Thank you for standing by for the Fourth Quarter and Full Year 2024 Earnings Conference Call for VNET Group Incorporated. After the management's prepared remarks, there will be a question-and-answer session. Please note the Chinese line is in listen-only mode. [Operator Instructions] Participants from our management include Mr. Ju Ma, Rotating President; Mr. Qiyu Wang, Chief Financial Officer; Mr. Qi Yang, Senior Vice President; and Ms. Xinyuan Liu, Head of Investor Relations of the company. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Xinyuan Liu. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR website as well as our Newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. Please also note that VNET's earnings press release and this conference call include the disclosure of unaudited GAAP and non-GAAP financial measures. VNET's earnings press release contains a reconciliation of the audited non-GAAP measures to the unaudited GAAP measures. A summary presentation which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Good morning and good evening everyone. Thank you for joining our call today. I'd like to begin with several key achievements from our fourth quarter and full year performance in 2024. Firstly, our wholesale business has delivered remarkable growth while our retail business has remained stable. Secondly, our net revenue and adjusted EBITDA have significantly surpassed our previous guidance. Thirdly, we have recently secured a total of 252.5 megawatts in orders from customers across the Internet, cloud computing and intelligent driving industries. Looking ahead to 2025, our delivery plan and orders from customers for the next 12 months have seen substantially increases. I will now provide a detailed overview of these achievements. Let's turn to Slide 5. We closed 2024 with a strong fourth quarter highlighted by our wholesale IDC business remarkable performance as we identified and capitalized on emerging market opportunities, especially advanced technology driven demand. As of December 31, 2024, our wholesale capacity in service increased significantly, rising by 127 megawatts quarter-over-quarter to 486 megawatts. Wholesale capacity utilized reached 353 megawatts increasing by 73 megawatts quarter-over-quarter, thanks to strong customer demand for our wholesale data centers. We have also observed a notable uptick in our wholesale customers moving pace recently, accelerating to 6 to 12 months from around 24 months in the past. Meanwhile, our retail IDC business continued to progress smoothly. As of December 31, 2024, our retail capacity in service was 52,107 cabinets with self-built cabinets increasing by 212 year-over-year and 189 quarter-over-quarter. We also delivered impressive financial results for the fourth quarter and full year. Let's move on to Slide 6. Our net revenue increased by 18.3% year-over-year to RMB2.25 billion for the fourth quarter. Notably, revenue from the wholesale business reached a record high at RMB665 million for the quarter, representing our fastest year-over-year…

Good morning and good evening, everyone. Before we start the detailed discussion of our fourth quarter performance, please note that unless otherwise stated, all the financials we present today are for the fourth quarter and the full year of 2024 and are renminbi terms. Furthermore, unless otherwise substitute old growth rates I’m reviewing on a year-over-year basis. Let's turn to Slide 16. We exceeded our expectations for the full year 2024, capped by a strong fourth quarter as we remain focused on high quality revenue business. In the fourth quarter, our total net revenue increased by 18.3% to RMB2.25 billion. Our adjusted cash gross profit increased by 24.6% to RMB923.9 million, while our adjusted EBITDA also grew year-over-year by 63.8% to RMB721.3 million. For the full year, our total net revenue were RMB8.3 billion, representing an increase of 11.4% compared to the same period last year, and adjusted EBITDA reached RMB2.4 billion reflecting an impressive 19.1% increase from the prior year, both exceeding our guidance. Furthermore, our bottom line turned profitable with net income reaching RMB248.4 million, achieving a significant improvement from net loss of RMB2.6 billion for the full year 2023. Let's look more closely at our top line. As we have mentioned previously, we have divided total net revenue from IDC business into wholesale and retail IDC business based on the nature and the scale of our data center projects with revenue from non-IDC business remained separate. As you can see on Slide 17, in the fourth quarter, our wholesale revenues remained our key revenue growth driver with strong momentum significantly increasing by 125.4% year-over-year, to RMB665.2 million mainly driven by the E-JS Campus 02. Our retail revenues continue to account for the largest part of our net revenue. Our retail revenues remained relatively stable at RMB964.8 million.…

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Your first question comes from Shuyun Che with CICC. Please go ahead.

Thank you for taking my questions and congratulations on the strong results and orders. My first question is the wholesale business order in last quarter and recently held in really strong. To deliver these orders, the CapEx outlook for 2025 have increased, so could management provide details on the arrangement of CapEx over 2025 and how much of this spending will be covered through the funds from our risk projects. Also, according to the announcement, the retail data center run a new order from customers in intelligent driving industry. So my second question is given the strong demand from the AI computing could management provide insight into the potential impact of AI-related orders on the retail segment. Could you share with us the utilization rate trends and the pricing trends in the retail business? Thank you. [Foreign Language]

[Foreign Language] Thank you for the question. I want to take the first question to begin the answer. In 2025, we are setting a high threshold high standards for the CapEx compared to that of 2024, we gave it a 100% increase and over 90% of the 2025 CapEx will go directly into the wholesale IDC business. In 2025, over 400 megawatts will be delivered in our wholesale IDC business. [Foreign Language] Among them, 83% have been on the determined orders as well as the capacity to deliver. And for the remnant [ph] capacities, we are about to sum them up recently. And the remnant CapEx will be go directly into the retail IDC for the purpose of the high-power density happen retrofit as well as the value-added business. [Foreign Language] And I also wanted to add a few more comments about the questions on the risk. I have to say that 2025 marks the starting point for China to spirit to secure the asset utilization of the data industry, as well as it is also recognized as a starting year for different types of risk being implemented. In last Q3 of 2024, we experienced the first prelease. And last week, I’m so happy to see two of my partners have launched ABA, the asset-backed securities in the name of the – also known as [indiscernible] risk have also been affected by the exchange. [Foreign Language] And please be noted, overpriced risk projects are also being accepted by the Shanghai Stock Exchange. Our public REITs are in the key stage of being examed and proved. It is estimated that in 2025, Q3 of our REITs of a different nature and background will be implemented. As a result, we're able to recover up to RMB2 billion. [Foreign Language] And now let…

Next question please.

Thank you. Your next question comes from Sara Wang with UBS. Please go ahead.

Thank you for the opportunity to ask questions. And congratulations on the solid set of results. I have two questions. First one is that I noticed that among our new order wins, there are 64 megawatts JV project with Changzhou Gaoxin Group. With management please look us through the framework partnership with the Changzhou partner and how that reflected in our revenue or CapEx guidance. And then my second question is regarding the supply-demand dynamics. I think from the management comments that since management is really confident in the supply-demand dynamics over the next one or two years. and even mentioned supply shortage, how should we think about this because the supply chain in China is still quite efficient. And then are there any new entrants into the market or are competitors delivering new projects into the market? How shall we think about the supply given the demand is already quite strong? Thank you. [Foreign Language]

[Foreign Language] Thank you for the question. I want to share with you a little bit of a background of this question. And first of all, I have to say that the demand is really going high for us in this year. And two years ago, our company created a JV together with Changzhou SOE. And from that JV, we are holding 13% of the equity which is equivalent to the 64-megawatt order you are mentioning. [Foreign Language] And please be noted the order on the 64 megawatts together with the JV, we have never been incorporated into the CapEx I just introduced, and it's no longer, and it will not in over balance sheet as well. [Foreign Language] And we have to say we are going to win profit from this project of 64 megawatts in the name of the management fee or in the format of the capital operation fee. This is a great milestone for us to run and operate a project to serve our customers, but we are not going to have that to put that in our balance sheet. In other words, we are going to drive up our grid capacity to use the light assets, while satisfying the strong demand from the core customers. [Foreign Language] Your next question is about the trained as well as the market competition. And let me check with you about several observations. According to the latest survey from industry third-party according to the supply and demand situation of the domestic market, it is estimated that in 2025, the Greater Beijing area, the wholesale IDC business will experience the supply shortage. Well, in 2026, this will also happen in the Yangtze River Delta. [Foreign Language] This conclusion from the third-party data industry association is in line with my gut feeling about this market. And your next part of this question is about the general competition of this market. To be honest, most of my peers – our peers have prioritized the overseas market instead, which means for the bidding process, we are engaging for the recent times, we’re experiencing different peers at different sessions without consolidated or major peers or competitors.

Next question please.

Your next question comes from Yang Liu with Morgan Stanley. Please go ahead.

Thanks for the opportunity. Congratulations on the strong bookings first. I have two questions. The first one is regarding the future trend of the industry rental. As you mentioned that it is likely to see supply shortage and also the hyperscaler demand is quite strong. What’s your expectation of the per kilowatt rental in the next one or two years? Is it likely to see some price hike? And my second question is regarding the unit cost or unit CapEx because of the data center upstream, like the diesel generator or other UPS, et cetera, those equipments are the key components and whether there will be enough supply from upstream and whether there will be any pricing hike to give pressure on the unit CapEx. [Foreign Language]

[Foreign Language] Thank you for the excellent questions. And I will share with you some of my understanding about this market. We are seeing that ever since launch of the large language models into this market, we are seeing the wholesale IDC centers, but demand has been gradually released into this market. From the end of last year in 2024, all the way down to the first quarter of 2025. We’re also seeing that the supply is a little bit of – in the shortage side. When we are talking and discussing with the leading online and internet companies in China, we have to say that the resources they are going to choose and the companies they are going to work with are a little bit of limited. [Foreign Language] As my colleague has already briefed on you the general market situation in China, I want to add a few more comments. In China, the leading online and internet companies are choosing and working with different wholesale IDC suppliers in different cities and regions. We are servicing competition as well, even though the peers are different in different regions. In terms of the price trend as well as a pricing mechanism, we are offering the IDC business to meet a proper market demand, which means that our price mechanism is driven by the market and our pricing is quite stable.

[Foreign Language] And I want to add a bit more comments about this. On the cost front, when we are discussing about the diesel generator unit and equipment, we are seeing that as the construction and installments are picking up, the traditional brands, especially those imported ones and JV brands are not adequate. [Foreign Language] And we have to check the other side of the coin. The good news is, the most majority and the most part of the clients are increasingly comfortable in using the Made in China equipment instead and we're also seeing that through different optimization, the price is even slightly lower. [Foreign Language] Since we are having very large IDC scare on the market. The single cabinet will cover 15 [ph] megawatts to 16 megawatts per building, opening us huge roles to even refine the design. So generally speaking, the unit CapEx is a little bit of a slightly lower. [Foreign Language] Where we are seeing the general picture of the supply and demand relationship on this market. The cost is slightly lower, the revenue will pick up. As a result, the return will become as well.

Thank you.

Your next question comes from Edison Lee with Jefferies. Please go ahead.

Hi thank you for taking my questions. Congratulations again, great results and very good order wins. I have two questions. I think the number one question is still more related to supply and demand, but more on the retail side. So I believe that – I totally agree with your assessment that I think SMEs can actually benefit from DeepSeek by deploying their deploying the model in private cloud or even on-premise. So based on what you saw in the first quarter of this year, do you think that your retail revenue this year can actually get back to, let's say, mid-single-digit growth? Is that possible? And then 2026, do you think you will further accelerate. So that's question number one. Question number two is about financing. Can you help us understand how you actually fund the RMB10 billion CapEx in 2025? Because your operating cash flow is somewhere around RBM2 billion and you can raise RMB2 billion from REIT and you still have RMB6 billion to finance. Okay. [Foreign Language]

[Foreign Language] Thank you for the question. I'm very much willing to share with you my personal views on the entry of DeepSeek and what is impact on the retail sector. First of all, through the extreme innovation of the DeepSeek and large-language model, we have seen the threshold for the medium and small enterprises as well as individuals has been cut dramatically. [Foreign Language] I want to share with you my personal observation and will validate my personal judgment according to the practices we have already experienced. For the recent days, we are seeing a large number of small and medium-sized enterprises as well as the individual developers showed strong demand in adopting and using the retail IDC. [Foreign Language] And I want to share with you a couple of business models these small and medium-sized enterprises as well as of individual developers are using. First of all, they will deploy their servers in the range of two servers all the way down – all the way up to 16 and they were entrusted their servers into the retail IDC we're running coupled with the DeepSeek, whether it is V3 or RE [ph]. [Foreign Language] And let me check with you and share with you the business model too. Some of the clients will come to us requiring the IDC, the retail IDC rental services, together with the procurement of extra GPU. With that being done, we are creating the new business model for HIT, the hybrid IT services. [Foreign Language] And we are experiencing a new launch of demand from our clients. They are using our IDC as well as HIT, as I explained to you. We are also requiring to for us to deploy or to dispatch software engineers to work with them in developing value-added applications for them. [Foreign Language] I know that you must be expert in reading my company VNET, and we know that VNET is running and implementing the corporate structure of the new engine operation with retail and wholesale IDCs. When we are running the retail IDC business, we are reaching out to thousands of clients. And when in this range of a large language model application, we'll reach the client this time to offer them either the retail services or the referencing models. Thank you for staying with me.

[Foreign Language] You mentioned that we are having a very large CapEx in 2025, agreed. It is due to the strong demand from the wholesale IDC new wins, the new orders. And we are having two channels as well with very much well running cash flow as well as the risk project I have just briefed.

[Foreign Language] And due to the corporate structure of the Board, we are very much – we are in advantageous stage in having the low financing. For instance, if we are going to carry out releasing a project back to loan financing, we're going to have 80% of the LOB [ph] with the interest rate of no more than 3.5% with the total maturity duration of 15 years. [Foreign Language] And I also want to share with you the results of our corporate estimations based on other loan ratio as of now, and we have already paid back the majority of the transferable loans by the end of the last year. And according to the current CapEx, we are releasing the EBITDA per the capital will be 6.5 folds [ph] as we are estimating and tabulating.

Next question, please.

Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Great. Thank you Ju Ma [ph] for taking my question and congrats on the very solid results. I have two questions here. One is, I think about your downstream customers, I think given the rising data center demand from AI, just wondering if Ju Ma can share your observations on the customers in terms of their, I think, preferences between the in-house data centers and third-party data center operators? And how is that different now versus a couple of years ago? And secondly is on the wholesale data centers as we are seeing faster inferences demand growth. Could you please comment on how your wholesale campuses cater the inferences versus training demand? And what is the customer requirement in terms of the power cost in terms of latency, et cetera? [Foreign Language] Thank you for this question. It is very important, but also a very sensitive question. I have to say that. You're rating up the questions on orders as well as which pathways they are selecting be it from the pathway of the rental or they are going to have their in-house choices. And in the deck, we have already delivered and share with the analysts, you could check on more the details as well. And in this year we are seeing the boost demand from the online and Internet industry. When they are deploying the large language models, we are also collecting a lot of feedback. [Foreign Language] As of now, the online and Internet business is still one of the most important industry we are working with. And we are also offering the most important force way obtaining customers. And as AI demand is driving up in the beginning of this year, we are seeing that the company is in the cloud computing, intelligent driving as well…

Next question please?

Your next question comes from Daley Li with Bank of America Securities. Please go ahead.

Thanks, management for taking my questions. Congrats on the solid results and the strong new orders. Here, I have one question regarding the wholesale business. As the company has achieved a strong new orders in the past two quarters. And then we also have a quite solid delivery plan for this year. And by the end of this year, our capacity in service probably will almost double compared to like the number in 2024. So how should we think about the growth outlook maybe in 2026 and – or even 2027 regarding the revenue or new orders pipeline. Thank you.

[Foreign Language]

[Foreign Language] Thank you for this question. And I want to share with you my view on this question. The company has established a five-year plan ahead of the time because we are estimating that the AI deployment is going to be really strong in this Chinese market, driving up the demand for the domestic IDCs extensively. [Foreign Language] In 2025, the total number of CapEx is in the range of the totality as the last three years and in the year of 2026 to 2027, the company will continue to boost our big CapEx to meet up the requirements of our clients and customers in the market. [Foreign Language] Our CapEx is strongly determined by the contract signed up with the clients which means that our CapEx is offering a new round of uncertainty to the growth of the future business. [Foreign Language] And I also want to release a little bit of the business models of the IDC sectors. Normally, we will go and construct to start off, it will take a nine to, it will take us six to nine months as a different project and place goes. After that, we will take around six to 12 months, additional six to 12 months to stack up all the requirements of the customers. It will be meeting 90% of the customer demand. At the end of the day, you are going to find that the growth of the EBITDA will be a little bit slower than that of the CapEx.

Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect your lines.