Hello, ladies and gentlemen. Thank you for standing by for the First Quarter 2025 Earnings Conference call for VNET Group, Inc. After the management's prepared remarks, there will be a question and answer session. Please note, the Chinese line is in listen-only mode. If you wish to ask questions, please dial in through the English line. Participants from our management include Mr. Ju Ma, Rotating President, Mr. Qiyu Wang, Chief Financial Officer, 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 First Quarter 2025 Earnings Conference Call. Our earnings release was distributed earlier today, and you can find a copy on our IR site as well as on 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 obligation to update any forward-looking statements except as required under applicable laws. Also note that VNET's earnings press release and this conference call include the disclosure of both GAAP and non-GAAP financial matters. VNET's earnings press release contains a reconciliation of the unaudited non-GAAP matters to the unaudited GAAP matters. A summary presentation can be viewed and downloaded from our website at ir.vnet.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by NewLink.ai to deliver this quarter's prepared remarks by Mr. Ju Ma, our Rotating President, and Mr. Qiyu Wang, our CFO. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on 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 would like to begin by sharing our primary accomplishment during the first quarter of 2025. As we embarked on the New Year journey, we achieved a strong set of results that set a positive tone for the year ahead. On the operational side, our wholesale IDC business recorded another impressive performance, supported by our robust deliveries and our customers' fast-moving pace. As of March 31, 2025, our wholesale capacity in service grew 18.1% quarter over quarter to 573 megawatts, an increase of 88 megawatts. Wholesale capacity utilized grew 23.9% quarter over quarter to 437 megawatts, a record high increase of 84 megawatts, while the utilization rate increased by 3.6 percentage points to 76.2%, indicating that newly delivered orders are being moved in faster than ever before. Meanwhile, our retail business continued to progress smoothly, benefiting from the rapid deployment of DPC. Furthermore, propelled by our dual-core strategy, we consistently secured high-quality orders from customers across various industries. I will elaborate on this in detail on the next slide. On the financial side, we maintained our solid growth trajectory across both total net revenue and adjusted EBITDA. Our total net revenues increased by 18.3% year over year to RMB 2.25 billion for the first quarter. Notably, wholesale revenues reached a new record high of RMB 673 million for the quarter, representing an impressive year-over-year growth rate of 86.5%, thanks to the rapid growth of our wholesale IDC business. Our adjusted EBITDA for the first quarter also increased by 26.4% year over year to RMB 682 million, with an adjusted EBITDA margin of 30.4%, up 1.9 percentage points year over year. Excluding the one-off impact of asset disposals last quarter, adjusted EBITDA increased by 18.1% quarter over quarter.…

Thank you, everyone. Good morning and good evening, everyone. Before we start the detailed discussion of our first-quarter performance, please note that unless otherwise stated, all the financials we present today are for the first quarter of 2025 and are in renminbi terms. Furthermore, unless otherwise specified, all the growth rates I am reviewing are on a year-over-year basis. Let's turn to slide thirteen. In the first quarter, we continued to pursue high-quality, high-margin business. Our total net revenues increased by 18.3% to RMB 2.25 billion, mainly driven by the rapid growth of the wholesale business. Our adjusted cash gross profit rose by 26.4% to RMB 967.8 million, while our adjusted EBITDA also grew year over year by 26.4% to RMB 682.4 million. Meanwhile, excluding the one-off impact of asset disposals last quarter, our adjusted cash gross profit and adjusted EBITDA increased by 11.5% and 18.1%, respectively, quarter over quarter. Let's look more closely at our top line. As you can see on slide fourteen, in the first quarter, wholesale revenues, our key revenue growth driver, increased significantly by 86.5% to RMB 673.2 million, mainly attributable to sales at the EGS Campus 02 and HB Campus 01B. Also, excluding the one-off impact of asset disposals last quarter, wholesale revenues increased by 14.1% quarter over quarter. Retail revenues continued to account for the largest part of our total net revenues and increased by 4.8% to RMB 968.3 million. Our non-IDC business remained stable. During the first quarter, we maintained solid margins thanks to our continuous efforts to enhance overall efficiency. As shown on slide fifteen, our adjusted cash gross margins improved to 43.1% from 40.3% in the same period last year. Our adjusted EBITDA margin rose to 30.4% compared with 28.4% in the same period last year. Moving on to liquidity…

Thank you. We will now begin the question and answer session. Please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Tang from Morgan Stanley. Please go ahead.

Okay. Thanks for the opportunity to ask questions and congrats on a very robust result for the first quarter. So I have one question on the demand side. So we know that H20 has been banned by the United States. So just wanted to have an update on the customer demand and all the procurement processes after the chip has been banned. Just wondering if there's any changes and if we have any outlooks in the future. Thank you.

Thank you for your question. Yes, as we are aware that the H20 chip embargo was in place starting from this year. And because of that, it has caused a short-term impact on our client's demand, particularly for those hyperscalers. However, there was a quick adjustment. Now everything is back on track. So our current order on hand is sufficient to fill all the capacities to be delivered this year, as well as the first half of next year. Like I said, the hyperscalers quickly adjusted their demand after the short-lived impact because of the chip embargo. Now everything is back on track. And we expect that there is going to be sustained demand from these hyperscalers. And they are also asking us to scale up the capacity to be delivered to them. We expect that there is going to be still a lot of demand for GPUs used for large language model training as well as scaled-up data centers. So, therefore, there's going to be continued and sustained demand from these hyperscalers. Thank you.

Your next question, please. Thank you. As a reminder, for the benefit of all participants on today's call, please ask your question to management in English and then repeat in Chinese. Next question comes from Edison Lee from Jefferies. Please go ahead.

Hi, thank you for taking my questions. I have two quick questions. Number one is on your retail demand. I think that right now you disclosed that four megawatts of new retail contracts. Want to know if these are AI-driven applications, and whether you are charging based on power, router, and cabinets. And number two question is that your MRR has gone up materially in the first quarter of this year, and maybe you can share some colors on the drivers behind that increase in MRR.

Thank you for your question. As you rightly mentioned, we did win a four-megawatt order for our retail IDC business in the first quarter. And as you correctly mentioned, most of the demand is from AI-driven applications, covering fintech, local services, Internet companies, as well as intelligent driving. So these are all AI-driven demands for these retail IDC services. Very little of that demand is for cloud-based gaming. I would like to add to what Mr. Ma has mentioned about the drivers behind the MRR. Most of the recent orders that we win for the retail IDC business are indeed from AI-driven applications that require high-voltage cabinets. Therefore, the company has been continuously repurposing some of the cabinets to accommodate such needs. For that, we do charge a higher price, so the bill is higher. So that explains the growing MRR. Thank you.

Next question, please. Your next question comes from Daley Li from Bank of America Securities. Please go ahead.

Hi. Thanks, management, for taking my question. Firstly, congrats on the strong Q1 results. I have two questions here. Number one is regarding our gross profit margin in Q1. We see strong quarter-on-quarter improvement, and could management give us some color on what's driving the gross profit margin improvement? And what should be our future target or normalized gross profit margin? The second question is about our REITs progress. If you look at our peer company, they also submitted the application. How do we see our REITs plan for private REITs or public REITs set up this year?

This is Ju Ma. I will take your questions. First, on the drivers of the improved gross profit margin, reason number one, the share or proportion of our wholesale IDC service is gradually improving. This is a business that has a higher gross profit margin. Therefore, overall, it is contributing to a higher gross profit margin on a corporate level. Reason number two, we are repurposing some of the cabinets to accommodate the demand for retail IDC services. Because that brings a higher MRR, we are automatically closing or gradually phasing out some of those low-margin services. These two reasons combined have pushed up the overall gross profit margin, and we expect that to continue in the future. As you rightly mentioned, this year marks a critical year for the Chinese REITs sector. Most of the two peers in the IDC business have also seen fairly smooth progress in terms of their public REITs. As we see it, the valuation of these REITs is reasonable. Our public REITs project is also progressing well. The current situation stands with the current valuation of these private REITs is reasonable, and it is progressing as we have expected. As you have noticed, our private REITs project has been formally accepted and approved by the Shanghai Stock Exchange. Hopefully, we will hear some good results in the second half of the year. With our successful pre-REITs project, we are actively advancing all types of secured asset securitization projects. We will maintain our annual target of recovering RMB 2 billion unchanged, and we are confident in achieving that goal for this year. Thank you.

Next question, please. Thank you. Your next question comes from Louis Tung from Citi.

Okay. Thank you. Thank you very much. Congratulations on the strong results. So I have two quick questions. First of all, I am wondering if we have any plans for the H-share IPO in Hong Kong. If you do, could you share more details? That's my first question. My second question is about the electricity tariff because we spoke that there's some downswing for some electricity tariffs. I am wondering if you see any positive impact on the EBITDA margin or if there's no impact.

Thank you for your question. Yes, we are looking at the potential Hong Kong listing. We know that the Hong Kong Stock Exchange extends its hands wide open to welcome those U.S.-listed companies to do dual listing in Hong Kong. We have held in-depth conversations with the Hong Kong Stock Exchange, and we have also had formal engagement in written form. It's progressing. However, at this moment, I cannot give you a specific timeline on that. With regard to your question on the electricity bills, at the moment, we do not see a declining trend for the utility bills across our IDCs. It's fairly stable, so no change whatsoever on that front. Thank you.

Next question, please. Thank you. Your next question comes from Sara Wang from UBS. Please go ahead.

Thank you for the opportunity to ask a question and congratulations on a solid result. I only have one question on the wholesale business. I noticed that our delivery plan is actually rolling forward by a quarter to cover the first quarter of next year. Does that mean we also have visibility of utilization ramp-up into next year? In other words, given our solid delivery plan, how shall we think about utilization rate for the next three to four quarters?

Thank you. A tricky question. As you rightly mentioned and have observed from our financials, our clients do have a lot of demand for the capacity. To accommodate their capacity needs, we have actively responded and delivered the capacity needed, and they have been moving in fairly quickly. We have just hit a record high in terms of the capacity that's utilized, which we just added for the past quarter. According to the communications with these clients, as well as assessing their willingness and how firm they are about moving in scheduling, we are confident that for the upcoming three quarters plus another quarter next year, we are going to see a very pleasant move-in rhythm from these clients. Thank you.

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