VNET Group, Inc.

Hello, ladies and gentlemen. Thank you for standing by for the third quarter 2024 earnings conference call for VNet 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 the English line. Participants from our management include Mr Gavin Shen, Rotating President, Mr Shiyu Wang, Chief Financial Officer, Mr. Zhu Ma, Executive Vice President, Mr. Shi Yang, Senior Vice President, Ms. Xinhuan Leo, Investor Relations Director of the company. Please note that today's conference call is being recorded. I would now like to turn the call over to the first speaker today, Ms. Xinhuan Leo. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our Standard Order 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 know that VNAT's earnings precedents and this conference call include the disclosure of unaudited GAAP and non-GAAP financial matters. VNet'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.vnet.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 Qi Yu Wang, our CFO. Gavin and Qi Yu 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.vinet.com. Now, let's get started with today's presentation.

Good morning and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our third quarter results. Let's turn to slide four. We delivered a strong quarter, led by a 12.4% year-over-year increase in net revenues to RMB $2.12 billion, mainly driven by the rapid growth of our wholesale IDC business. Adjusted EBITDA also increased by 20.2% year-over-year to RMB $595 million, thanks to our cost and resource allocation optimization efforts Our wholesale business maintained its strong growth momentum, with net revenues from this segment increasing by a remarkable 86.4% year-over-year to RMB 523 million as we capitalized on rising demand. Wholesale capacity and service reached 358 megawatts as of the end of September, increasing by 69 megawatts year-over-year and 26 megawatts quarter-over-quarter. Wholesale capacity utilized reached 279 megawatts, increasing by 119 megawatts year-over-year and 27 megawatts quarter-over-quarter. This reflects our ability to scale effectively and respond to the market's expanding digital infrastructure needs. The utilization rate of our wholesale business rose by 2.1 percentage points quarter-over-quarter, a healthy pace in this high-demand environment. and the utilization rate of our mature wholesale business reached a new high of 95.6%. Our retail IDC business continued to progress smoothly with capacity and service and utilization rate remaining stable as of the end of September. Furthermore, our ample cash position and unused credit line provided reliable support for the company's current business operations and future development. Together, these results position us well for sustained growth and demonstrate our dedication to enhancing shareholder value. Moving on to our new order wins during this quarter. We continue to attracting high quality customers during the third quarter with six new order wins totaling 84 megawatts. As you can see on slide five, in addition to the two IT services orders totaling 35 megawatts for campus that we mentioned on our last earnings call, we have secured another three orders for our data centers in the greater Beijing area and one elsewhere. Specifically, we won a new wholesale order from an internet customer for 32 megawatts at our Huai Lac IDC campus, located in Hebei province, one of our green computing clusters, which I will review in more detail later. We also received a 14 megawatt wholesale order from another internet customer. and a 1.2-megawatt retail order from a semiconductor customer for our data centers in Hebei Province, as well as a 1.8-megawatt retail order from an information and communications technology services customer for our data center in the northern region. The strong demand for our wholesale and retail data centers across key regions underscores the enduring customer appeal of our reliable and high-quality IDC services. Now, let's turn to slide 8 to look at the AI demand trends that shaped our development during the third quarter. We made significant strides in harnessing the growing AI-dreaming demand for high-performance computing power. We continue to see an increasing number of industries adopting AI applications for enhanced operational efficiency. AI-driven demand among our customers primarily stems from leading internet clients and industry leaders in the cloud computing services, short video, local services, financial, and semiconductor sectors. We have expanded our AI computing capabilities in response, aligning our infrastructure with the market's surging needs for AI model training and data processing. Currently, over 98% of our wholesale capacity and service is capable of meeting high-performance computing power requirements, empowering us to quickly capture and accommodate customers' AI-driven demand. We have witnessed the unprecedented surge of large language model development starting in 2023. During the past year, we have won around 300 megawatts of new orders, approximately 90% of which are set to facilitate AI demands of our customers. Additionally, we have deepened our collaboration with clients to better understand their specific AI requirements, enabling us to tailor our services to our customers more effectively. We are consistently advancing our research and development on power modules and refrigeration and heat dissipation solutions that can achieve air cooling of up to 30 kilowatts per cabinet and liquid cooling of up to 120 kilowatts per cabinet. We also continue to enhance our data centers with innovative designs, high-density cabinet deployments, and cutting-edge cooling technology. Moving to slide nine, I'd like to review our Wi-Fi IDC comfort. Bush is part of the Jiangjiakou Cluster of the National East Data West Computing Project and serves as a demonstration project for the National Collaborative Innovation System for National Integrated Big Data Centers. It is situated just approximately 60 kilometers from downtown Beijing, close to customers. enabling us to efficiently meet their high demands for computing power, including the integration of training and inference for large language models, as well as model fine-tuning. Our Hawaii IDC campus is a hyperscale green computing cluster with a total planned construction land area of around 326,000 square meters. Huai Lai, located in Hebei Province, northwest of Beijing, is home to our third computing power cluster, succeeding those in Wulan, Changhu, and Haicheng. Huai Lai offers multiple strategic and geographic advantages. Currently, our Huai Lai IDC campus's capacity stands at approximately 500 megawatts, and we plan to build the campus into a gigawatt-level capacity computing cluster in phases Owing to its exceptional service capabilities, our Hawaii IDC campus recently won a 32-megawatt order from an Internet customer to meet its demand for AI computing power. On a related note, we continue to develop our green data center business and recently received approval from the Energy Administration of Inner Mongolia for our first source grid load storage integrated project, a 300,000 kilowatt project known as the Wunantabu Green Energy Project. The approved project encompasses 200,000 kilowatts of wind power and 100,000 kilowatts of photovoltaic power, as well as 45,000 kilowatts of co-located energy storage equivalent to 180,000 kilowatt hours. It also includes the construction of a dedicated electricity transmission line from renewable energy sources to our Wulan-Chabu data center. Once stable operations are achieved, the project is expected to generate approximately 700 million kilowatt hours of green energy annually, providing our Wulan-Chabu campus with a steady, long-term supply of green energy. We view the Wulantabo Green Energy Project as another value creator for our business and are very excited about its approval. It is one of just a few source grid load storage integrated projects in the China's data center industry equipped with a dedicated electricity transmission line. Not only will this project supply renewable, cost-efficient green power to our Wulantabo campus, but it will also create more synergies for our strategic cooperation with Shandong High-Speed Holdings Group Limited to develop renewable energy projects in northern China. Furthermore, Wulantabu's approval will elevate the proportion of green power used in our data centers, propelling progress in carbon neutrality, one of our key ESG initiatives. Now moving on to a regional data update. As you can see on slide 10, we remain focused on the development of the Yangtze River Delta and the greater Beijing area, with the latter regions under construction capacity proportion increasing during the third quarter, mainly driven by the construction of our Huailai IDC campus. Now let's delve into our business updates, starting with our wholesale business on slide 11. Wholesale business continues to drive our overall growth, recording an 86.4% year-over-year increase in revenue this quarter. Our capacity and service increased by 26 megawatts quarter-over-quarter, reaching a total of 358 megawatts as of the end of September, for an increase of 69 megawatts from the end of September of last year. The utilization rate increased to 78% compared with 75.9% last quarter, with a mature capacity utilization rate of 95.6% and a ramp-up capacity utilization rate of 46.4%. These utilization rate improvements reflect our ability to facilitate quick customer move-ins and our timely responses to customer needs during the quarter. we have a clear growth path for our wholesale data center capacity. Let's move on to slide 12, which illustrates our progress in capacity development and utilization. Notably, our utilized capacity continued increasing during the past quarters from 236 megawatts in the first quarter to 252 megawatts in the second quarter to 279 megawatts in the third quarter primarily driven by strong customer demand from EJS Campus 02C and UNBO R06. We also further ramped up construction in the past quarters to capture future rising demand. increasing capacity under construction from 139 megawatts in the first quarter to 279 megawatts in the second quarter to a total of 297 megawatts in the third quarter. This increase is mainly attributed to the new order for our NOR Campus Era 1 and NHB Campus Era 1B, which will provide reliable, high-performance computing infrastructure to our clients. By the end of September, the pre-commitment rate for capacity under construction had risen to 88.4%. Additionally, the capacity held for short-term future development increased by 72 megawatts to 192 megawatts, primarily due to an abundance of demand with high certainty. We are closely communicating with our potential customers on multiple orders, which are soon expected to enter the construction phase. Given our high pre-commitment weight 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. Our retail IDC business continued to operate smoothly in the third quarter. The retail capacity in-service has increased slightly to 52,250 cabinets. The utilization rate was 63.1% as of the end of September, with mature capacity utilization rate holding steady at 69.5%. Our MR per retail cabinet has slightly increased to RMB 8,788 this quarter from RMB 8,753 last quarter. Turning to our new capacity on site 14, we see that the resource pipeline for our IDC business remains robust. Currently, we have seven data centers under construction. We plan to deliver an IT capacity of approximately 297 megawatts over the next 12 months from the fourth quarter of 2024 to the third quarter of 2025. Our capacity in service for the wholesale business was 358 megawatts as of the end of the third quarter of 2024, meaning that our expected new capacity is equivalent to approximately 83% of our current capacity in service. Specifically, we anticipate delivering approximately 191 megawatts in total during the upcoming fourth quarter of 2024 and the first quarter of 2025, and approximately 105 megawatts in total during the second and third quarters of 2025. For our non-IDC business, our DSM business continued to expand its customer base by acquiring two new customers in the industrial and manufacturing sectors. offering its premium ICT consultation and SD-WAN services to support customers' digital upgrades and business operations. The ESAN currently boasts more than 220 POPs in over 100 cities worldwide and will strategically expand its footprint to other countries and regions going forward. In conclusion, the strong execution of our effective strategy drove strong third quarter results. Looking ahead, we will continue to refine our core strengths to build high-performance data centers and offer innovative IDC services. We are confident that our industry know-how and innovation capabilities will empower our success amid the AI boom. Additionally, building on our strategic cooperation with Shandong High-Speed Holdings Group, we will continue to develop our green energy business and deepen our commitment to our ESG goals. Propelling VNet's high-quality and sustainable development remains our priority as we strive to deliver value to all of our stakeholders. Thank you, everyone. I will now turn the call over to Thi Nguyen to discuss more about our operating and financial performance.