GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After management's 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.

Thank you. Hello, everyone. Welcome to 1Q20 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, CEO, 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 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 a company's prospectus as filed with the US SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited 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. I will now turn the call over to GDS founder, chairman, and CEO, Mr. William Huang. Please go ahead, William.

Thank you, Laura. Hello, everyone. This is William. I'm here in Hong Kong with Dan and Jamie, who is celebrating his first day of release from government quarantine. Thank you for joining us on today's call. I'm pleased to report that our performance in the first quarter of this year was highly resilient. Despite the challenging operating environment, We grew at just EBITDA by almost 50% year-over-year and achieved our highest ever margin at just over 46%. Sales momentum was strong coming into the pandemic and is even stronger now. In 1Q20, we achieved a record level of organic sales. with over 22,000 square meters or 46 megawatts of net air. In order to keep pace with sales, we scaled up our development program. We ended the quarter with over 110,000 square meters or 260 megawatts of capacity under construction. which was nearly 70% pre-committed. We also added over 100,000 square meters of developable capacity to our pipeline. Last but not least, we maintained our record of double zero with zero infections and zero service incidents. We have been through a lot of turbulence since our IPO. Trade wars, pandemics, short attacks, even all three at the same time. But our business has not been impacted. We have kept our focus and demonstrated our execution capability. The outlook for our industry is better than ever. Cloud is our main growth driver. Cloud aggregates demand from all types of customers and all types of new technology. You may have seen reports that Alibaba plans to spend another RMB 200 billion or nearly US dollars 30 billion. on infrastructure in the next few years. Other cloud service providers are also reporting accelerated adoption. Cloud in China is forecasted to grow at over 30% CAGR for the next five years. We estimated that this would require at least three times expansion of cloud data center capacity. The expansion will be balanced between tier one market and the low tier markets. This is the opportunity which we are talking to our customers about. Their procurement is consistent. They have a high visibility in their business, and they are planning multiple years ahead. As cloud service providers grow, They set up new availability rooms, each of which is centered around an on-ramp. We focus on hosting these on-ramps when they roll out and then hosting the expansion capacity in the same location. The on-ramps also enable us to drive enterprise business. Increasingly, enterprises recognize the multi-cloud ecosystem as a key advantage. We have had a lot of success with this strategy. As a result, we are well positioned for follow-up orders. To illustrate this point, Our number one customer is now present in half of our data centers and our number two customer is now present in one third. This is what we mean when we say that we are the home of the cloud in China. In 1Q20, we obtained three orders of over 10 megawatt each. The first time this has happened, We have many more prospects like this in our sales pipeline. At the beginning of the year, we set ourselves a sales target of 80,000 square meters of organic nest eggs, a step up from what we did last year. 2Q20 is going well. By the middle of this year, I'm confident that we will be more than halfway towards our target. Turning to slide six, our data center development plan is entirely demand driven. We can see the evidence in our consistently high pre-commitment rate. It starts with joint resource planning with our customers. they share with us their specific requirements. We then go out to secure the right kind of land, buildings, and power. Our objective is to keep our customers fulfilled on a continuous basis, both in tier one markets and the lower tier markets. In order to do this, We have evolved our resource strategy in a number of different ways. This is illustrated on slide seven. First, we have increased our ownership of property, and this gives us more options, more flexibility, and more certainty. Across our whole portfolio, We are on track for a ratio of 60% owned versus 40% leased. Secondly, we have significantly increased the amount of capacity which are holding for future development. This is very strategic because it gives us the flexibility to respond to a higher level of demand. Our security pipeline is enough to double our total capacity. And certainly, we have expanded our market presence, in particular with our innovative asset-light approach to build-to-suit projects in lower-tier markets. This expands our adjustable market, enhances our returns, and deepens our strategic customer relationships. It is still early days, but we see high volume growth potential with this product. Turning to slide nine. In 1Q20, we closed the acquisition of a site in the Pujian district of Shanghai. It is a good example of how we are solving the problem of resource supply. The site can support over 70,000 square meters. Next floor area, we have fully developed it. Such a large amount of capacity on a single site within a tier one market is unique. It is very advantageous. for high-scale customers as it enables them to land and expand in the same location. In the current quarter, we have begun the conversion of two existing buildings, which accounts for around 30% of the development. There is a lot of customer demand for this project. A couple of years ago, we started working with a strategic customer for beauty suits data centers at one of their remote campus. As of today, we have completed six beauty suit projects for them. Four of these projects are consolidated. There's a photo on slide 10. The remaining two are held pending sales to our joint venture partner, GIC, in the very near future. There's a photo on slide 11. We have been pitching to other customers, and just recently, we were selected by a second major customer for their remote projects. We hope to partner with GIC again using the active life model. Our customers need to expand in low tier markets in sync with their expansion in tier one markets. We are uniquely well positioned to address both opportunities. With that, I will hand over to Dan for the financial and operating review.