GDS Holdings Limited ADS 2026 Q2 Earnings Call

Hello, everyone. Welcome to the second quarter 2026 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 investors.gds-services.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 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 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 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 over the call 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. AI is transforming our business. Our sales momentum is the strongest we have ever seen. In the second quarter, we achieved 260 megawatts of new bookings, bringing our total for the first half of 2026 to a record 470 megawatts. During the current quarter, we are well on the way to securing further major business wins with leading customers. We are confidently raising our full-year sales target to 1 gigawatt. All of our sales agreements include a binding take-or-pay commitment. It is a metric which we disclose as bookings. The sales agreements specify the delivery date, which is up to four quarters after bookings. This allows us to invest based on secure commitments. Following the delivery date, there is an agreed ramp-up period, usually another four quarters, which gives us visibility to the timing of new billings.

Alongside new bookings, our customers also request us to reserve deployable capacity at the same site for their future needs. Reservation has become an integral part of our sales agreement. So far this year, we have secured an additional 600 megawatts of reservations from our customers. We expect to end this year with over 1 gigawatt of new reservations. This provides us with high visibility for new orders in the next couple of years as customers convert reservations to binding commitments. China's tech giants and the emerging AI leaders are driving the adoption of advanced agentic models. This has led to a structural upgrade in the demand for computing power and AI infrastructure. GDS is uniquely positioned to address this opportunity as a result of our strategic customer relationships, presence across all key markets in China, track record of execution, and the financing capability.

The strength of our platform is clearly evident in the compositions of our first-half bookings. We won significant new business from each of the three largest hyperscale customers. At the same time, we started to establish relationships with a group of emerging AI leaders, which have the potential to generate incremental demand in the future. Our new business wins are diversified across the markets. For the first half of the year, around half our bookings came from established markets. Apart from new markets, including the Ulanqab and the Horinger in Inner Mongolia and Shaoguan in Guangdong Province. We are progressing well with customers for our Zhongwei campus in Ningxia Province, which is another new market. This sales success validates our differentiation resource strategy. At the midpoint of this year, we had total binding commitments for over 2 gigawatts, plus a further 600 megawatts of reservation.

On the capacity side, we have around 3 gigawatts of developable capacity, which is not yet committed to under reservation. It is mostly in new markets. In view of our current sales momentum, we are actively adding to the deployment pipeline in the markets where demand is growing. While pursuing our ambitious target, we remain selective in terms of customers and the contract terms. We invest against binding long-term commitments from the customers, and we are committed to maintaining financial discipline. I will now pass on to Dan for the financial and operating review.

Thank you, William. I'll start from the backlog buildup on slide 10. We started the current year with a backlog of 450 megawatts. By the middle of the year, our backlog had increased substantially to 757 megawatts. Based on the pricing in the contracts and our operating cost benchmarks, we estimate that we can generate RMB 2.2 million of adjusted EBITDA per megawatt on average from this backlog. Our booked, but not billed adjusted EBITDA was therefore around RMB 1.6 billion. By year-end, assuming we achieve our sales target, we expect the backlog to increase further to over 1 gigawatt. Turning to slide 11. During the first half of 2026, our net move-in was 145 megawatts. During the second half, we forecast move-in of another 90 megawatts, making 235 megawatts for the full year. The move-in pattern over the course of 2026 reflects the timing of bookings last year.

For 2027, we forecast move-in will increase substantially to more than double the number for 2026. The move-in will be heavily weighted to the second half of 2027. Assuming we sustain our sales momentum, 2028 should see another step-up in move-in. Turning to CapEx on slide 12. Our unit CapEx for the new capacity which we are constructing averages around RMB 20 million per megawatt. As we just raised our sales target for the current year, we are also raising our guidance for CapEx paid from RMB 9 billion to RMB 10 billion, most of which is in the second half. Our plan is to continue financing new investments with around 60% debt and 40% equity at the project level. Assuming we can generate a stabilized cash yield on new investments of 10%-11%, this implies leverage of around 5.5 to six times at the project level.

Our primary source of debt is onshore RMB-denominated long-term bank borrowings. The onshore bank market remains highly supportive. During 2Q26 alone, we were able to complete RMB 4.9 billion of new debt financing and refinancing. For the project equity, we have various sources. We have cash of nearly RMB 20 billion on our balance sheet, and we have de-levered down to 4.7 times net debt to last quarter annualized adjusted EBITDA. We have operating cash flow, which continues to strengthen, and we have our onshore asset monetization program, which we are building up in a very deliberate way. Following our successful C-REIT IPO, the first post-IPO asset injection is currently under regulatory review. Turning to slide 16. We are revising upwards our full-year revenue and adjusted EBITDA guidance to reflect a more accurate financial outlook for this year, which includes the one-time items disclosed in 1Q26. Turning to slide 17. In order to put our first half 2026 financial performance and revised full year 2026 guidance into context, we have made some pro forma adjustments.

Starting from reported revenue and reported adjusted EBITDA, we deduct the one-time items in 1Q 2026. For consistency, we also deduct recurring income in prior quarters, which was restructured into the one-time payment. We deduct the revenue and adjusted EBITDA contributed by the monetized assets prior to their deconsolidation. These adjustments establish a clean basis for comparison. For first half of 2026, our pro forma adjusted EBITDA increased by 12.7%. Taking the midpoint of our revised guidance for full year 2026, the implied growth rate for pro forma adjusted EBITDA is 6.5%. We would now like to open the call to questions.