Earnings call transcript Q1 2023

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Operator

Hello, ladies and gentlemen. Thank you for standing by for First Quarter 2023 Earnings Conference Call for VNET Group Inc. [Operator Instructions]. Participants from our management include Mr. Jeff Dong, Chief Executive Officer; Mr. Officer; Financial Chief Chen, and Ms. Tim Investor Liu, Relations Director company. the of Xinyuan note is call today's recorded. Please conference being that I would first speaker now to today, over like Ms. to turn the call the Xinyuan Liu. Please ahead. go

Xinyuan Liu

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

U.S. distributed well made provisions earnings as today you can our on will Securities the under discussion Newswire Harbor services. Private contain today, find Our earlier the Act and statements copy the Reform a Safe of of was on that forward-looking release as website, Litigation Please note 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 obligation statements, SEC. risks under of not discussions except applicable with laws. and does annual to our required latest the these VNET

press earnings VNET's matters. matters GAAP this Please non-GAAP VNET's matters. as earnings call note the well reconciliation a measures unaudited as release also of to the GAAP financial the audited of include press contains and unaudited release financial disclosure non-GAAP that conference audited

reminder, a conference As recorded. is this being

In this webcast call will addition, be on our at ir.vnet.com. a available conference website also of

the now call our will to turn I Jeff. CEO, over

Jeff Dong

turn our for will morning, detail. call evening, who and more will you, and start Thank Good over Xinyuan. call CFO, everyone. joining Thank to results our discuss today. an of the good After outlook our I results. that, you overview our Tim, with will I financial in first quarter

Total approximately XX% management growth utilization quarter, ended XX.X% competitive X offerings. in We from dual thanks a companies XX,XXX with year the compared our the solid and first got growing rate our with by first service XXXX core performance, XX,XXX overall start first to we great last the X,XXX of a quarter effective utilized end under In officially ago. off cabinets, to quarter reached strategy to quarter.

during this RMB quarter, a the per in X,XXX Notably, million in record -- up cabinet first MRR high RMB reached quarter. our from X,XXX of retail previous the

RMB and billion an million, of growth reach recovery. grew revenue to year-over-year RMB represent post quarter about of X.X% ability steady increase China's our pandemic EBITDA stable First drive demonstrating X.XX amid XX% year-over-year XXX.X to adjusted

taking business color Before driver the fostering more broader general the want path to vision. flows building China's the efforts, coming and the statistics including share economy, NDRC. China posed steps population, in X.X% our value digital in to the advancing platform Official according strategic to I China's results, transformation Digital first China's recovery roll across quarter, and years. forward-looking climate. digital in clear about of economy the accelerating broader a I GDP talk on existing government year-over-year some key with bank its Its show for growth post-pandemic is digital infrastructure, diligently the become economy more grew innovation creation and

well advanced such a data industries, as as growing as facilities the and traditional will development the fulfilling for context, this broad serve as demand Given infrastructure Internet including cornerstones centers strategic economy, from of of spectrum digital industries. XG players, connectivity

leading China's digital and to policy provide boom. are space, a and As customers economic to we opportunities favorable landscape from player IDC well-positioned in the arising ever-improving seize services

and quarter take effective strongly business of core look markets. both retail prove Now our in a at let's dual the strategy to first closer wholesale continue updates. our IDC Execution the

traction quarter. offerings players to Internet continue during gain leading service among wholesale Our the

in be new a initial megawatts IDC more Internet assets delivered phase total to by smoothly The the phases. project mentioned first cabinets of end last multiple expansion progressing As deploy will project and for overall The IDC be the we is quarter, this will year giants, now in as Region. China's our its scheduled. Delta the than and a one River the Yangtze the XXX of customer, of delivered business services to bid we in call, located during earnings support won through the

project, again This our once capabilities service customers. exemplifies compelling and for wholesale value proposition

in size transformation business with today's and operating companies retail on pursuing Moving digital all are of environment, sectors our increasing to business, urgency.

scalable retail access enterprise Our facilitate IDC offerings are transformation high-quality, digital and their service and reliable more secure attracting fast, demanding digital more to agendas.

In the customers orders growing including an local customers. a media traditional services, in same variety cloud across to from gaming of number services, quarter, financial time, our extended the the services. first we of At and services, from demand expansion existing drove new and continue industries, IT online sectors win

creates boost in solutions and customers, loyalty customized overall competitiveness. for solidifying experience Our our service customer comprehensive our an excellent service a offerings and

Microsoft Cloud's XXX Together want with XXX, Cloud will supported Microsoft I Blue April, operated Blue to Blue Cloud XXX's Teams In our by one launched core Office Cloud be secure cloud for under Blue market. and reliable the functionality business. the and jointly share Chinese bringing Microsoft Next, more an Teams, modules services. of by our robust Microsoft and on Microsoft efficient China, in update

decade-long value As expertise Microsoft China's cloud strategic Cloud's proposition. we'll and Blue digital to further with transformation partnership unlock leverage operational accelerates, its unique

XXXX philosophy. third-party like not our our including an third carbon of and Last ESG our update month, on of I'd report but part verification inventory important to initiatives ESG growth outcomes, long-term our is an ESG detailing and provide value results. annual we Last performance. our least, which creation released

positions also with PoE X the in years. million over We percentage XX%. as of achievements highlight XXX hours an green guarantee of our And approximately X.XX, female a power our increase supply next employees kilowatt agreement such management purchase to annual in a of average

value forward, shareholders. and responsibility our our will sustainable embrace engagement to to deliver to our Going ESG we deepen continue

China's to performance our capabilities. economic and process underscores core strengths execution demand In first post-pandemic our well summary, alongside With boost recovery economy. underway, digital solid quarter the designed

prospects about optimistic the domestic rest are the service the growth IDC We year. of industry's for

to customers retail across transformation reliable customizable verticals. committed effective focusing demand fulfilling on core with wholesale facilitate services We'll providing and business digital our and our to by while remain dual strategy, growth incremental digital core our

Thank business now will the I performance quarter to Tim turn discuss call financial to our outlook. you, and for the everyone. our

Tim Chen

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

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

Our reconciliation not in operations. non-GAAP part certain expenses, included expenses press found core these tables the are of may our be details The exclude in results which noncash of our release. earnings

terms. Please otherwise also the note we unless financials first the today stated, for all and that quarter in XXXX are of present renminbi

in net otherwise walk Now first in a specified, quarter financial first you year-over-year the results. the growth basis. solid cloud increased let recovery me period a to X.X% billion steady X.XX driven are growth revenues by year, as by the mainly IDC China. services. continued all from same RMB results our VPN the Unless well reviewing In our the of and amidst of our rates We the first as delivered through business, last quarter quarter, on post-pandemic the

decrease RMB in to the Gross representing of of quarter of the XXXX first same X.X% XX.X% a of XXX.X million period was first same XX.X% XXXX. of in XXXX. the compared quarter XXXX, period the profit Gross from margin was in

was to XX.X% Adjusted of in compared cash of the gross and period amortization Adjusted first period gross RMB in million increase profit, which the of margin an was excludes quarter expenses, XX.X% XXXX. cash quarter same XXXX the XX.X% of same from XXX.X share-based the first XXXX. of XXXX, depreciation, in compensation

first an expenses, compensation were same acquisition compared to of the million share-based XXXX. XXX.X compensation for in the of Adjusted in operating combination million employment expenses, period and post in RMB XXX.X XXXX quarter RMB excludes which

period of same compared percentage the XXXX. of a to the first expenses operating As were XXXX net XX.X% adjusted in XX.X% revenues, in quarter of

from Adjusted EBITDA margin in RMB XXXX Adjusted share-based XX.X% quarter million, the XXXX. first same the EBITDA of of EBITDA of first was both X.X% of RMB was the XXX.X in Adjusted quarter of the XXXX excluded increase X.X quarter XXXX. an XXXX in period and expenses of million. representing compensation first

XX.X Our represents X.XX XXXX share, net ordinary first in ordinary shares. X.XX were of earnings X of compared and a and per XXXX. ADS, to Each respectively; of Class same and income million and attributable X.XX net RMB RMB the ordinary respectively. in Basic XX.X million to quarter per the diluted A ADS X.XX period shareholders income was

Turning to sheet. our balance

and from RMB net of XXXX, aggregate XX, of XXXX. million the the quarter million first XXX cash X.XX amount As period cash in the billion. March generated in RMB XXX.X equivalents restricted cash, to compared activities company's RMB was Meanwhile, cash of operating XXXX the of was same

quarter the XXXX RMB in CapEx of first million. was Our XXX

moving to outlook. Next, our

X.X% year a X.X% year-over-year X,XXX XXXX, the X,XXX expected For to to to the revenues year-over-year to in with be And full adjusted to million X,XXX of of RMB representing million RMB EBITDA our remains of range increase million, of net outlook a unchanged, range RMB RMB million, increase XX.X%. representing the be in of XX.X%. X,XXX to

digital robust as continue demand leading our to will a explore to player. we IDC arising forward, opportunities further new the from strengthen presence and Looking

run. to dedicated sustainable As are of always, the our value all stakeholders long delivering to we in

for prepared are This we remarks concludes today. take to our questions. now Operator, ready

Operator

Instructions]. [Operator

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

Yang Liu

questions I have here. three

about in moving Does And further customer The macro because improve rate first little that quarter? will trending the have is believe we quarter. and data question moving. bit demand the of to this improvement in first see of utilization overall one We steady a in a overall the management down continue April. second

demand I think why that's overall on the are side. concern some So there

data of view perspective? pressure price few second second demand question vendors action That's price perspective unit from a or public observation the the operation? commercial recently this kind the or observed the with And to management this their of center, negotiation price The the Can we from us market. kind latest share of what transferring pricing in volume cutting matter the a management's or that whatever in terms is cloud no the in question. are is

that we plan the Microsoft's makes And is generation introduce to introduced are The any China? excited have to Does of the Teams glad AI question VNET China. launch market third Thank new what more of in Office see product Copilot. you. that Microsoft the is to company

Jeff Dong

it's Jeff. Yang,

on colors some you or answer the give you me just Let questions X asked. --

the The is demand. first about one

we like from favorable platform digital economy. We economy as China side the keep reopening, and supporting development the environments the actually macro repeating, of such are as glad, regulatory

to wait the fully kind bit the a We given of trend more But from patient a to market. we have to mean, for need from being be to honest, market. recovered that's I be warm-up, recovered the fact be to real market the market, seen the

a from signal. And obtained as have actually already is which we the we large large well, -- market very as mentioned, a order

ability, especially customers have of other service recovered, You can cloud and see video short market players. we already has the the instead the -- from players the of the some been we like

the some mentioned can with share second And you just players, price we cloud question observations cuts. There's regarding service you.

players any say have competition as customer cloud first, with cuts don't different direct The we price would we a I our service base. have regarding

we services, are cloud companies the in several is the instead a financial of The be IDC able sectors only an to example. I'll meet compliance second requirements. use like we'll public take to

which signed determined in contract of example, IDC the plus, with pricing contracts Stanley, signed well. only in already we all the an do been recently We can cloud. Morgan is are have terms instead And we with of the as pricing,

So feedback don't from there's price we immediate see or actually direct any cuts. -- their

Yang Liu

generate Actually, do is to that their related you to cloud volume more business public question overall here my will then transfer IDC suppliers? think price and cut

Jeff Dong

think Yes, agree We probably yes. that true. with will We be them.

to and That's of terms expect help And integrated in scalable management the and China. what modern I us Blue efficiently. office operate for. platform system Microsoft the Cloud launched Microsoft, intelligent out will looking customers enterprise the recently those collaboration build say we -- In to and we're would we help the would

will there we add-on the in what we see do also will can further of we can have see We'll the terms keep and terms I products, monitoring. see, -- what from what launch, the from after we can immediately. to we will Teams, will In teams give we market forward. going we of -- additional got income we see

Operator

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

Edison Lee

I got three questions.

number the in and of with the And are the what of wholesale, business growth is, utilized Can you retail far? share us quarter, so on is from sort you you Can one and seeing first the first between you cabinets. demand non-IDC retail business. some far? color versus share the VPN so the split two wholesale The added actually business and X,XXX Microsoft

in three CB? That be outlook the you you rest whether your discuss And on the next what is of refinancing or Can terms puttable number And a plan year? what have of your you in CB. the year. of will are thinking the is of

Tim Chen

add let at from side have then take Edison, a me this, crack and I'll as additional Jeff comments well. his

from up cabinets the a the majority compared the billable additional ramp surprise that say customers terms in are do cabinets that those In enterprise But customers. business. not terms of is smaller-scaled wholesale the in larger of I our to additional also of would fact cabinets, volume given coming those as that

largely wholesale by again, driven customers. So the it's

we've provider say, customers Internet Internet on regards bifurcation companies. already, in Jeff, last more mentioned seen, quarters with again, the a think between well earlier I talked customer cloud about ramp-up service wholesale faster the as and ramp-up versus would I for And to a the I large large that the and few companies. you've

So that would that comprising of the side be split. wholesale

Microsoft For continued new business launched the is or growth business. seen non-IDC Obviously, landed has products. outlook, that there that in you've

And grow that our then that business as grows, as so Cloud-related fashion. in grow. similar that, And we will well a expect do to will business continue obviously Blue

XXX the CB CB. market's questions the the Last for but not year, aware least, million very around next much upcoming

And have as dollar We offshore both in renminbi as number a actually solutions of requisite we approvals. alternatives received U.S. progress. have NDRC well already onshore and the

As announce market. have will to soon further as details, them we we then the

I you Jeff, if anything know wanted with non-IDC don't wholesale regard growth the the or to outlook. else business retail add to

Jeff Dong

Yes.

covered the of products. most I team has the think already

to mainly contributed add of terms wholesale from business added the new want well. Just was cabinets, as billable in on,

like In terms we XX% retail. the of from cover revenue the and wholesale XX% more percentage, from

about of XX% the AUM retail. XX% the cabinets, is capacity the and terms wholesale In from billable and from the

and and I it's the really see. for And say would very Teams will Microsoft the to related signals ChatGPT, to positive us we a

for Demand from models power those are centers, We a provide not for as data especially areas, major forward. required low-tier computing more to domestic the in will boost latency alliance, going training. is content will which see

also of with forward. connections -- advantages probably intra-data level -- of think to interconnect higher And communication, enterprise So unique we latency. what I connection, us that's win one one cross the the has going which of things positive call reduce the the utilizing center

for AI well. the and is think the on the continuously about As improved with trained accuracy probably be data as would this the sets We for direction centers response new next information. data

comments some with I Teams. that's the share So Microsoft can you on

Edison Lee

it Is the first to of rate non-IDC in about talk the the quarter? possible business growth

Tim Chen

saying the non-IDC you're rate of growth businesses? the Sorry,

Edison Lee

possible Is first the in on for it Yes, color quarter. some that?

Tim Chen

give the growth say somewhere I single but breakdown, the mean I don't we segment in be probably rate would would that the high digit.

Edison Lee

of to that expect similar be the the year? you do And in rest see. I

Tim Chen

you're mean you're we at the because, to Difficult have to it the at at visibility. but think but us. And Microsoft side. moment have underlying growth shown the looking of that also business, say only VPN this as business, do if again, the I looking visibility around I is is non-IDC you the business the that, side, Microsoft less

in that right, So to connection business. again, end don't terms have Microsoft's of end we customer, the final

moment. So hard to this at say

at I of China the But COVID. say And you out still would look quarter, overall first if trend, still it's coming early. is

or going quarter so, better will to another after is decelerate much probably accelerate same this levels the or if in think of I at or growth. flatten terms have gauge we a the

a next quarter. probably better idea we'll have So

Operator

from Nomura. of Our the from line comes next Zhang Ethan question

Ethan Zhang

have I one question.

that quarter retail and I last has been your So around continuously increased of RMB second IDC X,XXX. year MRR already reached note since

our what's of wonder just trends pricing? for color behind the management wholesale retail expectation MRR. in the more sequential what's driver And our improvement MRR? And give the your IDC us future also, on So our could

Tim Chen

color Let on see then me take has I'll the the first if one Jeff and some second.

the up at quarters. X,XXX think MRR, -- expected that and think data, it's you In MRR a down certain terms the and always I or we so I of talked if historical to been of I be look retail north we've mean, about fact

I particular, factors. there I think this key say would X be will in in quarter,

that by services The additional there are first is being existing customer added cabinets. value-added

the So as an services example, increase O&M in customers. from

by does total the that number dividing rather revenue top, increase underlying not So the side. of effectively you're increasing cabinets but the

So the up. cabinets obviously, MRR for retail go the overall will

Again, are colocation our MRR for customers. there value-added is higher from Secondly are adding we new services that cabinets cabinets. a demand is that and the the

I that first than is trend, would so say, And the another less one.

quarter, customers The therefore, driver for to the VNET. suite segment would really is of I MRR by are say already being increasing this And adding first the that bigger services for a whole. as offered is a one, their overall

For to we of and maybe side wholesale I Jeff guess, it that provide kind some I'll where on going, there. pricing the to see pass comments

Jeff Dong

Yes.

In terms of from supply the would on One MRR wholesale is X from market answer side, I side. aspects. the

since for peers, staff sure players the larger its side, have last been especially Actually from as As make has you some lot players like supply is smaller we well. of back has year. scaled recently, thing the market it other also supply which side. us, supply-demand a down cut we with helped know, that's And the the slow would our one to side match the we see of --

we of the the of MRR analysis, see on more side, also up year. in can pricing some us of we trend a smaller since XXXX, of see few signals players from actually been have And the -- like were our come from bit. market, terms established do some big from spending. for And the about little we the especially especially has cash But earlier the it's cautious order. we a especially down players wholesale see, starting in There recovery the especially

certain our don't control our we after some to do compromise will to pricing level. side, the down deals down up any going would And we from at any and the bundle to stable and improve up cost a cost to be That and market also being efficiency said, extent, forward, is, go client which side. in better from

Operator

UBS. from Huang Jasmine of line the from comes question next Our

Jasmine Huang

two questions. have I

one is first The on ChatGPT.

second customer moving from AI recent margin. any is seen on if in EBITDA wondering the you have any demand I'm accelerate growing China? And deployment have question -- or So

margin QX your stable year-on-year. remained EBITDA noticed I So

the the I'm maybe So wondering behind? you could on give mention, some EBITDA color margin what's reason please And forward. going us

Tim Chen

is seen or you've increased -- demand? we've seen customer on question So your not the whether ChatGPT increased

Jasmine Huang

Yes.

Tim Chen

I of market services Having Yes. are it has into say direct it's would very so obviously, There developing in product. would GC. turned terms announced, products to that the say that to that, probably tenders I not said AI and customers I yet that still the impact. mean linked the relevant around and new stage early tangible have they're forth that

stage. it's I early would quite So still say

quarter, of -- did and our terms EBITDA first there our mentioned of are forecast in for Secondly, that are revenues quarter, well, internal there's drivers. margins a exceed positive margins. EBITDA own -- and is are a and also this is release well. first impact come benefits the the aspect from as there seasonality it One In therefore, the as earnings in actually, couple in or a as way that there we expectations, nonrecurring key that, and, certain in the

actually quarter. were from into did also first quarter delayed some that see We costs second

so modeling, And margin the purely we quarter. higher than to probably that's a first what if lower expected second what for issue. just than your in quarter you'll slightly is expected look compared you And timing see at the as

which in relevant still, is through Third, time is we've a trying going quite industry. our been

on we focused much And cost very so have controls.

new And side, side and our measures. we've been so cost utility continually rolling management on out

the margin. And again so that's a to positive

than factors, Does Jasmine? we your it number is with So and yes, overall terms the help I'd last had year, in question, expected. but in of are what that answer I higher line a there think say, to again, question, of

Jasmine Huang

Yes.

Jeff Dong

on customers mainly our some as give you side. mentioned. do it's from AI-based We trend colors from retail well, the demand, but me AI see as you Let

But AI-related we the a side. with area. -- very some take Beijing We Let's retail around government especially recently agencies, needs feedback got it's mainly Beijing computing is from strong. from customers Those example.

with with actually but the AI keeping dialogue haven't demand based seen wholesale much of are We the the from AI, nature, we in customers some side.

Operator

very conclude today. you much for your for thank that, right, questions. with And conference and gentlemen, we Thank all All you. ladies our

VNET (VNET) 24 May 232023 Q1 Earnings call transcript