VNET Group, Inc.

Thank you for standing by for the fourth quarter and full year 2024 earnings conference call for V-Net Group Incorporated. 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. Zhu Ma, rotating president, Mr. Keyu Wang, chief financial officer, Mr. Key Yang, Senior Vice President, and Ms. Shin Yeon-lu, Head of Investor Relations of the company. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Shin Yeon-lu. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Our earnings release was distributed earlier today. and you can find a copy on our website as well as on useware services. Please note that today's call will contain forward-looking statements made under the sick 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 maturely 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. VNet does not undertake any obligations to update any forward-looking statements except as required under applicable laws. Please also note that VNet's earnings precedence and this conference call include the disclosure of unaudited GAAP and non-GAAP financial matters. Binance Earnings Press release contains a reconciliation of the unaudited gap matters to the unaudited gap matters. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.binance.com. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Good morning and good evening, everyone. Thank you for joining our call today. I'd like to begin with several key achievements from our fourth quarter and full-year performance in 2024. Firstly, our wholesale business has delivered remarkable growth, while our retail business has remained stable. Secondly, our net revenue and adjusted EBITDA have significantly surpassed our previous guidance. Thirdly, we have recently secured a total of 252.5 MW in orders from customers across the Internet, cross-computing, and intelligent driving industries. Looking ahead to 2025, our delivery plan and orders from customers for the next 12 months have seen substantial increases. I will now provide a detailed overview of these achievements. Let's turn to slide five. We closed 2024 with a strong fourth quarter, highlighted by our wholesale IDC business's remarkable performance as we identified and capitalized on emerging market opportunities, especially advanced technology-driven demand. As of December 31st, 2024, our wholesale capacity in service increased significantly, rising by 127 megawatts quarter over quarter to 486 megawatts. wholesale capacity utilized reached 353 megawatts, increasing by 73 megawatts quarter-over-quarter, thanks to strong customer demand for our wholesale data centers. We have also observed a notable uptake in our wholesale customers' moving pace recently, accelerating to six to 12 months from around 24 months in the past. Meanwhile, our retail ITC business continued to progress smoothly as of December 31, 2024. Our retail capacity in service was 52,107 cabinets, with self-built cabinets increasing by 212 year-over-year and 189 quarter-over-quarter. We also deliver impressive financial results for the fourth quarter and the full year. Let's move on to slide six. Our net revenue increased by 18.3% year-over-year to 2.25 billion RMB for the fourth quarter. Notably, revenue from the wholesale business reached a record high at 665 million RMB for the quarter, representing our farthest year-over-year growth rates. at 125.4% for any quarter of 2024. Adjusted EBITDA for the fourth quarter also increased by 63.8% year over year to 721.3 million RMB, meaning due to our wholesale IDC business rapid growth. Our adjusted EBITDA margin for the fourth quarter increased by nearly 10% points year-over-year to 32.1%. For the full year, we delivered net revenues of 8.26 billion RMB up 11.4% year-over-year, and adjusted EBITDA of 2.43 billion RMB up 19.1% year-over-year. both exceeding the high end of increased guidance we provided last quarter. Meanwhile, we achieved a full-year net profit of 248 million RMB, marking a turnaround from net loss in 2023 through continuous profitability improvements. Moving on to our new order wins on slide seven. Our high-performance data centers, outstanding delivery capabilities, and premium services continued to attract quality orders. In the fourth quarter, we secured a 32 megawatts order from an existing internet customer for our capacity in the Yangtze River Delta. and one of our retail base centers located in the Great Bay area also win a 1.5 megawatts order from a new customer in intelligent driving industry during the quarter. Meanwhile, we signed a framework agreement with an Internet customer for 100 megawatts of capacity, including a 28 megawatts order to be delivered in the fourth quarter of 2025. Additionally, we also secured a 55 megawatts order from a leading cross-computing customer in this region, demonstrating our customers' deep and enduring trust in our high-quality services. Furthermore, we recently win 64 megawatts wholesale order from an internet customer for the project. We operate in Hebei province with our joint venture partner, Changzhou Gongxin Group. This joint venture enable us to serve more customers while minimizing the impact on our balance sheet, providing an efficient means of growing our customer base and optimizing our business layout. Looking ahead, we will continue utilizing joint venture structures to further enhance our efficiency and facilitate high-quality business development. Now, moving to our four-year guidance for 2025 on slide 8. We expected total net revenues for 2025 to be between £9.1 billion to £9.3 billion RMB, representing year-over-year growth of 10% to 13%. adjusted EBITDA is expected to be in the range of 2.7 billion to 2.76 billion RMB, representing year-over-year growth of 15% to 18%. Based on our new orders and delivery plan, our capital expenditure for 2025 is expected to be in the range of 10 billion to 12 billion RMB, representing year-over-year growth of 101% to 141%. Also, we expect to deliver 400 to 450 megawatts in the next 12 months, an increase of 161% to 194% from 2024's total deliveries. Moving into 2025, we are seeing persistent high demand for high-performance data centers, with recent breakthroughs by DeepSeq propelling the domestic AI development and driving the IDC industry's ragged growth. As such, we are confident that the immense growth potential in China's IDC market is poised to be further unlocked. Let's take a closer look at our recent observations on slide 9, starting with DeepSeq's impact. DeepSeq's innovative achievements have significantly bolstered confidence in domestic AI development, catalyzing a surge in inference demand and enterprises' enthusiasm for investing in AI, including large CFP, Internet enterprises, and the small-medium enterprises. DeepSafe innovative models and technologies are enhancing efficiency and reducing both costs and dependencies on high-performance chips for training and inference. It will become easier for companies to execute their AI strategies, triggering wider AI adoption industry-wide and a greater need to build out AI infrastructure. In turn, lower overview barriers to entry for AI will unleash greater demand for our reliable wholesale IDC services. Furthermore, as more companies integrate AI into their operations, inference demand is expected to surge. we have already observed significant growing demand from small and medium-sized enterprises for private deployment of DeepSeq. We expect this positive market trend to persist for the foreseeable future. bringing exciting business opportunities for our retail IDC business. We will seize these opportunities to effectively enhance our retail data center's utilization rate and MRR, laying a solid foundation for our long-term business development. Let's turn to slide 10. As we have shared previously, the Yangtze River Delta and the Great Beijing Area are our core business regions. The layout of our wholesale capacity in service is dynamically balanced in two regions, with the proportion of capacity under construction in the Great Beijing Area increasing On a related note, industry research suggests that overall utilization rates at China's data center are set to increase steadily. Tier 1 cities with vibrant digital economies are expected to begin experiencing supply shortages of the high-performance data centers needed to run AI applications as AI-related business expand. Most both physically as a crucial area for the development of China's AI, internet, and high technology industry, the great Beijing region is experiencing steady growth in data-centered adoption and utilization rates. With the deepening application of generated AI and enhancement of computing power and the network infrastructure, the overall utilization rate of wholesale data center in the Great Beijing area is projected to reach 85% as earlier as 2025, marking the first potential supply shortage in the market. In the Yangtze River Delta region, a new wave of structural upgrades in AI technology will temporarily relieve pressure on the supply-demand imbalance in 2025. Given the suspended growth in demand, the overall utilization rate of wholesale data centers in the Yangtze River Delta region is expected to reach 85% by 2026, at which point this area will also face supply shortages. As a leading player in the computing infrastructure industry, we have a clear growth path for our IBC business. Our strong delivery and service capabilities precision us well to capture market opportunities, stemming from these strategies driving our sustainable growth. Now, let's delve into our business updates, starting with our wholesale business on slide 11. As the company's primary growth engine, our wholesale business achieved outstanding fourth quarter results in terms of both revenue, which reached 665 million RMB, and the growth rates accelerated to 125.4% year over year. This segment is striving as high performance IDC services remain in high demand across the market, especially as leading internet players continues to deepen their investment in AI for the driving demand goals. To meet this demand, we increased capacity in service during the quarter by 127 megawatts. to 486 megawatts. Meanwhile, capacity utilized rose by 73 megawatts to 353 megawatts, mainly driven by high utilization and faster than expected movings. Our wholesale business utilization rate decreased slightly to 72.6% due to our delivery of 127 megawatts concentrated in the fourth quarter of 2024. We also delivered a mature capacity utilization rate of 95.6%, a relatively high level, and a ramp-up capacity utilization rate of 34%. We have a clear growth path for wholesale data center capacity. Let's move on to slide 12. We maintained our growth trend in overall wholesale data center capacity with 486 megawatts in services and utilized the capacity increasing to 353 megawatts by the end of the fourth quarter. Our capacity under construction was 406 megawatts in the fourth quarter with a pre-commitment rate for capacity under construction of 82.9% by the end of December. Additionally, capacity held for short-term future development increased sequentially by 75 megawatts to 267 megawatts, primarily due to an abundance of demand with high certainty. With AI development driving greater market demand for IBC services, we will continue to press forward with our robust expansion plan for wholesale data center capacity laying a foundation for further business growth. Moving to our retail IDC business on slide 13. Our retail business remains stable and continued to progress smoothly in the fourth quarter. Retail capacity in service was 52,107 cabinets with 33,068 utilized cabinets for utilization rate of 63.5% as of the end of December. MRR per retail cabinet increased slightly to 8,794 RMB this quarter. Turning to our delivery plan on slide 14, in 2024, we successfully brought a total of 153 megawatts into services, showcasing our robust and efficiency delivery capabilities and the deep commitment to meeting customer demand. This includes over 127 megawatts during the fourth quarter and 26 megawatts in the first nine months, far surpassing our guidance. For 2025, customer demand for high performance, reliable IDC resources remain strong, and we expect our deliveries will set a new annual record. We currently have eight data centers under construction and plan to deliver 406 megawatts of capacity over the next 12 months, all around 140 megawatts during the first half of 2025 and around 266 megawatts in total during the second half of 2025, reflecting strong customer demand and outstanding delivery capabilities. non-ITC business also remains a key component of our overall business growth. Notably, we continued to expand our D1C business customer base by acquiring new customers from the medical technology, professional services, and consulting industries for D1C premium dedicated internet services, EVPL, and SD-WAN services. In conclusion, Our effective new core strategy and strong execution draws excellent fourth quarter and full-year 2024 results. Moving into 2025, we remain confident in China's core potential, led by certain demand in the IDC industry due to the AI boom. To capitalize on this opportunity, we will continue to innovate, strengthening our capability and expanding our high-performance data center network to offer our customer solution designed to seamlessly address their demands in the AI era. As always, we are committed to delivering sustainable long-term value to all of our stakeholders. Now, I will turn the call over to our CFO, Qi Yu, for further discussion of our operating and financial performance. Thank you, everyone.

Good morning and good evening, everyone. Before we start the detailed discussion of our fourth quarter performance, please note that, unless otherwise stated, all the financials we present today are for the fourth quarter and the full year of 2024 and are RMB terms. Furthermore, unless otherwise, substitute old growth rates I am reviewing are on a year-over-year basis. Let's turn to slide 16. We exceeded our expectations for the full year 2024, capped by a strong fourth quarter as we remain focused on high-quality revenue business. In the fourth quarter, our total net revenue increased by 18.3% to $2.25 billion. our adjusted cash growth profit increased by 24.6% to $923.9 million, while our adjusted EBITDA also grew year-over-year by 63.8% to $721.3 million. For the full year, our total net revenue was $8.3 billion, representing an increase of 11.4% compared to the same period last year and adjusted EBITDA reached $2.4 billion, reflecting an impressive 19.1% increase from the prior year, both exceeding our guidance. Furthermore, our bottom line turned profitable with net income reaching $238.4 million, achieving a significant improvement from net loss of $2.6 billion for the full year 2023. Let's look more closely at our top line As we have mentioned previously, we have divided total net revenue from IDC business into wholesale and retail IDC business based on the nature and the scale of our data center projects, with revenue from non-IDC business remain separate. As you can see on slide 17, In the fourth quarter, our wholesale revenues remained our key revenue growth driver, with strong momentum significantly increasing by 125.4% year-over-year to $665.2 million, mainly driven by the EGS Compact 02. Our retail revenues continue to account for the largest part of our net revenue. Our retail revenues remain relatively stable, At $964.8 million, our non-IDC business continued to progress smoothly. During the fourth quarter, we maintained solid margins thanks to our continuous effort to enhance overall efficiency. As we have shown on slide 18, our adjusted cash growth margin remained quite stable. Our adjusted EBITDA margin rose significantly to 32.1% compared with 23.2% in the same period of 2023. Moving on to liquidity, on slide 19, we maintained a strong cash flow during the quarter. Also, we recorded a net operating cash flow of $2.01 billion for the full year of 2024. Our cash position remained healthy, with the company's total cash equivalent and restricted cash reaching $2.08 billion as of December 31, 2024, stable compared to the end of the third quarter. Next, let's take a look at debt on slide 20. We maintained our prudent approach to debt management with our net debt to the trillion 12 months adjusted EBITDA ratio at 4.9 and the total debt to trillion 12 months adjusted EBITDA ratio at 5.5, both remaining at health level, and our trillion 12 months adjusted EBITDA to interest cover rate improved to 6.5 as of December 31, 2024. We prioritized long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment. Additionally, the company's short and the medium term debt maturing in 2025 to 2027 comprised was 56.9% to our total debt. Turning now to CapEx spending. As you can see on slide 21, for the full year 2024, our CapEx was $4.98 billion, with a majority allocated to the expansion of our wholesale EDC business. Mainly due to linear supply chain expenditure management, some CapEx was deferred to 2025. We expect our CapEx for full year 2025 to be in the range between $10 billion and $12 billion, the level of 2024, the increase is mainly to support our 400 to 450 megawatts delivery plan for 2025, which is expanded to three times greater than that of 2024, surpassing the total delivery capacity of the past three years combined. Before I conclude, Let me share a few of our achievements in ESG. We view our commitments and responsibilities to our industry, environment and society as cornerstones of our ongoing success, and I'm proud to report that our ESG efforts continue to win recognition from global renewed ESG rating institutions this year. Recently, we secured a spot in the S&P Global Sustainability Yearbook 2025 with our record score of 70 in S&P's 2024 Corporate Sustainability Assessment. This is VNAT's first inclusion in the Global Edition following two consecutive years in the China Edition. globally vnet is one of just 21 china mainland enterprise recognized in the 2025 yearbook and so on the re from chinese i.t service industry our score also lands us in the top seven percent of i.t services industry globally in addition to this recognition by S&P Global, we received an A rating from MSCI for the third consecutive year, reaffirming our leadership of China's internet service and infrastructure industry. We attained a B grade in CDP's climate change questionnaire in 2024, with eight out of 16 categories achieving A-agreed recognition. These accomplishments not only highlight our effective ESG strategy, but also reflect our long-term investment value and development prospects. In summary, we are delighted to end 2024 with stronger than anticipated results, driven by impressive growth in our wholesale EDC business. Looking ahead, we will continue to execute our high-quality development strategy and invest in future growth, particularly AI-related opportunities, to propose our long-term sustainable development. This concludes our prepared remarks for today. We are now ready for take questions.

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please ask your question to management in English and then repeat in Chinese. Your first question comes from Xuyen Qi with CICC. Please go ahead.

Thank you for taking my question, and congratulations on the strong results and orders. My first question is, the wholesale business order in last quarter and recently have been really strong. To deliver these orders, the CapEx outlook for 2025 have been increased. So could management provide details on the enrichment of CapEx for 2025, and how much of this spending will be covered through the funds from our risk projects? Also, according to the announcement, the retail data center won a new order from customers in intelligent driving industry. So my second question is given the strong demand from the AI computing, could management provide insights into the potential impact of AI-related orders on the retail segment? Could you share with us the utilization rate trends and the pricing trends in the retail business? Thank you. Thank you. Thank you. Thank you.

Let me answer the first question. In 2025, we did give a higher CAPEX guide, which is about twice as much as we did in 2024. Because of this, more than 90% of these CAPEX will be invested in our base data center business. Because our base data center business has a 400-watt delivery plan in 2025, 83% of which Thank you for the question.

I want to take out the first question to begin the answer. In 2025, we are setting a high threshold, a high standard for the CapEx. Compared to that of 2024, we gave it a 100% increase. And over 90% of the 2025 CapEx will go directly into the wholesale IDC business.

In 2025, over 400 megawatts will be delivered in our wholesale IDC business.

Among them, 83% have been on the determined orders as well as the capacities to deliver. And for the remnant capacities, we are about to sum them up recently. And the remnant capex will be go directly into the retail IDCs for the purpose of the high-power density cabinet retrofit as well as the value-added business.

You mentioned REITs. This year marks the beginning of China's data center industry asset securities, or RATES. Last year, we first realized the first pre-RATES data center. Last week, we were very happy to see our two partners realize their own type of ABS, or what we call private RATES, and public RATES transactions.

And I also want to add a few more comments about the questions on the REITs. I have to say that 2025 marks the starting point for China to experience the security as a civilization of the data industry, as well as it is also recognized as a starting year for different types of REITs being implemented. In last Q3, the Q3 of 2024, we experienced the first pre-risk, and last week I'm so happy to see two of my partners have launched their EBAs, the asset-backed securities, in the name of the, also known as the private risk, and their public risk have also been affected by the exchange.

对,我们的私募 risk项目也同样获得了交易所的受理。 And please be noted, our prized REITs projects have also been accepted by the Shanghai Stock Exchange.

Our prized REITs are in the key stage of being examined and proved. It is estimated that in 2025, Two to three of our risks of a different nature and background will be implemented.

As a result, we're able to recover up to 2 billion RMB. Okay. And now let me check with you about the second question about development of the large-language model and AI applications.

We are very happy to see that in the beginning of 2025, the operation of DIGCIP has driven up the demand on the AI application. And the application of DIGCIP has played down the threshold of adopting the large language models giving us a strong push in the model referencing. And we are also seeing that the threshold of deploying DeepSeq in the private sector has been played down. As a result, the development and adoption of the smart applications has been expanded.

On the other hand, as you mentioned, in the area of self-driving, the emergence of large models has also made these hammer-type applications more and more common. You just mentioned autonomous driving.

This is one of the key vertical scenarios I have explained to you. we have to say that autonomous driving is extremely and dramatically important. In the Q4 of 2025, our company had already made very good breakthroughs in this regard. And in 2025, we will continue the autonomous driving as a key sector for us to expand our customers as well as to offer premium services.

具体到对于二五年, We believe that the trend of the price is still affected by the market. At the same time, we will also maintain an optimistic attitude because the demand is indeed increasing. From now on, our analysis is that the price trend of single-deck will support the deployment of AI software, so the price of single-deck will be slightly higher than the current traditional retail price.

To be more specific, I want to share with you my understanding on the utilization. We have already experienced the boost from the demand from this market, and we are staying very positive about that. In terms of the pricing mechanism and pricing trend of the single cabinet, those AI server deployments are friendly or specific to single cabinets. Their price will be higher than that of the traditional ones. Next question, please.

Thank you. Your next question comes from Sarah Wang with UBS. Please go ahead.

Thank you for the opportunity to ask questions, and congratulations on the solid set of results. I have two questions. First one is that I noticed that among our new auto wings, there are 64 megawatts JV projects with Changzhou Gaussian Group. Would management please look us through the framework, partnership with the Changzhou partner, and then how that reflected in our revenue or CAFAS guidance? And then my second question is regarding the supply-demand dynamics. I think from the management comments that seems management is really confident in the supply-demand dynamics over the next one or two years. and even mentioned supply shortage, how should we think about this? Because the supply chain in China is still quite efficient, and then are there any new entrants into the market, or are competitors delivering new projects into the market? How shall we think about the supply, given the demand is already quite strong? Thank you. Thank you for the opportunity to ask questions. I have two questions. The first question is that we see that there is a JV cooperation project of 64 megawatts in our new order. Can you please help us understand the model of our cooperation and how this 64 megawatt order will reflect on our income and capital expenditure? The second question is that the management has mentioned that the future supply and demand relationship is very optimistic. How should we think about this? Because maybe our friends will deliver more projects, or maybe there will be some new entrants in the industry. Based on the strong demand, how should we think about the speed of new supply and demand entering the market? Thank you.

Let me answer your first question. Indeed, our demand is very high this year. We are also very happy. Two years ago, we established a joint venture company with SOE in Changzhou. We account for 30% of the shares. This joint venture company also received an order of 64 megawatts.

Thank you for the question. I want to share with you a little bit of a background of this question. And first of all, I have to say that the demand is really going high in this year. And two years ago, our company created a JV together with the Changzhou SOE. And from that JV, we are holding 13% of the equity, which is equivalent to the 64 megawatt order you are mentioning. And please be noted, the order on the 64 megawatts together with the JV will never be incorporated into the capex I just introduced, and it will not be in our balance sheet as well.

But we will get some significant profits through asset management fees and service fees. In fact, this type of project is more meaningful to us because we can satisfy the customer's needs without our own asset load table. In this way, the company has also established such core capabilities through new asset development and operation.

And we have to say we are going to win profit from this project of 64 megawatts in the name of the management fee or in the format of the capital operation fee. This is a great milestone for us to run and operate a project to serve our customers. but we are not going to have that to put that in our balance sheet. In other words, we are going to drive up our capacity to use up the right assets while satisfying the strong demand from the core customers.

Let me answer your second question. Your second question is mainly about the trend and competition of the industry. We have recently seen some third-party industry data Your next question is about the trend as well as the market competition.

And let me check with you about several observations. According to the latest survey from the industry, third party, according to the supply and demand situations of the domestic market, it is estimated that in 2025, in the Great Beijing area, the wholesale IDC business will experience the supply shortage. Well, in 2026, this will also happen in the Yangtze River Delta.

Actually, this report is similar to the market situation we are experiencing now. The supply and demand relationship of the data center is undergoing some obvious changes. And from a competitive point of view, some of our previous major partners have turned their focus overseas. So we are now... This conclusion from the Third Party Data Industry Association is in line with my gut feeling about this market.

And your next part of this question is about the general competition of this market. To be honest, Most of my peers have prioritized the overseas market instead, which means for the bidding process, we are engaging for the recent times with different peers at different sessions without a consolidated or major peers or competitors. Next question, please.

Your next question comes from Yang Lu with Morgan Stanley. Please go ahead.

Thanks for the opportunity. Congratulations on the strong booking first. I have two questions. The first one is regarding the future trend of the industry rental. As you mentioned that it is likely to see supply shortage and also the hyperscalers demand is quite strong. What's your expectation of the per kilowatt rental? in the next one or two years, is it likely to see some price hike? And my second question is regarding the unit cost or unit capex. Because of the data center upstream, like the DDoS generator or other UPS, et cetera, those equipment the key component and whether there will be enough supply from upstream and whether there will be any pricing hike to give pressure on the unit capex. 我翻译一下我的问题。 我的问题第一个是关于行业未来租金的判断, 也是因为刚才管理层提到了行业可能会出现 uh, uh, I think this is a very, very good question.

On the one hand, due to the spread of large models, For the demand of the base data center, it has been continuously releasing such demands. So from the end of last year, especially to this year's Q1, it has been very clearly reflected in this situation. At the same time, as you mentioned, when it comes to providing large model training and applications, we also found that Thank you for the excellent questions.

And I will share with you some of my understanding about this market. We are seeing that every single launch of the large language model into this market we are seeing the wholesale IDC centers' demands have been gradually released into this market. From the end of last year in 2024 all the way down to the first quarter of 2025, we are also seeing that the supply is a little bit in the shortage side. When we are talking and discussing with the leading online and internet companies in China, we have to say that the resources they are going to choose and the companies they are going to work with are a little bit of limited.

Right. But no matter what, when a large company chooses a base data center, as my colleague Qi Yu mentioned, we will face different competitions in different areas, even if the name of the business is different. So, based on this market situation, we first need to meet the basic needs of the market for the pricing of the wholesale data center business. So, from the current point of view, the pricing of the wholesale business is stable.

As my colleague has already briefed on you the general market situation in China, I want to add a few more comments. In China, the leading online and internet companies are choosing and working with different wholesale IDC suppliers. In different cities and regions, we are experiencing competition as well, even though the peers are different in different regions. In terms of the price trend as well as the pricing mechanism, we are offering the IDC business to meet a proper market demand, which means that our price mechanism is driven by the market, and our pricing is quite stable.

成本这边我来回答一下。 目前看,像这些柴油发电机这样的主要的设备, 由于建设量的大幅增加, And I want to add a few more comments about this on the cost front.

When we are discussing about the diesel generator units and equipment, we are seeing that as the construction and installment are picking up, the traditional brands, especially those imported ones and JV brands, are not adequate. Yes.

And we have to check the other side of the coin.

The good news is the majority and the most part of the clients are increasingly comfortable in using the made-in-China equipment instead. And we're also seeing that through different optimization, the price is even slightly lower.

还有就是因为我们现在的数据中心的规模越来越大 我们单体的建筑现在可以到50到60兆瓦一栋楼

Since we are having very large IDCS gear on the market, the single cabinet will cover 15 to 16 megawatts per building, offering us huge rooms to even refine the design. So generally speaking, the unit capex is a little bit of a slightly lower.

结合现在的供需关系,我们现在预测未来有机会收入会逐步的上升, 再加上刚才我讲到的成本的逐步下降, 现在整体的回报率是有一定的提升的。

Where we are seeing the general picture of the supply and demand relationship on this market, the cost is slightly lower. The revenue will pick up. As a result, the return will pick up as well.

Next question please.

Thank you.

Your next question comes from Edison Li with Jefferies. Please go ahead.

Hi, thank you for taking my questions and congratulations again on great results and Very good order wins. I have two questions. I think the number one question is still more related to supply and demand, but more on the retail side. So I believe that I totally agree with your assessment that I think SMEs can actually benefit from DeepSeq by deploying the model in private cloud or even on-premise. So based on what you saw in the first quarter of this year, do you think that your retail revenue this year can actually get back to, let's say, mid-single-digit growth? Is that possible? And then 2026, do you think it will further accelerate? So that's question number one. Question number two is about financing. Can you help us understand how you would actually fund the $10 billion RMB capped back in 2025, because your operating cash flow is somewhere around 2 billion, and you can raise 2 billion from REIT and you still have 6 billion RMB to finance. Okay. First of all, congratulations. This is a very good result. The demand is very strong. The first question is still about the supply and demand. But I want to know more about the retail market. Because I agree with your judgment that DPC is definitely a good option for some medium-sized companies. to use this big model to develop their AI applications. What do you think, based on your first observation, do you think that the retail industry will have a chance to return to a medium-sized retail account this year? What is your opinion on this next year? The second question is about financing. Actually, I want to know more about how you are going to finance this year's $110 million cashback, because your monthly cash flow is about $2 billion. Then you may have another 20 billion, and another 60 billion. How do you think about this financing issue?

Okay, thank you. Thank you for your question. The first question, I will answer your question.

I am also very willing to discuss with you at this opportunity. After DeepSeq came out, the overall impact on the retail data center. In fact, you know, DeepSeq, after it came out, mainly through innovation, greatly reduced the threshold for small and medium-sized enterprises, even individuals, to use large models.

Thank you for the question. I'm very much willing to share with you my personal views on the entry of DeepSeq and what its impact on the retail sector. First of all, through the extreme innovation of the DeepSeq large language model, We have seen the threshold for the medium and small enterprises as well as individuals has been cut dramatically.

我愿意把这种判断用我们在最近一段时间的实践和您来分享。 第一个就是现在越来越多的一些中小企业, 甚至包括一些开发者, 他们都提出了对于使用城市型的

And I want to share with you my personal observation and will validate my personal judgment according to the practices we have already experienced. For the recent days, we are seeing a large number of small and medium-sized enterprises as well as individual developers show the strong demand in adopting and using the retail IDCs.

And I want to share with you a couple of business models

the small and medium-sized enterprises as well as those individual developers are using. First of all, they will deploy their servers in the range of two servers all the way up to 16, and they will entrust their servers into the retail IDC we are running coupled with the DeepSeq, whether it is vSuite or RE.

At the same time, And let me check with you and share with you the business model too.

some of the clients will come to us requiring the IDC, the retail IDC rental services together with the procurement of the extra GPU. With that being done, we are creating the new business model for HIT, the hybrid IT services.

除了这两种形式以外, 现在也有客户向我们提出, 在使用我们机柜或者使用我们HIT服务的同时, 希望我们 And we are experiencing a new range of demand from our clients.

They are using our IDC as well as HIT as I explained to you. We are also requiring for us to deploy or to dispatch software engineers to work with them in developing value-added applications for them.

最后我再补充一点,您非常清楚实际互联现在是从城市性数据中心和基地性数据中心来的双轮驱动的战略。 I know that you must be expert in reading my company's E&E.

VNET, and we know that VNET is running and implementing the corporate structure of the dual-engine operation with retail and wholesale IDCs. When we are running the retail IDC business, we are reaching out to thousands of clients. And when in this range of a large language model application, we'll reach the client first time to offer them either the retail services or the referencing models.

Thank you for staying with me. Thank you for staying with me.

You are mentioning that we are having a very large complex in 2025. Agreed. It is due to the strong demand from the wholesale IDC new wins, the new orders, and we are having two channels as well. Very much we are running cash flow as well as the risk project I have just briefed.

另外,由于我们现在的 And due to the corporate structure of the board, we are in an advantageous stage in having the low financing.

For instance, if we are going to carry out and releasing a project-backed loan financing, we're going to have 80% of the ROV with the interest rate of no more than 3.5%, with a total maturity duration of 15 years.

Yes, so according to our current calculation, according to the debt ratio that I just mentioned, because this year we are And I also want to share with you the results of our corporate estimations.

based on our loan ratio as of now. And we have already paid back the majority of the transferable loans by the end of last year. And according to the current CapEx we are releasing, the EBITDA per capita will be 6.5% as we are estimating and calculating.

Next question, please. Your next question comes from with Goldman Sachs. Please go ahead.

Great. Thank you, for taking my question, and congrats on the very solid results. I have two questions here. One is, I think, about your downstream customers. I think given the rising data center demand from AI, just wondering if can share your observations on the customers in terms of their, I think, preferences between the in-house data centers and third-party data center operators. and how is that different now versus a couple years ago? And secondly, it's on the wholesale data centers. As we are seeing faster inferences demand growth, could you please comment on how your wholesale campuses cater to the inferences versus training demand, and what is the customer requirement in terms of the power cost, in terms of latency, et cetera? 感谢关于曾接受的提问, 也恭喜非常强劲的业绩及2025年的职业。 I have two questions here. The first one is about our downstream customers. Could you please share some of our observations, including how downstream customers choose between their own and third-party data centers? What is their PIN number? What is the difference between their PIN number now and what we saw a few years ago? The second one is about our base data center. Could you please share Thank you for your question. Let me answer the first question.

This is a very sensitive question. I will try to answer it from my point of view. As you can see from the articles we have submitted, from the current perspective, the entire Internet industry Thank you for this question.

It is a very important but also a very sensitive question. I have to say that you are raising up the questions on orders as well as which pathway they are selecting. be it from the password of the rental, or they are going to have their in-house choices. And in the deck, we have already delivered and shared with all the analysts. You could check some of the details as well. And in this year, we are seeing the boost of demand from the online and internet industries. When they are deploying the large language models, we are also collecting a lot of feedback.

Internet companies are still the most important industry, and they are also the source of our most important customers.

At the same time, recently, due to the increase in the demand for AI, domestic cloud computing companies, financial customers, and autonomous driving,

As of now, the online and Internet business is still one of the most important industries we are working with, and they are also offering the most important source we are obtaining customers. And as AI demand is driving up in the beginning of this year, We are seeing that the companies in the cloud computing, intelligent driving, as well as finance is also very much important. And please be noted, those companies in the large land models is also naturally.

关于您问到的客户是选择自建还是跟第三方合作, 租用的这个形式确实是一个非常好的问题。 那从目前我们的观察和我们实际的市场的反馈来看,

And you're also trying to find out whether those clients will go directly with the in-house choices or they will collaborate and rental from the third party. According to the feedback I collected from this market as well as my first observations, both scenarios are coexisting.

Generally speaking, a few number of clients will go with self-built choices, and a majority of the clients will go with a rental selection.

which means that the largest proportion of the clients will go with a rental choice with the complementary part of the clients will go and build by themselves.

I think the most fundamental reason is that these clients' needs are very high. If all of them use self-employed forms, resources are completely unable to meet their own development needs. So they will use self-employed forms, And I want to share with you a little bit of the rationale behind.

I think the market and the client has a booming demand on this regard. I don't think it is rational for the client to build their own equipment by themselves. They're not going to use up that much resources. So the general pathway is rental plus self-fit, and this order should never be reversed. That is what we have observed from this market.

第二个问题是,我们记错应该是在基地型数据中心如何去满足客户, 同时客户对推理的需求以及对食盐的一些考量。 Let me answer your question. As of now, our layout, city data center and base data center, as shown by our materials, our base data center still has a lot of demand. Including the orders we have signed now, and the orders we have confirmed in 2025, and the progress of our delivery. And I also want to share with you the second part of the questions.

I want to start with you by analyzing a little bit of the wholesale IDC services we are offering. We are seeing the need is booming, and in the beginning of 2025, The determined and contracted orders are on the way, and the deliveries are also on the way. But as of now, we are collecting two pieces for new ideas from the customers. The first piece of idea is they are requiring the expanded capacity from us. And with that being said, they want us to have an even better efficiency or high efficiency.

From the point of view of reasoning, now the customer's choice is generally in the city data center. Because for推理, whether it is to deploy the model, or it is based on the model for the development of the smart body, the general choice is in the city-based data center around it. And this choice, it will be more based on the base, it may be more focused on the consideration of electricity cost. But on the推理 side, it is more important to consider the convenience and the convenience of its deployment. And in these two cases,

And I also want to add a few more comments on the referencing part. The referencing models will happen within the retail IDC for most of the scenarios because the client will consider convenience more than the price of the carriers. In terms of the REPSI models, it is whether as a private deployment or it is for the purpose of the development of intelligent applications, which means that latency is not going to be troublesome.

小杰一句的话就是现在客户一般不会在基地型的数据中心 He'll wrap it up for our clients.

They will deploy their inference models in the retail IDC instead of the wholesale IDC. Thank you for the question.

Next question, please. Your next question comes from Daily Lee with Bank of America Securities. Please go ahead.

Thank you for taking my questions. Congrats on the solid results and the strong new orders. Here I have one question regarding the wholesale business. As companies have achieved strong new orders in the past two quarters, and we also have a quite solid delivery plan for this year, and by the end of this year, our capacity in service probably will almost double compared to the number in 2024. So how do we think about the growth outlook maybe in 2026 or even 2037 regarding the revenue or new orders pipeline? Thank you. Yes, let me translate it again. Thank you for the question. I have a wholesale business here. The new orders we have recently signed are very strong. Including this year's delivery plan, it is expected to be in-service by the end of the year. The wholesale production capacity is almost doubled. So I would like to ask the management team, what are your expectations for the growth of the 26th year, including the release of orders, and even for the 27th year?

Thank you. Let me answer this question. We have a five-year plan, because we have already seen that with the widespread application of AI, and the entire domestic market

Thank you for this question, and I want to share with you my view on this question. The company has established a five-year plan ahead of the time because we are estimating that the AI deployment is going to be really strong in this Chinese market, driving up the demand for the domestic IDCs extensively.

Yes, we have been investing in CapEx for the past three years. We expect that in 2026 to 2027, the company will continue to invest in CapEx to meet the needs of its customers.

In 2025, the total number of CapEx is in the range of the totality as the last three years. And in the year of 2026 to 2027, the company will continue to boost up the CapEx to meet up the requirements of our clients and customers in the market.

因为我们的CapEx投入,几乎所有的CapEx投入都是基于客户确定的订单的。 So this kind of CAPEX investment will bring a very strong certainty to future performance growth.

Our CAPEX is strongly determined by the contract signed up with the client, which means that our CAPEX is offering a new round of certainty to the growth of the future business.

But due to the business model of the data center industry, we usually invest in construction first, I also want to

released a little bit of a business model of the IDC sectors. Normally, we will go and construct to start off. It will take six to nine months as a different project and place goes. After that, we will take around six to 12 months, additional six to 12 months, to stack up all the requirements of the customers. It will be meeting 90% of the customer's demands. At the end of the day, you are going to find that the growth of the EBITDA will be a little bit slower than that of the CAPEX.

Ladies and gentlemen, that concludes our conference for today.

Thank you for participating. You may now disconnect your lines.