VNET Group, Inc.

Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2024 earnings conference call for V-Net Group Inc. After the management's prepared remarks, there will be a question and answer session. Please note the Chinese line is in listen-only mode. If you wish to ask questions, please dial in through English line. Participants from our management include Mr Gavin Shen, Rotating President, Mr Chi-Yu Wang, Chief Financial Officer, Ms. Xinlin Liu, Investor Relations Director of the company. Please note that today's conference call is being recorded. I will now turn the call over to your first speaker today. Ms. Xinlin Liu, please go ahead.

Thank you, operator. Hello, everyone, and welcome to our second quarter 2024 earnings conference call. Our earnings release was disputed earlier today, and you can find a copy on our website as well as our newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNAT does not undertake any obligations to update any forward-looking statements except as required under applicable laws. Please also note that VNAT's earnings precedence and this conference call include the disclosure of unaudited GAAP and non-GAAP financial matters. VNAT's earnings precedence contains reconciliation of the unaudited non-GAAP matters to the unaudited GAAP matters. A summary presentation which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vna.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by Neolink.ai to deliver this quarter's prepared remarks by Gavin Shen, our rotating president, and Xiyu Wang, our CFO. We are excited to showcase just one of the many innovative ways in which VNet is embracing AI trends and maximizing AI's value. Gavin and Qiyu will join the Q&A session in person. Additionally, this conference is being recorded. Webcast of this conference call will also be available on our website at ir.vnet.com. Now, let's get started with today's presentation.

Good morning and good evening, everyone. Thank you for joining our call today. I will start with an overview of our second quarter results. Let's turn to slide four. We delivered another solid quarter thanks to continued strong strategic execution. Our net revenues increased by 9.4% year-over-year. The RMB $1.99 billion in adjusted EBITDA increased by 7.3% year-over-year to RMB $574 million. As we mentioned on our last call, we are now reporting our net revenues and operational metrics for our wholesale and retail IBC businesses separately. Our wholesale business remained our key revenue growth driver with net revenues from this segment increasing by 81% year-over-year to R&B $402 million. Capacity and service for the wholesale business was steady. at 332 megawatts capacity utilized for the wholesale business increased by 16 megawatts from the first quarter to 252 megawatts with the utilization rate rising by 4.9 percentage points quarter over quarter to 75.9%. Our retail IDC business maintained its smooth development with capacity and service, increasing to 52,177 cabinets and a stable utilization rate of 63.7% as of the end of June. Furthermore, our fundamentals remained robust with a healthy unused credit line and cash position, providing ample support for our current business operations and investments in future development. Our reliable, high-quality IDC services continue to win customers' trust and support in the second quarter. As you can see on slide 5, following the large orders we won for our flagship campus in Jiangsu Province in the past year, which totaled around 206 megawatts. We recently achieved another breakthrough with three additional order wins totaling 235 megawatts for our wholesale data center in the greater Beijing area, the Wulan-Tsao-Buaidi Sea Campus. Specifically, we secured a significant 200 megawatt order from an existing customer in the internet industry during the second quarter. along with two new IT services orders for 19 MW and 16 MW, respectively, recently. We are confident in WooLunch Hubs. growth potential and expect this cutting-edge facility to break the historical growth record set by our flagship campus in Jiangsu province. I will introduce our Ulan-Chabuaydezhi campus in detail later. Next, I'd like to briefly review our differentiated business model and diverse service offerings before moving on to demand trends and detailed business updates. Let's turn to slide 6. With comprehensive offerings across IDC, cloud, and VPN services, we can create tailored, holistic data and computing solutions to comprehensively meet customers' mission-critical needs, while IDC is our core business, our non-IDC businesses. including cloud and WAPI in-services are important contributors to revenue and critical components of our overall growth. We made significant progress in our non-IDC business during the second quarter. For VPN services, D-Shen expanded its customer base by acquiring new customers in the semiconductor, retail, and IT manufacturing industries, as well as a large FOE customer. Regarding our Blue Cloud business, our efforts to maintain and expand Microsoft's global account based in China, continue to yield positive results. During the second quarter, we won new customers in derivative finance, manufacturing, and finance. Looking ahead, we are confident of achieving further growth. Our IDC business is driven by an effective dual-core growth strategy divided into wholesale and retail segments, as outlined here on slide 7. By offering a broad variety of services across our wholesale and retail IDC businesses, we can serve enterprises of any size from hyperscale with massive power and space needs to small and medium enterprises that require a full service. Hands-on approach. We have built a broad, diverse customer base with low dependency on any single large customer, serving over 7,500 enterprise customers. of which more than 1,500 enjoy our IDC services. Since our IPO, approximately 90% of our total net revenues have been recurring revenues demonstrating the solid sustainability of our overall revenue growth. The churn rate for our core IDC business has consistently remained below 1%, reflecting our high level of customer satisfaction. Additionally, in the second quarter of 2024, our top 20 customers contributed 45.7% of our revenue. further highlighting the risk diversification and revenue stability within our customer structure. Now let's turn to slide 8 for a closer look at the demand trends that shaped our development during the second quarter. AI has definitively entered the mainstream in the digital economy era, with almost every industry seeking AI tech and applications to advance streamline processes, and improve results as the leading IDC service provider in the new infrastructure industry. We offer state-of-the-art IDC services and premium value-added services to our customers. With the AI boom, particularly the surging demand for high-performance computing power for large language model training, we see unprecedented new opportunities in our industry. To capitalize on this rising AI-driven demand, we are planning to strategically invest in AI computing power by expanding our AI-related business. and deepening our understanding of customers' AI needs. We are well positioned to unleash our potential and create a new growth engine for the company. We currently cater to AI-driven demand primarily from leading internet clients and industry leaders in cloud services, short video and local services, and financial tech sectors. Recently, we successfully secured several orders totaling 235 megawatts of capacity, the vast majority of which is set to facilitate AI deployment for our customers. As an industry-leading player, We provide customers with tailored high-performance computing solutions while remaining at the forefront of AI trends. For instance, we're conducting research and development on advanced power modules and refrigeration and heat dissipation solutions that can achieve air cooling of up to 30 kW per cabinet. and liquid cooling of up to 120 kW per cabinet. Furthermore, during the second quarter, we continue to upgrade our data centers with innovative designs, high-density cabinet deployments, and cutting-edge cooling technology. Currently, over 95% of our wholesale capacity in service is capable of meeting high-performance computing power requirements. positioning us to seamlessly accommodate future AI-driven demand. Moving to slide 9. We are hard at work on our Wulanzhabu IDC campus I mentioned earlier, a state-of-the-art facility boasting a total planned construction land area exceeding 638 square kilometers and total planned IAT power exceeding 1.2 gigawatts. As of now, we have secured orders for over 200 megawatts This campus will support large language model training demand, especially from customers in the Internet, autonomous driving, and financial services sectors. We have utilized numerous innovative technologies for the Ulanjabu IDC campus. including building standardization, modular data centers, and bus-based electrical systems. For our first order, we expect the timeline from construction to delivery to take six months, which represents the leading 309 speed in the industry. and showcases our excellent execution capabilities. We also plan to implement standardized construction and operational management to reduce the costs associated with the project lifecycle. Meanwhile, we are practically working to optimize Ulaan Chabu campus power utilization. Large language model training in the AI era entails massive power consumption. In line with our commitment to ESG best practices, we are collaborating with our customers to explore power innovations that provide sufficient, stable, green, and more cost-effective power supply. to meet AI computing power needs and support our customers' ESG goals. Our Wulanchabu IDC campus benefits from a host of regional advantages. Wulan Tsavups' exceptional geographic location offers abundant land resources and a stable geological structure. The site's natural cooling capabilities are available for up to 10 months a year, providing significant energy savings. Furthermore, as a computing power hub in the East Data and West Computing Initiative, Wulan's hub enjoys optimal electricity prices and preferential policies and has a high proportion of clean energy cabinets, making it ideal for large-scale deployment of computing power. Finally, Wulan's hub's direct optical cable connection to Beijing ensures high transmission efficiency, enabling us to fulfill enterprises' requirements for high-speed, high-quality data transmission services. In addition to Wuland's hub, our broad network of data centers not only covers major cities nationwide, but also connects carriers and service providers in far-flung locations through a robust domestic data transmission network, as you can see in slide 10. The layout of our wholesale capacity and service is well balanced with the Yangtze River Delta accounting for 52% and the Greater Beijing Area accounting for 48% for wholesale capacity under construction. The Yangtze River Delta accounts for 45.8%, while the Greater Beijing Area accounts for 54.2%. 82.6% of our wholesale capacity on hold for future development is in the Greater Beijing Area, mainly due to the region's geographical advantages, convenient transportation, abundant green energy resources, and lower utility costs compared with other regions. Notably, the majority of AI-related demand is coming from the Greater Beijing Area. For our retail data centers, our self-built capacity in service was 48,516 cabinets as of the end of June. Specifically, 58.4% of capacity in service is in the Greater Beijing Area. 19.2% is in the Yangtze River Delta, and the rest is distributed among the Greater Bay Area and other regions in line with demand. Now let's delve into our business optics, starting with our wholesale business on slide 11. Wholesale business continues to drive our overall growth, recording an 81% year-over-year increase in revenue this quarter. Our capacity and service remained robust and stable quarter-over-quarter at 332 MHz as of the end of June, an increase of 108 MHz from the end of June of last year. Utilization rate increased to 75.9% with mature capacity, utilization rate of 94.9% and ramp-up capacity, utilization rate of 45.7%. These utilization rate improvements reflect our ability to facilitate quick customer move-ins during the quarter. We have also established a clear growth path for our wholesale data center capacity. Slide 12 depicts our progress across various aspects of the wholesale business in the second quarter. Notably, our utilized capacity increased by 16 MW from 236 MW in the first quarter to 252 MW in the second quarter. primarily driven by strong customer demand from EJS Campus 02C. We also began ramping up construction in the second quarter in anticipation of future rising demand, increasing capacity, under construction by 140 MW to a total of 279 MW. This increase is mainly attributed to the large border for NOI Campus 01 project, which will be developed and constructed in several phases based on customer demand. By the end of June, the pre-commitment rate for capacity under construction had risen to 85.5%. Given this high pre-commitment rate and the continuous growth in market demand, we are planning to further expand the capacity of our wholesale data centers, targeting a total capacity of approximately 1 gigawatt. to solidify our leadership position in the data center services sector. Moving to our retail business on slide 13. This segment continued to operate smoothly in the second quarter. Capacity increased to 52,177 cabinets. The utilization rate was stable quarter over quarter at 63.7% as of the end of June. with mature capacity utilization rate holding steady at 72.5% and ramp-up capacity utilization rate of 12.7%. Our MRO per retail cabinet increased slightly quarter over quarter to RMB 8,753 in addition to our solid capacity and service. Our new capacity pipeline for a wholesale business is robust. Slide 14 depicts our resource pipeline for the next 12 months. Currently, we have eight data centers under construction. We plan to deliver IT capacity in a range of approximately 210 to 290 MW over the next 12 months, vastly increasing our total capacity by the end of the second quarter of 2025. Our capacity in service for the wholesale business was 332 megawatts as of the end of the second quarter, meaning that our expected new capacity is equivalent to approximately 63% to 87% of our current capacity in service. In terms of the delivery timeline, we are maintaining our delivery target of approximately 100 to 140 MW for 2024 and we anticipate delivering approximately 110 to 150 MW in the first half of next year. Specifically, in the Yangtze River Delta, we have four data centers under construction, with 98 MW expected to be delivered this year and 30 MW in the first half of 2025. In the greater Beijing area, we have four data centers under construction with 27 megawatts expected to be delivered this year and 124 megawatts in the first half of 2025. In summary, our solid second quarter results reflect our core strengths and strategic and execution excellence. These assets have positioned WeNet as a front runner in the AI era going forward our innovative IDC services. Last high power density resources and diverse AI related capabilities will continue to empower sustainable high quality growth. We will remain committed to driving innovation and advancing industry development as we grow, delivering value to all of our stakeholders. Thank you, everyone. I'll now turn the call over to Tzu to discuss more about our operating and financial performance.