Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2026 earnings conference call for VNet Group, Inc. 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.

Thank you, Okurita. 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 Israel Services. Please note that today's call will contain forward-looking statements made under the safe harbor provision of the U.S. Privacy Security Interestation Reform Act of 1995. Further looking statements are subject to risks and uncertainties that may cause the actual result 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. VINIA does not undertake any obligation to update any further looking statements expected as required under applicable laws. Please also note that VNAT's earnest press release and this conference include the disclosures of unaudited gap and non-gap financial measures. VNAT's earnest press release contains a consolidation of unaudited non-gap measures to the unaudited gap measures. A summary presentation of which we refer during this conference call can be viewed and downloaded from our IR website at ir.vnat.com. Next. I'd like to alert you that we will utilize interactivity 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 ACP 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 IR website at ir.v9.com. Now, let's get started with today's presentation. Mr. Teng, please go ahead.

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 megawatts of orders disclosed in our last quarter earnings results, our wholesale IDC business has secured a total of 862 megawatts 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 1007 megawatts, surpassing 1 gigawatt for the first time. 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 MR 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. 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'll 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 gigawatts in the Chinese mainland. And on top of that, we secured approximately Thank you for your attention. Reliable services continue to earn customer trust and gain market share. Following our last earnings call, we won a new 345-megawatt 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 megawatts 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 megawatts year-to-date in 2026, including the 345 megawatts I just mentioned and 517 megawatts we announced last call. We continue to see robust momentum in customer demand with increasing depth and durability. 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 megawatts, bringing total orders and reservations to over 1.2 gigawatts. 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 megawatts expected to be delivered in 2026, 345 megawatts in 2027, and 230 megawatts 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. These new orders and our disciplined delivery roadmap enhanced 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. 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 AIDC 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 8. Our wholesale business continued to grow, with capacity in service increasing by 49.4% year-over-year to 1,007 megawatts, surpassing the 1 gigawatt milestone for the first time. Utilized capacity grew by 45.5% year-over-year to 744 megawatts with a utilization rate of 73.9%, mainly attributable to customers' fast move-ins at NHB Campus 03, and NOR Campus 01. 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 four gigawatts, representing an increase of approximately 1.5 gigawatts 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 megawatts with 96.3% already committed by customers. Meanwhile, capacity under construction increased to 585 megawatts with a pre-commitment rate of 94.2%, providing strong visibility and many more. and 478 megawatts 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, MR per retail cabinet increased to RMB 9,799 this quarter, turning to our delivery plan for the following 12 months on slide 11. We delivered 117 megawatts in the first half of 2026, in line with our delivery plan 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 megawatts of capacity over the next 12 months, around 333 megawatts during the second half of 2026, and around 252 megawatts during the first half of 2027. The majority of these upcoming deliveries will come from our Wulanchabu 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. 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. Thank you for your attention. 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 Thank you, everyone. 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 continue 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 growth 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. Our key revenue growth driver increased by 29.3% to RMB 1.10 billion for the second quarter. mainly attributable to activity at the NHB Campus 03 and NOR 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 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 growth 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 maintain the robust and healthy liquidity. 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 4.6 and total debt to the adjusted last quarter. Annualized EBITDA ratio was 6.4, both remaining at healthy levels. Our adjusted last quarter annualized EBITDA to interest coverage ratio was 5.6. 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 to RMB 12 billion, mainly to support our planned delivery of 450 to 500 megawatts 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. We reiterate our guidance of total net revenues expected in the range of RMB 11.5 billion to RMB 11.8 billion, a year-over-year increase of 15.6% to 18.6%, and adjusted EBITDA in the range of RMB 3.55 billion to RMB 3.75 billion A year-over-year increase of 19.2% to 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.

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're 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.

Thank you, management, for the opportunity to ask the questions and congratulations on the very large order win this quarter. So I only have one question. So could you please give us an update on the overall supply and demand situation in our key regions? And if there's any updated outlook for the pricing dynamics there. Let me just briefly translate it. Thank you, management, for giving me the opportunity to ask questions. And congratulations to the company for getting such a large order. I only have one question. I hope that the management can update us on the supply and demand of several major areas and whether there is any new outlook on the price. Thank you. Thank you for your question.

First of all, from the supply and demand you just mentioned, especially the demand, We can clearly see that the needs of our industry to calculate interest are growing steadily. This is due to the same drive from AI training and reasoning scenarios. From the calculation of multiple institutions, it shows that the scale of the industry has an objective room for growth. Another obvious phenomenon is that the increase in the speed of the calculation of a split track is even more prominent. Thank you for your question.

Now, with regard to the demand, we are seeing that the overall computer 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. are primarily concentrated within the national hubs under the East Data West Compute Initiative.

从供给侧来看,全国的数据中心整体供给规模持续的扩张, 但行业呈现出明显的结构性的特点。

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.

And

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.

And for us, which is a top-tier player with an end-to-end capability, this will definitely create sustained tailwind for us. 对刚才您提到的未来价格的预期, 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. Thank you.

Next question, please. Your next question comes from Timothy Zell with Goldman Sachs. Please go ahead.

Great. Thank you, Benjamin, 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 Benjamin 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 the 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 of years, and also you announced the overseas plan. 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 your view on the unit economics? I will translate it quickly. Thank you for accepting my question. I have two questions. The first question is about the income of our wholesale IDC. I see that in the second quarter, it seems to be a little weaker than we thought. Is this affected by the rhythm of the bidding? What is the rhythm of customer bidding we have seen since the third quarter? Second, I would like to talk about our capital investment plan. Especially for next year, we see that the company has a relatively strong list of orders and a plan to go out of the sea. How do we consider this part of capital investment? Can you share more specifically about going out of the sea? What is our overall time and delivery rhythm? Especially about the overseas unit economy model and how to compare it domestically. Thank you.

This is Teng Wen. I will answer your first part of the question about the rhythm of the wholesale customers. As our Q2 stable rhythm reaches Q3, we will continue to develop this rhythm. We also see that the customer's up and down rhythm is a common result of multiple factors. This is Tianwen. 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 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.

国产卡当前处于产能的爬坡的周期 很明显2026年的下半年 国内芯片的产能已经确定 下半年绿续去释放 推动了上架节奏

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.

Hello, I'm Peter. I'd like to answer the second question. First of all, the logic of the development is based on the customer's needs and the actual delivery. For the next year, I think we will announce such a plan based on the actual delivery goals in early next year. This is Peter. I'll take your second question. On CapEx, essentially our logic is that

Our CAPEX is centered around demand as well as our actual deliveries. And 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. Now moving on to the overseas development. As we have noted, we do have a 500 megawatt reserved resources and overall we will maintain a prudent approach when it comes to developing these resources and we will have to follow the orders. We need to get the orders first before we develop these resources.

I'm Sharon. I'd like to add something about the KPIPS. First of all, the domestic KPIPS, as Peter said, we still follow the KPIPS according to the future delivery progress. The price of this single-channel network will actually remain stable. As we announced this time, in fact, some of the future orders and customer reservations in the company are very high. So we will also follow this rhythm

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.

关于海外部分,我们这次是公布了接近500兆瓦的资源储备, 但实际上公司是会分节奏,分批地去开展交付的。 And as we have disclosed, we have

Close to 500 MW of overseas reserve 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. 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.

Next question please. Your next question comes from Daily Lee with Bank of America Securities. Please go ahead.

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 CTL Corporation. We also made an announcement about the collaboration with CTL, our future new shareholder, and could you update us the transaction with Shandong High Speed, the progress, and also could you share more about the more detailed cooperation going forward? Okay, let me translate it briefly. Thank you for accepting my question. I have two questions. The first one is about our overseas strategy. This quarter, we have also locked in a relatively strong resource. I would like to ask about our overall overseas development strategy in the future, because it may involve some areas. We have to measure the weight, including what kind of business volume or scale we hope to achieve in the next two or three years. The second question is about our cooperation with CTL. I would like to ask about the details of the cooperation, including the progress of CTL and Shan Gao. Can you update it? Thank you. This is Tang Wen.

I will answer your first question first. Actually, your question is a bit ahead of Peter and Sharon's. have already covered some of them. I would like to emphasize some of our overseas strategies based on what you just said. Just now, our performance report and Peter and Jeremy have also mentioned that our company's newly added overseas storage resources have reached a scale of 500 trillion. We are actually surrounding our core customers' overseas needs This is Tongwen. 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 megawatts of new overseas reserved resources. The key is to maintain, I mean for the company, is to stay responsive to our customers' needs when they are going overseas. and we would respond to those demands and implement our projects overseas. And 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.

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

今天我们刚发布了与宁德的战略合作协议的新闻稿。 双方已经建立了全面的战略合作关系。 Today we have issued a joint press release with CATL and we have already built a full-scale strategic partnership. We are going to capture the surging demand from AI And 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.

Our cooperation will build a three-layer computing system in several aspects. One is a GWAC-level computing factory. The other is a distributed computing network.

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

以此呢,我们来打造覆盖全国的,辐射全球的这个算电协同这种网络, 致力呢,成为智能时代数字能源基础建设这块的定义者和行业的引领者。

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

Next question please. Your next question comes from Sarah Wang with UBS. Please go ahead.

Thank you for the opportunity to ask a question. And again, congratulations on the very strong results. So I just have one question. I noticed that the second order, second quarter new booking is very strong, but it's concentrated in one customer. So just wondering if there's 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? Thank you for the opportunity to ask questions. Congratulations to the company for achieving very strong performance. I would like to ask that the order for the second quarter is very strong, but it is concentrated on one client. Is there any special reason for this? And how do we think about the composition of a future client? And will we have more orders from these new AI companies? Thank you.

Thank you for your question. Thank you for the question. As you have noted that we have signed accumulators

From the structure of the client

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'll keep fine-tuning the customer mix of our wholesale customers to pursue a more diversified customer base.

Next question, please. Your next question comes from Yiming Li with Citi. Please go ahead.

Hi. Thanks for the opportunity to ask this question and congratulations to companies again. My question is about the OPEC side. So just wondering, because you've got very good OPEC performance this quarter, is this level of cost efficiency sustainable going forward or company has some other guidance on the cost side? So that's my only question. 我翻譯一下,恭喜公司這個季度非常強的業績表現,你在成本端的問題呢? I just want to ask if the company's operating expense drop in this year or in the next two years is a sustainable trend. That's my question. Thank you. Hello. Thank you for your question. Yes.

We have been continuously working on the balance sheet, including Q2. We have seen some results. Yes. Thank you for your question. This is Peter.

Cost reduction has been an ongoing theme for us, and we have already seen some plin 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 to pursue measures like headcount control, Thank you. Next question please. Your next question comes from Ethan Zhang with Nomura. Please go ahead. Okay, thanks management. Congratulations for the results. I have two questions.

So first, I noted that we added around 1.5 gigawatts new resources or land banks during the second quarter, around 918 domestics. So just wonder what's the location and how about, could you share more colors about the power supplies and the government approvals. And my second question is about and above financials. I noted that Q2's cash growth margin is quarter-over-quarter declined a bit. Could you elaborate a bit on that? Hello, Mr. Guan. Congratulations. There are two problems with this performance. The first one is that Thank you. Let me answer your first question.

In the second quarter, the company has added more than 900 trillion yuan to domestic reserves. The main regions are in the Inner Mongolia and Huazhong regions.

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

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

There are two main factors that affect the ratio of wool. The first is the total capacity of Q2. Compared to Q1, Q2 has increased a lot. Because Q1 is a pass-through, it has an impact on the ratio of wool. The second factor is Q1. We still have a new income. These two factors are a normal fluctuation.

This is Peter. I'll 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're adopting a path through mechanism, so that weighs on our gross margin. Reason number two is we had a one-off gain in Q1. So together, these two combined weighed on the gross margin.

Next question, please. Your next question comes from Mingren Li with CICC. Please go ahead.

Thank you, Ms. Smith, 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 megawatts of reserve capacity. Could management share how long it typically takes for a reserve capacity to convert into others? Based on the current timeline and ongoing discussions, is there potential for additional large-scale capacity renovations in the second half of the year? Thank you, Mr. Guan. Congratulations to Mr. Guan and his team. I have a question for Mr. Guan. I want to answer your question.

The order and reserve capacity are usually reflected in the sales agreement. The order represents the customer who has officially confirmed the capacity promised to use, and the reserve capacity is the future expansion resources that the customer has pre-locked at the same location to ensure the future expansion of the business. From our company's historical experience, the capacity of the past customers' reserve can eventually be achieved and implemented. The reserve has a very high order conversion rate, which is quite certain. It is the stock of the company's high-quality modern orders. As for the 355MW reserve that you mentioned, Thank you for the 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 to firm orders, making this a high-quality backlog with a strong conversion uncertainty. 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.

Thank you, ladies and gentlemen. That concludes our conference for today. Thank you for participating. You may now disconnect your lines.