolio diversification and improved learner engagement. Average Order Value: Average order value grew 7.5%, supported by successful strategic initiatives. Revenue Mix: Interest-based, professional development, and certification programs contributed 78.2% of total revenue, while degree and diploma programs accounted for 9.7%. Cash Position: Cash, cash equivalents, and short-term investments totaled RMB 796.9 million as of March 31, 2025. Deferred Revenue: RMB 891.6 million at quarter-end (March 31, 2025), down from RMB 916.5 million as of December 31, 2024. Cost of Revenue: Cost of revenue decreased by 6.3% to RMB 72.3 million in the first quarter of 2025 from RMB 77.2 million in the first quarter of 2024, mainly due to compensation reductions from headcount cuts. Operating Expenses: In the first quarter of 2025, operating expenses were RMB 341.1 million, unchanged from the first quarter of 2024. Sales and marketing expenses remained relatively stable at RMB 300.4 million in the first quarter of 2025 compared to RMB 301.6 million in the first quarter of 2024; general and administrative expenses increased by 5.9% to RMB 34.5 million from RMB 32.6 million; product development expenses decreased by 11% to RMB 6.2 million from RMB 7 million. Q2 2025 Revenue Guidance: For the second quarter of 2025, Sunlands currently expects net revenues to be between RMB 500 million and RMB 520 million, representing an increase of 1.6% to 5.6% year-over-year. Operating Cash Flow: Positive operating cash flow for the seventh consecutive quarter, reflecting ongoing operational strength. Course Completion Rate: 98% course completion rate for new students and a 14% increase in knowledge retention attributed to the dual teacher model. Strategic Partnerships: Notable new cooperation with Hunan TV's Happy Shopping platform and continued initiatives with Beijing TV to bolster reach within the senior education segment. Management reaffirmed confidence in sustaining profitability by prioritizing high-margin and high-potential areas within the adult learning segment. Expanded collaboration with traditional media and cultural institutions targets continued growth among middle-aged and senior learners, recognized as a strategic focus. Technology advancements, including deployment of AI tools for curriculum precision and learner engagement, are central to Sunlands Technology Group's business model. Government policy trends favoring service-oriented lifelong learning initiatives were cited as directly aligned with company strategy. The company acknowledged macroeconomic and geopolitical uncertainties, but emphasized minimal business impact due to its domestic-only exposure. Tongbo Liu said, "This quarter marked our seventh consecutive period of positive operating cash flow underpinned by sound execution and prudent cash management." Specific initiatives such as nearly 100 free public interest activities annually reflect both corporate social responsibility and investment in brand trust among elderly learners. The introduction of a blended online and offline delivery model is tailored to enhance social participation and satisfaction for older students. Sunlands Technology Group intends to maintain vigilant risk management while seeking to capitalize on anticipated demographic and policy-driven demand growth in China's education sector. Gross Billings: Total receipts from student enrollments before revenue recognition adjustments; often used as an indicator of future revenues in education services. Deferred Revenue: Advance payments received for courses not yet delivered or completed, recognized on the balance sheet as a liability until earned. Dual Teacher Model: An instructional approach pairing academic mentors with learning facilitators to bolster course accessibility and student engagement. Tongbo Liu: Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' First Quarter 2025 earnings conference call. Prior to commencing, I would like to kind of remind all attendees that the financial information referenced in this release are presented on a continuing operations basis, and all figures are denominated in RMB unless explicitly specified otherwise. In the first quarter of 2025, we reported net revenue of RMB 487.6 million and net income of RMB 75.2 million, marking our sixteenth consecutive profitable quarter, and an encouraging start to the year that reinforces our confidence in delivering sustained growth throughout 2025. While net revenue remained relatively stable, our continued profitability and disciplined execution reflects the underlying resilience of our business model. Net income margin reached 15.4% supported by effective cost optimization and ongoing operational efficiency improvements. Meanwhile, our financial fundamentals remain robust. This quarter marked our seventh consecutive period of positive operating cash flow underpinned by sound execution and prudent cash management. Looking ahead, we will continue to refine our business mix concentrating on high-margin, high potential areas to reinforce structural flexibility and long-term resilience. On the product front, we continue to deepen and diversify our course portfolio. We refined our core subject areas, while extending into adjacent domains such as wellness and lifestyle, aligned with increasingly diverse needs of lifelong learners. Driven by our course diversification strategy, this quarter's total enrollment reached over 179,000 (sic) [ 169,000 ] also supported by meaningful improvements in learner engagement and retention. Technology also remains central to our strategy. This quarter, we further advanced the digital transformation of cooperations by embedding AI tools that enhance curriculum precision and boost learner engagement. Now let's turn to the performance of each of our major course programs. In the first quarter of 2025, degree and diploma post-secondary programs contributed 9.7% of total revenue. This sector has experienced a moderated trajectory and our celebrated scale back investments has allowed us to reallocate resources towards high-growth opportunities more effectively. Going forward, we will continue to monitor macro education trends and demographic shifts closely, ensuring our approach remains agile and responsive to evolving conditions. The sector encompassing interest-based programs, professional skills development and professional certification preparation, accounted for a substantial 78.2% of our total revenue, with interest-driving courses emerging as a fundamental pillar. Unlocking the full potential of interest learning among middle-aged and senior learners remains a central strategic priority. In this area, we have remained steadfast in pursuing a clear future-oriented strategy rooted in openings, integration and innovation while deepening our initiatives across multiple fronts. First, we have embraced a partnership-driven approach to amplify value creation. As China's aging population expands, the senior consumer market is drawing increased participation from diverse industries, including consumer brands, health care service providers and traditional media. This convergence presents significant opportunities for core sector collaboration. Following last year's successful partnership with Beijing TV, we established a new cooperation with Hunan TV's Happy Shopping platform this quarter, leveraging its broad consumer reach and brand influence. Second, we have further strengthened our hyper delivery model to meet the evolving needs of older learners. For this demographic, education is not only about acquiring knowledge. It is equally about social participation and emotional fulfillment. To address this need, we have adopted primarily online supplemented by offline hybrid model that offers both flexibility and depth. This model has proven especially effective in boosting learner retention and satisfaction. Notably, our curated study tour with integrated education content with culture travel has been particularly well received for their immersive and differentiated value. At the same time, we are deepening our cross-sector collaboration by partnering with galleries and museums to codevelop cultural resonant experiences, further strengthening engagement within the senior segment. Third, we have refined our curriculum design with a self-developed assist framework, which is answer, comment, supervisor and study to fuel ongoing growth and ensure learner success. This dual teacher model while pairs academic mentors and learning facilitators makes our courses more assessable, engaging and outcome-driven. Leveraging this collaborative learning system, we have attained 98% course competition (sic) [ completion ] rate among new students and 14% increase in knowledge retention, underscoring its effectiveness in delivering substantial educational outcomes. Beyond academic innovation, social mission remains integral to our strategy. Each year, we organize nearly 100 free public interest activities, ensure elderly individuals with cultural or intellectual operations access meaningful learning experiences. We view this not only as an expression of corporate responsibility, but as a long-term investment in brand trust and mission element. Recent policy developments further reinforce our confidence. With government's focus on stimulating the domestic consumption and expanding service-oriented sectors, including cultural, tourism and education align closely with our strategic direction. Targeted initiatives and fiscal incentives for innovation in community-based and lifelong learning programs affirm that we are operating in the right space at the right time with ample room to scale, lead and grow. Taken together, these efforts reflect our holistic and forward-looking approach to lifelong learning. Today's adult learners are increasingly value conscious, seeking premium, immersive and social engaging experiences. This shift affirms our early position and highlights the long-term potential of adult learning economy. Moving forward, we will continue enhancing our offerings, strengthening ecosystem integration and deepen engagement, ensuring we remain well positioned to lead this evolving sector. While macroeconomic and geopolitical uncertainties persist, the impact on our business has been limited given our domestic focus. Nonetheless, we remain vigilant proactively managing risks while staying alert to new opportunities. Looking ahead, we will continue strengthening our core capabilities, expanding our core offerings, embracing [Technical Difficulty] disciplined focus on value creation. We are confident this approach will deliver sustainable long-term returns for shareholders and meaningful learning outcomes for our students. This concludes my prepared remarks. With that, I will turn the call to our Financial Director, Hangyu, to run through our financials. Hangyu Li: Thank you, Tongbo. Hello, everyone. I'm pleased to report our results for the first quarter of 2025. During the quarter, we successfully responded to the volatile market environment and achieved solid results. We had gross profit margin of 85.2% and a net margin of 15.4% with net income of RMB 75.2 million. This solid start is a testament to our prudent financial management and the sustainability of our business. Our co-interest and professional certification programs continue to be engines of growth. The series of successful strategic initiatives supported average order value growth of 7.5% and resulted in 169,083 new student enrollments. Financially, we maintained positive operating cash flows for the seventh consecutive quarter with cash, cash equivalents and short-term investments totaling RMB 796.9 million. Our healthy financial position further strengthens our ability to cope with market uncertainties while making strategic investments. Looking ahead, we maintain efficient operations, enhance artificial intelligence-driven cost personalization and capitalize on policy benefits in the lifelong learning space. Despite the recent decline in revenues, we believe our healthy financial position and the flexible business model will allow us to capitalize on the long-term opportunities in China's aging-driven education market. Let me now walk you through some of the key financial results for the first quarter of 2025. Unless otherwise noted, all figures are in RMB and all comparisons are made year-over-year. In the first quarter of 2025, net revenues decreased by 6.8% to RMB 487.6 million from RMB 523.2 million in the first quarter of 2024. The decrease was driven by the decline in gross billings from post secondary courses over the recent quarters, resulting in a year-over-year decrease in net revenues from post secondary courses. Cost of revenue decreased by 6.3% to RMB 72.3 million in the first quarter of 2025 from RMB 77.2 million in the first quarter of 2024. The decrease was mainly due to the declined compensation expenses related to head count reduction including teachers and mentors. Gross profit decreased by 7.9% (sic) [ 6.9% ] to RMB 415.3 million in the first quarter of 2025 from RMB 446.1 million in the first quarter of 2024. In the first quarter of 2025, operating expenses were RMB 341.1 million which were the same as the first quarter of 2024. Sales and marketing expenses were RMB 304 million (sic) [ RMB 300.4 million ] in the first quarter of 2025, which remained relatively stable as compared to RMB 301.6 million in the first quarter of 2024. General and administrative expenses increased by 5.9% to RMB 34.5 million in the first quarter of 2025 from RMB 32.6 million in the first quarter of 2024. Product development expenses decreased by 11% to RMB 6.2 million in the first quarter of 2025 from RMB 7 million in the first quarter of 2024. The decrease was mainly due to declined compensation expenses related to headcount reduction of our product development personnel. Net income for the first quarter of 2025 was RMB 75.2 million as compared to RMB 112.7 million in the first quarter of 2024. Basic and diluted net income per share was RMB 11.12 in the first quarter of 2025. As of March 31, 2025, the company had RMB 596.2 million of cash and cash equivalents and RMB 200.7 million of short-term investments as compared to RMB 507.2 million of cash, cash equivalents and RMB 276 million of short-term investments as of December 31, 2024. As of March 31, 2025, the company had a deferred revenue balance of RMB 891.6 million as compared to RMB 916.5 million as of December 31, 2024. Now for our outlook. For the second quarter of 2025, Sunlands currently expects net revenues to be between RMB 500 million to RMB 520 million, which would represent an increase of 1.6% to 5.6% year-over-year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimate of current market operating conditions and the customer demand, which are all subject to change. With that, I'd like to open up the call to the questions. Operator? Operator: [Operator Instructions] As we are showing no questions, I will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Yuhua for any closing remarks. Yuhua Ye: Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day, and good night. Operator: This concludes this conference call. You may now disconnect your line. Thank you.

Tuya : Transcript (fa8819f0 3de7 484b 985f 6a03d0b9cd05)

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s first quarter 2025 earnings conference call. (Operator Instructions) I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, Reg. Investor Relations Director Thank you. Hello, everyone. Welcome to our first quarter 2025 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; our Co-founder and CFO, Mr. Alex Yang. The first quarter 2025 financial results and webcast of this conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call, as we will make forward-looking statements. With that, I will now turn the call to our Founder and CEO, Mr. Jerry Wang. Jerry will deliver his remarks in Chinese, which will be followed by a corresponding English translation. Jerry, please. Founder, CEO & Director Hello everyone, thank you for joining Tuya's earnings call for the first quarter of 2025. This quarter, building on a high growth base from Q1 last year, we achieved approximately 21% year-over-year revenue growth while maintaining a solid gross margin. Our stable team structure and organizational management supported strong operating leverage. Coupled with the continued decline in historical share-based compensation expenses, we achieved a record GAAP net profit in what is traditionally an off-season, with a net profit margin of around 15%-a significant improvement. Since the beginning of the year, the macro environment has been like a roller coaster, from the rapid advancement of AI technology to trade fluctuations under geopolitical pressures. The smart consumer electronics sector and its upstream and downstream supply chains have faced immense challenges. Some of these we can manage through internal adjustments, while others require an industry-wide response. In such a context, it's even more critical for us to stay the course strategically and leverage our unique value to navigate uncertainties and embrace a new landscape. Following the launch of our Tuya AI Agent development platform last year, we continued to expand our AI capabilities from cloud to device in Q1, covering a wide range of AI Agents and Smart Solutions. On April 23, we hosted our first global developer conference of 2025, unveiling four AIoT development engines and a series of AI hardware solutions to support global developers and partners in commercializing AI-powered products. The conference attracted over 2,700 onsite attendees, including enthusiastic participation from customers across Europe, Latin America, South Africa, and the Asia-Pacific. We firmly believe that Tuya's unique platform model not only facilitates the deep integration of AI and smart hardware but also drives continuous improvement in industry-wide intelligence adoption. Operationally, we will maintain efficient organizational execution, safeguard a favorable environment for R&D and technology development amid external uncertainties, and remain disciplined in managing costs to maximize operating profits and shareholder returns. Now, I'll turn it over to Tuya's Co-Founder and CFO, Alex Yang, who will walk you through the financial results and business highlights. Co-Founder, CFO & Director Hello everyone, this is Alex. Please note that all the figures I mentioned below are in US dollars and all comparisons are year-over-year based unless stated otherwise. In Q1 2025, we delivered revenue of approximately USD 74.7 million, representing a year-over-year growth of about 21.1%. PaaS revenue grew by roughly 17.9%, with strong performance across major categories-led by home appliances, followed by security sensing, and then electrical and lighting products. SaaS & Others generated about USD 10.0 million revenue, growing approximately 15.5% year over year, primarily driven by steady growth in device-related SaaS value-added services. Smart Solutions revenue reached approximately USD 11.0 million, a year-over-year increase of about 47.1%, with excellent growth in smart video products, central control, innovative appliances, and professional lighting solutions. From a regional revenue source perspective, Europe accounted for about one-third of the total revenue, and then come after that is Asia-Pacific (excluding China), and then China, and Latin America, each of them contributing around 15%, and the remaining regions such as the Pacific and the Middle East contributing in a combined of 5%, maintaining a diversified revenue structure in regional basis. It is worth to mention that since we empower and serve the smart hardware sector, our revenue also reflects the unique patterns and seasonality of the hardware industry, especially on the international manufacturing, representing the results of business actions and strategies from the past several quarters or even longer. In Q1, blended gross margin stood at about 48.5%, with all three revenue lines maintaining steady margins. Specifically, this quarter's PaaS gross margin rose to 48.4%, primarily due to structural improvements driven by product mix changes. Smart Solution and SaaS had gross margins of 25.7% and 74.4%, continuing to demonstrate the value proposition released through software and technology. In the meantime, our net operating expenses for this quarter were USD 37.7 million, a nearly 18% decrease from the same period last year, primarily benefiting from a substantial reduction in share-based compensation expenses, a trend that is expected to continue. Excluding equity incentives and other non-operational business factors, our Non-GAAP net operating expenses were USD 29.4 million, down 2% year-over-year. The vast majority of our operating expenses are related to product development and technical teams. Thanks to the groundwork laid during our AI transformation since 2023, we have completed the foundational AI product development and service system, while maintaining a good discipline in ongoing development. Those structural improvements directly drove the release of operating leverage, enabling us to achieve over USD 11.0 million in GAAP net profit in Q1, more than double that of last year's full year; Non-GAAP net profit reached USD 19.3 million, a nearly 60% year-over-year increase, with a Non-GAAP net profit margin of 25.8%. These metrics provide strong support for the company's future business operations, capital expenditures, and shareholder returns. That concludes the brief overview of Q1 financial performance. Q1 is typically an off-season for the industry we serve, so we usually focus our efforts on exploring ideas and opportunities across our product lines. Next, I will talk about some key moves we made in our business over the past few months. As we anticipated at the beginning of this year, 2025 marks a structural transformation year for the entire industry to embrace AI. AI is penetrating various industries at unprecedented speed, and for Tuya and the smart sector, this presents a clear window of strategic opportunity for the future. Although the physical nature of hardware devices means that the commercialization of AI capabilities on devices is a gradual and long-term process, technical and product reserves in software can take the lead-and that is precisely our strategy. So first, we are committed to foundationalizing and generalizing the AI capabilities needed in the smart era to solve real end-user's problems and issues. This allows developers to select whatever they need based on their commercial goals and product designs, thereby promoting AI adoption. Focusing on four core areas-model integration, hardware development, edge deployment, and open-source ecosystems-we released our four core engines at the end-April developer conference globally: Tuya AI Agent Development Platform, Tuya.AI, TuyaOpen, and HEDV. The Tuya AI Agent Development Platform significantly reduces the technical threshold for developers to access any mainstream large language model and build various intelligent agent functions such as semantic understanding and image recognition. So that is for the agent development. Tuya.AI is the second one, provides a full-process toolchain from high-performance edge AI modeling to smart cloud deployment, greatly lowering the difficulty and cycle time for AI hardware development. TuyaOpen, as our open-source framework, enables developers to perform differentiated development innovations and integrate into the Tuya ecosystem. The Hedwig platform offers a controllable and secure edge AI computing environment for enterprise customers requiring localized deployment, data platforms and compliance. This entire system forms the technical foundation of our AI platform capabilities and provides a solid support for the large-scale implementation of AI products in the long-term. At the same time, we are increasing investment in the developer ecosystem around TuyaOS, TuyaOpen, and the T5 AI development board, initially establishing a "content + tools + community" triad framework for developers. Since the developer conference, we have released eight open-source DIY projects-such as open-source desktop pets, AI voice boxes, and AI robots-aimed at building a developer creativity incubation system. Our T5 AI development board has started to be adopted through collaborations with multiple developer platforms and communities, and our AI developer community has grown by more than 10,000 new members. Next, we are also committed to identifying product-specific opportunities and driving customer product launches through Smart Solution offerings, directly increasing our revenue and gross profits and achieving high-quality commercial conversion. For example, in the energy domain, we launched the Conow AI Energy Assistant, which features strategy recommendation, power generation forecasting, load identification, and energy consumption diagnostics. Combined with supporting hardware such as all-in-one energy storage systems, circuit breakers, and energy data collectors, it forms a comprehensive integrated hardware-software solution, primarily targeting the European and Southeast Asian markets. In video-related AI products, we continue to advance the AI capabilities of smart screens and video devices, focusing on models for detecting objectives, vehicles, birds, and flames, combined with sound recognition and anomaly detection, to build integrated hardware-software general protection solutions that cover basic home safety needs and extend to semi-commercial scenarios like hotels and real estate. In the meantime, we are also actively promoting external ecosystem collaborations to amplify the enabling effect of the AI platform. For example, in Q1 we partnered with Volcano Engine under ByteDance to integrate the "Doubao" large language model into the Tuya AI Agent Development Platform, further enhancing the multimodal understanding and interaction capabilities of our AI Agents. In addition, we are collaborating commercially with leading players in retail and maternal-infant industries to jointly develop smart hardware such as AI wearables and home robots, advancing the application of AI in children and family scenarios. Collaboration with upstream and downstream partners will further enrich our capabilities and ecosystem scope, strengthen Tuya's strategic depth in the smart hardware sector, and create exemplary projects that global developers and customers can refer to and replicate. Although the AI hardware ecosystem, community, and product developments are still in their early stages, we believe that explorations in functionality, experience, and business models will open up space for Tuya's and the industry's future business expansion, laying the foundation for new engines of long-term growth. The above is our sharing on Tuya's Q1 2025 financial performance and recent company developments. Although there has been partial improvement in the external environment recently, uncertainties remain. In response, we will continue to operate diligently and adhere to a long-term approach of technology-driven and platform-enabled development, laying a solid foundation on the AIoT track, continuously capturing industry certainty trends, and creating long-term value for Tuya. Finally, a piece of good news: MSCI recently updated our 2025 ESG rating from A to AA. Particularly, in the field of security and compliance, Tuya achieved a full score of 10 points thanks to its extensive compliance experience and thorough framework. We believe that whether in business, operations, or emerging areas such as ESG, steadfast progress will bring rewards and recognition. Thank you all. Operator, we can begin the Q&A session. Thank you. We will now begin the question-and-answer session. (Operator Instructions) We will now take our first question from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang. Morgan Stanley, Analyst Okay, thank you for the opportunity to ask questions. I have two questions here. The first one is regarding the AIoT development, Tuya's development platform. Could management share what kind of AIoT hardware is doing well in terms of the shipment, or is there any signpost that we have observed what kind of AI hardware can outperform relatively fast? The second question is regarding the customer's behaviour in the past one or two months, given the huge volatility in tariffs. Could management share what the customer is doing in the past two months? Thank you. Co-Founder, CFO & Director Yes. So thank you, Liu. So, for the first questions, what we see here for the AI sectors, we find that there will be two major directions that show more interest. The first one is that the audio and the video interacted experiences. So one example is the Bird Feeder. We mentioned that, I think, in the past quarter. So to be able to help people to recognize the wild lives and to interact with it, and that will be one thing. And the second one -- second typical use cases would be like the toys or any type of use case for kids that use the larger language models and capabilities that you can have a new way to interact with the kids, show as education, as entertainment, and as accompany as well. So that would be the one. And so, recently, an update about the kids is that in China, we already signed a strategic partnership with Haiziwang, which is a top-tier toy group in China. And we're looking forward to helping them to launch the production to the market pretty soon. And so that'd be one thing. So any type of audio, video, new interactive experience based on larger language model. And the second is on the data-based dynamic decision making. So one typical use cases will be the energy management system for our core now. And through that, the AI agents based on the new modelling will be able to continue to not only collect and analysis all those data from either the energy generators, but also from the energy consumption devices. But also at the same time, the agent will be able to come out different type of strategy and turn that into the specific actions and continues to re-analyse the new strategy and improve that. So that can help to do a lot to improve the energy efficiency, no matter it's saving the total consumptions, being more greener, or saving the energy bill directly. So that will be the two very typical trends that we found that to show more interest and have more short-term interactions coming directly from the customers and to the market as well. So that will be the first question. And the second one, yes, the tariff has become a major topic for the entire market, not only the United States. So in the past four or five weeks right after the new tariff topic raises, I think the very direct reaction from the customers is that every people on the international trading pipeline become more conservative and hesitant because nobody knows what comes out. So right now people are waiting for some certainty. And even now we have 90 days of certainty between China and the U.S. So people are trying to do some very careful decisions based on the 90 days terms. But I think in the longer-term, we need to wait for the final answers between the national negotiations. That would be one thing. But I have to mention that for the short time, every people are slowing down or become more conscious about any proactive or aggressive decisions. But the unique business model and the value proposition of Tuya is that the first one, the tariffs are not directly acted on us because what we deliver will be a portion or key component and technology, especially the software of the finished goods. So the tariff is more directly related to my customers, either my brand customers or my manufacturer customers. So that would be one thing. So we are indirectly connected. And the second one is that, for us, in the past couple of years, what we have been doing is we just follow the flow. If there is the trend that the entire global economy is re-localizing the manufacturing supply chain, we just follow the customers to do that. We do not have to stick to one or some specific manufacturers in specific locations. So right now, the manufacturers are already covered over the countries out there. That would be the second one. And the third one is that so the tariffs are majorly focused on the finished goods. And the software is only a portion of the cost of that goods. So that would be -- that's one. But for the tariffs, for us, that will pay more attention on the macro impact. So starting from the buying forces demand impact on the U.S. Market, so whether that will bring into the retail price raising and to lower the buying forces for the end-user of the American barrels, and also that whether that kind of single-nation economy impact is going to bring a wider multinational macroeconomy slowing down or recessions. So I think that will be the more long-term. Thank you. (Operator Instructions). We will now take our next question from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy. Goldman Sachs, Analyst Thank you for taking my question, and congrats on the very strong quarterly results. Two questions here. The first question is on the AI monetization. Wondering how - in which area that Tuya would like to plan to monetize the opportunities brought by AI? And what is the difference in terms of the pricing model and cost between the new IoT product services versus the traditional IoT path services that you provide? And secondly, it's on your full year and second quarter outlook on revenue and profitability. Could management share any color? And specifically, on the IoT PaaS segment, we have seen very steady upward trend in gross margin of this segment. Could management provide an outlook for this segment as well? Thank you. Co-Founder, CFO & Director Yes, thank you. I think that for the first question, it's a good one. That's all my customers have been asking at the end of last year. So what Tuya is offering for the AI capabilities to the customers, that's we seamlessly integrate the AI capability into my existing three business models. So I still offer that as a PaaS or as a solution. So for the customers, we'll be very, very friendly. They don't have to be educated for a new type of business model and how to mix that with their existing one. So it's like a seamless transition. And for the AI income that even I offer as that, maybe it's AI-empowered new PaaS or AI new SaaS that we will consider some of the repricing. Some examples are that, recently, we offered for the audio-interacted AI based on the LLMs. So the PaaS pricing will be different than my regular PaaS in the same category. So that will be one. So we are looking for that either we use the seamless AI offering to speed up the penetrating of the entire smart devices, penetration in the global market, or we use that to reprice some of the offerings. So that will be one thing. And so, also that will be very easy to continue to enlarge our partnership with upstream providers because right now the major, like the larger language model are provided through the major cloud guy. So this is the same way like how we cooperate with them on the cloud infrastructures. Right now, we cooperate with them in the same model with the larger language model. So that will be the first answer for the first question. And on the second one, yes, that's combined with a tariff. Even we don't involve in the international supply chain or trading business directly, but we are very deeply integrated into that part. We are a core part of that. So the tariffs indeed bring the short-term bumping about the demand cycle. So I can describe that very typically in the major weeks of April for all those kind of order shipments to the United States. And a lot of people, most people, put a pause on that and wait and see until the two countries make agreement. So we're seeing that this tariff topics globally, majorly from China and U.S., but also side impact into the Southeast Asia and Mexico and possibly Europe as well. So that type of tariff topics will bring a bumping ride, and in the short term, maybe in a quarter or two. It depends on how soon that we can make agreement and provide the certainty for the commercial, for the commerce world, right? All the businessmen are waiting to see how -- what type of price they can pay extra and how they can absorb that. So, for the short-term, there will be a bumping. But it's not the first time we've experienced that. So this kind of new tariff terms challenge is really starting to take place since 2018. But this seems like the harsher bumping point. So for the short-term, there's still uncertainty for that. And even U.S. market only covers less than 20% of our overall business, but that's still 20%. So that uncertainty. It's the same for us and my customers. We just wait and see. And every people are trying to take more careful actions and decisions every single day or week. So that's what we see. Then challenge exists. But for the long-term, we believe that in a year or next year, I mean, right after the negotiations being settled and the entire demand and penetrations will put it back into the normal model. And all the buying cycles and GTMs will get into the normal cycle again. So that would be what we see for the short-term. And for the past margin, I think that the past historical records have already proven that we take the high value propositions of an entire industrial cycle. And we're good with it and we're satisfied with that. So, for us, is that we don't have that strong or we don't think it will be very necessary we have to continue to push the margin into a higher cycle. Because we'll really be in the highest value proposition in the entire one, including my suppliers and my customers. We really take a very high position for that. So we think that the key part is to maintain the position, but also at the same time, be able to motivate either my suppliers or my customers to continue to invest in these sectors. I think that will be more important for us. Because their activity will ensure that we're continuous to improve the penetrations, continuous to find more innovations, to turn that into reality, and bring that into market. So for the past, we think that it will be fine for us just to maintain at the right range --for us how to do that in past two or three years. So we're satisfied with that. We don't have to ensure pushing to the next level. Thank you. (Operator Instructions) We will now take our next question from Kai Xiao from CICC. Please ask your question, Kai. CICC, Analyst So, thanks, management, and congratulations for the strong quarter. I have two questions. First, could you share the progress of your cooperation with Singapore and Chile? And any similar projects can we expect in the coming quarters? And second one is, could you share the geography expansion to AI developers? And is there any difference on the development of AI applications between domestic market and overseas market? Thank you. Co-Founder, CFO & Director Yes. So, thank you for the questions. So, the first one is talking about the Singapore use cases. I would like to put it into wider coverage. So, Singapore use case will be a typical progress we'd like to take in places for the commercial or industrial AIoT solutions. So, the partnership we had or the contract we signed with the Singapore government is from the HDB. So, it's Singapore Home Development Bureau. And they're managing over 1.4 million Singapore public apartments. So, the majority of Singapore citizens living in the government-provided rental apartments. And it's HDB management. And what we're offering is that it's a centralized energy management platform that helps them to enable not only censoring the different consumptions in each of the apartments that might contribute a significant consumption of the total Singapore nation powers. But also, we offered them some controllers to help them to identify how each of the households has been using the power, through what type of devices, by what purpose, and then through some AI-enabled modelling and control actions to reduce that. And through our over one-and-a-half-year POC with HDB, before we signed the contract, there will be significant reductions about total consumption of the powers, which can help the Singapore government to reach if they want to be the pioneer of ESG nation or smart nation. So that will be one. And the HDB's plan is that we're really finalizing the deployment implementation of the entire platforms, and we're really starting to produce the first shipment of the devices, the energy hub in the home. And so, the first implementation of the software platform and the hardware into the first part of the household will take place around the end of Q3. And their plan is to be able to finish the Phase1 entire penetration of the homes in three years. So that will be one stop. And we are very excited about it, because that will be sure that not only providing our DIY devices to penetrate in-homes improvement through those kinds of decentralized devices, but we should be able to provide a centralized solution through the right channels like HDBs to help entire regional end-users to improve their lives. So that will be one. And also, we found that using Singapore as a perfect use case spot, we'll be able to duplicate that and to influence that the other Southeast Asian countries, like the rental apartments, like what we call spatial management solutions, and really show a good potential of growth in Southeast Asia. So that's one thing. And not only for the apartments management but also will really penetrate quite well in some of the telecoms players in that area, too. So that will be one thing. And also, at the same time, two weeks later, we will open our new Singapore offices by providing more local resources to support our customers' penetrations, implementations, but also, at the same time, to search for all business opportunities in that area and expand into global market. So that would be the answers for the Singapore parts. And yes, so that's it for that. And then for the -- So the second one is about the returns, right? The shareholders' returns, right? CICC, Analyst The expansion of AI developers and the difference between domestic and international. Co-Founder, CFO & Director So, yes, so the AI developers, what we hear is that I think it's just started. I think right after the DeepSeek expansion in January. And so the first one is that we find a majority of my customers and developers are reaching out to us asking about all the AI capability offering. Because in the past, on the recognition side is that they know AI is there and a lot of news about AI, but they don't really think that the AI offering will be connected to their existing business. Either it's more expensive, too expensive, unaffordable, or it would be too difficult. So I think that right after the Deepseek exposure, both in America and the China market, every customer is aware that they can bring AI into the physical use cases. And then I think the first one is that we get so many calls. And then we use that time windows to either launch our new platform, the AI agent development platform, but also to hold our -- to launch that at our developer conference. So that brings up very positive and very active feedback. And so, right now, the AI developer penetration is that we're starting to educate those customers who call us. And by telling them what capabilities are out there in the platform and how they can develop upon those capabilities to turn that into the real devices use cases. It's more like an educating period. And right now, we see that the demand comes from the global market. So majority of my major or key customers, either from Europe, from America, from Latin America and Southeast Asia. So those customers have very strong retail channels or have very strong brands who can do quite well about the end users' educations and marketing. So those customers will be the major cost on the demanding side. And on the technical development side, so in two parts. The first part is that those ones who are focused on turn the AI or integrate the AI capability into the device. So it's more following the right penetration on the device development and manufacturing. So maybe a bigger portion come from mainland China, but still we got multiple one from Korea, from Turkey, from Southeast Asia, too. So that's following that perfectly fit the penetration about the hardware manufacturing deployment. That's the first one. And the second one is about software. So software I'll say that it's more diversified. And either it's through different type of software innovators through the MTP protocols and more come from the mobile internet and developer ecosystem and also the cloud-based developers and who come through the cloud infrastructures into us. Yes, so it's more diversified on the global basis. I think that's for the first quarter or including till now, it's showing the Phase 1. It's about the recognition about capability, education about the developer kit and then -- and a lot of prototypes POC and demonstration deployment. All right. Thank you. We will now take our next question from the line of John Roy from Water Tower Research. Please ask your question, John. WaterTower Research, Analyst Yes. I have a slightly different question. I was wondering if you could give us any insight into how you're using AI internally, internal processes, documents, code development, et cetera. And if that can really possibly increase margins and decrease costs going forward? Thank you. Co-Founder, CFO & Director Yes. Thank you, John. So -- and I think every single department within the company is trying to use different type of AI tools. I can take some of the examples, right? Like for marketing team, right now that majority of all the marketing resources we use are generated through AI. So we don't require a lot of labor-based designer to do that and including our operation team to do all those kind of online training webinars. I think the majority -- I think a big portion of the webinar contents are generated with AI too. And also, we have our TikTok live view to the end-users that AI helps a lot too. And that's the marketing side. And including, the legal and human resources side, we're using AI to help us either to do the research and review on the candidates' resume and with the key words that we identify, and also to help us to double-check with all those standardized contracts that come directly from the customer side to see that whether there's any modifications, et cetera. So use that to improve the efficiency about the internal processing of either the HR and legal process. So that would be one thing. And another use case is about the development, for sure. We're using AI toolkit, different UI kits to do the project management and analysis -- analysing about the progress of the development and the coding, double-checking, debugging, pre-setting, and maintenance of the cloud infrastructure. So what we call the auto-patrolling on the maintenance of the cloud services as well. Yes, so that would be typical things. We believe that in the future, like we mentioned, not only providing the AI capability to help the customers to build more commercialized or more a higher ROI product, but also in the same time that we continue to use AI internally to improve our operation efficiency. And so, either lowering the cost of the operation, or to increase the income to our customers to enhance our lab operating average. That would be some basic examples. WaterTower Research, Analyst Excellent. Thank you so much, and congratulations on the quarter. Co-Founder, CFO & Director Thank you for that. Excited about the long-term future because this is the only very starting point for the AI penetration for the physical world. Very, very early. We're very excited about that. All right, thank you. There are no additional questions at this time. I'll now hand back to the management team for closing remarks. Investor Relations Director Okay. Thank you, everyone. Thank you, operator, and thanks for all of you for participating in first quarter call. So see you next quarter and have a nice day today. Bye. This transcript is a written record of the conference call and has been prepared to the best of our ability. Please note that speakers during the call may make unintentional errors, and this transcript may correct such mistakes where identified. Corrections are clearly marked as [correction] for transparency. While we strive for accuracy, there may still be errors, omissions, or inaccuracies. We strongly encourage you review our SEC filings to ensure a comprehensive understanding.