GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited Second Quarter 2022 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 the second quarter 2022 earnings conference call of GDS Holdings Limited. The company's results were issued to their 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 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 discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. private security 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 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 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 the call over to GDS founder, chairman, and CEO, William. Please go ahead, William.

Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. The world is undergoing a lot of uncertainties and it's very unpredictable right now. For the companies in China, it's an extremely challenging year. especially the tech sector. Our customers are impacted by the economic slowdown, the COVID lockdown, and the supply chain shortage. This is reflected in their weaker than normal business performance and the results. However, GDS business is resilient and defensive. Despite the challenges, we are still delivering solid results, growing revenue by 24% and adjusted EBITDA by 18% in the second quarter. At the same time, we continue to make significant progress in the execution of our growth strategy by further developing our customer franchise, as demand diversifies across the cloud, internet, and enterprise verticals. Setting up our international expansion and establishing a new data center fund as the channel to access private capital. We have strengthened our position in absolute and relative terms for future recovery and the value equation. Even in a softer demand environment, there are still significant new business opportunities. As a result of our customer targeting and market presence, we are well-placed to compete. In the second quarter, we won three new high-scale orders. The first came from a global cloud customer who we are already serving in mainland China. But this latest order was for our Hong Kong One data center. As a result of this deal, we now have the largest global cloud and the largest China cloud as our anchor customers in Hong Kong One. which is quite an achievement. The second was from a China cloud customer for capacity at a location near Beijing where they already have significant presence. This is a typical land and expand order. The third was from a major Chinese bank for capacity in Shanghai. Continuing the trend which we highlighted for the last few quarters, financial institutions and the large enterprises once again accounted for around 40% of new bookings in 2022. During the first half of this year, our new bookings were 31,000 square meters. For the full year, we are confident of achieving 70,000 square meters of net additional area committed. We may be able to do more, but it depends on view timing. This is a transitional year. Going forward, we still target 80,000 square meters to 90,000 square meters of annual new bookings. Within this number, we expect a change in the mixed width, perhaps 15 to 20% coming from our regional business. GDS business is focused on chairman market, which was affected by lockdowns. Nonetheless, we still achieved over 13,000 square meters of net additional area utilized in the second quarter. Based on feedback from our customers, we expect moving to continue at a similar level for the next few quarters. However, in the middle term, we believe that moving will return to historic levels. We have a large backlog totaling 240,000 square meters, which in the piece, our multi-year growth. Our backlog is solid. Our data centers are concentrated in tier one market where future supply is limited. Customers have secured this resource because it is very strategic for them. We will continue to deliver the backlog It is just a matter of time. To adjust to the current slower environment, we have scaled down our capacity delivery schedule. In the first half of 2022, we brought 16,500 square meters of capacity into service. In the second half, we plan to bring another 31,000 square meters into service. As compared with our original plan for FY22, we have pushed back nearly 39,000 square meters of completions into next year and beyond. Our whole market customers are putting increased emphasis on international expansion. particularly in Southeast Asia. We are also putting a lot of time and effort into scaling up and accelerating our regionalization strategy. In Hong Kong, we have accomplished the difficult task of establishing a five-year pipeline of purpose-built data center capacity, clustered in a prime location. Our first data center, Hong Kong 1, will come into service in the next few months. It is almost sold out with Chinese and global customers. We are now working on anchored customer orders for Hong Kong 2. In Southeast Asia, we have secured a high-scale capacity at campuses in Johor, Malaysia, and Batam, Indonesia. All of our campuses are now under construction. The sales pipeline for this capacity is even stronger than what we expected. The customer profile is varied across verticals, and it included both Chinese and global names. There are a few deals which we are confident of winning this year, which will demonstrate strong proof of concept. With demand from Chinese and global customers, Southeast Asia is one of the fastest growing data center market in the world. We believe that our regional business, including Hong Kong, will become a second growth engine for GDS, alongside mainland China. As part of today's earnings release, we announced the formation of an RMB 6.7 billion equivalent to US dollar 1 billion mainland China data center fund. It is important for us to have access to capital from a variety of sources, public and private, onshore and offshore. This data center fund will significantly enhance our financing strategy and benefit all of our shareholders. To finish up, we have been through difficult times and cycles in the past. The challenges that we are experiencing now are for short-term, while data center industry is for long-term. During this time of uncertainty, we continue to build up our position by expanding our customer base and enhancing our market presence both in and outside China. We believe we will be well prepared both in terms of business operations and the financial capabilities when the recovery happens. We remain very confident about our future. I will now pass on to Dan for financial and operating reviews, as well as to explain in more detail about the fund.