Chaince Digital Holdings Inc.

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Chin Data Group Holdings Limited's second quarter 2021 earnings conference call. We will be hosting our question and answer session after management's bad remarks. Please note today's event is being recorded. I'll now turn the call over to the first speaker today, Mr. Don Zhou from Investor Relations of Chin Data Group. Please go ahead, Don.

Hello, everyone. Welcome to Chain Data's 2021 Second Quarter Earnings Conference Call. This is Don from the Investor Relations Team of the company. With us today are Mr. Alex Chu, our CEO, Mr. Nick Wong, our CFO, Ms. Zoe Zhuang, our Finance Vice President, and Joy Zhang, our General Counsel. On behalf of our CEO, Nick will take you through the quarterly review of our operation performance and Zoe will present our financial results. Alex, Nick, and Zoe will be here to answer your questions afterwards. Now I'll quickly go over the safe harbor. Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our filings with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our earnings press release, which is distributed and available to the public through our investor relations website located at investor.chingdatagroup.com. We have also updated our quarterly presentation on the company's investor relations website, which you can refer to as a supplementary material for today's call. Without further ado, I will now turn over the call to Nick.

Thank you, everyone, for joining the call. Now let's first take a look at some key figures that summarize the highlights for the second quarter of 2021 on page four of the slide. We continue to grow our capacity. By end of the second quarter, our total IT capacity in service reached 361 megawatts, representing an additional 24 megawatts compared with the previous quarter. Our utilized IT capacity reached 251 megawatts, representing a 13 megawatt increase compared with the previous quarter. Meanwhile, utilization ratio was stable at 70% by end of the quarter. Our top and bottom line performance remained strong. Quarterly revenue was RMB $686 million, with a 64% year-over-year growth. Gap net income stayed positive for two straight quarters at RMB $65 million, with a 9.5% net margin. Our adjusted EBITDA was RMB 338.5 million, a 49.3% margin, again, showcasing the efficiency of our business model. Meanwhile, our business fundamentals received a strong recognition from major rating agencies. As in July, Fitch and Moody's assigned, respectively, a first-time BBB- and BA2 eShorts rating to the company. We remain fully committed to core capacity build-up, covering greenfield development, integrated energy solution, and wide labeling of key digital infrastructure equipment. Our total number of approved and pending patents, a good indicator of our in-house design capability, reached 256 by quarter end, compared with 231 by end of first quarter. Our comprehensive in-house design capability currently covers building, power distribution, cooling system, server rack and cabinets, wiring and supporting structures, et cetera. We remain highly committed to energy efficiency and sustainable development. Our year-to-date average PUE by end of the second quarter was 1.22 compared to the same figure in full year 2020. Our year-to-date total power consumption was 797 million kilowatts-hour. Now, let's take a closer look at data center dynamics in the second quarter, as you can see on slide five. In China, we continued our steady delivery and completed construction of CN11B project in northern China, adding a total in-service capacity of 24 megawatts in the second quarter. For ramp-up of our data center, we added around 13 megawatts utilized capacity in a quarter, and it increased our total utilized capacity from 238 megawatts in the first quarter to 251 megawatts in the second quarter. Such was contributed by the steady ramp up in projects including CN06, CN08, CN09, CE01, as well as the newly insured CN11B. Our under construction capacity further extended as we added three new under construction products, CE03, CN14, CN15, with a total capacity of 87 megawatts. On client commitment of capacity, we added 66 megawatts of new indication of interest capacity, mainly contributed by the inclusion of the three new under construction products. and new IOI capacity with an existing client on Project C Intel. We also added three megawatts contractor capacity, which is converted from listing IOI capacity on Project CE01 in Eastern China. With the above mentioned, we have brought the total number of our in-service and under construction data center to 15 and nine respectively. or 361 megawatts and 217 megawatts, respectively. Under our business model, we maintain strong control of our assets, indicated by 95.7% and 94% of cell phone capacity for in-service and under construction data center, respectively. Now, let's take a more comprehensive view at our total assets on page six and page seven. Client commitment remains high, taking IOI capacity into consideration. 496 megawatts out of our 578 megawatts capacity are contracted, making an 86% contracted ratio by end of the second quarter. Capacity in survey has the contracted ratio of 91%. Mutilation is healthy by end of the second quarter. total utilized capacity is 251 megawatt, making a utilization rate of 70%. Now, let's turn to some other recent development of the company on slide eight. Our effort continues in the pursuit of sustainable development. In May, phase one of the company's Taihang Mountain Energy and Information Technology Industrial Campus was awarded the first prize in the Carbon Neutral Data Center Evaluation of 2021. The evaluation was jointly organized by Recorded Organizations to promote the net-zero carbon development of the digital infrastructure industry. Located in Datong City of Shanxi Province, the Taihang Campus has now utilized 100% of its energy from renewable sources for two consecutive years, starting in 2019. We also motivate ourselves to stay in line with global practice and standards as we became the supporter of TCFD, or the Task Force on Climate-Related Financial Disclosure, and joined the Scientific Carbon Target Initiative in May and June, respectively. By becoming a supporter of TCFD, we expect to, pursuant to the framework of TCFD, constantly improve the disclosure quality of environment and climate-related information, integrate with the information disclosure system of the international capital market, and enhance the capital market's understanding of the company's sustainable development strategy in building new generation of hyperscale digital infrastructure. By joining the scientific carbon target initiative and committed ourselves to the business ambition for 1.5 degrees Celsius campaign, we have become one of nine companies in China to commit to the campaign and well strive to make our carbon emission target setting more in line with recommended standards. Diving deeper into our first-time issuers rating, Moody's assign a first-time BA II corporate examiner rating to the company with a stable outlook. As quoted, Qingdata's BA2 CFR reflects the solid demand for the data center in China, as well as the company's predictable earnings stream, with adequate committed pre-leasing, moderate leverage, and relatively quick ramp-up to a 90% occupancy rate for its newly completed data centers. Fitch Ratings, a line of company and issuer default rating, or IBR, of BBB-, with a stable outlook, Key rating drivers include recurring revenue and predictable earnings stream, long-term contracts, strong asset ownership, strategic location, robust growth, favorable industry dynamics, cost leadership, and a stable EBITDA margin, et cetera. With the rating, the company will further diversify our financing channel to support our long-term development. Several important regulation and industry policy were issued in the past few months, namely the implementation plan of computing power hub of collaborated innovation system of National Integrated Big Data Center issued by National Development and Reform Committee or NDRC in May. Three year action plan for the development of new data centers published by Ministry of Industry and Information Technology or MIIT. And some updated regulations issued by local government, such as Beijing municipal government, to further strengthen review on data center energy efficiency performance. Key directions were pointed out for the future development of the industry. We take a positive view on these policies and its impact on industry. We believe that the way we understand our data center business and our past performance were generally in line with the direction mentioned. The development of digital economy in China is a long-term prospect with less uncertainty. The value of IDC industry as key fundamental infrastructure is increasingly apparent. Guided by the understanding that our business is essentially to efficiently convert electric power to computing power, coupled with our constant in-house capability buildup to provide full-stack solution to realize such conversion, adding our early site selection and long-term commitment of integrating renewable energy into our solution. We think we are in good position with first mover advantage and we will continue to deliver value to our clients and contribute to the sustainable development of the society. Regarding the revised draft of cybersecurity review matters by the Cyberspace Administration of China in July, and a regulation on the security protection of critical information infrastructure. We currently expect limited impact on those given our business nature of non-involvement or processing of any external data or information. Meanwhile, multi-layered internal security matters have been carefully implemented by the company to ensure high level of cybersecurity and data privacy protection. eliminating any possibility of us or our employees accessing customers' business data in any manner. Going forward, the company will closely monitor such regulatory updates and take further necessary matters to comply with any new or updated regulatory requirements that a company may be subject to. With that concludes our business update. I will now turn over to Zoe, our VP of Finance, to go over key financial results for the second quarter of 2021. Being mindful of time, I encourage our listeners to also refer to our earnings press release, which is posted online and includes our quarterly results along with other additional details. Please note that all numbers today are in RMB terms and that all comparison on a year-over-year basis unless otherwise noted.