Earnings Call: Q2 2021

Aug 24, 2021

Good morning and good evening, ladies and gentlemen. Thank you and welcome to 21Vianetics Group's 2nd Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. We will be hosting a question and answer session after management's prepared remarks. With us today are Mr. Samuel Chen, Chief Executive Officer and Executive Chairman of Retail IDC Mr. Tim Chen, Chief Financial Officer and Ms. Xinshuan Liu, Investor Relations Director of the company. I will now turn the call over to the 1st speaker today, Ms. Liu, IR Director of 21vianet. Please go ahead, ma'am. Hello, everyone. Welcome to our Q2 2021 earnings call. Before we start, please note that this call may contain forward looking statements made pursuant to the Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward looking statements These are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements for the company to be materially different from the results, performance or expectations implied by these forward looking statements. All forward looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and the details of the company's filings with the SEC. 21vianet undertakes no duty to revise or update any forward looking statements for selected events or circumstances after the date of this earnings call. I will now turn the call over to Mr. Samuel Shen, CEO of 21Vianet. All right. Thank you, Xinyuan. Good morning and good evening, everyone. Thank you all for joining us on our earnings call today. We're very pleased to announce another quarter of strong results. Our revenue of roughly RMB1.5 billion and adjusted EBITDA of RMB425.1 million Both exceeded the high end of our guidance, representing year over year growth of 30 0.8% 38.7%, respectively. Meanwhile, our adjusted EBITDA margin improved to 28.4% from 26.8 percent a year ago. This robust growth continued to be driven by strong IDC market demand, meticulous strategy execution and our increasingly diversified customer base. In the Q2, the government released some new regulations, which were generally issued in support of fair competition with very little impact on our business today. In fact, During the quarter, we continued to observe growing demand for our carrier and cloud neutral IDC services across various industries, including e commerce, financial services, logistics and automobiles. The government continues to support the trend of digitalization and implement policies that are favorable to the IDC industry. For example, The 14th 5 year plan, which was announced earlier in this year, is promoting digital everything initiatives. 5. This demonstrates that industry digitalization remains a key strategy for China's Industrial Transformation. Importantly, in China, the concept of industrial digitalization is not merely focused on developing the digital industries, but also filling the transformation of traditional industries through digital technologies. Such initiatives indicate that there will be more investments in new infrastructures going forward. In July, the Ministry of Industry and Information Technology issued a notice for the country's 3 year plan to empower the digital economy. According to the notice, the government plans to implement an improved development pattern for new data centers to optimize data center layouts, improve network quality, accelerate computing capacity and lower carbon emissions. We believe that this initiative will benefit industry leaders like us who have strong track record of ramping up IDCs to mature levels within reasonable time frames as well as effective systems additions. Our established market foothold, our scalable industry solutions, our pipeline and customer relationships have remained very strong. Now turning to our business updates for the Q2. Our dual core growth engine strategy continued to fuel our organic expansion. We added approximately 7,000 cabinets in the Q2. While our cabinet deliveries in the first half of twenty twenty one were in line with our expectations, As a result, our new cabinet deliveries, our compound utilization rate in the 2nd quarter dropped to 59.9 From 61.7 percent in the prior quarter, our utilization rate for mature IDC delivered prior and during 2019 improved to 76.3% in the 2nd quarter compared to 73.9% in the previous quarter. On the retail business front, the gross momentum continued, driven by highly demand from both Existing and new customers in a variety of sectors. For instance, during this quarter, we have seen a leading global food chain company And the global logistics companies have ramped up their usage of our IDC solutions for colocation, connectivity and additional value added services. Meanwhile, we witnessed increasing demand from customers In industries such as artificial intelligence technology, local life services and financial services, For our wholesale business, we continue to make steady progress. During this quarter, for example, call. We expanded our geographic coverage to Northern China, and we expect to deliver approximately 30 megawatts in capacity to provide data support for leading content community and social platform in China. In addition, For the June 18 mid year shopping festival, we demonstrated our customer centricity by Establishing a special team and preparing for our clients' advanced deployment of infrastructure and customer services. As a result, our e commerce wholesale customers maintained smooth operations during the peak traffic period. For our Bluekow business, after nearly 8 year cooperation with Microsoft, In July, we further extended our collaboration to become one of the first partners for the Microsoft connected vehicle platform in China by providing our advanced cloud and edge mobility services. ESG initiatives have Always been the driving force for our sustainable development. Therefore, it should not it should come as no surprise to point that we have been well prepared for the government's latest announcement on encouraging renewable energy enterprises To implement energy storage for peak load shifting, by specifying the first quantitative requirements for the energy storage ratios sales of market oriented renewable projects. This announcement is of great value and importance to the industry's direction of development. Through a collaboration with Tsinghua University's Energy Internet Innovation Research Institute, we launched Our data center energy storage project in Foshan, Guangdong province, which is one of the first successful applications of large scale energy storage technology for data centers in China. To further promote our brand awareness, We have proposed to change the company's name from 21Vianet Group, Inc. To Vnet Group, The EGM to approve the change of NAND will be held on October fees. In Beijing, the notice of the extraordinary general meeting and form of proxy have been filed on Form 6 ks with the SEC and posted on our Investor Relations website. As the government promotes new infrastructure initiatives, enterprises fully realize that digital transformation is no longer a nice to have, but a must have for business success and survival. As such, enterprises are constantly searching for Trustworthy providers capable of supporting their digitalization processes and migrations to the cloud. Against this Backdrop, we recently announced our acquisition of TENZ Cloud, a leading cloud native application and data platform service providers in in China. TENS Cloud will play an integral role in extending our suite of full stack solutions for public, private and hybrid clouds. Therefore, we will be able to provide a full life cycle support to our customers throughout their digital transformations and further enhance our leadership in a carrier and cloud neutral IDC services market. In summary, we remain well positioned to capitalize on the growing market opportunities arising from the Trend of digitalization. We remain confident in our full year target for the delivery of 25,000 cabinets and a utilization rate of 60%. We reiterate our dual core growth engine strategy and strong execution to acquire more customers from various industries, diversify our revenue streams, sustain our growth trajectory and generate lasting shareholder value for the long term. With that, I will now turn the call over to Tim, who will further discuss our financial results for the quarter as well as his thoughts on our future growth. Hi, Tim. Thank you very much, Samuel. Good morning and good evening, Before we start our detailed financial discussion, 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 our press release. Please also note that unless otherwise stated, all of the financial numbers we present today are for the Q2 of 2021 and in renminbi terms, all percentage changes are on a year over year Sure. Driven by our organic business development, dual core growth engine, diversified customer base and strong IDC market demand. Our net revenues and adjusted EBITDA rose by 30.8% and 30 to 8.7% respectively, both exceeding the high end of our previously announced guidance range. Net revenue in the Q2 of 2021 increased by 30.8 percent to $1,500,000,000 from $1,140,000,000 in the Q2 of 2020. This increase was mainly due to increased customer demand for our highly scalable carrier and cloud neutral IDC solutions from both wholesale and retail IDC customers as well as the notable growth of our cloud business. Gross profit in the Q2 of 2021 was 359 $500,000 representing a year over year increase of 32% from 272,300,000 in the same period of 2020 and a sequential increase of 11.2% from $323,300,000 in the Q1 of 2021. Gross margin in the Q2 of 2021 was 24% compared to 23.8% in the same period of 2020 and rate of 2020 23.3 percent in the Q1 of 2021. The year over year increase in gross margin was was primarily attributable to our continued efforts in optimizing our operating efficiency. Adjusted cash gross profit, which excludes Depreciation, amortization and share based compensation expenses was $640,200,000 in the Q2 of 2021 compared to 4 Adjusted cash gross margin in the Q2 of 2021 was 42.8% compared to 40.9 in the same period of 2020 and 43.6 percent in the Q1 of 2021. Adjusted and operating expenses, which exclude share based compensation expenses and impairment of loan receivable to potential investee, were 235,600,000 in Q2 of 2021 compared to $182,500,000 in the same period of 2020 and two $212,500,000 in the Q1 of 2021. As a percentage of net revenues, adjusted operating expenses in the Q2 of 2021 was 15.7 percent compared to 15.9% in the same period of 2020 and 15 point 3 percent in the Q1 of 2021. Adjusted EBITDA in the Q2 of 2020 1 was $425,100,000 representing an increase of 38.7 percent from 306,400,000 of 2021. Adjusted EBITDA in the Q2 of 2021 excluded share based compensation expenses of 27 point $5,000,000 Adjusted EBITDA margin in the Q2 of 2021 was 28.4% compared to 26 point 8 percent in the same period of 202029.9 percent in the Q1 of 2021. Our net profit Distributable to ordinary shareholders in the Q2 of 2021 was 455,900,000 compared to a net loss of $2,120,000,000 in the same period of 2020 and a net loss of sorry, dollars 84,700,000 in the Q1 of 2021. Basic and diluted profit was $0.52 and and $0.04 per ordinary share respectively and $3.12 and $0.24 per ADS respectively. Each ADS represents 6 Class A ordinary shares. As for our balance sheet, the aggregate amount of Company's cash and cash equivalents, restricted cash and short term investments as of June 30, 2021 was of $5,030,000,000 increasing by $1,630,000,000 from December 31, 2020. Meanwhile, net cash generated from Operating activities in the Q2 of 2021 was $314,800,000 compared with $161,800,000 in the same period of 2020 and $274,500,000 in the Q1 of 2021. Looking forward, we will continue to leverage our Our strong cash position as we execute our dual core growth strategy and further diversify our customer base For the Q3 of 2021, we expect net revenues to be in the range of $53,000,000,000 to $1,550,000,000 and adjusted EBITDA to be in the range of 420,000,000 to $440,000,000 For the full year of 2021, we anticipate net revenues to be in the range of $6,100,000,000 to 6 $300,000,000 and adjusted EBITDA to be in a range of $1,680,000,000 to 1,780,000,000 The midpoint of the company's updated estimates imply year on year increases of 28.4% and 30.7% in net revenues and adjusted EBITDA, respectively. This forecast reflects the company's current and prudent reviews on the market and its operational conditions, which do not factor in any of the potential future impacts caused by COVID-nineteen seen pandemic or other factors and are subject to change. This concludes our prepared remarks for today. Operator, we're now ready to take questions. Our first question comes from the line of Camille Hsu from Morgan Stanley. Please ask your question. Thank you, management, for the opportunity and congrats on a very good result. My question is about the regulatory risk. The first one is on our client side. So, do we see some recent regulations such as the data security review That may compress a little bit on the demand from the major Internet customer. And also for policies on our side, is The recent some regulations such as the per quarter allocation in Shanghai becoming a little bit more favorable To a new entrance or SOE background or at least a non VIE structured vendor. And do we see this will further intensify Especially in the area with relatively more sufficient supply like in Yangtze? That will be my question. Thanks. Okay. Kym El, this is Samuel. Thanks a lot for attending the session and for your questions. As we pointed out, Tim and I mentioned to the investors. In the Q2, the government did release some new regulation. But if you double click on that, the regulation basically is issued to support a fair competition From a market perspective and to a certain degree, there's very little impact on our business today. And also, regarding the security related information, The regulation on security protection for critical information infrastructure was basically a sign off on August 17. And that will take effect on September 1. And then and to a certain degree, we believe we have the highest standards. For data securities, and we already obtained the related certification, Cases like ISO 2701 and also ISO 20,000 for both data security and services management For several years already. So we believe we should be one of the top to be compliant with government regulation. Having said that, we will definitely keep a close eye on the further implementing regulations once they are published. As to the power cut from Shanghai, literally, we have today More than 62,000 cabinets under our management as of today. And then And this round of allocation in Shanghai, basically 3,000 cabinets per company, We'll not have any material impact to our business operations and also development plan. That being said, we are Actively communicating with the Shanghai government at both city and district level and hopefully that we can continue to explore the options Allow us to secure the appropriate power quota moving forward. Thank you. Thank you. Very helpful. Our next question comes from the line of Edison Li from Jefferies. Please ask your question. Hi, good morning, Samuel and Tim. Congrats on the great results. I have two questions. Number 1 is that, I saw that the MRR, the retail MRR fell a little bit on a sequential basis in 2Q. Can you comment on the trend there and what are the drivers behind the MRR on retail? Number 2 is that I want to See, on your 3 year plan of 25,000 cabinets growth per year, I believe you are sticking to that. And I remember that In the last quarter, you said that 60% of resources have already been secured. Could you please give us an update on that level of You are securing the resources and what is your outlook of that progress in the next 2, 3 quarters? Thank you. All right. Thank you, Addison. Qing, do you want to take these two questions? Yes, of course. Thanks, Addison, for your questions. With regards to the retail MRR, basically, as you know, the MRR is made up of a variety of services that we offer. And so actually the 9,000 plus MRR is still within our expectations. We've mentioned this before, but I would Caution investors to look too much into quarter to quarter, because there will be volatility as we take on new cabinets and offer different services And rather just focus on the medium to long term trend. And we expect that to basically remain at the 9,000 and potentially grow a little bit as well as we expand the wallet share of each of our customers and expand the services that we offer to them. With regards to your second question, I think that was to the 3 year plan, as well as about the 25,000 cabinet targets. You're correct. We reiterate that we will be targeting 25,000 cabinets per year. In In terms of the update for next year, I think previously we had indicated around 60% or so. I think today based on the latest figures that we have, we're probably closer to 2 thirds to 70%. And as was the case last year, As we get to the end of the year, we will provide then a more detailed disclosure or breakdown of the different projects that comprise. As you can appreciate, we're in discussions with a number of different customers. And as we do that, we'll have a better idea of which projects will be landing within 'twenty two And which ones will be likely then moving to 2023? So we'll have a better idea on that end. Hope that answers your question, Dennis. Hi, thanks, Tim. Can I have a follow-up? Because I looked at your slide Page 9, and I think that if Verbier Campus O2 is new relative to the 1Q presentation. Can you discuss a little bit Yes. Well, it's a project that we've secured land and power in Paracuero. So it's something that again, we'll be able to give you more details On exactly where it will fall, we're expecting it to start in 2022, but we're still discussing with the sales team in terms So for what the breakdown will be between 2022, 2023 and 2024. So we'll give you more details on that. But that is a newly acquired resource. That's correct. Good John, comes from the line of James Wong from UBS. Please ask your question. Good morning, management. Thank you for your time today and congratulations First question just on your guidance. You've exceeded the top end of guidance for the Q2 and have kept Yes, full year guidance. So just wondering whether you're being conservative there or there are some uncertain factors that could weigh on the second half? That's the first question. And the second question just still around regulation. So you look at the share prices of your company and the peers, they're all being under a bit of pressure recently. And also There's uncertainty around U. S.-listed Chinese companies with VIE structure. So I'd just like to get an understanding of how you're thinking about this risk, This listing risk and your funding plans for the cabinet expansions over the next few years. And the last question is just around the older and less efficient data centers. So the government is looking to improve the PV and efficiencies Data Centers in China. And there were discussions that older, less efficient data centers in CBD areas may be forced to move out. So Now given you've been in the industry for a long period, so can I get an understanding of the state of your existing data centers in the CBD areas? And if the government Were to move the data centers, whether there will be adequate compensation, what such a move? Thank you. Okay. Thanks, James. I'll take the first two and probably pass the third one to Samuel in Beijing. In terms of our guidance and the fact that we exceeded this quarter, but then kept the full year unchanged, I wouldn't necessarily put it to being conservative, more I think just a recognition that there is revenue recognition Between quarters, and so I think that a little more of it ended up on in the second quarter side of the equation. We Basically have very detailed discussions internally with all of our teams and map out the rest of the year. And so at this point, we're still looking To maintain our guidance, and it was just that in this instance, the second quarter came in a little bit higher than what we had initially expected. On the sort of VIE and listed company risks or management's views on that, We've disclosed all of our VIE structures and risks, obviously, in the 20 F, as is the case with many of our peers. At this point in time, we have not seen any new laws or regulations from the PRC government Since that time, and so before any new laws are actually adopted, the VIA structure remains valid. And so obviously, we will, along with the rest of the market, keep a very close eye. There have been a number of instances also where I think many of the banks have heard word from CSRC and some other government bodies as to their For companies to list at the place of their choice. And so I think that would then also go to an overall Positive view on this issue. So hopefully that answers the question. Sorry, the last part In terms of financing plans, obviously, the company has worked quite hard over the past year, year and a half to really grow the avenues or channels of capital Sourcing. And so we don't believe that this one issue is going to be a major problem in terms of our future growth. We will continue to look at the full spectrum ranging from asset level, project financing, all the way through to offshore alternatives and that includes So bonds, CDs and equity. Hope that helps, James. I'll pass to Samuel on the third question. Sure. So James, in terms of your third question, it is true if you look at the past quarter, The government did mention several things. First of all, the 14th 5 year plan clearly articulate about the digital everything initiatives. And then July timeframe, the MIIT issued a notice about the country's 3 year plan to empower the digital economy, You've mentioned about the new data center sort of initiative. In VNET, from our point of view, first of all, we do have distinctive advantages compared to the peer companies in a way that we have 25 years of great track record. We have a full stack services. And most importantly, we do have the very diversified, vibrant ecosystem with more than 6,000 customers and a whole bunch of the partners. And so to a certain degree, when government mentioned about some of the old data centers and focusing on the and continue to improve the PUV, Give us a great opportunity to hopefully to validate some of the industry. We're here for the long term. And then honestly, some of the players in the market space, Given all of the limitations and things like that, probably would be the great targets to get consolidated. So that being said, we've been working with the government very closely, and we'll continue Double click on the efforts we put in and also looking for the opportunity to further consolidate some of the players in the market space. So hopefully, that gives you some of the colors about what we're going to do. Great. Thank you, Samuel. Thank you, Jin. Our next question comes from the line of Guan Wang from Daiwa. Please ask your question. Thanks for the opportunity to raise questions And congratulations to the strong results. My question is regarding our new client commitments. So I know we have attracted Huaxi as a paid client last quarter and we also acquired a new leading community platform for this quarter. So I want to know any visibility currently attaching new kind of ties to know and want to have a better impression on Our differentiated strategy in attracting wholesale clients. So another issue is that we I understand that our Actual execution for the first half is basically in line with our expectation. So looking into the second half, is there any visibility or Possible issue management may think about that may impact our capacity delivery. Thank you. Hi, Guap? Yes. Let me answer the questions and also then see if Sami has anything to add to that. In terms of new client And new customers that we've attracted over the past quarter, you're correct. I mean, we've made some very good progress. I would say that when we first started pushing ahead and starting our wholesale business at the end of 2019, I think there were, I guess, questions about our ability to expand beyond our single customer. And I think that we've proven Over the past year and a half, a very strong ability, not only to attract new customers, but also to get a very diverse range You have attractive customers and that's been extremely strong in how we've grown our overall wholesale business. As to the execution, you're correct. First half, we did meet what we had expected in terms of capacity. And Currently, we don't expect any issues in terms of the second half. Obviously, there are, as all things related to construction and so forth, There may be time shifts backwards and forwards, but we still expect to be able to hit what we've put out into the slides about 15,000 cabinets And hit our 25,000 Cabinets for the balance of the year. Samuel, I didn't know if you wanted to add anything else in terms of the customer side. Yes. And so originally, I think we mentioned about not until like 2019, we started The dual core strategy and to a third degree, that's industry leading, fairly, fairly distinctive compared to our peers. And then originally, we focused on the hyperscalers, which is basically the public cloud service providers. And then we noticed some of the big name Internet company also has strong needs to customize their data centers. And then on the other hand, From a retail side point of view, because the COVID-nineteen basically accelerated diesel transformation, so we now have a lot of the traditional enterprise, Financial services industry, automobiles, logistics and so on and so forth, they are getting very serious about building out their own data centers or have their specific requirements. And so because of that, our scaled retail customer has started to get increased. And so it's not only about 5, 6 wholesale customers. We now have more than a dozen potential wholesale customers and scale retail customers that we can go after and or even partner with. And so from our point of view, these two engines originally sounds very distinct. But to a certain degree, it also helped us to supporting each other's hedge the bets and things like that And providing the good air cover and growing support. So hopefully, that answers Guo Hao's questions. Thank you. Thank you for the management. So may I double check From you, any updates on any sense of intensified supply issue in surrounding area for Beijing? Is there any updates or I'm sorry, Guangdong, can you repeat the question again? I'm sorry. Okay. Sure. So may I double check for you that do we have any color or sense of intensified supply issue in the surrounding area for Beijing maybe Okay. And so for those areas, as We mentioned to the industry, so far from our data center resource point of view, We focus on the Tier 1 city as well as the surrounding area. Having said that, we also pay equal attention on the remote areas, Cases like North China, the Western region, in government, 3 years, directional guidance also Give us a very good framework in terms of the data center, future directions and things like that. As Tim pointed out earlier, for the first half, we did secure some of the additional resources in Hebei province. That's a very good one because in a way, they give us the land and power as well as the power quota sufficiently enough to support both wholesale And the retail customers, and we're going to continue to double down the efforts to do that. Thank you. Our next question comes from the line of Clive Chau firm Credit Suisse. Please ask your question. Hi, management. Thank you for taking my question. My question for I guess follow ups on competition. I want to check, I guess for 2nd quarter On the MRR slight decline, how much had or if any impact Was from the competition side instead of the capacity new at? That's my first question. My second question, do we have any update on the 2 SPOC sell down? Thank you. Thanks, Clive. Let me take that question. With regards to the MRR, Again, I would say that there is no apples to apples comparison. I wouldn't be able to point to one single factor. It is a mix of the different types Services that are being offered to the customers. And so if a customer takes service A and B and another one takes A and C, that could actually also then change MRR. So again, I would encourage investors to really focus on the sort of medium to longer term trend. Management again expects it to be around 9,000 And then still be increasing as we increase the number of services. But the quarter to quarter volatility, I wouldn't make much of A small drop or small increase in a quarter to quarter basis. With regards Clive to your second question on the Spark transaction, Actually, the company, we don't have a timetable for the deal given the fact that it is a transaction between 2 shareholders. But it is our understanding that the Both parties will file with the SEC in accordance with regulations. So once there is, I guess, an appropriate time, we'll probably see The regulation filed. To the extent that we know anything else or have a further update, we'll let the market know. Thank you. Okay. Thank you very much. Our next question comes from the line of Arthur Lyle from Citi. Please ask your question. Hi, thanks, Samuel and team. On the line here, two questions. I will come one by one. The first question is, would you mind share with the investor your revenue mix in terms of The percentage of wholesale and retail from their revenue carbonate And then for the time horizon is now and for the long term, you will target. Thank you. Hi, Arthur. I'll take this first question. Now we actually don't Provide breakdowns between the wholesale and retail at the moment just because the wholesale is a very, very small component. I can give Roughly 20% of our cabinets are wholesale cabinets as compared to retail. But as we get through this year, you will see then a gradual increase of that contribution. I would say that from a revenue point of view, we're probably around 2 thirds IDC, 1 third is the VPN and cloud business. So again, we are at a point where we can reveal more or give more disclosures on the wholesale versus retail, we will. But at this point, yes, I think you would appreciate that there is a bit of sensitivity with regards to customer information here. So Again, we will provide that in due course, but you can look at sort of the split at the moment of the cabinets as a rough indication 2018. Thank you. Thank you. And second question is more like a long term target. So We also seen your peers' analyst meeting and they maintained their long term target on change. So I wonder if our 25,000 carbonate per year increase, How do you think of your long term goal in the Phase 2? And also, one of the small question is, You mentioned this quarter you add logistic clients, tenant. And can you share more The successful story, how you grow this client and how big the demand will be? Okay. Thanks. That's my whole question. Okay. Arthur, let me handle the first part of that question in terms of The targets that we've set and then maybe I'll let Samuel give you a little more color on how we've nurtured and grown these new customers of ours. In terms of the target, I would say that, yes, we're still maintaining the 25,000 per year for this year, next year and the year after. Following our increase last year from 15,000 cabinets, 25,000 cabinets, I think at this moment, we don't see any big Transformative changes that will have us increasing our targets yet again. And so I would say that we've maintained 25,000 cabinets. Samuel, I'll pass to you in terms of the logistics and sort of how we've grown other clients, our customers. Yes, for sure. So thank you, Arthur, for the questions. Yes, we did mention about the Q2 that we secured a lot of the Customers from various industries. And a specific one that we talked about related to the logistics, it is J and T Express. That is a very fast growing logistics company, supporting a lot of The e commerce providers and not just from a domestic point of view, they also have a strong foothold in the global areas. And then and so J and T Express and VNet are a very strategic partnership, Not just from the data center point of view, but also from the full stack services point of view. So we're very pleased to be able to secure the customers and partner with them to support their future growth. Thank you. And can you quantify like how the growth rate of loss type of clients will be? We can't really provide the granular data. But having said that, I think it's very, very important. If you look at the VNet versus our peers, as we mentioned to the industry that we do have a dual core growth So while the hyperscaler wholesale segments enjoyed the high double digit growth year over year, But we can't underestimate the huge momentum from the traditional enterprise Internet companies and things like that. And so We fully leveraged our retail engine to support a company like J&T Express because they're growing dramatically to support They're customers to deliver the goods and services. And so we're going to provide their we're going to provide them The digital era infrastructures. So we're happy to partner with them and enjoy the growth. Got you. Thank you. Thank you. Our next question comes from the line of Hao Chen from Goldman Sachs. Please ask your question. Hi, good morning, management. This is Tina Ho from Goldman Sachs. So I have two questions. The first one is regarding the latest competition environment in the market. So for example, In terms of winning these new customers, what was the process like? Like, for example, how many competitors do you need to A bit against in winning some of the new customers and also what is the latest project IRR you're getting in these new orders or new MOUs? And then the second question is regarding our non GAAP EBITDA margin. So I saw that based on our the midpoint of our full year guidance, The EBITDA margin is about 27.9%. However, in the first half, we are trending above 29%. So does that mean We're going to come down to around 27% in the second half. Is that management being quite conservative? Or is there any reason that We should expect lower EBITDA margin in the second half such as lower overall utilization rate or the ramping data center utilization rate in the second half. Thank you. Thank you, Tina. I'll probably take the first one and pass to Tim to answer Your second question. In terms of competition, yes, there's a whole bunch of competition in the specific new infrastructure market space. In a way that because not only from the traditional enterprises and carriers and also carrier neutral players, We also have a new commerce, right? And then so it's going to be a very, I would say, competitive, fierce competition environment. But that being said, we have fairly, fairly distinctive advantages among the peers. Not only we have a 25 years great track record, We also have a full stack services all the way from colocation, networking capabilities and bare metal services in the hybrid cloud Even include the latest acquisition, the cloud native capabilities and plus the O and M. And so We're very, very confident from the ABILITY point of view. And then the third one being 6,000 very vibrant ecosystem. And then so those are great assets, give us the competitive advantages versus our peers, Whether they are long term players or short term players and so on and so forth. And also from a market business model point of view, There are only about a handful of customers very much focused on customize their data centers and Supporting their business needs, but majority of the customers actually is going to leveraging the digital infrastructure to For their digital transformation. And so unlike our peer companies, majority of them happen to Either support the wholesale or support the retail, but we also have but we have we are the only one probably In the market space, to have a 2 dual engines. So that's something where I would say we're very, very confident to do that. And also, as I mentioned earlier, Something we pay extra attention is we do see the opportunity from the cloud on ramp and also off ramp opportunities. That's primarily from an Internet company segment point of view. So that would fuel Our future growth in our opinions. So Tim, should I can I pass on the Taco question to you? Sure. So let me, I guess, address the second part of that question as well, Tina. I think you had a question with regards to whether or not IRRs were being affected and competition. And so I think Samuel gave you some of the color in terms of what we offered to our customers. And look, we've seen a lot of live examples Of cases where this does not actually come down to an IR question, but rather actually having the right resources in the right places with the right solutions. And we're on both sides of the ledger here. There are cases where unfortunately we're not able to meet the very, very precise requirements of the customer And so we're not in running, but similarly, we're in cases where we meet all of the customers' requirements. And therefore, there actually isn't a lot of sort of Price competition here, but rather making sure that we have the right resources in the right places. So I think that's a very, very big focus. Secondly, with regards to your question on EBITDA, I would say that you would see in terms of cabinet delivery and ramp ups, cabinet delivery is very, very heavy in the Q2 compared to Q1 and the same thing will be in terms of Q4 compared to Q3 and second half. So you remember it was roughly a $10,000 $15,000 split between first half and second half. So that is the driver For the lower expected EBITDA margins in the second half and then for the full year numbers that you're calculating out. That helps to answer your question, Tina. Yes. Thank you so much. Can I just have a follow-up question? So in the presentation, management mentioned that This year the target over utilization rate is 60%. Do we have a target for next year? We'll give some more details. I think at this moment, it really we're rolling out 25,000 a year. And so depending on the customers, we have obviously our wholesale customers that ramp up a little bit faster than our retail. And so we'll have to look at that, but we will be targeting around a similar range for next year as well. So despite the fast rollout, I think we'll still be targeting to get to around 60%. Great. Thanks. Thank you. Our next question comes from the line of Ethan Zhang from Nomura. Please ask Your question. Good morning. Thanks for letting me ask the question. So I have just one question on CapEx. So during the first half, I noticed that the company only spent around RMB1.1 billion on CapEx, which only represents around 20% of the Full year CapEx guidance of CNY5.5 billion. So just wondering whether the company still maintains its previous CapEx guidance This indicates we may do more like M and A projects during the second half of this year or the Delivery of capacity will further accelerate. And also regarding M and A, what's our current M and A strategy here? Thanks. Okay. Thank you, Ethan. Let me take this and I'll see if Samuel wants to add anything to this. In terms of CapEx, you're correct. The CapEx that we've spent in the first half of the year has been less. But again, this is related to our second half Ramp up and acceleration. So we certainly do expect that this will ramp up quite significantly in the second half And we'll be within the $5,000,000,000 to $6,000,000,000 that we've guided. Secondly, in terms of M and A and M and A strategy, I think the strategy is to identify opportunistic transactions which suit Our requirements and obviously the requirements of our customers. But as you can well appreciate, M and A deals are not the easiest to forecast, because you could be talking to many and only have a few ultimately come through. So We are in a number of discussions. And as we had indicated, we've also acquired some additional Land and power and quota assets in the northern part of China. And so we'll continue to do that and you'll see some of those coming through again in the next two quarters. Hope that helps. Thanks. Very helpful. Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now disconnect.