Title

Presentation

GDS Holdings Limited beats earnings expectations. Reported EPS is $3.44, expectations were $-0.22.

Operator: Hello, ladies and gentlemen. Thank you for standing by, for GDS Holdings Limited First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

Laura Chen: Thank you. Hello, everyone, and welcome to the first quarter 2025 earnings conference call of GDS Holdings Limited. The company’s results were issued via Newswire services earlier today and are posted online. A summary presentation, which we’ll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdsservices.com. Leading today’s call is Mr. William Huang, GDS’ Founder, Chairman and CEO who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS’ CFO will then review the financial and operating results. Before we continue, please note that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today. Further information regarding these and other risk and uncertainties is included in the company’s prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I’ll now turn the call over to GDS Founder, Chairman and CEO, William Huang.

Please go ahead, William.

William Huang: Thank you, Laura. Hello, everyone. This is William. Thank you for joining us on today’s call. We started 2025 with very solid results. In the first quarter, we achieved revenue growth of 12% and adjusted EBITDA growth of 15% year-on-year. It is the highest growth rate for the past two years. This is a result of our continued focus on backlog delivery and the new orders with faster move-in schedule. Our gross move-in during 1Q ’25 was around 20,000 square meters, all in Tier 1 markets. Our utilization rate reached 75.7%. Quarterly move-in has stayed at a consistent level since the beginning of last year. We expect the pace of move-in to continue through this year, with around 40% of the current backlog to be delivered by year-end.

The demand environment has turned the corner with AI developments. This led to an initial wave of demand for AI training in remote locations. Now the demand is coming to Tier 1 markets with AI inferencing. We believe inferencing could be a much bigger and a more sustainable opportunity across multiple years. The mega deal of 152 megawatts that was signed during 1Q ‘25 is a perfect example and evidence of stronger demand during this AI era. This new order requires us to deliver data centers within six months. The customer committed to moving fully within the following six months. The whole cycle for obtaining the new order to full utilization is about one year. This is a high quality AI-driven new business with no moving risk, as we confirmed with the customers.

Looking forward, there are still uncertainties around AI chip supply in China in the short-term. Our customers are working out their deployment plans. As chips supply becomes more clear, we expect demand to take off. In terms of capacity supply, we are well-positioned to capture these opportunities. We already have around 900 megawatts of capacity held for future developments in and around Tier 1 markets. As I mentioned, we believe the coming wave for AI demand is going to be largely from inferencing, which requires large sites in Tier 1 markets. We have multiple sites sustainable for AI inferencing around Beijing, Shanghai and Shenzhen. As demand continues to grow and the time to deliver becomes the key fact. Our held for development capacity will become more valuable.

We believe there is a good chance that we will develop all of these 900 megawatts and more within the next four years. On the financing side, we made significant progress with our asset monetization program. We completed the first ADS transaction in Q1 — 1Q ’25, and we are making good progress on the C-REIT transaction. Our asset monetization strategy give us financing flexibility in terms of being able to recycle cash in China., when we need to. It give us an option to capitalize new projects. Lastly, I would like to share some key operation updates for DayOne. In 1Q ‘25, DayOne added 70 megawatts of new commitments, which bring its total power commitment — committed to over 530 megawatts. In the current quarter, they were also made substantial progress in expanding its footprint.

It obtained customer commitments for its Thailand project. In addition, it made a breakthrough into completely new market, Europe, and landed its first project in Finland together with secured customer commitments. The order for Thailand and Finland are expected to total over 220 megawatts, which will be added to power committed in the next few months. This will bring total power committed to the over 750 megawatts. DayOne is ahead of schedule to meet the target of 1 gigawatt of total power committed within three years. The new market expansion demonstrated DayOne’s capability of working with world leading tech companies to provide a total data center solutions. DayOne creates new markets where customers can scale up efficiently and within a short lead time.

It has done it successfully in Malaysia and Indonesia, and will do so again in Thailand and Finland. This capability is truly what sets DayOne apart. Now, I will now pass on to Dan for the financing and operating review.

Dan Newman: Thank you, William. Over the past few years, our financial objectives were to get back onto a higher growth track in terms of EBITDA, while at the same time strengthening our financial position and deleveraging. With the advent of AI demand in China, we can look forward over the next few years to more and better growth opportunities. However, as we capture these opportunities, we will maintain strict financial discipline. We believe that this is the right approach, which has potential to create significant equity value with low investment and financing risk. Starting on Slide 13. In 1Q ‘25, revenue increased by 12% year-on-year. This was a result of an increase in total area utilized of 14.6% and a decrease in MSR per square meter of 2.6%, as compared with 1Q ‘24.

In 1Q ‘25, adjusted EBITDA increased by 16.1% year-on-year. In addition, we realized a gain on deconsolidation of subsidiaries sold to the ABS of over RMB1 billion, which we have not included in adjusted EBITDA. Adjusted EBITDA margin for 1Q ’25 was 48.6% compared with 46.9% in 1Q ‘24. The higher margin was mainly due to lower operating costs. Over the next three quarters, we expect quarterly adjusted EBITDA to increase on average by high-single digits percentage year-on-year. This takes account of deconsolidation of EBITDA with completion of the ABS transaction on March 31, 2025. As shown on Slide 16, subject to achieving performance conditions, we will receive total cash consideration of up to RMB1.8 billion for the sale of the ABS, out of which, we will reinvest up to RMB500 million for our 30% share of the ABS issue.

The first installment of cash proceeds has been received and booked in 2Q ‘25. In addition, we have deconsolidated debt and other liabilities of approximately RMB1.1 billion. The implied EV to EBITDA for the sale to ABS is around 13 times, which we believe sets an important benchmark for our forthcoming C-REIT offering and for the valuation of our stabilized China assets as a whole. We are making good progress with the establishment of an onshore listed C-REIT. It is moving forward faster than expected. We’ve received approval from NDRC and it is now being reviewed by CSRC and the Shanghai Stock Exchange. The application documents are filed publicly. Subject to obtaining all necessary approvals, we hope to launch and complete the offering later this year.

The C-REIT transaction is going to be very strategic. It will establish a further valuation benchmark for our stabilized data centers in China, and we will create a vehicle into which we can potentially drop down further assets in future, if we choose to do so. On Slide 22, we show the pro forma deleveraging effect of the ABS and C-REIT. The ABS is a done deal, while for the C-REIT, we made working assumptions for illustrative purposes. As you can see, we are able to support total CapEx in the current year of RMB4.8 billion before taking accounts of the proceeds of asset monetization, while lowering our net debt and leverage ratios. Turning to Slide 23 on business outlook. When we gave guidance at the last quarter end, we already assumed that the ABS will be deconsolidated from the beginning of 2Q ‘25.

If we complete the C-REIT this year, it will have some impact on our financials, but we still think that we can meet our original revenue and adjusted EBITDA guidance. Thus, we’re keeping the previously provided guidance of total revenue and adjusted EBITDA unchanged. The C-REIT transaction, if completed, will also impact our investment cash flow. As of now, we keep our CapEx guidance unchanged, which just includes gross CapEx less the initial proceeds from the ABS transaction. Finishing on Slide 24. Now that we have deconsolidated DayOne, it is important to look at the equity value of GDS on a sum of the past basis. In addition to our equity value creation in China, we expect the value of our equity interest in DayOne to appreciate significantly.

Based on the Series B benchmark from last year, our equity interest in DayOne was worth around $1.3 billion or $7 per GDS ADR. William mentioned that DayOne is already on track to achieve total power commitments of over 750 megawatts in the next few months. As DayOne achieved optimal operating leverage, its EBITDA per megawatt should trend upwards towards industry benchmark levels. This gives us indication of the current level of contracted EBITDA, which can be converted to actual EBITDA as backlog contracts are delivered over the next few years. We’d now like to open the floor to questions. Operator?

Operator: Thank you, sir. [Operator Instructions] We are now going to proceed with our first question. So the question comes from the line of Yang Liu from Morgan Stanley. Please ask your question.

Yang Liu: Thanks for the opportunity. Two questions from my side. First, congratulations on the solid result. My first question is regarding the China demand, especially, from the hyperscaler side. We start to hear a lot of noise on the chipset supply since March. Could management update us in terms of their demand quarter-to-date given a lot of things happened in the past two months? Is there still any order coming in, in the second quarter of Q2 date? Yeah. That’s my first question. My second question is regarding the financial guidance because Dan just mentioned that previous guidance does not factor in the ABS deconsolidation. And now the deal got closed and actually you don’t need to change the guidance. So, what should be the expectation on the three quarters of the contribution from that project to full year number? Yeah. Thank you.

William Huang: Okay. This is William. Let me ask you answer the first question. I think the demand, obviously, is very strong in general, and we see that AI demand — AI related demand will continue maintain a strong position. But we have to say, we are lucky, we are sitting in there — our — all our assets sitting in the Tier 1 market, which is this demand mainly driven by the inference. So inference, that means the customer less reliant GPU. They will use more hybrid and traditional systems. So, I think for us, we will see our demand will continue. It’s too early to say what’s our target. But in general, I have to say, we are — we have 900 megawatts held for future development capacity, well positioned. And as I said, in the general, mid-term, long-term, we can digest, we can sell this 900 megawatts within four years.

We are very confident on that. But I think maybe in short-term, I think a lot of training demand will be intact, but it’s not our topic net — in past couple of years, for training demand, it’s not our topic.

Dan Newman: So, when we gave EBITDA guidance, at the midpoint, it implied year-on-year growth, full year ‘25 versus ‘24 of 8.5%. And we had assumed that the ABS transaction would close at the end of 1Q, which indeed it did. If we had not done that ABS transaction, we would have continued to consolidate the underlying assets for the second, third and fourth quarter of this year. And on that basis, I showed in the last cycle that our annual growth rate in terms of EBITDA would have been around 11%. So the impact of the ABS transaction closing at the end of 1Q is to reduce full year EBITDA by around RMB130 million, that’s what we would have consolidated over the next three quarters and to reduce the annual growth rate from RMB0.11 down to the guided 8.5%.

Now of course, we completed the first quarter, we announced in the first quarter, our year-on-year growth rate was 16%, which is clearly well above that level of growth. That’s why we — I try to give some indication of the expected growth rate year-on-year in the second, third and fourth quarter. I said it won’t be as high as the first quarter, but it should be high-single digits in percentage terms on average each quarter, 2Q versus 2Q, 3Q versus 3Q, 4Q versus 4Q.

William Huang: Yeah. I want to add one point. I think, yes, based on what we know understanding, our customer already tested domestic GPU for a while. So I think if the chips in power get some issue, I think in the next 12 months, domestic GPU will catch up.

Yang Liu: Thank you.

Operator: We are now going to proceed with our next question. The question comes from the line of Sara Wang from UBS. Please ask your question.

Sara Wang: Okay. Thank you for the opportunity to ask question. I just have one question. Given GDS is actually expanding beyond Southeast Asia and even into Europe, can we compare the IRR profile or EBITDA yield across different markets, for example, Johor, but Thailand or Finland and also compare that to China? Thank you.

William Huang: Sara, I have to correct you. It’s not GDS. It’s our DayOne.

Sara Wang: Yes, I’m sorry. DayOne. Yeah. I’m sorry.

William Huang: Yeah. Okay.

Sara Wang: Yes, just answering for that level. Thank you. Yes.

William Huang: What we’ve seen so far, and it’s across several different markets, if you simply take, say, the development yield, it’s in the low-teens, which is, I think, quite healthy and higher than what we currently achieve in China on a certain investment cost basis. And that probably reflects that in the markets in which DayOne is operating, there’s a slightly different supply demand balance from China. But it’s a good, I’d say, leading indicator because as demand — AI demand really takes off in China in Tier 1 markets. We can see that demand supply balance shifting in China. And hopefully, that will lead to better yields in China as well.

Operator: We are now going to proceed with our next question. The question is coming from the line of Frank Louthan from Raymond James and Associates. Please ask your question.

Frank Louthan: Great. Thank you. Can you give us an idea of when you expect the China business to be self-funding and does this new wave of AI demand push that out a little bit? And then if you can comment on whether you have the full amount of funding for the 750 megawatts of commitments at DayOne, that’d be great. Thanks.

Dan Newman: The first part of Frank’s question is that — so in China, we are roughly breakeven in terms of free cash flow before financing. We were actually positive free cash flow before financing last year. And in the current year, maybe we should start looking at free cash flow before financing. We look at net debt. And with the contribution from two asset monetization transactions, we should be able to bring down that debt over the course of the year. So that means that we are already, through operating cash flow and asset monetization, able to generate sufficient cash flow and to deconsolidate debt on sale of assets. So that is at least equal to the amount of annual CapEx. And William mentioned that we’re quite confident that over the next four years, we could potentially develop our entire land and power bank in Tier 1 markets, which is around 900 megawatts and maybe more.

If we did that evenly over four years, it would equate to around RMB5 billion of annual CapEx, which is similar to this year’s level. And with the operating cash flow, which we expect to grow over that time period and the ability to monetize assets through the listed C-REIT vehicle, I believe we’ll be able to repeat the pattern of this year’s financing in terms of investment cash flow being offset by operating cash flow and asset monetization proceeds. On the DayOne, we take 750 megawatts, William mentioned, and DayOne to-date has raised nearly $2.5 billion of equity. But DayOne is fully capitalized to be able to develop and deliver that portfolio, that level of commitment.

William Huang: Yes. I believe if they want to raise money, it’s not an issue and can well access all international capital markets.

Frank Louthan: Okay. Great. Thank you very much.

Operator: [Operator Instructions] We are now going to proceed with our next question. The question has come from the line of Edison Lee from Jefferies Hong Kong. Please ask your question.

Edison Lee: Hi, William and Dan. Congratulations on another great quarter. I have, in fact, two pretty quick questions. Number one question is about your growth new area committed in the first quarter at 46,000 square meter. I think that’s a new high in many quarters. So, can you share some color as to how many customers this new number is coming from and where the locations are for this 46,000 square meters? And then number two is, there has been some talk in the industry in China about new government regulations controlling the expansion of AI data center. And right now, they need to approve any project 7 megawatt or above. And also, there is some talk in the industry that China, in fact, does not want or does not prefer private companies to be building AI data centers.

They prefer SOEs to be building AI data centers. And I understand a lot of your power reserve actually has been obtained some years ago already. So I just want to know whether there’s any risk that the government actually needs to reopen the book and we approve some of your power. And yes, and what is your thought on these market talks right now? Thank you.

William Huang: Okay. I think the first question is, I think the Q1 mainly driven by one of our traditional hyperscale customers. I think it’s located in Nangang, which is at a console, which is very close to Shanghai and Beijing. So this is exactly, if everybody remember during the call era (ph), we used to represent 50% of the cloud parts in this major city or around this major city. So we are very, very lucky at that era. So now inference, I think it’s we have benefit for that inference demand because I just mentioned, right? So the inference model is more like a hybrid, use the GPU plus CPU cloud. So they will cooperate together. So I think this is one thing, the first question. The other is about the control AI data center.

Based on my understanding, mainly I think, mainly for the SOE investment. So I think I should point out our 900 megawatts capacity. We already most of them, we already obtained the power energy quota. So, this is where new guidance, new policy will not impact us.

Edison Lee: Okay. Thank you.

Operator: We are now going to proceed with our next question. The questions come from the line of Daley Li from Bank of America. Please ask your question.

Daley Li: Hi, management. Thanks for taking my question. Congrats on the solid demand trend. I have two questions. Number one is about the overseas business. Recent, we received like 70 megawatts new orders. And could management give some color about the mix of the clients for China and overseas and/or the mix of AI and non-AI? And given the AI diffusion policy has been withdrawn by the U.S,, how could you share some color about the client feedback, about the future new orders or the moving progress for the international business. My second question is about our series issuance in China market. I saw the news which received the first round of feedback from the CSRC and how do we see the progress? Can we expect to date in the second half of this year or how is the timeline, please? Thank you.

William Huang: Yes. The first question, I think if everybody remember, we used to talk about the our client in — for DayOne. In general, it’s mixed. We got — we successfully got the order from international customer and also Chinese customer as well. I think we used to talk about our client, our major client from China. They are major use the purpose for their deployment is to support their e-commerce and the video business and social media business. It’s just used — it’s used in a high performance CPU. So in general, in the last three years, based on our understanding, our total capacity serve 90% for GPU — CPU, sorry, CPU, only maybe around 10% used to the purpose for GPU. So this is, I think everybody remember the last couple of quarters when we talked about the international market, that doesn’t change.

For the C-REIT offering, we’ve been through many rounds of review and approval. And the stage that we’ve now reached is that the listing application is being reviewed by the Chinese securities regulator, CSRC, and the Shanghai Stock Exchange. And this is a public process. So the — for the perspectives and some other key documents have been filed and are available for the public to access. And we’ve been asked questions just like U.S. SEC process where applicants are asked to address a number of questions, and our responses will also be filed publicly. But typically, this stage of the process takes a few months. We don’t take anything for granted. But if all goes well, we would hope to receive the clearance to be able to proceed with an offering and a listing.

And then, we would have one year in which to make the decisions when to launch that. Ideally, we will be able to do that later this year and complete the process and lift the C-REIT before the end of this year.

Daley Li: Thank you.

Operator: We are now going to proceed with our next question. The next question comes from the line of Eunice Li from Goldman Sachs. Please ask your question.

Eunice Liu: Good evening, William, Dan and Laura. Thanks for taking my question. I’m asking question on behalf of our analyst, Timothy Zhao. So our question is first on GDS China. Could you elaborate more on the pricing outlook for the China business? And my second question is on DayOne. So we noticed your EBITDA margin were improved through the latest quarter. Could you explain the drivers behind? Thank you.

William Huang: Yeah. I think the article for the China business, we’ve maintained very confidence in. Okay. The price of it, right? I think the current new business price is very stable. And I think the, in general, I think the new business is, let’s say, maintained at very, very stable level right now, whatever from the Beijing market or Shanghai market or Shenzhen market, right? So this is our outlook for the future, yes.

Dan Newman: DayOne had an EBITDA margin in 1Q ’25 of 31%. But for a company that actually only started to generate revenue about five quarters ago, that’s already quite remarkable. And my understanding is that DayOne ramp up over the next few years as it delivers its backlog is going to be very rapid. As that happens, DayOne will be able to achieve higher operating leverage on its corporate costs and on its business development costs. And I think within a few years, you’ll see that EBITDA margin hit sort of industry benchmark levels.

Operator: Thank you. This concludes the question-and-answer session. I’d like now to turn the call back over to the company for closing remarks. Thank you.

Laura Chen: Thank you all once again for joining us today, and we’ll see you next time. Bye-bye.

Operator: This concludes this conference call. Thank you all for participating. You may now disconnect your line. Thank you.