VNET Group, Inc. (NASDAQ:VNET) This autumn 2023 Earnings Name Transcript
VNET Group, Inc. (NASDAQ:VNET) This autumn 2023 Earnings Name Transcript March 28, 2024
VNET Group, Inc. is not one of many 30 hottest shares amongst hedge funds on the finish of the third quarter (see the details here).
Operator: Whats up, women and gents. Welcome, and thanks for standing by for the Fourth Quarter and Full Yr 2023 Earnings Convention Name for VNET Group, Inc. [Operator Instructions]. Our individuals from our administration staff contains: Mr. Jeff Dong, Chief Govt Officer; Mr. Qiyu Wang, Chief Monetary Officer; Ms. Xinyuan Liu, Investor Relations Director of the Firm. Please observe that in the present day’s convention name is being recorded. And I’ll now flip the decision over to the primary speaker in the present day, Ms. Xinyuan Liu. Please go forward.
Xinyuan Liu: Thanks, operator. Whats up, everybody, and welcome to our Fourth Quarter and Full Yr 2023 Earnings Convention Name. Our earnings launch was distributed earlier in the present day, and you will discover a duplicate on our IR web site in addition to on Newswire companies. Please observe that in the present day’s name will comprise forward-looking statements made beneath the secure harbor provisions of the U.S. Non-public Securities Litigation Reform Act of 1995. Ahead-looking statements are topic to dangers and uncertainties that will trigger precise outcomes to vary materially from our present expectations. For detailed discussions of those dangers and uncertainties, please seek advice from our newest annual report and different paperwork filed with the SEC. VNET doesn’t undertake any obligation to replace any forward-looking statements, besides as required beneath relevant legal guidelines.
Please additionally observe that VNET’s earnings press launch and this convention name embody the disclosure of unaudited GAAP and non-GAAP monetary measures. VNET’s earnings press launch incorporates a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. As a reminder, this convention is being recorded. As well as, a webcast of this convention name may also be obtainable on our IR web site at ir.vnet.com. I’ll now flip the decision over to our CEO, Jeff.
Jie Dong: Thanks, Xinyuan. Good morning, and good night, everybody. Thanks for becoming a member of our name in the present day. I might like to start by offering an summary of our fourth quarter and full 12 months 2023 efficiency. We ended 2023 on a strong observe that made the regular financial restoration, demonstrating efficient execution of our dual-core development technique. We meet our 2023 supply targets with 8,321 self-built cupboards delivered throughout the 12 months. As of year-end 2023, we had grown our complete cupboards beneath administration to approximate 93,600 in contrast with roughly 87,300 a 12 months in the past. The variety of utilized cupboards elevated by 2,827 to 55,235 within the fourth quarter, driving our total utilization fee to 59% in contrast with 55% a 12 months in the past. Our Retail IDC MRR per cupboard remained secure within the fourth quarter at RMB 9,477.
By way of our monetary efficiency, we proceed to concentrate on high-quality revenues throughout the quarter, driving our web revenues to RMB 1.9 billion in addition to a 3.8% year-over-year improve in our adjusted EBITDA to RMB 440.2 million. Turning to our full 12 months efficiency. Our web revenues elevated by 4.9% year-over-year to RMB 7.41 billion, and adjusted EBITDA grew by 8.9% year-over-year to RMB 2.04 billion. Our strong operational and monetary efficiency displays our efficient technique and robust execution, in addition to our skill to develop our enterprise by skillfully leveraging market traits and the supportive coverage surroundings. In response to this 12 months’s authorities work report, China is rising its efforts to advertise the modern improvement of the digital financial system, particularly the report name for coverage help for the digital economies, high-quality improvement, and said channel will set concerning the improvement and software of massive information and synthetic intelligence, launched the AI plus initiative and construct world-class digital {industry} clusters.
We consider these initiatives and targets will additional drive market demand for high-quality information facilities and premium IDC companies. As a number one IDC service supplier, VNET is strategically positioned to capitalize on these rising alternatives by way of our complete operational power throughout advertising and marketing and companies in addition to operations and upkeep. Subsequent, I might wish to share our fourth quarter enterprise updates. We’re excited to see AI-driven demand from our buyer proceed to climb, particularly computing energy demand for coaching giant language fashions. Amongst our wholesale clients, these within the quick video industries are actively growing and integrating AI capabilities, require huge high-performance computing energy to reinforce their content material creation capabilities and enterprise operations.
In our retail enterprise, demand can also be rising steadily from clients in industries, together with autonomous driving, native companies and digital actuality the place giant language fashions are extensively deployed for enterprise. Our high-performance information facilities empower us to satisfy varied AI-driven demand with modern options. Shifting on to our wholesale enterprise. We prolonged our spectacular supply observe file to our wholesale clients with well timed, high-quality deliveries of roughly 109 megawatts for the total 12 months. These deliveries haven’t solely solidified our reliability, but additionally boosted buyer satisfaction. Of specific observe is the speedy ramp-up interval now we have delivered to main wholesale clients for a number of of our initiatives shifting intervals have been a lot quicker than initially anticipated.
Moreover, we not too long ago secured a brand new order from one among our present clients, a number one cloud service supplier in China. The brand new order is roughly 50 megawatts in one among our initiatives within the Yangtze river delta area and is scheduled for completion in 2024. As soon as once more, this new order showcases our long-term buyer loyalty and our industry-leading service capabilities. Our retail enterprise remained resilient throughout the quarter, attracting new clients throughout mobility, cloud service, AI and the IT service {industry}. We additionally prolonged contracts with loyal present clients in finance, native companies, autonomous driving and gaming, demand stays strong. On value-added service entrance, our full stack one-stop modern Naked Steel as-a-service resolution primarily based on AI applied sciences proceed to win clients, together with one among China’s main suppliers of energy-efficient computing options for sensible mobility.
This buyer’s demand for computing energy is a surge and quickly as a result of rising adoption of superior driver help methods and the autonomous driving know-how within the mobility {industry}. Our modern Naked Steel as-a-service resolution supplies safe and versatile computing energy assets to help the shopper intelligence, driving simulation coaching and the LLM operation, empowering the shoppers’ future development. Turning now to our latest ESG efficiency, our dedication to sustainability as soon as once more received recognition from world main ESG score businesses in 2023. Early in VNET, A score from MSCI for the second consecutive 12 months, this represents the best rating awarded in the present day in China’s Web Service & Infrastructure {industry}, distinguishing us amongst our friends.
As well as, our firm scored 53 within the 2023 S&P World Company Sustainability Evaluation, rating the best amongst China’s IT Companies {industry} and within the prime 11% within the {industry} globally. Trying forward, we are going to stay steadfast in our understand of ESG excellence, embracing and selling a inexperienced future industry-wide. Earlier than I conclude, I might wish to share some significant progress we made on our refinancing initiatives. In late December 2023, VNET — we accomplished the USD299 million strategic funding from Shandong Hello-Pace Holdings Group to additional strengthen our steadiness sheet. Now we have additionally established a partnership with Shandong Hello-Pace Holdings who cooperatively discover new alternatives in renewable energies amid the booming computing energy demand pushed by AI improvement.
We consider our core enterprise will take pleasure in nice synergies with Shandong Hello-Pace Holdings assets and experience in conventional infrastructure fields. We look ahead to collaborating with Shandong Hello-Pace Holdings on the best way of inexperienced power initiatives to collectively advance in direction of our carbon neutrality targets whereas assembly societies surging demand for digital transformation. Additionally, on 1st February of this 12 months, we efficiently accomplished the repurchase fee referring to our convertible senior notes due in 2026 in mixture principal quantity of USD 600 million, and made the capital market, this stands as one other testomony to our resilient enterprise fundamentals in addition to our dedication to long-term sustainable improvement. In conclusion, robust execution of our dual-core technique for high-quality development drove our strong efficiency in 2023, whereas laying a agency basis for 2024, addressing the booming AI pattern, we’re rising our enterprise alongside the macro surroundings regular restoration.
We are going to proceed to construct on our core capabilities as we head into 2024, fulfilling market demand for safe and premium IDC companies and facilitating digital transformation throughout a climate spectrum of verticals. Our unwavering dedication to our shareholders is to satisfy sustainable development and generate long-term worth. Earlier than I share our supply projection for 2024, I need to spotlight that going ahead these projections can be expressed when it comes to energy capability as a substitute of variety of cupboards. We consider energy capability will extra meaningfully replicate our enterprise improvement given our information facilities rising energy density amid the rising AI pattern. That stated, we count on to ship 100 to 120 megawatts throughout 2024. Thanks, everybody. I’ll now flip the decision to Qiyu to debate our monetary efficiency for the quarter.
Qiyu Wang: Thanks, Jeff. Good morning and good night, everybody. Earlier than we begin the detailed dialogue of our financials, please observe that we’ll current non-GAAP measures in the present day. Our non-GAAP outcomes exclude sure noncash bills, which aren’t a part of our core operations. The main points of those bills could also be discovered within the reconciliation tables, together with our earnings press launch. Please additionally observe that until in any other case said, all of the financials we current in the present day are for the fourth quarter and the total 12 months of 2023 and in renminbi phrases. Now let me stroll you thru our fourth quarter and the total 12 months of 2023 monetary outcomes. Until in any other case specified, the expansion charges I can be reviewing are all on a year-over-year foundation.
We concluded 2023 with strong monetary and working efficiency, each consistent with our steerage. Extra in at the moment, our wholesale enterprise continued robust development momentum. In the course of the 12 months of 2023, we added 109 megawatts of capability to our wholesale enterprise, rising a year-over-year improve of round 70% in our wholesale income. Within the fourth quarter, our web revenues elevated by 0.9% to RMB 1.9 billion from the identical interval final 12 months, primarily pushed by the continued development of our core enterprise. Gross revenue was RMB 290.9 million within the fourth quarter of 2023, representing a lower of 11.4% from the identical interval of 2022. Gross margin was 15.3% within the fourth quarter of 2023 in comparison with 17.5% in the identical interval of 2022. The year-over-year lower was primarily attributable to a rise in depreciation and amortization bills as extra information heart have been put into service throughout the previous quarters.
Adjusted money gross revenue, which excludes depreciation, amortization and share-based compensation bills was RMB 741.7 million within the fourth quarter of 2023, a rise of 0.2% from the identical interval of 2022. Adjusted money gross margin within the fourth quarter of 2023 was 39.1% in comparison with 39.4% in the identical interval of 2022. Adjusted working bills, which exclude share-based compensation bills, compensation for post-combination employment within the acquisition, allowance of mortgage receivable, impairment of long-lived property, and impairment of goodwill have been RMB 334.2 million within the fourth quarter of 2023, in comparison with RMB 355.4 million in the identical interval of 2022. As a share of web revenues, adjusted working bills within the fourth quarter of 2023 have been 17.6% in comparison with 18.9% in the identical interval of 2022.
Adjusted EBITDA within the fourth quarter of 2023 was RMB 440.2 million, representing a rise of three.8% from the identical interval of 2022. Adjusted EBITDA margin was 23.2% within the fourth quarter of 2023 in comparison with 22.6% in the identical interval of 2022. Our web loss attributable to VNET Group Inc. within the fourth quarter of 2023 was RMB 2.4 billion in comparison with the web lack of RMB 64.2 million in the identical interval of 2022. Fundamental and diluted loss have been each RMB 2.65 per strange share and each RMB 15.88 per ADS. Every ADS represents 6 Class A strange shares. Turning to our steadiness sheet, as of December 31, 2023, the combination quantity of the corporate’s money and money equivalents, restricted money and short-term investments have been RMB 5.46 billion. In the meantime, web money generated from working actions within the fourth quarter of 2023 was RMB 730.7 million in comparison with RMB 407.5 million in the identical interval of 2022.
Our capital expenditure within the fourth quarter of 2023 was RMB 1.6 billion, and the entire CapEx for full 12 months 2023 was RMB 3.58 billion. Now shifting to our outlook. We count on our web income from the total 12 months of 2024 to be within the vary of RMB 7.8 billion to RMB 8 billion, representing a year-over-year improve of 5.2% to 7.9%. And adjusted EBITDA to be within the vary of RMB 2.22 billion to RMB 2.28 billion, representing a year-over-year improve of 8.9% to 11.8%. Forecast displays the corporate’s present and preliminary views available on the market and its operational situations and is topic to alter. Trying into 2024, we are going to proceed to execute our efficient dual-core technique driving high-quality enterprise development, we consider our strong fundamentals and core strengths place us to seize market alternatives, particularly AI-driven demand.
As all the time, we stay devoted to creating sustainable worth for all our stakeholders. This concludes our ready remarks for in the present day. Operator, we at the moment are able to take questions.
Operator: [Operator Instructions]. Our first query comes from Yang Liu of Morgan Stanley.
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