Q3 2023 VNET Group Inc Earnings Call
Okay.
Hello, Ladies and gentlemen, thank you for standing by for the third quarter to 23 earnings Conference call for Peanuts Group, Inc.
At this time, all participants are in listen only mode.
After management's prepared remarks, there'll be a question and answer session.
That distance from all management and cute, Mr. Jeff Dill Chief Executive Officer.
Mr Qi, Wang Chief Financial Officer Mr.
Mr Ping Chen Chief strategy Officer.
And Mr. Yang Investor Relations director of the company.
Please note that today's conference call is being recorded.
I would now like to turn the call over to the first speaker today missing Granville.
Go ahead.
Thank you operator, Hello, everyone welcome to our third quarter 2023 earnings Conference call.
Earnings release was distributed.
Okay are there today and you can find a copy of our website.
So our services please.
Please note that today's call will contain forward looking statements made under the safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.
Christina.
Vic 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 obligation to update any forward looking statements except as required.
The applicable laws.
Also note that we announced earnings press release and this conference call include the disclosure of our GAAP and non-GAAP financial measures.
Yes.
Earnings Press release contains a reconciliation of the audited non-GAAP measures to the Oh does it get better or.
As a reminder, this conference is being recorded.
A webcast of this conference call will also be available.
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There'll be no dot com I will now turn the call over to our CEO Jeff.
Yeah.
And good evening, everyone. Thank you for joining our call today I'd like to start we used the overview of our third quarter performance.
Our solid growth in the third quarter reflects our continued focus on high quality business opportunities happen.
<unk> deliveries are progressing smoothly that end of the quarter, we had grown our total cabinets under management to a proxy 88900, <unk> compared with approximately 82660 a year ago.
The number of utilized companies increased by <unk> 92 to <unk> 52.
<unk> thousand 408 in the third quarter.
Our overall utilization rates to 59%.
The more our Rachel.
<unk> per cabinet during the quarter stay high RMB 9495.
He remains dedicated to ending high quality revenue in both the wholesale and the retail OTC market in the so called the <unk>.
<unk> solid year over year growth with our total net revenues, increasing by 4% to RMB 189 billion and adjusted EBITDA growing by 11, 6% to RMB 779 million.
With our rapid pace of large language module training and AI application deployment.
Empower is becoming a new productive force to meet the growing need for compute empower China's government authorities have recently unveiled the next and plan for the high quality development of computing power infrastructure nationwide.
As the industry leading player.
We are seeing increasing demand for premium ICT services, and we remain a clear choice for customers to ride the wave of digital transformation.
Now, let's take a closer look at our third quarter business updates first AI is driving increasing demand for computing power and additional services.
Our wholesale data center continue to meet the increasing demand driven by our customer theoretically growing business with.
With high power density capabilities weak sell empower larger language model training and deployment for Internet platforms.
Our core competence as spanning resources and execution capabilities enable us to support our customers in Huawei.
On the systems business development needs.
As we mentioned on our last call in August we won nine extended order of 45 megawatt from the use of Ting Internet giant customer, which is big for our superior wholesale service offerings appeal amazed the competitive landscape. Moreover, our customer deployment execution has been steady.
Sure Gary.
In the third quarter, we successfully deliver over 2006 Thunder high power density of companies in the young <unk> Delta region to one wholesale customer Underbred Approx 800 high power density cabinets in the northern region of China to another wholesale customer so all of the delivery.
We maintained a strict quality standards, we are offering customization options tailored to customer requirements. This execution is a testament to our commitment to a timely delivery and top notch quality, which has earned us a reputation for reliability and customer satisfaction.
Our retail customers AI, driven demand continue to rise, particularly from existing customers in industries, such as the local services health care and we are building on this momentum we expect to attract more retail customers from a wider range of industries, such as autonomous driving.
On AI solutions.
Also like to highlight our distinctive proficiency in designing and implementing power and equipment upgrades for our companies to meet existing customers high power density computing needs. This capability is well supported by our engineering experience and expertise as well as our existing high powered.
Hence the acceptance, which allows us to promptly address growing diverse AIA demand from retail customers. In addition, we further expanded and diversified our retail customer base in the third quarter, attracting new customers and are securing extended contracts from existing customer.
Various industries, including Iot financial services gaming and morbidity.
It's also worth noting we recently won a new order of one five megawatts from an existing customer award leading consumer electronic type brands now turning to our value added services during the third quarter, our full stack one stockpile metal as a service solutions continue to gain.
New customers, one of which is a pioneering unicorn in where industry. We won the contract based on our flexible compared to empower resources that are kind of rapidly meet these customer specific demand during peak hours an opinion.
Gross office met the worst business.
Our diverse IDC services offerings.
Saudi <unk> infrastructure premium operations, and maintenance services and impressive cost efficient solutions, making vena an outstanding choice for potential customers are looking for a trusted partner to support their current and future business development needs. We have also attracted a leading Chinese.
EV automaker for our Interconnectivity services throughout our robust data center and network resources nationwide.
The customer saw their business data adjacent data centers and the transmit with low latency backhaul. This customer win reaffirms, our compelling value proposition and advanced Interconnectivity services capabilities in summary, our robust third quarter results showcase our ability.
To effectively address both wholesale and retail business as you see me back.
Backed by timely on strong execution looking ahead.
Trivalent and the adoption is the margin across industries and a supportive government policies will accelerate the development of computing power infrastructure in China.
The industry leader, we look forward to meeting this newest wave of demand driven.
Driven by AI applications in Australia on listen our long term growth potential.
Thank you everyone I will now turn the call to G.
To discuss our financial performance for this quarter.
Thank you, Jeff good morning, and good evening everyone.
Before we start the detailed discussion of our financials. Please note that we will present non-GAAP measures today, our non-GAAP results exclude certain noncash expenses, which are not part of our call I appreciate.
The details of these expenses maybe found in the reconciliation tables included in our earnings press release. Please also note that unless otherwise.
State Auto financial we presented today for the third quarter of 2023.
And Jimmy <unk> terms.
Now, let me walk you through our third quarter financial results.
Otherwise subsist five the growth rates I will be reviewing on a year over year basis in the third quarter. We continued to deliver solid results with our focus on high quality revenues, our net revenue increased by 4% too.
189 billion from the same period last year, largely driven by the continued growth of our main business gross profit.
306, 1 million in the third quarter of 2023, representing a decrease of three 2% from the same pure rate of 2022 gross margin, what six to plus 2% in the third quarter.
Of 2023 compared to <unk>.
17, 5% in the same period of 2022 adjusted cash gross proceeds.
Leached.
Depreciation.
The team at decent share based compensation expenses.
738.
$4 million in the third quarter of 2023.
An increase of four 3% from the same period of 2022 adjusted cash gross margin in the third quarter of 2023.
39, 1% compared to 39% in the same period of 2022.
Adjusted operating expenses excludes share based compensation expenses and <unk>.
<unk> for the post combination deployment.
Acquisition.
Two six.
$8 million in the third quarter of 2023 compared to two seven points.
$1 million in the same period of time.
2022.
Percentage of net revenue.
Adjusted operating expenses in the third quarter of 2023.
14% compared to 15, 2% in the same period of 2022 adjusted EBITDA in the third quarter of 2023 was 507 9 million representing an increase of 11.
6% from the same period of 2022 adjusted EBITDA in the third quarter of 2023 excludes share based compensation.
<unk> expenses.
$9 5 million.
Adjusted EBITDA margin was.
<unk> 26 per 9% in the third quarter of 2023 compared to 25 per 1% in the same period.
2022, our net loss attributable to <unk> group in the third quarter of.
2023 50.
$55 million compared to a net loss of 425 point.
$2 million in the same period of 2022.
Basic and diluted loss were both 0.06 per ordinary share and both Sierra point, sorry, six eds.
<unk> six class.
The ratios turning to our balance sheet as of.
September 32023, the aggregate amount of the company's cash cash equivalents and restricted cash was 3.02 billion now.
Now net cash generated from operating activities in the third quarter of 2023 was full final $4 3 million compared to $607 4 million in the same period of 2022, our capital expenditure in the third quarter of 2023.
964 points.
Before I conclude I'd like to provide an update on our financial outlook for full year 2023.
For the full year of 2023 the company currently expects total net revenue to be between 7000 and the $400 million.
7000 and $600 million.
We are presenting.
<unk> over year growth of four 7% to southern Cig Preston.
And adjusted EBITDA to be in the range of 2002, 2000, and $60 million, representing a year over year growth of six point.
8% to 10%. This compares with total revenue expected between 7000 600 million at 7000 $900 million.
Adjusted EBITDA between 2020 $5 million and the 2120 $5 million previously.
The outlook update is mainly due to our continuous focus.
High quality revenues to maintain the long term sustainability of our operations. The forecast reflects the company's current and preliminary views on the.
Market and operational conditions and is subject to change.
Going forward, we will stay focused on our high quality growth strategy.
<unk>, our premier IDC services to empower digital transformation across a broader swath of industries.
Always we remain committed to create sustainable growth for all our stakeholders.
This concludes our prepared remarks for today operator, we are now ready to take questions.
Thank you.
We will now begin the question and answer session.
Lots of question. Please press star one on your telephone.
We draw your question. Please press star one again, the management Watkins questions to be asking in Chinese.
The benefit of all participants on today's call. If you wish to ask your question in Chinese. Please immediately repeat your question in English.
For the sake of clarity in our dairy. Please ask one question at a time management will respond and then feel free to follow up with your next question. Once again Thats Star one one follow up question.
Our first question comes from the line of young from Morgan Stanley. Please ask your question.
Okay. Thanks for the opportunity to ask questions.
I would like to have updated in turmoil.
The company's upcoming convertible bond repayment.
February of next year.
What has been done or what is the current progress.
The monetization.
To prepare for the payments.
Both for the potential rights issuance and also the.
Starting from minority stakes fulfill existing projecting central whatever.
Thank you.
Yes.
Thank you.
I know what this is.
Uh huh.
The most important question for us.
Taking the liability management issue has been my top priority.
Yes.
Since I took the CFO position.
We're obviously working on two major release full resolve.
The issue is the right new funding from new equity and debt.
Investments.
Because.
We need to follow the NASDAQ rules so.
We.
We were being dedicated to pursuing new investor and then.
It is the right time, we will we will.
The public announcement.
Any Concord Pro progress also continue to actively engage engaging with our CB.
Creditors to find the best way forward also.
Also try our best to two.
Two <unk>.
Prudence OPEC managements, and all positive progress in other funding rising.
Yes.
You say, including the.
SaaS sell minority share and also the series.
Darryl.
Both have some.
Some some significant progress.
Also need some time to closing this deal so.
Uh huh.
Yes.
We.
Uh huh.
Uh huh.
So.
We will try our best to two <unk> leverage.
Sure.
Incoming CBS.
So we are firm plan to to the.
So the puts and leveraging on both internal and external tells US yes. Thank you.
Thanks, Matt follow up with another question.
Business update for the downward revision of the.
Revenue on the EBITDA guidance, where do you see more weakness come from it is from the.
Traditional retail business or more from the.
Wholesale business.
Sure.
Yes.
Yes.
Okay.
We do some some some chance our our guidance.
Sure.
With close to switching gears of IDC industry experience market insights.
It'll be navigating our business to us are very aware refocus great greater profit margin business in short or midterm, all you've done for this year.
We have a locate.
Locating more DC with altus to areas such the AI them, all German wholesale business line.
Very clear.
<unk>.
Booming market and.
And the promo.
Our profit margin so.
<unk> refocused.
High profit business and then we try to close some low profile.
Low profit business. So you can see.
<unk>.
If you compare the revenue and EBIT.
Uh huh.
Guidance.
<unk>.
EBIT guidance will be only.
A decrease of a reminder, around 2% so yes, additional we're planning to certain.
A few core value.
Laurence practice within this year, so as our ongoing financial statement for the battery reflect.
Uh huh.
The nature and.
Transformation of our business.
And then yeah.
We continue to focus.
The high profit business.
Example, the wholesale ends and.
The AI driven.
Thank you Mark.
Yes.
Okay. Thank you.
How about the other question.
Okay.
Thank you yeah.
Our next question comes from the line of Charlie <unk> from Jefferies. Please ask your question Charlie.
Okay.
Hi, This is Charlie by from Jaffray, My fifth showing you that bother us during the quarter.
I saw.
Quarter on quarter decline on both utilization rate and Raytheon.
Mine, though what's the reason behind it.
Thank you.
Yes.
Hi.
So obviously.
I will say for Q3 still say a high level in line with our expectation.
It might be some.
Collections.
From quarter to quarter, which is a kind of normal so we believe.
No for the year on these will come up again.
So in terms of utilization rates.
Our estimate for you all.
By the end of 2023.
Unparallel.
Q3 total.
So the level, we saw with our fast start growth, especially for our wholesale customers, particularly those in the short video sector, we expect the higher utilization rates.
In 2024.
Thank you.
My follow up with another question.
I have some color on the outlook of the Capex plan this year and in 2024. Thank you.
Yes.
This year the full year Capex.
<unk> to be around three eight.
8 billion, which is about 10% more than our guidance.
The main reason is that the demand for wholesale data center business is growing faster.
And next year, there will be a significant increase in our full year capex, mainly due to the increased grew street gross rate of our wholesale business in the high <unk>.
AI driven.
30 months.
So.
Reveal specific figure.
The capex.
Announcer.
Our full year guidance early next year.
Okay. Thank you I have no more question.
Thank you Charlie.
Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please ask your question Timothy.
Sure. Thank you management for taking my question I want to understand more about your updated guidance for this year, just wondering could you share a little bit more in terms of the revenue breakdown.
For the full year guidance for your wholesale IDC retail I do you see I know, it's sort of not IDC Bad news and you mentioned that you are going to turn down or reduced exposure to those low margin business could you elaborate more on what exactly are those are lower margin business I believe that was built into the retail business.
Like how much more do you expect to reduce that exposure.
I think in this segment. Thank you.
Yes.
Alright.
Because now.
Because.
The wholesale.
AI driven demand is.
Chris faster so.
We try to move more.
Find more result US for example in some retail David Hudson Harvey.
We shut down.
We closed some business for traditional retail.
Customer and then move the space and the <unk>.
Our supply to the AI.
My customer so.
It is.
The reason our reduced.
Our revenue guidance.
On a same way you'll see the.
Ebay.
Impact.
Impacting EBITDA by reminding us so I think this is announced.
Our business.
Yes.
Uh huh.
The speed.
No doubt.
On the other right this is <unk>.
<unk>.
Doug.
Even the margin and the EBITDA.
It's a more positive.
Then before.
Yeah.
Got it that's helpful. Thank you.
Thank you Timothy.
Our next question comes from the line of Julie Li from Bank of America Securities and ask your question Gary.
Sure.
Hi management, Thanks for taking my question.
One on the AI.
Space you mentioned the more high park in the TV upon deployment.
Could you please share that demand change driven by AI.
Do we have any breakdown how much demand from AI that retail order for the wholesale business and they're looking into next year, how do we view the.
The demand for our data center business. Thank you.
Okay in terms of.
Which is a very popular SaaS San so all of this year, we have seen actually the rapid growth of <unk> in China.
Dozens of large language modeling across different sectors has already been launched earlier.
Earlier this year.
While many of.
Many of them still being trained on the generic models are dominated by actually the Internet Giants.
Articles a lot better.
Leader, leading players in specific industries, some tech start ups as well.
From the Internet Giants back toward the impacts on the.
Our LDC demand you will see from the wholesale side, yes Julien.
Demand from wholesale customers Armani search by Internet, John customers, especially either short video E Commerce business, notably we deliver.
<unk> announced.
Announced this quarter around the sorry, sorry, 500 cabinets during the quarter.
Total wholesale customers.
All of which actually are high power density cabinets.
In terms of retail sites yesterday, receiving increasingly AI demands from our retail customers across various industries, such as a local services health care and we are also we are further exploring into the demand from.
From new economy industries, such as a fantastic.
We are in the dialogue with them.
And in terms of high power density cabinets actually we are.
Those cabinets from pharma pharma Venus located in the grid Beijing area, the answer really with Delta and also Great Bay area.
In terms of their size.
I honestly see above <unk> 40 kilowatt until on over 30.
<unk> kilowatt for the wholesale.
The retail.
On the.
So far so far we have.
Pharma pharma all delivered we received this quarter us above all over 90% I would say is coming from high power density area.
Okay correctly, thank you management.
Sure.
Instructions. Thank you.
Thank you.
Thank you.
We have reached the end of the question and answer session and with that ladies and gentlemen that concludes our conference for today. Thank you for participating you may now disconnect your lines have a good day.
Okay.
Yeah.
Okay.
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