HenryHe : Hello, Brian. The first question you’re asking about probably information. I think, first of all, if you look at our Q-on-Q growth, if you remember last quarter, we created about RMB 600 million revenue for the prior 3 verticals in total. But I’d probably encourage you to look at into the sectors. Because in Q4, we delivered around RMB 784 million revenue, which is actually on a net to net on a Q-on-Q basis, it’s about RMB 180 million increase. And if you remember, in December last year in Beijing, as everyone probably remember, people on station at home and the city was basically affected by the COVID and pandemic in December last year. So if you put that into context, you will see that given that we have a solid relationship with our customers and we have a lot of constraints from an operational perspective, but we’re still increasing on a quarterly basis.
that actually prove our capability in a difficult time of execute, deliver and bolting on revenue on enterprise card, which actually demonstrate our technology and the client relationships. The second point I also want to mention is while on this quarter, we didn’t provide a color on the backlog, and I appreciate you didn’t ask that question, but we are hoping that going forward, we’ll disclose more information, especially in the backlog and new signing on the contracts on the enterprise cloud revenues. But I’m happy to provide some color is if we see the backlog at this moment, at this time, the backlog we have today will fully cover our potential budget for the NPS Cloud in the year 2023 for this year. And we’re still in Q1, so we’re hoping we’ll be increasing the backlog this year.
And we do have the confidence that we’re going to move into the more balancing of the growth and quality model, but the potential and the capability of the growth, we do have that confidence in our hand. And the third point, we also didn’t mention that in the prepared remarks, given we focus on the vertical and the customers, the repeating the percentage of the repeating customers in Q4 and Q3 last year has been increasing quite a lot, which means that even though you see about RMB 700 million revenue on a quality basis, but the percentage of that number coming from the same customer, but the different phases of projects increasing quite a lot and also give us a base that for next year and this year, next year, we can have the potential incremental revenue build on a solid basis.
And hopefully, for the next time in a quarterly earnings calls, we can help provide some color on the backlog as well as the percentage of customers going forward. We have that plan for the budgeting disclosure process going forward hopefully will be helpful.
Operator: We’ll take out next question. This is from the line of Timothy Zao from Goldman Sachs.
Timothy Zao : I have 2 questions. First, could management share your outlook on the public cloud demand in 203? And between the big enterprise speaking companies and the small SMEs, which kind of companies do you think have a bigger amount on public health for this year? And secondly, we saw that last year, a company has very good execution on profitability in both gross margin and EBITDA margin. Could management share your updated outlook for the gross margin and EBITDA margin for —
A €“Tao Zou : Just quickly translate for CEO. So as it relates to your first question, because I think the public cloud services and products are really just centered around some of the core components, including computing, storage and a network. So I do not necessarily think that demand has to do like different and have to do with the size of the enterprise that we serve. So everything really depends on the particular application scenario and the business situation of our customer enterprise. So for example, we would have our video company customers with their core demand coming from our CDN and storage business, and we will also have customers, for example, like in the AI industry that would really demand the computing at the core demand. So that is the general response I have to translate your first question.
HenryHe : Thank you. I’ll take on the second one. So before I go in there about the 2023 target, I just want to lay out the 3 major reasons for 2022. First of all, for the PP&E, we booked on balance sheet, we did try our efforts to reduce redundancy and other kind of misallocation of the revenue and the resources. So that’s actually the effort has been taken for 2 or 3 quarters since the middle of 2022. And I don’t think those are going to be the onetime off impact because, one, to increase the utilization ratio for the assets and resources, those benefits on the gross margin will be gradually released over time. So that will build first layer of the margin expansion for this year. Second of all is given we €“ as a team, we’re together to change the combination of the customer base.
So right now, as our CEO mentioned, our midsized client base has been increasing sequentially as a total percentage of total revenue. And I would say that the pricing and the profitability from those buckets of the customer definitely much better than we are serving a single client basis, right? So that’s going to be 2 benefits, reduce the risk, but also improving profitability as a whole. And those benefits were built in the second layer or the gross margin for 2022. And the third, obviously, is the variable expenses control, as I mentioned in the prepared remarks. Very basic since the travel expenses accommodation, how we pay people and how we change the mix of incentives, the cash plus the stocks and a lot of things like during the past year.
And I would say that only part of the benefit has been reflected in the Q4 number because we see a lot of things return in Q4. And hopefully, those change our policy on expenses, including the share-based compensation, including cash foes so and so forth will be reflected in Q1, Q2 going forward in 2023 in the new year. So as a result, our operating expenses and operating margin will be better than last year. The reason is gross margin is lifted and the variable cost is reduced. So while I’m sorry I cannot give you a very clear numerical target of the EBITDA margin and operating profits, but I would say 2 things. First of all, we are hoping to increasing our gross margin percentage on a sequential basis quarter-over-quarter. So hopefully, you can see the expansion, very stable, I would say, stable relatively in the next 2 quarters, the point number 1.
Point number 2 is, given we controlled expenses and the variable cost. So hopefully, we can be more visible and can be faster to reach the breakeven profitability of the EBITDA margin for this year. I think these are the 2 major objectives for us. But if you’re asking about operational margin and breakeven net margin side, I think we obviously will see the balance of the growth, and we also need to very nimble to make investments on our CapEx and also on the growth side to make money and put our investment to serve our high-quality customers. So we do not prevent the opportunity to give us a little kind of flexibility to balancing on the operational margin and EBITDA margin. So hopefully, we can be more visible to getting to a point that our EBITDA margins will be breakeven in a more kind of foreseeable future.
Thank you.
Operator: We’ll now take our next question. Please stand by. And this is from Allen Li from JPMorgan.
Allen Li: Let me quickly translate my question. My question is regarding the CapEx. We preinvest in CapEx in past few years. But due to all kinds of macro headwinds, our overall utilization rate seems not very high and it also negatively impacted our margins. So looking into this year, given the potentially huge opportunity generated by AI industries, so how should we think about our CapEx plan in 2023? And we will take a more proactive approach or a reactive approach in terms of AI-related CapEx investing?
Tao Zou : So as pointed out, with the new generation AI technology named the GPT eruption or disruption, we have had actually already preempted actions in terms of reserve in both technology and resources. However, I would summarize our attitude as cautiously optimistic rather than blindly pursuing this potential opportunity. Because based on our experience with a larger generation of AI industry trajectory, we do think that currently, the market is tends to be or seems to be overheated and we expect it to actually enter into a more sustainable but slower growth kind of boat. What we will continue to do in this, we’ll adopt a kind of approach like run with small steps and with quick iteration. I also want to point out that in terms of the hardware, there’s also the more , which essentially means that the development and — the development and upgrade of such hardware, we’re actually going to give up.
So we do not see if it makes a lot of sense to massively affording the last generation of such chips and servers. Thank you.
