Earnings Call Transcript - VNET Q4 2024

Xinyuan Liu, Head of Investor Relations

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR website as well as our 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 audited non-GAAP measures to the unaudited GAAP measures. 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. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Ju Ma, Rotating President

Good morning and good evening everyone. Thank you for joining our call today. I'd like to begin with several key achievements from our fourth quarter and full year performance in 2024. Firstly, our wholesale business has delivered remarkable growth while our retail business has remained stable. Secondly, our net revenue and adjusted EBITDA have significantly surpassed our previous guidance. Thirdly, we have recently secured a total of 252.5 megawatts in orders from customers across the Internet, cloud computing, and intelligent driving industries. Looking ahead to 2025, our delivery plan and orders from customers for the next 12 months have seen substantial increases. I will now provide a detailed overview of these achievements. Let's turn to Slide 5. We closed 2024 with a strong fourth quarter highlighted by our wholesale IDC business's remarkable performance as we identified and capitalized on emerging market opportunities, especially advanced technology-driven demand. As of December 31, 2024, our wholesale capacity in service increased significantly, rising by 127 megawatts quarter-over-quarter to 486 megawatts. Wholesale capacity utilized reached 353 megawatts, increasing by 73 megawatts quarter-over-quarter, thanks to strong customer demand for our wholesale data centers. We have also observed a notable uptick in our wholesale customers' moving pace recently, accelerating to 6 to 12 months from around 24 months in the past. Meanwhile, our retail IDC business continued to progress smoothly. As of December 31, 2024, our retail capacity in service was 52,107 cabinets with self-built cabinets increasing by 212 year-over-year and 189 quarter-over-quarter. We also delivered impressive financial results for the fourth quarter and full year. Let's move on to Slide 6. Our net revenue increased by 18.3% year-over-year to RMB2.25 billion for the fourth quarter. Notably, revenue from the wholesale business reached a record high at RMB665 million for the quarter, representing our fastest year-over-year growth rates at 125.4% for any quarter of 2024. Adjusted EBITDA for the fourth quarter also increased by 63.8% year-over-year to RMB721.3 million, mainly due to our wholesale IDC business's rapid growth. Our adjusted EBITDA margin for the fourth quarter increased by nearly 10% points year-over-year to 32.1%. For the full year, we delivered net revenue of RMB8.26 billion, up 11.4% year-over-year, and adjusted EBITDA of RMB2.43 billion, up 19.1% year-over-year, both exceeding the high end of guidance we provided last quarter. Meanwhile, we achieved a full year net profit of RMB248 million, marking a turnaround from net loss in 2023 through continuous profitability improvements. Moving on to our new order wins on Slide 7. Our high-performance data centers, outstanding delivery capabilities, and premium services continued to attract quality orders. In the fourth quarter, we secured a 32 megawatts order from an existing Internet customer for our capacity in the Yangtze River Delta, and one of our retail data centers located in the Greater Bay Area also won a 1.5 megawatts order from a new customer in the intelligence driving industry during the quarter. Meanwhile, in Ulanqab, we signed a framework agreement with an Internet customer for 100 megawatts of capacity, including a 28 megawatts order to be delivered in the fourth quarter of 2025. Additionally, we also secured a 55 megawatts order from a leading cloud computing customer in this region, demonstrating our customers' deep and enduring trust in our high-quality services. Furthermore, we recently won a 64 megawatts wholesale order from an Internet customer for the project we operate in Hebei Province with our joint venture partner Changzhou Gaoxin Group. This joint venture enables us to serve more customers while minimizing the impact on our balance sheet, providing an efficient means of growing our customer base and optimizing our business layout. Looking ahead, we will continue utilizing joint venture structures to further enhance our efficiency and facilitate high-quality business development. Now moving to our full-year guidance for 2025 on Slide 8. We expect total net revenues for 2025 to be between RMB9.1 billion to RMB9.3 billion, representing year-over-year growth of 10% to 13%. Adjusted EBITDA is expected to be in the range of RMB2.7 billion to RMB2.76 billion, representing year-over-year growth of 15% to 18%. Based on our new orders and delivery plan, our capital expenditure for 2025 is expected to be in the range of RMB10 billion to RMB12 billion, representing year-over-year growth of 101% to 141%. Also, we expect to deliver 400 to 450 megawatts in the next 12 months, an increase of 161% to 194% from 2024’s total deliveries. Moving into 2025, we are seeing persistent high demand for high-performance data centers. With recent breakthroughs by DeepSeek propelling the domestic AI development and driving the IDC industry’s rapid growth, we are confident that the immense growth potential in China’s IDC market is poised to be further elongated. Let’s take a closer look at our recent observations on Slide 9, starting with DeepSeek’s impact. DeepSeek’s innovative achievements have significantly bolstered confidence in domestic AI development, catalyzing a surge in inference demand and enterprises' enthusiasm for investing in AI, including large cloud service providers and small medium enterprises. DeepSeek’s innovative models and technologies are enhancing efficiency and reducing both costs and dependencies on high-performance chips for training and inference. It will become easier for companies to execute their AI strategies, triggering wider AI adoption industry-wide and a greater need to build our AI infrastructure. In turn, lower OEM barriers to entry for AI will unleash greater demand for our reliable wholesale IDC services. Furthermore, as more companies integrate AI into their operations, increasing demand is expected to surge. We have already observed significant growing demand from small- and medium-sized enterprises for private deployment of DeepSeek. We expect this positive market trend to persist for the foreseeable future, bringing exciting business opportunities for our retail IDC business. We will seize these opportunities to effectively enhance our retail data centers utilization rate and IRR, laying a solid foundation for our long-term business development. Let’s turn to Slide 10. As we have shared previously, the Yangtze River Delta and the Greater Beijing area are our core business regions. The layout of our wholesale capacity in service is dynamically balanced in the two regions with the proportion of capacity under construction in the Greater Beijing area increasing. On a related note, industry research suggests that overall utilization rates at China State Center are set to increase steadily. Tier 1 cities with wider digital economies are expected to begin experiencing supply shortages of the high-performance data centers needed to run AI applications as AI-related businesses expand. Most growth physically, as a crucial area for the development of China’s AI, Internet, and high-technology industry, the Greater Beijing region is experiencing steady growth in data center adoption and utilization rates. With the deepening application of generative AI and enhancement of computing power and network infrastructure, the overall utilization rate of wholesale data centers in the Greater Beijing area is projected to reach 85% as early as 2025, marking the first potential supply shortage in the market. In the Yangtze River Delta region, a new wave of structural upgrades in AI technology will temporarily alleviate pressure on the supply/demand imbalance in 2025. Given the sustained growth in demand, the overall utilization rate of wholesale data center in the Yangtze River Delta region is expected to reach 85% by 2026, at which point this area will also face supply shortages. As a leading player in the computing infrastructure industry, we have a clear growth path for our IDC business. Our strong delivery and service capabilities position us well to capture market opportunities stemming from these strategies driving our sustainable growth. Now let’s delve into our business updates, starting with our wholesale business on Slide 11. As the company’s primary growth engine of the wholesale business achieved outstanding fourth quarter results in terms of both revenue, which reached RMB665 million, and growth rate, which accelerated to 125.4% year-over-year. This segment is driving high-performance IDC services that remain in high demand across the market, especially as leading Internet players continue to deepen their investment in AI for driving demand growth. To meet this demand, we increased capacity in service during the quarter by 127 megawatts to 486 megawatts. Meanwhile, capacity utilized rose by 73 megawatts to 353 megawatts, mainly driven by high utilization and faster-than-expected move-ins at our E-JS Campus 02. We maintained our growth trend in overall wholesale data center capacity with 486 megawatts in services and utilized capacity increasing to 353 megawatts by the end of the fourth quarter. Overcapacity under construction was 406 megawatts in the fourth quarter, with a precommitment rate for capacity under construction of 82.9% by the end of December. Additionally, capacity held for short-term future development increased sequentially by 75 megawatts to 267 megawatts primarily due to an abundance of demand with high certainty. With strong AI development driving greater market demand for IDC services, we will continue to press forward with our robust expansion plan for wholesale data center capacity, laying a foundation for further business growth. Moving to our retail IDC business on Slide 13. Our retail business remained stable and continued to progress smoothly in the fourth quarter. Retail capacity in service was 52,107 cabinets with 33,068 utilized cabinets for a utilization rate of 63.5% as of the end of December. MRR per retail cabinet increased slightly to RMB8,794 this quarter. Turning to our delivery plan on Slide 14. In 2024, we successfully brought a total of 153 megawatts into service, showcasing our robust and efficient delivery capabilities and deep commitment to meeting customer demand. This includes over 127 megawatts during the fourth quarter and 26 megawatts in the first nine months, far surpassing our guidance. For 2025, customer demand for high-performance reliable IDC resources remains strong, and we expect our deliveries will set a new annual record. We currently have eight data centers under construction and plan to deliver 406 megawatts of capacity over the next 12 months or around 140 megawatts during the first half of 2025 and around 266 megawatts in total during the second half of 2025, reflecting strong customer demand and our outstanding delivery capabilities. In conclusion, our effective new growth strategy and strong execution drove excellent fourth quarter and full year 2024 results. Moving into 2025, we remain confident in China's growth potential led by surging demand in the IDC industry due to the AI boom. To capitalize on this opportunity, we will continue to innovate, strengthening our capability and expanding our high-performance data center network to offer our customers solutions designed to seamlessly address their demands in the AI era. As always, we are committed to delivering sustainable long-term 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.

Qiyu Wang, Chief Financial Officer

Good morning and good evening, everyone. Before we start the detailed discussion of our fourth quarter performance, please note that unless otherwise stated, all the financials we present today are for the fourth quarter and the full year of 2024 and are in renminbi terms. Furthermore, unless otherwise indicated, all growth rates I’m reviewing are on a year-over-year basis. Let's turn to Slide 16. We exceeded our expectations for the full year 2024, capped by a strong fourth quarter as we remain focused on high-quality revenue business. In the fourth quarter, our total net revenue increased by 18.3% to RMB2.25 billion. Our adjusted cash gross profit increased by 24.6% to RMB923.9 million, while our adjusted EBITDA also grew year-over-year by 63.8% to RMB721.3 million. For the full year, our total net revenues were RMB8.3 billion, representing an increase of 11.4% compared to the same period last year, and adjusted EBITDA reached RMB2.4 billion, reflecting an impressive 19.1% increase from the prior year, both exceeding our guidance. Furthermore, our bottom line turned profitable with net income reaching RMB248.4 million, achieving a significant improvement from a net loss of RMB2.6 billion for the full year 2023. Let's look more closely at our top line. As we have mentioned previously, we have divided total net revenue from IDC business into wholesale and retail IDC business based on the nature and scale of our data center projects, with revenue from non-IDC business remaining separate. As you can see on Slide 17, in the fourth quarter, our wholesale revenues remained our key revenue growth driver with strong momentum significantly increasing by 125.4% year-over-year, to RMB665.2 million mainly driven by the E-JS Campus 02. Our retail revenues continue to account for the largest part of our net revenue. Our retail revenues remained relatively stable at RMB964.8 million. Our non-IDC business continued to progress smoothly. During the fourth quarter, we maintained solid margins, thanks to our continuous effort to enhance overall efficiency. As we have shown on Slide 18, our adjusted cash gross margin remained quite stable. Our adjusted EBITDA margin rose significantly to 32.1% compared with 23.2% in the same period of 2023. Moving on to liquidity on Slide 19. We maintained a strong cash flow during the quarter. Also, we recorded a net operating cash flow of RMB2.01 billion for the full year of 2024. Our cash position remained healthy with the company's total cash equivalent and restricted cash reaching RMB2.08 billion as of December 31, 2024, stable compared to the end of the third quarter. Next, let's take a look at the debt on Slide 20. We maintain our prudent approach to debt management with our net debt to the trailing 12 months adjusted EBITDA ratio at 4.9 and total debt to trailing 12 months adjusted EBITDA ratio at 5.5, both remaining at healthy levels and our trailing 12 months adjusted EBITDA to interest cover rate improved to 6.5 as of December 31, 2024. We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayments. Additionally, the company's short and medium-term debt maturing in 2025 to 2027 comprised 56.9% of our total debt. Turning now to CapEx spending. As you can see on Slide 21, for the full year 2024, our CapEx was RMB4.98 billion with the majority allocated to the expansion of our wholesale IDC business, mainly due to linear supply chain expenditure management; some CapEx was deferred to 2025. We expect our CapEx for the full year 2025 to be in the range of RMB10 billion and RMB12 billion, exceeding the level of 2024. The increase is mainly to support our 400 to 450 megawatts delivery plan for 2025, which is expected to be three times greater than the level of 2024, surpassing the total delivery capacity of the past three years combined. Before I conclude, let me share a few of our achievements in ESG. Our commitments and responsibilities to our industry, environment, and society are cornerstones of our ongoing success, and I’m proud to report that our ESG efforts continue to win recognition from globally renowned ESG-rating institutions this year. Recently, we secured a spot in the S&P Global Sustainability Yearbook 2025 with our record score of 70 in S&P’s 2024 Corporate Sustainability Assessment. This is VNET’s first inclusion in the global edition following two consecutive years in the China edition. VNET is one of just 21 China mainland enterprises recognized in the 2025 yearbook and our score places us in the top 7% of the IT services industry globally. In addition to this recognition by S&P Global, we received an A rating from MSCI for the third consecutive year, reaffirming our leadership in China’s Internet service and infrastructure industry. We attained a B-grade in CDP’s climate change questionnaire in 2024, with 8 out of 16 categories achieving A-grade recognition. This accomplishment not only highlights our effective ESG strategy but also reflects our long-term investment value and development prospects. In summary, we are delighted to conclude 2024 with stronger-than-anticipated results driven by impressive growth in our wholesale IDC business. Looking ahead, we will continue to execute our high-quality development strategy and invest in future growth, particularly AI-related opportunities to promote our long-term sustainable development. This concludes our prepared remarks for today. We are now ready for questions.

Operator, Operator

Thank you. We’ll now begin the question-and-answer session. Your first question comes from Shuyun Che with CICC. Please go ahead.

Shuyun Che, Analyst

Thank you for taking my questions and congratulations on the strong results and orders. My first question is about the wholesale business order in the last quarter and recently held in really strong. To deliver these orders, the CapEx outlook for 2025 has increased, so could management provide details on the arrangement of CapEx over 2025 and how much of this spending will be covered through the funds from our risk projects? Also, according to the announcement, the retail data center ran a new order from customers in the intelligent driving industry. So my second question is, given the strong demand from AI computing, could management provide insight into the potential impact of AI-related orders on the retail segment? Could you share with us the utilization rate trends and the pricing trends in the retail business? Thank you.

Qiyu Wang, Chief Financial Officer

Thank you for the question. To start with the first inquiry, in 2025, we are establishing a significant benchmark for capital expenditures compared to 2024; we anticipate a 100% increase, with over 90% of the 2025 capital expenditures directed towards the wholesale IDC business. We expect to deliver over 400 megawatts in this segment, with 83% already confirmed as orders along with the capacity to deliver. We are also preparing to summarize the remaining capacities. The rest of the capital expenditures will be allocated to the retail IDC for high-power density upgrades and value-added services. Additionally, I would like to address concerns regarding risk. It’s important to note that 2025 will mark a key period for China to enhance asset utilization within the data industry and also a year when various risks will begin to take shape. In Q3 of 2024, we witnessed our first prelease, and I’m pleased to report that two of my partners recently launched asset-backed securities. It’s worth mentioning that projects with overpriced risks are being accepted by the Shanghai Stock Exchange, and our public REITs are undergoing examination and approval. We estimate that by Q3 of 2025, different types of REITs will be implemented, allowing us to recover up to RMB2 billion. Regarding your second question about large language models and AI applications, we are excited to see that the launch of DeepSeek at the beginning of 2025 has significantly increased demand for AI applications, making it easier to adopt large language models, which is beneficial for us. The barriers to implementing DeepSeek in private sectors are also being lowered, leading to broader development and adoption of smart applications. You mentioned autonomous driving, which is a critical area I've previously discussed. It is essential for us, and by Q4 of 2025, we expect to achieve significant advancements in this field. We will keep focusing on autonomous driving as a vital area for expanding our customer base and providing high-quality services. Specifically, I want to highlight the increased demand from this market, which gives us a positive outlook. Regarding the pricing of individual cabinets, those designed for AI server deployment will be priced higher than traditional models.

Xinyuan Liu, Head of Investor Relations

Next question please.

Sara Wang, Analyst

Thank you for the opportunity to ask questions. And congratulations on the solid set of results. I have two questions. First, I noticed that among our new order wins, there is a 64 megawatts joint venture project with Changzhou Gaoxin Group. Could management please walk us through the framework partnership with the Changzhou partner and how that reflects in our revenue or CapEx guidance? And then my second question is regarding the supply-demand dynamics. I think from the management's comments that since management is really confident in the supply-demand dynamics over the next one or two years, and even mentioned supply shortage, how should we think about this because the supply chain in China is still quite efficient? Are there any new entrants into the market or are competitors delivering new projects into the market? How shall we think about the supply given the demand is already quite strong? Thank you.

Qiyu Wang, Chief Financial Officer

Thank you for the question. I want to provide some background regarding this. First of all, I have to mention that the demand is really high for us this year. Two years ago, our company established a joint venture with Changzhou SOE, in which we hold 13% equity, representing the 64-megawatt order you referred to. Please note that the 64-megawatt order, along with the joint venture, has not been included in the CapEx I mentioned, and it will also not appear on our balance sheet. We expect to profit from this 64-megawatt project through management fees or capital operation fees. This marks a significant milestone for us in operating a project and serving our customers, but we will not factor it into our balance sheet. In other words, we will enhance our grid capacity using light assets while meeting the strong demand from our core customers. Your next question is about market trends and competition. Let me share a few observations. According to the latest third-party industry data, the Greater Beijing area is projected to face supply shortages in the wholesale IDC business by 2025, and similar shortages are expected in the Yangtze River Delta by 2026. This conclusion aligns with my own observations about the market. As for general competition, to be frank, most of my peers have focused on overseas markets, meaning that during the bidding process, we are engaging with different competitors at varying times without facing any consolidated or major competition.

Xinyuan Liu, Head of Investor Relations

Next question please.

Yang Liu, Analyst

Thanks for the opportunity. Congratulations on the strong bookings first. I have two questions. The first one is regarding the future trend of the industry rental. As you mentioned that it is likely to see supply shortage and also the hyperscaler demand is quite strong. What’s your expectation of the per kilowatt rental in the next one or two years? Is it likely to see some price hike? My second question is regarding the unit cost or unit CapEx because of the data center upstream; like the diesel generator or other UPS, et cetera, those equipments are the key components and whether there will be enough supply from upstream and whether there will be any pricing hikes to give pressure on the unit CapEx.

Ju Ma, Rotating President

Thank you for the excellent questions. I will share my understanding of this market. Since the launch of large language models, we have seen a gradual increase in demand for wholesale IDC centers. From the end of last year until the first quarter of 2025, we are observing a slight shortage in supply. When we talk with leading online and internet companies in China, it seems that their choices of resources and partners are somewhat limited. As my colleague mentioned regarding the general market situation in China, I want to add a few more comments. The leading online and internet companies in China are selecting suppliers from different cities and regions. We encounter competition, though it varies across different regions. In terms of pricing trends and mechanisms, we are positioning our IDC business to align with market demand, which means our pricing strategy is market-driven and remains quite stable. On the cost front, when we discuss diesel generators and equipment, we notice that as construction and installations increase, traditional brands, particularly imported ones and joint venture brands, are inadequate. On a positive note, most clients are becoming more comfortable using domestically produced equipment, and we're also seeing that through various optimizations, prices are even slightly lower. Given our significant IDC scale in the market, individual cabinets will support 15 to 16 megawatts per building, providing us a substantial opportunity to enhance the design. Overall, unit CapEx is slightly lower.

Xinyuan Liu, Head of Investor Relations

Next question, please.

Edison Lee, Analyst

Hi, thank you for taking my questions. Congratulations again on great results and very good order wins. I have two questions. I think the number one question is more related to supply and demand, but more on the retail side. Therefore, do you think that your retail revenue this year can actually get back to, let's say, mid-single-digit growth? Is that possible? And then 2026, do you think you will further accelerate? So that's question number one. Question number two is about financing. Can you help us understand how you will actually fund the RMB10 billion CapEx in 2025? Because your operating cash flow is somewhere around RMB2 billion, and you can raise RMB2 billion from REIT, but you still have RMB6 billion left to finance.

Qiyu Wang, Chief Financial Officer

Thank you for the question. I’m happy to share my thoughts on DeepSeek's entry and its effects on the retail sector. First, DeepSeek's innovation and large-language model have significantly lowered the barriers for medium and small enterprises and individual developers. I’ve noticed a strong demand from these groups for adopting and utilizing retail IDC. I’d like to highlight a few business models that these enterprises and developers are leveraging. They typically deploy servers ranging from two to sixteen and rely on the retail IDC we manage along with DeepSeek, whether it’s V3 or RE. Some clients approach us seeking retail IDC rental services along with additional GPU procurement. This is leading to a new business model for HIT, or hybrid IT services. We are seeing fresh demand from clients utilizing both our IDC and HIT, as I mentioned. We also need to assign software engineers to collaborate with them in developing value-added applications. VNET is establishing a corporate structure for the new engine operations within retail and wholesale IDCs. In operating the retail IDC business, we engage with thousands of clients. With the extensive application of a large language model, we’ll connect with clients to provide either retail services or reference models. Thank you for your attention.

Ju Ma, Rotating President

You mentioned that we have significant capital expenditure planned for 2025, and I agree. This is driven by strong demand from new wins in the wholesale IDC sector. We also have two channels with solid cash flow, as well as the risk project I just mentioned.

Xinyuan Liu, Head of Investor Relations

Next question, please.

Timothy Zhao, Analyst

Great. Thank you Ju Ma for taking my question and congrats on the very solid results. I have two questions here. One is, I think about your downstream customers, given the rising data center demand from AI. Just wondering if Ju Ma can share your observations on the customers in terms of their preferences between in-house data centers and third-party data center operators? How is that different now versus a couple of years ago? Secondly, on the wholesale data centers as we are seeing faster inference demand growth, could you please comment on how your wholesale campuses cater to the inference versus training demand? What are the customer requirements in terms of power cost, latency, etc.?

Ju Ma, Rotating President

Thank you for your important questions. You’re asking about orders and the pathways chosen, whether from rentals or in-house options. We have provided this information to analysts, and you can find more details there. This year, we are witnessing increased demand from the online and Internet sector. As they implement large language models, we are receiving substantial feedback. Currently, online and Internet businesses are among our most critical industries, playing a vital role in acquiring customers. With the rise in AI demand at the start of this year, sectors like cloud computing, intelligent driving, and financing are also significant. It’s worth noting that companies engaged with large language models are also indicators. They are exploring whether their clients will choose in-house solutions or work with third parties. According to the feedback we've received from the market, both options exist simultaneously. In general, a small number of clients will go for self-built solutions, while the majority will prefer rental options, indicating that most clients will select rentals alongside some opting to develop their own. I’d like to explain the reasoning behind this: as market demand increases, there appears to be little incentive for clients to construct their own infrastructure. Therefore, the typical route is rentals along with self-built options, and this sequence should not be reversed—a trend we've observed in this market. To conclude for our clients, they will implement their inference models in retail IDC rather than wholesale IDC. Thank you for the questions.

Xinyuan Liu, Head of Investor Relations

Next question please?

Daley Li, Analyst

Thanks, management for taking my questions. Congrats on the solid results and strong new orders. Here, I have one question regarding the wholesale business. As the company has achieved strong new orders in the past two quarters, and we also have a solid delivery plan for this year. By the end of this year, our capacity in service will probably almost double compared to the numbers in 2024. How should we think about the growth outlook in 2026, or even 2027, regarding revenue or the new orders pipeline?

Ju Ma, Rotating President

Thank you for your question. I would like to share my perspective. The company has put together a five-year plan in advance because we anticipate strong AI deployment in the Chinese market, which will boost demand for domestic data centers. In 2025, our total capital expenditures will be similar to the previous three years, and from 2026 to 2027, we will continue to increase capital expenditures to meet the demands of our clients and customers. Our capital expenditures are significantly influenced by contracts signed with clients, which adds a layer of uncertainty to our future business growth. I also want to briefly explain the business models in the data center sector. Typically, we begin construction, which takes about six to nine months for various projects. After that, an additional six to twelve months are required to accommodate all customer requirements, which meets nearly 90% of customer demand. Ultimately, you will notice that the growth of EBITDA will be marginally slower than that of capital expenditures.

Operator, Operator

Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect your lines.