Good morning, ladies and gentlemen. Thank you, everyone, and welcome to the 21Vianet Group's First Quarter Earnings Conference Call. [Operator Instructions] Before we begin, I will read the forward-looking statements. This call may contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the result, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. 21Vianet undertakes no duty to revise or update any forward-looking statements for the selected events, or circumstances after the date of this conference call. With us today are Josh Chen, 21Vianet's Co-founder, Chairman and CEO; Jun Zhang, our Chief Operating Officer; and Mr. Shang Hsiao, President and CFO of 21Vianet. Following management's prepared remarks, we'll conduct a Q&A. At this time, I'd now like to turn the conference over to Josh Chen, 21Vianet's Co-founder, Chairman and CEO.

Thank you, operator. Good morning, and good evening, everyone, and welcome to 21Vianet's First Quarter Earnings Conference Call. During the year, we are focused on expanding our capacity to meet customer demand. We have become focused on improving utilization, as well as further building out our infrastructure to support strong customer demand, as well as upcoming launch of cloud service with Microsoft. In the first quarter of 2013, we continued to experience solid hosting demand, network up 40% year-over-year. This demand continues to be driven by the wide growth taking place in China, including over of our Internet data transmission growth, [indiscernible] with the increasing adoption of bandwidth reach applications, as well as increasing Internet penetration. As we continue our growth in this fragmented market, we continue to experience capacity constraints in the North of China as clients continue to turn to us for a fast and reliable Internet service throughout China. In our efforts to address this challenge, we have established a goal of adding approximate 8,000 cabinets by the end -- by the year end, which with about 6,800 cabinets, or 85% of total cabinets to be deployed in our self-built data centers, in the second half of this year. During these recent quarters, we have strategically managed our growing client demand in our self-built data centers, while -- which increased by over 70% from a year ago, while slowing the growth of new cabinets at partner data centers. This strategic approach demonstrates the shifting of our structured balance of demand more towards higher-margin, self-built cabinets and the data traffic on our network. This will increase the portation [ph] utilization of our network, which helped reduced mid- to long term CapEx, while also improving our margins over the long run. As part of these continuing efforts, during the first quarter, we built 1 of a new Mac data center in Beijing, where post demand and average MRR remained in the high vesting power [ph] nationwide market. Meanwhile, we strive to expand our footprint into the Southern China market to support the growing Internet industry in the region. Our COO Zhang Jun will further expand on this point later. With our growing business scale and increasing mix of higher margin self-built facilities, as well as the ramp up in cloud service later this year with Microsoft, we continue to see significant opportunity for revenue acceleration and the continued growth in coming quarters. With that, I will now turn the call over to our COO, Jun Zhang, for operational updates.

Thank you, Josh. Good morning, and good evening, everyone. Last year, we made significant strides towards the diversification and the expansion of our Internet and the cloud infrastructure service offering. With our expanded scope of services, which now include content delivery network business and cloud infrastructure facilities, we continue to focus on the enhancements our capabilities to provide our clients, [indiscernible] a one-stop internet solution. This sort of optimization aim to better accommodate our clients', very excited and evolving business needs. As we work to launch our progress cloud offerings in the coming months, we are very confident in quality, reliability and the scalability of our services. That's our plan, increasingly relies on [indiscernible] today's complex and demanding network requirements. As Josh alluded to earlier, another key priority of our business at this moment is to improve utilization nationwide. Supported by the strong demand in Beijing, we still experience the supply constraints in our largest market, where our utilization rates maintain a higher level of over 88%, along with high catching [ph] level. Meanwhile, we are pleased to see ourselves in new markets in Southern China have improved with plans in larger sales team. As announced on our last call, we've completed the significant upgrade to our fiber platform at the end of January, despite some contrary disruptions in our ability expansion and efforts, we experienced over the last 2 quarters, we were glad to see that nationwide, the amount has picked up following completion of our network upgrade, allowing us to further expanded our overall plan base. This rebound in customer in demand has not only offset the decreasing unmet [ph] customer accounts last quarter, which was reflected in our increased churn rate, but we also increased our total customer count. Industry here [ph], the demand facilities from our upgraded network, with other significantly improved transmitting capacity, and strengthened the reliability of our facilities, we believe that the increased demand and the cross-sales possibilities will further grow our service going forward. At this point, I would like to turn the call over to Mr. John Hsiao, our President and the CFO, who will discuss our financial performance as well as financial forecast for our recent initiatives in greater details.

Thank you, Jun, and good evening, everyone. We are pleased to come in line with our prior guidance, despite the additional bandwidth costs associated with the upgrade to our network capacity during the past quarter. In addition, we are very pleased with the successful completion of our bond offering of RMB 1 billion in aggregate principal in March, which demonstrates the investors' confidence in the growth momentum and potential of our business in the coming years. With the additional funding from this offering, we are well positioned to continue executing our strategic build-out plan for data centers and fiber network, as well as the rollout of our cloud platform in China with Microsoft. Now I will go through our financial details. I would like to say that we will present non-GAAP measures on today's conference call. Our non-GAAP results,[indiscernible] certain noncash expenses which are not the top of our core operation. The detail on these expenses may be found in the reconciliation table we include in our earlier release. Also note that all the financial numbers we are presenting today are in RMB amount unless otherwise noted. Our net revenue for the first quarter of 2013 increased by 26% year-over-year to RMB 435.7 million. The MRR per cabinet was RMB 10,422 in the first quarter of 2013 as compared to RMB 10,467 in the fourth quarter. Going forward, we continue to expect the MRR per cabinet to remain about RMB 10,000 per cabinet, but it may fluctuate. Net revenue from hosting and related service increased by 39.7% year-over-year to RMB 264.7 million in the first quarter of 2013, primarily due to an increase in total cabinets under management in self-built and partnered data centers attributed to growing customer demand. Net revenue from managed network service increased 9.4% year-over-year to RMB…

[Operator Instructions] Your first question comes from the line of Chad Bartley from Pacific Crest.

I wanted to ask a clarifying question on your cabinet expansion plans. We have been expecting self-built cabinet additions of 8,000 in the second half of this year. But did you indicate that you expect that to actually be 6,800?

Okay, thank you, Chad. Okay, right now, the plan is still, okay, to build, okay, and deploy, okay, additional 8,000 cabinet, okay. And the 8,000 cabinet, I can say, we're like somewhere around 6,000 of the cabinet will be come out from Beijing. We have 2 data center right now under construction in Beijing. One is M6 and the other 1 is Tarshing [ph] data center. The full capacity of these 2 data center actually will be somewhere around 7,000 cabinet, but probably only 6,000 of them will be deployed before the end of this year. Another major deployment will be in Hangzhou, okay, where we will support Alibaba and Taobao. So the data center we built over there, which we plan to deploy sometime towards the end of the third quarter, the full capacity will be somewhere around 1,400 cabinets, okay. So the goal is by the end of the 2013, the total number of the cabinet should reach 20,000 cabinet, okay, Chad?

Okay. Okay, and then one follow-up, Shang, in terms of the debt raised, can you help us with the interest rate on that, so we can think about the interest expense?

Okay. So the company issue a bond, the total value of the bond is RMB 1 billion, and the rate will be 7.875% annually. What I mean is the company will pay the interest, okay, around RMB 78 million per year. If we down to in each quarter, we are talking about very close to RMB 20 million interest expenses per quarter. But, of course, if some of the money, if we had not spent, the -- those money actually deposits in the bank, okay, in Hong Kong, and that will give us an interest income. Our interest income from those non-spending bond should be somewhere around 2.9%, okay. So the net interest expense should be somewhere around 4.8%, okay.

Your next question comes from the line of Colin McCallum from Credit Suisse.

Actually, you've given me a very nice lead-in to my question. I was going to say that obviously, this RMB 1 billion bond raise will give you a negative carry, as you've just explained. Given that, I'm just interested in the timing of doing it. Can you outline to us the sort of plan that you have that with the necessitate needing this sort of money? That's the first part of the question. And then secondly, just on the timing of doing it. Given that it is costing you money on a monthly basis to have done this, why did you decide to do it when you did it? If you don't have imminent plans, then clearly it's just negative carry, which affects your profit and loss account. Were you expecting interest rates were going to rise in the future, or that somehow the RMB bond window would close in some way? Could you just outline to us why you decided do it early? That would be helpful.

Okay, thank you. The bond, okay, we executed actually it's coming to a very good timing, okay. We issued under the [indiscernible] bond, okay, in Hong Kong. The timing we consider is a good timing for the company, because this year, okay, the company actually is plan to spending somewhere around RMB 600 million. Okay, could be a little bit more, okay. But right now, based on our forecast, it's CapEx per cabinet, okay, should be somewhere around RMB 120,000 per cabinet. That's how much money we need to build a cabinet. Since we plan to deploy 8,000 cabinet, and if you times RMB 120,000, okay, somehow that will give you more than RMB 900 million of CapEx needed. Of course, we try to get some good credit from our supplier, try to pay the late, but at the same time, we are planning, okay, to accelerate the deployment, particularly for those 2 big data center in Beijing. Okay, one in Tarshing [ph] 5,400 cabinets, another one is a data center next to our office, and 1,600 cabinets, because we already have many demand, okay, from these 2 data centers. So we will try everything we can to try to accelerate, okay, the deployment. But once we get accelerated to deployment, we may need to pay a certain amount of the money to our supplier. So the management try to prepay the mixture we have enough cash, okay, to pay all the supplier, okay. And in terms of the timing, we see that's a good timing because no guarantee that data center market where demand of good market for the second half in China, okay. So we consider when we did the bond in March, it's a very good timing. And also, very reasonable rate, okay. Although those interest will eating out some of the company's net profit, we do believe, okay, once we deploy those cabinets, we should see the strength of our EBITDA. The EBITDA we're continuing to grow with a very good momentum towards the end of this year.

I'm sorry, just come back on one quick point, though. I think even looking at your CapEx requirements for the second half of the year, I don't think anyone would be expecting you to be in a net debt position of say, over RMB 0.5 billion. And therefore, raising RMB 1 billion, it looks like -- I mean, if you're really saying that it's purely just for your cabinet build, it looks like you'd probably raise maybe 2x more than you actually need for that. So are you really telling me it's just for cabinet build, that there's nothing else that you're planning?

Right now, okay, it's for cabinet build, okay. Right now it's for cabinet build. And normally, the company will remain a minimum cash flow, okay. The minimum cash flow, okay, for us to run the operation, working capital, should be somewhere between RMB 500 million to RMB 600 million, okay. So every time when our cash coming to that level, okay, because we are under a very aggressive expansion right now, okay, we need to try to get the additional funding. So we think that March was a good timing, that's why we did it, okay.

Your next question comes from the line of Lucy Liu from JPMorgan.

I have 3 quick questions. First one is could you provide us what's the utilization rate currently of the cabinets in your major city, like Beijing and the x-Beijing? And this is the first thing. And then secondly, I understand you have this aggressive CapEx rollout towards the end of the year, but I also heard that some of the capacity already sold in an advance, so for example, sell to some IT, big IT firms. So I just want to get more elaboration on that, like how much of the capacity already has been sold currently? And also, lastly is beyond this year. So what's the future CapEx, as well as the cabinet rollout plan for 2014 and '15? Are we still going to see the very big rollouts in the future?

Okay, thank you. The utilization rate for previous quarter was somewhere around 66%, and this quarter, we show, okay, before we sold some of the cabinet from the southern part of China, and also see very, very strong sales in Beijing, so our utilization rate, okay, increased to 68%. I also, okay, want to use this opportunity to point out something, okay. Towards the end of the last year, okay, we deployed one of our Beijing data center, Beijing East data center. At this moment, actually all the 8 -- more than 800 cabinets have been sold out, so the company right now, if the customer comes, say, hey, we need a cabinet in Beijing. At this moment, we don't have anything, okay. So we need to wait for the M6 to come in at the Beijing data center. So we foresee the utilization will continue to increase next quarter. Our plan is to have a utilization rate more than 70% next quarter, okay. And those increase of utilization rates will be contributed, okay, by the additional sales on the southern part of the China. That's the first question. And second question is when we build the data center, okay, when we design a site, particular for the Beijing data center, typically, we will discuss with our top 20 customers, okay, before we build. And right now for the M6 data center we plan to deploy in the third quarter, we receive plenty of the demand, okay. I am not allowing to disclose the net. We do expect our data center give us 4 months, the data center shall see no more utilization rates, okay, after the deployment, okay. So that's a typical piece. And for the Hangzhou data center, I mentioned about it, okay, like I said, probably more than maturity of debt will be sold to the Alibaba and Taobao, so utilization rate over there actually some [Technical Difficulty]

Okay, this is Shang again. We just got disconnected, so I'm back, okay. So let me continue to answer the question. Now let's go to the third second question, okay, from JPMorgan, okay. For the future, okay, capacity expansion plan and we plan to deploy 8,000 cabinet this year and same thing, we plan to deploy, okay, 8,000 next year. And by the year of the 2015, we also plan to deploy additional 8,000 cabinets. So by the end of the 2015, the company actually plan to have more than 35,000 cabinets, okay, of our total capacity, okay.

[Operator Instructions] Your next question comes from the line of Eric Chu from Canaccord Genuity.

I have a couple of quick ones. One on the management work side. This quarter, frankly, I mean, you got -- did a little better than we had expected. And I was just wondering was that assumption of a better than expected recovery from the upgrade disruption? Or was it pretty much primarily due to the higher organic capacity growth? And then also, the upgrade disruption, was that pretty much behind us?

Yes, Eric. Yes, for the management network, okay, I remember, last -- during the last earnings call, I mentioned about it, the impact our MMS business lacked [ph]. So since the upgrade, okay, had been completed in January, after that, our salespeople went outside to chase the customer. So we bring back, okay, some of the major customer, okay. But we still have -- some of the customers, we have not brought back. We will try that in the second quarter. So it's not organic growth. We just bring back some of the MMS customer. So for the coming quarter, we think the trend should be better. And for the upgrade, like I already mentioned, that had been completed in January. I will say, okay, because the network also impact our hosting business, particularly in the southern part of China, so we are very happy about it, since the upgrade had been completed. So at this moment, based on all the indication I have, I do believe the worst probably already behind us, and with all the new data center we plan to build and also the Microsoft project, we should look pretty, pretty good, okay, in the second half of this year, okay, probably even stronger, okay, for the next year. Okay?

Okay, great. And then, quickly on the hosting side; churn ticked up a little bit, and obviously, it was not the top 20 customers. I just wonder maybe, if you can help investors understand a little bit of the nature of the churn, timing and number of cabinets impacted?

Okay. Actually, those trend is from the management network service customer, okay. In fact, some of the China Mobile partners, okay, operate, okay, they, couple [ph] our lines, because the network, it's not working during the -- our upgrade period, so we already bring back some of them. And for the hosting customer, okay, they all stayed put, okay. The high churn rate is for MMS customer, okay?

[Operator Instructions] There are no further questions at this time. I would now like to hand the conference back to management for closing remarks.

Okay. Thank you, operator. Okay, I just use 1 minute, 2 minutes of time, okay, to describe the big picture for the company, okay. The company, actually, we will deploy a lot of cabinet this year, particularly in the second half this year and most of the cabinet will come out from the Beijing. Right now, the deployment schedule, it's looking good; it's all on time. Once those particular for Beijing cabinet to come out, and we know we are going to have a very, very strong demand. So that should give us good growth in the second half this year, and that growth will continue to carry to the next year. Plus, okay, the Microsoft platform, we are working on it, and we shall have the big breakthrough, okay, for the next couple of months. And once we can receive the revenue, okay, from this current project [indiscernible], somehow, that will improve our margin significantly. Right now, the company carry, okay, around 20% of the headcount, okay, for those fair expenses and costs already on our financial model for the current project. So like I say, it's also very critical for the management, okay, let Window Azure and Office 365 go to the market as soon as possible, and that will totally change the company or the benchmark, okay. So for the future, okay, this year, and also the next year, we do believe each quarter we're getting stronger until like at least to the next year. So again, I want to say, we do believe the worst is already behind us. For the past couple of quarters, actually our growth is quite weak, due to the network upgrade and also some other reason. But looking forward, the company future actually looking very, very bright. Okay, that's my closing comments. Okay, thank you, everyone, okay. Good night.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you so much for your attendance. You may all disconnect.