VNET Group, Inc.

Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2026 earnings conference call for VNet Group, Inc. After 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. Wen Teng, Rotating President, Mr. Peter Zhang, SVP of Operational Finance, Ms. Sharon Liu, Executive Vice President, Ms. Julia Jiang, Senior Manager of Investor Relations of the company, Mr. Ju Ma, Executive Vice President. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Julia Jiang. Please go ahead.

Thank you, Okurita. Hello, everyone, and welcome to our second quarter 2026 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on Israel Services. Please note that today's call will contain forward-looking statements made under the safe harbor provision of the U.S. Privacy Security Interestation Reform Act of 1995. Further looking statements are subject to risks and uncertainties that may cause the actual result to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VINIA does not undertake any obligation to update any further looking statements expected as required under applicable laws. Please also note that VNAT's earnest press release and this conference include the disclosures of unaudited gap and non-gap financial measures. VNAT's earnest press release contains a consolidation of unaudited non-gap measures to the unaudited gap measures. A summary presentation of which we refer during this conference call can be viewed and downloaded from our IR website at ir.vnat.com. Next. I'd like to alert you that we will utilize interactivity speech technology powered by Neolink.ai to deliver this quarter's prepared remarks by Mr. Wen Teng, our rotating president, and Mr. Peter Zhang, our ACP of operational finance. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our IR website at ir.v9.com. Now, let's get started with today's presentation. Mr. Teng, please go ahead.

Good morning and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during the second quarter of 2026. We delivered another robust quarter as we continue to capitalize on surging AI-driven demand, leveraging our industry-leading capabilities, strategically located resource reserves, and strong execution. In the second quarter, we secured a total of 347 MW in new order wins, primarily driven by accelerating growth in our wholesale IDC business, which contributed 345 MW. Together with the 517 megawatts of orders disclosed in our last quarter earnings results, our wholesale IDC business has secured a total of 862 megawatts of new orders year-to-date in 2026. As of June 30, 2026, our wholesale capacity in service rose by 49.4% year-over-year to 1007 megawatts, surpassing 1 gigawatt for the first time. Meanwhile, Wholesale capacity utilized by customers grew by 45.5% year-over-year to 744 MW, bringing the utilization rate to 73.9%. Our retail IDC business continued to progress smoothly, supported by growing AI-driven demand. Retail MR per cabinet increased to RMB 9,799 in the second quarter. while the retail utilization rate remained stable at 64.5%. On the financial side, our total net revenues increased by 14.2% year-over-year to RMB 2.78 billion for the second quarter. Wholesale revenues remained the key growth driver, reaching RMB 1.10 billion, a year-over-year increase of 29.3%. Our adjusted EBITDA for the second quarter increased by 25.4% year-over-year to RMB 918.3 million, also primarily attributable to the wholesale IDC business. Beyond our operational and financial performance, we made meaningful progress on the following two strategic initiatives during the quarter. First, we continued to advance our strategic collaboration with CATL, a global leader in zero-carbon new energy technology. We signed a strategic cooperation agreement to jointly develop a three-layer integrated compute energy ecosystem. I'll share more details shortly. Second, we continued to strengthen our strategic resource reserves across key regions. By the end of the second quarter, our total capacity exceeded 3.5 gigawatts in the Chinese mainland. And on top of that, we secured approximately Thank you for your attention. Reliable services continue to earn customer trust and gain market share. Following our last earnings call, we won a new 345-megawatt wholesale order in the second quarter from a leading cloud service provider for our data center in the greater Beijing area. This order win reflects growing customer confidence in our high-performance data center capabilities and our ability to support their evolving AI infrastructure requirements. Furthermore, driven by AI-related demand, we secured new retail orders totaling approximately 2 megawatts across multiple retail data centers during the quarter from customers in the IT services, local services, and financial services sectors. In aggregate, we secured four wholesale orders totaling 862 megawatts year-to-date in 2026, including the 345 megawatts I just mentioned and 517 megawatts we announced last call. We continue to see robust momentum in customer demand with increasing depth and durability. Customers are not only accelerating their near-term capacity deployments but are also beginning to secure capacity in advance under reservation agreements to support their medium to long-term expansion plans. As of the end of the second quarter, Our reservations stood at 355 megawatts, bringing total orders and reservations to over 1.2 gigawatts. This demonstrates the strength and sustainability of expansion-related demand and provides greater visibility into our future growth and phase delivery schedule. Meanwhile, we have established a well-structured delivery schedule for these orders. with approximately 287 megawatts expected to be delivered in 2026, 345 megawatts in 2027, and 230 megawatts in 2028 and beyond. Securing these large-scale orders is a testament to the trust customers place in our execution capabilities and speed to market. These new orders and our disciplined delivery roadmap enhanced the visibility and predictability of our future revenue growth, underpinned by a high-quality base of long-term contracted revenue. Please see slide seven. As of the end of the quarter, more than 90% of our wholesale IDC revenue was recurring. Our total capacity committed benefits from a favorable maturity profile with minimal near-term expirations and a weighted average remaining lease term of seven years. These long-term customer commitments provide a predictable and resilient foundation for our sustained revenue growth. The rapid development of AI continues to drive significant growth across the IDC industry. As AI models become increasingly sophisticated and AI applications continue to scale across industries, leading Internet companies, large cloud service providers, and AI native companies are accelerating their investments In high-performance computing infrastructure. On the supply side, the industry is also undergoing a structural shift. Increasing power requirements, longer project development cycles, and greater construction complexity are concentrating demand among IDC operators. With secured power resources, proven large-scale delivery capabilities, and the technical expertise to execute complex AIDC projects. With our differentiated resource portfolio, established AI infrastructure capabilities, and deep relationships with leading customers, we are well positioned to serve as a trusted infrastructure partner and capture the long-term growth opportunities created by the continued expansion of AI. Now let's delve into our IDC business updates, starting with our wholesale business on slide 8. Our wholesale business continued to grow, with capacity in service increasing by 49.4% year-over-year to 1,007 megawatts, surpassing the 1 gigawatt milestone for the first time. Utilized capacity grew by 45.5% year-over-year to 744 megawatts with a utilization rate of 73.9%, mainly attributable to customers' fast move-ins at NHB Campus 03, and NOR Campus 01. Our mature capacity utilization rate also reached 92.5%, a relatively high level. Let's turn to slide nine for an update on our wholesale capacity growth pipeline. As of June 30, 2026, our wholesale resource capacity totaled over four gigawatts, representing an increase of approximately 1.5 gigawatts from the previous quarter. mainly driven by the land bank we secured this quarter. Customer demand remained strong across our capacity portfolio. Capacity in service grew to 1,007 megawatts with 96.3% already committed by customers. Meanwhile, capacity under construction increased to 585 megawatts with a pre-commitment rate of 94.2%, providing strong visibility and many more. and 478 megawatts in overseas markets, giving us substantial flexibility to support both domestic and international expansion. This diverse resource portfolio not only provides a clear multi-year growth runway, but also reinforces our ability to deliver capacity at scale as AI-driven demand continues to accelerate. Moving to our retail IDC business on slide 10. Our retail business progressed smoothly in the second quarter. Retail capacity in service was 50,081 cabinets, with utilization rate remaining stable at 64.5%. As of the end of June, MR per retail cabinet increased to RMB 9,799 this quarter, turning to our delivery plan for the following 12 months on slide 11. We delivered 117 megawatts in the first half of 2026, in line with our delivery plan We currently have six data centers under construction, with five in the Greater Beijing Area and one in the Yangtze River Delta. We plan to deliver 585 megawatts of capacity over the next 12 months, around 333 megawatts during the second half of 2026, and around 252 megawatts during the first half of 2027. The majority of these upcoming deliveries will come from our Wulanchabu IDC campus, where we are scaling capacity to support strong and sustained demand from our wholesale customers. This delivery plan provides clear visibility into continued capacity and revenue growth over the coming quarters. Now, I'd like to share more on the strategic cooperation agreement with CATL that I mentioned earlier. Please turn to slide 12. Under the agreement, VNet and CATL will establish a partnership to deepen computing energy integration by synergistically combining VNet's leadership in large-scale computing infrastructure development and operations with CATL's expertise in zero-carbon new energy technologies with the goal of shaping next-generation digital energy infrastructure globally and leveraging green direct current and direct green power connection technologies. The parties plan to jointly develop a three-layer integrated compute energy ecosystem comprising gigawatt-scale compute energy facilities, distributed compute energy networks, and a zero-carbon token ecosystem. By combining our complementary strengths and deepening cooperation across technology, infrastructure, and supply chains, we will jointly advance innovation in integrated compute energy systems. Thank you for your attention. Building on this strategic cooperation, we plan to lay out our future operating strategy and outlook to the market in the fourth quarter. In conclusion, our second quarter performance reflects continued progress across our business. Looking ahead, we will continue to strengthen our execution capabilities, expand our high-performance, large-scale data centers, and strategically invest in resource reserves to enhance our competitive position Thank you, everyone. Good morning and good evening, everyone.