Good day, thank you for standing by. Welcome to Kingsoft Cloud's second quarter 2022 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 one on your telephone. Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to Ms. Nicole Shan, IR manager of Kingsoft Cloud. Thank you. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining us today. Kingsoft Cloud second quarter 2022 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as our global newswire services. On the call today from Kingsoft Cloud, we have our Vice Chairman and CEO, Mr. Tao Zou, and CFO, Mr. Haijian He. Mr. Zou will review our business strategy, operations, and the company highlights, followed by Mr. He, who will discuss the financials and the guidance. They will be available to answer your question during the Q&A session that follows. There will be consecutive interpretation. All interpretations are for your convenience and reference purpose only. In case of any discrepancy, management statement in the original language will prevail.
Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and as defined in the US 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 and 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 US SEC.
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, Mr. Zou. Please go ahead.
Hello, everyone. Thank you all for joining Kingsoft Cloud Second Quarter Earnings Call, and it is my great pleasure to be with you today. For a long time, I have been involved in the overall management of the company as Vice Chairman, and that experience has given me in-depth understanding of the company's strategy, business and team. Since taking over as CEO in August, I have been in close communication with the board of directors, the management and the core team to discuss our development strategy and conduct a strategic evaluation of our business under the current new circumstances. At the same time, I have also performed a deep dive into our frontline business operations and made visits to our customers and partners. I am delighted to report that the senior management team remains stable and committed, and our day-to-day business operates as usual.
Now, I would like to share some thoughts on our business before briefly taking you through our performance for the second quarter. Since Kingsoft Cloud's incorporation, we have established several core strategies as our business developed.
The first one is to focus on and explore core industry verticals with great potential, including the Internet, finance, healthcare, and public services sectors, and develop landmark projects and industry-specific solutions. The second one is to further advance our products and technologies, enhance long-term relationships with customers through superior services, and help our customers grow. Third, we firmly adhere to our neutral position to provide customers with long-term trusted cloud services amid multi-cloud landscape. Fourth, we seek to enhance our professional solution and project deployment capabilities, including integrating with the resources from Camelot and the wider ecosystem to provide customers with one-stop digital transformation services. Through the implementation of these strategies, we have been able to achieve rapid growth, generate annual revenues close to RMB 10 billion, and strive to become a first-tier cloud service provider.
尽管2021年下半年至今，受外部环境的影响，公司业务受到不小的挑战，但我们也明确看到了各行各业数字化转型带来的中长期发展的机遇。近期麦肯锡的报告显示，中国云计算市场已成为仅次于美国的全球第二大市场。公有云市场规模将从2021年的USD 320亿增长到2025年的USD 900亿。十四五规划也明确提出，打造数字经济新优势，加强云计算系统和软件的核心技术一体化的研发，着力发展智慧医疗、智慧公共服务等应用场景。此外，行业云客户对端到端云解决方案和服务的需求也不断增长，这些都是推动云服务市场长远发展的强大动力。
Despite the challenging external operating environment since the second half of 2021, we have also seen clear medium to long-term opportunities brought about by digital transformation across industries. According to a recent McKinsey report, China has the second-largest cloud computing market in the world, behind only the United States. China's public cloud market is expected to grow to $90 billion in 2025 from $32 billion in 2021. The 14th Five-Year Plan has also made a clear call to build digital economy advantages and holistically strengthen the research and development of cloud computing systems and core software technologies, particularly in smart healthcare and public services. In addition, there has been a growing demand for the end-to-end cloud solutions and services from enterprise cloud customers. All these serve as powerful drivers for the long-term development of the cloud service market.
现阶段，我们直面这些挑战，迎难而上，坚持技术立业，通过技术力的提升带动产品力的提升，产品力的提升带动销售力的提升，最终形成企业竞争力。做好核心技术和产品，就能在多变的市场环境中立于不败，就能实现公司的长期可持续发展，为我们的客户、股东、员工创造更大的价值。未来我们将更加聚焦于计算、存储、网络、大数据等核心产品技术领域，增强产品力，更加专注于提供有极致体验的可复用标准化产品。
At this stage, we are facing the challenges head on. As we do so, we will keep our original aspiration of building business led by technology firmly in mind. Technology strength leads to product strength, which will in turn drive our sales capabilities and establish overall competitiveness. As long as we excel at our core technologies and products, we will be able to hold our ground amid the highly dynamic environment, thereby achieving the long-term sustainable development of the company and creating greater value for our customers, shareholders, and employees. Going forward, we will focus more on core technology areas including computing, storage, networks, and big data, enhance our product strength, and focus more on scalable and replicable products that deliver the ultimate customer experience.
业务发展方面，我们会继续深挖垂直行业，同时适当探索新的领域。一方面，互联网、金融、医疗、公共服务是公司当前业务的基本盘，已有深厚的积累。我们会继续深入挖掘这些行业，提炼可复制的产品和服务，平衡规模和利润。另一方面，我们不放弃对新领域的探索。我们会基于小米金山生态的优势，不同领域的云计算需求的场景以及可复用的产品技术，审慎地对拟进入的行业进行战略判断，稳步开拓新的增长空间。
In terms of business development, we will continue to focus on penetrating selected industry verticals while cautiously exploring new areas. On one hand, the internet, finance, healthcare, and public service sectors are the pillars of our business, where we have accumulated in-depth expertise and experience. We will continue to focus on these industries, refine our replicable products and services, and managing the balance between scale and profit. On the other hand, we won't give up exploring new areas. We will capitalize on the advantages of the Xiaomi and Kingsoft ecosystems, as well as our replicable technologies and products to steadily open up new space for growth after prudent strategic analysis of potential new verticals prospects for cloud computing.
销售方面，我们致力于打造整体解决方案驱动的销售模式。与美国等成熟的云市场不同，中国广大传统行业业务场景复杂，数字化起步较晚，云计算行业生态也仍待完善。因此，客户无法通过对云产品的简单采购和组合满足业务发展的需要。针对这一普遍痛点，我们强调从中国客户的实际需求出发，不以产品销售为导向，而是通过有机整合金山云自有产品技术、合作伙伴产品技术以及客户等社会资源的交付能力，向客户一站式交付解决方案，输出实在的价值。
In terms of sales, we are committed to engaging with customers through a model driven by integrated solutions. Unlike in mature markets such as the United States, many of the traditional industries in China have complex business scenarios and are late starters in digitalization. The cloud computing ecosystem still has a long way to develop. As a result, customers cannot satisfy their business needs by simply purchasing and combining cloud products. To address this common pain point, we adapt to the Chinese customers' point of view. In other words, instead of being product driven, we adopt a turnkey solution-driven approach by integrating our own proprietary products and technologies, our partners' products and technologies, as well as Camelot deployment capabilities, delivering one-stop solution with readily accessible and tangible value to our customers.
最后，以及非常重要的一点，我们要加强战略股东与公司在数字化发展过程中的协作。金山云作为小米和金山集团的重要参股公司，一直为战略股东提供优质云服务，也得到战略股东的大力支持。未来我们将全面协同各方在数字化、研发、销售等多个维度的合作，促进金山小米生态的发展壮大，合作共赢。
Lastly, and very importantly, we will ramp up collaboration with our strategic shareholders as we all embrace the digitalization trend. As an important Xiaomi and Kingsoft Group portfolio company, we have always offered quality cloud services to and in turn received strong support from these two strategic shareholders. Going forward, we will explore collaboration opportunities across various dimensions, including digitalization, research and development, and sales to promote thriving Kingsoft and Xiaomi ecosystems in a win-win manner.
以上是我们对战略的思考。在执行的过程中，我们也将继续对战略进行完善，并且积极与大家进行沟通。在此，公司非常感谢一路支持公司发展的客户、股东、员工和生态伙伴。公司将会继续聚焦发展，为大家带来长期价值的回报。
These are our thoughts on strategy. We will continue to make improvements and maintain active communication with all stakeholders as we implement our business strategies. On behalf of the company, I would like to thank all our customers, shareholders, employees and ecosystem partners for their steadfast support at every stage of our journey. We will remain focused on development and committed to delivering long term value to our stakeholders.
接下来我将回顾第二季度的业绩情况。二季度总收入为人民币19.1亿元，公有云为12.9亿元，其中公司主动调整了CDN的服务规模，而除CDN以外的计算存储业务同比增长约5.3%。行业云收入为6.2亿元，同比持平，但低于预期，主要由于线下交付受四月至六月之间全国范围的疫情影响，导致项目的延期。本季度调整后毛利润为人民币6,841万元，调整毛利润率为3.6%，调整后EBITDA利润率为负的7.7%。利润水平下滑主要是由于收入受到疫情等因素的影响，较公司预期更为严重。虽然公司在控制成本方面取得成效，但收入不及预期，从而影响了利润率的水平。尽管公司短期业绩受到明显压力，公司董事会管理层对未来发展坚定信心，积极进行运营调整，以应对现阶段的挑战。
Now let me walk you through our performance in the second quarter. Our total revenues were RMB 1.9 billion in the second quarter. Revenues from public cloud was RMB 1.3 billion, primarily due to the company's proactively scaling down of CDN services. Excluding CDN services, computing and storage services increased by 5.3% year-over-year. Revenues from enterprise cloud amounted to RMB 620 million in Q2, largely stable from the same period last year, but lower than our expectation. This was primarily due to the resurgence of COVID between April and June, which slowed down project deployment process. Our adjusted gross profit this quarter was RMB 68.4 million, representing an adjusted gross margin of 3.6%. Adjusted EBITDA margin was negative 7.7% this quarter.
The decrease in margin was mainly due to the impact on revenue from COVID resurgence, among other factors which were more material than our previous estimates. Although our cost saving measures yielded remarkable results, our profit margin decreased due to the lower than expected revenues. Despite the significant short term results pressures, our board and management team are committed to long term development, actively managing our operations to face current challenges.
业务方面，在互联网领域，公司为西山居的剑网3缘起提供全量服务，包括算力、数据库、分发等，保障玩家流畅的游戏体验。本季度进行了WPS在公司天津自建IDC的机柜部署，实现了WPS多活中心建设，满足业务高可用、高可靠，业务连续性得到多重保障。另外，本季度与电商平台本来生活签署合约，将开始为客户提供全站上云迁移服务。与出行科技公司四维图新合作，提供稳定可靠的云计算服务，共同为汽车行业打造覆盖IaaS、PaaS和SaaS的联合解决方案。
On business front, in the Internet sector, we provided exclusive and a full spectrum of cloud services for JX3 Origin, Seasun Games blockbuster MMORPG, including computing power, database, and delivery, enabling a smooth gaming experience for players. We also deployed multi active architecture for WPS at our proprietary data center in Tianjin, ensuring business continuity with highly available and highly reliable cloud services. In addition, in this quarter we entered into an agreement with Benlai, a Chinese eGrocery platform, to provide a full suite of cloud migration services. We also signed into a partnership with NavInfo, a Chinese smart mobility company providing reliable cloud computing services and jointly developing a one stop solution integrating IaaS, PaaS and SaaS layers for the automobile industry.
在行业云方面，公司在东数西算八大算力枢纽节点之一的粤港澳大湾区，重建数据要素化支撑平台建设，构建面向湾区广泛主体的数据流通支撑平台。通过平台提供数据清洗、综合治理、数据质量评估、预处理和安全合规数据共享能力。在另一枢纽节点甘肃，我们重建了一体化算力调度平台及庆阳算力资源调度中心项目，对外为省外客户提供东西协调的联合算力服务，对内为甘肃本地客户提供算力支撑。在公共服务领域，我们为海淀教育云投入高性能服务器、云主机、机柜和存储资源，保障疫情期间停课不停学。在金融领域，我们持续做深已有头部银行项目，输出银河云、大数据和存储等产品。以某头部股份制银行数据湖项目为例，借助数据湖，帮助客户实现了数据的历史存储和集成计算，支持高并发大规模的非结构性文件上传下载。同时，智能系统为全行数据分析人员提供自助分析和数据挖掘服务，显著提升了数据响应的效率。在医疗领域，我们围绕标杆项目推进五大模式，分别是以湖北省健康云为标杆的省级健康云模式，以江苏影像云为标杆的省级影像云模式，以江苏某地为标杆的……
Moving to the enterprise cloud business. As part of the Eastern Data, Western Computing project, which entails transporting data from different parts of China to the western region for storage and computation, we took the lead in constructing an underlying data platform for the Guangdong-Hong Kong-Macao Greater Bay Area, which is one of the eight national computing power hub. The platform will serve as the underlying infrastructure for broad entities data processing and analytics needs in the area. The platform is equipped with a number of functions, empowering data cleaning, comprehensive data governance, data quality assessment, pre-processing, and compliant and secure data sharing. At another national hub in Gansu Province, we developed the integrated computing power scheduling platform and the Qingyang computing resource scheduling center.
The project will coordinate computing power between the east and the west regions to enterprises outside of Gansu Province, while providing computing power for local businesses within the province. In public services space, we deployed high-performance servers, cloud hosts, server cabinets and storage resources for the Haidan Education Cloud, ensuring uninterrupted learning during COVID-related school suspension. In the financial services sector, we continued to deepen cooperation with top banks by offering additional products such as Galaxy Cloud, Big Data, and storage. Taking the Data Lake project of a leading commercial bank as an example, the Data Lake helps our customer carry out historical data storage and integrated computing, and supports high concurrency, large scale, upload and download of unstructured files. In the meantime, we built an intelligent system to provide all the bank's data analysts with self-service data analytics and data mining services, significantly improving data response efficiency.
In the healthcare sector, we continued to promote five models through our successful lighthouse projects, namely the province-level healthcare cloud model demonstrated in the Hubei Healthcare Cloud. The province-level medical image cloud model demonstrated in the Jiangsu Image Cloud. The municipality-level regional integrated model demonstrated in a city in Jiangsu. The city-county integrated healthcare organization model demonstrated in Chibi. The hospital-level model in Grade A tertiary hospitals in Wuhan and Jiangsu. Overall, the complex external environment has put our short-term performance under pressure. Despite the headwinds, we firmly believe that cloud computing is the foundation that drives digital transformation. We will remain committed to our all-in cloud strategy and stay positive about our leading position in the cloud service industry.
I will now pass the call over to our CFO, He, to go through our financials for the quarter. Thank you.
Thank you, everyone, and welcome everyone for joining the call today. Now I will walk you through the financial results for the past quarter. Our total revenue was RMB 1.91 billion in Q2. Within that, revenues from public cloud were RMB 1.29 billion. The changes were primarily due to the company's proactive scaling down our CDN business, with its gross billing decreasing by 30% on a YOY basis, while the gross billing from computing and storage increased by 5% year-over-year. Revenues from enterprise cloud was RMB 616.6 million. We managed to deliver stable revenues from enterprise cloud year-over-year as we navigated through difficult operating environment of COVID-19 resurgence across the country, which slowed down the bidding and the project deployment process.
The COVID-19 impact on our business between April and June was more serious than our previous estimates, as new biddings and the deployment process for enterprise cloud projects both slowed. Meanwhile, some of the internet customers paused their ad spending, and the dialogues with the new customers' leads were also affected this quarter temporarily, impacting our revenue growth. Nonetheless, our cost saving measures yield expected results, leading to a quarter-over-quarter decrease of RMB 252.6 million in total cost savings, and RMB 8.7 million in non-GAAP R&D and sales and marketing expenses. Our profit margin decreased slightly sequentially due to the slower than expected revenues. We expect such impact to be largely reflected in Q2 and Q3 this year. With the overall market environment returning to normal, we believe that our business will gradually begin to stabilize in Q4 and onward.
In terms of cost, total cost of revenue decreased by 12.1% quarter-over-quarter to RMB 1.84 billion. The IDC cost decreased by RMB 81.3 million from last quarter to RMB 1.03 billion this quarter. It mainly consists of bandwidth and cabinet cost, and a decreased trend was in line with our adjustment of CDN services. Solution developments and service costs increased slightly quarter-over-quarter to RMB 489.8 million. It consists of payments to our solution design, development, and services personnel. Depreciation and amortization costs remain stable at RMB 249.1 million. Fulfillment costs were RMB 24.7 million this quarter, which was in line with the trend of enterprise cloud services revenue. Due to the impact from COVID lockdown, offline deployment has been stagnant.
Fulfillment costs present the costs of purchasing technologies, products, and services from third party to fulfill the demands of our solutions. Other costs were RMB 48.6 million this quarter. The adjusted gross profit of this quarter was RMB 68.4 million, representing adjusted gross margin of 3.6% this quarter. Adjusted EBITDA margin was -7.7% this quarter. The decrease of margin was mainly due to the impact of revenue from COVID resurgence among other factors than our previous estimates. In terms of expenses, excluding share-based compensation, total adjusted operating expenses were RMB 507.0 million, decreasing by 3.1% from RMB 523.2 million in Q1. Within that, adjusted R&D expenses was RMB 190.8 million compared with RMB 221.7 million last quarter.
Adjusted selling and marketing expenses were RMB 120.1 million compared with RMB 127.6 million last quarter. Adjusted G&A expenses increased slightly from RMB 174.0 million last quarter to RMB 196.1 million, which was primarily due to the one-time off compensation expenses for personnel adjustments. As of June 30, 2022, we had cash and cash equivalents and short-term investments amounting to RMB 5.4 billion, providing us sufficient liquidity for operations. The capital expenditure for this quarter was RMB 450.9 million, which primarily consists of cash payments for the servers we ordered previously. For the full year of 2022, we expect to keep our total CapEx plan in the range within RMB 1.5 billion.
In terms of the share repurchase program, we are pleased to announce that we intend to adopt a share repurchase agreement with potential size no more than $30 million during a 90-day window, subject to agreements to be finalized with the repurchase agent. This action is pursuant to and a part of the $100 million repurchase program authorized by the board and announced earlier in March 2022. As usual, the timing, structure, and the dollar amount of repurchase program will be subject to, among others, the market conditions, terms to be agreed with relevant repurchase agent, the trading prices of ADS and the relevant securities rules and regulations. We believe this demonstrates our continued and our unwavering efforts to align share price with long-term value of the business.
Finally, we are on track with our Hong Kong Stock Exchange listing plan and submitted the prospectus and A1 filing on July 27. Despite recent positive progress in the negotiations on the final U.S. auditing cooperation, we continue to seek dual primary listing status in both Hong Kong and the U.S. to proactively manage potential risks. We will closely monitor the market dynamics and proceed prudently at the right time. The final listing decision and timeline are subject to both regulatory approvals and the market conditions. Looking ahead, we expect our total revenue to be between RMB 1.95 billion and RMB 2.15 billion for the third quarter of 2022, representing a quarter-over-quarter increase of 2.3% to +12.8%.
All these forecasts and comments above are based on our current and preliminary views of the market and operational conditions, which are subject to change. Thank you.
This concludes our prepared remarks. Thanks for your attention, and we are now happy to take your questions. Please ask your question in both Mandarin and English, if possible. Operator, please go ahead. Thank you.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. Please stand by while we compile the Q&A roster. Once again, it's star one one for questions. Our first question comes from the line of Brian Gong from Citi. Please ask your question.
然后另外一个，刚才我们有提到就是说，企业云这边的招投标的速度好像是慢了一些。想问一下我们现在就是这两个月看到的情况怎么样，以及我们预计全年的一个情况是接下来剩下的几个月会是怎么样一个情况，以及对我们的收入的一个影响。Thanks management for taking my questions. I have two questions.
First is that regarding our third quarter revenue guidance, can management give the assumption of the revenue scale of public cloud and also the enterprise cloud. Secondly, management just mentioned that you see the slower bidding profiles of enterprise cloud projects. How is the latest trend in recent months and how do you expect the tendering pace in the rest of the year, and how would that impact your revenue ahead? Thank you.
Thank you, Brian. I'm happy to take on the first question. 感谢我来回答可能第一个问题，关于三Q的管理层指引。然后 to start with, as we explained, I think the Q2, especially the COVID impact in the city of Beijing, affect quite a lot of the business deployment process. Looking to Q3, I think there are something unchanged. There are something that we executed on track, and there are something still with some uncertainties. I will kind of elaborate one by one. First of all, I think our plan to keep a relatively scaling down size of the CDN, this plan is no change, which were communicated earlier this year. If you look at the dollar value and the total size of the business, I think in Q3, our CDN business will keep a relatively stable, but on a YoY basis will be still around about 30% or about 25%-30% YoY decline for the CDN business.
And for the core part of the public cloud, which actually we're providing services on storage and computing to the key internet clients as well as some diversified non-internet clients who are using our public cloud, which also we are seeing that as a very positive sign. I think for that part, we are going to see a sequential increase of the public cloud usage on cloud computing and storage in Q3. I think that will see some trends actually picking up.
On enterprise, we keep relatively prudent and cautious in Q3. As you probably understand, the enterprise cloud will need to have some phases to be deployed and finally executed. When we look at our backlog, it's still very strong and robust and the core part of the backlog for this year, given the timing and the pacing, I think the majority of that important projects will be completed in Q4 for this year. Even with that, I think in Q3, our enterprise cloud will have gradually a sequential increase compared with Q2 for the enterprise cloud.
That's actually form the basis of a sequential increase of the total revenue compared with Q2. The mix of the revenue will keep relatively stable. The CDN will be relatively lower. The enterprise cloud robust on the backlog, and most of them will be delivered in Q4. I think execution is still on track and the revenue conversion will take some time for this year. Thank you, Brian. 关于第二个问题，就是今年整个企业云的情况，包括后面两个季度的交付实施的情况，请周总跟大家做介绍。
正如你所说，包括我们介绍的一样，就是我们今年的上半年，尤其是四月份到六月份，这种疫情的影响，尤其是北京上海这两个核心城市的影响，就导致了整个行业在交付，以及在一些新项目的招标，都有一定的delay。所以呢，从我们目前观察到的情况来言，整个的这种商业的活跃度，肯定是在恢复。这个无论是从我们本身，还是从我们的客户那边。所以这一点是可以肯定回答的。也就是说，进到Q3、Q4，如果不再出现类似于Q2那种大面积的核心城市在大面积的疫情的情况下，我觉得这个恢复速度是可期待的。但是呢，实事求是地谈，就是整体今年整体的这种受疫情的影响，整个也当然也包括这种全球经济的这种，应该说是不是那么好的前提下，就是整个对行业云到底会有多大的影响。其实Q2已经肯定是影响到我们，就是从长远看对我们到底多大影响，这个我还是想很负责任地表态，就是这个我们现在是很难去做出一个更全面的预估的。至少呢，从上半年数据来看，其实大家也看到就是我们已有的这个互联网客户群体里头，其实还是受了很大的挑战的，这个我们谈到除了CDN是因为我们主动调减之外，其实在公有云我们其实这个增速还是没有达到预期，这个其实也是受整个大环境的影响，在这种大环境的影响下，我们本身的客户，业务本身也是承载了比较大的压力。因为我们本身呢，是给其他企业提供服务支持的嘛。就说白了我们的客户好，我们才能好。
这个，应该说是我们作为云服务厂商的一个逃不脱的发展模式吧。也就是说，我们是随着我们的客户的成长而成长的。所以呢，对于整个疫情的往后延续，对整体经济层面上的影响到底会有多深的延续，那个影响，我这里头只能说目前还不是很确定。
只能说从我们目前了解看到的情况，就我们本身的客户在七八月份的表现情况来看，这种压力还是会在一定时间之内还是会延续。对，好不好？所以，我就简单地就做这两个回答吧。
Okay。
好的，谢谢。非常帮助。
Right. Just briefly translate for me so as you rightly point out and as we reported in the prepared remarks. The COVID impact during between April and June, especially the lockdown in the core and top cities in Beijing and Shanghai has inevitably created delay of our enterprise cloud building and deployment activities in the process. Currently we can see for sure that commercial and business activities has improved. This is something that we can see. I would say that for the third quarter and fourth quarter, with the absence of other major top cities lockdown measures, we would say that recovery speed is something that we can be expected.
However it is still rather difficult to have a comprehensive estimate about the ongoing and lasting impact of COVID situation, especially under the backdrop that the global macro economy continue to be very weak and remain uncertain. As the nature of our business is a B2B business, if our customers performance are under challenges under the overall macro economic conditions, it is hard for us to deliver a much better result. Therefore I would say that at least from what we can see from business activities in July and August, the pressure, to be quite honest, we expect that pressure will be continuing for a period of time stretching into the future. Thank you.
Thank you. Next question comes from the line of Thomas Chong from Jefferies. Thomas, please ask your question.
Thanks, management, for taking my questions. My first question is about the competitive landscape in the public and enterprise cloud side. Do we see any changes in terms of the competitive landscape? For example, like we are seeing more new entrants. My second question is about the pandemic outbreak and the global headwinds that we are facing. We have just talked about that the macro situation globally is still very challenging. I just want to get some thoughts from management qualitatively speaking, when should we expect business back to the pre-COVID level and back to normal situations? Any color would be great. Is that really impacting the ARPU or the number of customers? My final question is about the timing that we should expect adjusted EBITDA to reach breakeven. Thank you.
我现在回答第一个问题啊，就是关于这个行业云啊，或者企业云在目前这个整个竞争格局的。这是一个好问题啊。你要是说从整个竞争的这个宏方面来看呢，因为我们也做了十年啊，说实话，我觉得没有本质的变化。为什么呢？就是从开始我们这个跟阿里啊、腾讯啊这个去竞争到现在，无非就是又多了个华为。对。所以呢，从这个意义上讲，我自己的理解啊，这个没有本质的差别，它都是怎么说呢，都是巨无霸吧。对，就是从整个的这个企业的规模或者这个各方面，这个我们其实把时间之内是肯定是没有办法跟我们这些去比的。其实我之前也讲过很多次啊，但是呢，就是我们过去十年的实践下来，能走到今天啊，并且在一些领域，包括医疗、金融，包括在一些互联网领域、视频领域，我们能够有自己的立足之地，并且甚至说在某这个在这几个领域呢，还相比我的竞争对手有一定优势啊。其实我之前在今天呢，记者会上我就讲过很多次，我觉得根源就在于本身 To B 这个，做 To B 生意的啊，它就很难一家通吃，全球放眼过去都是如此，因为它受本身的这个 To B 服务的这个企业特性啊决定，没有哪家企业能够服务于全天下的这个所有企业，它跟 To C 还是不一样的。所以我过去呢，经常喜欢用一个比方来简单地这个回答 Thomas 这个问题啊。Thomas 以前应该也听我说过很多次啊，就说好比别人跑马圈地啊，别人有二十匹马，甚至三十匹马，但是呢，我有三五匹马。所以呢，就是说，这个其实从目前这个竞争的十年上来看啊，其实也是如此的，就是可能我的竞争对手呢，他会在十个二十个行业他都有收获吧。但我呢，我觉得我们在我们自己的三五个行业领域里，我们深耕细作，我们一样，说实话发展非常迅速并且稳健。所以呢，我想这样来描述呢，Thomas，可能会最简洁，因为否则要展开来讲其实就很复杂。就是说白了就说 To B 市场很大啊，这个行业也，这个我们刚才也谈到啊，就在我在我发言里谈到说中国这个企业服务啊，它的难度啊，说实话啊，这个起步晚，数字化程度低，它绝对不是靠单纯产品销售，它是需要完整的方案，从 IT 到 PaaS 层都需要。所以呢，就是说你要进入到任何一个这个领域，都需要，说实话，不是说简单地派个销售卖卖标品，不是那么简单的，都需要深入进去，深耕细作，以你的客户啊，其实真的叫我们说要共创吧，其实真的叫共创了，从方案的共创到实施，到交付，到整个其实都是跟客户去共创。这个，这就决定了啊，说白了我刚才讲的那个，没有哪家企业它能够把所有的行业都做了。所以面对这么巨大一个市场，我们依然是一个跑马圈地的时代，啊别人马多，我的马少而已。但单独看我的三五匹马，事实证明我们是非常不错的，尤其在过去几年，我们在医疗金融领域，我们通过我们自己的这个实践，这个确实也证实了我这个观点吧。其实甚至在医疗这个领域，我们认为我们已经是遥遥领先了，啊，不仅仅是说这个把对手甩开，我们已经几乎甚至说对手基本上都已经不看了。对，所以呢，我们未来呢也会继续，我在我的发言也谈了啊，我们会把过去这种去打行业的经验，包括产品、这模式，服务模式，我们会进行提炼，未来我们也会继续去本着这个聚焦专注这种方式去挺进一个又一个的这个行业或者领域，好不好？第二个问题，反正 Thomas 听得好像是这种大的经济环境不确定性啊，什么时候能回到疫情前那个。说实话啊，就是，一场疫情呢，其实我个人认为啊，改变了很多吧。这个，从这个我相信我们每个人从衣食住行里，都能够感受到这个给大家带来的这个变化。所以呢，包括啊整个国际形势的这种变化。所以 Thomas，我个人认为啊，就是如果你只是说收入啊，或者怎么样啊，这个什么时候恢复到那个呢，这个我们相对还好，还好做一些。但是呢，你要是说这个全面回到疫情前呢，把我们的客户啊，我们客户组成啊，包括这个整个未来的这个收入比例等等，构成比例等等，我觉得其实是回不到过去了，回不到过去了。对，然后回到收入本身呢，反正，这里头 Thomas，我也想借这个你的这个问题吧，也可能很多投资人也会问的问题，我也想回答一下。其实，疫情对整个云啊，云这个行业带来的一个最大的一个变化啊，就是还不光是金山云，我应该说整个包括阿里，包括腾讯这些，其实是从过去的有这个收入啊，就追求高收入这个或者说追求收入的增高增长，到一个追求这个毛利甚至净利的一个转化的这么一个过程。这个是非常非常明显的，这个我个人也认为啊，这个跟疫情的影响也非常大，整个经济形势这个不太乐观。
整個社會的發展面這個也是放緩，所以導致對整個的——當然競爭也依然很劇烈。所以各家公司的發展策略是不約而同吧，都在做這種調整。尤其在今年我們觀察到了阿里也好，騰訊也好，在雲業務上的一些調整。這個本身呢，我們金山雲也會在這個大的發展策略上，我在我的發言裡頭也談到了我們的規模和利潤，我們也會尋求一種平衡。我們不會再像過去一樣簡單地追求一個收入的高速成長。所以從這個變化來看，我就很難回答你什麼時候能回到疫情前了。因為我剛才談過我們的發展的整體的思路在轉變，我們不再是追求簡單的收入了，我們更追求可持續發展性，更追求公司變成一個更良性發展的模式。當然也是，那個讓我們的投資人說實話心裡更踏實一點。話說回來，要麼先翻譯這個。我剛才應該回答完第一個就把他翻譯一下。
Let me briefly translate for Mr. Zou. In terms of competitive landscape, my brief answer is that from my perspective during the past 10 years since our inception, we believe fundamentally there's no material change in terms of competition, because as we started out, we were competing with Alibaba and Tencent Cloud business. More recently, there's the players joining the game, including giants like Huawei. Ultimately all of them are giant companies, whereby in any short period of time it is not likely that our scale can actually match with theirs. However, the fact that we have developed and grown rapidly in the past 10 years has shown that we have considerable comparable advantages, even in this market, in playing with the giants.
The one key reason is that the nature of the To B service industry is that selling single products does not really deliver value to the enterprise customers. The company has to jointly develop solutions together with the customer to really develop and deliver value to that customers. Therefore, it is never a winner-takes-it-all market for the To B service companies. A metaphor would be a horse race whereby our competitor might have 20-30 horses, while we focus deeply on the 3-5 horses, which can race really well.
I think in the past, especially five years, the growth of our businesses in particular in financial services and in healthcare has been demonstrating this point. In particular in the healthcare space, we believe our solutions and products are actually leading the game. I think in the future we will continue to focus on a limited number of verticals and to deliver our value to the customers. To answer your second question, it's actually very difficult for me to answer, you know, when or if we are ever going to be able to revert to a status before the pandemic.
It is quite apparent that the COVID has changed a lot of things prevailing from our daily life to larger geopolitical struggles. However, if you only refer to the revenue and financial aspect of it, I would say that the largest impact of the COVID situation to the cloud service industry in China is that the players in the market are shifting swiftly from the rather aggressive pursuit of top-line growth to pursuit of more balanced growth and profitability. We have observed our competitors, for example, Alibaba Cloud and Tencent Cloud, to adopt such adjustments, and we have also reported in the prepared remarks that we are also adjusting to a more balanced growth rather than emphasizing on revenue only.
We believe that this also gives more comfort to investors and other stakeholders, as we are, by doing so, switching to a more sustainable development model. Thank you.
Thank you, Jonathan. I will answer regarding the question you just mentioned, the third question regarding the December guidance on the profitability path. We understand earlier this year when we think about this year's total budget and the pacing of improving profit margin before the April and May of the COVID impact, our initial intention has two things. First of all, we want to actually improving the efficiency and cutting loss on certain nodes and regions, especially from the CDN business. Those are two major drivers that we set earlier to see improving sequential improvement of both gross margin and EBITDA margin. We budgeted for by Q4 on a single quarter basis. Hopefully our non-GAAP EBITDA margin will turn profit.
However, the COVID happening this quarter obviously affected the pacing of we implementing certain measures, and also the market environment also reduced certain demands for certain high quality products demand from certain customers. I think at this moment we are seeing flat, especially on the gross margin side for this quarter. Hopefully, I think we are seeing improving our gross margin, hopefully for the next two quarters. We understand that actually very important for ourselves, but also for the shareholders and the market to see our results quarter-over-quarter to improving gross margin that reflect the quality of the products and the value of our technology. However, I also wanna put aside that given our strategy today, as we discussed earlier by Mr. Zou, that we will continue and especially more focused on the investment into the R&D and the R&D personnel.
I think we'll make some adjustments in terms of our internal budgets on some high-quality products investments and the people investment in next two quarters that may affect certain R&D expenses and related expenses in those two items on a marginal basis. I think the expenses, the budgets always follow the strategy and the business demands and the visions. I think we've said earlier in the remarks today, we've laid out that clearly regarding the priorities we want to pursue in the next two quarters. As a result, I think I will have two attentions as a summary. First of all, we will try our best to improve the gross margin on a quarter-over-quarter basis.
This is no change. Point number two, we will make necessary investment into the R&D for next two quarters, and especially for high quality products. If that will have some impact, I think the timing of the EBITDA margin may be delayed or early or later. But again, I think it's only about the timing. I think if we make the right investment on the products and the customers, our EBITDA margin will turn breakeven, sooner or later. Thank you.
Thank you very much for all your questions. We have now reached the end of the question and answer session. I'll now turn the conference back to Ms. Nicole Shan for closing remarks.
Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact us. Look forward to speaking with you again.
Necessary investment into the R&D.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.