VNET Group, Inc 6-K, filed Mar 13, 2025
VNET Group, Inc. (VNET)
About this 6-K
VNET Group, Inc filed this 6-K on March 13, 2025.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the Month of March 2025
Commission File Number: 001-35126
Guanjie Building, Southeast 1st Floor
10# Jiuxianqiao East Road
Chaoyang District
Beijing 100016
The People’s Republic of China
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VNET Group, Inc. | |
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| By: | /s/ Qiyu Wang |
| Name: | Qiyu Wang |
| Title: | Chief Financial Officer |
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Date: March 13, 2025 |
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EXHIBIT INDEX
Exhibit No. |
| Description |
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99.1 |
| Press release titled “VNET Announces Proposed Offering of Convertible Senior Notes” |
99.2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
99.3. | | |
101.INS | | Inline XBRL Instance Document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Exhibit 99.1
VNET Announces Proposed Offering of Convertible Senior Notes
BEIJING, March 13, 2025 PRNewswire — VNET Group, Inc. (Nasdaq: VNET) (“VNET” or the “Company”), a leading carrier-neutral and cloud-neutral internet data center services provider in China, today announced the commencement of a proposed offering by the Company of US$400 million aggregate principal amount of its convertible senior notes due 2030 (the “Notes”), subject to market and other conditions (the “Notes Offering”).
The Notes will be senior, unsecured obligations of the Company, and will accrue interest payable semi-annually in arrears and will mature on April 1, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date.
Holders of the Notes may require the Company to repurchase all or part of their Notes in cash on April 3, 2028 or in the event of certain fundamental changes, at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the relevant repurchase date. In addition, on or after April 10, 2028, the Company may redeem all or part of the Notes for cash subject to certain conditions, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the relevant optional redemption date. Furthermore, the Company may redeem all but not part of the Notes in the event of certain changes in the tax laws, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the related redemption date.
Before October 1, 2029, Holders of the Notes will have the right to convert their Notes only upon the occurrence of certain events. From and after October 1, 2029, Holders of the Notes may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately preceding the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, the American Depositary Shares, each representing six Class A ordinary shares, with par value of US$0.00001 per share, of the Company (the “ADSs”) or a combination of cash and ADSs, at the Company’s election, subject to certain restrictions. The final terms of the Notes, including the interest rate, initial conversion rate and certain other terms of the Notes, will be determined at the pricing of the Notes Offering.
The Notes are offered in offshore transactions outside the United States to non-U.S. persons in compliance with Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”). The Notes, the ADSs deliverable upon conversion of the Notes (if any) and the Class A ordinary shares represented thereby have not been and will not be registered under the Securities Act or any other applicable securities laws, and may not be sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any other applicable securities laws. No public offering of the Notes, the ADSs deliverable upon conversion of the Notes (if any) and the Class A ordinary shares represented thereby is being made into the United States.
The Company intends to use the net proceeds from the Notes Offering for the capital investment in wholesale IDC projects, working capital and general corporate purposes.
The Company expects that potential investors in the Notes may employ a convertible arbitrage strategy to hedge their exposure in connection with the Notes. Any such activities by potential investors of the Notes following the pricing of the Notes Offering and prior to the maturity date could decrease (or reduce the size of any increase in) the market price of the ADSs and the trading price of the Notes. The effect, if any, of the activities described in this paragraph, including the direction or magnitude, on the market price of the ADSs or the trading price of the Notes will depend on a variety of factors, including market conditions, and cannot be ascertained at this time.
This press release shall not constitute an offer to sell or a solicitation of an offer to purchase any securities, nor shall there be a sale of the securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. This press release contains information about the pending Notes Offering, and there can be no assurance that such transaction will be completed.
About VNET
VNET Group, Inc. is a leading carrier- and cloud-neutral internet data center services provider in China. VNET provides hosting and related services, including IDC services, cloud services, and business VPN services to improve the reliability, security, and speed of its customers’ internet infrastructure. Customers may locate their servers and equipment in VNET’s data centers and connect to China’s internet backbone. VNET operates in more than 30 cities throughout China, servicing a diversified and loyal base of over 7,500 hosting and related enterprise customers that span numerous industries ranging from internet companies to government entities and blue-chip enterprises to small- to mid-sized enterprises.
Safe Harbor Statement
This announcement contains forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities
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Litigation Reform Act of 1995. These statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “target,” “believes,” “estimates” and similar statements. Among other things, quotations from management in this announcement as well as VNET’s strategic and operational plans, contain forward-looking statements. VNET may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about VNET’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: VNET’s goals and strategies; VNET’s liquidity conditions; VNET’s expansion plans; the expected growth of the data center services market; expectations regarding demand for, and market acceptance of, VNET’s services; VNET’s expectations regarding keeping and strengthening its relationships with customers; VNET’s plans to invest in research and development to enhance its solution and service offerings; and general economic and business conditions in the regions where VNET provides solutions and services. Further information regarding these and other risks is included in VNET’s reports filed with, or furnished to, the U.S. Securities and Exchange Commission. All information provided in this press release is as of the date of this press release, and VNET undertakes no duty to update such information, except as required under applicable law.
Investor Relations Contact:
Xinyuan Liu
Tel: +86 10 8456 2121
Email: ir@vnet.com
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Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following information in conjunction with “Item 5. Operating and Financial Review and Prospects” in our Form 20-F for the year ended December 31, 2023, or our 2023 Annual Report, and our audited consolidated financial statements and the related notes to our 2023 Annual Report, as well as our unaudited condensed consolidated financial statements for the nine months ended September 30, 2023 and 2024 and the related notes included in our current report on Form 6-K furnished with the SEC on March 13, 2025.
RESULTS OF OPERATIONS
The following table sets forth a summary of our consolidated results of operations for the years indicated both in absolute amount. This information should be read together with our consolidated financial statements and related notes included elsewhere in this offering memorandum. The results of operations in any period are not necessarily indicative of the results you may expect for future periods.
| | For the Years Ended | | For the Nine Months Ended | | ||||||
| | 2022 | | 2023 | | 2023 | | 2024 | | ||
| | RMB | | RMB | | RMB | | RMB | | US$ | |
| | (in thousands, except for number of shares and per share data) | | ||||||||
Consolidated Statements of Operations Data: |
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Net revenues | | 7,065,232 | | 7,412,930 | | 5,514,450 | | 6,012,680 | | 856,800 | |
Cost of revenues | | (5,706,976) | | (6,120,445) | | (4,512,843) | | (4,685,381) | | (667,661) | |
Gross profit | | 1,358,256 | | 1,292,485 | | 1,001,607 | | 1,327,299 | | 189,139 | |
Operating (expenses) income: | | | | | | | | | | | |
Operating income | | 60,013 | | 106,273 | | 73,980 | | 15,716 | | 2,240 | |
Sales and marketing expenses | | (311,917) | | (266,207) | | (192,921) | | (190,668) | | (27,170) | |
Research and development expenses | | (306,842) | | (322,220) | | (241,549) | | (190,514) | | (27,148) | |
General and administrative expenses | | (642,945) | | (541,850) | | (393,395) | | (466,076) | | (66,415) | |
Allowance for doubtful debt | | (35,409) | | (368,505) | | (7,034) | | (63,309) | | (9,021) | |
Impairment of long-lived assets | | — | | (506,686) | | — | | — | | — | |
Impairment of goodwill | | — | | (1,364,191) | | — | | — | | — | |
Total operating expenses | | (1,237,100) | | (3,263,386) | | (760,919) | | (894,851) | | (127,514) | |
Operating profit (loss) | | 121,156 | | (1,970,901) | | 240,688 | | 432,448 | | 61,625 | |
Interest income | | 31,574 | | 41,802 | | 28,606 | | 21,796 | | 3,106 | |
Interest expense | | (273,305) | | (312,172) | | (233,295) | | (323,850) | | (46,148) | |
Other income | | 17,328 | | 27,344 | | 22,892 | | 50,873 | | 7,249 | |
Other expenses | | (26,599) | | (16,086) | | (14,887) | | (17,105) | | (2,437) | |
Changes in the fair value of financial liablities | | 22,626 | | (165,930) | | 21,718 | | (2,537) | | (362) | |
Impairment of long-term investment | | — | | (11,166) | | (11,115) | | — | | — | |
Gain on debt extinguishment | | — | | — | | — | | 246,175 | | 35,080 | |
Foreign exchange loss, net | | (523,235) | | (78,965) | | (168,391) | | (17,915) | | (2,553) | |
(Loss) income before income taxes and gain from equity method investments | | (630,455) | | (2,486,074) | | (113,784) | | 389,885 | | 55,560 | |
Income tax expenses | | (133,464) | | (114,374) | | (63,748) | | (151,682) | | (21,615) | |
Gain from equity method investments | | 1,925 | | 3,279 | | 3,651 | | 6,770 | | 965 | |
Net (loss) income | | (761,994) | | (2,597,169) | | (173,881) | | 244,973 | | 34,910 | |
Net income attributable to noncontrolling interest | | (13,958) | | (46,667) | | (27,167) | | (50,677) | | (7,221) | |
Net (loss) income attributable to VNET Group, Inc. | | (775,952) | | (2,643,836) | | (201,048) | | 194,296 | | 27,689 | |
(Loss) earning per share: | | | | | | | | | | | |
Basic | | (0.87) | | (2.93) | | (0.23) | | 0.11 | | 0.02 | |
Diluted | | (0.87) | | (2.93) | | (0.24) | | (0.02) | | (0.00) | |
Shares used in (loss) earning per share computation | | | | | | | | | | | |
Basic | | 886,817,620 | | 901,143,138 | | 888,724,901 | | 1,588,659,647 | | 1,588,659,647 | |
Diluted | | 886,817,620 | | 901,143,138 | | 899,884,241 | | 1,730,216,309 | | 1,730,216,309 | |
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
In evaluating our business, we consider and use the following non-GAAP measures as supplemental measures to review and assess our operating performance: adjusted cash gross profit, adjusted cash gross margin, adjusted operating expenses, adjusted EBITDA and adjusted EBITDA margin. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We define adjusted cash gross profit as gross profit excluding depreciation and amortization, and share-based compensation expenses. We define adjusted cash gross margin as adjusted cash gross profit divided by net revenue. We define adjusted operating expenses as operating expenses excluding share-based compensation expenses, compensation for post combination employment in an acquisition, allowance of loan receivables, impairment of long-lived assets and impairment of goodwill. We define adjusted EBITDA as operation profit (loss) excluding depreciation and amortization, share-based compensation expenses, compensation for post combination employment in an acquisition, allowance of loan receivables, impairment of long-lived assets and impairment of goodwill. We define adjusted EBITDA margin as adjusted EBITDA divided by net revenue.
The non-GAAP financial measure disclosed by us should not be considered a substitute for financial measures prepared in accordance with U.S. GAAP. You should carefully evaluate the financial results we have reported in accordance with U.S. GAAP and our reconciliation of GAAP to non-GAAP results. The non-GAAP financial measure used by us may be prepared differently from and, therefore, may not be comparable to similarly titled measures used by other companies.
We believe that the use of these non-GAAP measures facilitates investors’ assessment of our operating performance from period to period and from company to company by backing out potential differences caused by variations in items such as capital structures (affecting relative interest expenses), the book amortization of intangibles (affecting relative amortization expenses), the age and book value of property and equipment (affecting relative depreciation expenses) and other non-cash expenses (affecting share-based compensation expenses, compensation for postcombination employment in an acquisition, allowance of loan receivables, impairment of long-lived assets and impairment of goodwill). We also present these non-GAAP measures because we believe these non-GAAP measures are frequently used by securities analysts, investors and other interested parties as measures of the financial performance of companies in our industry.
These non-GAAP financial measures are not defined under U.S. GAAP and are not measures presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, investors should not consider them in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:
· | they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
· | they do not reflect changes in, or cash requirements for, our working capital needs; |
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· | they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
· | they do not reflect income taxes or the cash requirements for any tax payments; |
· | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA do not reflect any cash forward looking requirements for such replacements; |
· | while share-based compensation is a component of cost of revenues and operating expenses, the impact to our financial statements compared to other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of our ordinary shares; and |
· | other companies may calculate adjusted cash gross profit, adjusted cash gross margin, adjusted operating expenses, adjusted EBITDA and adjusted EBITDA margin differently than we do, limiting the usefulness of these non-GAAP measures as comparative measures. |
We compensate for these limitations by relying primarily on our U.S. GAAP results and using adjusted cash gross profit, adjusted cash gross margin, adjusted operating expenses, adjusted EBITDA and adjusted EBITDA margin only as supplemental measures. Our adjusted cash gross profit, adjusted cash gross margin, adjusted operating expenses, adjusted EBITDA and adjusted EBITDA margin are calculated as follows for the years presented:
| | For the Years Ended December 31, | | For the Nine Months Ended September 30, | | ||||||
| | 2022 | | 2023 | | 2023 | | 2024 | | ||
| | RMB | | RMB | | RMB | | RMB | | US$ | |
| (in thousands, except percentages) | | |||||||||
Gross profit |
| 1,358,256 |
| 1,292,485 |
| 1,001,607 |
| 1,327,299 |
| 189,139 |
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Plus: depreciation and amortization | | 1,487,438 | | 1,684,842 | | 1,233,983 | | 1,085,984 | | 154,751 | |
Plus: share-based compensation expenses | | 563 | | — | | — | | 234 | | 33 | |
Adjusted cash gross profit | | 2,846,257 | | 2,977,327 | | 2,235,590 | | 2,413,517 | | 343,923 | |
Adjusted cash gross margin | | 40.3 | % | 40.2 | % | 40.5 | % | 40.1 | % | 40.1 | % |
Operating expenses | | (1,237,100) | | (3,263,386) | | (760,919) | | (894,851) | | (127,514) | |
Plus: share-based compensation expenses | | 117,607 | | 35,296 | | 25,817 | | 105,428 | | 15,023 | |
Plus: compensation for post combination employment in an acquisition | | 37,398 | | — | | — | | — | | — | |
Plus: allowance of loan receivables | | — | | 287,900 | | — | | — | | — | |
Plus: impairment of long-lived assets | | — | | 506,686 | | — | | — | | — | |
Plus: impairment of goodwill | | — | | 1,364,191 | | — | | — | | — | |
Adjusted operating expenses | | (1,082,095) | | (1,069,313) | | (735,102) | | (789,423) | | (112,491) | |
Operating profit (loss) | | 121,156 | | (1,970,901) | | 240,688 | | 432,448 | | 61,625 | |
Plus: depreciation and amortization | | 1,595,942 | | 1,816,228 | | 1,332,649 | | 1,170,313 | | 166,768 | |
Plus: share-based compensation expenses | | 118,170 | | 35,296 | | 25,817 | | 105,662 | | 15,057 | |
Plus: compensation for post combination employment in an acquisition | | 37,398 | | — | | — | | — | | — | |
Plus: allowance of loan receivables | | — | | 287,900 | | — | | — | | — | |
Plus: impairment of long-lived assets | | — | | 506,686 | | — | | — | | — | |
Plus: impairment of goodwill | | — | | 1,364,191 | | — | | — | | — | |
Adjusted EBITDA | | 1,872,666 | | 2,039,400 | | 1,599,154 | | 1,708,423 | | 243,450 | |
Adjusted EBITDA margin | | 26.5 | % | 27.5 | % | 29.0 | % | 28.4 | % | 28.4 | % |
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Net Revenues
Our net revenues increased by 9.0% from RMB5,514.5 million for the nine months ended September 30, 2023 to RMB6,012.7 million (US$856.8 million) for the same period in 2024, primarily due to (i) expansion in capacity in service of wholesale IDC business and (ii) increase in utilization rate of wholesale IDC business. The capacity in service of our wholesale IDC business increased by 23.4% from 290MW as of September 30, 2023 to 358MW as of September 30, 2024.
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Cost of Revenues
Our cost of revenues increased by 3.8% from RMB4,512.8 million for the nine months ended September 30, 2023 to RMB4,685.4 million (US$667.7 million) for the same period in 2024, primarily due to an increase in our utility and other miscellaneous costs attributable to the delivery of additional capacity.
Gross Profit
As a result of the foregoing, our gross profit increased by 32.5% from RMB1,001.6 million for the nine months ended September 30, 2023 to RMB1,327.3 million (US$189.1 million) for the same period in 2024. Our gross margin increased from 18.2% for the nine months ended September 30, 2023 to 22.1% for the same period in 2024, primarily due to a reduction in depreciation expense due to the change in the estimated useful lives of property and equipment from January 1, 2024.
Operating Expenses
Our operating expenses increased by 17.6% from RMB760.9 million for the nine months ended September 30, 2023 to RMB894.9 million (US$127.5 million) for the same period in 2024. Our operating expenses as a percentage of net revenues increased from 13.8% for the nine months ended September 30, 2023 to 14.9% for the same period in 2024.
Sales and Marketing Expenses
Our sales and marketing expenses remain relatively stable from RMB192.9 million for the nine months ended September 30, 2023 to RMB190.7 million (US$27.2 million) for the same period in 2024, primarily due to a decrease in the staff costs. As a percentage of net revenues, our sales and marketing expenses decreased from 3.5% for the nine months ended September 30, 2023 to 3.2% for the same period in 2024.
Research and Development Expenses
Our research and development expenses decreased by 21.1% from RMB241.5 million for the nine months ended September 30, 2023 to RMB190.5 million (US$27.1 million) for the same period in 2024, primarily due to a decrease in the staff costs. As a percentage of net revenues, our research and development expenses decreased from 4.4% for the nine months ended September 30, 2023 to 3.2% for the same period in 2024.
General and Administrative Expenses
Our general and administrative expenses increased by 18.5% from RMB393.4 million for the nine months ended September 30, 2023 to RMB466.1 million (US$66.4 million) for the same period in 2024, primarily due to an increase in the staff costs. As a percentage of net revenues, our general and administrative expenses increased from 7.1% for the nine months ended September 30, 2023 to 7.8% for the same period in 2024.
Allowance for doubtful debt
Our allowance for doubtful debt increased from RMB7.0 million for the nine months ended September 30, 2023 to RMB63.3 million (US$9.0 million) for the same period in 2024, primarily due to the increase in credit risk for certain customers. As a percentage of net revenues, our allowance for doubtful debt increased from 0.1% for the nine months ended September 30, 2023 to 1.1% for the same period in 2024.
Interest Income
Our interest income decreased by 23.8% from RMB28.6 million for the nine months ended September 30, 2023 to RMB21.8 million (US$3.1 million) for the same period in 2024.
Interest Expense
Our interest expense increased by 38.8% from RMB233.3 million for the nine months ended September 30, 2023 to RMB323.9 million (US$46.1 million) for the same period in 2024, primarily due to the increase in bank and other borrowings.
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Other Income
Our other income increased from RMB22.9 million for the nine months ended September 30, 2023 to RMB50.9 million (US$7.2 million) for the same period in 2024. Other income comprises miscellaneous non-operating income that we generate.
Other Expenses
Our other expenses increased from RMB14.9 million for the nine months ended September 30, 2023 to RMB17.1 million (US$2.4 million) for the same period in 2024.
Changes in the Fair Value of Financial Liabilities
Changes in the fair value of financial liabilities were RMB2.5 million (US$0.4 million) for the nine months ended September 30, 2024, primarily due to the increase in the fair value of the derivative liability.
Foreign Exchange Loss, Net
We had a foreign exchange loss, net of RMB17.9 million (US$2.6 million) for the nine months ended September 30, 2024.
Income Tax Expenses
We recorded income tax expenses in the amount of RMB151.7 million (US$21.6 million) for the nine months ended September 30, 2024, compared with income tax expenses of RMB63.7 million for the nine months ended September 30, 2023, with the effective tax rate of 38.2%. This is primarily due to the effect of changes in valuation allowance.
Net Income
As a result of the foregoing, we recorded a net income of RMB245.0 million (US$34.9 million) for the nine months ended September 30, 2024, as compared to a net loss of RMB173.9 million for the nine months ended September 30, 2023.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2024, we had total outstanding debts (consisting of borrowings) of RMB8,951.6 million (US$1,275.6 million), all of which were onshore debt obligations. We believe we have sufficient financial resources to meet both of our onshore and offshore debt obligations when due. The growth of our business relies on the construction of new data centers. We also intend to acquire or invest in companies whose businesses are complementary to ours. We intend to use the proceeds of our outstanding debt mainly to construct new data centers and fund our acquisitions. As of September 30, 2024, we had purchase commitments made for acquisitions of machinery, equipment, construction in progress, bandwidth and cabinet capacity of RMB4,336.9 million (US$618.0 million) becoming due by December 31, 2025, and we intend to use a portion of the proceeds to fund these purchase commitments. Except as disclosed in this offering memorandum, we have no outstanding bank loans or financial guarantees or similar commitments to guarantee the payment obligations of third parties. We believe that our current cash, cash equivalents and time deposits, our cash flow from operations and proceeds from our financing activities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the next 12 months. If we have additional liquidity needs in the future, we may conduct additional financing, including equity offering and debt financing in private or public capital markets and control of operating expenses and capital expenditure where necessary, to meet such needs.
As of September 30, 2024, the total amount of cash and cash equivalents, restricted cash and short-term investments was RMB2,097.8 million (US$298.9 million), of which RMB1,225.0 million (US$174.6 million), RMB755.4 million (US$107.6 million) and RMB117.4 million (US$16.7 million) was held by our consolidated affiliated entities, PRC subsidiaries and offshore subsidiaries, respectively. Cash transfers from our PRC subsidiaries to our subsidiaries outside of China are subject to PRC government control of currency conversion. Restrictions on the availability of foreign currency may affect the ability of our PRC subsidiaries and consolidated affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. The major cost that would be incurred to distribute dividends is the withholding tax imposed on the dividends distributed by our PRC operating subsidiaries at the rate of 10% or a lower rate under an applicable tax treaty, if any.
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We have incurred losses since inception. As of September 30, 2024, we had an accumulated deficit of RMB10,835.7 million (US$1,544.1 million) and net current liabilities of RMB1,421.2 million (US$202.5 million). Absent any other action, we will likely require additional liquidity to continue our operations over the next 12 months. With our unused loan facilities with banks and financial institutions, strategy to obtain financing from the issuance of equity shares, bonds and convertible notes, and control of operating expenses and capital expenditure where necessary, we have the ability to manage the liquidity needs to enable continuation of operations for the foreseeable future. The following table sets forth a summary of our cash flows for the years indicated:
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| For the Years Ended |
| For the Nine Months Ended | ||||||
| | 2022 | | 2023 | | 2023 | | 2024 | ||
| | RMB |
| RMB |
| RMB |
| RMB |
| US$ |
| | (in thousands) | ||||||||
Net cash generated from operating activities | | 2,440,214 | 2,063,480 | 1,332,800 | 1,433,157 | 204,223 | ||||
Net cash used in investing activities | | (3,559,252) | | (3,905,109) | | (2,503,174) | | (3,014,548) | | (429,568) |
Net cash generated from (used in) financing activities | | 2,298,080 | | 3,941,134 | | 1,183,461 | | (1,412,900) | | (201,338) |
Effect on foreign exchange rate changes on cash and cash equivalents and restricted cash | | 101,979 | | 9,988 | | 21,633 | | (22,729) | | (3,239) |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 1,281,021 | | 2,109,493 | | 34,720 | | (3,017,020) | | (429,922) |
Cash and cash equivalents and restricted cash at beginning of the year | | 1,708,473 | | 2,989,494 | | 2,989,494 | | 5,098,987 | | 726,600 |
Cash and cash equivalents and restricted cash at end of the year | | 2,989,494 | | 5,098,987 | | 3,024,214 | | 2,081,967 | | 296,678 |
Cash and cash equivalents, restricted cash and short-term investments at end of the year | | 2,989,494 | | 5,455,807 | | 3,024,214 | | 2,097,846 | | 298,941 |
Operating Activities
Net cash generated from operating activities was RMB1,433.2 million (US$204.2 million) for the nine months ended September 30, 2024, primarily resulting from a net income of RMB245.0 million (US$34.9 million), as adjusted for certain items, such as (i) depreciation and amortization of RMB1,159.5 million (US$165.2 million), (ii) allowance for doubtful debt of RMB63.3 million (US$9.0 million), (iii) share-based compensation expense of RMB105.7 million (US$15.1 million), (iv) the increase in advances from customers of RMB147.7 million (US$21.1 million) and (v) the increase in deferred government grants of RMB132.1 million (US$18.8 million), partially offset by certain item such as gain on extinguishment of 2027 Convertible Notes of RMB246.2 million (US$35.1 million) and the increase in accounts and notes receivable of RMB223.5 million (US$31.8 million).
Net cash generated from operating activities was RMB1,332.8 million for the nine months ended September 30, 2023, primarily resulting from a net loss of RMB173.9 million, as adjusted for certain items, such as (i) depreciation and amortization of RMB1,326.3 million, (ii) foreign exchange loss of RMB168.4 million, (iii) the increase in deferred government grants of RMB100.1 million, (vi) the increase in advances from customers of RMB415.8 million and (v) the increase in accrued expenses and other payables of RMB131.5 million, partially offset by certain item such as the increase in accounts and notes receivable, prepaid expenses and other current assets of RMB673.5 million.
Investing Activities
Net cash used in investing activities was RMB3,014.5 million (US$429.6 million) for the nine months ended September 30, 2024, as compared to net cash used in investing activities of RMB2,503.2 million for the nine months ended September 30, 2023. Net cash used in investing activities for the nine months ended September 30, 2024 is primarily related to our purchase of property and equipment in the amounts of RMB3,430.7 million (US$488.9 million), payment for long-term investments in the amount of RMB52.7 million (US$7.5 million) and payment for other investing activities in the amounts of RMB164.2 million (US$23.4 million), offset by our proceeds from maturity of short-term investments in the amounts of RMB433.1 million (US$61.7 million), and our proceeds from collection of the deposit associated with an acquisition in the amount of RMB200.0 million (US$28.5 million). Net cash used in investing activities was RMB2,503.2 million for the nine months ended September 30, 2023, which is primarily related to our purchase of property and equipment in the amounts of RMB1,950.0 million and payments for long-term investments in the amounts of RMB511.3 million.
6
Financing Activities
Net cash used in financing activities was RMB1,412.9 million (US$201.3 million) for the nine months ended September 30, 2024, as compared to net cash generated from financing activities amounting to RMB1,183.5 million for the nine months ended September 30, 2023. Net cash used in financing activities for the nine months ended September 30, 2024 is primarily related to repurchase of 2026 Convertible Notes of RMB4,262.3 million (US$607.4 million) and repayments of bank borrowings of RMB714.7 million (US$101.8 million), offset by proceeds from bank borrowings of RMB2,592.7 million (US$369.5 million) and proceeds from other long-term borrowings of RMB1,664.2 million (US$237.2 million).
Net cash generated from financing activities was RMB1,183.5 million for the nine months ended September 30, 2023, which is primarily related to proceeds from bank borrowings of RMB1,205.2 million and proceeds from other long-term borrowings of RMB810.6 million, offset by repurchase of 2025 Convertible Notes of RMB529.2 million and repayments of bank borrowings of RMB207.0 million.
Material Cash Requirements
Our material cash requirements as of September 30, 2024 and any subsequent interim period primarily include our capital expenditures, long-term borrowings, convertible promissory notes, purchase commitments, operating lease obligations and finance lease minimum lease payment.
Our capital expenditures were primarily for building self-built data centers, purchasing bandwidth and cabinet capacity and purchasing network equipment, servers and other equipment. Our capital expenditures have been primarily funded by cash generated from our operations and net cash provided by financing activities. We had capital expenditures (i.e. overall outflow of funds for acquiring property and equipment, intangible assets, land use rights, engaging in mergers and acquisitions as well as long-term investments, with an offset by proceeds from deposit of new acquisition), of RMB2,492.0 million and RMB3,346.4 million (US$476.9 million) for the nine months ended September 30, 2023 and 2024, respectively. We may incur additional capital expenditure for real property purchase, data center construction and network capacity expansion if our actual development is beyond our current plan.
We had unused credit lines in an aggregate amount of RMB1491.0 million (US$212.5 million) as of September 30, 2024 under credit agreements with 15 banks. We have pledged land use rights with the net book value of RMB218.0 million (US$31.1 million), property with the net book value of RMB370.8 million (US$52.8 million), leasehold improvements with the net book value of RMB224.7 million (US$32.0 million), computer and network equipment with the net book value of RMB399.2 million (US$56.9 million) and office equipment with the net book value of RMB RMB1.4 million (US$0.2 million) for our borrowings.
Long-term borrowings (including the current portions) outstanding as of September 30, 2024 bear a weighted-average interest rate of 4.09% per annum, and are denominated in Renminbi. These loans were obtained from financial institutions located in the PRC.
Our convertible promissory notes as of the date of this annual report consist primarily of the 2027 Convertible Notes issued in January 2022, with an aggregate principal amount of US$250.0 million at an interest rate of 2% per annum, which will mature in February 2027.
Our operating lease obligations are primarily related to the lease of office and data center space. Our operating cash payments for operating leases was RMB573.7 million and RMB623.7 million (US$88.9 million) for the nine months ended September 30, 2023 and 2024, respectively.
7
Our finance lease minimum lease payment is primarily related to finance leases for electronic equipment, optic fibers and property. Our financing cash payments for finance leases amounted to RMB182.4 million and RMB76.9 million (US$11.0 million) for the nine months ended September 30, 2023 and 2024, respectively.
We plan to fund our existing and future material cash requirements with cash from the proceeds from our operations, bank borrowings and other appropriate financing instruments, if available.
We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of September 30, 2024.
CAPITAL EXPENDITURE
We had capital expenditures (i.e. overall outflow of funds for acquiring property and equipment, intangible assets, land use rights, engaging in mergers and acquisitions as well as long-term investments, with an offset by proceeds from deposit of new acquisition) of RMB3,346.4 million (US$476.9 million) in the nine months ended September 30, 2024, representing 55.7% of our net revenue. Our capital expenditures were primarily for building self-built data centers, purchasing bandwidth and cabinet capacity and purchasing network equipment, servers and other equipment. Our capital expenditures have been primarily funded by cash generated from our operations and net cash provided by financing activities. We had capital expenditures relating to the purchase of property and equipment of RMB3,430.7 million (US$488.9 million) in the nine months ended September 30, 2024, representing 57.1% of our total net revenues for the same periods. We may incur additional capital expenditure for real property purchase, data center construction and network capacity expansion if our actual development is beyond our current plan.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
8
Exhibit 99.3
VNET GROUP, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
| Page |
Unaudited Condensed Consolidated Financial Statements | | |
| | |
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2024 | | F-2 |
| F-5 | |
| F-6 | |
| F-7 | |
| F-8 | |
Notes to the Unaudited Condensed Consolidated Financial Statements | | F-9 — F-29 |
F-1
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
|
| |
| As of | ||||
| | Note | | December 31, 2023 | | September 30, 2024 | ||
| | | | RMB |
| RMB |
| US$ |
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| | | |
| |
| |
Restricted cash |
| | | |
| |
| |
Accounts and notes receivable (net of allowance for doubtful debt of RMB |
| 3 | | |
| |
| |
Short-term investments |
| | | |
| |
| |
Prepaid expenses and other current assets |
| 4 | | |
| |
| |
Amounts due from related parties |
| 16 | | |
| |
| |
Total current assets |
| | | |
| |
| |
| | | | | | | | |
Non-current assets: |
| | | |
| |
| |
Property and equipment, net |
| 5 | | |
| |
| |
Intangible assets, net |
| 6 | | |
| |
| |
Land use rights, net |
| 7 | | |
| |
| |
Operating lease right-of-use assets, net |
| | | |
| |
| |
Restricted cash |
| | | |
| |
| |
Deferred tax assets, net |
| | | |
| |
| |
Long-term investments, net |
| 8 | | |
| |
| |
Other non-current assets |
| 9 | | |
| |
| |
Total non-current assets |
| | | |
| |
| |
Total assets |
| | | |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in thousands)
| | | | As of | ||||
| | Note | | December 31, 2023 | | September 30, 2024 | ||
|
| |
| RMB |
| RMB |
| US$ |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts and notes payable (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Short-term bank borrowings (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 10 | | |
| |
| |
Accrued expenses and other payables (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 11 | | |
| |
| |
Advances from customers (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Deferred revenue (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Income taxes payable (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Amounts due to related parties (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 16 | | |
| |
| |
Current portion of long-term borrowings (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 10 | | |
| |
| |
Current portion of finance lease liabilities (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Current portion of deferred government grants (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 13 | | |
| |
| |
Current portion of operating lease liabilities (including amounts of consolidated VIEs without recourse to the Company of RMB |
| | | |
| |
| |
Convertible promissory notes |
| 12 | | |
| — |
| — |
Total current liabilities |
| | | |
| |
| |
Non-current liabilities: |
|
|
|
|
|
|
|
|
Long-term borrowings (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 10 |
| |
| |
| |
Convertible promissory notes |
| 12 |
| |
| |
| |
Derivative liability |
| 12 |
| |
| — |
| — |
Non-current portion of finance lease liabilities (including amounts of consolidated VIEs without recourse to the Company of RMB |
| |
| |
| |
| |
Unrecognized tax benefits (including amounts of consolidated VIEs without recourse to the Company of RMB |
| |
| |
| |
| |
Deferred tax liabilities (including amounts of consolidated VIEs without recourse to the Company of RMB |
| |
| |
| |
| |
Deferred government grants (including amounts of consolidated VIEs without recourse to the Company of RMB |
| 13 |
| |
| |
| |
Non-current portion of operating lease liabilities (including amounts of consolidated VIEs without resource to the Company of RMB |
| |
| |
| |
| |
Total non-current liabilities |
| |
| |
| |
| |
Total liabilities |
| |
| |
| |
| |
Commitments and contingencies |
| 20 |
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in thousands, except for share and per share data)
| | | | As of | ||||
| | Note | | December 31, 2023 | | September 30, 2024 | ||
|
| |
| RMB |
| RMB |
| US$ |
Shareholders’ equity: | | | | | | | | |
Class A ordinary shares (par value of US$ | | 18 |
| |
| |
| |
Class B ordinary shares (par value of US$ | | |
| |
| |
| |
Class C ordinary Shares (par value of US$ | | |
| — |
| — |
| — |
Additional paid-in capital | | |
| |
| |
| |
Accumulated other comprehensive loss | | |
| ( |
| ( |
| ( |
Statutory reserves | | |
| |
| |
| |
Accumulated deficit | | |
| ( |
| ( |
| ( |
Treasury stock | | |
| ( |
| ( |
| ( |
Total VNET Group, Inc. shareholders’ equity | | |
| |
| |
| |
Noncontrolling interest | | |
| |
| |
| |
Total shareholders’ equity | | |
| |
| |
| |
Total liabilities and shareholders’ equity | | |
| |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except for share and per share data)
|
| | | For the nine months ended September 30, | ||||
| | Note |
| 2023 | | 2024 | ||
| | | | RMB |
| RMB |
| US$ |
Net revenues |
| | |
|
|
|
|
|
Hosting and related services |
| | | |
| |
| |
| | | | | | | | |
Cost of revenues |
| | |
|
|
|
|
|
Hosting and related services |
| | | ( |
| ( |
| ( |
Gross profit |
| | | |
| |
| |
| | | | | | | | |
Operating income (expenses) |
| | |
|
|
|
|
|
Operating income |
| | | |
| |
| |
Sales and marketing expenses |
| | | ( |
| ( |
| ( |
Research and development expenses |
| | | ( |
| ( |
| ( |
General and administrative expenses |
| | | ( |
| ( |
| ( |
Allowance for doubtful debt |
| | | ( |
| ( |
| ( |
Total operating expenses |
| | | ( |
| ( |
| ( |
| | | | | | | | |
Operating profit |
| | | |
| |
| |
| | | | | | | | |
Interest income |
| | | |
| |
| |
Interest expense |
| | | ( |
| ( |
| ( |
Other income |
| | | |
| |
| |
Other expenses |
| | | ( |
| ( |
| ( |
Changes in the fair value of financial liabilities |
| | | |
| ( |
| ( |
Impairment of long-term investments |
| | | ( |
| — |
| — |
Gain on debt extinguishment |
| | | — |
| |
| |
Foreign exchange loss, net |
| | | ( |
| ( |
| ( |
| | | | | | | | |
(Loss) income before income taxes and gain from equity method investments |
| | | ( |
| |
| |
| | | | | | | | |
Income tax expenses |
| 15 | | ( |
| ( |
| ( |
Gain from equity method investments |
| 8 | | |
| |
| |
| | | | | | | | |
Net (loss) income |
| | | ( |
| |
| |
| | | | | | | | |
Net income attributable to noncontrolling interest |
| | | ( |
| ( |
| ( |
| | | | | | | | |
Net (loss) income attributable to VNET Group, Inc. |
| | | ( |
| |
| |
(Loss) earning per share: |
| | |
|
|
|
|
|
Basic |
| 17 | | ( |
| |
| |
Diluted |
| 17 | | ( |
| ( |
| ( |
| | | | | | | | |
Shares used in (loss) earning per share computation: |
| | |
|
|
|
|
|
Basic |
| 17 | | |
| |
| |
Diluted |
| 17 | | |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statement.
F-5
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Amounts in thousands)
|
| For the nine months ended September 30, | ||||
| | 2023 | | 2024 | ||
| | RMB | | RMB |
| US$ |
Net (loss) income |
| ( |
| |
| |
Other comprehensive (loss) income, net of tax of nil |
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of |
| ( |
| |
| |
Fair value due to instrument-specific credit changes |
| — |
| ( |
| ( |
Unrealized gain for available-for-sale debt securities |
| — |
| |
| |
Other comprehensive loss, net of tax of |
| ( |
| ( |
| ( |
Comprehensive (loss) income |
| ( |
| |
| |
Comprehensive income attributable to noncontrolling interest |
| |
| |
| |
Comprehensive (loss) income attributable to VNET Group, Inc. |
| ( |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
| For the nine months ended September 30, | ||||
|
| 2023 | | 2024 | ||
| | RMB | | RMB |
| US$ |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net cash generated from operating activities |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | |
Purchases of property and equipment |
| ( | | ( | | ( |
Proceeds received from maturity of short-term investments | | | | | | |
Proceeds from collection of the deposit associated with an acquisition | | — | | | | |
Payments for long-term investments |
| ( | | ( | | ( |
Payments for other investing activities |
| ( | | ( | | ( |
Net cash used in investing activities |
| ( | | ( | | ( |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Repurchase of 2025 Convertible Notes |
| ( | | — | | — |
Repurchase of 2026 Convertible Notes (Note 12) | | — | | ( | | ( |
Proceeds from long-term bank borrowings |
| | | | | |
Proceeds from short-term bank borrowings |
| | | | | |
Repayment of short-term bank borrowings | | — | | ( | | ( |
Repayment of long-term bank borrowings |
| ( | | ( | | ( |
Repayments and deposits for other long-term borrowings |
| ( | | ( | | ( |
Proceeds from other long-term borrowings | | | | | | |
Proceeds from loan from a related party | | | | — | | — |
Payments for purchase of property and equityment through finance leases |
| ( | | ( | | ( |
Payments for other financing activities |
| ( | | ( | | ( |
Net cash generated from (used in) financing activities |
| | | ( | | ( |
Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash |
| | | ( | | ( |
Net increase (decrease) in cash and cash equivalents and restricted cash |
| | | ( | | ( |
Cash and cash equivalents and restricted cash at beginning of period |
| | | | | |
Cash and cash equivalents and restricted cash at end of period |
| | | | | |
| | | | | | |
Reconciliation of cash and cash equivalents and restricted cash to the consolidated balance sheets |
| | | | | |
Cash and cash equivalents |
| | | | | |
Restricted cash-current |
| | | | | |
Restricted cash-non-current |
| | | | | |
Total cash and cash equivalents and restricted cash |
| | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-7
VNET GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in thousands, except for share data)
| | | | | | | | | | | | | | | | | | Total | | | |
|
| | | | | | | | | | | | Accumulated | | | | | | VNET | | | |
|
| | | | Number of | | | | | | Additional | | other | | | | | | Group, Inc. | | | | Total |
| | | | ordinary | | Treasury | | Ordinary | | paid-in | | comprehensive | | Statutory | | Accumulated | | shareholders’ | | Noncontrolling | | shareholders’ |
|
| Notes |
| shares |
| stock |
| shares |
| capital |
| income (loss) |
| reserves |
| deficit |
| equity |
| interest |
| equity |
Balance as of January 1, 2023 | | |
| |
| ( |
| |
| |
| |
| |
| ( |
| |
| |
| |
Consolidated net loss | | |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| |
| ( |
Contribution by noncontrolling interest | | |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| |
Acquistion of noncontrolling interest | | |
| — |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( |
| ( |
| ( |
Share-based compensation |
| 14 |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| | | — |
| |
Reissuance of treasury stock for share option exercise and restricted share units vested | | |
| |
| |
| — | | ( |
| — |
| — |
| — |
| — |
| — |
| — |
Restricted share units vested | | |
| |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Settlement of restricted share units by reissuance of treasury stock | | |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Foreign exchange difference | | |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| — |
| ( |
Balance as of September 30, 2023 | | |
| |
| ( |
| |
| |
| |
| |
| ( |
| |
| |
| |
| | | | | | | | | | | | | | | | | | Total | | | |
|
| | | | | | | | | | | | Accumulated | | | | | | VNET | | | |
|
| | | | Number of | | | | | | Additional | | other | | | | | | Group, Inc. | | | | Total |
| | | | ordinary | | Treasury | | Ordinary | | paid-in | | comprehensive | | Statutory | | Accumulated | | shareholders’ | | Noncontrolling | | shareholders’ |
|
| Notes |
| shares |
| stock |
| shares |
| capital |
| income (loss) |
| reserves |
| deficit |
| equity |
| interest |
| equity |
Balance as of January 1, 2024 | | |
| |
| ( |
| |
| |
| ( |
| | | ( |
| |
| |
| |
Consolidated net loss | | |
| — |
| — |
| — |
| — |
| — |
| — | | |
| |
| |
| |
Issuance of ordinary shares, net of issurance cost | | 18 |
| |
| — |
| |
| ( |
| — |
| — | | — |
| — |
| — |
| — |
Acquistion of noncontrolling interest | | |
| — |
| — |
| — |
| |
| — |
| — | | — |
| |
| — |
| |
Appropriation of dividend | | |
| — |
| — |
| — |
| — |
| — |
| — | | — |
| — |
| ( |
| ( |
Share-based compensation |
| 14 |
| — |
| — |
| — |
| |
| — |
| — | | — |
| |
| — |
| |
Shares from bonus conversion | | 14 | | | | — | | — |
| |
| — |
| — | | — |
| |
| — |
| |
Appropriation of statutory reserves | | |
| — |
| — |
| — |
| — |
| — |
| | | ( |
| — |
| — |
| — |
Reissuance of treasury stock for share option exercise and restricted share units vested | | |
| |
| |
| — |
| ( |
| — |
| — | | — |
| — |
| — |
| — |
Restricted share units vested | | |
| |
| — |
| — |
| — |
| — |
| — | | — |
| — |
| — |
| — |
Settlement of restricted share units by reissuance of treasury stock | | |
| ( |
| — |
| — |
| — |
| — |
| — | | — |
| — |
| — |
| — |
Fair value due to instrument-specific credit changes | | |
| — |
| — |
| — |
| — |
| ( |
| — | | — |
| ( |
| — |
| ( |
Unrealized gain on available-for-sale debt securities | | |
| — |
| — |
| — |
| — |
| |
| — | | — |
| |
| — |
| |
Foreign exchange difference | | |
| — |
| — |
| — |
| — |
| |
| — | | — |
| |
| — |
| |
Balance as of September 30, 2024 | | |
| |
| ( |
| |
| |
| ( |
| | | ( |
| |
| |
| |
Balance as of September 30, 2024 US$ | | |
| |
| ( |
| |
| |
| ( |
| | | ( |
| |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-8
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation |
The accompanying unaudited condensed consolidated financial statements of VNET Group, Inc., its subsidiaries, consolidated variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively referred to as the “Company”) have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements of the Company. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2023.
The Company has incurred losses since its inception. As of September 30, 2024, the Company had an accumulated deficit of RMB
With the Company’s unused loan facilities with banks and financial institutions, strategy to obtain financing from the issuance of equity shares, bonds and convertible notes, and control of operating expenses and capital expenditure where necessary, management has determined that the Company has the ability to manage the liquidity needs to enable continuation of operations for the foreseeable future.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position as of September 30, 2024, operating results and cash flows of the Company for each of the periods presented.
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the periods. Significant accounting estimates include, but are not limited to, the valuation allowance for deferred tax assets, the fair value of convertible promissory notes and derivative liability, the estimated useful lives of property and equipment, and intangible assets, and incremental borrowing rate of leases. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the unaudited condensed consolidated financial statements.
The Company regularly assesses the estimated useful lives of its property and equipment, and intangible assets. In January 2024, the Company, with the assistance of an external appraisal firm, completed an assessment of the useful lives of certain data center property and equipment and revised the estimated useful lives from a range of
(b) | Convenience translation |
Translations of the unaudited condensed consolidated financial statements from RMB to US$ as of and for the nine months ended September 30, 2024 are solely for the convenience of the readers and were calculated at the noon buying rate of US$1.00 to RMB
F-9
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Summary of the Company’s VIEs’ financial information in the unaudited condensed consolidated financial statements |
The following tables represent the unaudited financial information of the consolidated VIEs as of December 31, 2023 and September 30, 2024 and for the nine months ended September 30, 2023 and 2024 before eliminating the intercompany balances and transactions between the consolidated VIEs and other entities within the Company:
|
| As of | ||
| | December 31, 2023 | | September 30, 2024 |
|
| RMB |
| RMB |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
| |
| |
Restricted cash |
| |
| |
Accounts receivable |
| |
| |
Prepaid expenses and other current assets |
| |
| |
Amounts due from related parties |
| |
| |
Total current assets |
| |
| |
Non-current assets: |
|
|
|
|
Property and equipment, net |
| |
| |
Intangible assets, net |
| |
| |
Land use rights, net |
| |
| |
Operating lease right-of-use assets, net |
| |
| |
Restricted cash |
| |
| |
Deferred tax assets, net |
| |
| |
Other non-current assets |
| |
| |
Long-term investments, net |
| |
| |
Total non-current assets |
| |
| |
Total assets |
| |
| |
Current liabilities: |
|
|
|
|
Short-term bank borrowings |
| |
| |
Accounts and notes payable |
| |
| |
Accrued expenses and other payables |
| |
| |
Advances from customers |
| |
| |
Deferred revenue |
| |
| |
Income taxes payable |
| |
| |
Amounts due to inter-companies, net * |
| |
| |
Amounts due to related parties |
| |
| |
Current portion of finance lease liabilities |
| |
| |
Current portion of long-term borrowings |
| |
| |
Current portion of deferred government grants |
| |
| |
Current portion of operating lease liabilities |
| |
| |
Total current liabilities |
| |
| |
Non-current liabilities: |
|
|
|
|
Amounts due to inter-companies, net* |
| |
| |
Long-term borrowings |
| |
| |
Non-current portion of finance lease liabilities |
| |
| |
Unrecognized tax benefits |
| |
| |
Deferred tax liabilities |
| |
| |
Deferred government grants |
| |
| |
Non-current portion of operating lease liabilities |
| |
| |
Total non-current liabilities |
| |
| |
Total liabilities |
| |
| |
F-10
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Summary of the Company’s VIEs’ financial information in the unaudited condensed consolidated financial statements (continued) |
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Net revenues |
| |
| |
Net income |
| |
| |
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Net cash generated from operating activities |
| |
| |
Net cash used in investing activities |
| ( |
| ( |
Net cash used in financing activities |
| ( |
| ( |
Net decrease in cash and cash equivalents and restricted cash |
| ( |
| ( |
* | Amounts due to inter-companies consist of intercompany payables to the other companies within the Company for the purchase of telecommunication resources and property and equipment on behalf of the consolidated VIEs. |
(d) | Contract balances |
As of January 1, 2023 and 2024, the Company has deferred revenues in an amount of RMB
The Company does not disclose the value of unsatisfied performance obligations as the Company’s revenue contracts are (i) contracts with an original expected length of one year or less or (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
2. | CONCENTRATION OF RISKS |
(a) | Credit risk |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, other receivables and amounts due from related parties. As of December 31,2023 and September 30, 2024, the aggregate amount of cash and cash equivalents and restricted cash short-term investments of RMB
(b) | Business, supplier, customer, and economic risk |
The Company participates in a relatively dynamic and competitive industry that is heavily reliant operation excellence of the services. The Company believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, result of operations or cash flows:
F-11
2. | CONCENTRATION OF RISKS (CONTINUED) |
(b) | Business, supplier, customer, and economic risk (continued) |
(c) | Currency convertibility risk |
The Company transacts substantially all its business in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual-rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
(d) | Foreign currency exchange rate risk |
RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The depreciation (appreciation) of the RMB against US$ was approximately
(e) | Interest rate risk |
The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps to manage its interest rate exposures on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the periods presented.
F-12
3. | ACCOUNTS AND NOTES RECEIVABLE, NET |
Accounts and notes receivable and the allowance for doubtful debt consisted of the following:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Accounts receivable |
| |
| |
Notes receivable |
| |
| |
Allowance for doubtful debt |
| ( |
| ( |
|
| |
| |
An analysis of the allowance for doubtful debt was as follows:
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Balance at beginning of the period |
| |
| |
(Reversal of) additional provision charged to expense |
| ( |
| |
Write-off of accounts receivable |
| ( |
| ( |
Balance at the end of the period |
| |
| |
4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consisted of the following:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Prepaid expenses* |
| |
| |
Tax recoverable |
| |
| |
Deposits |
| |
| |
Loans to third parties |
| |
| |
Staff advances |
| |
| |
Interest receivables |
| |
| |
Others |
| |
| |
|
| |
| |
* | Prepaid expenses mainly represented the unamortized portion of prepayments made to Microsoft for the cloud services, the prepayments to telecommunication operators for bandwidth, data centers or cabinets and the prepayments for office expense. |
An analysis of the allowance for doubtful debt in relation to other receivables was as follows:
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Balance at beginning of the period |
| |
| |
Addition |
| |
| |
Write-off |
| — |
| ( |
Foreign exchange difference |
| |
| ( |
Balance at the end of the periods |
| |
| |
F-13
5. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, including those held under finance leases, consisted of the following:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
At cost: |
|
|
|
|
Property |
| |
| |
Leasehold improvements |
| |
| |
Computer and network equipment |
| |
| |
Optical fibers |
| |
| |
Office equipment |
| |
| |
Motor vehicles |
| |
| |
|
| |
| |
Less: Accumulated depreciation |
| ( |
| ( |
|
| |
| |
Construction-in-progress |
| |
| |
Impairment |
| ( |
| ( |
Property and equipment, net |
| |
| |
Depreciation expense was RMB
| | For the nine months periods | ||
| | ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Cost of revenues |
| |
| |
Sales and marketing expenses |
| |
| |
General and administrative expenses |
| |
| |
Research and development expenses |
| |
| |
|
| |
| |
F-14
5. | PROPERTY AND EQUIPMENT, NET (CONTINUED) |
The carrying amounts of the Company’s property and equipment held under finance leases at respective balance sheet dates were as follows:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Property |
| |
| |
Computer and network equipment |
| |
| |
Optical fibers |
| |
| |
|
| |
| |
Less: Accumulated depreciation |
| ( |
| ( |
|
| |
| |
Construction-in-progress |
| |
| — |
Impairment |
| ( |
| ( |
|
| |
| |
Depreciation of property, computer and network equipment and optical fibers under finance leases was RMB
The carrying amounts of property and equipment pledged by the Company to secure borrowings (Note 10) granted to the Company at the respective balance sheet dates were as follows:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Property |
| |
| |
Leasehold improvements |
| |
| |
Computer and network equipment |
| |
| |
Office equipment |
| |
| |
F-15
6. | INTANGIBLE ASSETS, NET |
Intangible assets, net consisted of the following:
|
| |
| Radio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Internal |
|
|
| | Purchased | | spectrum | | Operating | | Technology | | Customer | | | | Supplier | | Trade | | Customer | | Non-Complete | | use | |
|
| | software | | license | | permits | | platform | | relationships | | Licenses | | relationships | | names | | contract | | agreement | | software | | Total |
| | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB | | RMB |
Intangible assets, cost December 31, 2023 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Accumulated amortization |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
Impairment |
| ( |
| ( |
| — |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
Intangible assets, net December 31, 2023 |
| |
| |
| |
| — |
| |
| |
| |
| |
| |
| — |
| |
| |
Intangible assets, cost September 30, 2024 |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Accumulated amortization |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( |
| — |
| ( |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( | |
Intangible assets, net September 30, 2024 |
| |
| |
| |
| — |
| — |
| |
| — |
| |
| |
| — |
| |
| |
Amortization expenses were approximately RMB
F-16
7. | LAND USE RIGHTS, NET |
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Cost |
| |
| |
Accumulated amortization |
| ( |
| ( |
Land use rights, net |
| |
| |
The carrying amounts of land use rights pledged by the Company to secure borrowings (Note 10) granted to the Company at the respective balance sheet dates were as follows:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Land use rights |
| |
| |
Amortization expenses were approximately RMB
8. | LONG-TERM INVESTMENTS, NET |
The Company’s long-term investments, net consisted of the following:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Equity investments without readily determinable fair values |
| |
| |
Equity method investments |
| |
| |
Available-for-sale debt investments |
| — |
| |
|
| |
| |
Equity investments without readily determinable fair values
The investment income comprised of dividend income of RMB
The Company recorded an impairment loss of long-term investments amounting to RMB
Investment in Hebei Yiyun Yuanjing Big Data Technology Co., Ltd (“Hebei Yiyun”)
In May 2024, the Company through its subsidiary entered into an agreement with Puyun Network Technology Group Co., Ltd to acquire
F-17
8. | LONG-TERM INVESTMENTS, NET (CONTINUED) |
Equity method investments
For the nine months ended September 30, 2023 and 2024, the Company recognized its share of gain from equity method investments in the amount of RMB
In September 2024, one of the equity method investee, Zhuhai VNET Private Equity Fund Management Co., Ltd., was in the process of dissolution and the Company received the returned capital of RMB
Available-for-sale debt investments
The Company recorded an impairment loss of long-term investments amounting to RMB
Investment in Matrix Intelligence Limited (“Matrix”)
In May 2024, the Company through its subsidiary entered into an investment agreement with Matrix to acquire
9. | OTHER NON-CURRENT ASSETS |
As of December 31, 2023 and September 30, 2024, other non-current assets primarily included prepayment for acquisition of datacenters, purchase of property and equipment, and deposits.
10. | BORROWINGS |
Borrwings were as follows as of the respective balance sheet dates:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Short term bank borrowings |
| |
| |
Long-term bank borrowings, current portion |
| |
| |
Other long-term borrowings, current portion |
| |
| |
|
| |
| |
Long-term bank borrowings, non-current portion |
| |
| |
Other long-term borrowings, non-current portion |
| |
| |
Total borrowings |
| |
| |
The short-term bank borrowings outstanding as of September 30, 2024 bore a weighted average interest rate of
The long-term borrowings (including current portion) outstanding as of September 30, 2024 bore a weighted average interest rate of
As of December 31, 2023 and September 30, 2024, unused loan facilities for bank and other borrowings amounted to RMB
F-18
10. | BORROWINGS (CONTINUED) |
Borrowings as of September 30, 2024 were secured by the following:
Short-term borrowings |
| Secured by |
(RMB) | |
|
|
| Unsecured borrowing. |
Long-term borrowings (including current portion) |
| Secured by |
(RMB) | | |
| Secured by its own stock and receivables. | |
| Secured by property and equipment and land-use right with net book value of RMB | |
| Unsecured borrowing. | |
|
|
The following table summarizes the aggregate required repayments of the principal amounts of the Company’s long-term borrowings, including bank and other borrowings in the succeeding period and years and thereafter:
|
| RMB |
Year ending December 31 | | |
For the three months ended December 31, 2024 |
| |
2025 |
| |
2026 |
| |
2027 |
| |
2028 |
| |
2029 and thereafter |
| |
F-19
11. | ACCRUED EXPENSES AND OTHER PAYABLES |
The components of accrued expenses and other payables were as follows:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Payables for purchase of property, equipment and software |
| |
| |
Payroll and welfare payables |
| |
| |
Consideration due to the original shareholders of BJ TenxCloud (1) |
| |
| |
Liability classified share-based payments (1) |
| |
| |
Accrued service fees |
| |
| |
Payables for office supplies and utilities |
| |
| |
Payables for acquisitions and long-term investments |
| |
| |
Value-added tax and other taxes payable |
| |
| |
Interest payables |
| |
| |
Others |
| |
| |
|
| |
| |
| (1) | On July 15, 2021, the Company acquired |
In addition, the Company is obligated to issue various numbers of the shares of the Company or its subsidiary to certain selling shareholders who will remain as the employees of BJ TenxCloud, determinable based on achievements of the financial and operational targets by BJ TenxCloud during various post-acquisition periods. As such share-base payments will be forfeited if these employees cease their employments with the Company, the Company recognized these payments as compensation costs over the requisite service periods. The Company classified the share-based payments as liability classified share-based payments.
12. | CONVERTIBLE PROMISSORY NOTES |
2026 Convertible Notes
In January 2021, the Company issued US$
Holders may convert their 2026 Convertible Notes at their option prior to the close of business on the business day immediately preceding August 1, 2025 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of ADSs’, each representing
F-20
12. | CONVERTIBLE PROMISSORY NOTES (CONTINUED) |
2026 Convertible Notes (continued)
The initial conversion rate of the 2026 Convertible Notes is
The Company may not redeem the 2026 Convertible Notes prior to February 6, 2024 unless certain tax-related events occur. From February 6, 2024 to the 40th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the 2026 Convertible Notes, at its option, if the last reported sale price of the Company’s ADSs has been at least
The 2026 Convertible Notes was accounted for as one unit of liability account using amortized cost method under ASU 2020-06, with no embedded derivative features being bifurcated.
The gross proceeds from issuance of the 2026 Convertible Notes were US$
In January 2024, the Company received notices from the holders of the 2026 Convertible Notes, requiring the Company to redeem the 2026 Convertible Notes at
2027 Convertible Notes
On January 28, 2022, the Company entered into an investment agreement with funds managed by Blackstone Tactical Opportunities (each fund as an “Investor Party”) to issue the Company’s convertible promissory note (the “2027 Convertible Notes”) with principal amount of US$
F-21
12. | CONVERTIBLE PROMISSORY NOTES (CONTINUED) |
2027 Convertible Notes (continued)
Conversion
2027 Convertible Notes are convertible at any time on and after the original issuance date, at the option of holders, into Class A ordinary shares of the Company at a conversion price of US$
Redemption
The holders have the right to require the Company to redeem the 2027 Convertible Notes during the Redemption Period as defined below in an amount equal to the sum of: (a) the principal amount of the 2027 Convertible Notes; plus (b) the total amount of the accrued interest, and any stub period interest that has accrued until, but excluding, the date the redemption price is paid in full; plus (c) the incremental amount in case a fundamental change specified in the investment agreement has occurred. Incremental amount is equal to (a)
“Redemption Period” means: (a) in the case of any holder that is the Investor Party, (i) the period commencing on the date of a fundamental adverse regulatory change, a fundamental change or an event of default as defined in the investment agreement and ending on the fifth anniversary of the original issuance date, and (ii) the thirty-day period beginning on the fifth anniversary of the original issuance date; and (b) in the case of any holder that is not Investor Party, the period commencing on the date of a fundamental adverse regulatory change or an event of default and ending on the fifth anniversary of the original issuance date. Fundamental change represents events defined in the investment agreement, including that a “person” or “group” (within the meaning of Section 13(d)(3) of the Exchange Act), other than the Company or any of its wholly-owned subsidiaries, has become or files any report with the SEC indicating that such person or group has become the direct or indirect “beneficial owner” of the Company’s equity securities representing more than fifty percent (50%) of the voting power of all of the Company’s then-outstanding equity securities.
In December 2023, the Company issued
F-22
12. | CONVERTIBLE PROMISSORY NOTES (CONTINUED) |
2027 Convertible Notes (continued)
On August 20, 2024, the holders entered into an agreement with the Company to consent the cancellation of the redemption right solely due to any fundamental change caused by the SDHG investment. And the Company shall pay the consent fee of an aggregate amount equal to US$
Immediately prior to the above amendments, the net carrying amount of the 2027 Convertible Notes was RMB
The coupon interest expense was RMB
The Company assessed the above amendments to the terms of the 2027 Convertible Notes as an extinguishment of debt based on a qualitive and quantitative evaluation of the amendment.
Upon the extinguishment, the 2027 Convertible Notes, the related interest payables and the derivative liability were derecognized and a gain on debt extinguishment of RMB
As of September 30, 2024, the fair value of the 2027 Convertible Notes was RMB
13. | DEFERRED GOVERNMENT GRANTS |
During the nine months periods ended September 30,2023 and 2024, the Company received RMB
Movements of deferred government grants were as follows:
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Balance at beginning of the period |
| |
| |
Additions |
| |
| |
Recognized as a reduction of depreciation expense |
| ( |
| ( |
Balance at end of the period |
| |
| |
F-23
14. | SHARE-BASED COMPENSATION |
Shares granted to management and employees
In February 2024, the Company granted
During the nine months ended September 30, 2024,the Company also granted
The Company recognized the share-based compensation expenses in an amount of RMB
Bonus conversion
In February 2024, the Board of Directors approved to convert the accrued cash bonus to certain employees for certain RSUs at the price of US$
The Company had recorded cumulative compensation cost and an accrued liability of RMB
15. | INCOME TAX |
The statutory income tax rate for the Company’s PRC subsidiaries, VIEs and VIEs’ subsidiaries is
F-24
16. | RELATED PARTY TRANSACTIONS |
Other than disclosed elsewhere, the Company had the following significant related party transactions for the nine months ended September 30, 2023 and 2024:
| | For the nine months ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Services provided to: |
|
|
|
|
-SH Edge Interchange |
| |
| |
-Changzhou Gaoxin |
| — |
| |
| | | | |
Services provided by: |
|
|
|
|
-CYSD |
| |
| — |
-Sanhe Mingtai |
| |
| |
-Others |
| |
| — |
| | | | |
Loan to: |
|
|
|
|
-Shanghai Puping |
| |
| |
-SH Edge Interchange |
| |
| — |
-Sanhe Mingtai |
| |
| |
| | | | |
Receipt of loan to: |
|
|
|
|
-SH Shibei |
| |
| — |
-Sanhe Mingtai |
| — |
| |
| | | | |
Loan by: |
|
|
|
|
-Changzhou Gaoxin* |
| |
| — |
| | | | |
Interest income from loan to: |
|
|
|
|
-SH Shibei |
| ( |
| — |
-SH Edge Interchange |
| |
| |
| | | | |
Interest expense by loan to: |
|
|
|
|
-Changzhou Gaoxin |
| |
| |
| | | | |
Lease payment paid to: |
|
|
|
|
-Sanhe Mingtai |
| |
| |
* | In May 2023, the Company obtained a loan in the amount of RMB |
F-25
16. | RELATED PARTY TRANSACTIONS (CONTINUED) |
The Company had the following related party balances as of December 31, 2023 and September 30,2024:
| | As of | ||
|
| December 31, 2023 | | September 30, 2024 |
| | RMB | | RMB |
Amounts due from related parties: |
|
|
|
|
-Shanghai Puping |
| |
| |
-Sanhe Mingtai |
| |
| |
-Others |
| |
| |
|
| |
| |
Amounts due to related parties: |
|
|
|
|
-Changzhou Gaoxin |
| |
| |
-Others |
| |
| |
|
| |
| |
17. | (LOSS) EARNING PER SHARE |
Basic and diluted (loss) earning per share for nine months ended September 30, 2023 and 2024 were calculated as follows:
| | For the nine months | ||
| | ended September 30, | ||
|
| 2023 |
| 2024 |
| | RMB | | RMB |
Numerator: |
|
|
|
|
Net (loss) income |
| ( |
| |
Net income attributable to noncontrolling interest |
| ( |
| ( |
Less: Net income attributable to convertible note holders based on their participating rights | | — | | ( |
Adjusted net (loss) income attributable to ordinary shareholders - Basic |
| ( |
| |
| | | | |
Reversal of net income attributable to convertible promissory notes | | — | | |
Adjust for changes in the fair value of financial liabilities |
| ( |
| |
Adjust for gain on debt extinguishment |
| — |
| ( |
Adjust for interest for convertible promissory notes |
| |
| |
Adjusted net loss attributable to ordinary shareholders -Diluted |
| ( |
| ( |
Denominator: |
|
|
|
|
Weighted average number of shares outstanding—basic |
| |
| |
Weighted average number of shares outstanding—diluted |
| |
| |
(Loss) earning per share—basic |
| ( |
| |
(Loss) earning per share—diluted |
| ( |
| ( |
For the nine months ended September 30, 2023 and 2024,
F-26
18. | SHARE CAPITAL |
In February 2024,
19. | FAIR VALUE MEASUREMENTS |
The fair value of these financial instruments are summarized below:
| | Fair value measurement using: | | | ||||
| | Quoted prices in | | Significant other | | | | |
| | active markets for | | observable | | Unobservable | | |
| | identical assets | | inputs | | inputs | | Fair value at |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| September 30, 2023 |
|
| RMB |
| RMB |
| RMB |
| RMB |
Convertible Notes | | | | | | | | |
- 2026 Convertible Notes |
| |
| — |
| — |
| |
- 2027 Convertible Notes |
| — |
| — |
| |
| |
Liabilities |
| |
| — |
| |
| |
| | Fair value measurement using: | | | ||||
| | Quoted prices in | | Significant other | | | | |
| | active markets for | | observable | | Unobservable | | |
| | identical assets | | inputs | | inputs | | Fair value at |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| September 30, 2024 |
|
| RMB |
| RMB |
| RMB |
| RMB |
Short-term investments: | | | | | | | | |
- Wealth management product |
| — |
| |
| — |
| |
Available-for-sale debt securities |
| — |
| — |
| |
| |
Assets |
| — |
| |
| |
| |
| | | | | | | | |
Convertible Notes |
|
|
|
|
|
|
|
|
- 2027 Convertible Notes |
| — |
| — |
| |
| |
Liabilities |
| — |
| — |
| |
| |
The 2026 Convertible Notes are classified within Level 1 because they are valued by using quoted market prices.
Short-term investments are valued based on price per unit quoted by financial institution and are classified within Level 2 of the fair value hierarchy.
The 2027 Convertible Notes and long-term investments are classified within Level 3. The fair value of 2027 Convertible Notes is measured using binomial tree pricing model that involves several parameters including the Company’s stock price, stock price volatility determined from the Company’s historical stock prices, the remaining maturity term and the discount rate. The fair values of 2027 Convertible Notes as of September 30, 2023 and 2024 were estimated with the following key assumptions:
| | As of September 30 | | As of September 30 |
|
|
| 2023 |
| 2024 |
|
Volatility |
| | % | | % |
Discount rate |
| | % | | % |
Risk-free interest rate |
| | % | | % |
The assumptions are inherently uncertain and subjective. Changes in any unobservable inputs may have a significant impact on the fair value of derivative liability.
F-27
19. | FAIR VALUE MEASUREMENTS (CONTINUED) |
The Company measures equity investments elected to use the measurement alternative at fair value on a nonrecurring basis, in the cases of an impairment charge is recognized, fair value of an investment is remeasured in an acquisition/a disposal, and an orderly transaction for identical or similar investments of the same issuer was identified.
The following tables presented a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3):
|
| 2027 Convertible Notes |
|
| RMB |
Fair value at August 20, 2024 |
| |
| | |
| | |
Foreign currency translation adjustiment |
| ( |
Fair value at September 30, 2024 |
| |
|
| Derivative liability |
|
| RMB |
Fair value at December 31, 2023 |
| |
| ( | |
Foreign currency translation adjustiment |
| |
Fair value immediately prior to the extinguishment |
| |
20. | COMMITMENTS AND CONTINGENCIES |
Capital commitments
As of September 30, 2024, the Company has the following commitments to purchase certain computer and network equipment and construction-in-progress:
|
| RMB |
Year ending December 31, | | |
Three months ended December 31, 2024 |
| |
2025 |
| |
2026 |
| |
2027 |
| |
2028 |
| |
2029 and thereafter |
| — |
|
| |
Bandwidth and cabinet capacity purchase commitments
As of September 30, 2024, the Company has outstanding purchase commitments in relation to bandwidth and cabinet capacity consisting of the following:
|
| RMB |
Year ending December 31, | | |
Three months ended December 31, 2024 |
| |
2025 |
| |
2026 |
| |
2027 |
| |
2028 |
| |
2029 and thereafter |
| |
|
| |
F-28
20. | COMMITMENTS AND CONTINGENCIES (CONTINUED) |
Income Taxes
As of September 30, 2024, the Company has recognized an accrual of RMB
Securities Litigation
In January 2024, the Company and certain of its current and former executive officers were named as defendants in a putative securities class action lawsuit filed in the United States District Court for the Southern District of New York. The complaint alleges that the Company made materially false and/or misleading statements and/or failed to disclose certain material information concerning the founder and co-chairperson, Mr. Sheng Chen’s financing activities and the related impact on the Company’s business operations in violation of the U.S. securities laws. At the date of issue of the unaudited condensed consolidated financial statements, the Company is unable to predict the outcome of the lawsuit, or reasonably estimate a range of possible losses, if any, given the early stage of this lawsuit. Therefore,
Operating Litigation
In the ordinary course of business, the Company may from time to time be involved in legal proceedings and litigations. As of September 30, 2024, the Company did not consider an unfavorable outcome in any material respects in the outstanding legal proceedings and litigations to be probable.
21. | SUBSEQUENT EVENT |
In December 2024, the Company entered into an agreement with a third party, which is also the Company’s customer, to dispose the long-lived assets in one of the Company’s data center. A disposal gain of RMB
F-29