GDS Holdings Limited

Ladies and gentlemen, thank you for standing by for GDS Holdings Limited's first quarter 2026 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.

Hello, everyone. Welcome to the first quarter of 2026 earnings conference call of GDS Holdings Limited. The company's results were issued via GDS 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 RIO 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. 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 Divigation 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 risk uncertainties 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 earlier this press release And this conference call can include discussions of unaudited debt financial information as well as unaudited non-debt financial measures. GDS press release contains a reconciliation of the unaudited non-debt measures to the unaudited most directly comparable debt measures. I'll now turn the call over to GDS founder, chairman, and CEO, Mr. William Huang. Please go ahead, William.

Hello, everyone. This is William. Thank you for joining us on today's call. Over the past few quarters, we have seen a resurgence in data center demand, driven by AI. We believe this is the beginning of a multi-year growth story, supported by increasing availability of domestic chips. Customers are planning their future deployments at unprecedented data scale with a high degree of conviction. As market leaders, GDS is well prepared to address these opportunities to the fullest extent. We have the trust of all the key customers, a multi-gigawatt development pipeline in strategic locations, and a very strong balance sheet. Up to the end of 1Q26, our total bookings stood at 1.8 gigawatts. In our three-year business plan, we target adding 500 megawatts to 800 megawatts of new bookings every year with the potential to do more. To deliver this capacity, We are prepared to commit RMB 30 billion to RMB 50 billion of new investment over the next three years. The economics of the data center business in China is solid, and this new investment will create significant value for our shareholders. On the last earning call, we announced a sales target for 2026 of at least 500 megawatts. In the year today, we have already done over 340 megawatts of new bookings, and we are still being selective. We are well on track to reach or exceed our full-year target. We have won significant new orders from all of our largest customers for deployments across the whole of our platform, including the new markets. For the hyperscale business, customers are planning gigawatt-scale deployments in single clusters. When they sign new sales agreements with us, they commit to a certain amount of capacity, which we disclose as bookings, and ask us to reserve the rest of the site for their subsequent phases. In a year today, total new bookings plus reservations comes to over one gigawatt. The reservation give us near certainty of winning follow-on orders within the next one or two years. In order to fulfill our customer requirements, we expanded our platform to new locations which can accommodate the largest AI deployments. These new locations integrated well with our platform in established market, enabling us to serve diversified customer requirements. Anticipating the demand trend, we increased our secured land bank to nearly 4 gigawatts. Typically, we are purchasing land from the government exclusively for our data center development. As we obtain customer commitment, we will be granted a power quota for this site. We synchronized the timing of construction with new bookings and fixed moving schedules. Over the past 15 months, we initiated over 1,000 square meters or 400 megawatts of new construction, which is almost entirely pre-committed. Our backlog has increased to over 200,000 square meters or almost 600 megawatts, most of which will become billable within the next six to eight quarters. As this occurs, our growth will start to accelerate. AI in China is a transformational opportunity. We are super motivated to support this development and will commit all the resource requirements to the expansion of our AI infrastructure platform. I will now pass on to Dan for the financial and operating review.

Thank you, William. For our new business, the unit development cost averages around 20,000 RMB per kilowatt. or $3 million per megawatt, depending on specification, cooling technology, and location. Pricing for new business is stable. And at current levels, we're able to generate an adjusted gross profit yield of 10% to 11% for stabilized assets. As shown on slide 13, across the whole of our in-service portfolio, the adjusted gross profit yield is currently around 11%. We calculate this ratio based on adjusted gross profit, which includes the cash cost of operating assets, divided by gross PP&E, which includes replacement capex already incurred, and for conservatism, we added back historic impairment charges. The portfolio yield has been stable at around 11 percent for the past few years, based on a portfolio with utilization rate of around 75 percent. As our new bookings are delivered, we expect the portfolio yield to remain in the 10 to 11 percent range, which in our view is a reasonable return. Assuming a six-year investment cycle of development, ramp-up, stabilized operations, and then asset monetization, we expect to generate a return on equity of around 20% from the incremental investment. This underpins our confidence in growing the business. As shown on slide 13, during the first quarter, net additional area utilized was around 16,000 square meters. During the current quarter, this metric will be slightly lower, and then in the second half of the year, it will rebound to around 20,000 square meters per quarter. During the second half of next year, as we start to see the flow through from this year's higher level of new bookings, the move-in rate will step up noticeably. MSR on slide 16 is a useful metric for financial forecasting purposes that must be seen together with unit development cost. This is why we think it's more relevant to look at the gross profit yield or cash-on-cash yield as a measure of the economics of our business. Turning to slide 18, during the first quarter, we recorded 7.9% growth in revenue and 8% growth in adjusted EBITDA after excluding one-time items which arose in the normal course of business. We find it useful to look at our growth rates on a pro forma basis, adding back the deconsolidated revenue and adjusted EBITDA of the assets which we monetized in March and July of 2025. This shows pro forma revenue and adjusted EBITDA growing at 12% to 13% after excluding one-time items. Turning to slides 19 and 20, in 1Q26, our organic capex was 770 million RMB. In addition, we received cash proceeds of 2.7 billion RMB, or 385 million US dollars, from the sale of a small part of our equity interest in day one, which is recorded in investing cash flow. We also received cash proceeds of 2.1 billion RMB, or 300 million US dollars, from the issue of convertible preferred shares, which is recorded in financing cash flow. As a result of the capital recycling and new issue, we are now sitting on over 19 billion RMB or 2.7 billion US dollars of cash and time deposits. This is an ideal situation to be in as we prepare for a new growth phase. Turning to slide 23, our net debt for last quarter annualized adjusted EBITDA has decreased from 6.8 times at the end of 2024 to 4.7 times at the end of the first quarter of 2026. As we step up our investment, this ratio will increase to between five to six times, which we consider an acceptable level. Finishing on slide 25, we maintain our four-year guidance unchanged. Now we'd like to open the call to questions. Operator?

Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. For the benefit of all participants on today's call, please limit yourself just to one question. If you have more questions, please re-enter the queue. Thank you so much. And now we're going to take our first question. And it comes from Yang Liu from Morgan Stanley. Your line is open. Please ask your question.

Thanks for the opportunity to ask a question. I would like to hear your comment on the pricing for the data center business. I think Dan previously mentioned that overall pricing environment is stable. But could you please break it down to different markets or locations? Because from time to time we hear that in certain markets it's a little bit under supply, and also in certain markets there are some relative aggressive bidding from telcos, et cetera. Could you please comment on the pricing in different markets, please? Thank you.

I think in the last earnings call, we already see the new incremental demand, which is driven by the AI, right? The larger scale data center demand. In general, I mean, the price is pretty stable, number one. Number two, I think, of course, in the whole market, you cannot stop some bidder, right? use some price price tools try to win there but it's it's not normal right it's not normal and it's uh uh it maybe it's a in my view it's a in some region some uh uh deal it's a one time it's a it's not a represented a whole market situation our field our field is that is that it's a remain remain uh uh uh what we experience last quarter. It's quite stable.

Thank you.

Thank you.

Now we're going to take our next question. And the question comes from Gokul Hariharan from JP Morgan. Your line is open. Please ask your question.

Hi. My question is basically on the development cost. Dan, I think you mentioned roughly 20 million RMB or $3 million per kilowatt, if I remember right. That number sounds a lot lower than what it used to be a few years back when you updated those numbers, I think. Could you talk a little bit about what is the what are the variables that have changed? Is it mostly the location that has really changed? Or are there any other factors that have really changed to kind of reduce that development cost over the last maybe, I think, two to three years?

I would say that the unit development cost on a like-for-like basis, whether we're talking in established markets or new markets, has decreased by about 15% over the past three years. That would be the case with the MEP, the mechanical electrical plant, which accounts for about 70% of the total development cost. I'd also say that the land, concrete, steel, and construction cost has been quite stable. measure it on a per-square-meter basis, the unit cost is relatively flat. But the power density has increased. So if we were to measure that part on a per-kilowatt basis, it might appear to have come down as well. So that's why I think overall, on a per-kilowatt basis, the decrease is about 15% over three years.

Yeah, I try to add a couple of things. I mean, number one, the scale is unprecedented. right so scale also uh uh uh make the cost a bit lower right that's that's fair nature i mean this is number one even for the vendor perspective scale that's larger scale give a lot of the manufacturing uh product company a lot a lot of benefits right so they're willing to uh uh uh uh reduce the cost or reduce price this is the number one and number two i think there's another A lot of the AI data centers, this is compared with the previous cloud. The architecture-wise also changed a lot. So this is another reason to drive the cost. So that's two more reasons.

OK, thank you.

Thank you. Now we're going to take our next question. And the question comes from Sarah Wang from UBS. Your line is open. Please ask your question.

thank you for the opportunity opportunity to ask a question so i have one question regarding uh first quarter capex so since the first quarter capex is um 770 million rmb so it seems a little bit modest given the strong orders we find here today and especially given the majority of the new orders should be new views so may i ask what's the reason behind this gap thank you

Sarah, I would point you to our full-year CAPEX guidance, which remains unchanged. The timing of incurring CAPEX per quarter is not that significant. The first quarter is Chinese New Year, and it tends to be historically slightly below the level of the other three quarters. I can't really have no other more fundamental explanation than that.

Gotcha. Thank you.

Thank you. Now we're going to take our next question. And the question comes from Frank Lawson from Raymond James and Associates. Your line is open. Please ask your question.

Great, thank you. Of the roughly 3 billion RMB that you discussed in capital you're spending, how much of that will you be funding yourself versus maybe with some JV investors or with capital recycling from some of your other assets? Thanks.

Frank Stone, let me just go over these numbers again and make sure everyone is So William was talking about having a sales plan of 500 megawatts to 800 megawatts over the next three years. That's our current view. And if you apply the logic of what I said, 20,000 RMB per kilowatt or 3 million US dollars per megawatt, that's how you end up with total capex over three years of between 30 to 50 billion RMB. So if we take the midpoint of that, say 40 billion RMB, historically we have financed our investment quite conservatively with around 60% project debt to total development cost. So we would be able to obtain and draw down on about 60% of 40 billion, which is 24 billion R&B of new debt. So that would leave 14 billion R&B, which is less than $2 billion that we have to finance. But we have several different sources for that. We have our operating cash flow, which last year was nearly 3 billion R&B. We have our ongoing asset monetization program, which we're trying to build up step by step. And we also have $2.7 billion of cash on our balance sheet. I think we are in a strong position to finance that level of investment, and other options may arise, as you point out, development partnerships and so on.

Great. Thank you very much.

Thank you. Now we're going to take the next question.

the next question comes from the land of ali zhang from maguire your line is open please ask your question great uh thank you man for taking my question uh i just wanted to get a sense on the new bookings uh trajectory uh the year today 340 megawatts new booking seems to be very encouraging considering the current token consumption and how you know ai agents are are significantly boosting that compute demand, how would you kind of evaluate that upside surprises on the current scale?

Thank you. Potential for upside.

Yeah, number one, I think we are 500 megawatt. We are very confident for this number with new booking. Definitely, that's the base case. We are looking at a more high number booking. But it's too early to say what kind of level we can reach. Because we remain very disciplined to select an order in terms of the moving price and customer types. So in general, I think we are very confident we can do more. But even though we still want to do high-quality orders,

Got it. And if I may, just a quick follow-up, would it be possible for you guys to consider kind of doing some of the NeoCloud business models as well? Because it does seem like some of the peers are trying to accumulate more resources on the compute side. So that was being perceived as approach to boost the MSR or revenue in general. Is that something that we're considering as well?

Yeah, I think NeoCloud actually is not something new in China already. Historically, there are a lot of big platform GPU service providers, customers already, right? We already serve them indirectly, right? So this is number one. But number two, I think we are, from a long-term perspective, we also start to build some relationship with them. So far, we haven't done any business with them, and we will see, because in terms of maybe we can As I said, we will maintain our very discipline in terms of the financial return and the risk, everything, right? So if some new cloud, high-quality new cloud, we're willing to do something with them, start to build some relationship.

Got it. Thank you very much.

Thank you. Now we're going to take our next question. And the question comes to the line of Timothy Xiao from Goldman Sachs. Your line is open. Please ask your question.

Great. Thank you, Madeline, for taking my question. My question is regarding the moving pace of the growth additional area utilized. Just wondering, after the first quarter, can you share your latest outlook for the rest of this year in terms of the moving pace and what are the key moving factors that may affect the usage rate ramp-up? Thank you.

Timothy, I couldn't hear you clearly, but I'm told you're asking about the moving pace. I did address that in the prepared remarks. As you know, it was 16,000 square meters in the first quarter. It will be a lower number in the second quarter, and then it will rebound I'd say to around 20,000 square meters in the third quarter of this year and the fourth quarter of this year. And next year, we will see a significant step up, but it will be in the second half of 2027, in the third and fourth quarter of 2027. But if we look at 2026 and 2027 as a whole, I think the move-in this year will be somewhat over 70,000 square meters. And then next year's number is going to be very substantially larger than that, maybe double something of that order of magnitude.

Sure, and can I ask a follow-up, if I may? Just wondering, I think the assumptions, I think one of the key factors, so how much of that is contributed by the chip versus the imported chips?

I'm just wondering if you can share more about that. Imported chips and weather chips will affect your moving.

OK, OK.

Oh, yeah, I think I'm not sure it's your question. I mean, input chips will affect our movie, right? Is there a question?

Yeah.

Oh, yeah. Yes. Okay. Okay. This year's forecast and not based on their any input chips. So all based on the domestic chips. supply chain. So it will now impact our current estimation. So is the impact coming? Maybe. Maybe some upside. Who knows?

Okay. Got it. Thank you.

Thank you. Now we're going to take our next question. And the question comes line of Daily Lee from Bank of America Securities. Your line is open. Please ask your question.

Hi, thanks for taking my question. My question is about our land and power resources. We have secured quite strong resources in 1Q, and are we planning to expand our resources in the following quarters? And if we have the plan in future, and what kinds of area we would focus on? Thank you.

I think that last quarter we already answered the question. We will continue to develop a new market and establish a market as well because in China what happened is the training and the inference demands are all happening at the same time. So I think we are That we tried because everybody know GDS is a platform player, not just a project player. Right. So we try to build, uh, try to fulfill all the kind of the, uh, uh, AI demand, whatever it is, uh, uh, training or in the future, or, uh, uh, uh, uh, let's say inference. So we try to catch up the well positioned to catch up a different, uh, uh, uh, pace of the, uh, uh, AI demand.

Thank you, William.

Thank you. Due to time limit of today's call, I would like now to turn the call back over to the company for any closing remarks.

Thank you once again for joining us today and see you next time.

Bye.

Thank you.

This concludes today's conference call. You may now disconnect your line. Thank you.