Q4 2021 VNET Group Inc Earnings Call
Good morning, and good evening, ladies and gentlemen, Thank you and welcome to feed that Group, Inc. Fourth quarter 2021 earnings Conference call. At this time all participants are in listen only mode. We will be hosting a question and answer session. After management prepared remarks.
With us today are Mr. Samuel <unk>, Chief Executive Officer, and executive Chairman of retail IDC.
Mr. Tim Chen Chief Financial Officer, and Michigan, Liu Investor Relations director of the company.
Now I'll turn the call over to first speaker today, Ms. Liu IR Director of <unk> Group, Inc. Please go ahead ma'am.
Hello, everyone welcome to our fourth quarter 2021 earnings conference call. Our earnings release was distributed earlier today.
You can find a copy of our web site as well as unusual or services. Please note that.
The discussion today 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.
Discussions of these risks and uncertainties. Please refer to our latest annual report and other documents filed with the SEC.
Not undertake any obligations to update any forward looking statements, except as required under applicable laws. As a reminder, this conference is being recorded in addition, a webcast of this conference call will also be available.
<unk> site at IR dumping that dot Com I will now turn the call over to our CEO Cemil alright.
Alright, Thank you Shannon good morning, and good day or good evening to everyone.
Thank you for joining our fourth quarter of 2021 earnings Conference call. We concluded 2021 with strong operating and financial results operationally, we successfully achieved this year's delivery target by adding approximately 25000 cabinets in the full year of 2021, including 13000.
276 cabinets that were delivered in the fourth quarter financially for the full year of 2021, we grew our revenue by 28% and our adjusted.
Adjusted EBITDA by 32%, we attribute our achievements to favorable government policies robust market demand persistent strategy execution and methodical service expansion.
First we are pleased to see the favorable government policies continue to provide a strong tailwind to our industry development.
Last month, the eastern data Western Computing plan was jointly released by China's National Development and Reform Commission together with three other central regulatory departments.
The eighth Nashville, competing hubs, we have already deployed our data centers in our Beijing, Tianjin Hebei region Younce at River Delta Greater Bay area, Chengdu, Chongqing Economic circle, and inner Mongolia Autonomous region. In addition, this January the state.
Most of China.
Vale the first five year growth plan for the digital economy, highlighting the sector's role in reshaping global economic structure and rolling out development targets.
2025.
Play laid out measures for operating national infrastructure, fostering the role of data as a production element and.
Promoting digital transformation the plane also gifts priority.
The development of digital infrastructure, a pillar of achieving digital economic prosperity that will also spur investment and drive overall economic growth during the fourth quarter. We received orders not only from bellwether technology companies and the internet sectors, but also traditional companies in.
Brick and mortar industries that are transforming through digitalization.
In addition, we're seeing growing demand in both the wholesale and retail segments in order to seize this burgeoning market demand, we maintain a laser sharp focus on executing our core strategy to.
To offer both wholesale and retail IDC services, enabling us to achieve solid operating results on a cabinet delivery front, we added 13000 and 276 cabinet net.
Net basis in the fourth quarter to 78540 cabinets as of December 31, 2021, despite a myriad of challenges, including equipment delivery delays caused by the coffee resurgence in certain regions of China global chip shortages and construction difficult.
These due to excessively cold weather to meet our annual delivery targets against all odds is a strong testament to our solid execution capabilities developed on the foundation of our extensive experience in the IDC sectors. These.
This achievement demonstrates our superior capabilities in project management logistics as well as suppliers and government relations. In addition successful leverage our extensive technological expertise to explore extension resources.
Turning to our monthly recurring revenue our retail IDC EMR are reached a new high of 9301 in the fourth quarter, representing 2% year over year growth. Our continued growth in MLR is a manifestation of the increasing endorsement from our existing customers.
As we continue to improve our service capabilities and reach our one stop solution offerings, our existing customers expanded their contract scope. Accordingly to include more value added services, such as Interconnectivity bear matter services hybrid cloud services O&M and more.
We're also making good progress on our utilization rate our compound utilization rate increased to 61, 6% in the fourth quarter compared to 59 eight in the previous one.
This increase was mainly driven by consistently strong demand from the internet sectors and digitalization trend in the traditional industries.
Such as financial services automobile manufacturing.
And local services.
Utilization rate for mature cabinets, which consisted of cabinet deliveries prior to and during 2019 was 76, 7%.
<unk> 275, 5% in the previous quarter.
Utilization rates for ramp up of newly built cabinets, which consisted of cabinet deliveries in 2020 in 2021 was 39, 6% compared to 34, 7% in the previous quarter.
<unk> said, we do expect to see some seasonal fluctuations in that utilization rate in the first quarter. This is because each year, we reclassify mature that pop in newly built cabinets in the first quarter and we delivered a large amount of newly build cabinets in the fourth quarter of last year.
On the resource fronts, we have recently secured new resources exceeding 20 megawatts of capacity at a premium location in Beijing.
And we expect to deliver the cabinets over the next two years in multiple phases. Additionally, we continued to secure more resources in other tier one cities and surrounding areas on the wholesale business side.
While maintaining our ramp up speed, we continue to secure more orders from existing and new customers our customers in the internet sectors and cloud computing industry maintained a healthy pace of development and ramp up fast to meet their increasing data processing needs.
In the fourth quarter, we won the pre committed order of approximately seven megawatt in capacity from existing.
Internet customer.
Recently, the same customer, but what it does it further pre committed order.
Approximately 11 megawatts in capacity and we also secured three other orders totaling approximately five megawatts capacity.
Two of them were multiyear contracts from our existing customers in the internet and technology sectors, respectively.
The third one was a multiyear contract with a state owned cloud enterprise in the thousands.
Southern Western region of China.
We continue to see increasing demand in our wholesale business and are confident about our future prospects in this segment.
Turning to our retail business.
The digital transformation trend further fueled our business growth across multiple verticals, we continue to see trumps demand from several industries, including financial services automobile manufacturing local services and it services. In addition, we also saw increased demand from traditional industries.
Such as logistics manufacturing Inc. Construction for example.
Globally renowned companies.
Partnering with us to expand our business in China during the quarter.
Demonstrating our strong customer recognition exceptional operating track record and superior IDC technologies.
These customers include a leading global investment bank the world, leading credit rating service provider and a global leader in the premium and luxury car industry.
We have now reached over 1400.
<unk> customers in total.
And they operate in a wide variety of industries.
This growth and diversification of our customer base will help us to mitigate any potential adverse regulatory changes and also served as a secure foundation for the future development of our <unk> strategy.
For our cloud business.
We continue to grow the business by providing industry specific solutions to help our customers improve their operational efficiency and reduce cost.
We haven't seen the unprecedented supply chain disruption caused by the COVID-19 pandemic, we decided to proactively develop a solution to help our clients resolve accu pains in their logistics management and shorten their product to market timing.
We recently initiated a logistics execution system.
One of our key such offerings to IDC customers in the automotive industry.
The stock offering improved support for lean manufacturing with the aim of minimizing lead time and increasing customer satisfaction by fulfilling tailored requirements. The system also provides better warehouse management by synchronizing online and offline orders in.
Neighboring directly the direct ordering from manufacturers eliminates the need for intermediate distributors.
Allowing manufacturers.
To produce goods based on the actual needs of customers.
During the quarter neutron a new local EV manufacturer.
Begin using our logistics execution system and provided excellent initial feedback.
Utilizing our successful execution experience and product development capabilities, we expect to expand our product reach to surface more upstream and downstream industry participants.
In the automotive industry and.
And expand into various other sectors going forward.
Beyond the execution of our strategy.
We further explored options to diversify our financing solutions and enhancing the resilience of our business in January we reached an agreement with Blackstone the worst largest alternative investment firm pursuant to which Blackstone made an additional investment in Vienna by per.
In U S $250 million of our convertible notes last December we signed a master joint venture investment agreement with a sovereign wealth fund.
Together, we will form joint ventures to pursue development and investment opportunities in multiple build to suit Hyperscale data center projects in China.
As a leading data server data center service providers in the industry.
We have always considered sustainable development is a core part of our mission.
Inception.
And ESG strategy.
Part of our long term business success.
We aim to achieve those carbon neutrality and a 100% renewable energy by 2030.
And we have also committed to a number of ESG initiatives.
First of all we try to contribute to a sustainable future.
We became a signatory of the UN global compact in November 2021, and now pledged to consider all 17 UN sustainable development goals in our comprehensive business development.
Similarly in our pursuit of increasing renewable energy ratio in our energy consumption with the factory signed strategic cooperation agreements with China <unk> Corporation.
Shanghai Electric wind power group, and China, Southern power grid energy efficiency and clean energy code in.
In addition, as a response to the international initiatives.
And domestic colleagues against climate change, we're now examine climate related risks and opportunities concerning the industry.
And have recently committed to supporting the task force on climate related financial disclosures, a K a T C ft last but not least we continue striving to discrete the E of our data centers. The average <unk> of our stabilized data center, what's 137 in 2000.
One, notably lower than the industry average.
Turning to our capital market initiatives I would like to take the opportunity to share with you that we are planning a secondary listing on the Hong Kong stock exchange.
We believe our secondary listing in Hong Kong will provide our shareholders with an additional trading venue wire offering them greater protection immediate evolving regulatory environment.
The timing of our contemplated secondary listing is subject to market conditions and regulatory approvals. However.
In summary.
2021 was a rewarding year.
We maintained consistent execution of our <unk> strategy to achieve sustained growth.
We're also succeeded in meeting our annual target for 2021 by delivering approximately 25000 cabinets.
In consideration of the uncertainties in the macroeconomic environment, we would like to revise our annual cabinet delivery target from 25000 cabinets through a range of 14400 to 17400 cabinets for the year of 2022.
With that I will now turn the call over to Tim who will discuss our financial results for the quarter and his thoughts on our future growth.
Thank you Samuel.
Good morning, and good evening everyone.
Before we start our detailed financial discussion. Please note that we will present non-GAAP measures today.
Our non-GAAP results exclude certain noncash expenses, which are not part of our core operations.
The details of these expenses maybe found in the reconciliation tables included in our press release.
Please also note that unless otherwise stated all the financial numbers. We present today are for the fourth quarter of 2021.
In renminbi terms.
While percentage changes are on a year over year basis.
As Samuel mentioned our performance in 2021 was characterized.
As by healthy revenue growth and margin expansion improve.
Improved operational efficiency.
<unk> utilization rates and consistent cabinet capacity deliveries.
Which proceeded according to schedule despite macro uncertainties.
Net revenue in the fourth quarter of 2021 increased to $1 75 billion two.
<unk> thousand nine 4% year over year increase from the fourth quarter of 2020.
This increase was mainly due to increased customer demand for our highly scalable carrier and cloud neutral IDC solutions from both wholesale and retail IDC customers as well as the notable growth in our call.
Business.
Gross profit in the fourth quarter of 2021 was $380 million, representing a year over year increase of 29, 1% and a sequential increase of one 3%.
Gross margin in the fourth quarter of 2021 was 21, 8% compared to 21, 8% in the fourth quarter of 2020 and 24% in the third quarter of 2021.
Year over year decrease in gross margin a small decrease in gross margin was primarily attributable to the massive delivery of new cabinets, which usually have a ramp up phase to reach the expected profit level.
Adjusted cash gross profit, which excludes depreciation amortization and share based compensation expenses was $713 8 million in the fourth quarter of 2021, an increase of 22, 7% from the fourth quarter of 2020 and five eight.
8% from the third quarter of 2021.
Adjusted cash gross margin in the fourth quarter of 2021 was 49% compared to 43 two.
In both the fourth quarter of 2020 and third quarter of 2021.
Adjusted operating expenses, which exclude the share based compensation expenses compensation for post combination employment and acquisition impairment of loans receivable two potential investors and impairment of long lived assets were $273 7 million in the fourth quarter of 2021, representing an increase of 2000.
7% from the fourth quarter of 2020, and 12, 2% from the third quarter of 2021.
As a percentage of net revenues adjusted operating expenses in the fourth quarter of 2021 were 15, 7% compared to 16% in the same period of 2020 and 15, 6% in the third quarter of 2021.
Adjusted EBITDA in the fourth quarter of 2021 was $463 million, representing an increase of 18, 8% year over year from the fourth quarter of 2020, and an increase of two 8% sequentially from the third quarter of 2021.
Adjusted EBITDA in the fourth quarter of 2021 excluded share based compensation expenses of $253 million.
The EBITDA margin in the fourth quarter of 2021 was 26, 5% compared to 28%.
The eight 9% sorry in both the fourth quarter of 2020, and the third quarter of 2021.
Our net loss attributable to ordinary shareholders in the fourth quarter of 2021 was $27 3 million compared to a net loss of $1 2 billion in the fourth quarter of 2020, and a net profit of $156 2 million in the third quarter of 2021.
Basic and diluted loss were 0.03.
0.28 per ordinary share respectively.
And to your 0.18 and $1 68 per <unk>, respectively.
Eds represents six class a ordinary shares.
As for our balance sheet.
The aggregate amount of the company's cash and cash equivalents restricted cash and short term investments as of December 31, 2021 was $1 71 billion a decrease of 49, 8% from December 31 2020.
Meanwhile, net cash generated from operating activities in the fourth quarter of 2021 was $664 million compared to $283 8 million in the fourth quarter of 2020.
And $134 7 million in the third quarter of 2021.
Our capex in the fourth quarter of 2021 was $2 2 billion.
And the total capex for the full year 2021 was <unk> 4 billion.
We expect to invest $4 5 billion in Capex for both our datacenter constructions and M&A considerations for the full year of 2022.
Looking forward, we will continue to explore various financing solutions.
Execute diligently on a dual core growth strategy increased our customer diversification to cultivate resilience and further consolidate our position as a leading data center services provider in China.
Now moving to outlook for the full year of 2022, we anticipate net revenues to be in the range of 7000 $450 million to 7000 $750 million.
And adjusted EBITDA to be in the range of 1970 $5 million to 2120 $5 million.
The mid points of the company's updated estimates imply year over year increases of 22, 8% and 16, 9% in net revenues and adjusted EBITDA, respectively.
This forecast reflects the company's current and preliminary views on the market and operational conditions and does not factor in any potential future impacts caused by the Covid pandemic.
And is subject to change.
This concludes our prepared remarks for today.
Later, we are now ready to take questions.
Thank you.
We will now begin the question and answer questions to ask a question. Please press star one on your telephone.
Withdraw your question please.
Hi, Keith.
Our next question comes from the line of.
Young Li from Morgan Stanley . Please go ahead.
Thanks for the opportunity to ask questions.
Two questions from my side. The first one is on the demand.
We see a downward revision of the new capacity delivery plan for 2022.
Could you please update us some of the wholesale and retail fleet.
And if I remember correctly, previously 25000, actually 80% wholesale and retail and 20% for traditional retail business, but what is the new fleet in the world.
Yes.
Our additional 50 about.
And the second is for the 2022 margin.
The new St.
Turning to guidance our revenue growth rates are pretty strong.
EBITDA on the grill.
Yeah.
What is the reason for that.
Is it.
Mainly because of the higher utility costs or if there's any other reason behind that.
Thank you.
Yeah.
Okay do you want to.
Thank you your question first and then I can chime in later.
Absolutely.
So in terms of the demand outlook.
We are looking at a roughly 60 40 split wholesale versus retail.
And so the retail does comprise a component of the <unk>.
Retail so actually the downward.
Guide on the cabinets was actually a pro rata.
So we're not necessarily saying that that was the one segment versus the other segment.
And then I guess in terms of the question on the EBITDA versus the revenue growth.
Yeah.
We are as you know steadily ramping up the wholesale side of the engine, but we also have other business segments and so some of the other business segments or not.
EBITDA types of businesses or they have lower margins and so that actually is.
Increasing the sort of cost related to those.
More importantly, as we also in our guidance have factored in.
The increase in utility costs.
Accounts for let's say around just under 1%.
The decline in margins as well.
So I think that's the main drivers young to your question.
In terms of the overall demand outlook in terms of some of the details Samuel I don't know if you wanted to add some color for you on the wholesale and retail demand that we've been seeing.
Yes, definitely again, thanks, John for the questions I think overall given the <unk>.
Favorable government policy and also the rise of data sovereignty.
Plus the digital transformation momentum. So overall, we're still very bullish about our long range outlook in general.
But we also have to.
Understand that there are some macro issues that we have to be careful about.
Industry wide end market wise.
There is also.
Different obviously different climate compares about last year and therefore.
Penny wise, we want to be a little bit cautious.
One thing on one hand.
There is a business priority on the other hand, there is a resource needs.
We want to balance so that's the reason overall business outlook fantastic and we're very bullish, but we're taking a cautious approach step by step. So I think thats, the additional color, which I wanted to add on top of what team.
Earlier.
Thank you.
Young sorry, one more point.
On the question you had on EBITDA I think what are the other factors that you want to take consideration as well as the fact that we added 13000 cabinets at the end of 2021 and so we are also factoring drag.
On the EBITDA.
When it will take them for these cabinets to slowly ramp up during the course of 'twenty two.
So there will be more costs, obviously in the first part of the year.
Until they start ramping up and these are fixed costs with the deliberate cabinets.
Yes.
Yes.
Okay. Thank you I'll follow up.
In terms of the other low margin business.
Is it.
The service.
As for Microsoft and also on the VPN growing faster.
Or the other.
Other service business or something else.
Uh Huh dragging.
Dragging impact on the margin.
I can probably comment on that one so first of all.
Again precisely it is not a low margin business I would say its not like pure IDC wholesale play, which is EBITDA type of business.
Cloud business or very added services, there are not much relate to EBITDA, but it is a very healthy business again from a gross margin point of view.
But assuming you're also interested to know about the Microsoft cloud growth and also VPN growth I think from a market perspective.
The Microsoft Cloud, which basically includes the Azure office 365 dynamics, we simplify empower platform.
It's highly welcome in the enterprise space.
And then of course, we are benefiting from their growth by being the Microsoft posted operating partners.
In China.
From a member perspective, I would say, we continue enjoying the very healthy double digit growth year over year.
And then switch to the VPN that you mentioned about.
Which is C. A mpls VPN.
It is still highly regarded as one of the highest quality.
And options for enterprise connection.
But we're seeing some of the customers having the needs to balance their price performance. Some of them continue to go for Mpls VPN and then some of them were trying to go with the SD Wan.
Luckily because we do provide both route and options for customer tissues.
Seeing the SD Wan business pick up very very fast high double digit growth year over year. So I think combined together it is.
Still very.
Healthy and great business for us.
Hopefully that address your question young.
Thank you Sandra.
Okay.
Once again, if you'd like to ask a question. Please press star one.
And again, you can see how request please press the pound key.
Keith.
Next question comes from the line of Addison Lee Jefferies. Please go ahead.
Hi, Tim.
Tim Thank you very much for the presentation.
Yeah.
Wanted to focus on your targets for 2022.
You take a range of 14000 417400 <unk>.
I want to know how comparable number is versus the previous guidance of 25000 cabinets, because obviously wholesale.
It's not based on cabinets.
Back at once right.
<unk> could you maybe help us understand how we should look at this new guidance range versus the previous 25000.
Number two is that at the moment do you have any thoughts about 2023, because previously it was a three year target.
And how should investors think about the 2023 situations based on your understanding you bad right now.
Okay, Let me take a crack at this Edison thanks for the questions.
In terms of the.
Comparability between.
The cabinets provided I would say it's on a similar basis, so we've not changed the basis.
In terms of disclosing the number of cabinets.
Correct.
The projects, which are wholesale based these are higher density cabinets. So naturally there are less cabinets.
Now in terms of the <unk>.
2023, and looking beyond.
I would sort of go back to 2020 end of 2020, when we provided the three year.
The forward look.
In terms of cabinets.
It was at the completion of what was a extremely.
Successful year for the industry and for us and our peers in 2020.
And clearly with a lot of the regulatory.
Headwinds that.
We saw in 2021 that.
That changed dramatically and has not fully turned around yet here as we start 2022, So I would say an echo Samuels earlier comments, we are extremely bullish on the sector. We're extremely bullish on the customers' requirements and if you look at it.
No there is no reduction in terms of.
The end users like ourselves using data storing data analyzing data and so the demand is there.
But again, we've taken a more cautious approach for 2022, just given the large number of uncertainties in the macroeconomic environment.
We also look to the market and do see slower than expected move in rates and so for 'twenty two we've guided down.
All of these projects to certain extent some of these projects could be accelerated so moved from a 23 timetable and moved up into 'twenty two.
And then similarly.
Things, if we see the pick up during the course of this year then we would start the 'twenty three projects and therefore that would lead to a higher number for 'twenty three but.
Frankly sort of March of 'twenty two.
Again based on the outlook I would say that 23 should be higher than 22, but whether we're going back to a 25000 again I would take 25000 as a end of 2020, what the market condition was at that time, and we're taking a more cautious approach given the current market conditions and probably don't want to.
Push out a number out this early in the year for something that there is enough visibility on but again, we can turn on and off the capex and therefore, we do expect that we can be quite nimble with regards to 'twenty three.
Thank you.
Thank you Tim.
Follow up on.
Two other issues number one to start.
Can you disclose the 16 megawatt of new wholesale contracts that you've signed in <unk>. This year and 11 back of what you signed in quarter last year.
Is it true that these are all from existing wholesale customers and you did not sign up any new customers in <unk> and <unk>.
Seven you want to take first crack at that.
Yes.
Again, thank you our Madison for questions for the <unk>.
From a wholesale perspective.
We're about a seven megawatt.
That was indeed from the existing customers.
Something we haven't really.
Say out loud is our scale retail you also have a <unk>.
<unk> wins from scale retail customers in Q4 and was actually four megawatts. In addition to.
Dear previous kind of allocation and contract for the <unk> because some.
Some of the orders coming from existing customer, but we do have the <unk>.
Orders coming from new customers.
Cloud providers.
And also the e-commerce platform companies.
The state's own dedicate cloud so for us.
Again, we still have.
Sure.
A few more.
<unk>.
Few more I will say a few more discussion going on.
Hopefully.
Probably in May timeframe, when we talk about our Q1 earnings release, we could share additional color for our Q1 performance.
Okay.
So the state owned company.
Enterprise cloud service providers, so brand new customer is that right.
Yes.
Okay. Thank you.
Alright, just one follow up for Tim on the power cost you said that there will be one percentage point impact.
Understanding all the wholesale contracts.
For all the wholesale contracts you do not include harvest costs. So just wanted to surpass route. So is that one percentage point impact coming from retail customers because.
One to three year contracts. So that's why you have a timeline in terms of policy on power costs.
Yes, so as of the end of 'twenty one Edison.
The large majority of our global capacity was actually bundled with power and a big portion of that is yes. The wholesale business was still ramping up so it's a very small percentage.
Do we expect that by the end of this year.
There's sort of unbundle their pass through proportion will probably increase to let's say circa around 30%.
And it is the ramp up of the wholesale which is one portion but the second one is the extra power costs are being included in the quotation of the renewals as well as the new retail contracts that we're signing so I think the answer to your question is yes to both it is a rollover of new contracts, but also ramp up.
The wholesale.
Okay.
So for power costs are you, assuming a 20% increase year on year.
Just on the unit power costs, Okay. So.
So yes, so overall.
Pending on the region, we are expecting between 10% to 20%.
So full year 2021 compared to 2022.
And again that's.
The sort of impact that we're expecting is under 1% to our margins.
Okay, great. Thank you.
Yes, that's it for me.
Thank you.
Thank you for your question. Our next question comes from the line.
Please go ahead.
Good morning management.
My question is about.
Glenn.
You mentioned that 2022.
Alright Julian.
So how much proportionate factors.
Opportunities.
And do you see the price of the project in primary markets show a clear trend.
Compared to 2020 in 2021.
Okay. Thank you very much I'll, let me take this question and.
Samuel you can add if there's anything else.
For the the question in terms of the percentage of M&A I would sort of look back at 21.
I would say that roughly 30% of 2021 related to.
Acquisitions of land power acquisitions of service companies and acquisitions of actual.
Data center assets.
As I, then look at what we've been planning out for 2022, and providing the $4 to 5 billion guide.
Guidance.
Expecting probably in the range of 15% to 30%.
It is a wider range, but that's because some of the M&A projects.
Tend to be larger in size and so a swing of doing it or not doing it could actually result in a larger percentage.
Change now in answer to your question about.
Where do we see pricing of IDC projects I would say, we're still using a guidepost.
In terms of what we see in the market of around 10 times.
EBITDA pricing, obviously, when we do evaluate the projects, it's not purely based on the price, but also on the locations in terms of.
Proximity to our existing data centers as well as where the customer demands are and making that evaluation.
The other point I would make is that obviously.
The best projects.
That.
The vast majority of our projects are self build projects. So youll see a lot more greenfield brownfield that we've done in the past to build those into our self built projects rather than acquiring EBITDA. So I think on opportunistic basis, there will be some acquisitions of operating data centers.
But again, we feel that it is a better use of our capital to not just focus on buying EBITDA, but rather focusing on.
Both.
Again, where our customers requirements are and making sure that we can put together a product that is very attractive to our customers as well. Thank you.
Thank you for the questions.
Questions will come from the alliance.
<unk> from UBS. Please ask your question.
I have two questions first.
Harding client demand so.
And then any comments you.
Computing initiatives do we see more.
<unk> from our clients.
Moving into the back.
Retail or wholesale clients and.
Second question is that I think we have mentioned that 2023.
It should be higher than 2022 laid out.
Key assumptions here, what do you think is the key moving parts there.
Meaning part of.
2022 target.
Assuming macro.
Macro or internet regulation or supply chain disruptions, so what others see.
That's where you're seeing moving target.
Okay. Thank you.
Okay.
Want to take the first take the question first and then we'll continue to provide additional color associated with that.
Both Tim and I, we mentioned about first of all when we.
Look at the whole market.
We are truly bullish and we're bullish for reasons number one.
The governments.
It's providing a lot of our great favorable policy.
Further define provided provide directional guidance for eastern data western computing.
The other hand government automation about.
The data is going to be key element for future production and then so the data sovereignty all of a sudden it becomes like.
Higher order bit for every single enterprise two.
To consider about 14.
<unk> cloud optimization.
And number three because.
I think the coffee basically accelerated digital transformation and so nowadays a lot of enterprises.
<unk> two <unk>.
Accelerate their digital transformation is to go to either capex to opex reduce the Capex and then.
And focus on the Opex in order to.
And it was their business growth.
As Han <unk>.
In driving the cloud optimization in the past, probably one single public cloud, but the <unk>.
Hybrid multi cloud is going to become a new norm and then the third one is to adapt every single team as a service.
And then because the arena and we are well positioned.
That we have a dual core growth engine industry, leading ones and so so for that one we're very bullish about the future. The way we see that every single day.
C a great momentum.
On the other hand, we also have to be very cautious because the macro environment beyond our control, we're talking about the China U S. Fanapt situation is a new norm.
Industry wise, there is going to be a park water power tariffs and also.
Market wise.
Customers are paying more attention on the cost.
There is also possibly a premium that we paid from the merchant acquisition point of view in a short period of time and so so one we're bullish about the long term, but we're cautious in every single step and were taken.
So thats hub.
I would say the over overall perspective.
And then probably timken.
Chime in with some of the additional.
Input that we're seen every single day and the cautious steps that were taken.
Do you want to add additional color.
Yes, absolutely.
I would add to Samuel Novi you sort of dig one layer deeper in terms of.
Both what we've provided to the market in terms of guidance on cabinets.
What Daniel was talking about in terms of the sort of sales.
And I would think that then further to your question around kind of how things look like in terms of let's say utilization rate.
Assumptions and with the delivery that we've made at the end of last year.
Obviously, we do expect there to be a dip in terms of utilization rates.
Both due to large number of deliveries, but also each year, we then reset.
Okay.
What the cabinets are included under mature data centers ramp up and so and so forth, but the desire is also to make sure that we are finding a healthy balance between adding capacity meeting our customers' requirements, but also looking at the now and today and seeing.
The customers are in terms of ramping up and also where the demands are and so I think there is the desire to find that balance and so I think with the reduction.
In the total number of cabinets, we're also still targeting utilization rates of around 60%.
And obviously to the extent that we see customers ramping up faster than we would speed up.
<unk> deliveries.
And in this case right now we are taking a more cautious approach because 2022.
It is not as I said earlier on one of the earlier questions. It's not 2020.
And so I think that we do need to find that balance then.
Sure we deliver the right number of cabinets to match up with the ramp up and the demand of our end customers.
Thank you for the questions next question comes from the line of clients of Credit Suisse. Please go ahead.
Hi, Good morning management. Thank you for taking my question and congratulations on the result.
My first question is on some.
On margin.
Mentioned.
For certain existing customers there is an increasing trend of taking up.
Move value added. So my question is if I.
Assuming this is a long term trend how is this going to impact our margin if any.
Okay.
Go ahead Sami I'll, so I'll just start and then I'll add to that.
Sure.
Again, thank you Clyde for the question, Yes, we do see.
A big trend.
For customers two to.
To take on.
The value added services as I said it from.
From the high level perspective.
Sure.
Some of the uniqueness for China compared to the rest of the world as I said it before is that while the rest of the world.
Enterprise is talking about the cloud transformation.
Basically you have three big players.
Which is a diverse.
Microsoft and Google, but in China, we have a more than a dozen.
Our service providers. So that's one thing the second thing is why the data I would say privacy.
30 computing data sovereignty.
The high order bit for enterprise to think about.
They will probably developed a new strategy other than one single public cloud they might choose to go with a hybrid multi cloud in a way that they want to making sure the data will be stored at their discretion.
And then so that's a second and the third one because.
The COVID-19, really impactful industry. Some most of the companies in.
At least in China.
There were so willing to go with the Opex driven approach instead of a capex driven approach therefore other than finding a partner to go with a co location support they want to have a partner, especially in.
Mutual partners.
And they don't take sides, but providing the post tax services all the way from co location support.
Networking capabilities and plan to networking security.
And also the payer model because they want to have a single tenant.
They also want to have the O&M that E.
We want to have the hybrid cloud multi cloud management services to support and so on and so forth and so that give BNET a great opportunity and we saw that with graphics, we grab that as well. The question is whether those value added services are like dataset.
Data center or a wholesale play which is pure EBITDA driven in my answer to that is probably not.
Those are the software capabilities and service capabilities may not have enough or a lot of the.
<unk> depreciation and.
Elements and so and so that's one reason.
May not be a pure apple to Apple comparison.
For BNET versus our I would say IGT peer companies.
But luckily as you probably heard from.
Some of our peer companies.
They are seeing a huge retail.
Tailwind they wanted to switch their focus.
Our retail agent and so I think to some degree.
That's specific comments or statements endorse our gross strategy.
So I.
I would say.
We're happy to have a strategy for the dual core growth engine and we're very.
Proud to continue to execute on that strategy.
Tim do you have any additional input you want to make.
No no I think you gave a good overview of the types of businesses and the value added services and how it works. So again I think we can dive into some of the modeling side on the call backs then.
Yes, that's correct. Thank you.
And my second question is in terms of.
Uh huh.
Security of resources for our 2022 kind of expansion and how much of those are now as that could end.
I can just say, yes. Thank you.
Yes, so no.
Given out the list of the actual pipeline projects and those are secure.
We have included a range this year and that's because.
In terms of an overall timing and I think people were asking about overall timing we expect that.
A large portion of these.
It will be actually at the end of the year.
And so we've included.
From our experience already.
The possibility that projects either would get shifted into.
'twenty three or a pulled up and so we've included sort of others.
And those are ones, where I think there is uncertainty around the overall timetable from the customer point of view.
Overall, yes. These have been secured it really is a matter of timing in terms of whether it comes in this side of 22 or the other side of the 2022 'twenty three.
Hope that answers your question Okay.
Yes. Thank you. Thank you.
Thank you for the question next question will come from.
John from Nomura. Please go ahead.
Okay.
Hello.
I know you mentioned that.
We see that customers.
I've seen more value added service for our retail OTC business. So just wonder what's the outlook for our retail MLR.
Just wanted to ask going forward and second question is regarding the.
A new ICT projects.
We just had.
Uh huh.
Hotel project under construction in terms of like transient one circle, So Jeff you want to.
This equipment is that.
The region, because I think this.
New market.
Thanks.
Okay.
It maybe Samuel I'll take the MLR question, and then you want to take the second question.
Sure.
So look in terms of MLR, and then I'm happy you sort of asked.
I think what the view of MLR for for 'twenty. Two is it will move around quarter to quarter as you've seen last year as well, but we do expect that the RMR to stay.
Uh huh.
Sort of 9000 plus range.
And then trending upwards as there are more and more value added services that we sell to our customers.
Obviously some of the volatility comes around the fact that not all of the customers when they first sign on.
Is taking on the full package of services and so.
That's something which the more cabinets, we add if theyre more for what I'll call basic service or basic plus one versus a bundled solution of multiple services I think thats going to affect the EMR, but I think overall MLR trend again, we expect to be in a very positive trend going forward let.
Let me pass to you Samuel in terms of the questions around the region.
Yes, so thank you Ethan.
A question I think earlier this year at government has.
New a directional guidance in terms of the eastern data and also the western computing so.
So if you look at the eastern data Western computing.
In Chengdu and Chongqing area has been identified one of the one of the eight regions and then that specific region together with Beijing, Shanghai, Guangzhou and Shenzhen.
The tier one cities.
All of them are actually.
Fine.
Eastern data, so even though 2017 ourselves.
I would say.
Look at kind of west compare compared to Beijing, Shanghai, Shenzhen from a geo perspective.
That specific area.
It does have a strongly from our business.
And also market perspective.
A lot of scenarios around.
I would say low latency high bandwidth and also know packet loss so I.
Ideally.
For a region specialized to provide the Easter data.
Lets say so so thats also one of the areas.
We're going to continue to invest as a matter of fact, one of the projects in our 2022.
Is to talk about specific areas and we're seeing I.
I would say a great momentum picked up.
I look back to 2021 versus 2020, that's also one of the area starwood small, but growing fast so.
Very optimistic about the.
Chengdu and Chongqing areas, so hopefully that addressed your question.
Yes.
Yeah.
Thank you for the question next question comes from Albert <unk> J P. Morgan. Please go ahead.
Thank you for taking my question I want to ask how should we think about the competitive landscape going forward because I see two major factor.
The common new policy.
We easily into west computer computing is driving new customers to the remote areas.
No.
The past historical <unk> in tier one cities.
Secondly, one of your competitors wants to force more.
The business saw him Walter Halloween two factor.
Perfect.
Your comparative landscape in the future.
My second question is.
Got you.
The lack of surprising in wholesale.
<unk>.
Many of the large internet service provider to cost reduction and you also.
Coming down a bit.
The future.
Demand outlook, how does how should we did <unk>.
Implications for pricing thank you.
Okay.
Let me start thanks for the questions by the way Albert Let me start with a question around sort of the retail side of the business in terms of I guess, you've mentioned one of our peers.
Wants to focus on the retail business because this is something which I think the net.
Has the history, but also has built up.
The infrastructure to be able to service.
The customers are more complicated actually customer needs of the retail customers, it's not as simple as saying its a retail customer, but using a colo model to service them and so we're very confident of the fact that we have a distinct.
<unk> competitive advantage in that and we show.
And in each of the quarters the ability to not only keep but also then continue to add.
The retail customers to our base, but secondly, I think more importantly, and this is what.
Jimmy I was referring to earlier on.
Value added services.
Again, it's not just to sell.
Retail customer cooler service.
And the whole reason why it is a very attractive proposition for them to come to that in the first place is the ability for them to come into a one stop shop a.
A full stack of services not having to deal with 345 different vendors of the service and I think that's a distinct advantage, which also then adds to the stickiness of the customer Wednesday for coming to our data centers.
The second part of the question in terms of the I guess customer demand pricing side, maybe Samuel if you want to give a little bit of color to Albert.
Yes.
So first of all I would say.
First and foremost.
It is great to have a dual core of course engine basically to help us.
Service providers to balance over I would say resource and priorities resource are finite while the opportunity are infinite and so.
When our peer companies.
Focuses.
Switch to the retail considered agreed endorse our strategy.
It is it is true that we're seeing a greater market opportunities and momentum in our retail front.
IDC business overall, the wholesale retail or so sort of like.
Kind of different kind of.
Way to look at it from a spectrum perspective, one focus on the quantity.
While the other focus on the quantities.
Wholesale basis gives us a greater.
Predictability and also give us the scale.
The retail.
Probably gives us a very healthy margin.
And also the stickiness of the customers.
And.
It is easier for our retail.
Business to go wholesale while it is super hard.
For the wholesale to enter into the retail because you have to have the relationship with the customers you have to have the track record you have to have the great networking capabilities and coverage you have to have a whole bunch of value added services and U S sales structure compensation packages skill set.
It's going to be so different.
So it's not just about a one company one would go to video actually every single IGT service providers one half.
Core gross aging from my opinion.
But it is hard.
But again I would say.
In a given period of time.
Everybody wanted to do a wholesale business, but on the other hand, when Theres a storm coming to the wholesale front and then a lot of kind of company, we want to go to a retail as well so I would say.
We're very fortunate.
To have the <unk>.
Balance sheet strategy.
And of course.
If I may.
I mentioned earlier, we're super bullish about the future, but we're cautious about every single stack and were taken because.
Resources to finally, so we want to make sure that we can optimize.
The better return so hopefully that.
Albert some of the additional color for the questions.
Thank you.
Thank you.
And then just stop trying to grow that will take the last question is from <unk> <unk>. Please go ahead.
Hello.
My insurance as well as the opportunity.
Worth quite a bit.
Guarding the deliver rates got you so and we are being more cash or I'm sure. It's about the near term outlook.
Our capacity additions and more back end loaded in <unk> and what's our.
Our view on that.
On top of you guys kind of carve outs were 10, two and my second question.
<unk>.
The written.
Doug.
OEM program.
13, <unk> hundred hit regions and also.
No.
Other revenue.
<unk> and <unk>.
We have what's our view on the impact.
Okay.
Redo.
And many.
Many of our accounts to be a motor rectified customer mix.
Yes.
Bachelor if we could provide more revenue mix, Shanghai and Beijing region.
Okay.
Let me take the first question of Brian . Thank you very much for the question itself in terms of the capacity yes.
I'm expecting that more of the.
Range of companies, we're aiming to deliver will be in the.
The latter part of the year next quarter, it will be able to give you or give the market as in previous quarters.
Clear guidance on how much of it that we're expecting within first half versus how much of it will be in the second half of the year, but it is.
Very much in line.
What was the case last year.
And that things will be more back ended as we are taking a more cautious approach in terms of how quickly we will be delivering new capacity, while we actually have our main focus is making sure that we ramp up the existing capacity that leads to the second question, which is kind of what we're expecting.
In terms of the ramp annual utilization rate trend I would say that you should see a dip as I mentioned before in the early part of the year and that will slowly then increase during the course of the year to the end part of the year as the ramp up continues across all of our different data centers.
Samuel do you want to take a guess.
Question around.
There were some questions around sort of customers move in rates.
Our rate ramp up progress.
No I think you covered that pretty well so.
No additional comments from me.
Okay.
Thanks Juan.
Thank you management.
Ladies and gentlemen that concludes our conference for today. Thank you for participating you may now disconnect your lines.
[music].
[music].
Good morning, and good evening, ladies and gentlemen, Thank you and welcome to feed that Group, Inc. Fourth quarter 2021 earnings Conference call. At this time, all participants are in listen only mode.
We'll be hosting a question and answer session after management prepared remarks.
With us today are Mr. Samuel <unk>, Chief Executive Officer, and Chairman of retail IDC, Mr. Tim Chen Chief Financial Officer, and Michigan, and Grand Liu Investor Relations director of the company.
Now I'll turn the call over to first speaker today, Ms. Li IR Doctor off in that Group Inc. Please go ahead ma'am.
Hello, everyone welcome to our fourth quarter 2021 earnings conference call. Our earnings release was distributed earlier today.
You can find a copy of our IR website as well as our newswire services. Please note that the discussion today 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.
<unk> does not undertake any obligations to update any forward looking statements, except as required under applicable laws. As a reminder, this conference is being recorded in addition, a webcast of this conference call will also be available on our website at IR dumping that dot com I will now turn the call over.
Two our CEO Cemil alright.
Alright, Thank you Shannon good morning, and good day and good evening to everyone.
Thank you for joining our fourth quarter of 2021 earnings Conference call. We concluded 2021 with strong operating and financial results operationally, we successfully achieved this year's delivery target by adding approximately 25000 cabinets and a full year of 2021, including 13000.
276 cabinets that were delivered in the fourth quarter financially for the full year of 2021, we grew our revenue by 28% and our adjusted EBITDA by 32%, we attribute to our achievements to favorable government policies robust market demand persistent strategy.
Execution and methodical service expansion.
First we are pleased to see the favorable government policies continued to provide a strong tailwind to our industry development last month, the eastern data Western Computing plan was jointly released by China's National Development income Reform Commission together with three other central regulatory departments.
Of the eight national competing hubs, we have already deployed our data centers in our Beijing, Tianjin Hebei region, you answered River Delta the Greater Bay area, Chengdu, Chongqing Economic circle, and inner Mongolia Autonomous region. In addition, this January .
The state Council of China.
Vale the first five year growth plan for the digital economy, highlighting the sector's role in reshaping global economic structure and rolling out development target.
25.
The plan laid out measures for operating national infrastructure bolstering the role of data as a production element and promoting digital transformation. The plane also gifts priority to the development of digital infrastructure, a pillar of achieving digital economic prosperity that will also spur in.
<unk> and drive overall economic growth during the fourth quarter, we received orders not only from bellwether technology companies in the internet sectors, but also traditional companies in brick and mortar industries that are transforming through digitalization.
In addition, we're seeing growing demand in both the wholesale and retail segments in order to seize this burgeoning market demand, we maintain a laser sharp focus on executing our core strategy.
To offer both wholesale and retail IDC services, enabling us to achieve solid operating results.
Cabinet delivery front, we added 13000 and 276 cabinets.
<unk> basis in the fourth quarter to 78540 cabinets as of December 31, 2021, despite a myriad of challenges, including equipment delivery delays caused by the coffee resurgence in certain regions of China.
Chip shortages and construction difficulties due to effectively cold weather to meet our annual delivery targets against all odds is a strong testament to our solid execution capabilities developed on the foundation of our extensive experience in the ITC sectors.
This achievement demonstrates our superior capabilities in project management logistics as well as suppliers and government relations. In addition successful leverage our extensive technological expertise to explore extension resources.
Turning to our monthly recurring revenue our retail IDC <unk> reached a new high of 9301 in the fourth quarter, representing 2% year over year growth. Our continued growth in MLR is a manifestation of the increasing endorsement from our existing customers.
As we continue to improve our service capabilities and in reach our one stop solution offerings, our existing customers expanded their contract scope. Accordingly to include more value added services such as the Interconnectivity.
Their managed services hybrid cloud services O&M and more we're also making good progress on our utilization rate our compound utilization rate increased to 61, 6% in the fourth quarter compared to 59 eight in the previous one.
This increase was mainly driven by consistently strong demand from the internet sectors.
And the digitalization trend in the traditional industries.
Such as financial services automobile manufacturing.
And local services.
Our utilization rate for mature cabinets, which consisted of cabinet deliveries prior to and during 2019 was 76, 7% compared to 75, 5% in the previous quarter.
The utilization rate for ramp up of newly built cabinets, which consisted of cabinet deliveries in 2020 in 2021 was 39, 6% compared to 34, 7% in a previous quarter that being said, we do expect to see some seasonal fluctuations in utilization rates in the <unk>.
First quarter. This is because each year, we reclassify mature revpar and newly built cabinets in the first quarter and we delivered a large amount of newly build cabinets in the fourth quarter of last year.
On the resource fronts, we have recently secured new resources exceeding 20 mega watching capacity at a premium location in Beijing.
And we expect to deliver the cabinets over the next two years in multiple phases. Additionally, we continue to secure more resources in other tier one cities and surrounding areas on the wholesale business cycle, while maintaining our ramp up speed, we continue to secure more orders from existing and new customers.
Our customers in the internet sectors, and cloud computing industry maintained a healthy pace of development and ramp up fast to meet their increasing data processing needs.
In the fourth quarter, we won a pre committed order of approximately seven megawatt in capacity from existing.
Internet customer.
Recently, the same customer, but what it does it further pre committed order.
Approximately 11 megawatts in capacity and we also secured three other orders totaling approximately five megawatts capacity.
Two of them were multiyear contracts from our existing customers in the internet and technology sectors, respectively.
The third one was a multiyear contract with a state owned cloud enterprise in the thousands.
Southern Western region of China.
We continue to see increasing demand in our wholesale business and are confident about our future prospects in this segment.
Turning to our retail business the digital transformation trend further fueled our business growth across multiple verticals.
We continue to see trumps demand from several industries, including financial services automobile manufacturing local services and it services. In addition, we also saw increased demand from traditional industries.
Such as logistics manufacturing, Inc. Construction.
For example, several globally renowned companies.
Partnering with us to expand our business in China during the quarter.
Demonstrating our strong customer recognition exceptional operating track record and superior IDC technologies.
These customers include a leading global investment bank the world, leading credit rating service provider and a global leader in the premium and luxury car industry.
We have now reached over 1400 IDC customers in total.
And they operate in a wide variety of industries.
This growth and diversification of our customer base will help us to mitigate any potential adverse regulatory changes and also serves as a secure foundation for the future development of our <unk> strategy.
For our cloud business.
We continue to grow the business by providing industry specific solutions to help our customers improve their operational efficiency and reduce cost.
We haven't seen the unprecedented supply chain disruptions caused by the COVID-19 pandemic, we decided to proactively develop a solution to help our clients resolve acute pains in their logistics management and shorten their product to market time.
We recently initiated a logistics execution system.
One of our key such offerings to IDC customers in the automotive industry.
This SaaS offering improved support for lean manufacturing with the aim of minimizing lead time and increasing customer satisfaction by fulfilling tailored requirement. The system also provides better warehouse management by synchronizing online and offline orders in.
Directly the direct ordering from manufacturers eliminates the need for intermediate distributors.
Allowing manufacturers.
To produce goods based on the actual needs of customers.
During the quarter neutron a new local EV manufacturer.
Began using our logistics execution system and provided excellent initial feedback.
Utilizing our successful execution experience and product development capabilities, we expect to expand our product reach to surface more upstream and downstream industry participants in <unk> in the automotive industry and.
And expand into various other sectors going forward.
Beyond the execution of our strategy.
We further explored options to diversify our financing solutions and enhancing the resilience of our business in January we reached an agreement with Blackstone the worst largest alternative investment firm pursuant to which Blackstone made an additional investment Dina by <unk>.
In U S $250 million of our convertible notes last December we signed a master joint venture investment agreement with a sovereign wealth funds.
Together, we will form joint ventures to pursue development and investment opportunities in multiple build to suit a hyperscale data center projects in China.
As a leading data services data center service providers in the industry.
We have always considered sustainable development is a core part of our mission since inception, and ESG strategy is it in <unk>.
Part of our long term business success, we aimed to achieve those carbon neutrality and a 100% renewable energy by 2030.
And we have also committed to a number of ESG initiatives.
First of all we strive to contribute to a sustainable future.
We became a signatory of the UN global compact in November 2021.
And now pledged to consider all 17 UN sustainability goals in our comprehensive business development.
Similarly in the pursuit of increasing renewable energy ratio in our energy consumption, we suspect we signed strategic cooperation agreements with China what incorporation.
Shanghai Electric wind power group, and China, Southern power grid energy efficiency and clean energy coal in.
In addition, as a response to the international initiatives.
<unk> domestic callings against climate change, we're now examine climate related risks and opportunities concerning the industry.
And have recently committed to supporting the task force on climate related financial disclosures AK, a PC ft last but not least we continue striving to discrete the E of our data centers. The average P. E of our stabilized data center, what's 137 in 2000.
One, notably lower than the industry average.
Turning to our capital market initiatives I would like to take the opportunity to share with you that we are planning a secondary listing on the Hong Kong stock exchange.
We believe our secondary listing in Hong Kong will provide our shareholders with an additional trading venue wire offering them greater protection amid an evolving regulatory environment.
The timing of our contemplated secondary listing is subject to market conditions and regulatory approvals. However.
In summary.
2021 was a rewarding year.
We maintained consistent execution of our <unk> strategy to achieve sustained growth and were also succeeded in meeting our annual target for 2021 by delivering approximately 25000 cabinets.
In consideration of the uncertainties in the macroeconomic environment, we would like to revise our annual cabinet delivery target from 25000 cabinets to a range of 14400 to 17400 cabinets for the year of 2022.
With that I will now turn the call over to Tim who will discuss our.
Our financial results for the quarter and his thoughts on our future growth.
Hi team thank.
Thank you Samuel.
Good morning, and good evening everyone.
Before we start our detailed financial discussion.
Please note that we will present non-GAAP measures today.
Our non-GAAP results exclude certain noncash expenses, which are not part of our core operations.
The details of these expenses maybe found in the reconciliation tables included in our press release.
Please also note that unless otherwise stated.
All the financial numbers, we present today are for the fourth quarter of 2021.
And in Renminbi terms.
While percentage changes are on a year over year basis.
As Samuel mentioned our performance in 2021 was characterized by healthy revenue growth and margin expansion.
<unk> operational efficiency augment to utilization rates and consistent cabinet capacity deliveries.
Which preceded according to schedule despite macro uncertainties.
Net revenue in the fourth quarter of 2021 increased to $1 $75 billion.
29, 4% year over year increase from the fourth quarter of 2020.
This increase was mainly due to increased customer demand for our highly scalable carrier and cloud neutral IDC solutions from both wholesale and retail IDC customers as well as the notable growth in our cloud business.
Gross profit in the fourth quarter of 2021 was $380 million, representing a year over year increase of 29, 1% and a sequential increase of one 3%.
Gross margin in the fourth quarter of 2021 was 21, 8% compared to 21, 8% in the fourth quarter of 2020 and 24% in the third quarter of 2021.
Year over year decrease in gross margin or small decrease in gross margin was primarily attributable to the massive delivery of new cabinets, which usually have a ramp up phase to reach the expected profit level.
Adjusted cash gross profit, which excludes depreciation amortization and share based compensation expenses was $713 8 million in the fourth quarter of 2021, an increase of 22, 7% from the fourth quarter of 2020 and 5.8.
8% from the third quarter of 2021.
Adjusted cash gross margin in the fourth quarter of 2021 was 49% compared to 43.2.
In both the fourth quarter of 2020 and third quarter of 2021.
Adjusted operating expenses, which exclude share based compensation expenses compensation for post combination employment and acquisition impairment of loans receivable two potential investees and impairment of long lived assets were $273 7 million in the fourth quarter of 2021, representing an increase of 2000.
7% from the fourth quarter of 2020, and 12, 2% from the third quarter of 2021.
As a percentage of net revenues adjusted operating expenses in the fourth quarter of 2021 were 15, 7% compared to 16% in the same period of 2020 and 15, 6% in the third quarter of 2021.
Adjusted EBITDA in the fourth quarter of 2021 was $463 million, representing an increase of 18, 8% year over year from the fourth quarter of 2020, and an increase of two 8% sequentially from the third quarter of 2021.
Adjusted EBITDA in the fourth quarter of 2021 excluded share based compensation expenses of $253 million.
The EBITDA margin in the fourth quarter of 2021 was 26, 5% compared to 28%.
The eight 9% sorry in both the fourth quarter of 2020, and the third quarter of 2021.
Our net loss attributable to ordinary shareholders in the fourth quarter of 2021 was $27 3 million compared to a net loss of one point or $2 billion in the fourth quarter of 2020, and a net profit of $156 2 million in the third quarter of 2021.
Basic and diluted loss or 0.03, and 0.28 per ordinary share respectively.
And your 0.18 and $1 68 per <unk>, respectively.
Each ETS represents six class a ordinary shares.
As for our balance sheet.
Aggregate amount of the company's cash and cash equivalents restricted cash and short term investments as of December 31, 2021 was $1 71 billion a decrease of 49, 8% from December 31 2020.
Meanwhile, net cash generated from operating activities in the fourth quarter of 2021 was $664 million compared to $283 8 million in the fourth quarter of 2020.
And $134 7 million in the third quarter of 2021.
Our capex in the fourth quarter of 2021 was $2 2 billion.
And the total capex for the full year 2021 was $4 billion.
We expect to invest $4 to $5 billion in Capex for both our datacenter constructions and M&A considerations for the full year of 2022.
Looking forward, we will continue to explore various financing solutions X.
Cute diligently on a dual core growth strategy.
<unk> increased our customer diversification to cultivate resilience and further consolidate our position as a leading data center services provider in China.
Now moving to outlook for the full year of 2022, we anticipate net revenues to be in the range of 7000 $450 million to 7000 $750 million.
And adjusted EBITDA to be in the range of 1970 $5 million to 2120 $5 million the.
The mid points of the company's updated estimates imply year over year increases of 22, 8% and 16, 9% and net revenues and adjusted EBITDA respectively.
This forecast reflects the company's current and preliminary views on the market and operational conditions and does not factor in any potential future impacts caused by the Covid pandemic.
And is subject to change.
This concludes our prepared remarks for today.
Operator, we're now ready to take questions.
Thank you.
We will now begin the question and answer questions to ask a question. Please press star one on your telephone to withdraw your question. Please press the pound key.
Our next question comes from the line of.
Young Li from Morgan Stanley . Please go ahead.
Thanks for the opportunity to ask questions too.
Two question from my side.
First one is on the demand.
We see a downward revision of the full year, new deliveries for 2022 could.
Could you please update us some of the wholesale and retail fleet.
And if I remember correctly, previously 25000, actually 80% wholesale and retail and 20%.
Could be a retail business, but what is the new fleet.
No.
Our additional 50 boat.
And on the second.
As for the 222 margin.
The new.
So you said your guidance for revenue growth.
Strong, but the EBITDA on the grill.
Revenue.
What is the reason for that.
Is it mainly because of the higher utility costs or if there's any other reason.
Thank you.
Okay.
Thank you your question first and then I can chime in later.
Absolutely.
So in terms of the demand outlook.
We are looking at a roughly 60 40 split wholesale versus retail.
And so the retail does comprise a component of the scale retail so actually the the downward.
Guide on the cabinets was actually a pro rata guidance. So we're not necessarily saying that there was the one segment versus the other segment.
And then I guess in terms of the question on the EBITDA versus the revenue growth.
Sure.
We are as you know steadily ramping up on the wholesale side of the engine.
But we also have other business segments and so some of the other business segments or not.
EBITDA types of businesses or they have lower margins and so that actually is.
Increasing.
Any sort of cost related to those.
More importantly, as we also in our guidance have factored in.
The increase in utility costs.
And that accounts for let's say a route just under 1% of the decline in margins as well.
So I think that's the main drivers young to your question.
In terms of the overall demand outlook in terms of some of the details Samuel I don't know if you wanted to add some color for young on the wholesale and retail demand that we've been seeing.
Yes, definitely again, thanks, John for the questions I think overall given the.
Favorable government policy and also the rise of data sovereignty.
Plus the digital transformation momentum. So overall, we're still very bullish about our long range outlook in general.
But we also have to understand that there are some macro issues that we have to be careful about.
Industry wide end market wise.
It's also a kind of different obviously different climate compares about it last year and therefore company wise, we wanted the Olympic cautious.
One thing on one hand.
Sufficient priority on the other hand, there is a resource needs.
We want a balanced so thats the reason overall business outlook fantastic and we're very bullish, but we're taking a cautious approach.
Step by step so I think thats, the additional color, which I want to add on top of what Tim mentioned earlier.
Thank you.
Young sorry, one more point.
On the question you had on EBITDA I think what are the other factors that you want to take consideration as well is the fact that we added 13000 cabinets at the end of 2021 and so we are also factoring a drag on the EBITDA when it will take them for these cabinets to slowly ramp up.
The course of 'twenty two.
So there will be more cautious obviously in the first part of the year.
Until they start ramping up and these are fixed costs with the deliver cabinets.
Yes.
Yes.
Thank you one follow up.
In terms of the other low margin business.
Is it.
No.
As for Microsoft and also the VPN growing faster.
Also other IC turns business or something else.
Uh huh.
Any impact on the margin.
I can probably comment on <unk>.
That one so first of all.
Again precisely it is not a low margin business.
I'd say its not like pure of IDT wholesale play, which is EBITDA type of business.
Cloud business or very added services.
There are not much relates to EBITDA, but it is a very healthy business again from a gross margin point of view.
But assuming you also interest about to know about the Microsoft cloud growth and also VPN growth I think from a market perspective.
Microsoft Cloud, which basically includes the Azure office 355 dynamics, we simplify empower platform.
It's highly welcome in the enterprise space.
And then of course, we are benefiting from their growth by being the Microsoft closest operating partners in China.
From a number perspective, I would say, we continue enjoying the very healthy double digit growth year over year.
Then switch to the VPN that you mentioned about.
Which is C. A mpls VPN.
Is still highly regarded as one of the highest quality.
On options for enterprise connection.
But we're seeing some of the customers, having a needs to balance their price performance. Some of them continue to go for Mpls VPN and then some of them try to go with the SD Wan.
Luckily because we do provide both route and options for customers to choose.
In the SD Wan business pick up very very fast high double digit growth year over year. So I think combined together it is.
Still very.
Healthy and great business for us.
That address your question young.
Thank you Sandra.
Yeah.
Once again, if you'd like to ask a question. Please press star one.
We can see a request please press the pound or hash key.
Keith.
Next question comes from the line of Andy sung Lee of Jefferies. Please go ahead.
Oh, Hi, Tim.
Tim Thank you very much for the presentation.
Yes.
Wanted to focus on your targets for 2022.
You take a range of 14000 417400 <unk>.
I want to know how comparable this number is versus the previous guidance of 25000 cabinets, because obviously wholesale.
It's not based on cabinets.
Back at once right.
So could you maybe help us understand how we should look at this new guidance range versus the previous 25000.
And number two is that at the moment do you have any thoughts about 2023, because previously it was three year target.
And how should investors think about the 2023 situation based on your understanding of the bad right now.
Okay.
I'll take a crack at Edison thanks for the questions.
In terms of the.
Comparability between.
The cabinets provided I would say it's on a similar basis. So we've not changed the basis in terms of disclosing the number of cabinets.
Absolutely correct that the projects, which are wholesale based.
Or higher density cabinets, and so naturally there are less cabinets.
Now in terms of the.
2023, and looking beyond.
I would sort of go back to 2020 end of 2020, when we provided the three year.
Our forward look.
Ms of cabinets.
It was at the completion of what was extremely.
A successful year for the industry and for us and our peers in 2020.
And clearly with a lot of the regulatory.
The headwinds that.
What we saw in 2021.
That changed dramatically and has not fully turned around yet here as we start 2022, So I would say and echo Samuels earlier comments we.
We are extremely bullish on the sector, we're extremely bullish on the customers' requirements and if you look at it.
There is no reduction in terms of.
The end users like yourselves using data storing data analyzing data and so the demand is there.
But again, we've taken a more cautious approach for 2022, just given the large number of uncertainties in the macroeconomic environment.
We also look to the market and do see slower than expected move in rates and so for 'twenty two we've guided down.
All of these projects to certain extent some of these projects could be accelerated so moved from a 2003 timetable and moved up into 'twenty two.
And then similarly.
Things, if we see the pick up during the course of this year then we would start the 23 projects and therefore that would lead to a higher number for 'twenty three.
But.
Frankly sort of March of 'twenty two.
Again based on the outlook I would say that 23 should be higher than 22, but whether we're going back to a 25000 again I would take 25000 as a end of 2020, what the market gives you was at that time and we're taking a more cautious approach given the current market conditions, and then probably don't want to.
Push out a number out this early in the year for something that there is enough visibility on but again, we can turn on and off the capex and therefore, we do expect that we can be quite nimble with regards to 'twenty three.
Thank you.
Thank you Tim.
Can I follow up.
Two other issues number one is that.
I think you disclosed the 16 megawatt of new wholesale projects that you've signed in <unk>. This year and 11 bucket, what you signed in quarter last year.
Is it true that these are all from existing wholesale customers and you did not sign up any new customers in <unk> and <unk>.
Sam you want to take first crack at that.
Yes.
Again, thank you our Madison for the questions for the <unk>.
From a wholesale perspective.
Sure about a seven megawatt.
That was indeed from the existing customers.
But something we haven't really.
I would say out loud.
Our scale retail we also have a big wins from scale retail customers in Q4 and was actually four megawatts. In addition to.
Dear previous kind of allocation and contract for the <unk> because.
Some of the orders coming from existing customer, but we do have the.
Orders coming from new customers.
Cloud providers.
And also the e-commerce platform companies.
So stay tuned dedicate cloud and so forth.
Again, we still have.
A few more.
<unk>.
Two more I would say a few more discussion going on and so.
Hopefully.
Probably in May timeframe, when we talk about our Q1 earnings release, we could share additional color for our Q1 performance.
Okay.
So the state owned company.
Enterprise cloud service providers, so great new customer is that right.
Yes.
Okay. Thank you.
Sorry, just one follow up for Tim on the Pablo cost you said that what there will be one percentage point impact from the virus.
Understanding that all the wholesale contracts.
Oh, the wholesale contracts you do not include power cost. So that's why it's a pass through so is that one percentage point.
Coming from retail customers, because you have a one to three year contracts. So that's why you have a timeline in terms of policy on power costs.
Yes, so as of the end of 'twenty one Edison.
A large majority of our billable capacity was actually bundled with power and a big portion of that is yes. The wholesale business was still ramping up so it's a very small percentage, we do expect that by the end of this year.
Theres sort of unbundle their pass through proportion will probably increase to let's say circle around 30%.
And it is the ramp up of the wholesale which is one portion but the second one is the extra power costs are being included in the quotation of the renewals as well as the new retail contracts that we're signing so I think the answer to your question is yes to both it is a rollover of new contracts, but also ramp up.
Wholesale.
Sure.
So for power costs are you, assuming a 20% increase year on year.
Just on the unit power costs.
So so yeah. So overall.
Depending on the region, we are expecting between 10% to 20%.
So full year 2021 compared to 2022.
And again that's the.
Sort of impact that we're expecting is.
Under 1% to our margins.
Okay, great. Thank you very much that's it for me.
Thank you.
Thank you for your question. Our next question comes from the line.
Yes.
Please go ahead.
Good morning management.
Shannon.
Matt.
Hey, Glenn.
You mentioned that 2022, Quebec between.
8 billion.
How much proportion.
Are you seeing in April maturities.
I think the project in primary markets show a clear trend.
Two 2020 in 2021.
Yes.
Okay. Thank you very much I'll, let me take this question and Sam.
Samuel you can add if there's anything else.
For the the question in terms of the percentage of M&A I would sort of look back at 21.
I would say that roughly 30% of 2021 related to.
Acquisitions of land power acquisitions of service companies and acquisitions of actual.
Data center assets.
As I, then look at what we've been planning out for 2022, and providing the $4 5 billion guide.
Guidance.
We're expecting probably in the range of 15% to 30%.
It is a wider range, but that's because some of the M&A projects.
Tend to be larger in size and so a swing of doing it or not doing it could actually result in a larger percentage.
Change now in answer to your question about.
Where do we see pricing of IDC projects I would say, we're still using a guidepost.
Terms of what we see in the market of around 10 times.
EBITDA pricing, obviously, when we do evaluate the projects, it's not purely based on the price, but also on the locations in terms of.
Proximity to our existing data centers as well as where the customer demands are and making that evaluation.
The other point I would make is that obviously.
The best projects.
We were the vast majority of our projects are self build projects. So you'll see a lot more greenfield brownfield that we've done in the past to build those into our self built projects rather than acquiring EBITDA. So I think on opportunistic basis, there will be some acquisitions of <unk>.
Data centers, but again, we feel that it is a better use of our capital to not just focus on buying EBITDA, but rather focusing on.
Both.
Where our customers requirements are and making sure that we can put together a product that is very attractive to our customers as well. Thank you.
Yeah.
Okay.
Thank you for the questions Chris.
Questions will come from the alliance.
From UBS. Please ask your question.
I have two questions first.
Guardian client demand so.
Any comments, new Rep computing initiatives can we see more.
In Tanzania.
Ryan.
I'll go into that.
Retail or wholesale clients.
And second question is that I think we have mentioned that 2023 target.
It should be higher than 2022 laid out.
Are the key assumptions here, what do you think is the key moving parts.
So maybe part of 2022 target.
Assuming macro.
Macro or internet regulation or supply chain disruptions so what.
That's where you're seeing globally are still okay. Thank you.
Okay.
Want to take the first take the question first and then well continue to provide additional color associated with that.
Both Tim and I, we mentioned about first of all when we look at the whole market.
We are truly bullish and we're bullish for reasons number one.
The governments.
It's providing a lot of our great favorable policy.
Further define provided provide directional guidance for eastern data western computing.
The other hand government automation about.
The data is going to be key element for future production and then so the data sovereignty all of a sudden it becomes like.
Higher order bit for every single enterprise two.
To consider about 14.
<unk> cloud optimization.
And number three because.
I think that Colby basically accelerated digital transformation.
So nowadays a lot of our enterprises, but then to <unk>.
Accelerate their digital transformation is to go through either Capex to opex reduce the Capex and then.
And focus on the Opex in order to.
<unk> with their business growth.
As Han <unk>.
<unk> in driving the cloud optimization in the past that probably one single public cloud, but the <unk>.
Hybrid multi cloud is going to become a new norm and then the third.
One is to adopt every single Athene as a service.
And then because the arena and we are well positioned there.
We have a dual core growth engine industry, leading ones and so so for that one we're very bullish about the future. The way we see that every single day.
We have great momentum.
On the other hand, we also have to be very cautious because the macro environment is beyond our control we're talking about the China U S. Fanapt situation is a new norm Indus.
Industry wise, there is going to be a power quota power tariffs.
So.
Market wise, the customers and they are paying more attention on cost.
There is also a possibly a premium that we have to pay from a merchant acquisition point of view.
Short period of time, and so so one we're bullish about the long term, but we're cautious in every single step and were taken.
So I.
I would say the over overall perspective.
And then probably timken.
Chime in with some of the additional.
Input that we're seen every single day and the cautious steps that were taken.
Tim do you want to add additional color.
Yes, absolutely.
I would add to Samuel maybe you sort of dig one layer deeper in terms of <unk>.
Both what we've provided to the market in terms of guidance on cabinets.
What Sanjay was talking about in terms of the sort of sales and I would think that then further to your question around kind of how things look like in terms of let's say utilization rate is.
<unk> and with the delivery that we've made at the end of last year.
We do expect there to be a dip in terms of utilization rates.
Both due to large number of deliveries, but also each year, we then reset.
<unk>.
What cabinets are included under mature data centers ramp up and so and so forth.
But.
The desire is also to make sure that we are finding a healthy balance between adding capacity meeting our customers' requirements, but also looking at the now and today and seeing where the customers are in terms of ramping up and also where the demands are and so I think there is the desire to find that bad.
And so I think with the reduction.
In the total number of cabinets, we're also still targeting utilization rates of around 60%.
And obviously to the extent that we see customers ramping up faster than we would speed up.
<unk> deliveries.
And in this case right now we are taking a more cautious approach because 2022.
It is not as I said earlier on one of the earlier questions not 2020.
And so I think that we do need to find that balance then making sure we deliver the right number of cabinets to match up with the ramp up and the demand of our end customers.
Thank you for the questions next question comes from the line of quite sure of Credit Suisse. Please go ahead.
Hi, Good morning management. Thank you for taking my question and congratulations on the results.
My first question.
On some.
On margin.
We mentioned for certain existing customers there is an increasing trend of picking up.
More value added.
My question is.
Assuming business a long term trend.
How is this going to impact our margin if any.
Okay.
Go ahead, Sam I also wanted just start and then I'll add to that.
Sure.
Okay again, thank you Clyde for the question, Yes, we do see.
A big trend.
Customers two to <unk>.
Nick on the.
The value added services as I said from a.
From the high level perspective.
Some of the uniqueness for China compared to the rest of the world as I said before is that while the rest of the world.
Enterprise is talking about the cloud transformation the.
They are basically a three big players, which.
Which is a diverse.
Microsoft and Google, but in China, we have a more than a dozen.
Cloud service providers. So that's one thing the second thing is why the data I would say privacy.
Parity computing data sovereignty.
The higher order bit.
For enterprise to think about.
Then there well probably developed a new strategy other than one single public cloud they might choose to go with a hybrid multi cloud in a way that they want to making sure the data will be stored at their discretion.
And then so that's a second and the third one because.
The COVID-19, really impactful industry. Some most of the companies at.
At least in China.
So willing to go with the OPEC to even approach instead of a capex driven approach therefore other than finding a partner to go with the co location support they want to have a partner, especially in.
A mutual partners.
And they don't take sides, but providing the post tax services all the way from co location support now.
Then, we'll keep capabilities important networking security.
And also the payer matter because they want to have a single tenant.
They also want to have the O&M.
We want to have the hybrid cloud multi cloud management services and support and so on and so forth and so that give <unk> a great opportunity and we saw that with graphics, we grab that as well. The question is whether those value added services are like dataset.
Data center or a wholesale play which is pure EBITDA driven in my answer to that is probably not.
Those are the software capabilities and service capabilities may not have enough or a lot of the.
Amortization and depreciation of elements and so and so that's the reason.
It may not be a pure apple to Apple comparison.
For BNET versus our I would say IGT peer companies.
But luckily as you probably heard from.
Some of our peer companies.
They are seeing a huge retail.
Tailwind they wanted to switch their focus to the.
Retail agent and so I think to some degree.
That's just any comments or statements endorse our gross strategy.
So I.
I would say.
We're happy to have a strategy for the dual core growth engine and we're very.
<unk>.
Proud to continue to execute on that strategy.
Tim do you have any additional input you want to make.
No no I think you gave a good overview of the types of businesses or the value added services and how it works. So again I think we can dive into some of the modeling side on the call back to them.
Yes sure. Thank you.
And my second question is in terms of.
Uh huh.
Security of resources for our 2022 kind of expansion plans how much of those are now secured and.
I can just say, yes. Thank you.
Yes, so no I mean.
We've obviously.
Given out the list of the actual pipeline projects and those are secure.
We have included a range this year and that's because.
In terms of an overall timing and I think people were asking about overall timing we expect that.
A large portion of these.
That will be actually at the end of the year.
And so we've included.
From our experience already.
The possibility that projects either would get shifted into.
'twenty three or a pulled up and so we've included sort of others.
Those are ones, where I think there is uncertainty around the overall timetable from the customer point of view.
So overall, yes these have been secured.
It really is a matter of timing in terms of whether it comes in this side of 22 or the other side of 'twenty to 'twenty to 'twenty three.
I hope that answered your question Okay.
Yes. Thank you. Thank you.
Yes.
Thank you for the question next question will come from.
Keith Cheung from Nomura. Please go ahead.
Okay.
Hello.
And not that you mentioned that.
We see that customers.
The more value added service for all of its hard to say.
So just wonder what's the outlook for our retail MLR.
I wanted to ask going forward and second question is regarding the.
A new ICT projects notes that we just have.
We have.
Hotel project under construction in terms of electrons in Columbus Circle.
You want to.
I think equipment is that.
Region.
Yes.
New markets.
Thanks.
Okay, and maybe Samuel I'll take the MLR question, and then you want to take the second question.
Sure.
So look in terms of MLR, and then I'm happy you sort of asked.
What the view of MLR for 422 is it will move around quarter to quarter as you've seen last year as well, but we do expect that the RMR to stay.
And they're sort of 9000 plus range.
And then trending upwards as there are more and more value added services.
We sell to our customers.
Obviously some of the volatility comes around the fact that not all the customers when they first sign on.
Is taking on the full package of services and so.
That's something which the more cabinets, we add if theyre more for what I'll call basic service or basic plus one.
Versus a bundled solution of multiple services I think thats going to affect the MRO, but I think overall MLR trend again, we expect to be in it.
Very positive trend going forward, let me pass to you Samuel in terms of the questions around the switching region.
Yes, so thank you for the questions, but I think.
Earlier this year at government has.
<unk> directional guidance in terms of the eastern data.
And also the western computing.
So if you look at the eastern data Western computing.
In Chengdu and Chongqing area has been identified one of the one of the eight regions and then that specific region together with Beijing, Shanghai, Guangzhou and Shenzhen.
The tier one cities.
All of them are actually.
Fine.
Eastern data, so even though <unk> seen ourselves.
I would say a little.
A little bit less.
Compare compared to Beijing, Shanghai, Shenzhen from a Geo perspective.
That specific area.
It does have a strong need on the from a business and also market perspective.
A lot of scenarios around.
Say low latency high bandwidth and also know packet loss so.
Ideally.
For a region.
Specialized to provide the Easter data.
So so that's also one of the areas.
We're going to continue to invest as a matter of fact, one of the projects in our 2022.
Is to talk about specific areas and we're seeing I.
I would say great momentum picked up.
I look back at 2021 versus 2020.
That's also one of the area starwood small, but growing fast so.
We're very optimistic about the trend.
Chengdu and Chongqing areas, so hopefully that addressed your question Peter.
Thank you for the question next question comes from Albert <unk> J P. Morgan. Please go ahead.
Yes. Thank you for taking my question I want to ask how should we think about the competitive landscape going forward because I see two major factor.
One the common new policy.
We easily into west compute computing is driving new customers to the remote areas.
<unk> <unk>.
Past historical age in tier one cities.
Secondly, one of your competitors wants to force more retail business. So I wonder how it's two factor.
Effect.
Sure.
<unk> in the future.
Sure.
Second question is.
But could you could come in the lattice surprising in wholesale.
Customer.
The large internet service provider to cost reduction and you also.
Coming down a bit.
The future.
Demand outlook, how should we read it the.
The implications for pricing.
<unk>.
Okay.
Let me start thanks for the questions by the way Albert Let me start with a question.
Around sort of the retail side of the business in terms of I guess, you've mentioned one of our peers.
Wants to focus on the retail business.
Is something which I think the net.
Has the history, but also has built up.
The infrastructure to be able to service.
The customers are more complicated actually customer needs of the retail customers, it's not as simple as saying its a retail customer, but using a colo model to service them and so we're very confident of the fact that.
We have a distinct.
<unk> advantage in that and we show.
And in each of the quarters.
The ability to not only keep but also then continue to add.
The retail customers to our base, but secondly, I think more importantly, this is what.
I was referring to earlier on is the value added services.
Again, it's not just to sell.
Customer service and the whole reason why it is a very attractive proposition for them to come to be that in the first place is the ability for them to come and do a one stop shop.
A full stack of services not.
Not having to deal with 345 different vendors of the service and I think that's a distinct.
<unk>, which also then adds to the stickiness.
The customer Wednesday come into our data centers.
The second part of the question in terms of the I guess customer demand pricing side, maybe Samuel if you wanted to give a little bit of color to Albert.
Yes.
So first of all I would say.
First and foremost.
It is great to have a dual core of course engine basically to help us.
Service providers to balance over I would say resource and priorities resource are finite while the opportunity.
Infinite and so.
Now our peer companies.
<unk>.
Switch to the retail to third degree endorse our strategy.
It is it is true that we're seeing a greater market opportunities and momentum in our retail front.
IDT business overall, the wholesale and retail are so sort of like.
Yeah.
Kind of different kind of.
Way to look at it from a spectrum perspective, one focus on the quantity.
While the other focus on the quality the wholesale business gives us a great.
Predictability and also give us the scale while the retail.
Probably give us a very healthy margin.
And also the stickiness of the customers.
And.
Sorry, Greg it is easier for our retail.
Business to go wholesale while it is super hard.
For the wholesale to enter into the retail because you have to have the relationship with the customers. You have to you have to track records you have to have the great networking capabilities and coverage you have to have a whole bunch of value added services and your sales structure compensation packages skill set.
It's going to be so different and so it's not just about a one company wanted to go to retail actually every single IGT service providers one half.
Core gross aging for my opinion.
But it is hard.
But again I would say.
In a given period of time.
Everybody wanted to do a wholesale business, but on the other hand, when Theres a historic coming to the wholesale front and then a lot of kind of a company we want to go to a retail as well so I would say.
We're very fortunate.
To have it.
Balance sheet strategy.
And of course.
As I am.
Mentioned earlier, we're super bullish about the future.
We're cautious about every single stat were taken because.
Resources to finally, so we want to make sure that we can optimize for the better efficient return so hopefully that Keith.
Some of the additional content for the questions.
Thank you.
Thank you.
So stop trying to now take the last question is from <unk> <unk>. Please go ahead.
Yes.
Hello, Doug.
My insurance as well as the opportunity.
Regarding the <unk> guide you, so and we are being more cash or a couch or it's about the near term outlook.
Our capacity additions and more back end loaded in <unk> and what's our.
Our view on the ramp up you've got kind of a carve out for some time to optimize.
And then my second question is about.
The written.
The <unk> program and with the 13 regions and also.
Other.
<unk> and.
We have what's our view on the impact.
If you live originates redo.
And.
And then Europe could be a motorbike in slide <unk>.
<unk>.
Great.
Bachelor if we could provide the more revenue mix, Shanghai and Beijing region.
Okay.
Let me take the first question of Brian . Thank you very much for the question itself in terms of the capacity yes.
Im expecting that more of the.
Range of cabinets, we're aiming to deliver will be.
The latter part of the year next quarter, it will be able to give you or give the market as in previous quarters.
Clear guidance on how much of it that we're expecting within first half versus how much of it will be in the second half of the year, but it is.
Very much in line.
With what was the case last year.
And that things will be more back ended as we are taking a more cautious approach in terms of how quickly we will be delivering new capacity, while we actually have our main focus is making sure that we ramp up the existing capacity that leads to the second question, which is kind of what we're expecting.
In terms of the ramp and utilization rate trend I would say that you should see a dip as I mentioned before in the early part of the year and that will slowly then increase during the course of the year to the end part of the year as the ramp up continues across all of our different data centers.
Samuel do you want to take I guess the question around.
There were some questions around sort of customers move in rates.
Our rates ramp up progress.
No I think you covered that pretty well so.
No additional comments from me.
Okay.
Thanks Juan.
Thank you.
Ladies and gentlemen that concludes our conference for today. Thank you for participating you may now disconnect your lines.
