Chindata Group Holdings Limited (CD) on Q1 2022 Results - Earnings Call Transcript
Operator: Good morning and good evening, ladies and gentlemen. Thank you and welcome to Chindata Group Holdings Limited First Quarter 2022 Earnings Conference Call. We will be hosting our question-and-answer session after management's prepared remarks. Please note, today's event is being recorded. I'd now turn the call over to the first speaker today, Mr. Don Zhou from Investor Relations of Chindata Group. Please go ahead, Don.
Don Zhou: Thank you, operator. Hello, everyone. Welcome to Chindata Group’s 2022 first quarter earnings conference call. This is Don from Investor Relations Team of the company. With us today are Mr. Huapeng Wu, our CEO; Mr. Nick Wang, our CFO; and Ms. Zoe Zhuang, our Finance VP. During this call Nick will take you through the quarterly review of our operational performance and Zoe will present our financial results. Management team will be here to answer your questions afterwards. Now, I'll 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 in 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 website located at investors.chindatagroup.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.
Nick Wang: Thank you, Don. Hello everyone and thank you for joining the call. Despite the headwinds in micro environment and COVID related issues, we continue to manage the challenges and grow our business. Our business momentum remained very strong in the first quarter. And here are the highlights to begin with. On Slide 4, by end of the first quarter of 2022, our total capacity reached 704 megawatts, an increase of 31 megawatts during the quarter. We put one new project under construction, bringing our total number of data centers up to 28. Specifically, in the first quarter, our in-service capacity increased by 58 megawatts to 498 megawatts. Our contracted capacity increased by 54 megawatts, bringing our total contracted and IOI capacity to 690 megawatts. And our utilized capacity increased by 40 megawatts to 344 megawatts. Our total capacity maintains a high contracted and IOI ratio of 88%. We continued our energy efficiency and performance, with year-to-date average PUE by the first quarter at 1.21. The number of our approved and pending patents was 310 compared with 231 in the same quarter last year. Financially, our top and bottom line remain strong and healthy. Revenue was RMB920.6 million for the quarter, which is 43.1% year-over-year growth. Adjusted EBITDA was RMB494.5 million, a 60.7% year-over-year growth with a margin of 53.7%, a historical high. Net income was RMB94.6 million for the quarter, which is 62.5% year-over-year growth with a margin of 10.3%. We have achieved net profit performance for five consecutive quarters. In terms of financing, we have successfully finalized US$500 million syndication loan financing in May, ensuring sustainable financing for our future development. With such performance, we have been beating market consensus for seven trade quarters since IPO. On top of this, with the current momentum and taking into numerous factors, we are raising our full year 2022 revenue and adjusted EBITDA guidance. My colleague Zoe will share more details later. Now, let me walk you through more details of operation. And I will start with our product deliver in the first quarter and our expectation going forward. We have put two products totaling 58 megawatts into service as originally scheduled. One of them is CN12, a 6 megawatt project that supports existing key international client business and is located in one of our campuses in Hebei, China. The other is CN15, a 52 megawatt hyperscale project that supports the business of the anchor client, and is located in our campus in Shanxi, China. You can refer to Slide 7 for the profile of these two products. We also started the construction of a new project CN18, a 30 megawatt hyperscale project located in one of our campuses in Hebei. This project will support the business of the anchor client and is scheduled for delivery in 2023. Progress is also achieved in our deployment in APAC emerging market as we have successfully completed business acquisition in Thailand. The project is located in Bangkok and is currently running minor capacity for a local client. With further technical upgrade, we expect to bring the total capacity of the project to 5 megawatts to better serve our potential clients in the region. With these new projects, and as you can see on Slide 9, we had brought our total capacity to 704 megawatts by the end of the first quarter. In-service capacity by quarter end stands at 498 megawatts, compared with 440 megawatts in the previous quarter, and 291 megawatts in the same quarter last year. For the 206 megawatts under construction capacity, around 50% of them is scheduled for delivery in 2022 and 2023, respectively. The COVID prevention and control measures currently taken in different locations in China has more or less affected supply chain, logistics and onsite labor work, bringing challenges for the company. However, the company has taken active measures and our assessment now is, is that such impact is confined to a very limited range. We believe the experience we have gained in early days of the pandemic in year 2020, with more speed and control measures would also help us better respond to the current situation. We have therefore kept the delivery schedule of the majority of the project unchanged. Project CN13 was slightly delayed, but was put into service in May 2022. We are expecting delay in project CN16 and CN17 due to customer related reasons. As for our overseas pilot project, MY06 Phase 1, where we are shipping our entire solution overseas. We have been carefully managing the challenges and the schedule remain unchanged. On Slide 11, in terms of client commitment, our major client continued to grow healthy and we continue to receive commitment from them. This quarter, we have an additional 54 megawatts contracted capacity, mainly contributed by a 52 megawatts IOI capacity conversion on project CN15. This project is now fully contracted and is supporting the anchor client. Meanwhile, we also added 27 megawatts of new IOI capacity from two northern China project for the anchor client as well, one of which will be supporting their high density deployment with 32 kilowatt cabinet. These developments bring our total contracted and IOI capacity to 619 megawatts with an 88% contracted and IOI ratio. It is also our ongoing effort to further look for hyperscale demand and opportunities from enterprises clients and cloud service providers, while at the same time to further penetrate APAC emerging market. With these recent developments, the commitment profile of our total capacity remains very healthy. On Slide 12, for all of our in-service capacity, 95% of them is either contracted or was IOI commitment from the client, and this ratio has been stable. The ratio of our total capacity in this quarter is 88% compared with 87% in the previous quarter, and 88% in the same quarter last year. Again, our healthy commitment profile can be attributed to the advantage of our hyperscale business, which is credible demand from the leading players in industry and long-term contract that guarantees sustainable revenue stream. To share more color on this, by end of the first quarter, over 90% of our contracts are 10 years contract. While the weighted average remaining term of per contract megawatt is around 8 years. Now, coming to customer move-in on Slide 14. Thanks to our clients excellent and resilient business performance. We were able to keep a steady and healthy ramp up pace. We added 40 megawatts of utilized capacity in the first quarter, bringing our total utilized capacity to 344 megawatts compared with 238 megawatts in the same quarter last year, which is a 45% year-over-year growth. New utilization mostly came from projects in the greater Beijing area. Specifically in Shanxi and Hebei. Utilization ratio at the end of the first quarter was 69% which is healthy and similar to previous level. Finally, let's look -- take a look at our business geographically. In terms of utilization, our revenue generation related capacity, the majority of them are in greater Beijing area in China, which is exactly in or very close to the design at Zhangjiakou clusters under the East Data West Computing National Policy. Looking ahead, we currently have a total of 260 megawatts capacity under construction, among which around 50% of them is in the APAC emerging market. Take a closer look at our current deployment in the APAC emerging market, which is around 70% of our total capacity, our total around 117 in Malaysia and India, among which 89% are either contracted or was IOI by the end of the first quarter. And we are serving international clients or domestic clients that are going aboard in this region with great growth potential. We believe our existing deployment, both in China and APAC emerging market will enable us to go further. If you would like to learn more about the details of our assets and our growth plan et cetera, feel free to refer to the Other pages of our IR presentation. Lastly, another key event for the company recently is definitely our US$500 million syndication loan financing project. We have finalized the financing. The deal was oversubscribed, and we're having reputable international and domestic banks selected as lenders. Interest rate is around 4% to 5% handle, which is in line with our unique investment grade rating that we gained previously. Proceeds was -- well being used for business development and to refinance one of our existing debt. We expect the deal to be fully completed in the second quarter. This deal is definitely improving our financial experience under the current macro environment and/or better support our growth going forward. With this, concludes our business review. I will now hand over to Zoe for discussion on financial performance. Zoe, please.
Zoe Zhuang: Thank you, Nick. Now let me walk you through our quarterly financial performance. Our financials remain its healthy momentum. On Slide 21, revenue in the first quarter increased by 43.1% year-over-year to RMB920.6 million, driven by the robust growth of the Company's e Company’s colo services. On Slide 22, in line with the company's revenue growth, total cost of revenue in the first quarter of 2022 increased by 29.1% to RMB499.6 million from RMB386.9 million in the same period of 2021, mainly driven by increased utility costs, and depreciation and amortization expenses. Selling and marketing expenses in the first quarter of 2022 increased by 6.8% year-over-year to RMB22.4 million, primarily due to higher share-based compensation expense. General and administrative expenses in the first quarter of 2022 increased by 32.9% year-over-year to RMB127.8 million, primarily due to higher share-based compensation expenses. Research and development expenses in the first quarter of 2022 increased by 5.4% year-over-year to RMB19.2 million, primarily due to higher personnel costs, as the company continue to invest in its research and development initiatives to further enhance its service offerings. With this, operating income in the first quarter of 2022 increased by 107.9% year-over-year to RMB251.6 million with a margin of 28.3% and net income in the first quarter of 2022 increased by 62.5% year-over-year to RMB94.6 million with a net margin of 10.3%. We achieved net profit performance for five consecutive quarters. Now, let's take a look at the core expense and the cost on Slide 23. Utility costs was at a similar level to the previous quarter, indicated by a similar percentage of revenue of 28.3% compared with 28.5% in the fourth quarter of 2021. Again, as a reminder, we have taken into consideration last year's tariff hike when we're setting up our 2022 guidance. The economies of scale of our business is further improving, indicated by a smaller percentage of revenue taken by our maintenance costs and adjusted SG&A expenses. The percentage of revenue for maintenance and other costs was 8.5% in the first quarter, compared with 9.9% in the fourth quarter of 2021, and 10.8% in the first quarter of 2021. The percentage of revenue for adjusted SG&A was 9.5% in the first quarter, compared with 11% in the fourth quarter of 2021 and 13.6% in the first quarter of 2021. With this, on Slide 24, our non-GAAP profitability continued to improve. Adjusted EBITDA in the first quarter of 2022 increased by 60.7% to RMBD494.5 million from RMB307.8 million in the same period of last year. Adjusted EBITDA margin in the first quarter hit a new high at 53.7%. Adjusted net income increased by 62.4% year-over-year to RMB177.5 million, also hitting a historical high margin at 19.3%. details in the GAAP to non-GAAP reconciliation and EBITDA and net income would be available in our 6-K filing or the appendix in our IR PPT. Now, let's take a look at our cash and the debt position and our CapEx on Slide 25. We continue to work in our business expansion to meet the increasing demand from our customers by investing more capital into our under construction datacenters. CapEx in the first quarter was RMB1,224.9 million. We have a cash and a debt position of RMB4,372.3 million and RMB5,535.5 million by the end of the first quarter, respectively, ending up in the net debt position of RMB1,192.4 million. Cash dynamics during the quarter was contributed by a net operating cash flow of RMB168.2 million. Net financing cash flow of RMB39.3 million and mostly offset by RMB1,063 million invest in cash outflow. Again, we grew with high quality, healthy cash flow leverage and the coverage. On Slide 27, by end of the first quarter, our total debt to capital ratio was 35%. Our total debt to last 12 months adjusted EBITDA ratio was 3.4 compared to 3.9 in the previous quarter, and 4.8 in the same quarter last year. Our last 12 months adjusted EBITDA to last the 12 months interest ratio was 6.1 compared with 6 in the previous quarter and 4.5 by the end of the same quarter last year. Finally, our business momentum together with other factors that we have taken into consideration lead us to raise our revenue and adjusted EBITDA guidance for full year 2022. On Slide 28, we lifted both revenue and adjusted EBITDA guidance range up by RMB60 million, making revenue guidance range now at RMB4,130 million to RMB4,230 million, and adjusted EBITDA guidance range at RMB2,100 million to RMB2,130 million, implying a midpoint increase of 1.5% and 2.9%, respectively. This forecast reflects our current and preliminary views on the market and our operational condition. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Operator: Our first question comes from Yang Liu with Morgan Stanley. Your line is open.
Yang Liu: I will translate my question. The question is about the demand from the anchor customer ByteDance at the beginning of this year management indicates very strong demand from this customer. But in the past few months, a lot of things happened, including the COVID and lockdown in several Tier 1 cities. And now at the end of May, what's the current new outlook in terms of the demand from this customer? Thank you.
Nick Wang: Thank you, Liu Yang. I'm going to refer this question to my colleague, our CEO, Huapeng. Huapeng, please.
Zoe Zhuang: This is the translation. Sorry. This is the translation for Huapeng's remarks. Thank you for your question.
Nick Wang: Go ahead, Zoe Zhuang.
Zoe Zhuang: Hi, can you hear me? Translation for Huapeng's words.
Nick Wang: Yes, go ahead.
Zoe Zhuang: Thank you. Translation for Huapeng's word. Thank you for your question. In our view, the pandemic has actually gave ByteDance an increase in actual business growth. And in turn, the demand that it has on its suppliers is actually increasing as well. We have been discussing and experiencing a more urgent demand from our customers, no matter in terms of timing, delivery schedule, and also the quantity are also giving us more advantage. Thank you.
Yang Liu: Thank you.
Operator: Our next question comes from Tina Hou with Goldman Sachs. Your line is open.
Tina Hou: Thank you very much management for your time and congrats. Very strong 1Q results, which EBITDA beat consensus by 13%. So my question is regarding your EBITDA margin, which as management mentioned, has been historical high at 53.7% in the first quarter. And we've also observed that, during the past five quarters, the EBITDA margin has been increasing sequentially each quarter. On the other hand, according to your latest EBITDA margin guidance, which is add towards a 51.2% for 2022, which then implies that over the next three quarters there might be something, some expenses or other things that's dragging down the EBITDA margin. So wondering what those potential expenses will be. Thank you.
Nick Wang: Thank you, Tina. Maybe I'm going to ask my colleague Zoe to answer your questions, and I will try to make some comments as well. Zoe, please.
Zoe Zhuang: Okay. Yes, Tina, thank you for your question. As you know, if we look at EBITDA will go into the component factors. And for this quarter -- also last quarter, utility cost versus revenue remains at a very steady range. And as we mentioned, just now in the script, we take a very conservative consumption in the utility costs. And in the first quarter, the actual utility cost is slightly lower than our original expectation due to mechanism for building the green power. So, this is one of the reason. And for the rest of year, we still take the conservative consumption -- assumption. And second reason is, that with the economies of the scale, the maintenance cost and the management expenses, SG&A expenses versus revenue has been in the decreasing trend. And plus the first quarter, the special situation, especially in Mainland in China, there is almost no movement, no travel, no selling and marketing events of theirs occurred. While we expect this will be like a bit loose in the second half of this year, and we will come back to the normal operation of selling and general administration expenses reserve this expenses as well. So that is -- in all, that we will remain very stable and steady EBITDA margin for the full year guidance.
Tina Hou: Thank you.
Nick Wang: In terms of the conservative -- yes, we tend to …
Tina Hou: Right. Please go ahead.
Nick Wang: … be conservative, Tina. And definitely every time we give out the guidance, they're always the upside potential.
Tina Hou: Thanks. Just one quick follow-up about the green energy certificate, which you obtained in first quarter. Wondering if that's just one-off or that's ongoing?
Zoe Zhuang: The mechanism is ongoing by the quarter. We beat it depends on the demand and also depends on the supply side. So it may have some slightly fluctuation among quarters.
Tina Hou: Understand. That’s very clear. Thanks.
Zoe Zhuang: Thank you.
Operator: Thank you. Our next question comes from Hongjie Li with CICC. Your line is open.
Hongjie Li: Thanks, management, for taking my questions. Congrats -- congratulations on beating consensus results. I have three questions. My first question is about the lockdown impact. Could we -- shall we expect any such external factors to impact our capacity delivery? And my second question is about the overseas demand profile. Because many peers are expanding fastly in Southeast Asia and the other regions. So what are our competitive advantage to grab such opportunities? And my third question for Huapeng Wu -- Mr. Huapeng Wu. And since you are onboarding do you see any, like room for improvement or adjustments on the strategy focus? Thank you.
Nick Wang: Thank you, . I'm going to answer your first and second questions and Huapeng is going to answer your third question. Your first question about the COVID and its impact. I can tell you we're in good shape. We're in good shape. There have been some challenges. But overall, the lockdown in some -- in China, in some key Tier 1 cities, so far has actually a very minimum impact in our operation. Because our unique advantage in data center -- in terms of data center locations, I always said that our data center location in energy abundant region. But actually those region is less populated -- less populated regions. And these factor -- location factor definitely plays a key role, putting us in a better -- much better position than our peers for sure. To be specific, in terms of customer move in or capacity ramp up, there was no negative impact. And quite contrary, like Huapeng just said, we observe a faster move in and ramp up rate from our key clients during the lockdown period. And in terms of onsite operation, obviously the experience we gained back in early part of 2020 when COVID, the pandemic just broke out has enabled us to deal with a lot of necessary measures and tools to better handle the current acute situation. In addition, most of our hyperscale data centers manage and operating in a concentrated and enclosed campus environment in normal days anyway. So this operational model definitely makes us better adapt to all stringent government requirements in a COVID lockdown environment. And in terms of project delivery, domestic project, the lockdown have some slowdown impact on supply chain and logistics, therefore creating some challenges for project delivery. But we believe the risk is well within our control. The company has been taking a very proactive measures to make sure right personnel can always be available on 24 hours a day and 7 days a week basis is all about . Our overseas project faces some challenges on export related supply chain. For example, slower customer clearing in some key Tier 1 cities and outbound logistics is also a little bit slower than expected on the China side. But again, we have been taking appropriate measures on other part of the supply chain process in power manage -- project management process to make up for the time we may lose. So based on these remedy measures, and also thanks to our unique location and operation model, we're very confident that we can deliver all of our demands, almost all of the domestic and overseas projects on time based on original schedule. As long as our client doesn't ask for a deliberately -- voluntarily up for any . That's the first question. And your second question related to our overseas business. We have a very strong business momentum in APAC emerging markets or Southeast Asia market as I can tell from our script description. Our current projects in the region are going very well. In Malaysia, Johor state, we are actively developing the Phase 1 and Phase 2 of MY06 project. And we're committed to deliver them on time. We're also making positive progress on securing Phase 3 of MY06 project, which you haven't seen in our asset table or capacity table. And we expect to start development once we receive customers committed in near future. In the Kuala Lumpur area, the development work for MY03 is on track to be delivered on original schedule. At the same time, this discussion on expansion of this project, MY06 -- sorry, MY03, with our key client is ongoing smoothly. We also expect some good news in the near future as well. Meantime -- in the meantime, we are also actively in discussion with potential clients in Indonesia and Thailand. And we expect to set up our initial presence in this market soon. At the moment, I can tell you our overseas business represents 117 megawatts capacity present in the region, or around 17% of our total capacity, so the people have been talking about their strategy in Asia. But 170 megawatts already have significant presence in the region, which people tend to ignore. At the same time, we also have a very strong demand commitment, not only for the current capacity, but also for future. And these commitments are actually coming from the leading Chinese company as have ambitious growth plans in overseas market, and also international cloud player as well. For all those big names under U.S based, European based weren't talking with them. And also, close discussion is underway to support their ambitious growth in the region as well. Without any doubt, I want to reemphasize, APAC emerging market is the most important growth engine for Chindata. And we're not satisfied with our current presence of only 170 megawatts, which is already in the leading position among peers. We aim to become the biggest hyperscale data center service provider in this region. And our objective is to have overseas business accounting for 30% of our total portfolio in the long run. Thank you. I'll ask our CEO, Huapeng to answer the third part of the question.
Zoe Zhuang: Thanks . Translation for Huapeng's word. From Q1, we have been focusing on our IDC main business. We are trying to keep on delivering very stable operation and delivery schedule. And evidently from the financials and operations figures, I think we have made it. We have also spare some of our efforts in setting up building and optimizing our entire management and execution team. From the strategic point of view, we do not have very material change to our overall growth strategy. But from the second half of the year, we anticipated that there will be more internal discussion and research on further amplifying and implementation of the diversification on our business.
Hongjie Li: Thanks.
Operator: Thank you. Our next question comes from Sara Wang with UBS. Your line is open.
Sara Wang: Thank you, management, for the opportunity to ask questions. So I have two questions. First is on the demand. So congratulations on the solid results. Just wondering on the mix of the demand, do we see a diversified demand from our customer? For example, is there more demand related to the cloud services provided by our anchor clients? And then my second question is that, is there any update on our plan to do a list or list back in Hong Kong? Thank you.
Nick Wang: Thank you. For the first question, I'm going to refer to our CEO, Huapeng, to answer and I will address your second question. Okay, translate, Huapeng's word. Yes, go ahead.
Don Zhou: Yes, okay. So, thanks. The demand from our anchor client is mostly driven by the core business. While at the same time we also were actively in talk with our anchor clients on their newer business initiatives such as their cloud business as well as their enterprise services business. But so far, we are not making a substantial progress, but we believe that as we keep in touch with them, and we try to work together to look for opportunities, we expect to have some positive results going forward. Thank you.
Nick Wang: Regarding the Hong Kong listing, and as we committed the last time in our Q4 2021 earnings release call, I think I already said that there was a internal consensus we're going to do this and we haven't changed at all. There are still internal consensus, we're going to do this and the most likely kickoff time is going to be third quarter this year. Hello?
Sara Wang: Yes, hello. Yes, thank you.
Nick Wang: Yes, operator, go ahead with some other questions, please.
Operator: We have a question from Harry Zhuang Harry with DBS Bank Hong Kong. Your line is open.
Harry Zhuang: Thanks, management, for the opportunity to ask question, and congratulations on the strong results in the first quarter. My question is, we can see that ByteDance is expanding fast in China. But the market is also concerned on the customer concentration risk as we can see the revenue contribution from ByteDance was still over 80% in FY '21. So does the company have any plan to further reduce the revenue contribution from ByteDance to a certain percentage in the next few years? Thank you.
Nick Wang: Thank you. Again, I think Huapeng should be the best person to answer this question. I'm going to make some other comments.
Zoe Zhuang: Translation for Huapeng's words. So we're making progress on our business development. We keep on focusing on the hyperscale demand exploring opportunities with other cloud clients with various collaboration models. We not only keep an eye on the domestic opportunities, but also strategic opportunities overseas, especially in Southeast Asia, where we have particular add-on. We hopefully will have the news in the second half of this year, which we will probably share with the market. And to the question on reducing concentration, it will happen along with our client diversification efforts. However, as a side note, want to still emphasize that our anchor client's growth is still very healthy so far. Thank you.
Nick Wang: I think the one additional comment I try to make is actually people always try to emphasize concentration risks, but for us this concentration is a good concentration and bring a lot of opportunity instead of risks. And also in the short-term you will see that our business always, our anchor customer is very healthy, very strong, very robust. Our order banks is also very strong. And this is short to midterm concentrations for bringing our long-term benefits as well, because most of the contract we with our anchor client are 10-year based. So as much as we can get, the business with them now. It basically means over next 10 years, we have a solid base.
Harry Zhuang: Thank you.
Operator: Thank you. Our next question comes from Kaifang Jia with CITICS. Your line is open.
Kaifang Jia: So I will translate myself. So would you consider more aggressive M&A lower market valuation? Thank you.
Nick Wang: Thank you, Kaifang, for questions. To answer your questions, our principle for doing any merger acquisition project are pretty simple and straightforward. There's two points. Number one, it can provide complimentary long-term strategic data, especially if that merger acquisition target can provide potentials for diversified customers, and also can cover our currently underrepresented geography. That's number one. Point two, whatever the final merger acquisition price, price can need to be justifiable for its long-term value period. That's two principles, simple principle. And I won't say that we're looking at the merger acquisition opportunity more aggressively. But we have been looking at some very interesting merger acquisition of community states based on our simple principle. A few of them actually reached -- I would say, a few of them have pretty much draw our deeper attention. And I can tell you that's some positive progress that's been made so far, and we'll do the proper disclosure to the public when appropriate. Thank you.
Kaifang Jia: Thank you.
Operator: Thank you. Our next question comes from Yang Liu with Morgan Stanley. Your line is open.
Yang Liu: Let me translate my question. It's about the margin. We see the maintenance and other costs as a percentage of revenue keep declining. And actually the absolute amount is fourth quarter last year and actually even lower than second and third quarter last year. And my question is what is the long-term statics ratio of this cost item and what is the potential upside for the margin or from the operating leverage on this? Thank you.
Nick Wang: Thank you, Liu Yang. Zoe, do you want to answer this question?
Zoe Zhuang: Okay. Thank you for your question. As you can see, for the first quarter, we have two new additions for the in-service data centers. And as we introduced located in Hebei , very adjacent or almost in the same position. We have current operating hyperscale data center classes under the , which is 52 megawatts in Shanxi Province, it's also in our existing hyperscale data center classes. On this we explained the benefit of the economies of the scale and also you can see we will have new data centers to be operated in the second half of this year in our oversea market. And considering this the SG&A -- sorry, the maintenance and upgrade -- the maintenance expenses, I think we will slightly change a little bit with our new data centers in new exploring hyperscale clusters in overseas market or in the new location. But the overall trend will be when it comes to the status stage and we assume this will be around like 10% on all will be like around in a very healthy range as well. Thank you.
Yang Liu: Thank you.
Nick Wang: I think the one additional comment try to make -- I try to make is actually we're -- our model, business model in the -- all of our data center cluster are pretty much in a concentrated energy, bounded energy efficient region, provide a huge, much bigger economy of scale. So, Liu, based on this economy of scale the larger scale our business grows, the fixed portion of our expenses and costs like maintenance, operations expense cost and also SG&A, R&D, human capital costs, percentage wise they will keep decreasing, that's actually the certain trend will be in the future. So if you ask me, what's my long-term profile projection for our -- for this sort of our percentage based expense, it's going to for sure.
Yang Liu: Thanks for the additional color.
Operator: Thank you. And that's all the time we have for the Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
