Hello, ladies and gentlemen. Thank you for joining the Second Quarter 2025 Earnings Conference Call for VNET Group, Inc. Participants from our management team include Mr. Ju Ma, Rotating President; Mr. Qiyu Wang, Chief Financial Officer; and Ms. Xinyuan Liu, Head of Investor Relations. Please be aware that this conference call is being recorded. I will now hand it over to the first speaker, Ms. Xinyuan Liu. Please proceed.

Thank you, operator. Hello, everyone, and welcome to our second quarter 2025 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR site as well as on Newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. Please also note that VNET's earnings press release and this conference call include the disclosure of unaudited GAAP and non-GAAP financial measures. VNET's earnings press release contains a reconciliation of the unaudited non-GAAP matters to the unaudited GAAP matters. A summary presentation, which we will refer to 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 Newlink.ai to deliver this quarter's prepared remarks by Mr. Ju Ma, our rotating President; and Mr. Qiyu Wang, our CFO. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our IR website at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Good morning, and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during the second quarter of 2025. We delivered strong quarterly results, thanks to continued effective strategic execution. On the operational side, our wholesale IDC business maintained its significant growth momentum, supported by our customers' fast move in pace. As of June 30, 2025, our wholesale capacity in service grew by 17.5% quarter-over-quarter to 674 megawatts, an increase of around 101 megawatts. Wholesale capacity utilized by customers rose by 17% quarter-over-quarter to 511 megawatts, an increase of around 74 megawatts, while the utilization rate was stable at 75.9%, reflecting a fast-moving pace in our wholesale data centers. Our retail IDC business continued to progress smoothly, supported by growing AI-driven demand from customers. Both our high-quality wholesale and retail IDC services continue to attract customers from various industries in the second quarter. I'll dig into those details on the next slide. On the financial side, both our revenues and adjusted EBITDA maintained solid growth. Specifically, our total net revenues increased by 22.1% year-over-year to RMB 2.43 billion for the second quarter. Notably, wholesale revenues reached RMB 854 million for the quarter, representing impressive year-over-year growth of 112.5%, fueled by the rapid growth of our wholesale IDC business. Our adjusted EBITDA for the second quarter also increased by 27.7% year-over-year to RMB 732 million with an adjusted EBITDA margin of 30.1%, up 1.3 percentage points year-over-year. Moving on to our new order wins on Slide 5. In the second quarter, driven by growing demand from customers for intelligent deployment, we secured a combined capacity of around 4 megawatts in retail orders from customers in the IT services, Internet, AIoT, and financial services sectors. These orders span multiple retail data centers in the Greater Beijing area, the Yangtze River Delta, the Greater Bay Area, and other regions. Furthermore, we recently won a 20-megawatt wholesale order from a leading cloud services provider for the project we operate in Hebei province with our joint venture partner. As AI permeates every aspect of the world, new growth opportunities for data centers, the bedrock of AI infrastructure, continue to emerge. AI-driven demand remains especially robust in China, including training and inference demand from customers across multiple industries, conducting intelligent deployments. To capture these opportunities and strengthen our competitiveness, we unveiled our Hyperscale 2.0 framework for the future of our AIDC development at our Investor Day in Wulanchabu in late June. We also outlined our blueprint for growing the capacity of our data center assets under management to 10 gigawatts by 2036. Driven by the proliferation of AI, the data center industry's development has reached an inflection point where traditional IDCs are shifting to AIDCs to meet dynamic market demand. In parallel, the data center business model is evolving from simply providing project-based capacity delivery to serving as a platform offering comprehensive AIDC solutions. As a pioneer in AIDC development with strong fundamentals and deep industry know-how, VNET is poised to shape this trend through our Hyperscale 2.0 framework. Our innovative technologies enable us to construct high-quality, flexible AI DCs faster, ensuring rapid deliveries to meet customer needs. For example, our building standardization technology utilizes standardized modules as data centers' core building units, allowing us to rapidly construct data centers tailored to diverse customer needs. This method cuts construction cycles by one-third compared to traditional construction methods. Additionally, our modular data center technology integrates various functions, including power supply systems, cooling systems, etc., into separate functional modules. These modules are manufactured and pre-tested in factories and shipped to data center sites for installation, which significantly enhances our installation efficiency. They can also be swapped out, allowing us to selectively upgrade only specific modules instead of entire systems, reducing improvement costs and extending data centers' life cycles. By leveraging these technologies, we can build quickly and combine modules with different functions flexibly to meet customer-specific requirements, ensuring fast capacity delivery to our customers. We believe these innovations position us as a frontrunner in the IDC industry going forward. Execution of our Hyperscale 2.0 framework is already underway, starting in Inner Mongolia, Hebei Province, and Beijing, where we plan to establish data center hubs encompassing megawatt scale cabinets, 100-megawatt scale buildings, and gigawatt scale campuses. Ultimately, as I mentioned earlier, we aim to manage a 10-gigawatt integrated data center asset cluster by 2036 that seamlessly combines computing power and energy management across multiple campuses, empowering us to shape the future development of AI DC solutions. Now let's delve into our business updates, starting with our wholesale business on Slide 8. Our wholesale business continued to grow rapidly, with capacity in service increasing by around 101 megawatts quarter-over-quarter to 674 megawatts and utilization rate remaining stable at 75.9% mainly attributable to our strong delivery capabilities at our N-OR Campus 01 and faster-than-expected move-ins at our N-OR Campus 01 and E-JS Campus 03. Our mature capacity utilization rate also reached 94.6%, a relatively high level. We have a clear growth path for our wholesale data center capacity. Let's move on to Slide 9. Our overall wholesale data center capacity maintained its growth trajectory in the second quarter. Our capacity under construction was around 326 megawatts, with a precommitment rate for capacity under construction of 55.2% as of the end of June. Capacity held for short-term future development was around 374 megawatts and capacity held for long-term future development was around 418 megawatts as we remain confident in the long-term growth potential of AI-driven demand. Moving to our retail IDC business on Slide 10. Our retail business continued to progress smoothly in the second quarter. Retail capacity in service was 52,131 cabinets, with the utilization rate increasing slightly to 63.9% as of the end of June, MRR per retail cabinet increased to RMB 8,915 this quarter. Turning to our delivery plan on Slide 11. With our robust and efficient delivery capabilities, we successfully delivered a total of around 188 megawatts in the first half of 2025. We currently have 8 data centers under construction with 6 in the Greater Beijing area and 2 in the Yangtze River Delta. We plan to deliver around 326 megawatts of capacity over the next 12 months or around 227 megawatts during the second half of 2025 and around 99 megawatts during the first half of 2026. This ambitious delivery plan reflects strong demand from our customers and our outstanding delivery prowess. Now turning to our non-IDC business, a key component of our business. We further expanded its customer base by winning new customers in the consulting and intelligent driving industries for its premium dedicated Internet services, VPN services, IDC services, and cloud services. In conclusion, our robust second quarter results further validate our core strengths and effective strategic execution. Looking ahead, we will continue to sharpen our competitive advantages with faster deliveries and consistently reliable IDC services as we embark on our ambitious hyperscale 2.0 framework to build greener, more intelligent data centers for the AI era. And as always, we will remain committed to driving innovation and fostering industry development as we grow, delivering value to all of our stakeholders. Now I will turn the call over to our CFO, Qiyu, for further discussion of our operating and financial performance. Thank you, everyone.

Good morning, and good evening, everyone. Before we start the detailed discussion of our second quarter performance, please note that unless otherwise stated, all the financials we present today are for the second quarter of 2025 and are in renminbi terms. Furthermore, unless otherwise specified, all the growth rates I'm reviewing are on a year-over-year basis. Let's turn to Slide 13. In the second quarter, we continued to pursue high-quality, high-margin business. Our total net revenues increased by 22.1% to RMB 2.43 billion, mainly driven by the rapid growth of our wholesale business. Our adjusted cash gross profit rose by 34.9% to RMB 1.06 billion, while our adjusted EBITDA also grew year-over-year by 27.7% to RMB 732.5 million. Let's look more closely at our top line. As you can see on Slide 14, in the second quarter, wholesale revenues, our key revenue growth driver, increased significantly by 112.5% to RMB 854.1 million, mainly attributable to sales at the N-OR Campus 01 and E-JS Campus 03. Retail revenues continue to account for the largest part of our total net revenues, reaching RMB 959 million for the second quarter. Our non-IDC business revenues were RMB 621 million for the second quarter. During the second quarter, we maintained solid margins, thanks to our continuous efforts to enhance overall efficiency. As shown on Slide 15, our adjusted cash gross margins improved to 43.6% from 39.5% in the same period last year. Our adjusted EBITDA margin rose to 30.1% compared with 28.8% in the same period last year. Moving on to liquidity. On Slide 16, we maintained robust and healthy liquidity, bolstered by a net operating cash inflow of RMB 366.6 million during the second quarter, bringing the net operating cash flow for the first half of the year to RMB 562.3 million. Our cash positions remained solid with total cash and cash equivalents, restricted cash, and short-term investments reaching RMB 4.66 billion as of June 30, 2025. Next, let's take a look at our debt structure on Slide 17. We maintained our prudent approach to debt management. As of June 30, 2025, our net debt to the trailing 12 months adjusted EBITDA ratio was 5.3, and total debt to the trailing 12 months adjusted EBITDA ratio was 6.4, both remaining at healthy levels. Also, our trailing 12 months adjusted EBITDA to interest coverage ratio was 6.9. We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment. Additionally, the company's short- and medium-term debt maturing in 2025 to 2027 comprises 44.1% of our total debt. Turning now to CapEx spending. As you can see on Slide 18, for the first half of 2025, our CapEx was RMB 3.89 billion, with the majority allocated to the expansion of our wholesale IDC business. We still expect our CapEx for the full year 2025 to be in the range of RMB 10 billion and RMB 12 billion. The increase is mainly to support our planned delivery of 400 to 450 megawatts in 2025 or approximately three times 2024's total deliveries and surpassing our total deliveries in the past three years combined. Furthermore, in late June, our Board authorized a buyback program under which we may repurchase up to USD 50 million from time to time on the open market over the ensuing 12 months. The buyback program underscores our deep commitment to delivering value to shareholders and our confidence in VNET's future development and growth prospects. Now moving to our full year guidance for 2025 on Slide 19. As we announced in a press release in late June, we have increased our full year revenue and adjusted EBITDA guidance, fueled by faster-than-anticipated move-ins among wholesale IDC customers and ongoing operational efficiency gains. We now expect total net revenues to be in the range of RMB 9.15 billion to RMB 9.35 billion, a year-over-year increase of 11% to 13%, and adjusted EBITDA to be in the range of RMB 2.76 billion to RMB 2.82 billion, representing a year-over-year increase of 14% to 16% if the RMB 87.7 million on disposal gain of the E-JS 02 data center were excluded from the adjusted EBITDA calculation for 2024. The year-over-year growth would be 18% to 20%. Before I conclude, I'd like to briefly update you on our ESG efforts. We were pleased to receive an A grade, the highest rating in the 2024 Supplier Engagement Assessment by the Carbon Disclosure Project. We were also recognized as a supplier engagement leader for our collaboration with supply chain partners on low-carbon technology, R&D, enhancing our IDC operational energy efficiency and empowering our partners to save energy and reduce emissions. Looking ahead, we will remain steadfast in our pursuit of ESG excellence, embracing and promoting a green future. In summary, we maintained our business' vibrant momentum with strong financial results during the second quarter, supported by our effective dual core strategy and new Hyperscale 2.0 framework. We're well positioned to lead the AIDC transformation, capturing surging AI-driven opportunities and delivering sustainable long-term value for all stakeholders. This concludes our prepared remarks for today. We are now ready to take questions.

Your first question comes from Tom Tang with Morgan Stanley.

First of all, congratulations on very strong quarterly results, especially in the wholesale business. My question is mainly about future demand and orders. We noticed that NVIDIA has regained its permission to ship their new chipsets to China again last month. I’m curious, based on our communication with our big customers, what are our current expectations for their future demand and the pattern of their order tendering?

Thank you for your question. The market is currently quite active. According to reports from third-party institutions, we observe that in areas where the digital economy is thriving, such as the Greater Beijing region and the Yangtze River Delta, AI demand appears to be strong, and the relationship between supply and demand has seen significant improvement. Thank you for your question. Regarding the bidding and demand for our major client, this year our delivery plan exceeds 400 megawatts, which is quite significant. Additionally, new orders are set to be delivered within 6 months. We will closely monitor the demand that arises around September. In addition to the 20-megawatt wholesale business, we are focusing on the potential demand and actively communicating about it. I believe most of this demand is closely related to AI.

Your next question comes from Edison Lee with Jefferies.

I have two questions. First, can you provide an update on the development of wind power in Ulanqab, including when it will become operational and its expected impact on the company's revenue and margins? Second, could you discuss your MSR on wholesale, as it appears your MSR or MRR in that segment has increased year-on-year in the second quarter? It would be helpful if you could elaborate on what is driving this unit price.

I believe the wind power project in Ulanqab is progressing well. By the end of this year and into the beginning of next year, it is expected to start delivering power. However, since this is a relatively new initiative for us, we shouldn't anticipate any impact on our profit and loss at this stage. Nonetheless, it should have a positive influence on our investor relations. We will provide details on the statistics and figures once the project begins delivering power. For the second question, I believe there are two key factors. First, the wholesale price remains relatively stable. Additionally, the improvement in MSR seems primarily attributed to seasonal effects, reflecting increased revenue from electricity bills, along with a one-off income in this quarter.

Your next question comes from Daley Li with BofA Securities.

I have two questions. The first concerns our gross margin. Our adjusted gross margin showed healthy growth and improvement. However, our GAAP gross margin dipped slightly on a quarter-on-quarter basis. What is the reason for this, and what are your thoughts on future normalized gross profit margins? My second question is about the new financing channel, the REITs. Can you provide an update on the progress of the private REITs and the C-REITs moving forward?

Thank you for your question. The changes in the GP margin are influenced by the timing of converting the asset into PPE, as well as depreciation. Seasonal factors can also contribute to the fluctuations. However, when we focus solely on the cash GP margin, it continues to show a healthy and steady increase. We have been actively promoting the REIT projects, which include both public and private REITs. This year, we expect the REITs project to lead to a recovery of RMB 2 billion.

Your next question comes from Timothy Zhao with Goldman Sachs.

Great job on the impressive results. I have two questions. First, concerning your guidance, it's encouraging to see that you raised it a couple of months ago. After such strong results in the first half, I am curious about how management views the outlook for the second half. If I calculated correctly, the high end of your guidance seems to suggest only single-digit growth for the second half. How should we interpret the outlook for that period? Secondly, regarding the retail IDC business, I've noticed a revenue decline in the second quarter compared to the stronger first quarter. What is the reason for this drop?

Thank you for your question. As mentioned, even with the upgraded guidance, I believe the guidance for the second half of this year remains quite conservative. Our focus is to closely monitor whether the utilization speed and the pace of our customers will be impacted by the chips. If our wholesale utilization business can sustain its momentum, I believe we can further upgrade the guidance for the second half of the year. Your second question is about the IDC revenue for the retail business. There may be a slight decline, but I believe it's still within a reasonable range. I think the revenue for retail IDC will remain relatively stable and may even see some increase.

Your next question comes from Andy Yu with DBS.

Congratulations on solid results. So I have a question regarding the second half outlook. Could management share some color on whether the rapid momentum of our client movement can be sustained? Also, do we expect that the impact of AI chip supply constraints could affect senior orders or customer movements in the second half of '25? Let me translate the question.

As for the outlook for the second half of this year, I feel relatively optimistic compared to the first half. We will consider the delivery performance from the first half and closely monitor the new orders from our clients. Overall, I am generally optimistic about the second half. Regarding the pace at which our clients move in, based on past experience, once an order is confirmed, we typically see a very fast move-in pace. We will closely monitor companies like NVIDIA for the supply of AI chips, as well as domestic chip suppliers. I believe we will have clear expectations soon. Based on our experience with clients, once an order is confirmed, the pace of implementation is typically very quick. Additionally, we have confirmed with our key clients that current orders from the rest of our clients will remain unaffected in our wholesale business.

Your next question comes from Sara Wang with UBS.

Thank you for the opportunity to ask a question. And again, congratulations on the very solid results. I only have one question. Management mentioned that there could be potential new tenders from the customers. Do we expect similar customers and a similar workload going forward? Or could there be some changes?

Thank you for your question. I believe our clients are gradually increasing their demand. From the demand perspective, the interest in AI remains consistent.

We will just pause for a moment to see if we'll have any more questions in the queue. That does conclude our call and conference for today. Thank you for participating. You may now disconnect.