Hello, ladies and gentlemen. Thank you for standing by for the Q1 2022 earnings conference call for VNET Group, Inc. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there'll be a question and answer session. Participants from our management will include Mr. Samuel Shen, Chief Executive Officer and Executive Chairman of Retail IDC, Mr. Tim Chen, Chief Financial Officer, and Ms. Xinyuan Liu, Investor Relations Director of the company. Please note that today's conference call is being recorded. I'd now like to turn the conference over to the first speaker today, Ms. Xinyuan Liu. Please go ahead.
Thank you, operator. Hello, everyone, and welcome to our Q1 2022 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR website as well as on newswire services. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US 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 know that VNET's earnings press release and this conference call includes the disclosure of unaudited GAAP financial matters as well as unaudited non-GAAP financial matters. VNET's earnings press release contains a reconciliation of the unaudited non-GAAP financial matters to the unaudited GAAP matters. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on our IR website at ir.vnet.com. I will now turn the call over to our CEO, Samuel.
All right. Thank you, Xinyuan. Good morning and good evening, everyone. Thank you for joining our Q1 2022 earnings conference call. As we continue executing our dual core growth strategy to grow our reach in retail and wholesale IDC markets, we are pleased to report another solid quarter amid a complex macro environment. From a performance standpoint, we got off to a solid start in fiscal 2022, delivering healthy operational and financial growth in the Q1 . Total cabinets under management increased to approximately 79,000, compared with approximately 56,000 at the end of Q1 of last year. Cabinets utilized by customers increased to approximately 43,000, compared with approximately 33,500 in a comparable period last year.
Our retail MRR per cabinet grew to RMB 9,236 in the Q1 , compared with RMB 9,144 in the same period of 2021. For the Q1 , our revenue grew 18.6% year-over-year, and adjusted EBITDA grew 21.9% year-over-year, both in line with our expectations. The phenomenal rise of digital economy and a favorable policy landscape, as well as our proven ability to execute our strategy, have all continued to boost our business momentum across each of our business segments. First of all, more supportive policy developments are paving the way for continued progress, reinforcing the positive outlook for the IDC sector and its role in China's digital transformation and technology development.
At the most recent meeting of the Central Financial and Economic Affairs Commission held last month, China's central government extended the national initiative to further modernize infrastructure across information technology, logistics, and other industries, aiming to deploy a considerable number of next-generation IT infra facilities, which include supercomputers, cloud, AI platforms, and broadband backbone networks. As one of the service providers to support this major initiative, we are well-positioned to benefit from the fast-growing demand in a more favorable and healthier regulatory environment. Additionally, as the significant national infrastructure advancement initiative, Eastern Data, Western Computing, was released earlier this year to boost data center computing power across the nation. We continue to see the great potential for the expansion of our core business with even more efficient and effective approach.
Before I discuss our business segments into more details, I'd like to speak about the COVID-19 resurgence in certain key locations and its impact on our operations. The lockdowns and related travel restrictions that were imposed in Shanghai, Beijing, and several cities in Hebei province have impacted some of our customers' moving rates and our progress with respect to the construction of some of our new projects in these areas. Our data centers in the affected areas have continued to operate uninterruptedly throughout the lockdowns. We truly appreciate each of our on-site employees' efforts to keep things running smoothly. We will continue to closely monitor pandemic developments, and together with our partners, adopt measures to mitigate risk for our operations. Now let's look at the Q1 performance and latest developments of our wholesale business.
As digitalization is taking place across sectors and geographies, more TMT customers, especially internet players, cloud service providers, inevitably expand their efforts to enhance their data processing and storage capacities to keep up with frontier technology trends and gain competitive edges. Our compelling value proposition, rooted in extensive industry know-how, in-depth resource capabilities, and well-seasoned operation teams continually enhance the appeal of our wholesale service offerings to leading technology players. During the Q1 , we signed 4 contracts, generating a total of approximately 60 MW in capacity, including an extended pre-committed order of approximately 11 MW from a leading social platform operator, and three orders under multi-year contracts with two existing customers and one state-owned cloud service provider in China's southwestern region.
We continue to see the increasing demand from our wholesale business, and we're quite optimistic about our future prospects in these segments. Moving on to our retail business.
In the Q1 , our ongoing efforts to advance our value-added service offerings fueled steady growth in orders from both existing and new customers, reaffirming the effectiveness of our strategy and the quickly increasing efficiency of our execution. New customer expansion was primarily driven by growing demand from the financial services, e-commerce, automotive, and energy sectors. Also, as we continually enhance our service capabilities and enrich our one-stop service offerings, a large number of existing customers, including internet player, cloud service provider, cross-border e-commerce player, financial service providers, and local service online marketplaces, continue to expand or upgrade their contracts to procure additional value-added services, spanning a wide spectrum of areas from interconnectivity, bare metal services, and hybrid multi-cloud solutions, in addition to colocation services. Technological innovation is a crucial driver for the business development of our digital services.
We just launched a new in-house developed interconnectivity solution that aims to provide all-in-one enterprise connection services built on our innovative SD-WAN technology and backbone network. It also includes an array of cutting-edge features catering to different platforms and hybrid access networks to enable application-aware intelligent routing and network-wide visualization. In addition, we just rolled out NeoStack, a customer-oriented full-stack cloud-native services to empower corporate developers to build and run scalable applications in public, private, and hybrid clouds, facilitating digital transformation initiatives. These new product launches also represent our powerful engineering capabilities to enrich our service portfolios, deliver additional values to customers, and diversify our revenue streams. In addition to serving corporate customers across various verticals, we continue to explore opportunities to partner with more state-owned enterprises by leveraging our aptitude for technology and healthy government relationship.
Recently, we signed an exclusive partnership agreement with People Data, a subsidiary of People's Daily Online, an authoritative media platform in China. Under the agreement, as the exclusive partner, VNET will jointly build and operate People Cloud, the cloud platform of People Data, to uphold its role in serving local government and SOE customers' needs for cloud computing. In this regard, we will provide all-around services, including colocation, interconnectivity, cloud platform, cloud-native workloads, and industry-specific cloud solutions. On the Blue Cloud business front, we have been actively exploring business opportunities in different vertical industries, leveraging our seasoned cloud service operation expertise and through decade-long exclusive partnership with Microsoft. More encouragingly, in Q1 2022, we began to offer operations and maintenance services to support the digital business system of Huaneng Power, one of China's largest electric power companies.
We will deliver first-class 24/7 O&M services across a wide array of core business systems, as well as secure a high availability architecture for relevant business continuity. The initial feedback we have received from our customers has been remarkable. Our solutions and services not only enable customer systems to run trouble-free, but also optimize their efficiency and performance to better meet business needs while effectively reducing their operating costs. As this system performance enhancement improve the overall operating efficiency, our customers' overall business management capabilities also grow stronger, which in turn cements their competitive advantages. We expect to further expand our industry specific solution for other sectors. Last but not least, I'd like to reiterate that in the highly dynamic market in which we operate, upholding long-term commitments and responsibilities to our industry, environment and society is central to our ongoing success.
As our industry shifts toward green data center operations, and the world comes to embrace sustainable enterprise management, we are committed to building VNET as a positive force for the betterment of society. For more than two decades, we have been committed to advancing a wide range of ESG initiatives within the stakeholder communities we serve. Our 2021 ESG report, published in April, showcases these initiatives and demonstrates our commitment to integrating sustainability into every aspect of our operations. Some highlights includes our carbon neutrality targets by 2030, lower than industry average PUE, and the fact that we are the first data center service providers in China to disclose the third-party verification of our carbon inventory results. As a prominent domestic enterprise and a global industry player, we will continue to lead by example in this aspect.
Looking ahead, we will remain dedicated to utilizing our core strengths while continuing to focus on our dual-core growth strategy. We expect to capture greater opportunities and fulfill more growing digital demand across a wide range in verticals as the digital transformation progresses. Thank you, everyone. With that, I will now turn the call over to our CFO, Tim, to discuss our financial performance for the quarter and our business outlook. Hi, Tim.
Thank you very much, Samuel. Good morning and good evening, everyone. Before we start the detailed discussion of our financials, please note that we will present non-GAAP measures today. Our non-GAAP results exclude certain non-cash expenses, which are not part of our core operations. The details of these expenses may be found in the reconciliation tables included in the earnings press release. Please also note that unless otherwise stated, all the financials we present today are for the Q1 of 2022 in renminbi terms. First, we're pleased to have achieved solid results on our top line and adjusted EBITDA in the Q1 in line with our expectations. The sequential decrease in revenue was mainly due to seasonality, given that the Q1 is typically not a strong period for our business because of Chinese New Year. In addition, our move-in rate was also impacted by lockdowns.
A robust financial performance against the backdrop of macro fluctuation reflects our continued efforts to further expand our service offerings, diversify our customer base, and invest in our core capabilities. Next, let me walk you through our Q1 financial results. Unless otherwise specified, the growth rates I will be reviewing are all on a year-over-year basis. In the Q1 , our net revenue increased by 18.6% to CNY 1.65 billion from the same period last year, mainly due to the increased customer demand for our highly scalable carrier and cloud neutral IDC solutions from both wholesale and retail IDC customers, as well as the continued growth of our cloud business. Gross profit was CNY 355.5 million in the Q1 of 2022, representing an increase of 10% from the same period of 2021.
Gross margin was 21.6% in the Q1 of 2022, compared to 23.3% in the same period of 2021. Adjusted cash gross profit, which excludes depreciation, amortization, and share-based compensation expenses, was CNY 684.8 million in the Q1 of 2022, an increase of 13.1% from the same period of 2021. Adjusted cash gross margin in the Q1 of 2022 was 41.6%, as compared to 43.6% in the same period of 2021. Adjusted operating expenses, which excludes share-based compensation expenses and compensation for post-combination employment in an acquisition, was CNY 200.8 million in the Q1 of 2022, representing a decrease of 5.5% from the same period of 2021.
As a percentage of net revenues, adjusted operating expenses in the Q1 of 2022 was 12.2%, compared to 15.3% in the same period of 2021. Adjusted EBITDA in the Q1 of 2022 was CNY 506.2 million, representing an increase of 21.9% from the same period of 2021. Adjusted EBITDA in the Q1 of 2022 excluded share-based compensation expenses of CNY 43.2 million. Adjusted EBITDA margin in the Q1 of 2022 was 30.8%, compared to 29.9% in the same period of 2021.
Our net profit attributable to ordinary shareholders in the Q1 of 2022 was CNY 90.7 million, compared to a net loss of CNY 84.7 million in the same period of 2021. Basic and diluted profit was CNY 0.1 and CNY 0.03 per ordinary share respectively, and CNY 0.6 and CNY 0.18 per ADS respectively. Each ADS represents 6 Class A ordinary shares. As for our balance sheet, the aggregate amount of the company's cash and cash equivalents, restricted cash and short-term investments as of March 31st, 2022 was CNY 3.36 billion. Meanwhile, net cash generated from operating activities in the Q1 of 2022 was CNY 482.6 million, compared to CNY 274.5 million in the same period of 2021.
Our CapEx in the Q1 of 2022 was $1 billion. Looking ahead, we remain committed to investing in our core capabilities to advance our dual core growth strategy, broaden the spectrum of our services, increase customer diversification, and further tap into the long-term potential of digital economy development in China. Moving to outlook. For the full year of 2022, our outlook remains unchanged from the previously provided estimates. We anticipate net revenues to be in the range of $7,450 million-$7,750 million. Adjusted EBITDA to be in the range of $1,975 million-$2,125 million.
This forecast reflects the company's current and preliminary views on the market and its operational conditions, which do not factor any potential future impacts caused by COVID-19 pandemic and are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.
Thank you. We will now begin the question-and-answer session. To ask a question, please press star one on your telephone. To withdraw your question, please press the pound or hash key. Our first question will come from Yang Liu at Morgan Stanley. Please go ahead.
Thanks for the opportunity to ask question. Two major questions here. The first one is on the COVID impact. Could management update us in term of the what percentage of your data centers are undergoing the lockdown issue? In term of the Q2 moving, should we expect even lower than Q1 , given both Shanghai and Beijing have some issue and maybe also Langfang as well? For the new capacity construction, whether the lockdown will delay the new capacity delivery, and of course, whether that will bring some CapEx savings this year. That is the overall impact question, COVID impact question. The second one is on the demand. Could
We saw a new line in the disclosure that is utilized cabinet. I think that is a pretty important metric the market is monitoring. Could management disclose what is the number at the end of last year, and what is the expected growth or expected increase for the full year 2022 based on current demand profile? Thank you.
Thank you, Yang Liu. This is Samuel Shen. Let me take the first crack at the questions that you had with regards to the lockdown impact. I think first of all, the lockdowns and also related travel restriction that were imposed in Shanghai and recently in Beijing and also several cities in Hebei province definitely impact some of our customers' moving rates and our progress with respect to the construction of, you know, some of the new projects. Separately, we're also seeing some of the industry, like auto. Basically, they're slowing down their plant expansion due to their supply chain issues.
That being said, we'll continue monitor the situation, working with the customers and partners, and figure out a way, appropriate measures to mitigate the potential risk, for the business operation. Based upon what we have seen so far and our assumption in a way to see, different stages for cities to, incrementally loosen restriction on business and individuals. You know, like what we have seen, in Shanghai, we hope to see in the coming months, is going to getting better. We expect our Q2 revenue probably gonna grow mid-teens% year-over-year, and EBITDA and also, you know, to grow low single digits% maybe year-over-year.
Having said that, we're gonna do every single thing possible to accelerate once the situation is getting better. Tim, do you wanna add on any comments you have?
Yeah, sure. Let me also tackle the point about the whole capacity delivery. Actually in our original plans, the deliveries were in the back end of the year. So I think that, you know, once the control measures are eased, we will do our very best to have the construction site catch up. Again, the original plan was to have it in the second half of the year or back-ended. So I think there is at least a greater chance for that to then take place for that. The second, I guess, part of the question, Yang, you had questions about the number of cabinets.
At the end of 2021, Q4 , we were around just over 41,000 cabinets. Actually, 41,700 cabinets. You can sort of calculate obviously the quarter-on-quarter increase in number of cabinets. As to the full year, we can sort of speak a little bit more, but at this point, as you can appreciate, we are still in the middle of the slow ramp up due to the COVID measures that Samuel was just talking about. At this moment, you know, there are probably three or four different scenarios that are going through our heads in terms of when it eases.
Obviously, there is going to be pent up ramp up demand, but there's also then the physical constraint of how quickly people can ramp up. I would say we remain sort of optimistic in terms of the full year ramp up, just on the basis that we've seen that when customers need to ramp up quickly, we're able to accommodate those requests, and make sure that they can happen. I think that it really now is a matter of a call on how long some of these measures will be in place in the Shanghai, Beijing area.
Yes. Thank you.
Our next question will come from Edison Lee at Jefferies. Please go ahead.
Hi. Thank you. Hi, Samuel and Tim. I have two questions. Number one is more on the financial side. Why did the 1Q 2022 revenue lower than 4Q 2021? 'Cause I imagine that it may have to do with the cloud business or the VPN business. Can you elaborate a little bit more on that? Then on 2Q, 'cause we are already at the end of May, right? For 2Q, I think you commented that maybe it will be worse than 1Q. Doesn't mean that you remain very confident that second half you guys will be able to catch up, and whether that catch up is realistic based on your assessment right now. Then last question is on The Hina Group's privatization offer.
Because the company has not made any official comments on it, so is it possible for you to share some of the color and maybe what the board has been thinking about in terms of that privatization offer? Thank you.
Sure. Thanks. Let me take it first, Brett, and I'll have Samuel add additional color as well. With regards to the revenue side, you know, we do have a situation in Q4 compared to Q1 , where there is a one-off events in the Q4 . Typically you have a lot of annual events on the e-commerce side that lead to an increased revenues from those customers and their requirements. That doesn't repeat in Q1 . That is sort of the primary driver of that difference. In terms of looking at Q2 and the ability for the customers to ramp up, I would say that, you know, the headwinds remain.
You know, if you look at not just Q2 and we're two-thirds through Q2 right now, you do see that their customers are ramping up still. We now also have a much better gauge, obviously as we go through the year, similar to what I was answering Yang earlier on, which is that you know, first half you know, we have good visibility. It really is going to be second half on how quickly the measures are eased so that this pent-up demand can take place. Last question in terms of the offer at the moment, again, you know, we've told the market, you know, we would have updates as and when it's appropriate.
Right now, there has not been any decisions taken by the board that we are able to disclose to the market. Again, we will provide updates as and when appropriate, but nothing further from what we've already released to the market. Samuel, anything else to add to that?
Probably only you know a few things to add on top of what Tim just mentioned about. Because you know last year we acquired a company called Tencent Cloud, which is cloud-native type of company providing the solution and platforms you know to the enterprise customers. You know their business also have the seasonality. It tend to be you know the second half is more heavier to deliver. Besides the one-off you know the projects due to you know the retail type of online retail type of business driven, we also have some of the business tend to be more bottom heavy. That's additional color.
Okay. Can I quickly follow up on the privatization offer? I understand the board,
Is still discussing that. Can you share a little bit more color as to whether the board is waiting for more information from the bidder, or the board is considering other alternatives or the board is actually discussing with the bidder. Is there any more color that you can share?
There's no additional color we can offer at this moment, Edison. Again, when there is something that we can disclose, we will do so to the market promptly.
Okay. That's great. Thank you.
Our next question comes from Hongji Li from CICC. Please go ahead.
Hi, management. I have two questions. The first one is about the People Cloud. 'Cause recently, the People Cloud launch, and VNET has also participated. I'm curious about what strategically the company think on such business. The second question is on the R&D expense ratio, 'cause in the Q1 , it slightly increased to like around 4%. Could management share your current R&D expenses? Thank you.
Tim, how about I take the first one and then you can cover the second question that Hongji Li asked.
Sure. No problems at all.
Yeah. In terms of the partnership with the People Cloud, it is true that we just signed an exclusive strategic partnership agreement with People Data. For those of you who probably know the People's Daily better than People Data. People Data is actually a subsidiary of People's Daily Online. People's Daily Online is an authoritative media platform in China. They're one of the leading authoritative reading platforms. Under the agreement, as an exclusive partner, VNET, which only build and operate People Cloud. People Data is trying to target the People Cloud as the cloud platform to uphold its role in serving local government and SOE customers' needs for their specific cloud computing.
In that regard, as I said earlier, we will provide the full stack all around services, all the way from the colocation, interconnectivity, bare metal services, cloud platforms, cloud-native workloads, and some other industry-specific solutions on top of that. Because what happened is, most of you probably know that China is one of the latest countries to pass a new omnibus privacy law. Effectively, from November first last year, the Personal Information Protection Law, AKA PIPL, is China's first comprehensive law designed to regulate online data and protect personal information. People Data has the agenda in a way to making sure they can provide a dedicated cloud platform in a way that to honor the PIPL and to serve the state-owned enterprise customers and so on, so forth.
The partnership's still in the very early stage, so two parties are working together figuring out the product roadmap and so on, so forth. That being said, I think it's a good indicator to demonstrate or to showcase our government relationship and our ability to partner with one of the leading state-owned enterprise. Hopefully that gives some of the colors, but happy to report the progress when the time comes.
Okay. Thank you, Samuel. Let me take the question on the R&D costs. So I think you had sort of a question around, you know, what is the investment focused on or around. This links back to what was in our press release, but also what Samuel mentioned in his part of the presentation earlier on, which is about new products and new solutions. So the new SD-WAN interconnectivity solution would be one of them. And these are the products that we offer mainly to our retail and enterprise customers. Whether or not the R&D will stay at these levels, I would say yes, but part of it is actually a re-categorization.
Some of the costs were in other departments, which now we've re-categorized as R&D. Overall, costs are not going up, but rather a categorization in terms of what we are now looking at as R&D. I think, hopefully that answers the two questions you had.
Clear. Thank you.
Our next question comes from Albert Hung at JPMorgan. Please go ahead.
Thank you, management team. My first question is still on second half outlook. If I heard you right, Q2 , your Q2 commentary suggests only 5% sequential growth. If you want to achieve the full year guidance, you probably need more than 25% half-on-half growth in second half. I understand there should be some seasonality in second half. If I look at the historical trend, it's just like mid- to high teens. With all the macro headwinds and enterprise spending slowdown, may I ask why we are so bullish on second half demand outlook? Is there any leading indicators such as new booking or could you share any feedback on your discussion with the new customer?
My second question is, you mentioned a lot of new wholesale customer wins since Q1 , in last quarter. May I know how is the utilization rate outlook for the new customer? Is there any pricing difference between the new orders and the existing one? Thank you.
Albert, let me take the first part of that, and I guess, Samuel, if you wanna jump in as well. In terms of the second half, or actually Q2 and then leading into the second half, again, I think if you're looking for the leading indicators, I mean, we do have a feedback from our customers, a desire to ramp up. And really the constraint right now are the measures that have been put in place by the government, which don't allow them to actually ramp up and move into the data centers. I think, you know, that pent-up demand, again, we've seen a number of our customers in a very, very short period of time ramp up to very high numbers.
We are quite confident that, you know, if and when these measures are eased, that these customers will be able to ramp up quite quickly, and perhaps even ahead of what we had sort of predicted. This happened last year as well. Again, you know, it will depend on these measures. Now look, if these measures continue on indefinitely, then obviously we'll look to see, you know, what that means in terms of Q3 , Q4 and obviously then the full year. Your second question, I guess, was on the new MOUs. You're asking what was the progress or?
Is there any pricing difference or moving rate difference between the new orders and the existing one?
No. They are actually more mirrored to our existing contracts with these customers. No, not slower, and then pricing is generally the same.
My another follow-up question on the moving rate. I understand there are probably some constraint in Shanghai, Beijing area. Did you see any acceleration in moving rate in other region because customer may be afraid of potential lockdown?
Samuel, do you have any color on that?
Yeah. If I look back, I would say the Shanghai region lockdown does impact, you know, the customers moving rates. That being said, as I had stated earlier, the lockdown and travel restriction do create some of the impact. I would say negative impact. That's not gonna be a long term. Today, when we look at the West region, the data center that we have, for example, Chongqing and Xi'an areas, we're not seeing that type of impact. As a matter of fact, while the COVID-19 created a lot of headwinds, from a customer point of view, their digital transformation has been accelerated. That's the reason we are cautiously, I would say, optimistic.
I mean, the whole country having the dynamic COVID zero policy and then wanna make sure the major city to keep a societal zero COVID, I think the situation will be getting better. Probably gonna be impact about a month and 2 months, but right after that, it's going to be accelerated. We have, you know, even though, you know, people in Beijing were working from home, but I do have a regular conversation with the customers, the key customers. Based upon the conversation I have with the customers and also the impact coming from our sales channel, the customers do wanna accelerate, you know, once the lockdown's over.
I would say, you know, first of all, keep the country's agenda at a top priority, but nothing's gonna change after that. It's gonna be an impact. It's going to be like a hiccup for a given period of time. Overall, still pretty positive in my opinion.
Got you. I'll come back to the queue. Thank you.
Our next question comes from Clive Cheung at Credit Suisse. Please go ahead.
Hi, management. Thank you for taking my question. My first question is on wholesale demand. I guess a follow-up question. We are seeing some slowdown in the cloud business in traditional wholesale customers, say BAT, you know, one who recently reported. My question is how should we expect this to impact our kinda wholesale outlook, particularly in the second half, post you know, the COVID impact? That's my number one question. My second question is on the potential pricing or margin impact as we have seen over the last two quarters. We have seen SOE orders or government-related customers as new take-ons. Would this impact any of our margin profiles at all?
Thank you.
Okay. Clive, this is Samuel Shen. I'm happy to take on your questions and welcome Tim Chen to chime in with additional colors. I think from a wholesale segment point of view, like in the past, we tend to focus on cloud service providers, big-name internet companies, especially for those video type of, you know, internet giants requires these data center to store the data, and so on, so forth. A lot of times, the analysts might be worried about does government really support of the internet sectors? Let me kinda, you know, do a very quick spin on that one. I think in general, the Chinese government is very supportive of the internet sectors.
You know, given the fact that the sectors innovation that has contributed to the growth of country's economy in the past 20 years. Yet it is equally important to know the regulatory risk does step up, you know, recently, probably, in the past, you know, 12 months for some of the internet verticals. As you can see, some of the antitrust law, online gaming impact, live streaming impact, social media services, or even for the profit-making in off-campus tutoring. Therefore, we have to stay agile to cope with the government policy while partnering with our customers and to plan for their business growth accordingly. There are definitely some headwinds, but also, tailwinds.
In terms of the pricing or pricing pressure, pricing competition, that you asked about, we're not seeing a material difference from what we have seen in the past quarter. That being said, because the COVID-19 or the pandemic outbreak does impact to most of the verticals, local life, entertainment or even for the online retail. Therefore, it is prudent to assume customers would be more cost-sensitive moving forward, given the market conditions. That being said, in short, we're not seeing a material impact, but we have the empathy to understand the customers could be cost-sensitive. Hopefully, that addressed your question. Not sure whether Tim you have additional comment you wanna add.
Not for that part. The second question, you had a question about margin impact on. Was it state-owned cloud?
Yeah, that's correct. Just wondering if, you know, in terms of, contract terms, compared to, say, private wholesale kinda orders, would that be, you know, meaningfully different, and how would that, you know, potentially impact our long term?
I think it's probably still early. I mean, we're just getting our first orders now to sort of see if there's an overall trend. As Samuel was explaining earlier on about the partnership that we have with People Cloud, you know, these customers are likely going to engage us across a range of the services that we offer or the products. I don't expect at the moment for there to be a sort of material margin impact. I think they are like other customers. They have requirements, and those requirements will be priced accordingly. I hope that helps.
Okay. Thank you. Yeah.
Yeah.
Yeah. That's very clear. Thank you, Tim. Thanks.
Our next question will come from Sara Wang at UBS. Please go ahead.
Hi. Thank you for the opportunity to ask questions. I have two questions. First is still on demand. Just a quick follow-up on the previous question from demand. Is it right to say that on the wholesale side, we are still seeing orders from the internet sector? And then how about the retail side? Do we see any change in the verticals of our customer mix? Say, certain industries might grow faster than the others, et cetera, when we talk about new orders? And then, second question is on the People Cloud. May I ask why People Data choose VNET over other third-party IDC providers or SOE telco IDC services? Thank you.
Okay. Thank you, Sara, for the questions. First of all, from the retail momentum, if we look at the Q1 this year, our top five verticals remains the same. Still gonna be IT services, financial services, carriers, local life, entertainment, and so on and so forth. Nothing particularly changed. Also from the momentum point of view, we're seeing a pretty strong year-over-year double digits, that's for sure. Whether or not we have the appropriate resources to meet the customer's demand. That's one question. The second thing is we're seeing more and more customers looking for the full stack services. Other than the colocation, you know, that's a very typical enterprise, I would say mentality.
They wanna find a single throat to choke, so making sure they can, you know, partner with a credible partner who is a long-term player, has the credential, and be able to support their needs. I think the recent lockdown is a very good showcase because even though we were impacted by the city lockdown in Shanghai area, we're talking about two months. Our engineers, for example, O&M services, are pretty much locked in the data center for a little over two months. We're making sure nothing stops our services and support. From a customer point of view, we even receive you know customers' feedback and appreciation and so on, so forth.
I think that's a great testimonial, you know, a reason for that. From a retail point of view, I think that's a very good thing, a good momentum. We're supposed to kind of keep it up. Your second question is about the People Data. We've been telling the industry that in China, probably unlike the rest of the world, well, dedicated cloud probably gonna be the mainstream. The reasons being because from a public cloud point of view or from a private cloud point of view, they have their advantages but also disadvantages. Public cloud players, the typical disadvantages would be the dynamic cost. Customer have less technical control.
The customers can only have limited customization. From a private cloud point of view, the customer tend to have, you know, very obvious disadvantages, such as higher cost, limited access for their mobile users. They can't keep up with the unpredictable demands, and so on, so forth. In China, what happened is because it's a highly regulated economy, and so there's new policy, new regulation. Today, people even pay actual attention on the data sovereignty and data privacy. Therefore, that's what we believe, because given the track records, given the full stack services capabilities, People Data, you know, they went through their study, due diligence, and finally pick up, you know, VNET as their exclusive partners.
For that, we're pretty honored to have the opportunity to partner with them. That being said, it is still early stage. You know, hopefully we'll see some great progress, and then at that point of time, happy to share with all the public.
Got it. Thank you.
Thank you.
Our next question comes from Ethan Zhang at Nomura. Please go ahead.
Good morning, Tim and Samuel. I have two questions. The first one is regarding the margin trend. I saw that the Q1 's adjusted EBITDA margin was improved by around 4% compared to 4Q. Just wonder what's the main driver behind this, and what's the margin trend in Q2 and second half, considering the current COVID-19 lockdown in China. Second one, a follow-on question on the People Cloud. Just wonder what I understand that what we provide could be the private or hybrid cloud to the SOE customers. What's the comparison between the People Cloud and our previous retail and wholesale customers? For example, the contract size, the price level, as well as the margin. Thank you.
Let me take the first question and see if Samuel Shen has any follow-on answers to the People Cloud question. In terms of the Q1 margins, if you look at the breakdowns that we provided in the press release, our earnings release, mainly it's driven by, you know, cost control, as well as, you know, obviously the top line was not as high. Those two things combined resulted in a higher margin. Going forward or looking at the full year, I would say that, you know, we're still looking at the full-year margins that we had expected.
There will be some costs, as you've sort of pointed out in relation to the lockdown, perhaps some incremental costs that were unexpected to be factored in. We would expect again the top line, the revenues to also then start to ramp up once the customers are actually into the data centers. It will be a combination of both. Yes, I would say that the margins are probably a little bit higher, just driven by those two factors we talked about earlier on. Samuel, you wanna see if there's any other color you wanna give Nomura in terms of the People Cloud? Sure.
Ethan, other than what I stated earlier, I think the two other key points I could possibly reiterate. Number one is hybrid multi-cloud is a new norm in China, unlike the rest of the world. I think that's one of the key messages. The second one would be it's a great endorsement for dedicated cloud. I just mentioned earlier to address the previous question regarding the advantages and disadvantages for if you have to compare among the public cloud, private cloud, and also dedicated cloud. I think the partnership that we have with People Data is a great endorsement for the dedicated cloud's importance here in China. Thank you.
Thank you.
Our next question comes from Guohan Wang at Daiwa. Please go ahead.
Thanks for the management. It's Guohan Wang from Daiwa Capital Markets. My first question is regarding your pipeline. I think there is no material change in your current pipeline compared to last quarter. Just wonder. Sorry. But we also create a low end of the range, which is more approximately 13,000. Depending on your current market demand dynamics, what's your? Do we have any KPI such as pre-commitment rates in deciding what's the capacity we need to inject depending on the real situation in the second half? That's my first question. The second one is your customer diversification.
You are talking about two questions regarding the People Data, which is a subsidiary of People's Daily. I think we have achieved a certain progress in non-internet and finance sector. We are talking about a lot about the new energy and other sectors. Could you share with us more color about further kind of the penetration strategy into SOEs and other non-internet sectors in the future to offset the negative impact from internet sectors in the near term? Thanks so much.
Yeah. Samuel, I'll try. Let me take a crack at the pipeline question and then leave the second customer one to you, Samuel.
Sure.
Guohan, in terms of the first question on pipeline, I guess you're asking. You're looking at the sort of pipeline, saying there's been no changes. You know, again, you know, we've talked about the sort of construction progress of these projects. They are backended in our original plan. There are delays, so we'll have to see how much the teams, engineering teams can catch up. But as of now, we're still being told that they will be able to complete as per plan within this year. They're. That's the reason for the number. There is a range that we've provided, and that range is really twofold. One is dependent on the construction progress.
There are projects where, given customer feedback on when they can ramp up, and on the demand side, those are some of the projects where we may actually push into 2023. That's why you have that range in the first place. We will continue to closely monitor, and as we progress into each quarter, we will update when we have more visibility on whether or not things will, from a construction point of view or from a customer demand point of view, shift into 2023 or not.
Okay. The second question, Guohan, you asked about the People Data, and you also talked about the state-owned enterprise. If I understand your question correctly, what happened in the past, I would say 80/20. 80% of VNET's revenue coming from the key sectors like IT services, financial services, carrier, local live, entertainment, you know, this type of industry, of course, including traditional enterprises as well. What happened in the past, the government institution, SOE, was not on top of our list. That being said, last year we acquired Tencent Cloud, one of the leading cloud-native platform here in China. It created a lot of the synergies because Tencent Cloud major customers happen to be the financial services industry.
They also provide, you know, technical support for some of the state-owned enterprises. The partnership that we have with People Data, which is a subsidiary of People's Daily, People's Daily Online, you know, their major customers happen to be the state-owned enterprises. It's a great leverage over there. I mean, from a customer point of view, and also a good synergy from a technical stack point of view. What happened in the past, if you look at all the public cloud services providers, their offerings tend to be generic.
For certain verticals, you know, their services and workloads and scenarios tend to be laser beam focused, you know, which is a great workloads on top of the cloud-native platforms. I think from a customer touch point and also from a technical synergy point of view, it is a great partnership. We're definitely looking forward to having some of the positive impact moving down the road. Like I said before, I'm happy to update you know at you know once we have a good progress in hitting the milestones.
All right. Okay. Got it. Thanks, Samuel.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines.