VNET Group, Inc. American Depositary Shares 2026 Q2 Earnings Call

Please go ahead. Thank you, Operator.

Hello, everyone, and welcome to our second quarter 2026 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on news wire services. Please note that today's call will contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligation to update any forward-looking statements, except as required under applicable laws. Please also note that VNET's earnings press release and this conference include the disclosures of unaudited GAAP and non-GAAP financial measures.

VNET earnings press release contain a consolidation of unaudited non-GAAP measures to the unaudited GAAP measures. A summary presentation of which we refer during this conference call can be viewed and downloaded from our IR website at ir.vnet.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by Neolink for AI to deliver this quarter's prepared remarks by Mr. Wen Teng, our Rotating President, and Mr. Peter Zhang, our SVP of Operational Finance. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our website at ir.vnet.com. Now, let's get started with today's presentation. Mr. Teng, please go ahead.

Good morning and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during the second quarter of 2026. We delivered another robust quarter as we continue to capitalize on surging AI-driven demand, leveraging our industry-leading capabilities, strategically located resource reserves, and strong execution. In the second quarter, we secured a total of 347 megawatts in new order wins, primarily driven by accelerating growth in our wholesale IDC business, which contributed 345 megawatts. Together with the 517 megawatts of orders disclosed in our last quarter earnings results, our wholesale IDC business has secured a total of 862 megawatts of new orders year to date in 2026. As of June 30, 2026, our wholesale capacity in service rose by 49.4% year-over-year to 1,007 megawatts, surpassing one gigawatt for the first time.

Meanwhile, wholesale capacity utilized by customers grew by 45.5% year-over-year to 744 megawatts, bringing the utilization rate to 73.9%. Our retail IDC business continued to progress smoothly, supported by growing AI-driven demand. Retail MRR per cabinet increased to RMB 9,799 in the second quarter, while the retail utilization rate remained stable at 64.5%. On the financial side, our total net revenues increased by 14.2% year-over-year to RMB 2.78 billion for the second quarter. Wholesale revenues remained the key growth driver, reaching RMB 1.10 billion, a year-over-year increase of 29.3%. Our adjusted EBITDA for the second quarter increased by 25.4% year-over-year to RMB 918.3 million, also primarily attributable to the wholesale IDC business. Beyond our operational and financial performance, we made meaningful progress on the following two strategic initiatives during the quarter.

First, we continued to advance our strategic collaboration with CATL, a global leader in zero carbon new energy technology. We signed a strategic cooperation agreement to jointly develop a three-layer integrated compute energy ecosystem. I will share more details shortly. Second, we continued to strengthen our strategic resource reserves across key regions. By the end of the second quarter, our total capacity exceeded 3.5 gigawatts in the Chinese mainland. On top of that, we secured approximately 500 megawatts of overseas resources. Our proactive investments in critical resources provide the flexibility for future capacity expansion, enabling us to capture rising demand. Together, these strategic initiatives further strengthen our competitive position and support our long-term growth. Let me now walk you through our business performance in more detail. Moving on to our new order wins on Slide 5. Our premium reliable services continue to earn customer trust and gain market share.

Following our last earnings call, we won a new 345-megawatt wholesale order in the second quarter from a leading cloud service provider for our data center in the greater Beijing area. This order win reflects growing customer confidence in our high-performance data center capabilities and our ability to support their evolving AI infrastructure requirements. Furthermore, driven by AI-related demand, we secured new retail orders totaling approximately 2 megawatts across multiple retail data centers during the quarter from customers in the IT services, local services, and financial services sectors. In aggregate, we secured four wholesale orders totaling 862 megawatts year to date in 2026, including the 345 megawatts I just mentioned and 517 megawatts we announced last call. We continue to see robust momentum in customer demand with increasing depth and durability.

Customers are not only accelerating their near-term capacity deployments, but are also beginning to secure capacity in advance under reservation agreements to support their medium to long-term expansion plans. As of the end of the second quarter, our reservations stood at 355 megawatts, bringing total orders and reservations to over 1.2 gigawatts. This demonstrates the strength and sustainability of expansion-related demand and provides greater visibility into our future growth and phase delivery schedule. Meanwhile, we have established a well-structured delivery schedule for these orders, with approximately 287 megawatts expected to be delivered in 2026, 345 megawatts in 2027, and 230 megawatts in 2028 and beyond. Securing these large-scale orders is a testament to the trust customers place in our execution capabilities and speed to market.

These new orders and our disciplined delivery roadmap enhance the visibility and predictability of our future revenue growth, underpinned by a high-quality base of long-term contracted revenue. Please see Slide 7. As of the end of the quarter, more than 90% of our wholesale IDC revenue was recurring. Our total capacity committed benefits from a favorable maturity profile with minimal near-term expirations and a weighted average remaining lease term of seven years. These long-term customer commitments provide a predictable and resilient foundation for our sustained revenue growth. The rapid development of AI continues to drive significant growth across the IDC industry. As AI models become increasingly sophisticated and AI applications continue to scale across industries, leading internet companies, large cloud service providers, and AI native companies are accelerating their investments in high-performance computing infrastructure. On the supply side, the industry is also undergoing a structural shift.

Increasing power requirements, longer project development cycles, and greater construction complexity are concentrating demand among IDC operators with secured power resources, proven large-scale delivery capabilities, and the technical expertise to execute complex IDC projects. With our differentiated resource portfolio, established AI infrastructure capabilities, and deep relationships with leading customers, we are well-positioned to serve as a trusted infrastructure partner and capture the long-term growth opportunities created by the continued expansion of AI. Now, let's delve into our IDC business updates, starting with our wholesale business on Slide 8. Our wholesale business continued to grow, with capacity and service increasing by 49.4% year over year to 1,007 megawatts, surpassing the one gigawatt milestone for the first time. Utilized capacity grew by 45.5% year over year to 744 megawatts, with a utilization rate of 73.9%, mainly attributable to customers' fast move-ins at N-HB Campus 03 and N-OR Campus 01.

Our mature capacity utilization rate also reached 92.5%, a relatively high level. Let's turn to Slide 9 for an update on our wholesale capacity growth pipeline. As of June 30, 2026, our wholesale resource capacity totaled over four gigawatts, representing an increase of approximately 1.5 gigawatts from the previous quarter. Mainly driven by the land bank we secured this quarter, customer demand remained strong across our capacity portfolio. Capacity in service grew to 1,007 megawatts, with 96.3% already committed by customers. Meanwhile, capacity under construction increased to 585 megawatts, with a pre-commitment rate of 94.2%, providing strong visibility into future deliveries. Approximately 1.1 gigawatts of this capacity is held for future development, primarily in the Greater Beijing area. The scale and strategic concentration of these resources allow us to expand efficiently and respond flexibly to customer demand.

Our newly secured land bank supports approximately 1.4 gigawatts of this capacity, with 908 megawatts across key strategic locations in the Chinese mainland and 478 megawatts in overseas markets, giving us substantial flexibility to support both domestic and international expansion. This diverse resource portfolio not only provides a clear multi-year growth runway, but also reinforces our ability to deliver capacity at scale as AI-driven demand continues to accelerate. Moving to our retail IDC business on Slide 10. Our retail business progressed smoothly in the second quarter. Retail capacity in service was 50,081 cabinets, with utilization rate remaining stable at 64.5% as of the end of June. MRR per retail cabinet increased to CNY 9,799 this quarter. Turning to our delivery plan for the following 12 months on Slide 11.

We delivered 117 megawatts in the first half of 2026, in line with our delivery plan, which concentrates the majority of the year's deliveries in the second half. We currently have six data centers under construction, with five in the Greater Beijing area and one in the Yangtze River Delta. We plan to deliver 585 megawatts of capacity over the next 12 months, around 333 megawatts during the second half of 2026, and around 252 megawatts during the first half of 2027. The majority of these upcoming deliveries will come from our Ulanqab IDC campus, where we are scaling capacity to support strong and sustained demand from our wholesale customers. This delivery plan provides clear visibility into continued capacity and revenue growth over the coming quarters. Now, I'd like to share more on the strategic cooperation agreement with CATL that I mentioned earlier. Please turn to Slide 12.