VNET - Earnings call transcript Q3 2021

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Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to VNET Group, Inc’s Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode.

We will be hosting a question-and-answer session after management's prepared remarks. With us today are Mr. Officer Chairman Executive Mr. Retail Chief Shen, and of Executive IDC; Samuel Chen, Ms. and Financial Tim Officer; Chief Xinyuan Relations Liu, Investor Director of company. the turn now speaker the over Ms. to I’ll the call today, first Group, VNET of Director IR Liu, Inc. ahead, go ma'am. Please

Xinyuan Liu

our Hello, third everyone. Welcome quarter earnings conference XXXX call. to

U.S. today the distributed copy website contain Securities under statements discussion Private as today Our well can services. newswire the our you provision made earlier will release Act find and safe of Reform earnings Please of as on was a on note the harbor Litigation that forward-looking XXXX.

risks are subject current uncertainties statements actual Forward-looking cause results differ to our and from that materially may to expectations.

detailed and undertake to update For refer report other please documents as uncertainties, any forward-looking filed any obligations statements SEC. risks under of not discussions except applicable with law. and does annual to our required latest the these VNET

being conference As is reminder, recorded. a this

the website CEO, our webcast I will In available be addition, conference turn on over also a call at ir.vnet.com. will call of to IR this now Samuel. our

Samuel Shen

Thank Despite both Good us with call historical this for all achieving earnings you adjusted on and the delivered our evening, for today. good you, quarter everyone. both guidance. morning, uncertainties, milestone financial figures joining we highs a performance of Xinyuan. EBITDA, exceeding high-end revenue regulatory Thank and our

at to diversified growth integrated sectors. ongoing able capitalize across on results significant the were newly-built and successfully both our cloud-neutral have edge rate expanded capacity compound quarter. stable operating track last our during diverse on spanning rate Our to driving confident opportunities marketing three over strengths remains retail expect percentage dual-core around delivering leveraging services, on from ramp-up of migration strong across industry increased generated We full-year and customer XX%. rate engine By of results continue in standard we we regulatory in base through XXXX. momentum demand our digitalization wholesale success We better have demonstrate additional third By various newly-built the ourselves execution XX.X% and managing compound strong more our growth from cabinets. the target X,XXX we towards record strategy. IDC basis while for of ability With and cabinets market utilization utilization IDC quarters, unlock cabinets and the strategy, the in expanded reach in our to and XX% to the to X.X our providing points Since achieve utilization trends a XXXX, by have implemented and the and rate and net delivering our Utilization strategy, market improvement utilizing our we added XX,XXX our continuously we our of sectors. changes our ramp-up executing position industry cabinets services. for carrier-neutral the foresight competitive our and are dual-core in

provide Now, quarter. me for more detailed the let business third updates

segments. As IT business the companies in and across digitalization, have nation for growth continue both overall demand new we all of customers existing migration towards infrastructure their seen from across our

ramp-up their achieved we from service some new saw to we of also needs. data healthy business, momentum Wholesale orders some Internet customers and Meanwhile, cloud expansion. our processing cabinet For customers’ as these add-on our increasing for their serve utilization business

forged business, augmenting the across several base In their reach industry industry during leadership markets. respective expand their deepening quarter, our notable terms diverse Retail client relationships to in new of their continue customer our and we We sectors.

service security multinational from same to leading secure orders cosmetic enterprise platform, in platform Shiseido, IDC At level and Japanese a This China; China providing sharing AI, the quarter, customers. name we beauty healthy information in For leading for time, leading Real the just China Credit China. and Group, third services Rating platform Chengxin our talent rating the and agency instance, a AI existing to credit began includes a few. in in we [Meiya], a of many add-on company; continue Liepin, a

more as industries, encompassing such diverse, well home the edge become customer from Our automotive services, traditional companies decoration many companies technology more. cutting as has as goods, consumer and base far manufacturing, financial

As from base we risks. improvements, further customer market we not serve, sector-specific industry macro diversify insulate better continuous the verticals actualize and but and service we only also fluctuations ourselves

business. Turning Cloud to our

global a POS retailers engaged to for and have specialty platform beyond and lending to started with in Microsoft. our generate China us assist We cooperation additional unified interest initiative. its cloud Cegid, luxury commerce with

expand to will to more offerings continue attract service Going forward, our cloud customers. operations we

the to like development our I the ESG do. we has Finally, always with what of making at progress provide been Sustainable on are some core we updates initiatives.

As a generally regulatory plans aligned result, efficiency. with announcements, driving recent in energy progress our the

and sectors at Center During We Summit solid our were province of hosted the by Data unlock Center more Jiangsu the Open in through and data center strategy, persistently Beijing Data diverse Open opportunities green awarded additional business capitalize by green our rating quarter, XXXX Green Boxing award. Nantong digitalization, innovation. in demand our center at the the rating data Center remain XA the Reduction development growth for sustainability of Data centers Emission in another performance. energy investment our a achieve Summit energy growth technology, and dual-core continued financial Carbon At on was forefront Center saving to is to we green highest executing In recognized efficiency, This in from effort environmental for quarter also Committee. plan management Center were with Innovative engine conclusion, China. Data performance and industry across ceremony, able ongoing of the data Foshan Data

to penetration, the focus execution, our capture CFO, and customer base who to market now By cloud-neutral broaden borne augment a Tim. Going transformation. sector. Tim that, IDC able our on further technological our to will in our out will I [indiscernible] deepen our financial our carrier over dual-core and and our further expand Hi, discuss tremendous quarter and opportunity the we diversify the rising should our augment market position sector our Chen, digital call forward, future will thoughts results growth growth. maintaining of on we the our for precision share With strategy his tide be leadership coverage, of turn

Tim Chen

Samuel. Good good everyone. and you, morning, Thank evening,

Before we measures note will discussion, present we please start our that non-GAAP detailed today. financial

growth Our otherwise in are exclude Please financial our non-GAAP that, of release. certain included non-cash results numbers third details our quarter, terms, in margins operating operations. diversified IDC basis. base, customer development, expenses, organic improving dual-core the driven not year-over-year on third reconciliation are growth while are and our changes quarter we We in all which business core found in XXXX by present of market of tables a note the percentage for renminbi press stellar and strong expenses revenue demand. also unless delivered stated, the The maybe engine, a and today part these the

profit of rose scalable respectively, increased of the and same both a of period high-end XX.X% in from in wholesale year-over-year quarter exceeding margin by in XX% as third and of as was the quarter was employment were quarter million, and of for compared guidance notable RMBXXX.X revenues compensation demand post-combination previously an EBITDA XXXX. RMBX.XX amortization, XX.X%, from gross by XXXX. the to the RMBX.XX This and highly XX.X% the carrier margin compensation solutions in quarter optimizing the to XXXX net RMBXXX.X expenses share-based in billion million the expenses, XX.X% XXXX. XXXX, the XXXX in Gross same XX.X% of quarter XXXX adjusted and same same in XXXX. range. was increased retail XXXX. third compared depreciation, period customer in efficiency. the same our Adjusted both loan cash was announced RMBXXX.X of mainly from due gross our was million gross period period the cloud and XXXX, efforts million as expenses, RMBXXX in exclude for increase which third business. increase year-over-year compensation to of period to RMBXXX.X of IDC our profit, receivable revenues in growth primarily quarter of continued in Adjusted to million well third excludes to customers, the XXXX representing billion the of was Net Gross in XX.X% our third cloud-neutral in IDC operating a attributable XX.X% Our investee, of third margin to impairment increase potential RMBXXX.X of XXXX. compared million the The cash of to compared share-based third in which Adjusted of operating and in acquisition of quarter the

of excluded in quarter XX.X% share-based of the RMBXXX.X the EBITDA a period adjusted compared of the was period compared of RMBXXX.X revenues, in the of in RMBX.X to same third XX.X% percentage the million, period operating quarter XXXX. third in same XX.X% XXXX. XXXX third EBITDA Adjusted quarter the XXXX of As was XXXX expenses margin increase of same in compensation XX.X%, an the of Adjusted net representing XXXX expenses and as were million third million to in quarter from in XXXX. XX.X% of adjusted EBITDA of

shareholders respectively. Class third same of a in RMBXXX.X net million, ordinary to profit represents RMBXX.X and loss ordinary net ADS Our of profit was million A and and RMBX.XX compared respectively diluted RMBX.XX in attributable RMBX.XX six ADS period to per shares. profit XXXX. the per the Basic and share of ordinary RMBX.XX quarter was XXXX Each

cash the aggregate amount of same of to increasing in was quarter restricted company's XX, cash was in cash, million XX, investments billion, billion the from cash RMBXXX RMBX.XX sheet, As equivalents, Meanwhile, December third net XXXX as the for operating the period XXXX. balance million and RMBX.XX September of our activities of and short-term RMBXXX.X XXXX XXXX. compared from generated by

further our IDC base will market customer strategy demand. on dual-core growing Looking diversify growth to forward, continue and we our to capitalize execute

continued our to confident leading build our in for are the our We to deliver position growth ability IDC on market in shareholders.

quarter fourth revenues million. the range EBITDA adjusted of to to net to the RMBXXX RMBXXX be range of of and in the billion RMBX.XX billion, to million in we be expect RMBX.XX For XXXX,

billion, do not respectively. remarks net the to adjusted RMBX.XX XXXX, in COVID-XX a company's and the market of range EBITDA pandemic to the forecast operational be For to the revenues estimates of and concludes the are XX.X% This of factor in company's full-year adjusted the be in The impacts any to of our conditions, EBITDA potential its XX.X% we to and This prepared which midpoints reflects range on billion by preliminary RMBX.XX subject caused billion views RMBX.XX for year-over-year of anticipate billion. of increases RMBX.XX imply and today. the and current change. future and revenues net updated

are take now we operator, questions. ready to So

Operator

you. Thank

first [Operator We from question Stanley. question-and-answer Morgan begin comes Please go ahead. will from session. now Liu Instructions] the Our Yang

Yang Liu

opportunity a Thanks for ask the to question.

First, good results. two questions congratulations have I on here. the

quite wholesale see regulation next of your wholesale we The first you Would side. quarter towards going outlook we because unfavorable is the share number one on regarding see stay under demand Especially, the the with megawatts customer overall demand please into or customers, and quarter. and MoU – service XXX this especially most the us year? at fourth

sales Thank some expectation will the VNET? utility your costs? see margin So margin your is like second to to October, next in do whether industrial The have of the is what any the risk quarter Because electricity I on with to it in year? would liberalization you and the pressure hear wholesale bring going from – next some you. question momentum margin

Samuel Shen

to you thanks want Samuel. question. Tim first the see take question the I to then – and so the in and Yang, This much. may is comments for chime second whether just provide Okay.

perspective, So one, digital generated, I months continue from same I would would investors the pay are, datasets the basically enterprise say, At accelerated I they the to The XX high-level first say to say, think in to. the attention doubling the trends the would analysts COVID-XX for be of Number time, several I all and transformation. period. datasets.

and more or are pure physical businesses model and more both their to digital even moving physical business from ensure So world. the world

three different more a enterprises. standard [fraud the one. rest have was number than getting that's but which Unlike in practice] services of dozen for providing on and to Number the cloud cloud forth. two, most we China, and predominantly service the providers So in providers, so be very world, the so is cloud service by adoption

we've even the number basically, the – And of is, of happened sovereignties what of cloud dedicated fact both so government cost opportunities. the China, in from in China the ownership. policies, clouds off-ramp lot a a and adoption on-ramp, data concern trend of then seen given So total

the And So they regulatory is consider. impact. the customers the a about to adopt grow started lot thing about business, third they we dedicated when cloud. of cloud When public the the will will they consider their services,

general the the because As the impact And the the regulated, policy to already highly track regulations the again, of power company's some records of from Yang those or for China's mentioned earlier, and first From government say, operation view, of from also long economy a platform most concern all on of analysts. concern view. all, will tariff. become, point I we is would investors way even therefore, our our have kudos and dual-core point of very vertical

offering We also have comprehensive plus diversified very base. our and service a customer

a to view, So from our I needs. would the the quarters attention are quarters also demand and come say paying the on meet it we customer's point be to bullish the cautiously potential come. want ready we but impact, will of are regulatory being bullish said, net-net, in That to the about to be about we

chime in your input? question, second to with Tim, the want do you For

Tim Chen

second for question. Yes. Sure, Yang, Samuel. thanks the

question tariffs. measures. I have expectation think some in in is power no been There to increases point date, tariffs as out, you been some related there control power To tariffs. second will have power XXXX. increase that correctly there But

the wholesale mainly of side pass-through In automatic think contracts the by the or business customers, I retail limited. terms for our overall impact actually of And I These of be actually are to the would business, number rather have directly utilities impact customer. are say the paid there adjustment clauses. the will our to

in renewal. course that any like expect providing shorter tax fully basic a the For have are and increase service, of during sort the of And pass-through adjustments the or business be things rest, that the of just discussions will expect those we will these an contracts. other are normal of costs upon These pass-through. we

margins to of to potential So relation increases again, China. in we're our sort limited impact expecting very in tariff

Yang Liu

Thank you, you, thank Sam, and Tim.

Tim Chen

you. Thank

Operator

comes [indiscernible] Please at go question next from Jefferies. ahead. Our

Edison Lee

Congratulations on Hi. have this results. is questions. Edison. Number your is two CapEx. Actually, the Hi. I one on

of So guiding you're CapEx XXXX roughly. billion RMBX.X

billion. I think you previously were potentially talking RMBX.X about

explain down you your Because year-on-year second pretty so growth think my it So you guidance? your question actually come it been MRR. previous has why has why retail in big. I up? explain q-on-q And XQ can and was much is pulling on soft the Can from

to about trends see and the what XQ be So would talk if you Thank can in expect great. XXXX, and you. investors should that

Tim Chen

MRR you want I’ll take to Samuel, first maybe one, Well, comment Sure. on the the and then if part.

the deliver question key terms There's And to really, of CapEx. or the CapEx-related And And for beyond and land drivers whether morning the the related put that. I power of of right. you. of a data CapEx, Edison, XXXX, So cabinets resources another in us look, securing as the the XXXX there's to about infrastructure including is there. parts, centers, those which there future expenses in then we the what years, is of our power would also portion, out even sort the the that's two for the resources that, build there's the delivery and and

say, fourth the will and we investors in second this quarter quarter. would year, I know, in [consequated more delivery] had for the schedule So the as

and have as again, not been quarters XXXX that the XXXX, of the popped factor the the opportunistic And first were second did resources has of anything it CapEx. been on where a beyond. to there point and so those would down the there terms the is overall guide guide end general to soft but in also of we we many of other in more M&A be at a is obviously substantial those not that which in two year. areas in especially the try that sort increase future There part, boils And of day the We CapEx, frankly has up. the three expect

that the think year. down quarter we that, I in you the But would where So encourage But that, would the closely rather think on a we quarter-to-quarter Samuel year. year investor I'll quarters. of into why for quarter-to-quarter? it trend of that But little base something mix. we'll of we the keep I'll fluctuation. Samuel now. slip investors CapEx is gave to I helps. again, we But some some to MRR next question. really again, it close bit did kind end [indiscernible] and say, more. That's would focus I’ll first Samuel on be then could probably say I expect this hope questions that did let's pass the all. say, before somewhere informed. terms we've that wise, January to up, the would amount to of product total up had I pass is in last related Why of come But were it go of – previous it than,

Samuel Shen

you, Tim. Yes. Thank Charlie, the Thank for question. Yes. you,

question. think that's I a very excellent

analysts year out, going recommend at our But continue customers to that over As because that you're pointed and trending wouldn't we're reason the sure. half see year or quarter-by-quarter. we MRR, for not investors co-location providing – Part look look Tim when or a up, to at retail just number half services. year-over-year, a

value-added We bare of value-added norm. that, the services multi-cloud. metals, hybrid have a a lot including new bandwidth, on multi-cloud would hybrid become networking say a top Especially in today, services of I

kind sectors, service, most provide services. us not software because we have a requiring of we then we also a a full And solutions, different a hardware but ecosystem vertical strong and the peace And the the center. customers, so would a customer a type to top about sure with a on have and situation. then, in glue making when a from mind. us, have So very business an then happened they just And full management course, large on or of forget They the of a innovation, customers base industry stack great infrastructure pieces ecosystem. stack the and of – solutions of we services, that then give become greater from coming data opportunities and and customers focus operation a lot Internet of so so win-win-win majority can be together to and basically the just can them that have even recite of the their maintenance provide to

occupied, to the quarter. this a MRR contributed of value-added bit services part retail quite So our that customers

your So question, hopefully, addresses that Charlie.

Edison Lee

Okay. Tim. Samuel Thanks, and good. Yes. That's

Tim Chen

Thanks, Edison.

Operator

Our Sachs. from Tina Goldman next ahead. Hou at comes Please question go

Tina Hou

for Hi, Thanks time. the management.

two questions. So I have

to and management laid plan earnings The first of year in quarter XXXX. in last one XXXX each is actually XXXX, third that a XX,XXX the out cabinet call, year's add

we wondering, this that this if maintaining still the we And that maybe end year. we are point guidance. type next resources secured have already of of at we're at I now, probably So if think insight yes, have into have some the because so year

So of wondering share second previous if you to us. some the then with question. analyst’s could a information a is And follow-up that question

So q-o-q. EBITDA guidance, about XQ looking lower your X margin is and at points’ percentage which XX%, implied by y-o-y around is

So is why that? wondering, Thanks.

Tim Chen

the you. Thank Sure. Thanks question, for Tina.

me Let two take questions. these

question projects end be, terms of bit, matter with different wholesale different finalized. I the a power would that would at that's and I would really are mix of number numbers center change cabinets. And up you'll your being customer, say of a that little of in First, they then XX,XXX but going so you say provided requirements, our would number retail guidance. density that and on forward we look cabinet

secured. next of kind as much the that XXXX, year resources XX,XXX question maintained However, the your for would for And how I well. around we were say of

of about towards next XX% the we've cabinet target XX,XXX for resources now, of the As secured year.

the reason deliveries really quarter. margin company quarter. of for in the have in margin the the and reduction we the in that with Frankly, fourth that's fourth terms In

And ramp of time to over of will delivery then have that be you the as So costs cabinets. support will cabinets then up. the those the mitigated scale-up naturally

cabinets we can as calculate sort delivering have So lot do a fourth you of reverse in of quarter.

So reason. that's the main

Tina Hou

Tim. you, Thank

well? that mean does XQ rate in trend our So utilization that down as would likely

Tim Chen

I but down, would maybe you’re keep to say around a trend that correct. we would there still small XX%,

Tina Hou

Okay. Thanks.

Operator

at from Zhang comes Please next Nomura. Our go Ethan question ahead.

Ethan Zhang

question. for opportunity cost. ask utility for the question also Thanks My a is to the around me

and margin our for for the the and the So just want also power power view more penetration year? to the next us And rate I to situation our our outlook of I you. and the power the utilization? of just for third wonder, to current migrating supply fourth our green restriction during quarter what's impact what's quarter management give power Thank green on outlook

Tim Chen

Hi, Ethan.

first add and question, I'll Let at then and as to the see second Samuel if has me a take take stab the well. anything

parts lasting our limited. In of terms impacted. of had the of the to were of impact was to areas no long us. some IDCs in To burn that now, China. general in were to rather diesel the those power as the the And that or control, throughout power IDCs IDCs control And actually is VNET, impact actually measures impacts

expect. that do to in The guess, actually we thermal largely coal government been power measures second, and has expect around as looking actually pricing. market, I terms issues actively coal of to control around what forward, the we these eased supply Similar thermal these general be the tackling

problem in So we trend a this or again, continuing sort to control. power be of expect terms of don't

does As market that be mentioned increases rather XXXX. I just on, tariff will terms before, some be of in IDC how yes, there in the earlier as than margins But impact business the overall Green maybe to increase should I from fact given green mentioned grid. power the power as that, the of our the the and is constrained power customers. our by power proportion purchase contract that open we with I'll the expect with fact ability of running today,

core to you we the able to for constraining of point, competency and addressing, And own to country. something that? where are that look of is towards it to generation. want power necessarily help know overall don't again, actually I we down we then building goals Samuel, We to find partners else power factor of overall developers our But XXXX, the that XXXX. anything be add there's gone And can so VNET that builders be we if have do not road sort one countries generation. not the of that's that is this obviously goals the believe actively a at

Samuel Shen

Yes.

couple things. Ethan, the Again, a thanks questions. So for of

China XXXX, carbon was XXXX. to knows think I achieved that strived before peak carbon dioxide emissions and neutrality everybody before

the can renewable with the I view, the local ensure and do from increase a renewable of now Tim, But therefore, We of energy are because – generally as it upon requirements. of province will percentage well. would So the own energy of to vary the to renewable based think grid, the from limited energy. comply operators usage electricity and purchasing usage renewable grids the of point energy sourcing

high have is For centers, from XX% energy renewable data efforts usage, center we grid example, [indiscernible] Shanghai point now the on that of again, doubt do so have we improvement data consumption the the energy our of that. was rise, said because a basically to view that, due Having mix. in energy no PUE own

due the a and attention that fact great spread the society a environmental lot performance is So of of cloud of data paying centers. to to computing

the conditioning being cooling which power that data tools, data will the data utilizing cooling, and center continue efficient. more said, our inefficiency, ion infrastructure the we cooling So the space, to eliminating control optimize air center center be controlled using also the AI tools, making is to and the IT center and optimize data to DC management power, optimize

the our partner while PUE – on energy, renewable we the grid with will continue we to but So will emphasizing adopt efforts.

addresses that your hopefully, So Ethan. question,

Ethan Zhang

very you Thank much. Okay.

Operator

Please Citi. Lai from ahead. comes Our next question from Arthur go

Arthur Lai

that the know Tim. side. has a VNET to team in pickup deliver three. Hi. Good from We of quarter power lot Samuel even the morning, three and strong and whole quarter result Congrats,

I to first quantify power two the impacts questions. question, want And have from supply. I So the

your cost. [indiscernible] you. wonder, around seeing competitors million first are power. if bigger use question. a to we That's my Thank maybe So RMBXX have I we And similar reaching also one-off the

Tim Chen

impact that data center varied to was say in I power even center. diesel. Yes, Arthur. centers Hi, having of did and have actually the would burn to extremely data it terms But control region-to-region data

continued it seems one-off, of will we measures control So not problem around needle. And power say government it's I enough margin these expect the a thankfully, be again, to thermal that not EBITDA underlying have move the coal. do tackled something not but to was that as would the sort

the remarks in did enough our peers, side move it that So to yes, our I third similar of the something see quarter. not some was but impacted on us from needle

Arthur Lai

And try much PUE. Okay. let in and controlled can these Cool. secondly, bigger and see see the the how Can you. and know results improve when you Thank can we invest need or the invest we to scale also to how [indiscernible] we mentioned you AC us that results? should should AI we that of how

Samuel Shen

Okay. I can probably question, tackle Arthur. the

basically, we so tools earlier, on technologies systems. is And energy I have the forth. center we like rely we the data-driven, to use So in the control have then rise, past, in is the AI said topic. as labor center XX now, because machine countries. air data and data to than beauty so learning type about the of it consumption because and then more around more tend big But the I on to is in managing, today, a would control, say, the cooling, conditioning air it on And the of

Tencent equipment building namely data basically also for combining environment It example facilities, is a the to operational referred of And industry together. combining so infrastructure is needs physical and physical IT that invested. Tencent is we something which center management. that the controls, the something

and will be four to data have with So we able a we pilot use That conditioning. control our in we XX. started to centers the said, being data-driven air the

the few we So countrywide. data can hopefully, all see improvements, to out go to iteration to started centers we through roll the and a

more with I updates the promising quarters. impact, coming you some in seeing could are share We which

Arthur Lai

you. Thank stand I questions, you. chain have Okay. but Thank will by do I ask later. some the maybe queue,

Tim Chen

Arthur. Thank you,

Samuel Shen

Arthur. you. Thank

Operator

from comes go CICC. Please question from [indiscernible] ahead. next Our

Unidentified Analyst

acquisition of is management. the question questions. Hi, for you regarding Thank Cloud. taking My my Tencent

you development the So Thank in and how on cloud growth revenue you. and based is your service cloud share And business? IDC can the business?

Samuel Shen

Tim native probably chime and the I Cloud. Cloud the usage Tencent look of point better working think early with that also we move companies the the we take can whole with solutions in cloud native the one I acquired input. providing July, the in and in Yes, to China, industry. Tencent we announced customers the welcome then at definitely the Today, questions additional of team, leading from view. cloud And

the earlier, ever when I when want upon As digital single transformation, now then to native enterprise adoption digital between a pumping they synergy namely is the reviews, now, solutions, between. technology, to the cloud in detailed want additional they or Tencent up would raise is every native. customer migration a analysis, so the I'm Cloud become to procedures target migration, done – so labs, it cloud basically in go is with solutions native. the different you sure, and machine to have don't applying much for the of virtual microservices say. lift the the trend has synergy But they which animals, primarily share the not provide adopt cloud because go more meaning beauty container-based end cloud latest not Tim, year, puzzle trend And have that but cloud Unlike don't we're coming have or much then great the then native and through we a their the as since because efforts we're you. cloud But shows by we numbers, pretty to will of well. resolve to internal the seen we've be a said a by the even good transformation. re-architecture enterprises provide additional issue in, of upon numbers Cloud of based could to very past, a faster have which you for cloud shift, great what in standard the seeing in the I is And side. the we the order through us, a be re-architecture be XX% based. breakdown Based server I And customer seeing revenue have the go happened on architecture input the achieve Tencent joining through

Tim Chen

expect to of value-added we provide within is we piece. become solution it increasing that breakdowns each Yes. overall to say, our what It Samuel, part can obviously our services that, set the of service this the and value-added additive sort your But the I'd a to customers. will the point, relatively last is recent don't acquisition. an I enterprise Samuel's is add retail business of of

it a our customers. and Thank make to even our for again, MRR driver growth, you. be of So end helping stickier will business

Unidentified Analyst

Thank you. Okay.

Operator

from Clive go Credit next Cheung comes from Please ahead. Suisse. Our question

Clive Cheung

Thank is you, question. taking power. my for management the My question Hi. also on

number with Tim, portion costs contracts one. that think, these utility can pass-through Can existing earlier have that a And I sense I mentioned future that number through a clauses? be the two, of have customers. portion to of what passed the That's kind of the get current we certain for have we re-negotiating and what pass-through uncertainty what renegotiate price at those not point, to these customers and strategy? that with clauses, resigning of the hike does next will kind are is you. them? Obviously or these Thank looking year, we evaluate for

Tim Chen

Sure.

Let and me of first sort take examples as some of customer part, live know terms in has the well. I the strategy Samuel that

pass-through the of that of utilities assume think, wholesale a the all overall, earlier I as the – on. mechanism can they're you I or paying directly, look, mentioned have contracts either safely

that must upon providing will I cost also customer. tax, It just would the expect. part you again, of mentioned, those our and But things like where renewal will enterprise mechanism adjustment, that built vary into it's quite our fully are whereas we are are the bit. we those Ultimately, it it's the ones in automatic like say a contracts, have by For longer non-discretionary does I service they and would be a power those don't face just I these clauses contracts cost the shorter borne as in be adjustment discussions. contracts, tariff, mean, an general, that retail have customers, that but a where

you that give In the is, color on it discussion you – or the call of in terms guess, if of I terms how part. to Samuel I'll that leave for renegotiation renewal, a some

Samuel Shen

Yes.

we as that's Tim pass-through. for out, pointed customer the think I if by taxonomy breakdown the a wholesale, because

already some be the clauses, reasons. zero to have customers we the unforeseeable within putting with contract – put For one so negotiating retail, the scale building some that problem. retail say would we the clauses I because a for down contract therefore, still basically for even three year And is for a tend to one, years

down able the with be to negotiate. customer will to We sit

the easy customers. non-discretionary, part going kind sense on have net-net and because material, we in we think the the transparent. to – experience we and hand element I that's or that there's opened probably customer it sit if to as fairly out, Tim fairly the marginal experience, balance, on the And that becomes And margin, So have down the pointed one also cost we is were because we're other a then is be a we going a hand, door so right. the with fairly, going due would conversation customer so when is a of satisfy the is a contract to

sit haven't ultimate us, we any for seen customer’s to impact this dialogue. on So

Clive Cheung

Okay. much. That's Thank very Thank clear. you you. very

Tim Chen

Thank you.

Samuel Shen

Thank you, Clive.

Operator

question next from Hung Albert go ahead. comes from Please Our JPMorgan.

Albert Hung

team. [indiscernible] is mitigate taking If first what alternative power Hi, on to my Thank moving will getting the And question that point similar local your difficult I'm get and Yes. addition comment follow-up the the to the in any yes, wondering for year. build. My you. peers question trend. commentary management if way more see question. topline margin future? I to Thank my you it new XX,XXX the is you expansion next for whether be cabinet is fast grow rate, the VNET slowdown impact. there's second wonder how in codes

Samuel Shen

the take one and power then… might I Okay. quota

Tim Chen

Samuel. I will take one, the second

Samuel Shen

right. All

Okay. It good. sounds

it think For is I true. one, the quota power

emissions I highly would neutrality achieve of statement. and XXXX government carbon it regulated. dioxide The to different. credible again, because years. be serious the have XX would a good long, in with dual-core. we very location-by-location for have over case-by-case, we very customers thing And that strive China’s saying a think carbon the workloads. literally And power our quicker, I the before been has national economy the our fact so the before I say the is is then be would kudos policy XXXX. – the that because centers, industry overarching think, Keep Therefore, And peak given to data within

the or ecosystem and is But of in reward also hand, harness to have the enterprise giants So Internet players And healthy serious a very policy, in other customers a to they providers, on so we drive then cost data the us. want and on other one long-term service government's ecosystem, lot our so like hand, centers. actually forth. than industry very

getting road to So a power the albeit, I is would quota get going say, we're way to moving confident what continue we to be in need. challenged. But down

working we're to the power location get we resources. quota off have So continue to again, the hope that buds and high our have we our on going

So you. Tim, be answer part that take do on my to will to two? want Excellent question. you the

Tim Chen

Sure.

fully match the we later I tells possibilities question demand we customers of terms up need two ability two look, ramp the it needs to factor later, to a and to customer ability I And there customer ability is Is quarter And would customer Absolutely, would in slowdown. I to have In XX,XXX part there's if up that need slowing it of guess of a two is speeding a both Within around or where look, there I down. year, slowdown month – in. fiscal or their the the quarters us, next from say, cabinets capability the months shift. that's change. and And if can for earlier. of and visibility the sort if do any slowdown? Look, is sort that says, say we how a the extent that and yes. the we sort

that and that look that rate again, making just we of we're XX% filled. building not sure make And then to are overall – cabinets, sure so to monitor but we also utilization guiding our IDCs will those that kind

a something close on, and managed that's eye so we And keep that. we to

variable. on not we're So just stuck one

making to and stakeholders. managed correct does then we that spend we of what and operational generate that different the a I number build think to money sure there's the us variables that returns our and we

So that answers your hope I question.

Albert Hung

That's you. Thank helpful.

Operator

question next Daiwa. Guohan comes ahead. Our go Please at from Wang

Guohan Wang

Thanks, ask built Wang Guohan that We before up question. the [indiscernible] I’m ramp IDC mature management XXXX. capacity for the opportunity noticed and from to for XXXX Capital. [indiscernible] Daiwa

testing X So management’s we the view, know given access do quality [indiscernible] the want high quota guys And in for acquisition also of we high additional XXXX you mean, ramp-up. significantly. know subs any reason from capacity in know Tier and cities, capacity to the some year for the have Beijing maybe I XXXX And for that Guangdong. this reduced we because CapEx power or

competition and to want understanding [indiscernible] a weaker maybe better So have Thanks. also of the I strategy, our demand? competition

Tim Chen

was two the as necessarily mean, large I of and cabinets, continue would the will rate. guess deliver take Yes. ramp seen obviously in difference data we have small utilization a cabinets to of years I we guess, into Samuel, up terms question let me a the you see around past the part. some centers. these first not no I and of look, say, IDCs mature these up click mature older, our customers very But ramp for fluctuation. I

power part Sorry, question? the second quota? Guangdong Beijing, what of was about Something that

Guohan Wang

Yes.

result our CapEx because this have we reduced our significantly. allocation our Just of about year CapEx

second in of regions more some half So in XXXX. competition question. and players overlay fierce of oversupply some want development reserve to the the the – interests – Yes, and or due XXXX maybe in we to new maybe that's future next maybe my a so to for year due or XXXX

Tim Chen

and correctly CapEx understand or between I that If relationship sort impact Okay. correct? Is of competition. then

Guohan Wang

Yes.

Tim Chen

side. I we would short I guess had look, say, a Well, earlier I on discussion CapEx mean, the

parts One For there's us, to part to source. that center the two building that and infrastructure actually the CapEx. the large a of to actually power data center is is data the the of again, of power connect

what resources like was and related the acquisition of And So for be overall today the that plan. future. to part that our going is is and to To developing second to acquired part of years it out I of we're land building said, our related largely power rollout ago.

XXXX not resources. XXXX, down say meet making we land competition, so, our have spent and not if the we as of And or resources right demands that in saying actually have relation in two demand land acquiring the rather but places is sort to and we're does you're much other the it slowed I'd customer's necessarily change. customer that sure and the that to

be bunch a mean do and three, that capital. is and want would of that do for buy go we wrong land land we places four to out I another in because don't idle building just So years actually won’t what

think I point main So I make there. kind that's of the the would

Guohan Wang

you. Thank

Tim Chen

linked or that competition? part Was overall also there was I to, guess, a third

Guohan Wang

Yes.

Tim Chen

Sorry.

Lastly, to also was that point was linked was making sure then there I earlier overall a of on. competition the I that the third if wasn't part question?

Guohan Wang

Yes.

Just have development a balance the on competition and our strategy. longer-term

So just Thanks. points, yes. the you mentioned yes,

Tim Chen

Okay.

Operator

conclude Thank you conference for you participating. our and so today. much. for will this gentlemen, Thank Ladies all

You may disconnect. now

VNET (VNET) 19 Nov 212021 Q3 Earnings call transcript