- Earnings call transcript Q3 2022

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Operator

Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2022 Earnings Conference Call for VNET Group, Inc. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. Participants from our management include Mr. Officer; Executive Chief Dong, Mr. Jeff Financial Tim Relations Xinyuan Investor and of Chen, the Chief Director Company. Liu, Officer; Please note that today's conference call is being recorded. the I’ll today, turn call the to now first Ms. over speaker Xinyuan Liu. ahead. Please, go

Xinyuan Liu

to operator. our call. everyone, you, Thank and third XXXX earnings Hello, quarter conference welcome

distributed note release And today. the today statements of contain that on the was a as our made you as forward-looking Safe of IR discussion U.S. website Our Litigation well find Harbor under Newswire copy Reform earlier earnings XXXX. can our Securities services. provisions the Please Private will Act

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

call SEC. discussions GAAP annual laws. undertake any VNET to the unaudited that these measures. of reconciliation forward-looking this measures. uncertainties, press and obligation our disclosure release contains to to detailed update report please unaudited conference except applicable and documents latest of as other under well any as GAAP the as required refer a the does For the unaudited and VNET's statements, Please not non-GAAP risks release non-GAAP earnings measures, with press measures note includes also of filed unaudited VNET’s earnings financial financial

As this is a reminder, being recorded. conference

to prospects and talented closely of you cross-industry the to CEO to I take with our I'd honored headwinds. mounting to to good end the morning drive overview one from speak start of and performance great call grown ahead a It’s long-term the Jeff. webcast a role on reliable team the ago. Good ir.vnet.com. company's the to commitment This focused of working ago the sequentially to our expertise had to sustainable third Jeff pleasure also we remain look cabinet delivering for demand quarter VNET. same shareholders. explore dual addition, Xinyuan. core of on market our macroeconomic of growth XX,XXX increased our at the In my all XX,XXX XX,XXX approximately approximate on measurement everyone. We approximately forward deeply Dong strategy like you, value excited against with and our by I’m of this for will leveraging CEO, time IR fulfilling and and the with turn the year is available and high-quality and over great meet opportunities call website XXXX conference third By Thank year our cement backdrop one be to total by compared customers XX,XXX I and evening, services. additional quarter, now today. to Jeff. to cabinet and will on an utilized

remained at a XX.X% flat overall June. As result, utilization with of as end the rate compared

to compared went the in quarter, third RMB In up RMB previous the MRR XXXX company addition, with retail for in the our XXXX quarter.

financial well progress healthy dual-core reflect business, wholesale Our effective in our third quarter results our of as retail our strategy. execution and as

is across as technological innovation of witnessed of in preparing XX.X% for billion world increased EBITDA as fueling reached The era, industries for new digital for net million. XXX guidelines a China's place. digital Congress business government's paramount a we X.XXX digital spectrum policy to Our RMB XXth part as trajectory, the this support year-over-year thrive adjusted norm National wider and attempts in growth CPC. by to third is central transformation high-quality transformation new and revenues the and quarter at this Today's RMB development of

delivery center we a challenging see this growth long-term surrounding potential macro we remains market environment, with leading digital as that response demand going plan digital demand The capture that our to excited as unleash a COVID-related broad-based this Therefore, and and of XXXX forefront our are volatile outlook are transformation to previous from in company range for the demand the to headwinds, factored a in space, delivery further In We infrastructure XXXX to Despite adopt has say burgeoning services fourth strong, the a XXXX to data prudent year are capital IDC positioned revising forward. of will more it cloud lower digitalization believe to [indiscernible] we new player of fill XXXX near-term fundamentals impact. moving short-term range a sector for softness ideally and and and XXXXX. to full further to the to quarter. we current macro year restrictions. approach to plan

at look quarter. strong third XXXX, new this since a of XXX in in by of of lines with we the recently, services end once customers, to business MoU quarter launch leading again social order a closer wholesale This in total presence wholesale capacity under third extending business in gain the signed the infrastructure of continued we service [ph] a capacity during the service our wholesale Now data the we one China momentum, XX largest contract basis our [megawatt] let's a segment, provider approx build cloud XX our we center Delta with megawatt, quarter. our megawatts leading accumulating the constructed platform generate to in existing new of front, progress China. River the the third have of in market contract across in or will established a approximately take region. a Yangtze network Moreover On our sales

capabilities know-how in-depth in and engineering methodical sector. key this to management industry Our success sophisticated our resource are

online expanding among In environment exciting an also local amid healthcare services, their in service and a other financial quarter, On the providers macro orders value-added base, progress service are the us. customers existing services [indiscernible] the same financial pleased the front, regional we sectors and deliver and offerings. automobile, third with At business in in third by expanding customer well-known several restaurant help to prestigious institutions, attracted gaming, interconnectivity services many insurer customers Furthermore, leading highlighted attract new we more time, growth our our business. In for value-added a SD-WAN our developed platforms. quarter, China, solution innovative service In for to technology. chain in-house won brands, continued offer China. particular, prospects operator services, consumer including our to operator, in new and local tech electronics this we began to chain customers a on world-leading our the challenging the interconnectivity built we restaurant a retail

out We deployment as as network a a In this of provide project national will market addition, milestone this good XXXX verticals. successfully a as in roll solution view starting different into point solution customer's the reliable connectivity more and well SD-WAN secure, across of stores. technology, with than cloud state-of-the-art our a flexible to

our business. Cloud Blue to Turning

it and make quarter, in We cloud-based are to proposition accessible landing to providing we effective more on cloud helping a IoT market. a and find company an In remarkable in operation enter progress way leading China business. have value our customers technology accordingly. to companies internal maintenance China to efficient the offerings expand to continued manage the automation service process have product is third illustrates international This our and into international

and process, chain to module-based which a other Chinese developing with In addition, an the extending integrated infrastructure. system, seamlessly and supply solution enterprise in solutions EV customer's parts, smart this tailored quarter management we're procurements to auto digital emerging deeply by efficient the is integrated cloud

specific to verticals IDC unique wide opportunities by services. variety aim presence we cloud in across business our technology status of ecosystem, more cloud in forward, Going our leveraging industry assess a explore automotive and and

from potential new the Hi-tech contribution develop We and Before of joining will my billion. moment Group. investment a the I'd for remarks operate like a be on presence services the macro a with companies Greater an the JVs I China, targets our demand [ph] includes strengthening business Hi-tech offers Changzhou and Beijing we to center capital venture partnership to assets acquire, and valuable bright expertise. million read long-term of our mega a Greater extending new formed digital [indiscernible] today, RMB Changzhou CL pursue will IDC RMB partnership to past This IDC subsidiary strong X [General] take area despite in venture nation. infrastructure short-term represents XXX important projects with Group, towards celebrate joint with up joint opportunities This across resources multiple to VNET see initial a turbulence The Holding and both The and such city and the a In China, sector. growth. future step in high-quality horizon summary, data in as our Bay pipeline located of clusters in the number Area. acquisition total

Our service strategy and offerings. dual effective and core competitive

navigate challenges demand to future capitalize near-term and well are on equipped prospects. We

now turn performance way. We will Tim continue further creating shareholders execute along call rising capture to to transformation, decisively, With quarter over opportunities outlook. with Thank company our digital business as the and everyone. to financial strategically their our long-term for the prudently will for industries discuss I yet you that, more value head the CFO, positioning the to our

Tim Chen

Jeff. evening, very morning you Good much, good Thank everyone. and

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

non-cash strategy, non-GAAP in We us the strategy report industry found unless Please including macro terms. expenses are remain financials The the release. core these of reconciliation in our in empower that which of China. our prospects may effectiveness the stated, results growth distinctive be data to center long-term the another on in otherwise which reflects for the We're of not and offerings, XXXX growth to quarter we present press details all agility suite powerful in outstanding are certain capitalize value operations. of exclude challenging today a of proposition Our of part which core our and also results pleased quarter dual our tables, confident environment. a service expenses, in third earnings of renminbi note

the will to walk billion compared IDC margin and XXXX, quarter all growth customer XXX.X excludes of employment in the quarter the gross the combination mainly quarter of XXXX for our year, year-over-year cash the million highly a post increased decrease from be in solutions the cash increased revenue XXXX, VPN basis. share-based business. Gross businesses, in XX.X% our was XX% amortization, of same are neutral Unless as compensation due the of third to cloud retail XXXX. the million expenses of third quarter, XXXX. our growth margin you which in an the XXX.X to business period from of Gross from continued of through period XXXX. XX.X% cloud compared in the XX.X% same in of increase same was of third third gross rates the period carrier profit, quarter XXXX Adjusted by XXXX. IDC I results. X.XX XXX.X XXX.X demand XXXX. as representing of XX.X% based profit from expenses, Adjusted otherwise to period scalable In third last specified, operating acquisition, both and Next, let compensation financial of of share wholesale the excludes well compensation X.X% net a and and in an third the same reviewing our of on me Adjusted third compared million depreciation, million quarter quarter was for same and XXXX the in period XX.X% in which same to expenses, or period was

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

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

of XXXX, Meanwhile, cash XXXX balance period our was billion. million net XXXX. XXX.X operating same to September the sheet, XXX.X generated cash, third cash the was to million restricted of as activities in compared cash and in aggregate amount company's XX, the Turning quarter from of X.XX equivalents of the

CapEx the XXX.X was quarter Our in million. third XXXX of

and year ready range remarks of the now Moving we full million to XXXX the you. Thank million XXXX million. range net in million financial be take Operator, expected adjusted concludes expected prepared to to to EBITDA with our the XXXX today. our our are to outlook, maintaining of be This of XXXX to questions. XXXX, revenues for outlook for in we're

Operator

the begin now Instructions]. will question-and-answer We [Operator session.

from Our first from question of Stanley. line will Yang come the Liu Morgan

line is your is Yang, open. open. Your line

Yang Liu

regarding I we question CapEx the I for Hey, future Thank hello, in CapEx hear have set future up do can JV expansion. plan, the future this decided partner, stakes company have split a how just think about me? the or already with you has JV you. the one given the question. the to

Jeff Dong

Okay.

the partnership of of is X we the from across to I VNET, subsidiaries Changzhou the winner Changzhou assets initial the and of pipeline which the leave there. breakthrough JV kind Greater in To to can the joined resources is joint Bay I of both the the question in I'll projects are Area this terms Greater Group, of mean, this Beijing venture strategic take plans, address highlight an our partnership less in Hitech the my I we winner includes Bay of with new operate I billion. represents And acquire, especially of CapEx have a for which the [ph] the that between horizon. develop also state-owned high-quality expanding say as joint Area, nation. in Tim venture, opportunities the and and a equity since located strategic pursue In company's group. for thought will and is interest certain [General] the we new will exposure with expertise, structure JVs form XX% RMB mean, the which cooperation the business to will Area, Holding kind the number future to the important us mean, Changzhou, exposure discussion,

and the infrastructure management presence in strengthening digital for our centers. future our example, For also

Yang Liu

me? hear you Can

Xinyuan Liu

Yes.

Tim Chen

Okay.

second the I in little and question, split. CapEx CapEx impact bit of the you're the part sort for think the of a basically, asking of So terms

from for to the think, side. offshore VNET spend. enjoy project to CapEx are joint a I its on financing is at to necessary site. Jeff support time I and forms customers, very banks, the of that very, the overall other Obviously, are looking at looking way the renminbi company onshore think is just same overall to to an ventures, continue stress the the us the we at local that are CapEx while available perhaps cash secure But strong our able But moment our one challenging at the would us. for and the cooperations mentioned, spent continues markets be moderating I like the which resources overall, financing important or on

ventures of will ultimately, projects. is VNET target kind So depend to on the an between attempt really find, the split these of types and

So Jeff's about some areas talked the that focused are of with Changzhou.

have those for also so that smaller But smaller projects, itself of is scale And types obviously, then share capped. overall would a we split. or

Thank I'd watch funding way is moment, So of us But for it. keep the diversify say a over our it space. at you. sources to the

Yang Liu

to it’s put is not the up follow company project pipeline My all the will right, JV, that, new in seen active emerging? the

Tim Chen

That's targeted correct. in are no. will that put That's correct. pipeline, There entire be not projects the so

Yang Liu

what the you. strategy or rule, of the JV overall any putting or peers? type partner is and by be VENT potential itself will other partner there other Is be or funding will Thank with thought, project what what done

Tim Chen

as tackle I'll this well.

of Greater Bay So now sort area, mentioned, greater area. Jeff just Beijing

the projects Changzhou, So we're limited areas that two of is expand those pool Obviously, looking are specific JV. that capital but with there at there well. as could a on

are them. that's the And we're looking there already So focus. with that targeted at initial projects

market. we'll So the details, to it be when disclose we do more assured have

Yang Liu

you. Thank

Tim Chen

welcome. Most

Operator

moment for One you. Thank next question.

line comes Our Lee next from question of from the Edison Jefferies.

from Lee your Jefferies, Edison open. is line Your open. is line

Edison Lee

becoming congratulate with question much But, Jeff, you your be near-term to a on to for thank can also Jeff. for I Jeff And Hi, your I you now. KPIs targeting, CEO. taking share my very for think us maybe objectives your what and company. important going My question. much very the And because first the on find want out deal investors longer-term And it's are. privatization position, this there's also vision in right would

investors where think under would company out, fact, leadership. I in find headed So to definitely like the is your

Changzhou JV. VNET projects JV. two that about Changzhou acquired manage is the So is Question be understand all by that going will number that's number one. the to question I this

by I JV will actually you. with what So Changzhou how those VNET Thank does operationally, and that are be acquired want will know be work? the that RDCs to integrated

Jeff Dong

Okay, you. thank

see short term, things. a I I First to to question, -- my try couple of mean, like would is actually, I for there goal

as the our of diversify strategy, and some our thing try the that’s second done optimize is, is, And some -- Changzhou et Changzhou, financial And efficiency wholesale of and I new our customer for customers is And from long-term, first which we we certain first some our in cetera, et up kind in and some control will well. of this some restructure stress and for to overall some like more The try our retail thing reach to co-operation, And restructure the target. EV your acquire question. people identify in the the core think another to economy question. team would interested the as say we I base, improve mid-office, cost terms quality, to it’s will and And growth strategy. EBITDA, of is operations we've such as we to all do increased, the to the have part. sectors continue operation, dual debt are I institutions cetera. most regarding new And try like assets, will second improve and on mentioned together address

our this forward, to is try our which ourselves platform, leverage going key going a on perspective. and to forward we'll Changzhou AUM the to extend So and exposures position strategically

answers. So my that's

Edison Lee

kind is, be with existing of selling your question, venture? VNET joint will into Thank which We Jeff. this another you, assets follow-up

Tim Chen

Edison. projects, new are These

not is existing this selling into this instrument our an would -- pipeline be not would we we entity. So where

these debt perhaps talked projects new given of also projects targeted. and where Jeff the is an current there identified some So projects. about sort being restrictions, owners of there opportunity, are these are of

able And with these with of opportunities. so financial we to teaming take up the to be advantage someone are firepower

Edison Lee

I see.

me clarify that. let So

that projects. it So seems the will on Changzhou brownfield focus transaction

so that's focus we continue And greenfield why on never projects. to

accurate be So would that an thinking?

Tim Chen

yes, a be targets, or yes. would potentially current otherwise, The brownfield

projects. greenfield less So

Edison Lee

you. thank Okay,

Tim Chen

we won't itself. selling into be But yes, our entity pipeline that

Edison Lee

me. Okay. Yes, thank you. That's it for

Tim Chen

Thanks, Edison.

Operator

next moment One for question.

comes the UBS. question next of Wang line Sara Our from from

is now line open. Your

Sara Wang

ask you for opportunity the to thank Hi, questions.

So question. one I have

noticed the delivery that plan. have cabinet down I we So revised

the cabinet latest long-term year. control also, our And just and next for one what's this So cost year target. Jeff as mentioned, of budget is

any timeline a if just to or there's So for flow Thank you. self-financing? free wondering cash target positive achieve VNET

Tim Chen

Can me? hear you Sara. Hey,

Sara Wang

Yes.

Tim Chen

Okay. Good. take one. this I'll

So delivery. rest still your that, the Also, we first into delivery question next the to delays seen. COVID-related there factor XXXX mentioned, of factored was on construction overall are, as less into for of outlook this cabinet moving of in of cabinet but factor are those this some year say of then restrictions. XXXX. into we've next. for year basically, and in a sort that we've But this And I year, softness revising we And range a macro the related shifting perhaps our to would terms are slower the already

of give we'll Sara? similar this of little a your some fourth quarter, year bit to second XXXX, but What's more that color better. in delivery In our next year's terms be in terms outlook, expecting question, will we're perhaps

Sara Wang

long-term So target. of as cost control the is one

target to achieve like So just for any wondering positive cash there's flow. self-financing? Yes. Or if VNET timeline

Tim Chen

obviously, of One exploring overall increasing. these looking terms the together, putting to financing. when out. would that as CapEx all on. I the co-operation, of then, in right restructures. CapEx least, domestic still sort last say do see well And on from extra given you we're side. our I support of not selective targeting would cash have that of probably our spend. cabinets sort put you're banks up, that but now, the continue at as also there's financing XXXX. couple ramp at So increasingly overall, onshore our And say onshore a you Changzhou and focused financing, alternative CapEx then we're things billable strong is very on We just things I plans, think look And if the

something just given again, X CapEx, in will these next to quite it with were that a of still but the think billion I we moderate of be range X.X co-operations. challenging, fact still some of billion year we targeting can

Sara Wang

you. Thank it. Got

Tim Chen

welcome. Most

Operator

for moment next question. One

Zang question Ethan comes Our line from next of Nomura.

from Your is Nomura, is line your Ethan line open. open. Zeng

Ethan Zhang

percentage My Thanks. question was is, noticed Oh, quarter last to like EBITDA sorry. year. compared XQ points, our third I that of so three margin

give quantitative you. EBITDA factors Thank management breakdown macro could of or for And wonder, some impacts year? that the EBITDA next margin? Just the different is affect what for us our outlook margin

Tim Chen

Hi, Ethan. here. It's Tim

of terms that In But forth seen hard during margin, the this we the and company EBITDA have moderate quite we've going because for working actually, quarter. cost some so controls, utilities overall, obviously to costs cost been course on third year, of up. managed has like and costs of also controls, with deferral

of be the quarter further it think expectations, business, also we up the changes and on views In the our underlying that fourth then have next compression of in will end expect we'll I depend details margin some will will But our year we more terms to flatten this ramp of that and the as year. sales. out. cost continued terms that no in there But of overall

Ethan Zhang

Got you. it. Thank

Operator

next Thank question. you. for moment One

Alex Our next the Daiwa. question line comes from Wang of

open. is line Your

Unidentified Analyst

Yes. Can you hear me?

Tim Chen

clear. very Yes,

Unidentified Analyst

[indiscernible] from Okay. Daiwa. It’s

questions. the So two first

project have you CapEx all color you and before is, about unfinished -- estimated question that first, repayment on we issue lingering? can guys potential done. pressure from our aggravating So share what the as more second And

Tim Chen

Sure.

your take me second first. question Let

next year In half around first convertible terms a that's outstanding of repayments, up be note XXX then U.S.$XX in our CD. will million maturity coming we bump have And next our million. small,

that's the So we'll for. tackling have be that started And course we planning during something of XXXX. already

In second terms of your question.

by -- as also that then mean projects continued obviously, CapEx we XXXX. about projects this the new CapEx do or our MoU have of where You're we for we're delivering outstanding spend projects what in talking development year, on well. have you But

want just question. the to clarify So

Unidentified Analyst

with partnership the excluding That's Changzhou, Yes. yes. a

own So three what's the the estimated pipeline years? in CapEx projects our for unfinished our next within existing

Tim Chen

three-year you give guidance won't able Probably here. to in the be next

of than one types of under discussion. these more actually Changzhou projects have We

a of you that this preparations continue CapEx tell looking have can on for deliveries at years. for three is year for what in to similar and obviously, And that forth. so remaining year it and for we're the includes change is probably I year for number XX. the parameters year, in what some obviously, shift. next deliveries offline next XX, But the this in get terms power come you we So to new MoUs We'll coming as discussion each infrastructure and general probably and the quarter, will deliveries

And numbers MoU so have a couple as those new rerun we'll to well because we've of you. just Thank had wins.

Unidentified Analyst

Okay. Thank you.

Operator

all time we have you. conference That's gentlemen, concludes today. for participating. and Ladies our Q&A you Thank for that the Thank for today.

You everyone have may great day. now disconnect a

VNET (VNET) 23 Nov 222022 Q3 Earnings call transcript