VNET Group Q2 2026 Earnings Report

VNET Group EPS Results

• Actual EPS: -$0.06
• Consensus EPS: -$0.02
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: N/A

VNET Group Revenue Results

• Actual Revenue: $409.00 million
• Expected Revenue: $401.77 million
• Beat/Miss: Beat by +$7.23 million
• YoY Revenue Growth: N/A

VNET Group Announcement Details

• Quarter: Q2 2026
• Date: 8/19/2026
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 18, 2026
• Conference Call Time: 8:00AM ET

VNET Group (NASDAQ:VNET), Inc. (NASDAQ:VNET), formerly known as 21Vianet Group, is a China-based provider of data center and information technology infrastructure services. The company operates carrier-neutral data centers that support enterprise customers, cloud service providers, internet companies, financial institutions and other organizations requiring secure, reliable computing and network capacity.

Its services include data center hosting and colocation, managed network services, cloud computing infrastructure, internet connectivity, content delivery and related information technology solutions. VNET’s carrier-neutral model allows customers to connect with multiple telecommunications carriers and network providers, supporting flexible connectivity and business continuity.

Founded in 1999, the company has expanded its data center and technology infrastructure operations across major Chinese markets. VNET Group became publicly listed on the Nasdaq in 2011 and adopted its current name in 2021. Its services primarily support customers operating in mainland China, while its infrastructure is designed to serve businesses with large-scale and mission-critical technology requirements.

VNET Group Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: AI-driven demand remained strong, with VNET securing 347 MW of Q2 orders and 862 MW year to date; total orders and reservations exceeded 1.2 GW, providing visibility into future deliveries.
• Positive Sentiment: Wholesale capacity in service surpassed 1 GW, rising 49.4% year over year, while utilized capacity increased 45.5% to 744 MW. Mature wholesale utilization reached 92.5%, and management expects move-ins to improve modestly in the second half.
• Positive Sentiment: Q2 revenue rose 14.2% to RMB 2.78 billion and adjusted EBITDA increased 25.4% to RMB 918.3 million, while adjusted net income turned positive at RMB 7.4 million. Management reiterated full-year revenue guidance of RMB 11.5–11.8 billion and adjusted EBITDA guidance of RMB 3.55–3.75 billion.
• Neutral Sentiment: VNET added substantial resource reserves, including approximately 1.4 GW of new land-bank capacity and about 500 MW overseas, but said overseas development will remain cautious and primarily follow firm customer orders. The first overseas delivery is expected in Southeast Asia, with the Middle East and Europe under evaluation.
• Negative Sentiment: Adjusted cash gross margin declined to 41.8% from 43.6% a year earlier, mainly due to higher utility usage and pass-through effects, while customer concentration remains notable, with 510 MW of first-half orders tied to one leading internet customer. Full-year 2026 CapEx is expected to remain high at RMB 10–12 billion, and net debt stood at 4.6 times annualized adjusted EBITDA.

Presentation

[Operator]

Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2026 earnings conference call for VNET Group, Incorporated. After management's prepared remarks, there will be a question and answer session. Please note the Chinese line is in listen-only mode. If you wish to ask questions, please dial in through the English line. Participants from our management include Mr. Wen Teng, Rotating President, Mr. Peter Zhang, SVP of Operational Finance, Ms. Sharon Liu, Executive Vice President, Ms. Julia Jiang, Senior Manager of Investor Relations of the company, Mr. Ju Ma, Executive Vice President. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Julia Jiang. Please go ahead.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Thank you, Operator. Hello, everyone, and welcome to our second quarter 2026 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on news wire services. Please note that today's call will contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligation to update any forward-looking statements, except as required under applicable laws. Please also note that VNET's earnings press release and this conference include the disclosures of unaudited GAAP and non-GAAP financial measures.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

VNET earnings press release contain a consolidation of unaudited non-GAAP measures to the unaudited GAAP measures. A summary presentation of which we refer during this conference call can be viewed and downloaded from our IR website at ir.vnet.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by neolink.AI to deliver this quarter's prepared remarks by Mr. Wen Teng, our Rotating President, and Mr. Peter Zhang, our SVP of Operational Finance. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our website at ir.vnet.com. Now, let's get started with today's presentation. Mr. Teng, please go ahead.

[Wen Teng, Rotating President at VNET Group, Inc]

Good morning and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during the second quarter of 2026. We delivered another robust quarter as we continue to capitalize on surging AI-driven demand, leveraging our industry-leading capabilities, strategically located resource reserves, and strong execution. In the second quarter, we secured a total of 347 MW in new order wins, primarily driven by accelerating growth in our wholesale IDC business, which contributed 345 MW. Together with the 517 MW of orders disclosed in our last quarter earnings results, our wholesale IDC business has secured a total of 862 MW of new orders year-to-date in 2026. As of June 30, 2026, our wholesale capacity in service rose by 49.4% year-over-year to 1,007 MW, surpassing 1 GW for the first time.

[Wen Teng, Rotating President at VNET Group, Inc]

Meanwhile, wholesale capacity utilized by customers grew by 45.5% year-over-year to 744 MW, bringing the utilization rate to 73.9%. Our retail IDC business continued to progress smoothly, supported by growing AI-driven demand. Retail MRR per cabinet increased to RMB 9,799 in the second quarter, while the retail utilization rate remained stable at 64.5%. On the financial side, our total net revenues increased by 14.2% year-over-year to RMB 2.78 billion for the second quarter. Wholesale revenues remained the key growth driver, reaching RMB 1.10 billion, a year-over-year increase of 29.3%. Our adjusted EBITDA for the second quarter increased by 25.4% year-over-year to RMB 918.3 million, also primarily attributable to the wholesale IDC business. Beyond our operational and financial performance, we made meaningful progress on the following two strategic initiatives during the quarter.

[Wen Teng, Rotating President at VNET Group, Inc]

First, we continued to advance our strategic collaboration with CATL, a global leader in zero carbon new energy technology. We signed a strategic cooperation agreement to jointly develop a three-layer integrated compute energy ecosystem. I will share more details shortly. Second, we continued to strengthen our strategic resource reserves across key regions. By the end of the second quarter, our total capacity exceeded 3.5 GW in the Chinese mainland. On top of that, we secured approximately 500 MW of overseas resources. Our proactive investments in critical resources provide the flexibility for future capacity expansion, enabling us to capture rising demand. Together, these strategic initiatives further strengthen our competitive position and support our long-term growth. Let me now walk you through our business performance in more detail. Moving on to our new order wins on slide five. Our premium reliable services continue to earn customer trust and gain market share.

[Wen Teng, Rotating President at VNET Group, Inc]

Following our last earnings call, we won a new 345 MW wholesale order in the second quarter from a leading cloud service provider for our data center in the Greater Beijing Area. This order win reflects growing customer confidence in our high-performance data center capabilities and our ability to support their evolving AI infrastructure requirements. Furthermore, driven by AI-related demand, we secured new retail orders totaling approximately 2 MW across multiple retail data centers during the quarter from customers in the IT services, local services, and financial services sectors. In aggregate, we secured four wholesale orders totaling 862 MW year-to-date in 2026, including the 345 MW I just mentioned and 517 MW we announced last call. We continue to see robust momentum in customer demand with increasing depth and durability.

[Wen Teng, Rotating President at VNET Group, Inc]

Customers are not only accelerating their near-term capacity deployments, but are also beginning to secure capacity in advance under reservation agreements to support their medium to long-term expansion plans. As of the end of the second quarter, our reservations stood at 355 MW, bringing total orders and reservations to over 1.2 GW. This demonstrates the strength and sustainability of expansion-related demand and provides greater visibility into our future growth and phase delivery schedule. Meanwhile, we have established a well-structured delivery schedule for these orders, with approximately 287 MW expected to be delivered in 2026, 345 MW in 2027, and 230 MW in 2028 and beyond. Securing these large-scale orders is a testament to the trust customers place in our execution capabilities and speed to market.

[Wen Teng, Rotating President at VNET Group, Inc]

These new orders and our disciplined delivery roadmap enhance the visibility and predictability of our future revenue growth, underpinned by a high-quality base of long-term contracted revenue. Please see slide seven. As of the end of the quarter, more than 90% of our wholesale IDC revenue was recurring. Our total capacity committed benefits from a favorable maturity profile with minimal near-term expirations and a weighted average remaining lease term of seven years. These long-term customer commitments provide a predictable and resilient foundation for our sustained revenue growth. The rapid development of AI continues to drive significant growth across the IDC industry. As AI models become increasingly sophisticated and AI applications continue to scale across industries, leading internet companies, large cloud service providers, and AI native companies are accelerating their investments in high-performance computing infrastructure. On the supply side, the industry is also undergoing a structural shift.

[Wen Teng, Rotating President at VNET Group, Inc]

Increasing power requirements, longer project development cycles, and greater construction complexity are concentrating demand among IDC operators with secured power resources, proven large-scale delivery capabilities, and the technical expertise to execute complex IDC projects. With our differentiated resource portfolio, established AI infrastructure capabilities, and deep relationships with leading customers, we are well-positioned to serve as a trusted infrastructure partner and capture the long-term growth opportunities created by the continued expansion of AI. Now, let's delve into our IDC business updates, starting with our wholesale business on slide eight. Our wholesale business continued to grow, with capacity and service increasing by 49.4% year-over-year to 1,007 MW, surpassing the 1 GW milestone for the first time. Utilized capacity grew by 45.5% year-over-year to 744 MW, with a utilization rate of 73.9%, mainly attributable to customers' fast move-ins at N-HB Campus 03 and N-OR Campus 01.

[Wen Teng, Rotating President at VNET Group, Inc]

Our mature capacity utilization rate also reached 92.5%, a relatively high level. Let's turn to slide nine for an update on our wholesale capacity growth pipeline. As of June 30, 2026, our wholesale resource capacity totaled over 4 GW, representing an increase of approximately 1.5 GW from the previous quarter. Mainly driven by the land bank we secured this quarter, customer demand remained strong across our capacity portfolio. Capacity in service grew to 1,007 MW, with 96.3% already committed by customers. Meanwhile, capacity under construction increased to 585 MW, with a pre-commitment rate of 94.2%, providing strong visibility into future deliveries. Approximately 1.1 GW of this capacity is held for future development, primarily in the Greater Beijing Area. The scale and strategic concentration of these resources allow us to expand efficiently and respond flexibly to customer demand.

[Wen Teng, Rotating President at VNET Group, Inc]

Our newly secured land bank supports approximately 1.4 GW of this capacity, with 908 MW across key strategic locations in the Chinese mainland and 478 MW in overseas markets, giving us substantial flexibility to support both domestic and international expansion. This diverse resource portfolio not only provides a clear multi-year growth runway, but also reinforces our ability to deliver capacity at scale as AI-driven demand continues to accelerate. Moving to our retail IDC business on slide 10. Our retail business progressed smoothly in the second quarter. Retail capacity in service was 50,081 cabinets, with utilization rate remaining stable at 64.5% as of the end of June. MRR per retail cabinet increased to RMB 9,799 this quarter. Turning to our delivery plan for the following 12 months on slide 11.

[Wen Teng, Rotating President at VNET Group, Inc]

We delivered 117 MW in the first half of 2026, in line with our delivery plan, which concentrates the majority of the year's deliveries in the second half. We currently have six data centers under construction, with five in the Greater Beijing Area and one in the Yangtze River Delta. We plan to deliver 585 MW of capacity over the next 12 months, around 333 MW during the second half of 2026, and around 252 MW during the first half of 2027. The majority of these upcoming deliveries will come from our Ulanqab IDC campus, where we are scaling capacity to support strong and sustained demand from our wholesale customers. This delivery plan provides clear visibility into continued capacity and revenue growth over the coming quarters. Now, I'd like to share more on the strategic cooperation agreement with CATL that I mentioned earlier. Please turn to slide 12.

[Wen Teng, Rotating President at VNET Group, Inc]

Under the agreement, VNET and CATL will establish a partnership to deepen computing energy integration by synergistically combining VNET's leadership in large-scale computing infrastructure development and operations with CATL's expertise in zero-carbon new energy technologies. With the goal of shaping next-generation digital energy infrastructure globally and leveraging green direct-current and direct green power connection technologies, the parties plan to jointly develop a three-layer integrated compute energy ecosystem comprising gigawatt-scale compute energy facilities, distributed compute-energy networks, and a zero-carbon token ecosystem. By combining our complementary strengths and deepening cooperation across technology, infrastructure, and supply chains, we will jointly advance innovation in integrated compute energy systems. Together, we aim to contribute to the next generation of digital energy infrastructure in the intelligent era. Before I conclude, a few words on what lies ahead.

[Wen Teng, Rotating President at VNET Group, Inc]

This partnership with CATL will further strengthen our core competitiveness and inject new momentum into our future growth. More importantly, it reflects our long-term commitment to becoming a standard-setter and industry leader of digital energy infrastructure in the AI era. Building on this strategic cooperation, we plan to lay out our future operating strategy and outlook to the market in the fourth quarter. In conclusion, our second quarter performance reflects continued progress across our business. Looking ahead, we will continue to strengthen our execution capabilities, expand our high-performance, large-scale data centers, and strategically invest in resource reserves to enhance our competitive position and capture rising growth opportunities. We remain confident in our growth trajectory and committed to creating sustainable long-term value for our shareholders. Now, I will turn the call over to our SVP of Operational Finance, Peter, for further discussion of our operating and financial performance. Thank you, everyone.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

Good morning and good evening, everyone. Before we start the detailed discussion of our financial performance, please note that unless otherwise stated, all the financials we present today are for the second quarter of 2026 and are in Renminbi terms. Furthermore, unless otherwise specified, all the growth rates I am reviewing are on a year-over-year basis. In the second quarter, we continued to focus on high-quality development. Our total net revenues increased by 14.2% to RMB 2.78 billion, mainly driven by the rapid growth of our wholesale business. Our adjusted cash gross profit rose by 9.4% to RMB 1.16 billion, while our adjusted EBITDA also grew year-over-year by 25.4% to RMB 918.3 million. Adjusted net income reached RMB 7.4 million, marking a turnaround from an adjusted net loss in the same period last year. Let's look more closely at our top-line wholesale revenues.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

Our key revenue growth driver increased by 29.3% to RMB 1.10 billion for the second quarter, mainly attributable to activity at the N-HB Campus 03 and N-OR Campus 02A. Wholesale revenue again surpassed retail revenue this quarter, accounting for 39.8% of our total revenue and further underscoring the growing demand for our wholesale service. Retail revenues increased by 9.1% to RMB 1.05 billion for the second quarter. Our non-IDC business revenues increased by 1.1% to RMB 628.4 million for the second quarter. During the second quarter, we maintained solid margins, thanks to ongoing efficiency enhancement initiatives. Our adjusted cash gross margin decreased slightly to 41.8% from 43.6% in the same period last year, primarily attributable to higher utility costs for customers. Our adjusted EBITDA margin rose to 33.0%, compared with 30.1% in the same period last year. Moving on to liquidity, we maintained a robust and healthy liquidity.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

Our net operating cash inflow reached RMB 391.8 million during the first half of 2026. Excluding the impact of RMB 389.7 million in income tax related to capital transactions and other one-off items, net operating cash inflow for the first half would be RMB 781.5 million. Our cash position remains solid, with total cash and cash equivalents, restricted cash and short-term investments reaching RMB 7.21 billion as of June 30, 2026. Let's take a look at our debt structure. We maintained our prudent approach to debt management. As of June 30, 2026, our net debt to the adjusted last quarter annualized EBITDA ratio was 4.6x and total debt to the adjusted last quarter annualized EBITDA ratio was 6.4x, both remaining at healthy levels. Our adjusted last quarter annualized EBITDA to interest coverage ratio was 5.6x.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment. Currently, the company's short and medium-term debt maturing in 2026 to 2028 comprises 40.8% of our total debt. Turning to CapEx spending, our CapEx was RMB 3.55 billion in the first half of 2026, primarily reflecting continued strategic investment in capacity expansion and the construction of our wholesale data center projects. We continue to expect our CapEx for full year 2026 to be in the range of RMB 10 billion-RMB 12 billion, mainly to support our planned delivery of 450 MW-500 MW in 2026. Now moving to our full year guidance for 2026. As we continue to expect strong demand from our wholesale IDC customers and ongoing operational efficiency gains throughout 2026, our outlook remains unchanged from the previously provided estimates.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

We reiterate our guidance of total net revenues expected in the range of RMB 11.5 billion-RMB 11.8 billion, a year-over-year increase of 15.6%-18.6%, and adjusted EBITDA in the range of RMB 3.55 billion-RMB 3.75 billion, a year-over-year increase of 19.2%-25.9%. To sum up, we delivered solid second quarter results reflecting continued execution strength and meaningful progress across our strategic initiatives. Looking ahead, we will remain focused on strengthening our core capabilities, deepening strategic collaborations, and expanding our infrastructure resources to capture the long-term opportunities in the AI era. We are committed to delivering sustainable, high-quality growth and creating long-term value for our shareholders. This concludes our prepared remarks for today. We are now ready to take questions.

[Operator]

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please ask your question to management in English and then repeat in Chinese. Your first question today comes from Tom Tang with Morgan Stanley. Please go ahead.

[Tom Tang, Analyst at Morgan Stanley]

Thank you, management, for the opportunity to ask the questions, and congratulations on the very large order win this quarter. I only have one question. Could you please give us an update on the overall supply and demand situations in our key regions? If there is any updated outlook for the pricing dynamics there?

[Translator]

[Non-English content]

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you for your question. With regard to the demand, we are seeing that the overall compute demand steadily trending up. That is primarily contributed to the demand from both AI training and inferencing. According to multiple organizations, the market still offers room for growth, with the AI focused smart computing segment growing particularly fast. Incremental demand is largely driven by leading internet companies procuring high capacity, high density cabinet resources in key regions. In 2026, several major players are expected to issue tenders at the gigawatt level, primarily concentrated within the national hubs under the East Data, West Computing Initiative.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

In terms of supply, the national data center capacity continues to expand. However, the industry is showing clear structural mismatches. The aggregate capacity does not always translate into effective supply of high power smart computing resources.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

The sector is currently in a tight equilibrium. The release of effective compute capacity is constrained by power availability, chip supply chains, and other real-world bottlenecks. Multiple industry analysts expected this structural imbalance to persist until around 2028.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

For us, which is a top-tier player with an end-to-end capability, this will definitely create sustained tailwind for us.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

On pricing, existing projects will follow agreed contract rates. For new projects, pricing will factor in peer rates in the same region, construction costs, resource scarcity, the competitive landscape, as well as our target returns.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question please.

[Operator]

Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

[Timothy Zhao, Analyst at Goldman Sachs]

Great. Thank you management for taking my question. I have two questions. One is regarding the moving pace in the second quarter and quarter to date. Just wondering if management can share any color, because I saw the overall wholesale IDC revenue was a little bit weaker than expected in the second quarter, whether that was a reason because of the moving pace in early quarter, and how does that trend into third quarter? My second question is regarding your CapEx outlook. Given the very strong order wins and the very strong order delivery plan over the next couple years, and also you announced the overseas plan.

[Timothy Zhao, Analyst at Goldman Sachs]

Just wondering if you can share any color on your CapEx outlook into next year and specifically on the overseas projects, could you share any color on the timeline, on the delivery pace, and overall your view on the unit economics?

[Translator]

[Non-English content]

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

This is Teng Wen. I will take your first question regarding the moving pace of our wholesale customers. We actually maintain a very steady moving pace in Q2, and we are going to sustain that momentum. Honestly speaking, the moving pace is a result of multiple factors, and in addition to chip supply, there are also factors related to how fast our customers are iterating their models and how fast they are progressing their projects. Overall, we are expecting to see a faster moving pace in the second half of this year, marginally compared to the first half.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Just a quick add. We are now in a period where the domestic produced chips are quickly ramping up in terms of the production. The production capacity has been fairly clear for the second half of 2026, and we are going to see a release of this production capacity. That will definitely push our moving pace higher.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

[Non-English content]

[Translator]

This is Peter. I will take your second question. On CapEx, essentially, our logic is that our CapEx is centered around demand as well as our actual deliveries. We normally disclose the full year CapEx for 2026 once we have a quantitative delivery target for the whole year. So that is for our CapEx plan. Moving on to the overseas development. As we have noted, we do have 500 MW reserved resources. Overall, we will maintain a prudent approach when it comes to developing these resources. We will have to follow the orders. We need to get the orders first before we develop these resources.

[Sharon Liu, EVP at VNET Group, Inc]

[Non-English content]

[Translator]

This is Sharon. Quick add on the CapEx plan. Like Peter has already mentioned, the CapEx for domestic product will be closely tied to the delivery schedule and the overall unit economics for the domestic IDCs. I mean, per kilowatt is stable. Overall, as we have mentioned in our earnings report, we have a strong order pipeline and great customer retention ratio that offers us a high visibility into the CapEx. As we have disclosed, we have close to 500 MW of overseas reserved resources, and we are planning to deliver these resources in batches. Given that the construction cost is relatively high in overseas countries, therefore, we will strictly maintain our overseas outlay.

[Translator]

Initially, we would only use our own fund to acquire the land, and only when we have obtained or secured firm orders from our customers will we start the mechanical and electrical fit out.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question, please.

[Operator]

Your next question comes from Daley Li with Bank of America Securities. Please go ahead.

[Daley Li, Analyst at Bank of America Securities]

Hi, management. Thanks for taking my question. I have two questions here. One is I would like to have follow-up on the overseas expansion. In this quarter, we have secured quite strong resources. Could you update us more about the overseas strategy and for the next two to three years, which countries or areas should be our focus and the overall development pipeline and the revenue scale in future? My second question is about the CATL cooperation. We also made an announcement about the cooperation with CATL, our future new shareholder. Could you update us the transaction with Shandong Hi-Speed, the progress, and also could you share more color about the more detailed cooperation going forward?

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

This is Teng Wen. I will take your first question. Given that Peter and Sharon has already covered, I would like to briefly just make a quick add on our overall strategy when it comes to our overseas resource development. Yes, you are right. VNET has recently added 500 MW of new overseas reserved resources. The key for the company is to stay responsive to our customers' needs when they are going overseas. We would respond to those demand and implement our projects overseas. The very first project to be delivered is going to be in Southeast Asia. While deepening our presence there, we are also evaluating opportunities in Middle East and Europe to broaden our global footprint.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Second question on CATL's investment and specific collaboration updates.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Today we have issued a joint press release with CATL. We have already built a full-scale strategic partnership. We are going to capture the surging demand from AI. With the global energy and AI revolutions converging, the integrations of computing and energy has become a key driver for both digital growth and decarbonization. We see a huge opportunity in this space.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Our collaboration will be focused in three areas. We plan to roll out a three-layer integrated architecture or ecosystem. Number one, a gigawatt-scale computing energy facilities. Number two, building a distributed computing and energy networks. Number three, build a zero-carbon token ecosystem.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

The goal is to build a national and eventually global network and to become the defining player in digital energy infrastructure for the AI era.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

We are seeing synergies in this collaboration and will disclose more progress as we see more definitive progress, and we will disclose them to the market in a timely manner.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question, please.

[Operator]

Your next question comes from Sara Wang with UBS. Please go ahead.

[Sara Wang, Analyst at UBS]

Thank you for the opportunity to ask the question. Again, congratulations on the very strong results. I just have one question. I noticed that the second quarter new booking is very strong, but it is concentrated in one customer. Just wondering if there is any specific reason behind, or how shall we think about customer mix going forward? Do we see potential for maybe sizable order wins from the emerging AI leaders?

[Translator]

[Non-English content]

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you for the question. As you have noted that we have signed a cumulative 862 MW new orders in the first half. Specifically, 510 MW order was signed with a leading internet company. In Q2, we signed a 345 MW new order with another leading computing enterprise.

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

In terms of the customer mix, in addition to deepening the collaboration with the leading internet companies as well as hyperscalers, the company is also actively exploring or expanding the customer base, expanding to more AI model companies as well as high growth companies in the AI industry, as well as leading companies from various verticals. So going forward, we will keep fine-tuning the customer mix of our wholesale customers to pursue a more diversified customer base.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question, please.

[Operator]

Your next question comes from Yining Li with Citi. Please go ahead.

[Yining Li, Analyst at Citi]

Hi, thanks for the opportunity to ask this question, and congratulations to company again. My question is about the OpEx side. Just wondering, because you've got very good OpEx performance this quarter, is this level of cost efficiency sustainable going forward? Or company has some other guidance on the cost side? That's my only question.

[Translator]

[Non-English content]

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you for your question. This is Peter. Cost reduction has been an ongoing theme for us, and we have already seen some clean results in Q2. I think over the long run, we will leverage the economies of scale to reduce the overall operational cost. Specifically, we will continue pursue measures like headcount control, maximizing the efficiency of AI tools within the company. In terms of the concrete benefits we see from these initiatives, we will disclose them in a timely manner to the market.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question please.

[Operator]

Your next question comes from Ethan Zhang with Nomura. Please go ahead.

[Ethan Zhang, Analyst at Nomura]

Okay, thanks management, congratulations for the results. I have two questions. First, I noted that we added around 1.5 GW new resources or land banks during the second quarter. Around 900 MW is in domestics. Just wonder what is the location and could you share more colors about the power supplies and the government approvals? My second question is about financials. I noted that Q2's cash gross margin is quarter-over-quarter declined a bit. Could you elaborate a bit on that?

[Translator]

[Non-English content]

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you for your question. For your first question, in Q2, we added 900 MW new resources in China. They are primarily located in Inner Mongolia and East China regions.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

[Non-English content]

[Translator]

In the next three years, the company will continue to obtain new resources in Inner Mongolia, particularly the Ulanqab area.

[Peter Zhang, SVP of Operational Finance at VNET Group, Inc]

[Non-English content]

[Translator]

This is Peter. I will take your second question on gross margin and the sequential decline in particular. There are two reasons. Number one, the utility usage in Q2 was significantly higher than that of Q1. Because we are adopting a pass-through mechanism, that weighs on our gross margin. Reason number two is we had a one-off gain in Q1. Together these two combined weighed on the gross margin.

[Julia Jiang, Senior Manager of Investor Relations at VNET Group, Inc]

Next question, please.

[Operator]

Your next question comes from Mingran Li with CICC. Please go ahead.

[Mingran Li, Analyst at CICC]

Thank you very much for taking my question and congrats on the strong results. I only have one question. We noted that the customer demand remained very strong in the first half of the year, and we currently have approximately 355 MW of reserved capacity. Could management share how long it typically takes for reserved capacity to convert into orders? Based on the current type of pipeline and ongoing discussions, is there potential for additional large-scale capacity reservation in the second half of the year?

[Translator]

[Non-English content]

[Wen Teng, Rotating President at VNET Group, Inc]

[Non-English content]

[Translator]

Thank you for question. This is Teng Wen. Orders and reserved capacity are typically covered in the same sales agreement. Orders are capacity customers have formally committed to. Reserved capacity is future expansion resources pre-locked at the same site to support their growth. Historically, all customer reservations have converted into firm orders, making this a high-quality backlog with a strong conversion certainty. The actual timing for the 350 MW depends on each customer's own deployment schedule and will happen in batches as their projects progress. We will disclose actual order conversions in subsequent quarterly reports. Thank you.

Participants

Executives

• Julia Jiang, Senior Manager of Investor Relations
• Wen Teng, Rotating President
• Peter Zhang, SVP of Operational Finance
• Sharon Liu, EVP

Analysts

• Tom Tang, Analyst at Morgan Stanley
• Translator
• Timothy Zhao, Analyst at Goldman Sachs
• Daley Li, Analyst at Bank of America Securities
• Sara Wang, Analyst at UBS
• Yining Li, Analyst at Citi
• Ethan Zhang, Analyst at Nomura
• Mingran Li, Analyst at CICC