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spk14: Hello, ladies and gentlemen. Thank you for standing by for GTS Holdings Limited fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.
spk21: Thank you. Ladies and gentlemen, thanks for standing by for GDS Holdings Limited's fourth quarter and the full year 2023 earnings conference call. At this time, all participants... Sorry. Welcome to the fourth quarter and the full year 2023 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 investorsgdsservices.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 Koo, our COO, is also available to answer questions. Before we continue, please note that today's forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve interior risks and certainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and certainties 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 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 Now I'll turn the call over to GDS founder, chairman, and CEO, William Huang. Please go ahead, William.
spk17: Thank you. Hello, everyone. This is William. Thank you for joining us. The number one priority of GDS management and a giant share price recovery.
spk13: Today, we are delighted to announce the landmark U.S. dollar 587 million equity raise for our international business.
spk17: This is a big step forward in our strategy on a stand-alone basis.
spk13: The equity raise also highlights how much value we have already created for our shareholders through international expansion. We have been developing our business in China for many years. We are a market leader with over 1.5 gigawatts of capacity in service and under construction. Confident that we will maintain our competitive position and enjoy further growth, particularly when AI demand takes off. we initiate our period of time it has become a second growth engine with over 313 megawatts in service and under constructions equivalent to 20% of what we have in China GDS China is and GDS International are obviously at a very different stage of development. We are therefore pursuing distinct strategies for each part of our business. For China, we have two major financial objectives. Objective number one is to grow EBITDA at a steady rate. In 2023, our adjusted EBITDA grew by 9% year-on-year, all of which was from China. Objective number two is to deleverage our balance sheet. Our target is to get to below five times within three years. In order to achieve these objectives for China, we are targeting new business which fits our capacity. we are increasing asset utilization by delivering the backlog. We are spending capex only where it is needed for customer moving, and we are preparing for asset monetization when the market allows. For international, our ambition is to create an exceptional data center platform which emulates our success in China. by leveraging our industry leader capability, strategic business relationships, and a scale economics. In 2022, we set up a new international holding company headquartered in Singapore. It acts as the vehicle for all our assets and operations outside of mainland China. We have assembled a standalone management team. And today, we announced that Jamie Koh, our very capable COO, will transfer to become the CEO of CDS International. As we started to expand overseas, we focused initially on two region hub market, Hong Kong and Singapore to whole button, which is the hub for Southeast Asia. These two markets rank in the top 10 data center market globally. We collectively anticipated where demand will flow. We secured the right resource and executed it well. As a result, we quickly established a market leading presence in both places. We have secured over 200 megawatts of commitments and reservations from global. as well as China customers, as well as China customers. And as of today, we already have over 70 megawatts in service and revenue generating. We see tremendous opportunities for growth in these markets. We are very well-prepared. With our proven track record, development pipeline, and a time to market to build on this success, we are actively evaluating several new markets and expect to make further commitments in the near future. Now let's review our performance in more detail. In 2023, we won 68,000 square meters of new customer commitments. 50,000 square meters came from, which was similar to the prior year, and nearly 20,000 square meters, or 30% of total bookings, came from international. During 4Q23, we won two large orders in China. and one for international. Both of the China orders fit our strategy of matching commitments with capacity and have moving period of less than two years. The international order was from a global cloud service provider for the whole of our Hong Kong II project. As a result, Our first two projects in Hong Kong are effectively sold out with long-term binding commitments. Looking forward, the demand outlook in China has not yet picked up noticeably. AI demand is coming, but it will take more time. Meanwhile, our sales pipeline in Southeast Asia is very strong. We expect a significant new booking for both of our campuses in Johor in the near future. AI is undoubtedly a big factor driving a demand in this market. In 2023, the growth moving was around 69,000 square meters, 20% higher than in 2022. China moving was around 56,000 square meters, which once again was similar to the prior year. On top of this, there was the first time contribution from international of 12,000 square meters as one data center in Hong Kong and the three data centers in Johor came into service and started ramping up. In 2023, We brought around 57,000 square meters of new capacity into service across seven data centers, four in China and three international. By the end of the year, these three data centers had an overall utilization rate of 77%, which is consistent with our target for faster moving and higher utilization. During 2024, we expect to bring about 81,000 square meters into service, driven by delivery commitments to customers. The overall commitment rate for this capacity is 92%, and the moving schedule is confirmed. I will now pass on to Dan for the financial and operating review. Thank you, William.
spk09: Turning to slide 17, we just announced today that our wholly owned subsidiary, Digital Land Holdings, which we refer to for now as GDS International or GDSI, has entered into definitive agreements with certain institutional private equity investors for the new issue of $587 million of Series A convertible preferred shares. This first external equity capital raise for GDS International demonstrates our ability to access dedicated financing for our international business without further funding from GDS Holdings. The Series A subscription price implies a pre-money equity valuation for GDS International of $750 million. In terms of our share price, This is equivalent to approximately $3.92 per GDS Holdings ADS. The implied post-money enterprise valuation of GDSI, including forecast net debt of around $935 million, as at the end of 2024, is around $2.3 billion. This is equivalent to around 24 times GDSI's forecast adjusted EBITDA for the full year 2025. As mentioned by William, GDS International currently has over 330 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong, Singapore, Johor, Malaysia, and Batam, Indonesia. The total development cost for this portfolio is around $2.5 billion, out of which approximately 40% has been incurred up to the end of 2023. As of the end of last year, GDSH had provided a total of around $595 million of intercompany funding to GDSI. comprising $411 million of paid-up share capital and $184 million of shareholder loans and other payables, which will be repaid immediately out of the proceeds of the Series A new issue. This will benefit GDSH in terms of higher liquidity. On a pro forma basis, including $411 million of permanent equity from GDSH, and 587 million from the Series A, GDSI will have total paid-up share capital of approximately $1 billion. As a result, GDSI will be sufficiently well capitalized with equity to complete the development of its current 330 megawatt portfolio. Post-closing, GDSH will own approximately 56.1% of GDSI in the form of ordinary shares, and the remaining 43.9% equity will be held in the form of Series A shares by investors including Hill House, Rava Partners, Boyou, Princeville Capital, and Techni Capital. GDSH and certain investors will have the right to appoint directors to the board of GDSI, proportionate with their ownership. William will continue in his role as Chairman of the Board of GDSI, as well as Chairman and CEO of GDSH. Other key deal terms, including lockup, QIPO, and liquidation preference, amongst others, can be found in the transaction documents which we will file with the SEC. With this capital raising, it starts to make sense for us to look at GDS business in two parts. As we go through the financials, I will highlight selected numbers for international on a standalone basis and for GDS holdings excluding international. Turning to slide 18, for 2023, revenue increased by 6.8% and adjusted EBITDA increased by 8.8% year on year. In 4Q23, revenue increased by 6.3% and adjusted EBITDA increased by 5.7% year on year. For the full year 2023, international had negative adjusted EBITDA of around 100 million RMB. The year on year growth rate for GDS holdings excluding international would have been two percentage points higher than the consolidated number. International recorded positive adjusted EBITDA for the first time in 4Q23. Turning to slide 19, I will discuss the two main drivers of revenue growth, namely area utilized and MSR. For 2023, net additional area utilized was 48,000 square meters. The annual net add was slightly less than 2022 as a result of higher churn. Nonetheless, total area utilized at year end was 13% higher than at the end of the prior year. During 4Q23, we achieved net additional area utilized of 20,000 square meters, which is the highest level for many quarters. This was mainly due to ramp up of our first two data centers in Johor and a minimal level of churn. For 2024, we expect net additional area utilized to be higher than last year's 48,000, with steady growth in China and increased contribution from international. Turning to the MSR metric, over the course of 2023, comparing 4Q to 4Q, MSR decreased by 5%. For 2024, we expect MSR in China to decrease by around 3%, which shows it is bottoming out. The MSR for international is currently higher than for China. Hence, on a consolidated basis, we expect MSR to remain at around current levels. Turning to slides 22 and 23. For 2023, our consolidated adjusted EBITDA margin was 46.4%, which was slightly higher than for 2022, despite the fact that power tariffs in China increased again during last year. For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of 43.7%, which is a more than two percentage point drop compared with 2023. The margin for GDS holdings excluding international should be similar to 2023. The expected drop in the coming year is therefore mainly due to international growth track. Turning to slide 24, in 2023, our China capex totaled 3.5 billion RMB. We have brought China capex down significantly from historic levels, and we are only spending where it is necessary to generate growth. In 2024, as William mentioned, we plan to bring a further 58,000 square meters of new capacity into service in China, most of which is committed to customers with firm move-in schedules. Meanwhile, our CapEx guidance for China in 2024 is only 2.5 billion RMB. The very low implied CapEx per square meter is because we have already incurred a substantial part of the development cost. What is left is cost to complete. This pattern will continue over the next few years, giving us the ability to grow in China with relatively low incremental capex. In 2023, our international capex was around 2.8 billion RMB. Our current backlog for international stands at over 130 megawatts of committed and reserved capacity, a large part of which is yet to be built. Our CapEx guidance for international in 2024 is RMB 4 billion, which is largely driven by fixed delivery commitments to customers. On slide 25, in 2023, GDS Holdings, excluding international, had negative cash flow before financing of just over 1 billion RMB. Our objective is to maintain positive cash flow before financing on an organic basis. We have already been positive in some quarters, and for 2024 as a whole, we expect to be close to breakeven. In 2023, international, on a standalone basis, had negative cash flow before financing of over 3 billion RMB. In 2024, we forecast negative 4 billion RMB, which can be fully financed by the equity raise and project debt. Looking at our leverage on slides 26 and 27, at the end of 2023, our consolidated net debt to last quarter annualized adjusted EBITDA multiple was 8.5 times, excluding international, and pro forma for the repayment of shareholder loans, the multiple was 7.5 times. Turning to slide 28, during 2024, we have 2.3 billion RMB of project loan amortization for China. We expect to generate an equivalent amount of new financing cash flow as a result of the repayment of shareholder loans from GDSI to GDSH, and draw down under existing facilities to finance around 50% of China incremental capex. Turning to slide 29, before I talk about guidance, I would like to flag the impairment loss of long-lived assets of around 3 billion RMB, which we recorded during 4Q23. We are required to test for impairment whenever events or changes in circumstance indicate that the carrying amount of long-lived assets may not be recoverable. The impairment loss was mainly associated with data centers located in properties which we lease for a fixed term and a few data centers which we plan to consolidate. Turning now to guidance. For the full year 2024, we expect total revenues to be between 11.34 billion RMB to 11.76 billion RMB, implying a year-on-year increase of between approximately 13.9% to 18.1%. We expect adjusted EBITDA to be between 4.95 billion RMB to 5.15 billion RMB, implying a year-on-year increase of between approximately 7% to 11.4%. On a standalone basis, we expect international to contribute around 100 to 150 million RMB of adjusted EBITDA in 2024. As I mentioned earlier, We expect total capex of around 6.5 billion RMB for the full year, comprising 2.5 billion RMB for China and 4 billion RMB for international. We'd now like to open the call to questions. Operator, please.
spk14: Thank you. We will now begin the question and answer sessions. If you would like to ask a question, please press star 11 on your telephone. If you would like to cancel a request, please press star 11 again. For the benefits of all participants on today's call, please limit yourself to one question. If you have more questions, please re-enter the queue. One moment for the first question. Our first question comes from the line of Frank Luthen from Raymond James. Please go ahead.
spk04: Great, thank you. Just really quickly, when can we expect to see some more full breakouts of the international business? That would be the first thing. And then secondly, if you can characterize the move-in schedule of the international customers relative to what you've seen historically in China and how quickly we can expect to see those customers building inside those new developments.
spk18: Thank you. This is Dan.
spk09: Today we've started to provide a breakout of the capex and of the leverage where there's clearly a significant difference looking at GDS holdings consolidated or GDS holdings in two parts. I did verbally give the numbers for EBITDA. I said that last year International had negative EBITDA of 100 million RMB for the full year. And this year, we expect positive EBITDA of 100 to 115 million RMB. It's not yet material, that material, in the context of GDS Holdings numbers. So we don't propose to report segment financials. But as we move through this year and the materiality increases, we will certainly consider that.
spk07: Your comment about moving.
spk13: I'm moving compared with China, right? Yeah. I think what we see is international moving is better than what we have in China. In general, I think the people all want time to market more faster than other regions. So it's very good and the general revenue more faster than China.
spk17: Okay, great. Thank you. Thank you for the questions.
spk14: One moment for the next question. Our next question comes from Eunice Liu from Goldman Sachs. Please go ahead.
spk03: Thank you, management, for taking my questions. This is Eunice asking a question on behalf of Timothy Jobs. My question is, has companies seen a fast ramp up of the AI-related demand, especially for GDS International? And also another question is, what takes to take to achieve the high end of your guidance in terms of revenue guidance for next year? Thank you.
spk13: Yeah, I think in the international business, of course, I think it's Actually, we don't know what our customer will be because they're all very confidential. So based on our current product profile, I think we do have seen some high-density RAC requirements. But I think the international requirement demand is very various. because including a lot of the internet company, OTT, and also traditional GPU cloud as well. So it's mixed. I think that we do see maybe AI type of demands is already there, yeah.
spk09: You know, the question about how do we achieve the high end of our guidance? So we split the guidance into two parts. For China, we're expecting a standalone adjusted EBITDA growth rate of around mid-single digits. This is consistent with the run rate that we've seen over the past couple of years in terms of quarterly move-in and the trend in MSRs and EBITDA margins. We forecast, assuming that current market conditions continue through this year, maybe next year, I think the outlook could be more positive in 2025. For the international part of business, clearly the turnaround from negative 100 million to 100 to 150 million R&B positive is quite significant, and that elevates the growth rate. For international, the forecasting bottom up based on the time schedule for individual data centers to enter service and the customer contracts associated with those data centers which have a fixed moving schedule. So we base the forecast largely on what are the terms of those contracts. The international businesses It's very dynamic. It's an early stage that's already achieved significant scale. But typically for business at this stage of development, there could be a wider range of outcomes just because things are moving so fast. So I think there is potential upside in the international business as more data centers come into service.
spk14: Thank you for the questions. Our next questions will come from the line of Yang Liu from Morgan Stanley. Please go ahead.
spk22: Thanks for the opportunity. I have three questions. The first, in terms of the overall international revenue contribution, could management elaborate or break down in the current guidance for 2024, international revenue contribution. The second question is that I made some comparison versus your disclosure at the end of third quarter last year. You had 372 megawatt pipeline, megawatt data center pipeline in overseas market. And now it's increased dramatically, just in one quarter. Could management update us in terms of the pipeline development? Where is the new pipeline? And what will be the potential timeline to deliver that? Or what will be the type of business, a hyperscaler or retail business, et cetera? That is for the incremental overseas pipeline. And the third question is regarding the additional sales for 2024. Do you think that the total sales or area booked in 2024, if there's any chance to see a turnaround? Or from the megawatt perspective, there could be a turnaround? Yes, thank you.
spk10: I'll take the first question.
spk09: Yes, so Hi Young News down here. We provided revenue guidance for the full year of 11.34 to 11.76 billion. We expect the revenue of international standalone to be about 1.1 billion RMB, plus or minus, as I explained in answering the previous question.
spk08: I think the pipelines are very, very strong in general.
spk13: I see the order is from all over the world, global, and also we see a lot of companies from China as well. So I think this shows the international business has a huge momentum, very big momentum. So I think, in fact, the current allowed customer asking for deliver as much faster as possible. So I think this is the overall demand profile. On the other hand, I think the customer type actually, as I just mentioned, varies. There's a lot of local tech companies, a lot of the global tech companies, and also a lot of the e-commerce companies as well. So this is not only from China. What we have been seeing is from the globally. So I think this is a very, let us feel very, very excited. So I think the international business will grow very, very fast than what we expect.
spk09: And he was also asking about your bookings, expectation bookings.
spk13: Yeah, we don't want to set up because every quarter is changed, frankly speaking. So I think to maintain the last two years average level, which means 50 megawatt per year, is our base. But based on our current pipeline, we can maybe go very, very high number, maybe double, something like that. But we don't want to set up too much high expectation on it. But 50 megawatt is our base in the international market. Yeah, but of course, as I just mentioned, this is just a Southeast Asian market. We also look very closely for other new markets like North Asia. and also European market as well.
spk09: I just want to check your question about increasing pipeline. If you were referring to the secured development pipeline, the reason why that's gone up very significantly is because at our established campus that we refer to as NTP, We acquired additional land and secured additional power. At the same time, we have established a second campus in Johor called KTP, where we have started construction around 20 megawatts, but we plan in a single phase to go to around 100 megawatts, and we also I look forward to obtaining some commitments for that site in the next few quarters.
spk14: Got it. Thank you. Thank you for the questions. Our next question comes from Daily Li from Bank of America Securities. Please go ahead.
spk12: Hi, Mr. Chairman. Thanks for taking my question. I have two questions. The first one is about the China data center business Could the management share some of the demand trend for our clients, maybe for public cloud providers and the Internet companies and some financial companies, how the demand trend? And given right now government is publishing more policy to support the AI data center, et cetera, and how do we see the competition? My second question is about the overseas business. Congrats on this recent fundraising. How do we see a future financial channel in the overseas market as we try to develop more business after two to three years in terms of financing channel? Thank you.
spk13: Okay, I take your first question. I think in China, I think we do see some signal that AI demands increasing, but based on the current chip supply issue, I think the demand actually is already there, but not fulfilled by all chips. So what we can tell is the chips supply in terms of like a new version of the NVIDIA, like H20, and also some China chips supply profile. What we can see is maybe the end of this year or early of next year, China data center demand will recover in a significant way. So what I think that this year, still you can see a lot of the demand is frying right now. But actually, every people is waiting for the chips. So impact to our data center, real demand, I would say it will start from next year.
spk09: Your question about financing requirements and options for international, so the rationale behind the capital raising which we announced today is to ensure that we have adequate equity capital for the existing portfolio which is in service and under construction, but we are moving forward rapidly and the requirement for additional capital will depend on how the business plan evolves. We will take a view as new opportunities come up and new commitments are made. We've spoken before about a strategy of limiting the amount of capital which GDS Holdings allocates to international. We've allocated 411 million U.S. dollars. Now we're starting to leverage our equity investment with external equity at a premium valuation. I think this first Series A capital raising has required us to establish GDS International on a standalone basis and put in place the governance and all the aspects of intercompany relationship and so on, which is quite a challenge. I think after having done this deal and with the investor group who are now partnering with us, I think GDS International is very well placed to do further capital raisings. And that could either be at the country level, as we've done already in Indonesia with our joint venture with INA, or it could be at the international Holco level.
spk17: Thank you, management.
spk14: Thank you for the questions. Our next question comes from Robert Xu from J.P. Morgan. Please go ahead.
spk28: Okay, thanks. Thanks, Roland. So I'm asking on behalf of GOKU. So I have two parts of my questions. First one is on the competitive landscape and the IR. So can you help on this and understand what the IR looks like for the international business given we have seen many regional players or local players or Chinese players competing in this market? Secondly, I think you kind of guided the international business revenue contribution for this year will be probably nine, 10%. So you mentioned that you are considering to expand beyond this Southeast Asian markets, probably Europe or North Asia. So how should we think about the revenue contribution from international business in probably three, five years of time? Yeah, thanks.
spk09: Yeah, thank you, Robert. for the IRRs we've undertaken projects in Hong Kong and in Johor and in Batam each market has a different cost of capital but if we look at it in a very general way the IRRs have been within the range that we target historically unlevered post-tax IRRs of not less than 10% up to IRRs in the low teens, which currently compares really quite favorably with what is achievable in China at the current stage in the cycle. Yeah. international. Without giving out forecasts, I think we talked before about hitting 15% of consolidated revenue or adjusted EBITDA within three years. I think that is definitely achievable. There may be higher than that.
spk16: Thank you.
spk17: Thank you for the questions.
spk14: One moment for the next question. The next question comes from Deliah Borah Lee from RBC Capital Markets. Please go ahead.
spk00: Thank you. Hi, this is Borah on for John Atkin. So I believe William had mentioned GDS expects to enter additional markets. Can you elaborate on how you're thinking about the markets or regions in which you'd like to expand and the timeframe you had in mind? And secondarily, any update on the Singapore development? Thank you.
spk13: I think our strategy is, first of all, I think we see the tremendous growth in Southeast Asia and the whole Asia Pacific, which the market, we are very familiar with. I think the first step, we will still focus on the Southeast Asian to gather the, maintain the market leading position, right? So I think this is our first priority. In the meanwhile, we already start to get back to Japan market for a while. And I think we're maybe in the near future, maybe we can announced some progress so i think the japan market career market also very attractive it's uh the the top of my top top market data center market in the world and we see the demand so in general we follow up the uh uh big market we will also follow up the uh high growth market in the future But as I just mentioned, we do have some opportunity in Europe as well. But this is another future target market. But of course, including Middle East. Singapore, yeah, we target to deliver the launch the data center by the end of the 2026. So that's our time frame, and we made some progress. There's a couple of short lists we already tried to do the final decision to choose in the site. So I think we will tell the investor once we make the final decision.
spk14: Great. Thank you. Thank you for the question. One moment for the next question. Our next question, we have Sarah Wang from UPS. Please go ahead.
spk19: Thank you for the opportunity. I have two questions. First one is on China business. So what's the trend of MSR or turn rate when you renew contracts with existing customers, say, over the past two quarters, and then how shall we think about the trend going forward? Second question is still on AI. So maybe for both China and international projects, because AI requires higher density racks or even more advanced cooling methodology. So is there any difference between maybe high density power racks in terms of revenue or margin profile compared to maybe cloud demand we have seen previously? Thank you.
spk18: Yeah, I'll answer the first question maybe.
spk13: Yeah, I think in general, I think the current AI, of course, the AI will definitely in the future will be the main driver to drive the data set demand. This is what's happening in the US, what's happening in Europe, and also the Southeast Asia and the Japan market already. But it's just a start. In terms of the difference, I think the AI guys need a more big capacity. We historically, when we talk to cloud guys' demand, if we use the single deal size, let's say, Internet always asks for 10 megawatt, 10 megawatt, that's the maximum. And the cloud guys normally ask for, let's say, 30 megawatt, 40 megawatt. But now what we can see that the deal provides a total difference. A lot of our customers, they ask for 100 megawatt or 200 megawatt per campus. So that means they need more power capacity in one site. So this is the one difference. The second of all, of course, I think in general, average power density goes very high. So we are well prepared for that. In terms of cooling, I think everybody knows once you get it, if you want to get your product per rack above 20 kW per rack, it's better to try to start to use the liquid cooling, right? So in terms of technology, we are very familiar of the liquid cooling because five years ago, we started to use the liquid cooling solution in China. So I think we are well prepared to catch up the AI demand in the future, whatever size, in terms of size, capacity of the size or power density or cooling technology. We're all good at that.
spk09: So your question about MSI, I always answer this in the same way. MSI can be affected by a number of different factors. It's not just a reflection of change in market pricing. It's also dependent on location and type of data center. Rather than talk about pricing on renewals, we always give some guidance or direction on the trend in MSR. As I mentioned during the prepared remarks, over the past four quarters, that's 4Q22 to 4Q23, the MSR decreased by 5%. Over the next four quarters, that's 4Q23 to 4Q24, we expect the MSR to decrease by 3%. Most of that decrease is due to delivery of the backlog. A smaller part is due to lower pricing on renewals. But if we were to look further forward beyond 2024 to 2025, MSR is bottoming out, which means that as you project further into the future, Our revenue growth will be mainly driven by the increase in net additional area utilized with MSR decrease becoming less and then becoming flat.
spk15: Got it. Thank you.
spk14: Thank you for the questions. We have come to the end of the Q&A session. I would like to now turn the call back over to the company for closing remarks.
spk21: Thank you once again for joining us today. If you have further questions, please feel free to contact EDS Investor Relations through the contact information on our website and the Piacente Financial Communications. Bye. See you next time. Music Playing Thank you. Thank you.
spk14: Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.
spk21: Thank you. Ladies and gentlemen, thanks for standing by for GDS Holdings Limited's fourth quarter and the full year 2023 earnings conference call. At this time, all participants... Sorry. Welcome to the fourth quarter and the full year 2023 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 investorsgdsservices.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 Koo, our COO, is also available to answer questions. Before we continue, please note that today's forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve interior risks and certainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and certainties is included in the company's prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forged looking statements as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial measures. GDS press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures Now I'll turn the call over to GDS founder, chairman, and CEO, William Huang. Please go ahead, William.
spk17: Thank you.
spk13: Hello, everyone.
spk17: This is William. Thank you for joining us. The number one priority of GDS management and a giant share price recovery.
spk13: Today, we are delighted to announce the landmark US dollar 587 million equity raise for our international business.
spk17: This is a big step forward in our strategy on a stand-alone basis.
spk13: The equity raise also highlights how much value we have already created for our shareholders through international expansion. We have been developing our business in China for many years. We are a market leader with over 1.5 gigawatts of capacity in service and under construction. Confident that we will maintain our competitive position and enjoy further growth, particularly when AI demand takes off. we initiate our period of time it has become a second growth engine with over 313 megawatts in service and under constructions equivalent to 20% of what we have in China GDS China is and GDS International are obviously at a very different stage of development. We are therefore pursuing distinctive strategies for each part of our business. For China, we have two major financial objectives. Objective number one is to grow EBITDA at a steady rate. In 2023, our adjusted EBITDA grew by 9% year on year, all of which was from China. Objective number two is to deleverage our balance sheet. Our target is to get to below five times within three years. In order to achieve these objectives for China, we are targeting new business which fits our capacity. We are increasing asset utilization by delivering the backlog. We are spending CapEx only where it is needed for customer moving. And we are preparing for asset monetization when the market allows. For international, our ambition is to create an exceptional data center platform which emulates our success in China. by leveraging our industry leader capability, strategic business relationships, and a scale economics. In 2022, we set up a new international holding company headquartered in Singapore. It acts as the vehicle for all our assets and operations outside of mainland China. We have assembled a standalone management team. And today, we announced that Jamie Koh, our very capable COO, will transfer to become the CEO of CDS International. As we started to expand overseas, we focused initially on two region hub market, Hong Kong and Singapore, which is the hub for Southeast Asia. These two markets rank in the top 10 data center market globally. We collectively anticipated where demand will flow. We secured the right resource and executed it well. As a result, we quickly established a market leading presence in both places. We have secured over 200 megawatts of commitments and reservations from global. as well as China customers, as well as China customers. And as of today, we already have over 70 megawatts in service and revenue generating. We see tremendous opportunities for growth in these markets. We are very well-prepared. With our proven track record, development pipeline, and a time to market to build on this success, we are actively evaluating several new markets and expect to make further commitments in the near future. Now let's review our performance in more detail. In 2023, we won 68,000 square meters of new customer commitments. 50,000 square meters came from, which was similar to the prior year, and nearly 20,000 square meters, or 30% of total bookings, came from international. During 4Q23, we won two large orders in China. and one for international. Both of the China orders fit our strategy of matching commitments with capacity and have moving period of less than two years. The international order was from a global cloud service provider for the whole of our Hong Kong II project. As a result, Our first two projects in Hong Kong are effectively sold out with long-term binding commitments. Looking forward, the demand outlook in China has not yet picked up noticeably. AI demand is coming, but it will take more time. Meanwhile, our sales pipeline in Southeast Asia is very strong. We expect a significant new booking for both of our campuses in Johor in the near future. AI is undoubtedly a big factor driving a demand in this market. In 2023, the growth moving was around 69,000 square meters, 20% higher than in 2022. China moving was around 56,000 square meters, which once again was similar to the prior year. On top of this, there was the first time contribution from international of 12 square meters, 12,000 square meters as one data center in Hong Kong and the three data centers in Johor came into service and started ramping up. In 2023, We brought around 57,000 square meters of new capacity into service across seven data centers, four in China, and three international. By the end of the year, these three data centers had an overall utilization rate of 77%, which is consistent with our target for faster moving and higher utilization. During 2024, we expect to bring about 81,000 square meters into service, driven by delivery commitments to customers. The overall commitment rate for this capacity is 92%, and the moving schedule is confirmed. I will now pass on to Dan for the financial and operating review. Thank you, William.
spk09: Turning to slide 17, we just announced today that our wholly owned subsidiary, Digital Land Holdings, which we refer to for now as GDS International or GDSI, has entered into definitive agreements with certain institutional private equity investors for the new issue of $587 million of Series A convertible preferred shares. This first external equity capital raise for GDS International demonstrates our ability to access dedicated financing for our international business without further funding from GDS Holdings. The Series A subscription price implies a pre-money equity valuation for GDS International of $750 million. In terms of our share price, This is equivalent to approximately $3.92 per GDS Holdings ADS. The implied post-money enterprise valuation of GDSI, including forecast net debt of around $935 million, as at the end of 2024, is around $2.3 billion. This is equivalent to around 24 times GDSI's forecast adjusted EBITDA for the full year 2025. As mentioned by William, GDS International currently has over 330 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong, Singapore, Johor, Malaysia, and Batam, Indonesia. The total development cost for this portfolio is around $2.5 billion, out of which approximately 40% has been incurred up to the end of 2023. As of the end of last year, GDSH had provided a total of around $595 million of intercompany funding to GDSI. comprising $411 million of paid up share capital and $184 million of shareholder loans and other payables, which will be repaid immediately out of the proceeds of the Series A new issue. This will benefit GDS-H in terms of higher liquidity. On a pro forma basis, including $411 million of permanent equity from GDS-H, and 587 million from the Series A, GDSI will have total paid up share capital of approximately 1 billion US dollars. As a result, GDSI will be sufficiently well capitalized with equity to complete the development of its current 330 megawatt portfolio. Post closing, GDSH will own approximately 56.1% of GDSI in the form of ordinary shares, and the remaining 43.9% equity will be held in the form of Series A shares by investors including Hill House, Rava Partners, BoYu, Princeville Capital, and Techni Capital. GDSH and certain investors will have the right to appoint directors to the board of GDSI, proportionate with their ownership. William will continue in his role as Chairman of the Board of GDSI, as well as Chairman and CEO of GDSH. Other key deal terms, including lockup, QIPO, and liquidation preference, amongst others, can be found in the transaction documents which we will file with the SEC. With this capital raising, it starts to make sense for us to look at GDS business in two parts. As we go through the financials, I will highlight selected numbers for international on a standalone basis and for GDS holdings excluding international. Turning to slide 18, for 2023, revenue increased by 6.8% and adjusted EBITDA increased by 8.8% year on year. In 4Q23, revenue increased by 6.3% and adjusted EBITDA increased by 5.7% year on year. For the full year 2023, international had negative adjusted EBITDA of around 100 million RMB. The year on year growth rate for GDS holdings excluding international would have been two percentage points higher than the consolidated number. International recorded positive adjusted EBITDA for the first time in 4Q23. Turning to slide 19, I will discuss the two main drivers of revenue growth, namely area utilized and MSR. For 2023, net additional area utilized was 48,000 square meters. The annual net add was slightly less than 2022 as a result of higher churn. Nonetheless, total area utilized at year end was 13% higher than at the end of the prior year. During 4Q23, we achieved net additional area utilized of 20,000 square meters, which is the highest level for many quarters. This was mainly due to ramp up of our first two data centers in Johor and a minimal level of churn. For 2024, we expect net additional area utilized to be higher than last year's 48,000, with steady growth in China and increased contribution from international. Turning to the MSR metric, over the course of 2023, comparing 4Q to 4Q, MSR decreased by 5%. For 2024, we expect MSR in China to decrease by around 3%, which shows it is bottoming out. The MSR for international is currently higher than for China. Hence, on a consolidated basis, we expect MSR to remain at around current levels. Turning to slides 22 and 23. For 2023, our consolidated adjusted EBITDA margin was 46.4%, which was slightly higher than for 2022, despite the fact that power tariffs in China increased again during last year. For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of 43.7%, which is a more than two percentage point drop compared with 2023. The margin for GDS holdings excluding international should be similar to 2023. The expected drop in the coming year is therefore mainly due to international growth drag. Turning to slide 24, in 2023, our China capex totaled 3.5 billion RMB. We have brought China capex down significantly from historic levels, and we are only spending where it is necessary to generate growth. In 2024, as William mentioned, we plan to bring a further 58,000 square meters of new capacity into service in China, most of which is committed to customers with firm moving schedules. Meanwhile, our CapEx guidance for China in 2024 is only 2.5 billion RMB. The very low implied CapEx per square meter is because we have already incurred a substantial part of the development cost. What is left is cost to complete. This pattern will continue over the next few years, giving us the ability to grow in China with relatively low incremental capex. In 2023, our international capex was around 2.8 billion RMB. Our current backlog for international stands at over 130 megawatts of committed and reserved capacity, a large part of which is yet to be built. Our CapEx guidance for international in 2024 is RMB 4 billion, which is largely driven by fixed delivery commitments to customers. On slide 25, in 2023, GDS Holdings, excluding international, had negative cash flow before financing of just over 1 billion RMB. Our objective is to maintain positive cash flow before financing on an organic basis. We have already been positive in some quarters, and for 2024 as a whole, we expect to be close to break even. In 2023, international, on a standalone basis, had negative cash flow before financing of over 3 billion RMB. In 2024, we forecast negative 4 billion RMB, which can be fully financed by the equity raise and project debt. Looking at our leverage on slides 26 and 27, at the end of 2023, our consolidated net debt to last quarter annualized adjusted EBITDA multiple was 8.5 times, excluding international, and pro forma for the repayment of shareholder loans, the multiple was 7.5 times. Turning to slide 28, during 2024, we have 2.3 billion RMB of project loan amortization for China. We expect to generate an equivalent amount of new financing cash flow as a result of the repayment of shareholder loans from GDSI to GDSH, and draw down under existing facilities to finance around 50% of China incremental capex. Turning to slide 29, before I talk about guidance, I would like to flag the impairment loss of long-lived assets of around 3 billion RMB, which we recorded during 4Q23. We are required to test for impairment whenever events or changes in circumstance indicate that the carrying amount of long-lived assets may not be recoverable. The impairment loss was mainly associated with data centers located in properties which we lease for a fixed term and a few data centers which we plan to consolidate. Turning now to guidance. For the full year 2024, we expect total revenues to be between 11.34 billion RMB to 11.76 billion RMB, implying a year on year increase of between approximately 13.9% to 18.1%. We expect adjusted EBITDA to be between 4.95 billion RMB to 5.15 billion RMB, implying a year-on-year increase of between approximately 7% to 11.4%. On a standalone basis, we expect international to contribute around 100 to 150 million RMB of adjusted EBITDA in 2024. As I mentioned earlier, We expect total capex of around 6.5 billion RMB for the full year, comprising 2.5 billion RMB for China and 4 billion RMB for international. I'd now like to open the call to questions. Operator, please.
spk14: Thank you. We will now begin the question and answer sessions. If you would like to ask a question, please press star 11 on your telephone. If you would like to cancel a request, please press star 11 again. For the benefits of all participants on today's call, please limit yourself to one question. If you have more questions, please re-enter the queue. One moment for the first question. Our first question comes from the line of Frank Luthen from Raymond James. Please go ahead.
spk04: Great, thank you. Just really quickly, when can we expect to see some more full breakouts of the international business? That would be the first thing. And then secondly, if you can characterize the move-in schedule of the international customers relative to what you've seen historically in China and how quickly we could expect to see those customers building inside those new developments.
spk18: Thank you. This is Dan.
spk09: Today we've started to provide a breakout of the capex and of the leverage where there's clearly a significant difference looking at GDS holdings consolidated or GDS holdings in two parts. I did verbally give the numbers for EBITDA. I said that last year International had negative EBITDA of 100 million RMB for the full year, and this year we expect a positive EBITDA of 100 to 150 million RMB. It's not yet material, that material, in the context of GDS Holdings numbers, so we don't propose to report segment financials. But as we move through this year and the materiality increases, we will certainly consider that.
spk07: Your comment about moving.
spk13: Compared with China, right? I think what we see is international moving is better than what we have in China. In general, I think the people all want time to market more faster than other regions. So it's very good and the general revenue more faster than China.
spk17: Okay, great. Thank you. Thank you for the questions.
spk14: One moment for the next question. Our next question comes from Eunice Liu from Goldman Sachs. Please go ahead.
spk03: Thank you, management, for taking my questions. This is Eunice asking a question on behalf of Timothy Zhao. My question is, has companies seen a fast ramp up of the AI-related demand, especially for GDS International? And also another question is, what takes to take to achieve the high end of your guidance in terms of revenue guidance for next year? Thank you.
spk13: Yeah, I think in the international business, of course, I think the Actually, we don't know what our customer will be because they're all very confidential. So based on our current product profile, I think we do have seen some high-density RAC requirement. But I think the international requirement demand is very various. because including a lot of the internet company, OTT, and also traditional GPU cloud as well. So it's mixed. I think that we do see maybe AI type of demands is already there, yeah.
spk09: You know, the question about how do we achieve the high end of our guidance? So we split the guidance into two parts. For China, we're expecting a standalone adjusted EBITDA growth rate of around mid-single digits. This is consistent with the run rate that we've seen over the past couple of years in terms of quarterly move-in and the trend in MSRs and EBITDA margins. We forecast, assuming that current market conditions continue through this year, maybe next year, I think the outlook could be more positive in 2025. For the international part of business, clearly the turnaround from negative 100 million to 100 to 150 million RMB positive is quite significant, and that elevates the growth rate. For international, the forecasting bottom up based on the time schedule for individual data centers to enter service and the customer contracts associated with those data centers which have a fixed moving schedule. So we base the forecast largely on what are the terms of those contracts. The international businesses is very dynamic. It's an early stage, albeit that's already achieved significant scale. But typically for business at this stage of development, there could be a wider range of outcomes just because things are moving so fast. So I think there is potential upside in the international business as more data centers come into service.
spk14: Thank you for the questions. Our next questions will come from the line of Yang Liu from Morgan Stanley. Please go ahead.
spk22: Thanks for the opportunity. I have three questions. The first, in terms of the overall international revenue contribution, could management elaborate or break down in the current guidance for 2024, international revenue contribution. The second question is that I made some comparison versus your disclosure at the end of third quarter last year. You had 372 megawatt pipeline, megawatt data center pipeline in overseas market. And now it increased dramatically, just in one quarter. Could management update us in terms of the pipeline development? Where is the new pipeline? And what will be the potential timeline to deliver that? Or what will be the type of business, a hyperscaler or retail business, et cetera? That is for the incremental overseas pipeline. And the third question is regarding the additional sales for 2024. Do you think that the total sales or area booked in 2024, if there's any chance to see a turnaround? Or from the megawatt perspective, there could be a turnaround?
spk13: Yes, thank you.
spk10: I'll take the first question.
spk09: Yes, so Hi Young News down here. We provided revenue guidance for the full year of 11.34 to 11.76 billion. We expect the revenue of international standalone to be about 1.1 billion RMB, plus or minus, as I explained in answering the previous question.
spk08: I think pipelines are very, very strong in general.
spk13: I see the order is from all over the world, global, and also we see a lot of companies from China as well. So I think this shows the international business has a huge momentum, very big momentum. So I think, in fact, the current allowed customer asking for deliver as much faster as possible. So I think this is the overall demand profile. On the other hand, I think the customer type actually, as I just mentioned, varies. There's a lot of local tech companies, a lot of the global tech companies, and also a lot of the e-commerce companies as well. So this is not only from China. What we have been seeing is from the globally. So I think this is a very, let us feel very, very excited. So I think the international business will grow very, very fast at what we expect.
spk09: And he was also asking about your bookings, expectation bookings.
spk13: Yeah, we don't want to set up because every quarter is changed, frankly speaking. So I think to maintain the last two years average level, which means 50 megawatt per year, is our base. But based on our current pipeline, we can maybe go very, very high number, maybe double, something like that. But we don't want to set up too much high expectation on that. But 50 megawatt is our base in international market. Yeah, but of course, as I just mentioned, this is just a Southeast Asian market. We also look very closely for other new market like North Asia. and also European market as well.
spk09: I think, Yangyu, I just want to check your question about increasing pipeline. If you were referring to the secured development pipeline, the reason why that's gone up very significantly is because at our established campus that we refer to as NTP, We acquired additional land and secured additional power. At the same time, we have established a second campus in Johor called KTP, where we have started construction around 20 megawatts, but we plan in a single phase to go to around 100 megawatts, and we also I look forward to obtaining some commitments for that site in the next few quarters.
spk14: Thank you. Thank you for the questions. Our next question comes from Daily Li from Bank of America Securities. Please go ahead.
spk12: Hi, Mr. Chairman. Thanks for taking my question. I have two questions. The first one is about the China data center business. Could you maybe share some of the demand trend for our clients, maybe for public cloud providers and the Internet companies and some financial companies, how the demand trend? And given right now government is publishing more policy to support the AI data center, et cetera, and how do we see the competition? And my second question about the overseas business. Congrats on this recent fundraising. How do we see future financial channel in the overseas market as we try to develop more business after two to three years in terms of financing channel? Thank you.
spk13: Okay, I take your first question. I think in China, I think we do see some signal that AI demands increasing, but based on the current chip supply issue, I think the demand actually is already there, but not fulfilled by all chips. So what we can tell is the chips supply in terms of a new version of the NVIDIA, like H20, and also some China chips supply profile. What we can see is maybe the end of this year or early of next year, China data center demand will recover in a significant way. So what I think that this year, still you can see a lot of the demand is frying right now. But actually, every people is waiting for the chips. So impact to our data center, real demand, I would say it will start from next year.
spk09: Your question about financing requirements and options for international, so the rationale behind the capital raising which we announced today is to ensure that we have adequate equity capital for the existing portfolio which is in service and under construction, but we are moving forward rapidly and the requirement for additional capital will depend on how the business plan evolves. We will take a view as new opportunities come up and new commitments are made. We've spoken before about a strategy of limiting the amount of capital which GDS Holdings allocates to international. We've allocated 411 million U.S. dollars. Now we're starting to leverage our equity investment with external equity at a premium valuation. I think this first Series A capital raising has required us to establish GDS International on a standalone basis and put in place the governance and all the aspects of intercompany relationships and so on, which is quite a challenge. I think after having done this deal and with the investor group who are now partnering with us, I think GDS International is very well placed to do further capital raisings and And that could either be at the country level, as we've done already in Indonesia with our joint venture with INA, or it could be at the international whole code level.
spk17: Thank you, management.
spk14: Thank you for the questions. Our next question comes from Robert Xu from J.P. Morgan. Please go ahead.
spk28: Okay, thanks. Thanks, William. So I'm asking on behalf of Goku. So I have two parts of my questions. First one is on the competitive landscape and the IR. So can you help on this and understand for what the IR looks like for the international business given we've seen many regional players or local players or Chinese players competing in this market? Secondly, I think you kind of guided the international business revenue contribution for this year will be probably nine, 10%. So you mentioned that you are considering to expand beyond this Southeast Asian markets, probably Europe or North Asia. So how should we think about the revenue contribution from international business in probably three, five years of time? Yeah, thanks.
spk09: Yeah, thank you, Robert. for the IRRs. We've undertaken projects in Hong Kong and in Johor and in Batam. Each market has a different cost of capital, but if we look at it in a very general way, the IRRs have been within the range that we target historically. post-tax IRRs of not less than 10% up to IRRs in the low teens, which currently compares really quite favorably with what is achievable in China at the current stage in the cycle. The contribution of international. Without giving out forecasts, I think we talked before about hitting 15% of consolidated revenue or adjusted EBITDA within three years. I think that is definitely achievable. There may be higher than that.
spk16: Thank you.
spk17: Thank you for the questions.
spk14: One moment for the next question. The next question comes from Delia Bora Lee from RBC Capital Markets. Please go ahead.
spk00: Thank you. Hi, this is Bora. I'm for John Atkin. So I believe William had mentioned GDS expects to enter additional markets. Can you elaborate on how you're thinking about the markets or regions in which you'd like to expand and the timeframe you had in mind? And secondarily, any update on the Singapore development? Thank you.
spk13: I think our strategy is, first of all, I think we see the tremendous growth in Southeast Asia and the whole Asia Pacific, which the market we are very familiar with. I think the first step, we will still focus on the Southeast Asian to gather the, maintain the market leading position, right? So I think this is our first priority. In the meanwhile, we already start to develop the Japan market for a while. And I think we're maybe in the near future, maybe we can announced some progress. So I think the Japan market, Korean market, also very attractive. It's the top market, data center market in the world, and we see the demand. So in general, we follow up the big market. We will also follow up the high growth market in the future. But as I just mentioned, we do have see some opportunity in Europe as well. But this is another future target market. But of course, including Middle East. Singapore, yeah, we target to deliver the launch the data center by the end of the 2026. So that's our time frame, and we made some progress. There's a couple of short lists. We already tried to do the final decision to choose in the site. So I think we will tell the investor once we make the final decision.
spk14: Great. Thank you. Thank you for the question. One moment for the next question. Our next question, we have Sarah Wang from UPS. Please go ahead.
spk19: Thank you for the opportunity. I have two questions. First one is on China business. So what's the trend of MSR or turn rate when you renew contracts with existing customers, say, over the past two quarters, and then how shall we think about the trend going forward? Second question is still on AI. So maybe for both China and international projects, because AI requires higher density racks or even more advanced cooling methodology. So is there any difference between maybe high density power racks in terms of revenue or margin profile compared to maybe cloud demand we have seen previously? Thank you.
spk18: Yeah, I'll answer the first question maybe.
spk13: Yeah, I think in general, I think the current AI, of course, the AI will definitely in the future will be the main driver to drive the data set demand. This is what's happening in the US, what's happening in Europe, and also the Southeast Asia and the Japan market already. But it's just a start. In terms of the difference, I think the AI guys need more big capacity. We historically, when we talk to cloud guys demand, if we use the single deal size, let's say internet always ask for 10 megawatt, 10 megawatt, that's the maximum. And the cloud guys normally ask for, let's say, 30 megawatt, 40 megawatt. But now what we can see that the deal provides a total difference. A lot of our customers, they ask for 100 megawatt or 200 megawatt per campus. So that means they need more power capacity in one site. So this is one difference. The second of all, of course, I think in general, average power density goes very high. So we are well prepared for that. In terms of cooling, I think everybody knows once you get it, if you want to get your product like per rack above 20 kW per rack, it's better to start to use try to start to use the liquid cooling right so the in terms of technology we are very familiar of the liquid cooling because five years ago we start to use the liquid cooling solution for uh in china uh so i think we're well prepared for uh uh catch up the ai demand in the future whatever uh size size uh in terms of size capacity of the size or a power density or cooling technology. We're all good at that.
spk09: So your question about MSI, I always answer this in the same way. MSI can be affected by a number of different factors. It's not just a reflection of change in market pricing. It's also dependent on location and type of data center. Rather than talk about pricing on renewals, I always give some guidance or direction on the trend in MSR. As I mentioned during the prepared remarks, over the past four quarters, that's 4Q22 to 4Q23, the MSR decreased by 5%. Over the next four quarters, that's 4Q23 to 4Q24, we expect the MSR to decrease by 3%. Most of that decrease is due to delivery of the backlog. A smaller part is due to lower pricing on renewals. But if we were to look further forward beyond 2024 to 2025, MSR is bottoming out. which means that as you project further into the future, our revenue growth will be mainly driven by the increase in net additional area utilized with MSR decrease becoming less and then becoming flat.
spk15: Got it. Thank you.
spk14: Thank you for the questions. We have come to the end of the Q&A session. I would like to now turn the call back over to the company for closing remarks.
spk21: Thank you once again for joining us today. If you have further questions, please feel free to contact EDS Investor Relations through the contact information on our website and the Piacente Financial Communications. Bye. See you next time.
spk14: Bye-bye.
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