VNET(VNET) - 2022 Q4 - Annual Report

Financial Liabilities and Borrowings - Long-term borrowings (current portions) had an outstanding balance of RMB484.0 million (US$70.2 million), and long-term borrowings (excluding current portions) had an outstanding balance of RMB3,049.9 million (US$442.2 million) as of December 31, 2022[471] - The long-term borrowings bore a weighted-average interest rate of 5.11% per annum, and a hypothetical 1% decrease in interest rates would have resulted in a decrease of approximately RMB40.8 million (US$5.9 million) in interest expense for the year ended December 31, 2022[471] - Long-term borrowings increased from RMB2,215,015 in 2021 to RMB3,049,856 in 2022, up by 37.7%[520] - Convertible promissory notes rose from RMB4,266,951 in 2021 to RMB5,859,259 in 2022, a growth of 37.3%[520] - US$300 million 7.875% Senior Notes due 2021 issued on April 15, 2019[495] - US$600 million 0.00% Convertible Senior Notes due 2026 issued on January 26, 2021[495] Foreign Exchange and Currency Impact - The Renminbi depreciated by 2.3% against the U.S. dollar in 2021 and then appreciated 9.2% in 2022[472] - A hypothetical 10% increase in the exchange rate of the U.S. dollar against the RMB would have resulted in an increase of RMB70.0 million (US$10.1 million) in the value of the company's U.S. dollar-denominated financial assets at December 31, 2022[472] - The RMB depreciated by 9.2% against the USD in the year ended December 31, 2022[635] Cash and Cash Equivalents - As of December 31, 2022, the company had total U.S. dollar-denominated cash and cash equivalents, restricted cash, and short-term investments amounting to US$101.5 million[472] - Cash and cash equivalents rose to RMB 2,661,321 thousand (US$ 385,855 thousand) in 2022 from RMB 1,372,481 thousand in 2021[516] - Restricted cash decreased to RMB 327,673 thousand (US$ 47,508 thousand) in 2022 from RMB 327,767 thousand in 2021[516] - Cash and cash equivalents and restricted cash at the end of 2022 stood at RMB 2,989,494 thousand (US$ 433,435 thousand), up from RMB 1,708,473 thousand in 2021[530] - As of December 31, 2022, the company held RMB2,677,823 (US$388,248) in cash and cash equivalents and restricted cash at major financial institutions in the PRC, and US$45,187 (RMB311,671) outside the PRC[629] Financial Performance and Metrics - Net revenues from hosting and related services increased to RMB 7,065,232 thousand (USD 1,024,362 thousand) in 2022, up 14.1% from RMB 6,189,801 thousand in 2021[524] - Gross profit for 2022 was RMB 1,358,256 thousand (USD 196,928 thousand), a decrease of 5.5% compared to RMB 1,438,030 thousand in 2021[524] - Operating income for 2022 was RMB 60,013 thousand (USD 8,701 thousand), compared to no operating income in 2021[524] - Net loss attributable to VNET Group, Inc. was RMB 775,952 thousand (USD 112,504 thousand) in 2022, compared to a net income of RMB 500,098 thousand in 2021[524] - Basic loss per share was RMB 0.87 (USD 0.13) in 2022, compared to earnings per share of RMB 0.57 in 2021[524] - Comprehensive loss attributable to VNET Group, Inc. was RMB 674,487 thousand (USD 97,793 thousand) in 2022, compared to a comprehensive income of RMB 465,190 thousand in 2021[526] - The company reported a net loss of RMB 66,764 thousand in 2022, compared to a net profit of RMB 92,594 thousand in 2021[568] Assets and Liabilities - Total assets increased to RMB 26,948,405 thousand (US$ 3,907,153 thousand) as of December 31, 2022, compared to RMB 23,095,039 thousand in 2021[516] - Accounts and notes receivable increased to RMB 1,763,693 thousand (US$ 255,711 thousand) in 2022, up from RMB 1,405,997 thousand in 2021[516] - Property and equipment, net, grew to RMB 11,964,498 thousand (US$ 1,734,689 thousand) in 2022 from RMB 10,092,419 thousand in 2021[516] - Intangible assets, net, increased to RMB 1,497,131 thousand (US$ 217,064 thousand) in 2022 from RMB 900,335 thousand in 2021[516] - Goodwill remained stable at RMB 1,364,191 thousand (US$ 197,789 thousand) in 2022, slightly up from RMB 1,339,657 thousand in 2021[516] - Operating lease right-of-use assets, net, rose to RMB 3,503,925 thousand (US$ 508,021 thousand) in 2022 from RMB 2,869,338 thousand in 2021[516] - Long-term investments, net, increased to RMB 242,194 thousand (US$ 35,115 thousand) in 2022 from RMB 98,243 thousand in 2021[516] - Deferred tax assets, net, grew to RMB 196,098 thousand (US$ 28,432 thousand) in 2022 from RMB 168,002 thousand in 2021[516] - Current liabilities increased from RMB5,179,995 in 2021 to RMB6,332,085 in 2022, a growth of 22.2%[518] - Non-current liabilities rose from RMB10,314,043 in 2021 to RMB13,634,464 in 2022, an increase of 32.2%[520] - Total liabilities grew from RMB15,494,038 in 2021 to RMB19,966,549 in 2022, up by 28.9%[520] - Shareholders' equity decreased from RMB7,601,001 in 2021 to RMB6,981,856 in 2022, a decline of 8.1%[522] - Accumulated deficit widened from RMB7,590,382 in 2021 to RMB8,369,868 in 2022, an increase of 10.3%[522] - Total liabilities and shareholders' equity increased from RMB23,095,039 in 2021 to RMB26,948,405 in 2022, up by 16.7%[522] Cash Flow and Financing Activities - Net cash generated from operating activities increased by 75.8% to RMB 2,440,214 thousand (USD 353,797 thousand) in 2022 from RMB 1,387,922 thousand in 2021[528] - Depreciation and amortization expenses rose to RMB 1,595,942 thousand (USD 231,390 thousand) in 2022, up 25.9% from RMB 1,267,578 thousand in 2021[528] - Foreign exchange loss, net was RMB 523,235 thousand (USD 75,862 thousand) in 2022, compared to a gain of RMB 110,036 thousand in 2021[528] - Net cash used in investing activities decreased from RMB 3,889,174 thousand in 2020 to RMB 3,559,252 thousand in 2022, reflecting a reduction in investment outflows[530] - Proceeds from issuance of 2027 Convertible Notes, net of issuance cost, amounted to RMB 1,592,627 thousand (US$ 230,910 thousand) in 2022[530] - Net cash generated from financing activities increased significantly from RMB 967,577 thousand in 2021 to RMB 2,298,080 thousand (US$ 333,191 thousand) in 2022[530] - Income taxes paid increased from RMB 82,995 thousand in 2021 to RMB 159,784 thousand (US$ 23,167 thousand) in 2022[532] - Right-of-use assets obtained in exchange for new operating lease liabilities totaled RMB 944,148 thousand (US$ 136,889 thousand) in 2022[532] Acquisitions and Investments - The company acquired 100% equity interest in Dermot Entities on August 10, 2014[548] - The company acquired 100% equity interest in SH Shuzhong on June 30, 2020[548] - The company acquired 100% equity interest in Shulifang on July 21, 2020[548] - The company acquired 100% equity interest in LF Huahai on September 11, 2020[548] - The company acquired 100% equity interest in BJ JHC and BJ ST on November 17, 2020[548] - The company acquired 100% equity interest in BJ TenxCloud on July 15, 2021[548] - The company acquired 100% equity interest in Zhongke Zijing and Gu'an Junhui on August 16, 2021[548] - On August 5, 2022, the company acquired 100% equity interests in KS Kunhui for RMB50,000, resulting in goodwill of RMB24,534 (US$3,557)[639][640] - On August 1, 2022, the company acquired 100% equity interests in BJ JiangHeCloud for a total cash consideration of RMB847,438, with RMB57,500 being refundable[643][644] - BJ TenxCloud acquisition total consideration was RMB414,743, consisting of RMB199,790 in cash and RMB214,953 in share-settled liabilities as of July 15, 2021[645] - BJ TenxCloud's revenue and net profit since acquisition were RMB91,038 and RMB9,351, respectively, for the year ended December 31, 2021[649] - Goodwill from BJ TenxCloud acquisition was RMB344,664, primarily due to expected synergies[649] - Zhongke Zijing acquisition total cash consideration was RMB151,884, aimed at establishing a data center[649] - SH Hesheng acquisition total cash consideration was RMB137,557[654] Internal Control and Auditing - The company's management concluded that its internal control over financial reporting was effective as of December 31, 2022, based on the criteria established within the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission[483] - The independent registered public accounting firm, KPMG Huazhen LLP, issued an attestation report confirming the company's effective internal control over financial reporting as of December 31, 2022[486] - Audit fees increased from $1.215 million in 2021 to $2.275 million in 2022, representing an 87.2% increase[489] - Audit-related fees were $600,000 in 2021 but were not reported for 2022[489] - Other fees increased significantly from $27,000 in 2021 to $240,000 in 2022, a 788.9% increase[489] - The company changed its independent registered public accounting firm from Ernst & Young Hua Ming LLP to KPMG Huazhen LLP on September 7, 2022[491] Regulatory and Compliance - The company was identified as a Commission-Identified Issuer under the HFCA Act on May 26, 2022, but expects to be removed from the list after filing the annual report[492] - The company adopted ASU 2021-10 from January 1, 2022, which requires disclosure of government assistance, with no material impact on its consolidated financial statements[626] Subsidiaries and Corporate Structure - The company changed its name from 21Vianet Group, Inc. to VNET Group, Inc. on October 8, 2021 to promote brand awareness[541] - VNET Group Limited (VNET HK) is a wholly-owned subsidiary established on May 25, 2007, in Hong Kong, primarily engaged in investment holding[542] - VNET Data Center Co., Ltd. (VNET China) was incorporated on June 12, 2000, in the PRC, providing technical and consultation services and rental of long-lived assets[542] - VNET (Foshan) Technology Co., Ltd. (FS Technology) was established on December 20, 2011, in the PRC, focusing on trading network equipment and providing technical and internet data center services[542] - VNET Anhui Suzhou Technology Co., Ltd. (SZ Technology) was incorporated on November 16, 2011, in the PRC, offering technical and internet data center services and trading network equipment[542] - VNET Hangzhou Information Technology Co., Ltd. (HZ Technology) was established on March 4, 2013, in the PRC, providing internet data center services[542] - iJoy Holding Limited (iJoy BVI) was incorporated on April 30, 2013, in the British Virgin Islands, primarily engaged in investment holding[542] - VNET Mobile Limited (VNET Mobile) was established on April 30, 2013, in Hong Kong, focusing on investment holding and provision of telecommunication services[542] - WiFire Group Inc. (WiFire Group) was incorporated on March 7, 2014, in the British Virgin Islands, primarily engaged in investment holding[542] - Joytone Infotech Co., Ltd. (SZ Zhuoaiyi) was established on April 30, 2013, in the PRC, providing technical and consultation services[542] - VNET Ventures Limited (Ventures) was incorporated on March 6, 2014, in Hong Kong, primarily engaged in investment holding[542] - SH Blue Cloud was incorporated on March 21, 2013, providing Office 365 and Windows Azure platform services[548] - SH Edge Network was established on January 7, 2021, offering internet data center services[548] - SZ DYX, held 20% by the company, provides virtual private network services and was incorporated on August 10, 2014[548] Revenue Recognition and Deferred Revenue - The company provides hosting services, VPN services, and public cloud services through a strategic partnership with Microsoft[603] - Revenue is recognized when the company satisfies a performance obligation and the customer obtains control of the promised goods or services[603] - The company's deferred revenue amounted to RMB55,695 and RMB95,078 (US$13,785) as of December 31, 2021 and 2022, respectively[607] - Revenue recognized from opening deferred revenue balance was RMB39,374 (US$5,709) for the year ended December 31, 2022[607] Interest and Financing Costs - Total interest costs for the years ended December 31, 2020, 2021, and 2022 were RMB412,285, RMB388,370, and RMB334,766 (US$48,537), respectively[612] - Interest expense and amortization cost of 2025, 2026, and 2027 Convertible Notes were RMB18,880, RMB25,919, and RMB58,350 (US$8,460) for the years ended December 31, 2020, 2021, and 2022, respectively[612] - Interest expense on bank and other borrowings were RMB39,424, RMB103,925, and RMB172,328 (US$24,986) for the years ended December 31, 2020, 2021, and 2022, respectively[612] - Interest expense on finance leases were RMB130,196, RMB124,567, and RMB104,088 (US$15,091) for the years ended December 31, 2020, 2021, and 2022, respectively[612] - Total interest costs capitalized during the period were RMB31,676, RMB53,420, and RMB61,461 (US$8,911) for the years ended December 31, 2020, 2021, and 2022, respectively[612] Shareholder Equity and Compensation - Total shareholders' equity as of December 31, 2020, was RMB 6,897,480 thousand, with noncontrolling interest contributing RMB 332,546 thousand[534] - Share-based compensation in 2020 amounted to RMB 139,641 thousand, contributing to the increase in additional paid-in capital[534] - Total shareholders' equity as of December 31, 2021 was RMB 7,601,001 thousand, with noncontrolling interest contributing RMB 358,772 thousand[536] - Consolidated net income for 2021 was RMB 500,098 thousand, with a contribution of RMB 15,003 thousand from noncontrolling interest[536] - Total shareholders' equity as of December 31, 2022 decreased to RMB 6,981,856 thousand, with noncontrolling interest at RMB 372,243 thousand[538] - Consolidated net loss for 2022 was RMB 775,952 thousand, partially offset by a foreign exchange difference gain of RMB 101,465 thousand[538] - Share-based compensation in 2022 amounted to RMB 41,871 thousand[538] - Accumulated deficit increased from RMB 7,590,382 thousand in 2021 to RMB 8,369,868 thousand in 2022[538] - Additional paid-in capital grew from RMB 15,198,055 thousand in 2021 to RMB 15,239,926 thousand in 2022[538] - Statutory reserves increased from RMB 74,462 thousand in 2021 to RMB 77,996 thousand in 2022[538] - Total shareholders' equity in USD terms as of December 31, 2022 was USD 1,012,275 thousand[538] Depreciation and Amortization - Property and equipment are depreciated using the straight-line method over estimated useful lives, with motor vehicles depreciated over 2-8 years[585] - The company capitalized internal-use software development costs amounting to RMB8