Earnings call transcript Q2 2023

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Operator

Hello, ladies and gentlemen. Thank you for standing by for the Second Quarter 2023 Earnings Conference Call from VNET Group, Inc. [Operator Instructions]. Participants from our management include Mr. Jeff Dong, Chief Executive Officer; Mr. Officer; Financial Chief Wang, Mr. Qiyu Strategy Tim Ms. and Chen, Chief Officer; company. Director Xinyuan Relations the Liu, Investor of Please conference that note today's recorded. call is being

I over call Ms. go turn first now ahead. today, Please Xinyuan to speaker Liu. will the the

Xinyuan Liu

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

can well earnings Newswire as Our you services. was on copy earlier distributed a release on our and today, find site as

contain Private forward-looking provisions note Litigation statements under Please today that XXXX. harbor U.S. discussion the of of Act will the Securities the Reform safe made

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

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

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

is this a being conference recorded. reminder, As

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

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

Jeff Dong

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

by reached end XX,XXX utilization rate, compared Total to covenants year solid of quarter with ago. utilized overall the by to the covenants approximately growing quarter X,XXX XX%. a pleased and improving report XX,XXX second are under management a approx We further with

during per MRR quarter. X,XXX the high Our reach RMB climbing new cabinet to at a retail continue

adjusted year-over-year profitability, an maintained achieved RMB of of and year-over-year. increase X.X% billion, we to million, XXX quarter representing X.XX higher of revenue increase on RMB revenue EBITDA second business an high-quality focus and better X.X% drive we our As of margin

development. ability Our to recovery. the stepping clear overall services demand increasingly supportive solid strengthen made is high-quality, for both It's our scalable the economic steady operational market of policies as economy big growth, and makers China's digital economy driver incremental capture an reaffirms industries becoming technologies the quickly XG. accelerate recovery and important policy post-pandemic To China's financial IDC with very performance such on up digital economic and AI upgrade data, are cutting-edge to a

set to across training demand program This Generative chain, models computing scale the a scenarios a government proud industry synergies computing emerging as different services highly IDC power up application as value AIGC supporting optimize in partner AI the selected in for unlocking a new AI Generative by program build partnership are and fueling Innovation July. require across AI was news, Beijing of VNET foundation more to AI aims Recently, in the with development power massive government-backed models. good municipal share companies Beijing's and industries and China, computing I'm power. high-performance

capabilities. once program and record, track our again this in computing showcased resources power inclusion Our service outstanding strong

We expect future. to more the in AI-driven tap near into demand

our Now business a quarter look let's second closer updates. take at

being and year, for still have share our power algorithms Generative them in critical launched training advanced growing exciting as stage, from industries signs AI, although models built like as across and training have data some Large many demand of AI specific in some the their effectively been tech X dominated the the Internet startups. are players Language already giants, to data, most companies early sets. for different companies models, are computing where well in leading already as plays developed computing are many general Chinese is that advanced algorithms First, models fundamental I'd Dozens of developing elements AI role Of power, Models vertical by business. this by of sectors for

Our cabinet, trainings wholesale deployments operators. able density capable data centers large are per well XX to platform model and language powering for of Internet to offer cabinets high-power up kilowatts

servicing Our retail as services, a over capacity virtual for computing reality. industries variety cabinet. from cabinets in AI high-performance also is offering single customers kilowatts across already a arising and care health have of XX local a deployments Generative existing demand such our

boom, AI our design, coupled further in confident wave the As of high-performance service ride expertise and data capabilities our demand stemming will from storage for enable with extensive growth. expands requirements data we to processing us and next IDC execution the center are resources

Next, moving to XX won robust our from extended customer. megawatt of we giant Recently, Internet capacity momentum. sales wholesale additional for build business, which existing continued to contract

value in-depth strong industry proposition, to and skills the execution service appeal expertise, assures our compelling resource Our of Internet broad capabilities offerings giants. wholesale

where continue retail diversifying Turning business, expanding to make our we to our meaningful customer base. progress and

digital technology, sector. services we for with an sectors. megawatts contract in which industries, and local manufacturing financial to player services IT from financial various demand a X wins leading retail is continue existing services, VR our including Notably, the demand services Our IDC secure local customer scalable, Also, new our gaming, manufacturing existing mobility. to the and primarily extended across customers services, online in customer, service attributable high-quality quarter, the incremental were from second

facilitating retail cloud connections between a also and demand quarter, support in Generative full second connect foundation and new continue multiple bare innovative support we significant power models services, by unveiled AI. required encompasses especially and to cloud solution AI providers. business, secure customers In to solid the solution and Generative new services for metal This storage, private computing direct to data our the stack Bare-Metal-As-a-Service customized meeting a provide solutions in deployments. Our emerging value-added

for immersive training comprehensive to its better picks quarter, user model meet During and the featuring quickly company expand solution. resources large will needs acquire one-stop a a with IDC of metaverse the to services pioneering business a as we contract computing help customer this while its signed IDC full-stack experience. on-demand new metaverse services business low-latency, This high-fidelity with set in our its supporting China

we'll forward, a in large IDC seeing AI this Going high-quality to extensive broader the space. arising and advance industries, solution services, range base opportunities new of our serve leveraging resources, customer

want on update share business. an the I Cloud Blue to Next,

During MNC worldwide system. corporation, more provide new its cloud implementation customer, Moog, the quarter, integrator multinational a We'll and infrastructure. second manufacturer the or and precision deployment a hybrid components we and designer, services for won of control with

for support Specifically, platforms cloud infrastructure its to new building the and computing IT in development implementing to we will its business deploying business localized China-based environment China, in ensure operations and data migration customer a IT continuity.

to helping Chinese knowledge into alongside business field China. strengthen merge Moog's of learn by implementation migrations systems. wealth infrastructure their for the have tap business of with practical environment projects many We multinational demand MNCs to from in built this our a localization IT cloud and IT in increasing further customers successful experience and will ability The

reflection in Yearbook. Corporate performance and more companies for participating XXXX, Sustainability ESG to XX the June highest be in companies companies On S&P are Global evaluated edition from Global's its late Chinese the we IT ESG. ESG VNET Chinese Assessment practice The the a its X,XXX S&P achievements Sustainability earned nearly in of inclusion and service clear front, honored Yearbook in recognized assessment, China score, published ultimately selected of XX industry-leading industries through first across our XXXX

implement and positioning action we that real a as IDC forge plans, with continue strategies will service innovate our leader ahead to sustainability initiatives we a make in VNET industry. As sustainability the and difference,

are growing IDC unfavorable To prevalence and landscape of to With the lines, summarize, driven base, deployment reinforcing ongoing and and our widespread are the serve prospects industry. reliable mid- China's digital of service our demand capabilities IDC increasing across by our our and policy digital expanding well long-term each progress AI's in and transformation strategy services, we to boom. our loyal confidence business positioned high-power dual-core maximize scalable AI density and customer growth

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

Tim Chen

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

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

core Our present all these we press are The today the in expenses, results tables that quarter second the and unless terms. of XXXX non-GAAP expenses exclude of financials noncash in note be of Please details may stated, our renminbi operations. earnings reconciliation our in for included not also which found are the release. certain otherwise measure part

Now growth the let specified, on all me I walk rates otherwise Unless you second be quarter through financial results. will are year-over-year basis. reviewing our a

same high-quality X.X% to well by remain revenue the revenues advancing the to X.XX business We improvements. to year, period dedicated our IDC the the billion second driven of second the continued was quarter by last representing profitability in increased our X.X% and as cloud XXXX, XXXX. growth to same XX.X% our XXXX CNY from from margin of and of of XX.X% margin as in the quarter, In of services. mainly CNY XXX.X in VPN was business a profit compared net drive Gross period of XXXX. Gross decrease quarter million period the same second

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

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

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

Adjusted quarter the the XXXX EBITDA increase X quarter period from Adjusted second compared composition XXXX expenses XXX Adjusted CNY EBITDA XXXX. of XXXX. share-based million, million. representing XXXX in was quarter XX.X% of the X.X% of in to same of of in XX.X% margin the second was EBITDA CNY of an in the second excluded period same of

attributable a period loss Our million, million in XXXX Inc. XXX.X XXX.X VNET in same compared CNY the second XXXX. of to CNY to net of was of loss quarter the Group, net

X.XX A Basic per per diluted CNY ADS. were CNY ordinary Class ordinary X shares. represents and X.XX ADS both share and Each loss both

sheet. to Turning balance our

aggregate to of and short-term net in and quarter million, the billion. period investments restricted XXX.X As second X.XX CNY Meanwhile, XXXX XXXX, compared was was XX, the of million June the equivalents, activities of generated company's in cash amount from cash the same cash XXXX. CNY CNY operating cash XXX.X of

XXXX Our CapEx million. CNY quarter second of in the XXX was

and to the team partnership I'm for executive and it our I'd over years. all like continue on working want the team you I all thrilled to Qiyu. and strategic over of to turn support initiatives, the past now thank couple company's Finally, with to

Qiyu Wang

of team. to strategy core new guys. with and leveraging Thanks, leadership I my VNET's be our potential. and part years drive more experience team. unlock of XX It's our honor Thanks, working industry to look to an forward team growth

revenues X,XXX net range expect to our currently XXXX we to year-over-year year-over-year in our million X.X% X,XXX X,XXX resulting CNY XX.X%. terms In And CNY outlook, and be to range of XX.X%. million adjusted in million, of million, X.X% full CNY to representing X,XXX the to of maintain a the CNY EBITDA of increase to year guidance a be increase of

forward, business revenue margin will to to high-quality improvements. we profitability on focus drive Looking continue and

will digital In our especially explore demand additional, strengthen arising new leading position from as further demand robust player. opportunities and a we AI-driven IDC

strategy scalable growth results solid core us sustainable value stakeholders. financial to offering new highly give proven prospects and our operational to confidence and our deliver service in Our

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

Operator

first Our of Yang the from [Operator come Morgan Stanley. Liu Instructions] from line question will

UnidentifiedAnalyst

from Yang team. Pamela is This

repay to think point recently, last question bond. convertible So is the I the company's asked regarding

like to comments some just I'd more So this. give on mention

Tim Chen

Pamela. lot, is a here. Tim Thanks This

we've As the the actively to reaching been market before, we've to financing out channels mentioned multiple to market.

also Qiyu cash. a the of renminbi onshore able placements. our the with our team. to point I'd of I with addition out the of we're think aware of disposals, relatively to financing bring in Also, focus C both healthy asset REITs, you're management balance X on efforts to to bonds terms to the public unrestricted of we CNY over channels like team, a billion have private and and some the our Obviously, of shift larger cash senior

is So of efforts. that all our of part overall

bond the work is preparation Obviously, monitoring volatile, closely of in our they still the U.S. are all but we markets moment, the completed. At are

areas. So Thanks, on that will for market continue we site our the efforts but wait on the other next Pamela. window all

Operator

question our the come of And Edison will Jefferies. from line from next Lee

Edison Lee

another order. First on wholesale one very of all, congratulations best

that. they question remind for first And that wholesale that previous that the little first the X,XXX cabinets that the equivalent side, then building is to? order. order? the about to of we And a the somewhat bit about is maybe also then you're can line So me delivery? are time question terms what on similar talk So you my Can the is megawatt about

year-on-year a is XX% a lot you seems second on lower half for on your second operating year-on-year the your It's Number It is Can outlook quarter on lower on a two year? this operating basis. cost. cost about that basis. share of

Tim Chen

I'll as announced additional mentioned previously be to in question contract in contract. first megawatts joint We actually, XX-megawatt together signed we contracts existing with The phases. take recently different the for to has the internet XXX already we won attach customer. fulfilled actually, on capacity total I've call, in actually extended from

me and Let In of next half the couple bit the more second contract. be possible little a delivered into year. be different year We this elaborate of end will of details on buildings by in phase. the a highly first will the a phase, the divide

the move-in be very So will fast.

you. with So that's can share something we

Edison Lee

year asking on deliver follow up I you this side. can Sorry, that would that -- you cabinets indicated X,XXX just by

So X,XXX equivalent the that megawatt is what for cabinets.

Tim Chen

Yes, correct.

deliver of the end will year. we the by X,XXX So

Edison Lee

the what with that cabinet? equivalent is X,XXX megawatt And

Tim Chen

than about megawatts. XXX less It's

Operator

And Wang come of UBS. our next from the question from line will Sara

Sara Wang

Yes. Yes.

So change any if ask guidance may to this I for year? there's CapEx the

Tim Chen

thanks Sara, the question. for

guidance, activity delivery for we delivery scaling the very is also actually guidance. that good the CapEx In Obviously, back moment, terms refinancing. been we this on that focused back, healthy front year's cash those financing are shares to where given a with CD number at no CapEx we there build also our that further project a the of the much associated on of cabinets, although fact have adjustments just we very on of terms the very, are focused cabinets. strong in the have CapEx some of want upcoming are of we And can cut the up CapEx of we reserve also news projects. And the for

those the expect have we for from the XXXX should overall, activity cabinets that in more impact that terms cash we manageable so completing And deliveries. be of

Operator

Goldman next our of line Timothy For and from our from the question Zhao next question, will come Sachs.

Timothy Zhao

My question EBITDA. the is regarding

to compared end the wondering guidance, your low full high year Just end. and

are into half helpful. high-end. second cost, any tariff wondering Just et any the the would year from the to color the of for you achieve that the or tariff power midpoint that EBITDA be tables the thinking including very you for a second the like order see cetera, And, power margin into this what company also trend are that in -- half,

Tim Chen

second the Look, cost question EBITDA Tim, very for both here. we've hard let on me take this quarter, good margins. working been control Obviously, question and first on the side.

would in quarter, And so both that's one-offs actually helped. There side That are in a and positive with on and second fourth repeated not be third which shared the few, say, market. quarters. will first I we've the the

third be, of So expect do a in to quarter. guess, there terms I we reversion

unit power expect Some continue of average cost actually impact in and stable third that in The factors been to to quarter. the the impacted bigger in second have has quarter the relates quarter second to tariff it relatively costs. and

see unlike where not is in do now. the terms ramp-up in from cost substantial can in into terms There to we higher. of data months, moving now so obviously, of centers. the had peers the is we've be you in that also our And and our customers this utility as -- summer our increases PPT, Also, figures right expect overall utility costs. our However some China

is that period. say our unchanged. in element remains for There notification an provincial the third in I transmission let's least, power second I full is, about around, guidance prices NDRC year the EBITDA of half terms electricity a not regulatory of outlook, an uncertainty say, would but during guess, an Last moment, distribution costs. There

power. will that, I uncertainty, inject of say, would around we So expect another layer that

of the third EBITDA the power expect think expecting we then quarter if as obviously, quarter we're an that I margins into contract quarter, stable, margins, the as for improvement to But cooler compared the quarter. that will at disappear fourth second given quarter fourth moment, from will in bit one-offs probably weather some then a months. remain will these second And costs winter have the of third

Operator

gentlemen, that the ladies Q&A for for, And time conference you all our concludes for today. That's participating. that, thank and we with have

may day. now have good a Everyone, You disconnect.

VNET (VNET) 23 Aug 232023 Q2 Earnings call transcript