GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's third quarter 2022 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. I will now turn the call over to your host, Ms. Laura Chen, head of investor relations for the company. Please go ahead, Laura.

Hello, everyone. Welcome to the third quarter 2022 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 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 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 perspective as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I'll now turn the call over to GDS founder, chairman, and CEO, William Phuong. Please go ahead, William.

Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. I'm pleased to report another quarter of solid results. We grew revenue by 15% and adjusted EBITDA by 11%, demonstrating that our business is resilient and defensive. In the current uncertain environment, we are managing GDS with the following priorities. In China, we are focused on delivering the backlog, keeping CapEx down to what is essential, and being selective about new business. Outside of China, we are stepping up our international expansion. It has been proven to be a winning strategy with a groundbreaking order secured during the quarter. While we are holding tight in China and waiting for recovery, we have created a second growth engine. At the same time, we are strengthening our financial position by monetizing assets in China and raising private equity for our international business. Overall, we remain very confident of our strategic position. We are on the right path to achieve our goals. While demand in China is slower during the current period, there are still significant new business opportunities. Large internet companies are growing They are building out their own IT platforms and deploying in new locations. They often favor larger sites around the market. If the customer is strategic and their demand matches our resource inventory, we will go after the new business. A good example is the nine megawatt order which we won in the third quarter. from a tech-driven retail platform. It is for our 10G1 data center, which is partly in service and partly under construction. We want another 20 megawatt order from a different customer in the current quarter, which fits the same pattern. Outside of China, we are building up our market presence during the quarter. we received a letter of award from a Chinese internet customer for a 64 megawatt deployment at the Nosa Jaya Tech Park, Johor. This is a clear proof of concept for our Singapore Johor button strategy. It lays a strong foundation for our continued expansion in Southeast Asia. During the first nine months of this year, Our new bookings totaled 61,000 square meters, including 28,000 square meters from international business. We will definitely exceed our 70,000 square meters target for the whole of... The new commitment mix this year is around 60% large internet. 20% financial institutions and 20% cloud customers. The profile of our new business in terms of the markets and the customer segments is very different from even one or two years ago. This shows how we have been able to evolve our strategy to capture growth Our backlog totals 258,000 square meters, out of which 122,000 square meters related to data centers which are already in service. We have reviewed our backlog with customers. Their commitments are solid. The underlying capacity is scarce resource in key locations and the customers will need for their future expansion. Our backlog is mainly spread across 10 cloud and the large internet customers. A couple of them have asked us to lengthen the moving period for two years to three years, which we will agree. On the other hand, We see that some of the large Internet orders, which we have won more recently, have a shorter moving period than the normal two-year schedule. Hence, the moving rates could pick up over the mid-term as the market recovers and these new contracts kick in. We expect to have one turn event from the backlog of around 3,000 square meters, or 1.2% of the total backlog. The customer has agreed to pay a substantial termination fee. We are managing our capacity expansion in sync with moving. As a result, we have brought the utilization rate back up over 70%. Our installed base is very solid. Over the past five years, our trend rate has averaged just over 0.5% per quarter, which is substantially lower than the global benchmarks. Over the next couple of quarters, We will have one customer churning around 17,000 square meters of area utilized. The customer is a large internet company whose scale has increased enormously in the past few years. This has led them to reconfigure their overall IT architecture. I'm pleased to say that around half the churn capacity will come back to us after a few quarters as the customer deploys at other GDS sites. In fact, over time, there's a good chance that the customer's new deployments with us will grow much bigger than the churn. Turning to the slide nine. In the first nine months of this year, we brought 23,000 square meters of capacity into service. In the last quarter of 2022, we bring another 5,000 square meters into service. Compared with our original plan for this year, we have pushed back nearly 59,000 square meters of completions into service. year to FY to 23 and beyond this will help us to materially capex which Dan will explain later over the past 20 years we have built a GDS into the leading deploy developer to developer and operator of high-performance data centers in China and a top five player globally. Our unique platform and multinational cloud and internet companies to seamlessly deploy their IT infrastructure in all of China's tier one markets. In recent years, our home market customers have accelerated their expansion in into high growth markets overseas they are asking for our support an exciting opportunity to expand our platform beyond mainland china pinned by a stronger demand from existing customers to address this With enhanced focus, we have set up a new international holding company as a vehicle for all our assets and operations outside of mainland China. It is headquartered in Singapore, and over the next couple of years, it will have its own dedicated management. We believe that we can rapidly grow GDS International into leading regional and center platform for leveraging our industry business relationships and the scale economics gs international has the potential to become a major value driver for our shareholders two of the world's largest data center markets are on our ball step in Hong Kong and Singapore. It therefore makes sense for us to focus initially on building up our presence in and around these regional hubs. We entered the Hong Kong market many years ago, leveraging third-party data center capacity to serve mainly financial institution customers. In recent years, the demand profile in Hong Kong has changed, with hyperscale driving the majority of growth. New purpose-built data centers are required to fulfill this demand. We initiated our path for self-development in Hong Kong in 2018. We selected West Kowloon as the best location to serve both enterprise and hyperscale customers and acquired our first brownfield site for redevelopment as Hong Kong One. We then sourced three other projects in close proximity to Hong Kong One, creating a virtual campus with multi-year supply pipeline. This is highly beneficial for customers as it enables them to land and expand in the same location and operated with the optimal efficiency. It is a unique proposition in Hong Kong. We have already sold out Hong Kong One to leading China cloud, global cloud, and FSI customers. demonstrating our competitive edge. Singapore ranks in the top five data center markets globally. It was also one of the fastest growing. However, in 2019, the Singapore government temporarily paused new data center approvals due to the pressures on resources and inbox impacted on our review. When we were considering our strategy for Southeast Asia, we felt that that's the biggest opportunity and the right place to start was by adjusting the spillover demand from Singapore. This situation is very familiar to us from our edge of town development in China's tier one markets. We moved early We moved early and decisively to secure land and power for hyperscale development at the diverse sites in close proximity to Singapore. As a result, we are well ahead of other players in executing this Singapore Joe Holt button strategy. On the Johor side, in Malaysia, we locked up a sufficient resource for 280 megawatts of development at the North Algeria Tech Path. We have the landmark 64 megawatt customer wing, which I already spoke about, and a strong sales pipeline. On the Badan side in Indonesia, we locked up the 58 MW for future development. We have already received a sales MOU from a potential anchor customer and expect the order to come in the next couple of quarters. We aim to submit an application for Singapore project approval in the near future. and are also evaluating opportunities in other Asia capital cities to future expand our footprint in the region. Like I mentioned earlier, we have grown GDS into the leading carrier neutral platform in China by building up continuous supply in shareware markets and focusing on strategic customers. This is exactly what we are doing with our international business. With resource secured and some great customer wins, we are on the right track to achieve our vision. We have been through difficult periods in the past. The challenges that we are experiencing now are for the short term, while the data center industry is for the 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 China and outside China. We remain very confident about our future. Now, I will now pass on to Dan for financial and operating review. Thank you.