VNET Group, Inc. Q2 FY2026 earnings call

• Core IDC Operational Performance

  • Wholesale IDC: Secured 345 MW of new orders in Q2 2026, bringing year-to-date 2026 new orders to 862 MW. As of June 30 2026, wholesale capacity in service rose 49.4% YoY to 1,007 MW (surpassing 1 GW for the first time), with utilized capacity up 45.5% YoY to 744 MW and a utilization rate of 73.9%. Mature wholesale capacity utilization reached 92.5%. Over 90% of wholesale revenue is recurring, with a weighted average remaining lease term of 7 years. Total wholesale resource capacity exceeded 4 GW as of quarter end, with 96.3% of in-service capacity committed by customers and 94.2% of under-construction capacity pre-committed. Total orders plus reservations exceeded 1.2 GW, with scheduled delivery of 287 MW in 2026, 345 MW in 2027, and 230 MW in 2028 and beyond.
  • Retail IDC: Capacity in service reached 50,081 cabinets, with a stable utilization rate of 64.5%. Monthly revenue per cabinet increased to RMB 9,799 in Q2.
  • Resource Reserves: Total capacity on the Chinese mainland exceeded 3.5 GW as of quarter end, with an additional 478 MW of reserved capacity in overseas markets, supporting long-term expansion.
  • Delivery Pipeline: 117 MW delivered in H1 2026, in line with plan. 585 MW of total capacity is planned for delivery over the next 12 months: 333 MW in H2 2026, 252 MW in H1 2027, mostly from the Wulanchabu IDC campus to serve wholesale demand.

• Strategic Initiatives

  • Signed a strategic cooperation agreement with CATL to jointly develop a three-layer integrated compute energy ecosystem (gigawatt-scale compute energy facilities, distributed compute energy networks, and a zero-carbon token ecosystem), combining VNet's infrastructure expertise with CATL's zero-carbon energy technology. More detailed strategic outlook will be released in Q4 2026.

• Financial Performance

  • Adjusted EBITDA increased 25.4% YoY to RMB 918.3 million, with an adjusted EBITDA margin of 33.0% (up from 30.1% YoY). Adjusted net income reached RMB 7.4 million, a turnaround from an adjusted net loss in the year-ago period. Total cash and short-term investments stood at RMB 7.21 billion as of June 30 2026, with healthy debt ratios: net debt to annualized adjusted EBITDA of 4.6, total debt to annualized adjusted EBITDA of 6.4, and interest coverage of 5.6x. CapEx for H1 2026 was RMB 3.55 billion, focused on wholesale capacity expansion.

VNet Group has three business segments for Q2 2026: 1) Wholesale IDC: Revenue reached RMB 1.10 billion, a 29.3% year-over-year increase. This segment contributed 39.8% of total net revenue, and is the company's primary growth driver. 2) Retail IDC: Revenue increased 9.1% year-over-year to RMB 1.05 billion, accounting for 37.8% of total net revenue. 3) Non-IDC business: Revenue increased 1.1% year-over-year to RMB 628.4 million, making up 22.6% of total net revenue. In aggregate, total Q2 2026 net revenue was RMB 2.78 billion, representing a 14.2% year-over-year increase.

• Full year 2026 guidance is maintained unchanged from prior estimates:
  • Total net revenue is projected between RMB 11.5 billion and RMB 11.8 billion, representing a 15.6% to 18.6% year-over-year increase
  • Adjusted EBITDA is projected between RMB 3.55 billion and RMB 3.75 billion, representing a 19.2% to 25.9% year-over-year increase
  • Full year 2026 CapEx is expected to remain in the range of RMB 10 billion to RMB 12 billion, to support planned delivery of 450 MW to 500 MW of capacity in 2026
• 2027 CapEx and delivery guidance will be disclosed in early 2027, aligned with finalized delivery targets and order visibility

• Industry-wide structural supply imbalance persists: while aggregate national data center capacity is expanding, there is a shortage of effective supply of high-power smart computing resources, constrained by power availability, chip supply chain bottlenecks, and long project development timelines. This imbalance is expected to persist until approximately 2028
• Customer move-in pace is dependent on external factors including chip production and delivery volumes, customer AI model iteration timelines, and individual customer project progress, which can create near-term revenue volatility
• Overseas expansion carries higher construction costs, requiring disciplined phased development to control capital outlay
• Forward-looking results are subject to general market and regulatory uncertainties that could cause actual outcomes to differ from current expectations, as detailed in SEC filings

Q: Can you update supply-demand dynamics and pricing outlook in VNet's key operating regions? / A: Overall demand for data center capacity is growing steadily, driven by AI training and inference, with the high-performance smart computing segment growing particularly fast. Leading industry players are expected to issue gigawatt-scale tenders in 2026, concentrated in national hub regions under China's East Data West Compute Initiative. On the supply side, structural mismatch exists: overall capacity is expanding, but effective supply of high-power AI-capable resources is constrained by power, chip, and development bottlenecks, with tight equilibrium expected to persist to 2028, benefiting top-tier players like VNet. For existing projects, pricing follows contracted rates; new project pricing will account for regional peer rates, construction costs, resource scarcity, competition, and target returns.

Q: Wholesale revenue was slightly below expectations in Q2 — what drove this, and what is the move-in outlook for H2? Also, can you share 2027 CapEx outlook and details on overseas expansion plans? / A: VNet maintained a steady move-in pace in Q2, and near-term pace is affected by multiple factors including chip supply and customer project timelines. Domestic AI chip production is ramping in H2 2026, which will drive a marginally faster move-in pace in the second half of the year. 2027 CapEx will be disclosed in early 2027 aligned with delivery targets, and will remain tied to order backlog and unit economics. VNet has 500 MW of reserved overseas capacity, and will develop it in batches following firm customer orders, starting with land acquisition with only self-funding, and will only start fit-out after securing firm orders to control capital risk.

Q: Q2 2026's large new order is concentrated in a single customer — what is the outlook for customer mix diversification, and will we see more large orders from emerging AI players? / A: VNet will continue deepening partnerships with existing leading internet companies and hyperscalers, while actively expanding its customer base to include more AI native model companies, high-growth AI sector firms, and leading vertical industry players. Going forward, the company will continue to optimize wholesale customer mix to build a more diversified customer base.

Q: What drove the sequential Q2 decline in gross margin, and is the current level of cost efficiency sustainable? / A: The sequential decline is due to two normal, temporary factors: Q2 utility usage was significantly higher than Q1 under the existing pass-through mechanism, which pressured margins, and Q1 included a one-off gain that boosted the sequential comparison. Cost reduction is a sustained priority for VNet, which will leverage growing economies of scale, headcount control, and efficiency initiatives to keep reducing long-term operating costs.