GDS Holdings Limited (GDS) on Q3 2021 Results - Earnings Call Transcript
Operator: Hello, ladies and gentlemen, thank you for standing by for GDS Holdings Limited Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements’ 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. Welcome to 3Q 2021 earning 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 will refer to during this conference call can be viewed and downloaded from our IR website at investors.gds-services.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. Ms. Jamie Khoo, our COO, is also available to answer questions. 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 risks 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 both 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 will now turn over the call to GDS Founder, Chairman and CEO, William. Please go ahead, William. William Huang: Thank you, Laura. Hello, everyone. This is William, thank you for joining me on today's call. I'm pleased to report another quarter of solid results, with revenue and adjusted EBITDA up around 35%. During the third quarter, we made a significant progress in key areas, which underpin our future success. We sustained our sales momentum. We further diversified our customer base with another great hyperscale win. We enhance our capacity pipeline with strategically important resource acquisitions. We took steps to secure our transition to renewables. And we put in place further foundations for our existing platform expansion in Southeast Asia. In 3Q 2021, we booked a 23,000 square meter of new organic commitments in cable markets. We remain well on track to hit our sales target of over 90,000 square meter organic booking for the full year. As shown on Slide 5, we won five hyperscale orders. Two orders were under an existing multiyear sales framework agreement with the top customer. Two were from one of China's largest internet platforms, which is the new hyperscale logo for us. Demonstrating the strength of demand from internet and a further order was from a major Chinese bank, which highlights the growing potential of financial institutions. Our sustained sales in stronger evidence that customers are not holding back on their medium term and long-term business plans. For us to offer a complete solution to our customers, we must have continuous capacity supply in each Tier 1 market. Securing this supply means working with governmental policy, but government will recognize the importance of data centers to the digital economy. The government also attached great importance to sustainability, and it depends for the industry. The government has made clear that they want to see new data centers, which are large scale, highly efficient, smart, secure, and technologically advanced. They want data centers in Tier 1 markets use predominantly for low latency applications. They want a well integrated edge, high and remote data center layoff. And the last but not least they want data centers which are more green and lead the way in terms of renewable energy usage. GDS is well aligned with all of these governments’ objectives. Going forward, we expect new project approvals and the energy quota will become even more difficult to update in Tier 1 markets. In some downtown locations, supplies already constrained, we therefore took the decision to accelerate our acquisition of qualified projects in key locations. Turning to Slide 9. In Beijing, we closed the acquisition of Beijing 17, 19 – 18 and 19, which brings us 10,700 square meter of developed and developable capacity. In addition, we recently signed an agreement for the acquisition of another 13,000 square meter of capacity, comprising four data centers on land owned by the project company, which are nearly complete and not yet committed. We will market this data center to financial and enterprise customers, whose national headquarters are mostly located in Beijing. In Shenzhen, we are acquiring a data center with 3,600 square meter of capacity, which is nearly complete and already committed to our customers. In Guangdong, we are acquiring a portfolio of development projects at multiple locations. The portfolio has a total developable net floor area of over 100,000 square meters, or IT power capacity of over 250 megawatt. The projects are either an early stage or held for future development. Guangdong province has stated that new application will be extremely limited for the next few years. This acquisition enables us to materially step up our market presence. With acquisition of Wuhan 1 and 2, we are entering a new market. Wuhan is an economic hub of Central China, where many hyperscale cloud and internet companies set up their regional headquarters. The two data centers have a net floor area of 8,400 square meters. And the first phase is under construction with the addition of this acquisition to our secured pipeline. We are well placed in terms of supply in each Tier 1 market. Turning to Slide 11, in a couple weeks time, we will publish our inaugural ESG report and set out our sustainability targets for 2030. As it’s typical for data center companies, 99% of our carbon emissions come from electricity consumption. We estimate that for cloud and internet companies around 60 to 70 of their carbon emissions come from data center operations, including in-house and all sort of data centers. It is therefore critically important to us, our customers, the government, and other stakeholders that we set proper target and have a visible strategy to reach carbon neutrality. Where are we today? In FY2020, over 20% of our total electricity consumption was green. In the current year, we expect the percentage to be over 30%. And by 2025, we should exceed 50%. We are increasing our green energy usage in three main ways. The first is by direct investment in renewable energy generation. We started in a small way by installing solar on some of our data center buildings. But our ultimate objective is to have large scale integrated developments. We are working with partners and government to make this happen, but it will take time to realize. The second is by direct power purchase or PPP, which we are already doing pretty much to the maximum extend possible in Shanghai, Shenzhen, Chengdu and Chongqing. And as well as for some remote sites, PPP is currently constrained by the availability of renewable in Tier 1 markets, but supply will increase significantly over the next few years. The third is by the purchase of renewable energy certificates or RECs, which in the near-term is the most practical option. We recently signed a multiyear agreement with CGN New Energy, a state-owned independent power producer with a wind, solar and hydro portfolio. To purchase over 30,000 gigawatt of renewable energy certificates, to put this into context, 30,000 gigawatt is over three – seven times our current annualized electricity consumption. We believe that this is one of the largest renewable deals done by any private industry user in China. In a further sign of progress, some of our data centers in Beijing were recently allocated tradable carbon credits as a result of our success in lowering POE. These GDS data centers are among the very first to be allowed to participate in Beijing’s official emissions trading market. Now turning to Slide 12. Yesterday, we announced our second project commitment in Southeast Asia. We are in the process of acquiring Greenfield land for 28 megawatt data center development in Nongsa Digital Park, Batam, Indonesia, a special economic zone, which is 25 kilometers from Singapore. This is a new location for data center development, which you can see from the quarter – in our press announcement has strong support from both Indonesia and Singapore governments. We expect to obtain renewable energy for this site, which will further enhance its market marketability and competitive edge. With this addition, we now have strategically location, hyperscale project both in the north and the south of Singapore with great potential for creating unique ecosystems and interconnectivity in and around the Singapore hub. At Nusajaya Tech Park in Johor, our land is next door to Telekom Malaysia's regional data center. We are pleased to have signed a strategic cooperation agreement with Telekom Malaysia, both for network connectivity and for use of available capacity in their facility, which will enable us to kick start our presence before our own data center come online. Our regional strategy is driven by the requirements of our home market customers. To reinforce this point, we have recently signed a strategic cooperation agreement with a major Chinese cloud service provider to support its international expansion. Under the agreement, we will be prioritized as their data center provider in the region. The strategic cooperation extends the and the customer from China to Southeast Asia, providing a stronger foundation for the success of our regional strategy. Now I will hand over to Dan for the financial and operating reviews. Thank you. Dan Newman: Thank you, William. Before going through the numbers, I'd like to provide an update on our partnership with GIC. A few years ago, we started to develop projects for our strategic customers in more remote locations using a B-O-T structure. We've done 15 to-date, the status of which is shown on Slide 14. As you may recall, we established a partnership with GIC to finance these projects. Our original intention was to with GIC under which we will retain a 51% stake with this higher level of ownership and additional fee income, we are able to deploy more capital while earning a reasonable return on investment. On the back of this new agreement, we’ve now signed the first sales and purchase contract with GIC for the transfer of a 49% stake in one of our existing B-O-T projects Huailai 1. We will work with GIC to transfer 49% stakes in several more B-O-T projects over the next few quarters. Starting on Slide 16, where we strip out the contribution from equipment sales and the effect of FX changes, in 3Q 2021, our service revenue grew by 10.6% underline adjusted gross profit grew by 7.6%, an underlying adjusted EBITDA grew by 7.7% quarter-on-quarter. Our underlying adjusted EBITDA margin was 46.9%. Tuning to Slide 17, service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 3Q 2021 was 18,678 square meters. The organic move in excluding acquisitions and B-O-T projects were 16,037 square meters. This is a step up from the level seen in the first and second quarters. However, it was still a few thousand square meters less now original expectations. We attribute this to a combination of server shortages, power uncertainties, and other macro factors, which we believe are transitory. In 4Q 2021, we expect organic net adds be at a similar level as in 3Q. Following the new agreement with GIC, we will now include area utilized of all B-O-T projects in EMSR calculation for 3Q and prior quarters. On a consistent basis, MFR per square meter increased by 1.3% quarter-on-quarter in 3Q 2021 to RMB2,361 per square meter per month. This increase is within the normal range of quarterly fluctuations. The inclusion of all B-O-T projects brings the MFR number down slightly, but the quarterly trend line is essentially the same. Turning to Slide 18. Now underlying adjusted gross profit margin was 52.5% for 3Q 2021, a decrease of 1.5 percentage points quarter-over-quarter. And our underlying adjusted EBITDA margin was 46.9% for 3Q 2021, a decrease of 1.2 percentage points quarter-over-quarter. The margin decrease was mainly due to higher utility cost. In 3Q 2021, our utility cost was 28.8% of revenue, compared with 26.9% in the prior quarter, an increase of 1.9 percentage points. Higher utility cost was partly a result of seasonally higher power consumption during the summer months, and partly a result of temporary additional cost for the use of backup power during a period when grid power supply was limited. In 3Q 2021, we spent RMB19 million on backup power. The unit cost of backup power is around 3 times that of grid power. So far in 4Q 2021, grid power supply is almost back to normal. During October, the government introduced reforms to further liberalize the power market. These reforms require thermal power generators to sell all of their output through the wholesale markets and allows the electricity price to float between a regulated base tariff and a higher ceiling. When fully implemented over the next year or so, these reforms will enable us to purchase substantially all of our thermal power through direct negotiations with generators. While this may eventually lead to a lower unit power cost, in the short-term, we expect thermal power tariffs to go up because of elevated fuel costs. We’ll start to see this during the current quarter. Accordingly, we estimate that our utility cost as a percentage of revenue will be similar in 4Q 2021 to the level seen in 3Q. Around half of our customer contracts in terms of billable revenue have pricing structures, which allow us to pass on increased power costs. Turning to Slide 20. Our CapEx for 3Q 2021 was RMB3.8 billion consisting of RMB3.2 billion for organic CapEx and RMB575 million for acquisition consideration, mainly related to Beijing 17, 18, 19. And at the end of 3Q 2021, we had a liability of around RMB1 billion on our balance sheet in respect of deferred and contingent consideration for past acquisitions. After nine months of the year, our total CapEx stood at RMB11 billion, including RMB3.6 billion for acquisitions and a further RMB0.8 billion for land bank purchases in China, Hong Kong, and Malaysia. Based on our expectations for when the acquisitions, which we announced today will close and the amount of total consideration, which is payable up front. We expect CapEx in 4Q 2021 to be around RMB5 billion. Looking at our financing position on Slide 21, at the end of 3Q 2021, we had RMB10.1 billion or US$1.6 billion of cash on our balance sheet. And our net debt to last quarter annualized adjusted EBITDA ratio increased to 5.1 times. In the first nine months of 2021, we completed RMB3.6 billion debt refinancing, and we have a further RMB1.3 billion to complete by year-end as part of our annual refinancing plan. You can see on Slide 22, that we continue to refinance at a significantly lower all in cost. We are beginning to see the benefit in our effective interest rate, which propped to 5.5% during 3Q 2021, compared with 6.4% a year ago in 3Q 2020. Turning to Slide 24, as a result of a lower than expected moving rate in the second half of 2021 and recent increases in power costs. We now expect our total revenue and adjusted EBITDA for the full year of 2021 to be in the lower half of the originally provided guidance ranges. Accordingly, we are narrowing guidance to correspond to the lower half of the original ranges. The revised guidance is therefore RMB7.7 billion to RMB7.85 billion for total revenue and RMB3.66 billion to RMB3.73 billion for adjusted EBITDA. When we gave CapEx guidance at the beginning of the year, we explained the number only included the acquisition, which we knew about at that time namely BJ15, and that there could be more M&A not included in guidance. During the year, we made these strategic decision to accelerate our results acquisition, which effectively brings forward some future year CapEx. As a result, we now have spent CapEx for the full year of 2021 to be around RMB16 billion, compared with the originally provided guidance of around RMB12 billion. Out of the RMB16 billion approximately 50% will be organic, which is consistent with our original estimate for organic CapEx. At the end of the current year, we expect to have around RMB5 billion invested in capacity held for future development. We now like to pull up to open the call to questions. Operator? Operator: We have the first question. This is coming from the line of Jonathan Atkin from RBC Capital Markets. Please go ahead. Jonathan Atkin: Thanks very much. So I was interested in the comments about the revised guidance. And you talked about kind of the slower pace of move in. I wondered how does that affect your growth expectations for 2022. And then the higher utility costs that you mentioned due to fuel. How does that affect your margin expectations for next year? Dan Newman: I don’t you know. We’re not providing guidance today for 2022, and I can only make some comments about the fourth quarter and you can form, I think your own view. The move in in the third quarter, I said was a few thousand square meters lower than our original expectation. And the fourth quarter is likely to be another few thousand square meters. So in that respect, we’ll start the next year at a few thousand square meters below where we originally expected to end this year. I don’t have a lot of bottom up visibility far into the future, but I do believe that at some point we will see a rebound in move in activity. Our customer contracts give customers the flexibility over how fast they move in. It’s part of the value of outsourcing and it’s what enables customers to make commitments in advance. So we always see variance around our estimates, because it’s not up to us, it’s up to the customers. So we should not be surprised by this. Once again, we talk about the effect of higher utility costs in the third quarter, you saw that utility costs as a percentage of revenue was increased by more than 1 percentage point, partly it was seasonal, partly it was due to the higher cost of backup power. In the fourth quarter, the seasonality works the other way. And no longer have a serious issues so far and in relation to power cuts, but we have potentially higher power tariff as a result of liberalization of thermal power, pricing and higher thermal power fuel costs. Therefore, we’ve assumed in the fourth quarter, utility cost will be elevated once again a similar percentage of revenue as it was in the third quarter. Once again, I think you have to form your own view about how long that will last and I’m – yes, I’m sure it’s transitory. We all know that, but I can’t predict the electricity price. William Huang: Yes. Hello, hey, Atkin, this – add-on some color in my view. I think that number one, we got the feeling is the market demands still very strong and a lot of customer want a move in more quickly. But as Dan mentioned, the server shipment that is a problem in this year. It’s a impact of the moving rate and also the some common energy shortage net a lot of customer scroll down there. They have move in. So we hope that this adamant will be solved ASAP. If that’s the case, I think it will come to the normal even the catch-up date move in, right. So if it’s again, it’s too early to say estimate the next year revenue guidance, but one thing is the orders stood at maintain very strong. Jonathan Atkin: Thank you for that perspective. I wanted to ask about the balance sheet you touched on it in the prepared remarks, but can you maybe just kind of recap your thoughts on a future financing needs, given the higher CapEx that you’re guiding to you mentioned joint venture activities, but also kind of higher leverage. So putting that all together, how far into the future do you consider yourself funded and what would be some of the financing options. Dan Newman: We’re always fully funded in terms of capital for what we have committed to what we’ve announced. We had US$1.6 billion of cash on our balance sheet at the end of the third quarter this year, which is adequate for the things that we are currently doing. If we need more capital, we do have the option of increasing leverage at the whole. We have a revolving credits facility, therefore US$300 million, which we could potentially upsize. However, as I mentioned before, we also think that it’s a good strategy to bring in outside equity at the project level, like, we are doing with GIC for the B-O-T projects. As you will all very well aware, there is a lot of private capital looking for data center exposure, and sometimes private capital comes at a lower cost in the public markets. And we do want to have a high bid approach, and we’re looking actively at some possibilities for fund type structures, which would give us access to very deep pools of capital. And potentially value add from partners. Sorry, John, I just want to add – and potentially some value-add from partners. Jonathan Atkin: And then lastly from my side, Slide 39 gives the contract renewals and as a percentage of square meters and service it’s between – it looks like between 10% and 11% between now and year end 2022. So what is your thought or expectations around the pricing around those renewals? Dan Newman: Yes. John, most of the renewals are for downtown data centers. The first thing I would note is that customers are holding on to practically all of their capacity when it comes up for renewal. The churn rate has been a fraction of a percent. We’ve renewed some contracts clash. We renewed some down to some degree. As I explained before, it’s not a mark-to-market exercise. Like, it is perhaps in the U.S. For us, it’s a strategic decision. In the context of the overall customer relationship, where we agree the renewal in the context of all the business that we’re doing with that customer. So I don’t think you can really look at it as a compete in market orientated pricing. William Huang: John, I can add some color. Because in China, the different market – demand and supply situation is different. So in my view is the – the renew, it’s just like a new cells. Maybe some market, we will keep the flat price, some market maybe will increase price. Maybe some market will give our strategic customers some benefit. And so this is a mix of strategy. It depends on the different market supply and demand situation. Jonathan Atkin: Thank you very much. Operator: Thank you. We have the next question. This is coming from the line of Yang Liu from Morgan Stanley. Please go ahead. Yang Liu: Thanks for the opportunity. Two questions here. The first one is, in terms of the demand, I guess, this is the time that GDS starts to talk with customers in term of their demand next year. Could you please share with us in terms of the outlook from the key customers, especially the internet and the public cloud customers about the demand for new data center build outs? Because we recently observed some of your customers or CapEx relatively low. So I’m not sure if the demand outlook for next year. The second question is we noticed that the GDS close a lot of acquisitions in the past quarter. Could you please update us in terms of the competition in those deals? Is it more intense than before or less intense and how about the valuation trend, poor trend or downward trend versus deal close to several quarters ago? Thank you. William Huang: Okay. Let me answer your first question. I think, in that recent – I went to China convicted a lot of our key customers. In general, I think the idea of maintained the previous plan, but market structure little bit shipped some – maybe some of the traditional hyperscale customer slow down a little bit. But in the same time, we have to be – we have saw – we saw a lot of the new hyperscale customer grow more faster than our expectation. So it’s – in general, I think the demand still maintain very strong. But as the market a little bit of shipped to internet and video company and e-commerce company. So this is a fact based on by communication with our key or the key customers. So in general, the market’s still very demand still very strong. In additional, this year practice, we saw a lot of financial institution there, they increased their CapEx tremendously. It’s very surprised to us. So this year we also get a lot of the – we got a lot of the apprenticeship institution older, even bigger, more big at the end before we expect. So I think that this kind of also available is through will continue. So Dan, maybe you can answer some of the acquisition. Dan Newman: Yes. There is competition for every acquisition. We have a dedicated team. We try to identify your opportunities earlier. We monitor them, there’s usually a right time to move forward. And we try to leverage our expertise and track record in doing acquisitions to give counterparty has a high degree of confidence in dealing with GDS, which can be a factor, not just a matter of price. If you look at the acquisitions, which we’ve done so far this year, and the ones that we’ve announced today, they are predominantly in and around Beijing and in Shenzhen and Guangdong. Those are the places where there is already clearly a constraint on supply or if not currently a constraint on supply constraint on new project approvals and energy quota allocation. I think everyone in the industry recognizes that having developable capacity in those places is going to be very advantageous, because there is no organic option in the near future or practically no organic option in the near future. So that means, these kinds of opportunities are highly sought after. And there are a few other players in China, mostly private companies, who have the capital an appetite to pursue them. So those are the – usually the players that we find ourselves in competition with. Regardless multiples, I want to take this opportunity to clarify what we mean when we talk about acquisition multiples, because most of the recent acquisition have been of development projects at various stages or pre-operational. We evaluate them in exactly the same way as we evaluate organic projects. But for the purpose of communicating with investors, we take the acquisition costs in terms of enterprise value, plus the cost to complete and divide it by the estimated stabilized EBITDA that’s the basis of when we talk about multiples. And I’ll say, there’s no discernible change in multiples as I defined it. Yang Liu: Thank you. That’s very helpful. Operator: We have the next question. This is coming from the line of Colby Synesael from Cowen and Company. Please go ahead. Michael Baca: Hi, this is Michael on for Colby. Two questions, if I may. First, you noted a few times that it’s getting more difficult to get power approvals in certain Tier 1 markets. If you could unpack what’s driving this and in turn, what that means for the balance of acquisitions versus organic CapEx in those markets moving forward. And then second, you recently announced that you’re entering or you’re doing more in Southeast Asia. Could you just give us some more color on what the next steps are as you look to expand further into the region? Thank you. William Huang: Yes. I think the indicative strategy is, definitely we will obtain the carbon target by ourself. This is the main strategy. But in a same time, we – in the last couple of years, we also based on the market demand, short-term demand, we should, we always flexibly to apply a lot of resource, because of we want to catch up to our customer’s demand. So this is – we always use the differences strategy to fulfill the market demand. But in general, we are still – we are driven by our organic, but in the future, we also will maintain the strategy. Dan Newman: Yes. Maybe I’ll answer second question about, one of the steps we’re going through in terms of implementing our strategy in Southeast Asia, excuse me. Our initial focus has been on the demand in and around Singapore, as you’re aware, there’s currently a moratorium on new data center project approvals in Singapore. And we found from out home market customers that they have very stumped substantial appetite for increased data center capacity in Singapore, but which cannot currently be satisfied. Therefore, we have focused on coming up with a near shore solution, which can address below the demand from Singapore and act as a hub for serving the region, where we’ve got to so far is that you made an acquisition of land in a Tech Park, Johor, Malaysia, which is just 7 kilometers from the Singapore border. And then yesterday, we announced that we’re acquiring land on Batam Island, on the other side of Singapore from Johor, which is 25 kilometers from Singapore. Both of those sites are sufficiently large in terms of what we’ve acquired and what we’ve got options over here to do hyperscale developments – hyperscale, on a scale, which cannot conceivably be done in Singapore, given the natural geographic constraints of Singapore. But normal is not only hyperscale. We are working to package these sites together with renewable power supply and multi diverse network connectivity into Singapore and between the sites to create a very well interconnected harp. We think the combination of hyperscale renewable energy, multi diverse network connectivity and price point, which is substantially below the price point of the Singapore data center market will be very marketable. Of course, as we working on this, we’re having back-to-back conversations all the time with our customers. William mentioned today that we have signed a strategic cooperation agreement with one of our largest Chinese customers, which gives us priority in working with them international expansion. It’s a replica of the way that we’ve been working with them in China for the last five or six years. Where we go next, where we are looking for another site around Singapore, we do anticipate that there could be relaxation of the moratorium in Singapore, although it may not be a very, very large, I’m speculating. But it would be very strategic to be able to establish a presence in Singapore. And then beyond that, we would like to connect these sites into KL where our Chinese customers already have cloud availability zones and then into Jakarta where our customers also already have cloud availability zones. So that would be the platform that we are aiming to get to as a kind of first pace. And then of course, that would be highly connected into Hong Kong and China. And that’s as far as our vision extends for the time being. We’ve made very rapid progress and every month, I would say we get more excited about the scale of the opportunity that this represents. So the, in three, six, nine months time, I expect there’ll be plenty more significant developments to report. William Huang: Yes. I would like to say it’s a super exciting opportunity for us because we are – we push a lot of – we probably would push a lot of – refer a lot of the in-shop customer, so I see a demand to our shareholder, which is FTT. And then in the last five years, we saw the opportunity step-by-step increase and we saw, what do we – we saw is the potential deal is much bigger than before. So that’s why we made the decision to jump into the market directly. It’s the right timing we think. It’s like a sort of – let’s say six years or seven years ago what had happened in China. And then the scale is much bigger than the six years – flat seven years ago. So I think that it’s a huge opportunity for us because we have that very, very, very huge – very, very strong – let’s say an advantage in this area, because number one, we bring all our install-based customer. They have demand in Southeast Asia in next three years is very clear, very certain. This is number one. Number two, GDS revealed not just a one project, we tried to develop a path to give – to solve our customers painful in this region, which makes a huge difference in the local player. In the meanwhile, we leverage our scale. We can view very lower cost of data center in this region, which we believe this is a huge advantage because we have that scale – GDS had a scale advantage. So GDS definitely well super success in this region, which I believe in the next three or five years. Given all the new incremental growth this is not calculated in our previous business plan – five-year business plan, it’s an addition. Operator: Thank you. Our next question comes from the line of Frank Louthan from Raymond James. Please go ahead. Frank Louthan: Great. Thank you. Two quick questions. On the slower installations, any concerns there that you’re losing any contracts or any competitors taking shares at any part of that? And then I want to go back to the renewal question and assets, sort of a different way, looking at that 10% of the renewal, is there any significant customer or industry concentration between now and year-end that could add to the risk of the rent roll down that that you might be facing? Thanks. Dan Newman: Sorry, Frank, I’m at a different place from William Huang. I will answer. Just to keep it brief. I think the move in which we say is lower than what we originally expected, which means, the view that we took nearly 12 months ago about what our customers would be doing in November 2021, it’s a few thousand square meters alone. We don’t like to talk about individual customers, but I suspect that the reasons for it being slightly slower, different from customer to customer. You mentioned competition. I would actually say that is actually maybe the opposite of what you were thinking. It’s not a result of customers prioritizing moving in elsewhere. Generally, we are very fortunate and benefit from customers giving us a priority in terms of moving. They may have several data centers with capacity available to them. But we – because of our relationship often benefit from customers giving us the favor of moving 12 to 30 ahead of moving into another service provider’s facility. Again for renewals, we don’t really mention the churn rate because I like to say it’s statistically insignificant. But I think it was 0.2% last quarter. So I think that tells you that there’s no movement in the customer base. The data centers, which are coming up for renewal, I say are downtown. Downtown means that they were amongst the first five, six, seven that we built in Shenzhen, Shanghai, Beijing. And the customers are holding on to that capacity. So it’s purely and simply a matter of a price negotiation. William talked about some of the factors that we take into account when we conduct that negotiation. Frank Louthan: Okay, great. Thank you very much. Operator: We have the next question from Edison Lee from Jefferies. Please go ahead. Edison Lee: Hi. Thank you for giving me the opportunity to ask the question. I would just stick to one for the time being, I think on the B-O-T projects that you are doing with GIC. So the previous idea was to sell 90% to GIC, and then you collect a management fee 10%. And right now we want to go up to 51%. So in terms of cash flow doesn’t mean that you are going to still collect money from GIC, but you will collect less because you are going to own a higher equity in this project, and how a change from 10% to 51% change IRL prospect for this projects. Dan Newman: Yes. You’re correct. We have not changed the economic arrangement as a provider of management and operating services to these projects, GDS receives a fee, which is so happens, it’s structured as a revenue share. We take a certain percentage of the revenue and we cover our own costs. We incur operating costs directly and the revenue share that we take covers those costs and gives us a margin. So we’re charging the project companies, the revenue share. Originally, we thought that we would be owning 10% of the project companies, now we’re owning 51%. So in that sense, yes, we’re charging 51% of the management shipping charge of GDS, and 49% to the GIC. Previously the way we were looking at this is, we were trying to maximize management fees and minimize the capital that we invested. We thought that we could do these projects just as a kind of a capital light approach. But then we looked at the quantum of the management fees and it’s not insignificant, it’s not enormous. And then we look at the opportunity to deploy capital, but a return on that capital and enhance it was management fees. And we simply decided that it made more sense for us now and better I think for our shareholders for us to take the latter approach. It so happens that as we start to work for more different customers with these B-O-T structures, we did get asked by some customers to maintain a majority stake, although all the customers very much like the partnership approach and the involvement of GIC, but it did come up a few times. So that was another factor for doing it. Operator: Thank you. We have our next question coming from the line of Hongjie Li from CICC. Please go ahead. Hongjie Li: Thanks management. My question is regarding the initiative on green energy. Because you mentioned in presentation that to do more direct investment in renewable energy just like generation solar panels. So how should we outlook the incremental CapEx impact on the margin. Thank you. Dan Newman: Yes. We did mention that. I think that strategically our top objective is to be able to invest in some renewable power generation on an integrated basis with data center development. That would be a highly innovative in and around Tier 1 markets. And it takes time to put together projects like that and time to develop them. So that’s an objective, which I think will take several years to make to realize it, to make it – to make it happen. In the meantime, it means that most of what we’re doing in the area of renewable energy is OpEx. If you look at – if you look at the utility costs, typically in Tier 1 markets, it averages around $0.65 – RMB0.65 per kilowatt hour for thermal power. And renewable energy certificates cost about RMB0.01 to RMB0.02, RMB0.01 to RMB0.02 on top of RMB0.65. Direct personal renewable power, which can only really happen in places where we’re able to take delivery of renewable power as an end-user, the renewable power you’re right now, I’d say the premium is typically around RMB0.05 and RMB0.05 on top of RMB0.65. So that gives you some idea of what the cost is in terms of OpEx. We haven’t yet made any significant CapEx allocation to investment in renewable energy generation. William Huang: Yes, I would add some color on that. I guess, our customer all get an impression from the green data center, all carbon neutral, right? So they are facing the more strong pressure. So based on this, we already talked to our customer. We believe the costs will transfer to our customers. Operator: Thank you. As there are no further questions at this moment, I’d like to turn the call back to the company for closing remarks. Please go ahead. Laura Chen: Thank you all once again for joining us today. If you have further questions, please feel free to contact GDS investor relations through the contact information on our website or The Piacente Group investor relations. Thank you all. Bye. Operator: This concludes this conference call. Thank you all for your participation. You may now disconnect your lines.
GDS Holdings Limited (NASDAQ:GDS) Shows Promising Financial Growth and Strategic Advancements
- EBITDA growth is accelerating, with an increase from 4.7% in the first quarter to an anticipated 9.2% for the full year.
- The international segment reported a revenue increase of over 690% year-over-year in the second quarter of 2024.
- GDS is focusing on reducing its net debt-to-EBITDA ratio, from 7.7 times in the first quarter of 2024 to 7.2 times in the second quarter, indicating a strategic effort to decrease financial leverage.
GDS Holdings Limited (NASDAQ:GDS) is a key player in the data center industry, providing high-performance data center solutions. The company has been making headlines for its financial growth and strategic advancements. A recent analysis by Seeking Alpha has shed light on GDS's promising trajectory, particularly highlighting its EBITDA growth and the explosive revenue increase in its international segment. With data centers becoming increasingly crucial in today's digital world, GDS's focus on expanding and improving its services positions it well against competitors in the industry.
The company's financial health is on an upward trend, with EBITDA growth accelerating from 4.7% in the first quarter to an anticipated 9.2% for the full year. This growth is significant, considering the company's revenue of approximately $2.63 billion for the latest quarter. Despite facing a net loss of about $345.83 million, GDS's operational efficiency is evident in its gross profit of around $573.67 million and operating income of $219.23 million. These figures underscore the company's ability to generate profit from its core operations, even in the face of financial challenges.
GDS Holdings' international segment is a standout, reporting a revenue increase of over 690% year-over-year in the second quarter of 2024. This remarkable performance is a testament to the company's successful expansion strategies and its ability to tap into new markets. In response to this success, GDS is planning to raise its capital expenditure guidance for its international business for the full year of 2024, signaling confidence in continued growth and expansion.
Moreover, GDS has shown a strong commitment to improving its financial health by reducing its net debt-to-EBITDA ratio from 7.7 times in the first quarter of 2024 to 7.2 times in the second quarter. This reduction indicates a strategic effort to decrease financial leverage, making the company's growth more sustainable in the long run. The focus on reducing debt levels, combined with the company's operational success, positions GDS Holdings for a promising future.
Despite the challenges indicated by a net loss and a negative earnings per share (EPS) of -1.88, GDS's strategic advancements and financial growth paint a picture of a company on the rise. The increase in EBITDA, coupled with the explosive growth of its international segment and a strategic reduction in debt levels, suggests that GDS Holdings is well-positioned for sustainable growth. As the demand for data center services continues to grow, GDS's strategic investments and focus on financial health are likely to pay off, making it a company to watch in the data center industry.
GDS Holdings Limited (NASDAQ:GDS) Shows Promising Financial Growth and Strategic Advancements
- EBITDA growth is accelerating, with an increase from 4.7% in the first quarter to an anticipated 9.2% for the full year.
- The international segment reported a revenue increase of over 690% year-over-year in the second quarter of 2024.
- GDS is focusing on reducing its net debt-to-EBITDA ratio, from 7.7 times in the first quarter of 2024 to 7.2 times in the second quarter, indicating a strategic effort to decrease financial leverage.
GDS Holdings Limited (NASDAQ:GDS) is a key player in the data center industry, providing high-performance data center solutions. The company has been making headlines for its financial growth and strategic advancements. A recent analysis by Seeking Alpha has shed light on GDS's promising trajectory, particularly highlighting its EBITDA growth and the explosive revenue increase in its international segment. With data centers becoming increasingly crucial in today's digital world, GDS's focus on expanding and improving its services positions it well against competitors in the industry.
The company's financial health is on an upward trend, with EBITDA growth accelerating from 4.7% in the first quarter to an anticipated 9.2% for the full year. This growth is significant, considering the company's revenue of approximately $2.63 billion for the latest quarter. Despite facing a net loss of about $345.83 million, GDS's operational efficiency is evident in its gross profit of around $573.67 million and operating income of $219.23 million. These figures underscore the company's ability to generate profit from its core operations, even in the face of financial challenges.
GDS Holdings' international segment is a standout, reporting a revenue increase of over 690% year-over-year in the second quarter of 2024. This remarkable performance is a testament to the company's successful expansion strategies and its ability to tap into new markets. In response to this success, GDS is planning to raise its capital expenditure guidance for its international business for the full year of 2024, signaling confidence in continued growth and expansion.
Moreover, GDS has shown a strong commitment to improving its financial health by reducing its net debt-to-EBITDA ratio from 7.7 times in the first quarter of 2024 to 7.2 times in the second quarter. This reduction indicates a strategic effort to decrease financial leverage, making the company's growth more sustainable in the long run. The focus on reducing debt levels, combined with the company's operational success, positions GDS Holdings for a promising future.
Despite the challenges indicated by a net loss and a negative earnings per share (EPS) of -1.88, GDS's strategic advancements and financial growth paint a picture of a company on the rise. The increase in EBITDA, coupled with the explosive growth of its international segment and a strategic reduction in debt levels, suggests that GDS Holdings is well-positioned for sustainable growth. As the demand for data center services continues to grow, GDS's strategic investments and focus on financial health are likely to pay off, making it a company to watch in the data center industry.
GDS Holdings (NASDAQ:GDS) Q2 Financial Performance Analysis
- Better-than-expected loss per share: GDS Holdings reported a loss of $0.18 per share, surpassing the Zacks Consensus Estimate.
- Substantial revenue figures: The company's quarterly revenue was approximately $2.63 billion, indicating strong income generation capabilities.
- Operational efficiency: Despite a net loss, GDS Holdings showcased efficient operational management with a gross profit of roughly $573.67 million and an operating income of around $219.23 million.
GDS Holdings (NASDAQ:GDS) recently made headlines with its second-quarter financial results, which revealed a loss of $0.18 per share. This figure was notably better than the Zacks Consensus Estimate, which had predicted a larger loss of $0.25 per share. GDS Holdings, a key player in the data center industry, competes in a rapidly growing market, providing critical infrastructure for cloud services and internet companies. Despite facing a loss, the company's performance indicates resilience and potential for growth.
The reported loss of $0.18 per share, while consistent with the company's performance from the same quarter a year ago, underscores GDS Holdings' stability in managing its financials amidst challenging market conditions. This stability is further highlighted by the company's revenue figures. GDS reported a substantial quarterly revenue of approximately $2.63 billion, surpassing revenue expectations and showcasing the company's ability to generate significant income despite its net losses.
The financial details reveal a complex picture of GDS's operations. With a net loss of about $345.83 million for the quarter, it's clear that the company is navigating through substantial financial challenges. However, a gross profit of roughly $573.67 million and an operating income of around $219.23 million indicate efficient operational management. Furthermore, an EBITDA of approximately $1.08 billion suggests that GDS Holdings is maintaining a strong earnings potential before accounting for interest, taxes, depreciation, and amortization expenses.
The cost of revenue, standing at about $2.05 billion, reflects the significant expenses associated with maintaining and expanding the company's data center infrastructure. Despite these costs, GDS's ability to outperform revenue expectations is a testament to its competitive edge in the data center market. The income before tax showed a loss of approximately $282.54 million, with an income tax expense of about $62.39 million, further detailing the financial hurdles the company faces.
In summary, GDS Holdings' second-quarter financial results paint a picture of a company that, despite its losses, is making strides in a competitive industry. The better-than-expected loss per share, coupled with substantial revenue figures, gross profit, and operating income, highlights GDS's potential for future growth and stability. As the company continues to navigate its financial challenges, its performance remains a key area of interest for investors and industry observers alike.
GDS Holdings (NASDAQ:GDS) Q2 Financial Performance Analysis
- Better-than-expected loss per share: GDS Holdings reported a loss of $0.18 per share, surpassing the Zacks Consensus Estimate.
- Substantial revenue figures: The company's quarterly revenue was approximately $2.63 billion, indicating strong income generation capabilities.
- Operational efficiency: Despite a net loss, GDS Holdings showcased efficient operational management with a gross profit of roughly $573.67 million and an operating income of around $219.23 million.
GDS Holdings (NASDAQ:GDS) recently made headlines with its second-quarter financial results, which revealed a loss of $0.18 per share. This figure was notably better than the Zacks Consensus Estimate, which had predicted a larger loss of $0.25 per share. GDS Holdings, a key player in the data center industry, competes in a rapidly growing market, providing critical infrastructure for cloud services and internet companies. Despite facing a loss, the company's performance indicates resilience and potential for growth.
The reported loss of $0.18 per share, while consistent with the company's performance from the same quarter a year ago, underscores GDS Holdings' stability in managing its financials amidst challenging market conditions. This stability is further highlighted by the company's revenue figures. GDS reported a substantial quarterly revenue of approximately $2.63 billion, surpassing revenue expectations and showcasing the company's ability to generate significant income despite its net losses.
The financial details reveal a complex picture of GDS's operations. With a net loss of about $345.83 million for the quarter, it's clear that the company is navigating through substantial financial challenges. However, a gross profit of roughly $573.67 million and an operating income of around $219.23 million indicate efficient operational management. Furthermore, an EBITDA of approximately $1.08 billion suggests that GDS Holdings is maintaining a strong earnings potential before accounting for interest, taxes, depreciation, and amortization expenses.
The cost of revenue, standing at about $2.05 billion, reflects the significant expenses associated with maintaining and expanding the company's data center infrastructure. Despite these costs, GDS's ability to outperform revenue expectations is a testament to its competitive edge in the data center market. The income before tax showed a loss of approximately $282.54 million, with an income tax expense of about $62.39 million, further detailing the financial hurdles the company faces.
In summary, GDS Holdings' second-quarter financial results paint a picture of a company that, despite its losses, is making strides in a competitive industry. The better-than-expected loss per share, coupled with substantial revenue figures, gross profit, and operating income, highlights GDS's potential for future growth and stability. As the company continues to navigate its financial challenges, its performance remains a key area of interest for investors and industry observers alike.
GDS Holdings Reports Q3 EPS Beat, While Revenues Miss Expectations
GDS Holdings Limited (NASDAQ:GDS) reported its Q3 results last week, with EPS of (RMB 0.03) coming in better than the Street estimate of (RMB 0.33). Revenue was RMB 332.8 million, missing the Street estimate by 5.22%.
Through Q3/22-to-date, new bookings totaled 61,000 sqm, including 28,000 sqm from International. Management expects to surpass its 70,000 sqm bookings target for 2022 and believes it can maintain momentum in the next few quarters based on early signs of recovery in customer demand. The backlog increased to 258,000 sqm.
Analysts at RBC Capital lowered their price target to $15 from $22 on a slower recovery ramp from macro-related pressures and more conservative valuation parameters.
GDS Holdings Reports Q3 EPS Beat, While Revenues Miss Expectations
GDS Holdings Limited (NASDAQ:GDS) reported its Q3 results last week, with EPS of (RMB 0.03) coming in better than the Street estimate of (RMB 0.33). Revenue was RMB 332.8 million, missing the Street estimate by 5.22%.
Through Q3/22-to-date, new bookings totaled 61,000 sqm, including 28,000 sqm from International. Management expects to surpass its 70,000 sqm bookings target for 2022 and believes it can maintain momentum in the next few quarters based on early signs of recovery in customer demand. The backlog increased to 258,000 sqm.
Analysts at RBC Capital lowered their price target to $15 from $22 on a slower recovery ramp from macro-related pressures and more conservative valuation parameters.
Conservative Demand Outlook For GDS Holdings
Analysts at Berenberg Bank provided their views on GDS Holdings Limited (NASDAQ:GDS) following the company’s recently reported Q4 results. The analysts lowered their price target on the company’s shares to $72 from $83 on a more conservative demand outlook.
Q4 AFFO per share came in at $0.23, lower than the analysts’ estimate of $0.36, and core NOI was 4.3% below Berenberg’s forecast, driven by a higher cost of sale. Revenue was $343.2 million, compared to the consensus estimate of $338.69 million.
While demand remains generally solid, management noted that organic bookings will be down year-over-year. The demand profile is also changing from a large cloud to more enterprise. In regard to pricing, the commentary was less than favorable, with management expecting a mid-single-digit decline that could persist into 2023. Even with near-term headwinds, the analysts mentioned that they are still bullish long term.
