21Vianet Group, Inc. Reports Second Quarter 2017 Unaudited Financial Results

BEIJING, Aug. 22, 2017 (GLOBE NEWSWIRE) -- 21Vianet Group, Inc. (Nasdaq:VNET) ("21Vianet" or the "Company"), a leading carrier-neutral internet data center services provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2017. The Company will hold a conference call at 8:00 p.m. Eastern Time on Tuesday, August 22, 2017. Dial-in details are provided at the end of the release.

Mr. Steve Zhang, Chief Executive Officer of the Company, stated, "Our business realignment continued to generate fruitful results in the second quarter of 2017. In particular, our core hosting and related services maintained its growth trajectory. To meet strong market demand, we will increase our data center capacity through a variety of channels, including building cabinets ourselves and entering into strategic joint ventures. This past quarter, we increased the total number of cabinets under management to 27,361. Our cooperation with Warburg Pincus remained on track, as we've almost completed transferring another one of the 4 high-quality data center assets into our initial joint venture. In our managed network service (MNS) business, we saw fierce competition and pricing pressure in the market, especially with the effect of public clouds on our CDN business and telecom operators on our Aipu business. To further optimize the network business, we have been actively implementing various cost control measures. Going forward, we will continue our business realignment. We will allocate more resources to our core hosting and related services business, seek to further improve our operating leverage, and gradually transform ourselves into an asset-light business. At the same time, we will continue to explore various strategic alternatives for our MNS business."

Mr. Terry Wang, Chief Financial Officer of the Company, further commented, "In the second quarter of 2017, our total net revenue declined slightly by 3.5% year-over-year to RMB878.7 million, but was still within the range of our guidance. Our core hosting and related services, which accounted for roughly 85% of total revenues, grew by 10.9% year-over-year. Moreover, because we prudently controlled our costs and reduced expenses, our gross profit increased by 8.7% year-over-year to RMB188.0 million, and our gross margin expanded to 21.4% in the second quarter from 19.0% in the prior year period. Our adjusted EBITDA increased to RMB108.6 million. In addition, we intensified our cash collection efforts and as a result, our accounts receivable declined year-over-year to RMB673.9 million as of June 30, 2017. We are pleased that net cash from operating activities improved to RMB68.9 million in the second quarter. These achievements all exemplified the effectiveness of our business realignment. Going forward, we will continue managing our cost structure efficiently while striving to revive our total revenue growth."

Second Quarter 2017 Financial Results

REVENUES: Net revenues were RMB878.7 million (US$129.6 million) in the second quarter of 2017 compared to RMB910.8 million in the comparative period in 2016. The increase in revenues from hosting and related services was offset by the decrease in revenues from MNS.

Net revenues for hosting and related services increased by 10.9% to RMB743.4 million (US$109.7 million) in the second quarter of 2017 compared to RMB670.5 million in the comparative period in 2016. The increase was primarily due to an increase in the Company's IDC and VPN business.

Net revenues for MNS were RMB135.3 million (US$20.0 million) in the second quarter of 2017, compared to RMB240.4 million in the comparative period in 2016. The decrease was primarily due to intensifying competition and pricing pressure.

GROSS PROFIT: Gross profit increased by 8.7% to RMB188.0 million (US$27.7 million) in the second quarter of 2017 as compared to RMB172.9 million in the comparative period in 2016. Gross margin increased to 21.4% in the second quarter of 2017 from 19.0% in the comparative period in 2016. The increase was primarily due to the Company's execution of its cost control strategies.  

Adjusted gross profit, which excludes share-based compensation expenses and amortization of intangible assets derived from acquisitions, increased by 9.2% to RMB219.3 million (US$32.3 million) in the second quarter of 2017 compared to RMB200.8 million in the comparative period in 2016. Adjusted gross margin increased to 25.0% in the second quarter of 2017 compared to 22.0% in the comparative period in 2016.

OPERATING EXPENSES: Total operating expenses decreased by 10.6% to RMB268.5 million (US$39.6 million) in the second quarter of 2017 from RMB300.5 million in the comparative period in 2016.

Adjusted operating expenses, which exclude share-based compensation expenses and changes in the fair value of contingent purchase consideration payable, decreased by 17.7% to RMB258.0 million (US$38.1 million) in the second quarter of 2017 from RMB313.4 million in the comparative period in 2016. As a percentage of net revenues, adjusted operating expenses decreased to 29.4% in the second quarter of 2017 from 34.4% in the comparative period in 2016.

Sales and marketing expenses decreased by 15.1% to RMB70.9 million (US$10.5 million) in the second quarter of 2017 compared to RMB83.5 million in the comparative period in 2016. The decrease was primarily due to a decrease in third party sales commissions

General and administrative expenses decreased by 10.1% to RMB139.1 million (US$20.5 million) in the second quarter of 2017 compared to RMB154.8 million in the comparative period in 2016. The decrease was primarily driven by a reduction in headcount.

Research and development expenses were RMB43.1 million (US$6.4 million) in the second quarter of 2017 compared to RMB33.0 million in the comparative period in 2016. The increase was primarily driven by increasing research staff for our core data center business.

Bad debt provisions decreased by 63.1% to RMB16.4 million (US$2.4 million) in the second quarter of 2017 compared to RMB44.6 million in the comparative period in 2016.

Changes in the fair value of contingent purchase consideration payable decreased by 93.3% to RMB1.0 million (US$0.2 million) in the second quarter of 2017 compared to RMB15.3 million in the comparative period in 2016.

ADJUSTED EBITDA: Adjusted EBITDA, which excludes share-based compensation expenses and changes in the fair value of contingent purchase consideration payable, increased to RMB108.6 million (US$16.0 million) in the second quarter of 2017 compared to RMB15.5 million in the comparative period in 2016. Adjusted EBITDA margin increased to 12.4% in the second quarter of 2017 compared to 1.7% in the comparative period in 2016.

Adjusted EBITDA for hosting and related services was RMB171.3 million (US$25.3 million) in the second quarter of 2017 compared to RMB108.3 million in the comparative period in 2016.

Adjusted EBITDA for MNS was negative RMB62.7 million (US$9.2 million) in the second quarter of 2017 compared to negative RMB92.9 million in the comparative period in 2016.

NET PROFIT/LOSS: Net loss narrowed by 3.7% to RMB119.3 million (US$17.6 million) in the second quarter of 2017 compared to RMB123.8 million in the comparative period in 2016.

Adjusted net loss, which excludes share-based compensation expenses, amortization of intangible assets derived from acquisitions, and changes in the fair value of contingent purchase consideration payable and related deferred tax impact, narrowed by 28.1% to RMB83.5 million (US$12.3 million) in the second quarter of 2017 compared to RMB116.2 million in the comparative period in 2016. Adjusted net margin improved to negative 9.5% in the second quarter of 2017 compared to negative 12.8% in the comparative period in 2016.

LOSS PER SHARE: Diluted loss per share narrowed by 18.2% to RMB0.18 in the second quarter of 2017, which represents the equivalent of RMB1.08 (US$0.18) per American Depositary Share ("ADS"). Each ADS represents six ordinary shares.

Adjusted diluted loss per share narrowed by 35.0% to RMB0.13 in the second quarter of 2017, which represents the equivalent of RMB0.78 (US$0.12) per ADS. Adjusted diluted loss per share is calculated using adjusted net loss divided by the weighted average number of shares.

As of June 30, 2017, the Company had a total of 675.0 million ordinary shares outstanding, or the equivalent of 112.5 million ADS.

BALANCE SHEET: As of June 30, 2017, the Company's cash and cash equivalents and short-term investment were RMB757.8 million (US$111.8 million).

Second quarter 2017 Operational Highlights
  • Total Monthly Recurring Revenues ("MRR") per cabinet was RMB8,311 in the second quarter of 2017, compared to RMB8,363 in the first quarter of 2017.
  • Monthly Recurring Revenues for our hosting business ("Hosting MRR") per cabinet was RMB7,697 in the second quarter of 2017, compared to RMB7,746 in the second quarter of 2016, and RMB7,598 in the first quarter of 2017.
  • Total cabinets under management increased to 27,361 as of June 30, 2017 from 26,394 as of March 31, 2017, with 20,971 cabinets in the Company's self-built data centers and 6,390 cabinets in its partnered data centers.
  • Utilization rate was 75.2% in the second quarter of 2017, compared to 75.8% in the first quarter of 2017.
  • Hosting churn rate, which is based on the Company's core IDC business, decreased to 0.24% in the second quarter of 2017, compared to 0.48% in the first quarter of 2017.

Recent Developments

As previously announced in the press release dated August 10, 2017, the Company has priced the offering of USD200 million in aggregate principal amount of the USD-denominated notes due 2020 with an interest rate of 7.00% per annum (the "Notes"). The deal closed on August 17, 2017. The Notes are being offered outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually in arrears on, or nearest to, August 17 and February 17 each year, beginning on August 17, 2017. The Notes are not rated. The holders of the Notes will have the right, at their option, to require the Company to repurchase for cash all of their Notes or any portion of the principal thereof that is equal to US$200,000 or integral multiples of US$1,000 in excess thereof on August 17, 2019.

The Company intends to use the proceeds from its Notes offering to refinance outstanding indebtedness, fund future capital needs, and for general corporate purposes.

Financial Outlook

For the third quarter of 2017, the Company expects net revenues to be in the range of RMB860 million to RMB900 million, compared to RMB968.0 million in the prior year period. Adjusted EBITDA is expected to be in the range of RMB108 million to RMB122 million, compared to RMB67.9 million in the prior year period.

Conference Call

The Company will hold a conference call on Tuesday, August 22, 2017 at 8:00 pm U.S. Eastern Time, or Wednesday, August 23, 2017 at 8:00 am Beijing Time to discuss the financial results.
Participants may access the call by dialing the following numbers: 
 
United States Toll Free:  +1-855-500-8701
International:  +65-6713-5440
China Domestic:  400-120-0654
Hong Kong:  +852-3018-6776
Conference ID:  58283697
 
The replay will be accessible through August 30, 2017, by dialing the following numbers:
 
United States Toll Free:  +1-855-452-5696
International:  +61-2-9003-4211
Conference ID:  58283697

A live and archived webcast of the conference call will be available through the Company's investor relation website at http://ir.21vianet.com.

Non-GAAP Disclosure

In evaluating its business, 21Vianet considers and uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC as supplemental measure to review and assess its operating performance: adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net profit, adjusted net margin, adjusted EBITDA, adjusted EBITDA margin, adjusted basic earnings per share, adjusted diluted earnings per share, adjusted basic earnings per ADS and adjusted diluted earnings per ADS. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of GAAP and non-GAAP results" set forth at the end of this press release.

The non-GAAP financial measures are provided as additional information to help investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of the Company's current financial performance and prospects for the future. These non-GAAP financial measures should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for, or superior to, U.S. GAAP results. In addition, the Company's calculation of the non-GAAP financial measures may be different from the calculation used by other companies, and therefore comparability may be limited.

Exchange Rate

This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB6.7793 to US$1.00, the noon buying rate in effect on June 30, 2017 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.

Statement Regarding Unaudited Condensed Financial Information

The unaudited financial information set forth above is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company's year-end audit, which could result in significant differences from this preliminary unaudited condensed financial information.

About 21Vianet

21Vianet Group, Inc. is a leading carrier-neutral Internet data center services provider in China. 21Vianet provides hosting and related services, managed network services, cloud services, content delivery network services, last-mile wired broadband services and business VPN services, improving the reliability, security and speed of its customers' Internet infrastructure. Customers may locate their servers and networking equipment in 21Vianet's data centers and connect to China's Internet backbone through 21Vianet's extensive fiber optic network. In addition, 21Vianet's proprietary smart routing technology enables customers' data to be delivered across the Internet in a faster and more reliable manner. 21Vianet operates in more than 30 cities throughout China, servicing a diversified and loyal base of more than 4,000 hosting enterprise customers that span numerous industries ranging from Internet companies to government entities and blue-chip enterprises to small- to mid-sized enterprises

Safe Harbor Statement

This announcement contains forward-looking statements. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, quotations from management in this announcement as well as 21Vianet's strategic and operational plans contain forward-looking statements. 21Vianet may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about 21Vianet's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: 21Vianet's goals and strategies; 21Vianet's expansion plans; the expected growth of the data center services market; expectations regarding demand for, and market acceptance of, 21Vianet's services; 21Vianet's expectations regarding keeping and strengthening its relationships with customers; 21Vianet's plans to invest in research and development to enhance its solution and service offerings; and general economic and business conditions in the regions where 21Vianet provides solutions and services. Further information regarding these and other risks is included in 21Vianet's reports filed with, or furnished to, the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and 21Vianet undertakes no duty to update such information, except as required under applicable law.

 
21VIANET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Amount in thousands of Renminbi ("RMB") and US dollars ("US$"))
  As of As of  
   
December 31, 2016 June 30, 2017
  RMB   RMB   US$
  (Audited)   (Unaudited) (Unaudited)
Assets      
Current assets:      
Cash and cash equivalents   1,297,418     757,819     111,784  
Restricted cash   1,963,561     1,914,778     282,445  
Accounts and notes receivable, net   655,459     673,900     99,406  
Short-term investments   277,946     -      -  
Inventories   4,431     4,308     635  
Prepaid expenses and other current assets   777,131     930,946     137,324  
Amount due from related parties   182,615     192,663     28,419  
Total current assets   5,158,561     4,474,414     660,013  
Non-current assets:      
Property and equipment, net   3,781,613     3,936,256     580,629  
Intangible assets, net   977,341     906,307     133,687  
Land use rights, net   167,646     165,725     24,446  
Deferred tax assets   100,676     100,922     14,887  
Goodwill   1,755,970     1,755,970     259,019  
Long term investments   298,871     341,308     50,346  
Restricted cash   33,544     3,472     512  
Other non-current assets   147,302     128,684     18,982  
Total non-current assets   7,262,963     7,338,644     1,082,508  
Total assets   12,421,524     11,813,058     1,742,521  
Liabilities and Shareholders' Equity            
Current liabilities:      
Short-term bank borrowings   1,683,676     1,640,676     242,013  
Accounts and notes payable   529,569     584,499     86,218  
Accrued expenses and other payables   787,916     741,400     109,362  
Deferred revenue   320,023     265,766     39,203  
Advances from customers   201,397     349,702     51,584  
Income taxes payable   21,899     15,100     2,227  
Amounts due to related parties   121,928     119,782     17,669  
Current portion of long-term bank borrowings   39,303     62,254     9,183  
Current portion of capital lease obligations   243,723     296,395     43,721  
Current portion of deferred government grant   5,107     4,811     710  
Current portion of bonds payable 419,316    -    
Total current liabilities   4,373,857     4,080,385     601,890  
Non-current liabilities:      
Long-term bank borrowings   268,221     263,647     38,890  
Deferred revenue   62,531     54,297     8,009  
Unrecognized tax benefits   28,689     31,762     4,685  
Deferred tax liabilities   274,700     267,128     39,403  
Non-current portion of capital lease obligations   536,623     537,743     79,321  
Non-current portion of deferred government grant   25,886     27,162     4,007  
Total non-current liabilities   1,196,650     1,181,739     174,315  
       
Redeemable noncontrolling interests   700,000     700,000     103,255  
       
Shareholders' equity      
Treasury stock   (204,557 )   (309,897 )   (45,712 )
Ordinary shares    45     45     7  
Additional paid-in capital   9,015,846     9,051,232     1,335,128  
Accumulated other comprehensive gain   118,290     60,263     8,889  
Statutory reserves   64,622     66,729     9,843  
Accumulated deficit   (2,869,031 )   (3,067,745 )   (452,515 )
Total 21Vianet Group, Inc. shareholders' equity   6,125,215     5,800,627     855,640  
Noncontrolling interest   25,802     50,307     7,421  
Total shareholders' equity   6,151,017     5,850,934     863,061  
Total liabilities, redeemable noncontrolling interests and shareholders' equity   12,421,524     11,813,058     1,742,521  

21VIANET GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amount in thousands of Renminbi ("RMB") and US dollars ("US$") except for number of shares and per share data)
                 
  Three months ended     Six months ended  
  June 30, 2016 March 31,2017 June 30, 2017   June 30, 2016 June 30, 2017
  RMB RMB RMB US$   RMB RMB US$
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)   (Unaudited) (Unaudited) (Unaudited)
Net revenues                
Hosting and related services   670,498     706,711     743,398     109,657       1,266,982     1,450,109     213,902  
Managed network services 240,351   155,466     135,281     19,955     506,139   290,747     42,888  
Total net revenues   910,849     862,177     878,679     129,612       1,773,121     1,740,856     256,790  
Cost of revenues   (737,946 )   (681,700 )   (690,716 )   (101,886 )     (1,431,238 )   (1,372,416 )   (202,442 )
Gross profit   172,903     180,477     187,963     27,726       341,883     368,440     54,348  
Operating expenses                
Sales and marketing   (83,455 )   (65,832 )   (70,880 )   (10,455 )     (160,770 )   (136,712 )   (20,166 )
Research and development   (32,976 )   (38,387 )   (43,108 )   (6,359 )     (74,833 )   (81,495 )   (12,021 )
General and administrative   (154,756 )   (135,803 )   (139,113 )   (20,520 )     (288,562 )   (274,916 )   (40,552 )
Bad debt provision   (44,612 )   (15,465 )   (16,449 )   (2,426 )     (44,607 )   (31,914 )   (4,708 )
Changes in the fair value of contingent purchase consideration payable   15,306     2,867     1,032     152       13,825     3,899     575  
Total operating expenses   (300,493 )   (252,620 )   (268,518 )   (39,608 )     (554,947 )   (521,138 )   (76,872 )
Operating loss     (127,590 )   (72,143 )   (80,555 )   (11,882 )     (213,064 )   (152,698 )   (22,524 )
Interest income   3,641     8,252     7,188     1,060       12,523     15,440     2,278  
Interest expense   (52,755 )   (37,027 )   (40,033 )   (5,905 )     (108,447 )   (77,060 )   (11,367 )
Other income   3,367     4,826     1,458     215       4,473     6,284     927  
Other expense   (12,510 )   (1,562 )   (2,636 )   (389 )     (13,614 )   (4,198 )   (619 )
Foreign exchange gain (loss)   24,224     (5,481 )   (10,372 )   (1,530 )     18,981     (15,853 )   (2,338 )
Loss before income taxes and gain f rom equity method investments   (161,623 )   (103,135 )   (124,950 )   (18,431 )     (299,148 )   (228,085 )   (33,643 )
Income tax benefit (expense)   18,400     (16,127 )   (1,387 )   (205 )     3,406     (17,514 )   (2,583 )
Gain from equity method investments   19,374     2,425     7,080     1,044       20,575     9,505     1,402  
Net loss   (123,849 )   (116,837 )   (119,257 )   (17,592 )     (275,167 )   (236,094 )   (34,824 )
Net loss attributable to noncontrolling interest   26,874     17,043     22,444     3,311       35,392     39,487     5,825  
Net loss attributable to ordinary shareholders   (96,975 )   (99,794 )   (96,813 )   (14,281 )     (239,775 )   (196,607 )   (28,999 )
                               
                 
                 
Loss per share                
Basic   (0.22 )   (0.17 )   (0.18 )   (0.03 )     (0.50 )   (0.35 )   (0.05 )
Diluted   (0.22 )   (0.17 )   (0.18 )   (0.03 )     (0.50 )   (0.35 )   (0.05 )
Shares used in loss per share computation                
Basic*   578,617,002     678,649,016     670,534,467     670,534,467       551,875,790     674,556,313     674,556,313  
Diluted*   578,617,002     678,649,016     670,534,467     670,534,467       551,875,790     674,556,313     674,556,313  
                 
Loss per ADS (6 ordinary shares equal to 1 ADS)                
Basic (1.32 ) (1.02 ) (1.08 ) (0.18 )   (3.00 ) (2.10 ) (0.30 )
Diluted (1.32 ) (1.02 ) (1.08 ) (0.18 )   (3.00 ) (2.10 ) (0.30 )
                 
* Shares used in loss per share/ADS computation were computed under weighted average method.          
                 

21VIANET GROUP, INC.
RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS  
(Amount in thousands of Renminbi ("RMB") and US dollars ("US$") except for number of shares and per share data)
                 
  Three months ended     Six months ended  
  June 30, 2016 March 31,2017 June 30, 2017   June 30, 2016 June 30, 2017
  RMB RMB RMB US$   RMB RMB US$
Gross profit   172,903     180,477     187,963     27,726       341,883     368,440     54,348  
Plus: share-based compensation expense   (11,073 )   (222 )   42     6       (7,148 )   (180 )   (27 )
Plus: amortization of intangible assets derived from acquisitions   38,967     31,372     31,258     4,611       77,164     62,630     9,238  
Adjusted gross profit   200,797     211,627     219,263     32,343       411,899     430,890     63,559  
Adjusted gross margin 22.0 % 24.5 % 25.0 % 25.0 %   23.2 % 24.8 % 24.8 %
Operating expenses   (300,493 )   (252,620 )   (268,518 )   (39,608 )     (554,947 )   (521,138 )   (76,872 )
Plus: share-based compensation expense   2,355     4,545     11,563     1,706       35,823     16,108     2,377  
Plus: changes in the fair value of contingent purchase consideration payable   (15,306 )   (2,867 )   (1,032 )   (152 )     (13,825 )   (3,899 )   (575 )
Adjusted operating expenses   (313,444 )   (250,942 )   (257,987 )   (38,054 )     (532,949 )   (508,929 )   (75,070 )
Net loss   (123,849 )   (116,837 )   (119,257 )   (17,592 )     (275,167 )   (236,094 )   (34,824 )
Plus: share-based compensation expense   (8,718 )   4,323     11,605     1,712       28,675     15,928     2,350  
Plus: amortization of intangible assets derived from acquisitions   38,967     31,372     31,258     4,611       77,164     62,630     9,238  
Plus: changes in the fair value of contingent purchase consideration payable and related deferred tax impact   (15,306 )   (2,867 )   (1,032 )   (152 )     (13,330 )   (3,899 )   (575 )
Plus: tax impact for the reconciliation adjustments (1)   (7,256 )   (6,113 )   (6,101 )   (900 )     (14,512 )   (12,214 )   (1,802 )
Adjusted net loss   (116,162 )   (90,122 )   (83,527 )   (12,321 )     (197,170 )   (173,649 )   (25,613 )
Adjusted net margin -12.8 % -10.5 % -9.5 % -9.5 %   -11.1 % -10.0 % -10.0 %
Net loss   (123,849 )   (116,837 )   (119,257 )   (17,592 )     (275,167 )   (236,094 )   (34,824 )
Minus: Provision for income taxes   18,400     (16,127 )   (1,387 )   (205 )     3,406     (17,514 )   (2,583 )
Minus: Interest income   3,641     8,252     7,188     1,060       12,523     15,440     2,278  
Minus: Interest expenses   (52,755 )   (37,027 )   (40,033 )   (5,905 )     (108,447 )   (77,060 )   (11,367 )
Minus: Exchange gain (loss)   24,224     (5,481 )   (10,372 )   (1,530 )     18,981     (15,853 )   (2,338 )
Minus: Gain from equity method investment   19,374     2,425     7,080     1,044       20,575     9,505     1,402  
Minus: Other income   3,367     4,826     1,458     215       4,473     6,284     927  
Minus: Other expenses   (12,510 )   (1,562 )   (2,636 )   (389 )     (13,614 )   (4,198 )   (619 )
Plus: depreciation   118,195     129,609     137,577     20,294       227,135     267,186     39,412  
Plus: amortization   48,892     41,344     41,014     6,050       95,114     82,358     12,148  
Plus: share-based compensation expense   (8,718 )   4,323     11,605     1,712       28,675     15,928     2,350  
Plus: changes in the fair value of contingent purchase consideration payable   (15,306 )   (2,867 )   (1,032 )   (152 )     (13,825 )   (3,899 )   (575 )
Adjusted EBITDA   15,473     100,266     108,609     16,022       124,035     208,875     30,811  
Adjusted EBITDA margin 1.7 % 11.6 % 12.4 % 12.4 %   7.0 % 12.0 % 12.0 %
                 
                 
                 
Adjusted net loss (116,162 ) (90,122 ) (83,527 ) (12,321 )   (197,170 ) (173,649 ) (25,613 )
Less: Net loss attributable to noncontrolling interest   26,874     17,043     22,444     3,311       35,392     39,487     5,825  
Adjusted net loss attributable to the Company's ordinary shareholders (89,288 ) (73,079 ) (61,083 ) (9,010 )   (161,778 ) (134,162 ) (19,788 )
                 
Adjusted loss per share                
Basic (0.20 ) (0.13 ) (0.13 ) (0.02 )   (0.35 ) (0.26 ) (0.04 )
Diluted (0.20 ) (0.13 ) (0.13 ) (0.02 )   (0.35 ) (0.26 ) (0.04 )
Shares used in adjusted loss per share computation:                
Basic (2) 578,617,002   678,649,016   670,534,467   670,534,467     551,875,790   674,556,313    674,556,313  
Diluted (2) 578,617,002   678,649,016   670,534,467   670,534,467     551,875,790   674,556,313    674,556,313  
                 
Adjusted loss per ADS (6 ordinary shares equal to 1 ADS)                
Basic (1.20 ) (0.78 ) (0.78 ) (0.12 )   (2.10 ) (1.56 ) (0.24 )
Diluted (1.20 ) (0.78 ) (0.78 ) (0.12 )   (2.10 ) (1.56 ) (0.24 )
                 
(1) We have presented the income tax effects as a separate line in the non-GAAP adjustments. These adjustments are a combination of the tax effects on amortization of intangible assets derived from acquisitions and on impairment of long-lived assets. 
(2) Shares used in adjusted loss/ADS per share computation were computed under weighted average method.          
                 

21VIANET GROUP, INC.
RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS ( SEGMENT REPORTING )
(Amount in thousands of Renminbi ("RMB") and US dollars ("US$") except for number of shares and per share data)
                 
  Three months ended     Six months ended  
  June 30, 2016 March 31,2017 June 30, 2017   June 30, 2016 June 30, 2017
  RMB RMB RMB US$   RMB RMB US$
Hosting and related services                
Operating profit   46,760     52,273     48,637     7,175       38,039     100,910     14,885  
Plus: depreciation and amortization   83,927     100,633     109,868     16,207       158,273     210,500     31,050  
Plus: share-based compensation expense   (7,075 )   2,681     13,835     2,041       20,585     16,517     2,437  
Plus: changes in the fair value of contingent purchase consideration payable   (15,277 )   (2,867 )   (1,032 )   (152 )     (14,474 )   (3,899 )   (575 )
Adjusted EBITDA   108,335     152,720     171,308     25,271       202,423     324,028     47,797  
                               
Managed network services                
Operating profit   (174,350 )   (124,416 )   (129,192 )   (19,057 )     (251,103 )   (253,608 )   (37,409 )
Plus: depreciation and amortization   83,160     70,320     68,723     10,137       163,976     139,044     20,510  
Plus: share-based compensation expense   (1,643 )   1,642     (2,230 )   (329 )     8,090     (589 )   (87 )
Plus: changes in the fair value of contingent purchase consideration payable   (29 )   -     -     -       649     -     -  
Adjusted EBITDA   (92,862 )   (52,454 )   (62,699 )   (9,249 )     (78,388 )   (115,153 )   (16,986 )

21VIANET GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amount in thousands of Renminbi ("RMB") and US dollars ("US$"))
       
   
  March 31, 2017   June 30, 2017  
    RMB     RMB     US$  
    (Unaudited)     (Unaudited)     (Unaudited)  
  CASH FLOWS FROM OPERATING ACTIVITIES        
 Net loss    (116,837 )   (119,257 )   (17,591 )
  Adjustments to reconcile net loss to net cash generated from operating activities:        
 Foreign exchange loss    5,481     10,372     1,530  
 Changes in the fair value of contingent purchase consideration payable    (2,867 )   (1,032 )   (152 )
 Depreciation of property and equipment    129,609     137,577     20,294  
 Amortization of intangible assets    41,344     41,014     6,050  
 Provision for doubtful accounts and other receivables    15,465     16,449     2,426  
 Share-based compensation expense    4,323     11,573     1,707  
 Deferred income taxes expense (benefit)    240     (8,058 )   (1,189 )
 Gain from equity method investment    (2,425 )   (7,080 )   (1,044 )
 Gain from cost method investments    -     (1,425 )   (210 )
  Changes in operating assets and liabilities        
 Restricted cash    (24,102 )   (8,217 )   (1,212 )
 Inventories    (154 )   277     41  
 Accounts and notes receivable    (80,864 )   30,509     4,500  
 Unrecognized tax benefits    1,092     1,981     292  
 Prepaid expenses and other current assets    (85,428 )   (82,143 )   (12,117 )
 Amounts due from related parties    (1,082 )   (9,616 )   (1,418 )
 Accounts and notes payable    60,490     (5,560 )   (820 )
 Accrued expenses and other payables    (4,161 )   61,956     9,139  
 Deferred revenue    (43,074 )   (19,417 )   (2,864 )
 Advances from customers    111,899     36,406     5,370  
 Income taxes payable    6,709     (13,508 )   (1,992 )
 Amounts due to related parties    7,892     (6,139 )   (905 )
 Deferred government grants    (1,302 )   2,282     337  
  Net cash generated from operating activities     22,248     68,944     10,172  
  CASH FLOWS FROM INVESTING ACTIVITIES              
 Purchases of property and equipment    (99,432 )   (144,092 )   (21,255 )
 Purchases of intangible assets    (9,386 )   (5,466 )   (806 )
 Payment for asset acquisition    (15,053 )   (10,000 )   (1,475 )
 Payments for short-term investments    (207,003 )   17     3  
 Proceeds received from maturity of short-term investments    -     484,932     71,531  
 Proceeds from cost method investment    -     1,425     210  
 Payments for long-term investments    -     (36,264 )   (5,349 )
 Restricted cash    -     144,176     21,267  
  Net cash (used in) generated from investing activities     (330,874 )   434,728     64,126  
  CASH FLOWS FROM FINANCING ACTIVITIES              
 Restricted cash    (48,515 )   25,513     3,763  
 Proceeds from exercise of stock options    555     13     2  
 Proceeds from long-term bank borrowings    9,038     23,662     3,490  
 Proceeds from short-term bank borrowings    50,000     20,000     2,950  
 Repayments of short-term bank borrowings    (95,000 )   (18,000 )   (2,655 )
 Repayments of long-term bank borrowings    (1,974 )   (12,349 )   (1,822 )
 Repayments of 2017 Bonds    -     (420,600 )   (62,042 )
 Payments for shares repurchase plan    (41,192 )   (41,880 )   (6,178 )
 Rental prepayments and deposits for sales and leaseback transactions    (33,886 )   (31,813 )   (4,693 )
 Payments for capital leases    (32,055 )   (60,552 )   (8,932 )
 Contribution from noncontrolling interest in a subsidiary    -     22,962     3,387  
  Net cash used in financing activities     (193,029 )   (493,044 )   (72,730 )
  Effect of foreign exchange rate changes on cash and short   term investments     (16,250 )   (32,322 )   (4,768 )
  Net decrease in cash and cash equivalents     (517,905 )   (21,694 )   (3,200 )
  Cash and cash equivalents at beginning of period     1,297,418     779,513     114,984  
  Cash and cash equivalents at end of period     779,513     757,819     111,784  
 

Investor Relations Contacts:

21Vianet Group, Inc.Calvin Jiang+86 10 8456 2121 IR@21Vianet.com 

ICR, Inc.Xueli Song+1 (646) 405-4922 IR@21Vianet.com

Source: 21Vianet Group, Inc.

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