Good morning, and good evening, ladies and gentleman. Thank you, and welcome to 21Vianet Group's Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. With us today are Mr. Alvin Wang, Chief Executive Officer and President; Ms. Sharon Liu, Chief Financial Officer; and Ms. Rene Jiang, Investor Relations Director of the company. I will now turn the call over to the first speaker today, Ms. Rene Jiang, IRD of 21Vianet. Please go ahead, ma'am.

Hello, everyone. Welcome to our fourth quarter and full year 2018 earnings call. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. 21Vianet undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. I will now turn the call over to Mr. Alvin Wang, CEO and President of 21Vianet.

Thank you, Rene, good morning and good evening, everyone. Welcome to the earnings call today. We concluded a fruitful 2018 with solid fourth quarter results. Our resilient financial growth and improving operating performance is a direct reflection of our persistent focus on hosting and related services business, service and the solution improvements, partnership arrangement and the market share attainment. Our growth is also driven by strong market demand for high performing IDC and the more complex IT infrastructure. Large scale companies and new corporate players are embracing the new digital transformation. They are increasingly choosing us to satisfy their growing data hosting and computing capacity needs. During the fourth quarter, we acquired new customers including prominent firms such as Benchmark, [indiscernible] T2 Cloud and [indiscernible]. In response to customer requirements, we continue to increase our capacity of self-built cabinet. During the quarter, we added around 250 cabinets to our network, ending 2018, with a total of 30,654 cabinets. Further, as we just announced we have observed an increase in demand for geographic expansion beyond the existing Tier 1 cities. We are excited to extend our geographic footprint, to Chengdu, a core network hub of Southwest China. This is our first acquisition since 2014 and it will add over 500 cabinets to our sales pipeline. A broader cabinet network nationwide will also help our planned expansion into the wholesale business at the opportune time. We are gauging interest in the market and are currently working on details with potential customers. Although this takes longer than we originally expected, we maintain optimistic on reaching a milestone wholesale agreement this year. Our non-IDC business continued to grow in 2018. We expanded our cooperation agreement with Microsoft and we agreed to introduce Azure Effects [ph] to China in 2019. We also launched Cloud Landing…

Thank you and hello everyone. Before we start our detailed financial discussion, please note that we will present non-GAAP matters today. Our non-GAAP results exclude certain non-cash expenses, which are not part of our core operations. The details of these expenses may be found in the reconciliation tables included in our press release. Please note that, all of the financial numbers we are presenting today are in RMB terms and that percentage changes are on a year-over-year basis, unless otherwise stated. We concluded 2018 with solid revenue growth, margin expansion, positive cash flow and strong balance sheet, propelled by strong first quarter results. Such achievements showcase our business viability and operational efficiency. For the first quarter, we grew our revenue by 17.8% year-over-year to RMB901.9 million, exceeding the high end of our previous guidance range. This growth was mainly driven by gradually increasing demand for high-power density cabinets and value-added services. Under operating metrics, hosting MRR per cabinet rose to RMB8,457 in the first quarter of 2018. The total cabinet under management increased to 30,654 at the end of 2018. Among the total 25,711 cabinets or 84% are self-built and 4,943 cabinet or 16% are partnered. Utilization rate in the first quarter fell slightly to 17.3%, due to cabinet increase in the third quarter and first quarter. Adjusted cash gross profit, which excludes depreciation, amortization and share-based compensation expenses increased by 27.9% to RMB409.2 million from RMB320.1 million in the same period of 2017. Adjusted cash gross margin expanded by 3.6 percentage points to 45.4% from 41.8% in the same period of 2017, mainly due to the increasing number of higher-margin self-built cabinets in our sales mix and a greater economy of scale. Adjusted operating expenses, which exclude share-based compensation expenses and changes in the fair value of contingent purchase…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from Rex Wu from Jefferies. Please ask.

Thank you for taking my question. So my first question is, do we have like more clients move-outs-- potentially moving out like have the similar reason as the one you just mentioned. Thank you. Hello?

[Technical Difficulty] …at this moment we don't expect major kind of impact on our revenue except the key customer, we mentioned today in the first and second quarter in 2019. Thank you.

Okay, thank you. So my second question is about the wholesale pipeline. So do you have more customer engagement or can you give more updates on the current projects you mentioned during the remark. Thank you.

Actually as we presented to in our prepared remarks that currently we are engaging with several top customers in Mainland China. At this moment, we feel very optimistic to grow at least one deal in this 2019. Thank you.

Okay, thank you.

Your next question is from Yang Liu from Morgan Stanley. Please ask.

Thanks for the opportunity to ask questions. I have three questions. The first one regarding the M&A project in Chengdu. Could management team disclose some valuation multiple for that deal or the project IRR, for this case? And the second question is, we saw the MRR delivered around 9% year-on-year increase, which looks pretty impressive. Is this due to the more value-added service or mix change or do you have any visibility on when the tight supply in Tier 1 cities start to add to your bargaining power? The third question is regarding the Temasek filing, it seems that market worry a lot about this issue last Friday. Could you please help to update the current status of 21Vianet and Temasek? Thank you.

[Technical Difficulty] I will make some comment on this issue. To your question on this, [Technical Difficulty] related to our IMR [Technical Difficulty] award during Q4 [Technical Difficulty].

Hi, it's Alvin here. Regarding the Temasek question, that, actually we do have a very good communication and relationship with Temasek and the specialty their TMT [ph] team and as we have very good conversation these days. And also we understand that this termination of their IRR, Invest Rights Agreement didn't indicate any shareholding change plan. Thank you.

Thank you.

Your next question is from Stella Li from Citigroup. Please ask.

Hi, I have some questions. We have a US dollar bond that's putable later this year. Do we have any refinancing plan for that one. The second question is, I see the revenue expectation for first quarter 2019, it's slightly lower than the revenue in fourth quarter of 2018. Just wonder is there any particular reasons for this. And also, third question is to you, what's your CapEx guidance for 2019 and what's the major usage? Thank you.

I will take your first… [Technical Difficulty].

Hello?

[Technical Difficulty] Can you hear me clearly?

No, the line is breaking. I can't hear anything, sorry. Can you repeat?

Okay, can you hear me?

Getting better.

Okay. Okay. Currently, the company has sufficient cash on hand to service the put option. Depending on the market conditions and the company's overall financial capacity we may also consider financing activities to refinance our existing debt. We have no detailed plan and timetable at this moment.

Okay. I hear you.

Regarding your question related to the CapEx guidance, our 2019 CapEx guidance is from RMB700 million to RMB900 million for around 5,000 to 7000 cabinets. The CapEx, including the construction cost and the equipment cost as well as the land and building purchase consideration for our Shanghai, Tianjin [ph] projects. Thank you.

Sure. And the revenue guidance?

I am sorry, the revenue guidance, one reason is that, as Alvin and I mentioned in the remarks, one of our major customer terminate a contract with us and the major customer represented over 2% of our total revenue. That's the major reason for our guidance. Another reason is that certain of our major customers during Q4, they made promotion during Q4, and that promotion will not be occurred in Q1. Thank you.

Thank you. A follow-up question, I didn't hear clearly when you mentioned about it. So what's the major reason that the customer terminated the contract with us? And do we expect there can be other terminates from other customers which may affect our revenue?

Yeah, actually this is kind of a special case. One of our key customer, which represents 2% of our revenue in 2018 was acquired by a leading Internet company one year -- one half year ago. And that -- the parent company made decision that they will host all their computing capacity in their own in-house capability. And we don't think that will be a very common kind of case for our major customer base. Thank you.

Thank you.

We have a follow-up question from Rex Wu from Jefferies. Please ask.

Hi, Sharon. This is Rex. Sorry I couldn't hear you about answering the Chengdu M&A -- the Chengdu project and the valuation multiple for the project, IRR

Okay, Rex. I will answer that question again. For the Chengdu acquisition, we acquired 500 cabinets and the IRR of that project is round of 15%, within our acceptable return range. Thank you.

And also the second question about your MRR increase, right and your overview on the Tier 1 city data center supply and demand?

We estimate our MRR per cabinet remains at the same level of the second half of 2018 for the year 2019. We'll be stable at that level. Thank you.

Okay, thank you.

[Operator Instructions] We have Viktor Uh [ph], a Private Investor. Please ask.

Hi, thanks for the management for the call and for opportunity for me to ask the question. So I've this question about -- on the Chengdu acquisition. So this data center are -- I mean running data center or is this a totally new data center, that's waiting for customers to move in? Thank you.

Victor, would you mind repeating that question? We didn't quite catch that.

Sure. I understand that 21Vianet you guys acquired a data center in Chengdu with 500 cabinets. So is this data center, like with customers almost in, or we are -- is a totally new data center that is like with no customers right now?

Thank you, Victor. This is Alvin here. It's -- actually this is brand new data center, which we will serve our customers in the other locations within our data center network and also we are targeting new Internet and other potential customers within Chengdu. Thank you.

Got it. Thank you.

Your next question is from Hans Weng from Hooji [ph] Capital. Please ask. Mr. Wang, your line is open, you may ask your questions.

Hi, management. I have two follow-up questions. One is -- I just want to double confirm that the Chengdu's project does not have any client occupied right now, right? And the second question is, can you comment on the reason behind the rise in MRR. Is that because there are more VAS service provided to the client or is that because due to the tight supply in the Tier 1 cities? Thank you.

As we said, my -- this is Alvin here, -- the answer, the short answer to your first question is, yes. I think there is basically there are several customer occupation today. Thank you.

Yes. The Chengdu data centers is the new data center and it will be in the ramp-up period from this year and attributed to the revenue and EBITDA for 2019. I will answer your second question for MR -- as our MRR, the Q4 MRR increased slightly. It was because of the value-added service as well as the mix shift of the high power density cabinets in Tier 1 cities. Thank you.

Okay, thank you.

[Operator Instructions] We have another question from Rex Wu from Jefferies. Please ask.

Thank you for taking my question again. So just follow up on the mix shift to high-powered density cabinets. So after the major customer moving out are we planning to fill with these kind of more high-power density cabinets or just regular clients? That means do we see upside to our MRR for second half 2019?

Hi, Rex. We will deliver the new customer -- the 5,000 to 7,000 cabinets from the end of Q3. So it's for that new delivered cabinet, they were all in the early stage and can -- although some of them are more high-density cabinets is 5 KW. But its revenue attribution in the year 2019, it's limited. So the contribution to our MRR will be indicated in from 2020 and in the following years. Thank you.

Thank you.

We don't have any other questions as of the moment. Presenters please continue.

Hi, thank you for participating our call. If you have any further questions, please feel free to contact the company's IR or visit our IR website at ir@21vianet.com. Thank you.

Ladies and gentlemen, that does conclude our call for today. Thank you for participating. You may all disconnect.