GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited First Quarter's 2023 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 would 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 first quarter 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 will refer to during this earnings call, can be reviewed 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 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 except as required under applicable law. Please also note that GDS earnings press release and its conference call include discussions of unaudited gap measure 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 debt measures. I will now turn the call over to GDS founder, chairman, and CEO, William Huang. Please go ahead, William.

Okay, thank you. Hello, everyone. This is William. Thank you for joining us on today's call. Before I review the 1Q23 results, I would like to take a few minutes to highlight our strategic priorities for the next few years. What are we focused on? What are we trying to achieve? These priorities will be benchmark for tracking our ongoing performance. The roots of our business are in mainland China, but in the past couple of years, we began to expand overseas. The two regions in which we now operate, mainland China and international, are at different stages of development. Therefore, we have set different priorities for each region in order to achieve the best outcome for our shareholders. In mainland China, we have grown our business over 20 years through several distinct phases to become the leading carrier neutral data center platform. In the most recent phase of growth, as demand from cloud and the internet took off, Our priority was to win new business. We achieved an unprecedented level of new bookings, established the strategic relationships with all the leading customers, and increased our market share. Our resource strategy was a key success factor We invested heavily in building up our asset base in all tier one markets in order to fulfill our customer requirements. Five years ago, we had 20 data centers. Today, we have over 100. We believe it's the largest development program undertaken by any data center company globally. In addition to the existing asset base, We secured the land and energy quota to maintain continuous supply and grow for many years to come. Now the market in mainland China is going through a period of adjustment. We are in a new phase and we have reset our priorities accordingly. Our number one priority now is to deliver this IMB 6 billion backlog. which is a result of our past sales success. It is sufficient to drive our revenue growth by over 60% over the next few years. Number two, as we have already won many years of future business, we will be highly selective in pursuing new orders. We will target opportunities which are strategic, a good fit to our available capacity, a fast-moving schedule, and adapted financial returns. Number three, we will prioritize increasing utilization of existing assets. We have a large asset base, both in service and under construction. which is committed by customers but not yet utilized. As a result, we can deliver the entire backlog with a relatively small amount of incremental capex. This enables us to achieve our growth targets while reducing annual capex to RMB 2 billion to 3 billion RMB. I'm going forward. Number four, we will only initiate new projects if there is committed demand with confirmed moving schedule. We expect most of our new projects will be expansion phases of existing sites. Number five, building our success with passive wave of cloud and internet demand. We will position our products and technology to capture the coming wave of AI applications. For international, our priorities are winning new business and the building market presents. Number one, we aim to develop our international business into a second growth engine, which creates significant additional value for GDS shareholders. Number two, we will anchor and de-risk our projects with orders from our whole market customers as they expand overseas. Number three, we will also win significant business from top global customers. many of which establish the relationships in China. Number four, we will take advantage of our low unit development costs, which comes from our scale product and the supply chain in China. Number five, we will build a standalone business in our international holding company, headquartered in Singapore. while maximizing synergies with GDS Mainland China. In 1Q23, our gross new bookings was around 12,000 square meters, split evenly between Mainland China and international. Market demand in Mainland China over the past few quarters has been a bit soft. This is mainly because large customers who committed to a scalable capacity will need more time to absorb their inventory. In this environment, as I just explained, we are targeting high quality business which meets our criteria. A good example is the 4,600 meter or nine megawatt order which we won for Shanghai 18. The customer is a major Chinese financial institution. The pricing is reasonable and the underlying asset is an expansion place of our existing Pujian campus. On the international side, We won 6,400 square meters or 26 megawatts expansion order from the anchor customer for our campus in Nosa Jaya Tech Park, Johor. You may recall that we are already building three data centers on Site 1 with total IT power capacity of 64 megawatts, which is fully committed by this customer. We started to construction less than one year ago on Greenfield land. We are using our preferred design and the product shifted directly from China. We are incorporating liquid cooling for part of the capacity as required by the customer. Despite the fact that this is our first project in Southeast Asia, We will deliver the first fully powered data center on this site in early 3Q23. We estimate that our unit development cost is 20% lower than the local market. The ability to construct so quickly and as such a low cost give us comparing competitive advantages as we expand in the region. Our growth moving for the first quarter was around 13,000 square meters, which is consistent with the level of the past few quarters. Our customers are sounding more positive about their business outlook. With new business initiatives and the strategic development As their business picks up, it will flow through to us one or two quarters later in terms of faster moving. To adjust to the current environment, we have slowed down our capacity expansion. In 1Q23, we brought 2,700 square meters of new capacity into service. Over the rest of the year, we plan to bring a further 57,000 square meters into service, split between mainland China and international. All of this capacity has solid customer commitments and confirmed moving schedules. As a result of our efforts to adjust the pace of development, our utilization rate has gone up from 67% to 72% over the past year. At the same time, our backlog for area in services has come down from 136,000 square meters to 110,000 square meters. Our Mainline China business is going through a three-year journey to achieve our goals. We are making progress quarter by quarter we have already done the difficult part which is to win high quality new business and secure scarce resource now it's all about execution please stay a little patient and watch us deliver our international business is at a different story there is a great market opportunities on our doorstep and we know how to win. I'm excited about the prospects for us to create second GDS. Before I hand over to Dan, I would like to make a few comments about my personal position. After we published the AGM notice a couple of weeks ago, I acknowledge that investors have a number of concerns. GDS was born out of my vision more than 20 years ago. I have built an exceptional team which has been a major success fact. For me, leading GDS is about much more than just financial gains. It is driven by a passion. to create something extraordinary. This dedication remains unwavering and I assure you that nothing has changed in this regard. I want to take this opportunity to address these concerns and emphasize my commitment to our company. I intend to purchase approximately 1 million ADRs and the possible more. Over the next 12 months, if I am able to do so. In addition, if the AGM proposal is passed, I commit to sustaining my ownership percentage above the new structure. I firmly believe that our current share price does not reflect the true value of our company. I have complete confidence in our ability to enhance our business performance and achieve sustainable growth, thus create significant value for our shareholders. Now I will pass on to Dan for financial and operating review.