Avis Budget Group, Inc. Price & Performance (CAR)

Thank you, Amber. Hello, everyone, and welcome to Qing Data Group's 2023 Second Quarter Earnings Conference Call. This is Tom from Investor Relations team of the company. With us today are Mr. Nick Wong, our CFO and Ms. Sohu Zhuang, our Senior Vice President, Finance. And during this Nick will take you through the quarterly review of our operation performance and Zoe will present our financial results. Management team will be here to answer your questions afterwards. Now, I will quickly go over the Safe Harbor. Some of the statements that we make today regarding our business, Operations and financial performance may be considered forward looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed and our filings with the SEC. During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of non GAAP to GAAP measures is included in our earnings press release, which is distributed and available to the public through our Investor Relations Web site located at investor. Qingdatagroup.com. We have also updated our quarterly presentation on the company's Investor Relations website, which you can refer to as a supplementary material for today's call.

Without further ado, I'll now turn over the call to Nick. Nick, please go ahead.

Thank you, Dong. Hello, everyone, and thanks for joining the call. Concurrently with the ongoing progress of privatization of the company, the management and the entire team continue to work diligently on our business, Delivering another strong quarterly performance in the Q2 of this year. As a quick summary for our quarterly performance, We adhere to our demanding schedule and delivery was on time. Demand from our existing clients remained satisfying, with demand in Southeast Asia market being a key driver during the Q2. Ramp up was usual as always, with overall and single project level utilization ratio in good shape. And we continue to build our partnership and invested in research and development to prepare ourselves for the further AIGC era and patiently waiting for any signals of recovery of the market. To start with some key highlights for the Q2, On Slide 4, 2 new projects were put under construction in the Q2. Total capacity increased by 47 Megawatts to 945 Megawatts and total number of data centers was 35. 2 hyperscale data centers were put into service in our Datong campuses in Shanxi and Johor campuses in Malaysia, bringing our total in service capacity to 7 30 Megawatts, an increase of 91 Megawatts during the quarter.

Total client demand increased by 34 megawatts in the 2nd quarter, bringing our total contracted and IOI capacity to 850 Megawatts, with total client commitment rate remaining at a healthy level of 90%. Ramp up was strong as we added 48 megawatts of utilized capacity in the quarter, bringing our total utilized capacity to 585 Megawatts with a solid utilization rate of 80%. Financials remain under healthy momentum and in high quality. Revenue in the 2nd quarter was RMB1553.8 million, representing 49.7 percent year over year growth. Adjusted EBITDA grew by 49.9% year over year to RMB $816,100,000 with adjusted EBITDA margin remained well above 50% and 52.5% in the 2nd quarter. Net income grew by 9.8% year over year to RMB219.2 million with a net margin of 14.1%. With the current business momentum, we reiterated our full year guidance range with revenue in the range of RMB5.88 to RMB6.08 billion and adjusted EBITDA in the range of RMB3.1 billion to RMB3.22 billion. Now, let's go into details and first take a closer look at project delivery and Construction on Slide 7 to 9. We continue to work on the highly demanding schedules to ensure timely delivery, especially for our Malaysia business.

In the Q2, we put 2 projects into service with a total capacity of 91 Megawatts. CN20, a 49 Megawatts Hyperscale project in our Datong Campus, Shanxi Province, was delivered as originally scheduled. The project supports the anchor clients and is currently 100% committed by the client. MY06 Phase 2 in Johor, Malaysia was also delivered as scheduled. The 42 Megawatts project supports the anchor client as well and was already running at the 76.% utilization ratio in the Q1 since operation. 2 new under construction projects was added. Our flagship MY06 project saw further capacity expansion in the second quarter with inclusion of MY06 Phase 4, a 12 Megawatts new hyperscale project. It is scheduled for delivery starting from the Q1 of 2024 and was 100% committed. CN23, the other new under construction project is located in one of Zhangjiakou campuses in Hebei. The 26 Megawatts Hyperscale project It is intended for 1 of our key international clients and is scheduled for delivery starting from the Q1 of 2025. The project is currently 49% contracted. Furthermore, thanks to the healthy momentum of our clients in Southeast Asia market. Our existing MY06 Phase 3 project was further expanded by 10 megawatts in the Q2, now reaching 53 Megawatts.

The project is currently 100% committed. With the above changes during the quarter, As you can see on Slide 9, we have brought our total capacity up by 47 megawatts, reaching 945 Megawatts by the end of the second quarter, with 730 Megawatts in service and 214 Megawatts Under Construction. Of the under construction capacity by quarter end, We currently expect another 50 megawatts to be delivered in 2023 and our teams in China and overseas are working diligently to ensure our supply readiness. Now regarding demand on Slide 10, We continue to receive additional demand on existing and new projects, with overseas business contributed meaningfully. We received a total amount of 34 megawatts new demand in the Q2, among which 22 megawatts of additional demand were received from our anchor client following the expansion of the MY06 project and another 12 megawatts new demand received from 1 of the key international clients on the business and construction project in Zhangjiakou. Meanwhile, contracted capacity increased by 60 megawatts in the quarter, including 16 megawatts of IOI conversion from CE-two, CN-twelve and CN-twenty three supporting 1 of the key international clients and 45 Megawatts IOI conversion and newly contracted capacity on Project MY06 Phase 3 for the anchor client.

In general, we are optimistic about opportunities in the Southeast Asia market. The additional demand that we received during the quarter further strengthened our view and the company has been devoting dedicated internal resources to ensuring timely product delivery while securing necessary resource for future development in advance. Regarding the market in China, We are patiently watching the involvement of the market condition, waiting for further signals of recovery to emerge, while we continue to build our partner ecosystem to lay the foundation for future opportunities. We believe our healthy business and Financial Profile, as well as our continued effort in research and development will be the key fundamentals for the company to win more opportunities as the market gradually recover and to compete in the AIGC era. With the dynamics of demand in the quarter, the commitment status of our asset portfolio continues to look healthy. On Slide 12, for our existing 7 30 megawatts of in service capacity, 95% was committed by clients in either contract or IOI by the end of the second quarter, the same proportion as in the previous quarter and in the same quarter of last year. For our total capacity on Slide 13, the commitment ratio was 90% at the end of the second quarter compared with 91% in the previous quarter and 84% in the same quarter last year.

The visibility of our business remains there. As by the end of the second quarter, over 95% of our contracts were for 10 years term or longer, leading to a weighted average remaining term of the current contract capacity of 8.6 years, and we expect less than 4% of our existing contract capacity to expire by the end of 2027. Now, coming to customer move in on Slide 14. Our ramp up remains healthy and in line with our schedule, with overseas projects as the key driver. We added 48 megawatts of utilized capacity in the 2nd quarter, bringing our total utilized capacity to 5 85 megawatts compared with 4 0 1 megawatts in the same quarter last year. This represents 45.9 percent year over year growth. Quarterly move in was contributed by projects in our Northern China campus, supporting the anchor client and the Chinese cloud client as well by our overseas project in India and Malaysia, supporting the anchor client and one of the key international clients. MY06 Phase 2 is 76% utilized in the Q1 following its opening, indicating a strong overseas demand. These quarterly dynamics lead to a quarter end utilization ratio of 80% compared with 78% in the same quarter last year.

On a quarter over quarter basis, Utilization ratio is 4% lower, mainly due to the inclusion of the 49 Megawatts new in service project that was just starting to ramp up. Looking at the utilization ratio at single project level, 16 out of the existing 27 in service projects or 59% of them are over 90% utilized. Geographically, with the fast ramp up of our Johhold projects, overseas business now contributed to 14% of total utilized capacity during and by the quarter end. On some other aspects of business development on Slide 16, we released our 2022 ESG report on July 24, 2023. We continue to run our business in an energy efficient way With a total power consumption of 3,032,000,000 kilowatts hour in the year 2022, We managed to keep the annual PoE for our Chinese business at 1.21, remarkably lower than industry average. We reinforced our safe ESG strategy that was set forth in the year 2021, We are committing ourselves to the mission of efficiently converting electricity into high quality computational power in a stable, eco friendly and high quality manner, thereby increasing operational stability, enhancing partner confidence, and building a more sustainable brand. More information can be referred to in our EFG report.

On Slide 17, as a first mover in executing energy abundant lower tier region layout strategy, Our years of operation in Hualei County, Zhangjiakou City of Hebei Province is getting more recognition. Hefei Qing Hua, a subsidiary of Qing Data, has earned a place on a national list of specialized and Innovative Little Giant Enterprises. This accolade is bestowed upon companies that focus on niche markets, Demonstrate strong innovation, maintain a significant market share, master core technologies and attain remarkable levels of quality and efficiency. We are the 1st data center enterprise in Hebei to earn this esteemed recognition. Our 4 campuses layout in Huai Lai County is now well established With our IT capacity surpassing 300 megawatts and the server deployment scale constituting 80% of the total in Huai Lai County. Furthermore, in this region, as we mentioned previously, We continue to build our partner ecosystem to lay the foundation for future opportunities. On Slide 18, On July 28, we entered into a 10 year strategic cooperation agreement with Zhengiakou Construction and Investment Group. This local SOE boosts a wealth of experience and capabilities in asset management, capital operation, Resource Development and Industrial Investments. Through the partnership, both parties would engage in deep cooperation in Land and Water Resource Development, Energy Development, Data Center Collaboration and Operation, and integrated products of source grid load storage and further explore other collaborative opportunities in the Big Data Industry chain.

This partnership signifies the continued commitment of Qing Data in Huilai, Zhangjiakou, to further strengthen and optimize the local digital economy. With that, I've concluded my part, And I will turn to Zoe for the details of our financial performance. Zoe, please.

Thank you, Nick. Now let me walk you through our quarterly financial performance. Generally speaking, we have maintained a very healthy financial momentum in the Q2 of year 2023. Our revenue growth in the Q2 remained healthy, recording a 49.7% year over year Growth to reach RMB1553.8 million, which is in line with the 45.9 percent year over year increase in utilized capacity. Overseas business contributed to 14% of total utilized capacity in the 2nd quarter, up from around 9% in the previous quarter. Looking further down on Slide 25, total cost of revenue in the Q2 increased by 51.3% to RMB911.2 million from RMB602.2 million in the same period of 2022, mainly driven by increase in its utility costs and depreciation and amortization expenses. Total operating expenses in the Q2 of 2023 increased by 56.9% year over year to RMB197.6 million, primarily due to more marketing activities conducted by the company, higher professional service fee, increase in research and development personnel and higher share based compensation expenses. Specifically, selling and marketing expenses in the Q2 of 2023 increased by 4.1% year over year to RMB16.1 million. General and administrative expenses in the Q2 of 2023 increased by RMB69.6 year over year to RMB154.5 million.

Research and investment expenses in the Q2 of 2023 increased by 39.3% year over year to RMB27 1,000,000. As a result of this, operating income in the Q2 of 2023 increased by 43.5 percent to RMB445 1,000,000 recorded operating income margin of 28.6 Percent. Net income in the Q2 of 2023 increased by 9.8 percent year over year to RMB219.2 million with a net margin of 14.1 percent compared with 19.2% in the same period of 2025 and 17.5% in the Q1 of this year. The year over year change in the net margin was mostly contributed by increase in interest expenses. For a breakdown of core cost and expense item on Slide 26, With the growth of our business, we continue to maintain our adjusted EBITDA margin at above 50% level. Maintenance and other costs was 7.5% of revenue in the 2nd quarter compared with 6 0.6% in the previous quarter. Adjusted SG and A was 9.7% of revenue compared with 6.8% in the previous quarter. On quarter over quarter basis, utility price Did not see material fluctuations across the regions in which we operate, leading to stable utility cost percentage point of revenue at 31.2% in the 2nd quarter, similar to the previous quarter.

On a year over year basis, utility cost of revenue rose by roughly 2 percentage points. With this, on Slide 27, adjusted EBITDA recorded a 49.9% year over year growth all 0.3% quarter over quarter growth to reach RMB816.5 million and a margin of 52.5 percent. Adjusted net income increased by 6.7% year over year in the 2nd quarter to RMB258.2 million at a margin of 16.6%. Details in the GAAP to non GAAP reconciliation on EBITDA and net income would be available in our 6 ks filing or the appendix in our IR PPT. On Slide 28, given the highly demanding delivery schedule, We continue to incur similar level of CapEx during the quarter that we covered existing under construction projects as well as some initial investments in potential pipeline projects with good certainty. CapEx in the 2nd quarter was RMB1254.6 million compared with RMB $1653,900,000 in the previous quarter. On Slide 29, Our operating cash flow continued to recover and improve following the COVID-nineteen epidemic in 2022 and the completion of client system upgrade. Operating cash flow in the second quarter was RMB1186.8 million, which is around 145 percent of our adjusted EBITDA compared with RMB693.3 million in the Q1 of 2023.

Such improvement of operating cash flow is also in line with substantial lower value of our account receivables by quarter end. Financing cash flow was RMB259,100,000 in the 2nd quarter, with another RMB1396.4 million invested cash flow. We ended up with a higher total cash position of RMB5915.3 million by quarter end and a net debt position of RMB 5,569,300,000. Our leverage and the coverage ratios remain in the reasonable and healthy range. On Slide 30, Key leverage ratios do not see much fluctuation quarter over quarter, neither are key coverage ratios. On Slide 31, asset return continued to improve in the Q2 with the overall utilization ratio of our total in service capacity at 80%. We are seeing the company defined pretax ROIC further rise to 19.3% compared with 18.7% in the previous quarter and 17% in the same quarter last year. Finally, based on the company's current and preliminary views on the market and operational conditions, We've reiterated 2023 revenue guidance in the range of RMB 5,000 RMB880 1,000,000 and adjusted EBITDA guidance in the range of RMB3 RMB1100,000,000 to RMB 3,220,000,000. This reflects the company's preliminary views, which are subject to change. This concludes our prepared remarks for today.

Operator, We are now ready to take questions. Thank you. We will now begin the question and answer session. At the time. Our first question comes from the line of Yang Liu from Morgan Stanley. Please Go ahead, Yang.

I will translate my question in English. My question is related with the patent on the cooling technology supporting the AIGC future demand. We noticed that Qing Data has a lot of patent in efficient liquid cooling and Complete Liquid Cooling, etcetera. And I would like to ask what is your customers' acceptance, Especially anchor customer and global cloud customers' acceptance of such kind of technology route in AIGC related computing or hosting. And a related question is whether such kind of Technology Can Increase the Investing ROIC of the Company. Thank you.

Hi. Thank you, Mr. Liu Yang. I think the reason why we think that Our anchor client and the future customer will be very willing to accept our diversified cooling solution simply because We are operated in such a diversified geography, especially if you compare our North China campus versus our Southeast Asia Johan campuses. The weather conditions, humidity conditions and also temperature and conditions are completely different. So you need to have a lot of tools, toolboxes. So when the customer when the different conditions or For the demand from a technical perspective, given the AIGC more requirements on the air flowing and also cooling requirements, You need to be ready. So therefore, we are very confident with all this technology patents in the house And most importantly with our the talent pool in house leading by our CTO, Mr. Zhang Binhua. We are very confident that all this liquid cooling patterns and technology and solution or cold plate, the cooling Our solutions will be well accepted by our customer. And actually, as a matter of fact, some of them already being applied in our campus in China as well as overseas. In terms of a financial return, yes, there will be a marginal, I would say the ROIC improvement, especially if you look at full lifecycle of this solution application.

They're going to be required a little bit more investment, but they're going to be a cost saving later, especially on energy saving part. So overall, I think our study shows that Thank you. Thank you. Our next Question comes from the line of Sarah Wong from UBS. Please ask your question, Sarah.

Thank you for the opportunity to ask a question. So according to the latest SEC filing, it seems the 2023 CapEx is estimated at US1.3 $1,000,000,000 So just wondering what's the key driver of the pickup for this year? Thank you.

Thank you, Tara. I think that you are referring to the documents Whatever failing we already filed to SEC regarding the privatization issue, right. So that's where you see this US1.3 billion dollars I would say that, 1st of all, that's actually the part of the work prepared by Citigroup, who is the advisor to our special committee to review the whole process. So for any I would recommend for any evaluation and also the financial forecast as part of the valuation process methodology, you'd better ask Citi. But from our side, we're only focusing on the business. We're only focusing on our business progress, delivery schedule and obviously the future pipeline of potential project, not only the project we disclosed to the marketplace. So having said that, we used in the previous conference call, We used to estimate our whole year CapEx number going to be around RMB 5,000,000,000 to RMB 7,000,000,000. Now I would say that the number for the whole year 2023 is going to be in the range of RMB 7,000,000,000 to RMB 9,000,000,000 from the latest internal estimate for the whole year 2023. Now, we already have the 1st year you see the number, we already spent like RMB 3,000,000,000 The cash outflow on CapEx related stuff.

So, on the second half, they're going to be we're probably going to spend $4,000,000,000 or $6,000,000,000 further. I think we think that this potential upside or increased spending will be a good news for everybody. Why a good news? Because this is driven by the progress of some incremental pipeline project, new project, which company is optimistic to obtain in the second half of this year. And these pipeline projects may bring better revenue and EBITDA for future years, not necessarily this year, 2023, but future year 2024 2025 beyond previous estimate. In addition, a large portion significant portion of this incremental pipeline project, Again, not the project we have disclosed. These projects are actually driven by our overseas business. In other words, overseas project will have larger than expected shares and that basically means the increase of the unit CapEx accordingly. Sure. Obviously, the timing of the spending may vary around late 2023 or start off beginning of 2024. So part of the RMB1.3 billion you saw those privatization documents And very small part of it maybe carry over 2024 to spend. But on an aggregate level, if you combine 2023 2024 CapEx together, they should stay the same.

So, Yes, that's hopefully, I'm answering questions. It's a good news actually.

Yes, very clear. Thank you.

Thank you. Our next question comes from the line of Minran Lee from CICC. Please ask your question, Minran.

Let me translate myself. I want to ask about more color about the AI related demand like what percentage of new capacity This year is AI related and beside our anchor customer, is there any new clients with new AI demand you are seeing recently. And also, we say some domestic I, it appears decided to buy their own GPUs to start computing infrastructure business. Do you have any plan or strategy about this? Or you just want to focus on our colocation service because your demand is strong. Thank you.

Thank you, Ming Zheng. Actually, the client doesn't tell us when they install The server into our IDC centers and how many of them is AI related. So we but we can guess, right? So based on the application and the utilization of the high density cabinets and based on the service type They put in our data center. We think that the AI portion, the AI related servers Probably account for around 5% of our current overall capacity. On an incremental basis, we are still under some Serious discussion with them about incremental orders and projects and I believe going to be higher portion of them Going to be AIGC related for sure. And also, you probably heard the same thing as myself From the market street that simply one of our anchor customers have the biggest reserve or inventory of the AIG related GPU units or chips or service in China for both their China business and also their overseas business. So hopefully that we can get a significant share out of it When they consider the IDC partners about their future projects. And also, on top of the existing clients, we do these days, We do accommodate a lot of visits from quite a number of other AI customers, small and medium sized these days, particularly to our overseas campus, and we believe the portion will be higher moving forward.

As regard to our future strategy on the computing power service, we will focus on co location only, Collocation service only. That is our current plan. And I haven't heard anything further about We're going to provide a computing power business to our clients. Although we are doing as everybody knows, we're doing The best job of converting the electric power to computing power business, but we will not offer the computing powers for now and I believe in the near future as well.

Very clear. Thank you.

Thank you. Next is a follow-up question from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang.

I will translate my question. We recently Also, that partner also initiated a new project in Johan as well. At the same time, Qing Data also got sizable in Southeast Asia Market. Thank you.

Thank you, Luoyang. I think we come back to the issue of Whether we want a smaller share of the bigger pie or bigger pie of the smaller bigger share of the smaller pie. The Southeast Asia market, hopefully, our goal is to get both essentially. So the Southeast Asia offers a better perspective markets in terms of overall IDC demand than China over the course of next 3 years. That's our belief. And we believe that with our confidence in the efficiency in terms of delivery and operation and the economy of scale, which is going to sooner rather than later going to turn into a huge cost advantage as well as our the credit The track record we demonstrate to our clients in China and in our Johan project, we will get a bigger pie than everybody anticipated in the future. So the other reality we have to face is actually from day 1 when we had a conversation about our chance in the Southeast Asia market. I have said I keep saying that it's open field competition. So you need to show all your hands, all what you have in Your pocket in terms of our cooling solutions, your supply chain entire supply chain solution from China all the way to Southeast Asia market, Your talent pool and your capital power, your power, all these, you've got to actually show much more Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

And the follow-up question is that do you have any sense on what is the wallet share for Qing Data in this We're striving to get over 50% of the overall shares. And we believe with all the solutions we put on table And all the good performance we put on the table, and we have a very good chance to get it. And our overall objective of the overseas business as a share of our overall portfolio, going to be around 30% probably by the end of 2025.

Thank you.

Thank you. I am showing no further questions. Thank you very much for all your questions. I'll now turn the Conference back to the company for any closing comments.

Thank you. I think everybody has been focusing on Ching Data, which we highly appreciate it. And also, we highly appreciate all the investors and analysts, the friends, your support for the company in the past 2 or 3 years since we become since the IPO. While there is a privatization process of the company is going on, We can assure you that the management and our entire team will continue to work very hard delivering our business, sticking to our original mission of converting efficiently converting electric power to computing power And again, striving to become the best IDC leader in the Pan Asia Pacific regions. Thank you.

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