VNET Group, Inc.

Good morning and good evening, ladies and gentlemen. Thank you and welcome to 21 ViaNet Group's fourth quarter 2020 earnings conference call. With us today are Mr. Samuel Shen, Chief Executive Officer and Executive Chairman of Retail IBC, Ms. Sharon Liu, Chief Financial Officer, and Ms. Renee Chang, Investor Relations Director of the company. I'll now turn the call over to your first speaker today, Ms. Renee Chang, IR Director of ViaNet, Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter and full year 2020 earnings call. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions for 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 with the SEC. 211 undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the state of this conference call. I will now turn the call over to Mr. Samuel Hsin, CEO of 211.

All right. Thank you, Renee. Good morning and good evening, everyone. Thank you for joining us on our earnest call today. During the fourth quarter of 2020, we exceeded our previous guidance range and grew our net revenues by 28.6% to RMB 1.35 billion from RMB 1.05 billion a year ago. In addition, we expanded our adjusted EBITDA margin to 28.9% from 25.2% and grew our adjusted EBITDA to RMB 389.8 million from RMB 263.8 million during comparable periods. We attribute such solid results to robust market demand, methodical resource expansion, meticulous customer services, and strong sales momentum. 2020 was an extraordinary year as we encountered both unprecedented challenges and tremendous opportunities. The challenges brought on by COVID-19 were certainly exceptional, yet out of the heap of challenges blossomed the robust demand for data center services. Since the pandemic outbreak, we have witnessed substantial changes in both consumer behaviors and corporate mentalities. Some of those changes were transitory, while others are permanent. We believe that the migration towards online entertainment, e-commerce, mobile computing, remote collaboration, and digitized services are permanent, thus filling the tremendous demand for IDC services. In addition, favorable government policies are also accelerating the digitization trend, which in turn are further stimulating the market demand for our solutions and services. To satisfy such growing market demand, we have been proactively expanding our capacity and resources. As of December 31, 2020, our capacity reached 53,553 cabinets in total, 93% of which were self-built and the remaining 7% of which were partnered. In the fourth quarter, we added 2,077 cabinets on a net basis. Our compound capacity utilization rate was 60.4% during the fourth quarter, among which our utilization rate was 77.8% for mature IDCs and 31.7% for ramp-up and newly built IDCs. As we envision unabated market demand for the foreseeable future, we have proactively expanded our resources. During the fourth quarter, we acquired a data center in Beijing with approximately 2,000 ready-to-use cabinets already under commitment to a public cloud customer. Such additional capacity should enable us to better serve large enterprise customers who continue to locate their mission-critical data processing operations in Tier 1 cities to achieve ultra-low latency. The requirements and preferences of these large enterprises limit the potential locations of their data centers to within a 100 kilometers radius from metropolitan areas. While we are expanding our capacity, we are also implementing strategic initiatives to ensure our capacity environmental sustainability. Such efforts include increasing our renewable energy utilization mix, improving the effectiveness of our power and water usage, and reducing our carbon intensity across all of our data centers. To increase the transparency of our corporate sustainability practices, we are currently preparing our initial ESG report and plan to publish it later this year. Beyond expanding our capacity in a methodical and sustainable manner, We also continued to leverage our flexibility in providing hybrid and multi-cloud infrastructure solutions, which enhancing our client services. Witnessing the consumer and corporate behavior changes in 2020, we have taken a proactive and data-driven approach that enabled us to not only measure, forecast, and address the unique IDC requirements for individual clients across industries. but also strategically plan our resource expansion and optimize our site selection to align our development with our client's growth trajectory. As a result, we have forged tight bonds with our customers and become an indispensable partner for our clients to cultivate their own evolving ecosystems. During the fourth quarter, we acquired a new public cloud customer who had started moving in as of the first quarter of 2021. In addition to securing new cloud customers, we also ramp up our engagement with large scale enterprises. We were able to sign an MOU with a popular content community and social platform company. As of today, we have accumulated wholesale MOU in service or under contract to over 180 megawatts. We also continued our extensive discussions with an online entertainment company, which is interested in utilizing a portion of our ITC capacity in Shanghai, where its headquarters are located, to support its rapid growth. In summary, we have accumulated abundant capacity, procured additional resources, and forged strong client relationships. With the additional capital raised from our recent convertible bond offering, we are well positioned to capitalize on the robust market demand emerging in the post-pandemic era. With that, I will turn the call over to Ms. Sharon Liu, our CFO, to review our financial results for the quarter. Sharon?

Thank you, Samuel. Hello, everyone. Before we start our detailed financial discussion, please note that we will present non-GAAP measures today. Our non-GAAP results exclude certain non-cash expenses which are not part of our cooperation. The details of these expenses may be found in the reconciliation tables included in our press release. Please note that unless otherwise stated, All of the financial numbers we are presenting today are for the first quarter of 2020 and are in RMB terms, and that percentage changes are on a year-over-year basis. We concluded 2020 with strong first quarter financial results, mainly attributable to our resource expansion capacities, on-track and efficient cabinet delivery to customers, and improved operating efficiency. Our revenues for the first quarter and the full year of 2020 both exceeded the high end of our guidance ranges, while our adjusted EBITDA for the first quarter and the full year of 2020 both were within our guidance ranges. Revenue in the first quarter increased by 28.6% to $1.35 billion from 1.05 billion. This increase continued to be driven by the industry ongoing growth as well as our steady capacity expansion, which allowed us to better satisfy the growing demand for a scalable retail cabinet and a carry-neutral wholesale IDC solutions in the quarter. Retail IDC MRR per cabinet in the first quarter increased to RMB 9,131. We added around 2,077 new cabinets during the first quarter. As of December 31, 2020, we upgraded and managed 53,553 cabinets. Recognizing the ongoing growth in customer demand, we also worked to expand our cabinet capacity while remaining focused on maintaining healthy and stable cabinet utilization rates. Our compound utilization rate in the first quarter was 60.4%. More specifically, our utilization rate for those material IDCs delivered prior to 2019 improved to 77.8% compared to 77% in the prior quarter. Our utilization rate for ramp-up IDC and newly built IDCs was 31.7% compared to 35.9% in the prior quarter. The decrease mainly contributed to a large amount of cabinet delivery at the end of the third quarter. Adjusted cash growth profit in the first quarter, which exclude depreciation, amortization, and share-based compensation expenses was $581.9 million compared to $425.9 million in the same period of 2019. Adjusted cash gross margin was 43.2% compared to 40.6% in the same period of 2019. adjusted operating expenses in the first quarter, which exclude share-based compensation expenses, impairment of receivables from equity investees, and impairment of long-lived ISAs, were $215.5 million compared to $184.2 million in the same period of 2019. As a percentage of net revenues, adjusted operating expenses in the first quarter decreased to 16% from 17.6% in the same period of 2019, demonstrating our improved operating leverage and operating efficiency. Adjusted EBITDA in the first quarter grew by 47.7% to $389.8 million from $263.8 million in the same period of 2019. Adjusted EBITDA margin increased to 28.9% from 25.2% in the same period of 2019. Owing to loss of $957.1 million from changes in the fair value of convertible promissory notes during the first quarter, our net loss attributable to ordinary shareholders was $1.02 billion. in the period compared to net loss attributable to ordinary shareholders of $16.4 million in the first quarter of 2019. Basic and diluted loss goes for $1.28 per ordinary share and $7.68 per ADS. Each ADS represents six ordinary shares. Moving on to our balance sheet and liquidity. At the end of the first quarter, our debt to assets ratio was 64.5% after taking out the effect of the changes in the file value of convertible promissory notes. Our debt to adjusted EBITDA ratio was 3.1%. In addition, net cash generated from operating activities in the first quarter was $283.8 million. As of December 31, 2020, we reported a cash position of $3.4 billion. During the quarter, our efforts to maintain a strong balance sheet and leverage our solid reputation in the capital markets enabled us to further cultivate our future growth prospects. As such, we successfully executed a public offering of convertible notes for an aggregate principal amount of US$600 million in January. These successful note issuance further demonstrating our acknowledged growth potential, significant brand value, and strong investor interest. Going forward, we plan to use the raised proceeds to satisfy our type X demand, and repay our existing note that will come due in 2021. Looking ahead into 2021, we continue to see a number of potential M&A opportunities and regard brownfield sites as a variable supplement to drive organic growth. We plan to continue expanding our IDC business in a prudent and balanced manner while leveraging our value-added service offerings to cultivate more business opportunities with our existing customers in turn. Our balance sheet strengths will also serve as a significant competitive advantage, enabling us to secure those IDC resources that align with our long-term growth targets. enabled us to capture additional market share and provide us with more customer engagement opportunities in key markets. In 2020, our total CapEx was RMB 4 billion, including M&A payment during the year. We expect 2021 CapEx to be in the range of RMB 5 to 6 billion, including acquisitions that we have bought up knowledge Looking ahead, we expect net revenue for the first quarter of 2021 to be in the range of $1,375 to $1,395 million, and adjusted EBITDA to be in the range of $395 to $415 million. For the full year of 2020, we expect net revenues to be in the range of $6 to $6.3 billion and adjust the EBITDA to be in the range of $1.68 to $1.78 billion. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change and do not factor in any of the potential impacts that could be caused by the COVID-19 epidemic in the future. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press R1 on your telephone and wait for your name to be announced. If you wish to cancel a request, please press the pound or hash key. Our first question comes from the line of Yang Liu from Morgan Stanley. Please ask your question.

Thanks for the opportunity. And first, I would like to congratulations on a strong result and a new customer addition. My first question is related with this new wholesale customer. You mentioned it is a social and content company. Could you please disclose more in terms of their current demand outlook and the order size to know why they have already get and also share about their return profile when serving this customer. The second question is I would like to hear management comments on the resource at the edge of time. Is it becoming more and more difficult than before to get resources maybe in Hebei or Jiangsu, et cetera? And will this impact your three-year expansion plan? Thank you.

Thank you, LuYang. I will take your first question. Regarding to the new logo, actually it's a public cloud service provider in China with amount of 2,000 cabinets. Those MOU will start to move in from Q1 this year. And for the returns of this project, it's still at the company's acceptable level. Thank you.

Hi, Leon. This is Samuel. Good to see you virtually. I'm taking on the second question. You mentioned about probably metropolitan area and surrounding areas getting a little bit tough to secure the land together with the power quota? And I think the answer is yes. That's a general situation. That being said, because we have been in the industry for almost 25 years, and we do have a strong relationship with the government, and we pay a lot of attention on the government's requirements and so on and so forth. If you drill down and double-click on the government's requirements lately getting to be tight, especially from the power quota perspective. For existing data center, they're asking for better than the 1.4, and for new one, they're asking for better than the 1.3 in general. And luckily, because we have been in the industry for quite a while, and then if you look at our existing data center, actually our power consumption is actually top tier, I would say so. So both from an expansion point of view and from the acquisition point of view, I think things are pretty much on track from our expectation point of view. So I hope that gives you some of the colors. Thank you.

Thank you.

Our next question comes from the line of Tina Ho from Goldman Sachs. Please ask your question.

Hi. Thank you, management, for your time and taking my questions. I have two questions. The first one is also regarding the recent M&A in Beijing. Wondering what is the deal size or the valuation you did the acquisition at? And also, the second question is in terms of your 25,000 cabinet capacity target in 2021 wondering how much of that already has customer commitment this year and also related to the construction pipeline I saw that in your third quarter presentation there were two projects number one is sh7 and number two is ejs campus 02 that had around like 1,800 and 3,000 cabinets in plan. But then these two projects were missing in the 4Q presentation. So just wondering what has happened there. Thank you.

Thank you, Tina. Good morning. Yeah, for your first question regarding the M&A, actually we have disclosed those M&A in Tier 1 cities, which offers 2,000 cabinets that were ready to use and under commitment to the public cloud customer, a new customer. Actually, as this is This is a mature data center. We use the EBITDA multiple to do the valuation, and the valuation is in line with the market price. And for our M&A strategy, we consider the M&A as a supplement of our organic growth. And currently in the market, there are two kinds of M&A targets. One is the brownfield ones. In that case, we will only provide a premium to the seller or the developer and then to obtain those data centers. Another one is the mature data center acquisition, which we will use in the market. Yeah, that's our M&A strategy. Regarding to our 25,000 cabinet targets this year, we have disclosed around 22,000 in our investor deck this year. Among that, over 60% of the cabinet will have received the pre-commitment from both the wholesale customers as well as the large-scale retail customers. I want to add more color on our large-scale enterprise customers. Besides the public cloud companies, we also see great potentials from the large-scale enterprises, for example, a popular content community and social platform company, a leading e-commerce platform for service. We will deliver the cabinet to the two customers. this year, and both the two customers are from our existing retail customer pool and former already committed. And regarding to the changes of certain projects, I will see for the wholesale data centers, as we sign MOUs, we should deliver we should deliver based on the commitment to our customers. But for some scale retail and the traditional retail customer, we still have flexibility on the delivery to have good match from the supply and demand side. So you can see this quarter with this closed 22,000 cabinet, while For the gap from the 25,000 company, we still have some M&A pipelines. And also for the existing disclosed data centers, we still have some expansion phases in the future to match our delivery target. And in the following months, we will match especially the large-scale customer's demand try to fix our delivery schedule. Thank you.

Thank you very much, Sharon.

Our next question comes from the line of James Wong from UBS. Please ask your question.

Good morning, management. Thank you very much for your time. It's James Wong from UBS. I'd just like to get a follow-on question on the capacity pipeline. I want to get a bit more detail around that pipeline for the next three years. I know you've secured $22,000 for this year. I'm just wondering for the 75,000 cabinets over the next three years, where are they in terms of location and proximity to T1 cities and what proportion already have electricity and carbon quotas? So that's the first question. The second question is around the four-year EBITDA guidance. I remember from The second quarter result, the indication was that you were expecting somewhere around 35% to 40% EBITDA growth for 2021. And I've also noticed that the first quarter, you're guiding to 56% EBITDA growth. But the four-year guidance is actually somewhat below. So I'm just wondering whether you're being potentially conservative in the four-year guidance or whether there's a bit more cost that you expect to spend over the rest of the year. Thank you.

Okay, thank you, James. Regarding to our capacity pipelines, I should say we have many pipelines in terms of the Greenfield, Brownfield, and the Mature Data Center, MNAs. So we are very confident to secure more resources for the delivery for the year 2022 and the year beyond. And currently for the total 75,000 cabinets, over 60% have been secured, fully secured. Yeah, so we made good progress from the resources side. And regarding your question, too, about our EBITDA guidance, actually the EBITDA guidance is mainly due to the delivery schedule of this year. As we disclosed in the investor deck, among the 22,000 cabinet, which is closed, around 40% will be delivered in the first half. Majority will be delivered in Q2 this year. And the rest, 60% will be delivered in Q4 this year. So from the delivery schedule, the moving will be heavily weighted in the second half. So we factor in those moving schedule in our EBITDA guidance. And currently, we are very confident for our IMU guidance and the Q1 guidance, both from revenue and EBITDA perspective. Thank you.

Great. Thank you. Thank you, Sharon. Can I just, because I think Samuel mentioned that it's getting more difficult to get resources around the T1 city area. So just wondering for next year and the year after, in terms of the resources, how much of it has already been secured, whether you can provide any indication on that.

Thank you. Yes, actually for the cabinet delivered in 2020, majority was in Tier 1 cities and this Actually, the majority will be in the surrounding areas of Tier 1 cities for the next two years. The surrounding areas will weigh over 50 percent from the incremental perspective. Thank you.

Thank you.

Our next question comes from the line of Arthur Lai from Citi. Please ask your question.

Hi. Thank you, Sharon and Samuel. And, yeah, I also want to congratulate the company's presentation, materials are getting more closure and also more data. On the page 23, my first question is we saw the lines of rent up and new build capacity and utilization. actually increase in the quarter three and then maintain the quarter four level at the 31%. I wonder if it's because the capacity built in the quarter three or it's because the demand has changed. And also, can you give us some color on the 2021, how this line will go up or maintain flat? This is the first question. And the second question is, what is the type of question? I want to ask, under the current, you know, the increased price of the material, steel, and also everything, I think everything's price is going up. Will it impact our execution and also the margin profile in the next two years? Thank you.

Thank you, Arthur. Regarding your question on the utilization rate, actually for the existing cabinet we delivered before the year 2019, you can see the gradual increase of utilization rate for those data centers. And we combined the ramp up and the new build data cabinet and disclose those in another utilization line. The decrease in Q4 was mainly due to the heavy delivery in Q3 around 7,000 cabinets and 2,000 cabinets in Q4. So the new delivery increased the denominator in the formula of utilization rate. Actually, we achieved very good progress in terms of the buildable cabinet. The buildable cabinet increased a lot during the whole year of 2020. And in 2021, we will still use the same methodology to disclose the utilization rate, the compound ones, the material cabinet, and also the ramp-up new build. For the material cabinet, the utilization rate at the end of this year will be around 80%. And for the ramp-up and the new build will increase accordingly. But in certain quarters, if we deliver more cabinets, there may be pressure in those quarters. But overall, the buildable cabinets will increase in this year. And your second question is about the construction cost the margin and the construction cost, right? Yes. Actually, we still have room to optimize our construction cost through the centralized procurement as well as the supply chain management because we delivered more cabinets in the market. Currently, we have not seen any margin constraint or some pressure from the suppliers. We still can accept our returns from each of the data centers. Thank you.

Thank you.

Our next question comes from the line of Edison Li from Jefferies Hong Kong. Please ask your question.

Hi, good morning, management. Thank you very much for taking my question. So I have two. Number one is that on the wholesale front, I know that you announced that this new wholesale customer together with this acquisition. So this wholesale customer basically is acquired from the acquisition. I just want to confirm that. Number two is that in Jiangsu, do you expect to gain more logos of wholesale customers because of the power allocation you previously were able to obtain? And I think maybe a follow-up to that is, what are you seeing in terms of M&A opportunities in terms of asking price and also in terms of locations? Thank you.

Yeah, the easy answer of your first question is yes. We add these new customers through the acquisition. And your second question regarding to our M&A strategy, actually, as I mentioned before, there are two kinds of M&A targets. For the brownfield ones, majority will be in the surrounding areas. And for the Tier 1 cities, we are looking for some mature data center acquisition opportunities. currently in our pipelines. Thank you.

Have you seen any increase in asking price, or do you think the asking price has become more reasonable because of government policy to threaten to cancel power quota for unbuilt projects?

Yeah, I should say for the material data center acquisition, there is a market price. and we should acquire those ones in line with the market price. But for the brownfield ones, we still have bargaining rooms with the seller or developer to provide a reasonable premium to them. Thank you.

Sorry, just one follow-up. I just want to get some view from management that in terms of M&A opportunities, would you focus more on brownfield projects or mature data center projects?

Well, that's sometimes depending on the customer demand and our delivery schedule. If there are some targets that can easily meet the customer's timeline, we may consider to do the acquisition. So there will be a mix of the customer demand, the location, and our MIS strategy. Thank you.

Okay. Thank you.

Our next question comes from the line of Akina Wong from Credit Suisse. Please ask your question.

Thanks for taking my questions. I have two questions. The first one is actually regarding the wholesale insurface and MOU is sales momentum, 118 megawatt. We'd like to ask if these cover all the 2021 that you adjust around 60% of these cabinet committed or is actually a multi-year side cooperation MOU and which are also covering some of your target in 2022 to 2023 in terms of your cabinet expansions. This is the first one. And the second one is I would like to check if the company has some kind of policy or you can say somehow a target to adjust these carbon emission reduction targets from the government and how much of the power consumption will be from like green power or green energy in that. Or should we wait for more detail once you publish the ESG report? Thanks.

Yeah, regarding trigger classrooms on the side MOUs, actually the 100 NT megawatt was delivered in 2020 and will be delivered in 2020. So majority will be covered this year. And currently for the cabinet, we will deliver in year 2020 and the year beyond. We have some pre-commitment discussion with the customers, but have not signed the very solid MOUs. But in the following quarter, we expect to get very good progress and disclose those progress to the market.

Hey, Kina. This is Samuel. Let me address your second question. That's more around the ESG. As you probably know, the ESG stands for environmental, social, and governance. And then so starting from this year, we're going to publish our annual ESG report. If we break down the ESG by each of the buckets, we pay a lot of attention on gas emissions. The data centers definitely consume a lot of power, so we have the responsibility to drive up the renewable energy use. That's number one. Other than the gas emissions, we also pay a lot of attention on the water use and also waste and pollution. And also because we're big consumer from a land use point of view. So how do we better utilize the land, protect the earth? That's going to be very, very important. Aside from the environmental, we also pay a lot of attention on the social, definitely from the workforce diversity inclusion point of view and safety management. Last year, COVID-19 pandemic basically tells every one of us on the planet that we have to keep up the safety management for our task force and things like that. And also the way to engage with customers and to interact with the communities is also our focus. And then from a governance point of view, the way we structure the board, the amount of the independent board members and how do we guide the companies moving forward, making decisions and things like that. and business conduct and also the value system. How do we keep up being transparent from a reporting point of view and also keep up from the cyber attack and things like that. And so those are the areas that we are, luckily because we have been in the industry for 25 years, so we have a lot of pattern and practices that we want to share and report out. So my suggestion would be please stay tuned for our coming update. And we're going to share more data, first of all, not just from the annual report point of view, but on a quarterly basis, we're reporting out our progress. Thanks.

Our next question comes from the line of John Choi from Daiwa Capital Market. Please ask your question.

Good morning, Samuel, Sharon, and Romaine. Thanks for taking my question. I have two questions. First of all, on your guidance for 2021, can you kind of elaborate, you know, like for the Catholic side, you already said about five to six billion. You know, I presumably this does not factor in the M&A side. So if it does, I guess this will imply that there will be more upside for both CapEx and the M&A capacity. And my second question is about your future financing because I know that on one of the slide decks, I think page 26, you also talked about your debt structure and also your cash position. With the very aggressive CapEx expansion for the next few years down the road, can you kind of imagine and elaborate a bit more detail how you guys plan to do so? Thank you.

Thank you, James. For our CAPF guidance, amounting $5 to $6 billion, actually around 80% will be for the construction of the data center for the IT and power, and the rest, 20%, will be for the land and building and MNAs will have bought-up knowledge. So in the future, if we secure more resources for the delivery of the year 2022 or the year beyond, or we have signed some sizable M&As, we may increase those TAPAS guidance. And for our financing strategy, as we mentioned before, we are very prudent, we are aiming reserve more capital to support our future expansion plan. As we have disclosed the 25,000 cabinet delivery plan each year, we will reserve more capital for those plans. In this January, we have completed the CB insurance and reserve more capital. In the future, at the company level, we have diversified funding channels from both equity and debt side. And also on the project financing level, we have made very good progress with the local banks. For example, in the year 2020, we have signed project financing contracts amounting That will support our data center construction in the future. So from the future, there will be a mix of the financings from both the listed company level as well as the project financing level. Thank you.

Our next question comes from the line of Hongzhi Li from CICC. Please ask your question.

Thanks, Manjiman, for taking my question. So my first question is, I see we introduced Tencent Cloud as new logo. So how should we outlook our collaboration with Tencent in future? And the second question is more in terms of the strategy side, because we have carried out the dual core strategy since 2020, and we have made significant progress, including multiple cloud companies. So is there any change on our strategy focus weight on wholesale and retail? In terms of the proportion, what's the focus weight on wholesale and retail respectively? Thank you.

Yeah. Actually, as we mentioned regarding to the potential wholesale customers, They are the public cloud service provider as well as the top internet companies. So now for the new logo, we have very good progress with them. And we also have good talks with other potential customers to capture their future demand. So once we have very significant progress, we will disclose to the market. And regarding to the strategy, I will move to Samy.

Yeah, okay. Hey, Hongjie, nice meeting you virtually. Yeah, last year we mentioned about we have a dual-core course engine, and we continue to execute on that. As a matter of fact, one of the good progress that you have seen from the earnings release is we signed the wholesale MOU with the popular content community and social platform company, and also the... the online entertainment company and things like that, some of them are, I would say, grew up from the retail segment point of view. So if you look at our two growth engines, basically they go hand in hand, supporting each other and things like that. From the retail side, I mentioned last year the pandemic Most of the companies are starting to accelerate their digital transformation. Therefore, a lot of the add-on services they would require. And those add-on services in the past considered to be a competitive advantage. Now it's like competitive requirements. So we're continuing to partner with our ecosystem, providing more. And part of the indicator you can see is we maintain the previous data. the monthly recurring revenue from a retail side point of view. And this quarter, we still maintain roughly about $9,000 per month. And so that's a good indicator. So that should help to answer your question. Thank you.

Thank you. Our next question comes from the line of Chris Cole from DBS. Please ask your question.

Good morning, management team. Congratulations on the strong results and thanks for taking my questions. Two questions from me. First, when I multiply your utilization rates with total capacity, the implied utilized capital for 4Q20 Drop slightly, queue on queue. Could you share with us the reasons behind? And as we further expand our capacity, how should we look at the utilization rate in FY21? And my second question is, have we seen wholesale customers incorporating more carbon neutral related requirements in their data center specifications? And would there be any impact to our margin due to this? Thank you.

Thank you, Chris. Regarding to the utilization rate for the rent-up and the new build, actually the decrease in Q4 was due to the delivery, 9,000 delivery in Q3 and Q4, which will increase the denominator in the formula. But from the billable cabinet perspective, we still have very good progress in the whole year of 2020. We captured the demand from both wholesale and retail customers. And we sell more carbonate as well as more service to them. So that's a formula question. So maybe we can clarify offline with you. Thank you.

Hey, Chris. This is Samuel. To answer your question again, that's more like That's more around the ESG. As I said previously, starting from this year, we're going to provide our annual ESG report. Other than the environmental, we're also going to pay equal attention on the social and governance. And specifically around the environmental, because you probably know, first of all, from a carbon emission point of view, China's attributed roughly about a 10% for the entire world. And then in data centers specifically in China, it's a big portion of that, roughly about a 2.4% of the total power consumption. So we have the responsibility as a market leader for carrying neutral data center providers. We have the responsibility to continue to increase our renewable energy utilization mix. And also, we have to continue to improve the effectiveness of our power and water usage And so with that, we are going to publish our progress and also our commitments from an annual point of view. And having said that, every single quarter, we would like to provide more granular data to share with all the institutional investors and the industries. Thank you.

Okay, thank you.

Our next question comes from the line of Ethan Zhang from Nomura. Please ask your question.

Hi, management. Thanks for taking my question. My question is about the operating expenses. I saw some OPEX, for example, sales and marketing and SNG&A increased for the fourth quarter of last year, increased quarter over quarter. And just wonder what the future trend of this OPEX to sales ratios. Another quick question is on this new item of impairment of loan leave assets. Just wonder whether this is just only a year-end review of some prudent accounting reviews or if there is some specific reasons for this item. Thank you.

Thank you, Azen. Regarding to the operating expenses, we will use the adjusted operating expenses evaluate our operating efficiency. Actually, for the whole year of 2020, we achieved good progress in operating efficiency. The overall total adjusted operating expenses as percentage of revenue was 15.7% compared to 17.5% in 2019. And this year, we will still try to improve our operations in all aspects. So this year, we aim to adjust the operating expenses as a percentage of revenue. The RPAX rate will be around 15%, nearly one percentage point from last year. And regarding to the impairment of long-lived assets, you are right. We take a very prudent accounting treatment for that, and this was one of our charges in our income statement. Actually, it was caused by a devaluation of assets related to the MVNO and fixed real estate business in Hong Kong. And we were acquired back in 2012. So this was a one-off impairment. Thank you.

Thank you.

Our next question comes from the line of Tina Ho from Goldman Sachs. Please ask your question.

Hi. Thank you very much for taking my questions again. I have a follow-up question. Could you remind us what is the exact definition of a wholesale customer in terms of like their cabinet size or any other measures? And then a related one on that is that now you have more than one wholesale customers. Wondering if we could get more details in terms of wholesale versus retail. for your customer mix, your cabinet mix, and also potentially your wholesale MRR versus retail. Thank you.

Tina, this is Samuel. Let me try to address your questions. So first of all, if you look at the data center definition, Honestly, from a worldwide perspective, it's going to be super hard to define. From a global, I would say, practice, there are five different categories, if you will. Number one being the hyperscaler. And the hyperscaler tend to be, I would say in the past and probably today, tend to refer to those public cloud service providers. And number two category would be wholesale co-location. And then the wholesale co-location in the past tend to be referring to more than 10,000 racks as a ballpark number. But again, that number may not be accurate year over year. And the third one being the retail co-location. And the fourth one being the carrier-specific ones. and the fifth one being the enterprise data center. So these five buckets were sort of defined in the IDC industry in the past. So today, if you look at the hyperscale and wholesale co-location on one hand versus the retail co-location and our full-stack services on the other hand, actually in our investor presentation deck that we have a specific page, page seven, and try to provide more granular information from our dual core growth strategy point of view. So if I have to use our, I would say, pattern and practice point of view to give you a better view, the wholesale customers that we're trying to target in on those hyperscalers. Again, in the past, tend to be more public cloud service provider, but we're seeing a lot of the big data internet companies could be categorized as the hyperscalers. And these set of customers tend to require huge amount of space and power, and also, first of all, to support their massive scaling needs, but they're also requiring some of the customization, tailor-made solutions, you know, things like that. On the retail side, you know, these are the set of customers going through a digital transformation. They may not have a one bulky data center, but probably have multiple data centers, but requiring an active, active business continuity, disaster recovery purposes. They probably need more than the pure colo, but requiring the connection services, bare metal, and also the other very added services to support their multi-cloud management and things like that. So these are two very distinct segments. So that's the reason internally we carefully separate them and then provide the services to meet their needs. So hope that answers your question, Tina.

Yeah, thank you very much, Samuel. Just a very quick follow-up then. So when you disclose your retail MRR, right, how many customers or what are the customers that you exclude when you calculate the retail MRR?

Okay. My understanding, we have not provided the detailed numbers of our data center customers. But what I can say is we basically exclude roughly about a dozen customers. Those are the wholesale customers out of the total data center customers.

Okay, so in other words, they don't have to be getting at least 1,000 cabinets from VNet, just maybe for example, some of the logos that you have shown on slide seven under wholesale, and then maybe a number of other big Internet customers? Is that like a reasonable understanding?

Yeah, I think that's a reasonable understanding. But again, I want to make sure that the line is not very distinct. It could be blurred because some of the retail customers, when they continue to grow up, it becomes more, first of all, demanding. They have a lot of customization needs. They can easily grow from the 5,000 racks to 10,000 racks And so it could basically grow from a retail to wholesale. So that's possible. So it's not a black and white. First of all, the way we define the wholesale versus retail, there are fundamental differences. The cost structure differences, the skill set differences, the needs are different. And so that's the reason we have two sets of Salesforce. to look after these two segments. So it's not purely either or. It could be grow up from a retail, become a wholesale customers. And we're starting to see more, I would say, support or synergy between the two segments, just in case.

I would now like to hand the conference back to the management for closing. Please go ahead.

Thank you once again for joining the call today. If you have further questions, feel free to contact the company's IR. Bye bye.

Ladies and gentlemen, this concludes this conference call. Thank you for participating.