GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's first quarter 2024 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, operator.

Hello, everyone. Welcome to the first quarter 2024 earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire Services earlier today and 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, CEO of GDS International, 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 certainties is included in a company's prospectus as filed with the U.S. SEC. And 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 release, 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'll now turn the call over to GDS founder, chairman, and CEO, William Huang. Please go ahead, William.

Hello, everyone. This is William. Thank you for joining us on today's call. The top priority of GDS senior management team is to create value for our shareholders and drive share price recovery. Our business now has two distinct segments, China and international. For China, we believe that the key to creating shareholder value is, first, to get back onto a higher growth track in terms of EBITDA. Second, to generate a positive free cash flow before financing and reduce debt. And third, to position strategically for the coming AI wave. For international, the Series A capital raising sets a benchmark of nearly $4 per GDS share. We believe that this value will appreciate significantly as we build on our initial success. Now let's review our progress towards these goals in more detail, starting with China on slide five. The key to restoring higher growth in China is the moving rate. Over the past couple of years, we focused our sales efforts on opportunities with faster moving schedules and reasonable pricing. Even though the market as a whole slowed down, we've made good progress with winning this kind of business. The results of our efforts are now starting to become visible in our gross additional area utilized. In 1Q24, the gross moving for China was 17,000 square meters, all of which was in Tier 1 markets. It's the highest since 2020. Going forward, Based on contractual commitments in the backlog, we expect growth moving to continue at these higher levels. From the beginning of 1Q24, we started recognizing revenue and deducted 12,000 square meters from area utilized for three BOT data centers. which we plan to transfer to the customer on an accelerated basis. During 1Q24, this was around 60,000 square meters of customer churn, most of which we immediately replaced with new customer commitments in our 1Q24 bookings. Over the next couple of quarters, we expect the impact of these one-time factors to diminish. As a result, net additional area utilized in China will set up in line with the improved growth moving. How do we achieve steady EBITDA growth while at the same time generating positive free cash flow before finance? The key is increased utilization of existing assets and to only incur additional capex when needed to deliver capacity to customers with confirmed moving schedules. In 1Q24, we brought 14,000 square meters of new capacity into service in China. at three data centers in Shanghai, Changshu, and Langfang. The commitment rate for these three data centers is 100%. By the end of quarter, the utilization rate was already over 40%. This is the pattern which we are aiming for. In the past couple of years, we put the brakes on our development program in China, completing around 30,000 square meters of projects per annum in 2022 and 2023. In the current year, we expect higher level of completions at around 60,000 square meters due to the higher level of customer moving. However, to deliver this capacity, we only need to incur the cost to compete, which works out at around RMB 2.5 billion, or less than U.S. dollars, three megawatts.