GDS Holdings Limited ($GDS)

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] 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. Hello, everyone. Welcome to the Fourth Quarter and Full Year 2025 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'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdservices.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 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 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 Huang. Please go ahead, William.

Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. 2025 was a great year for GDS in terms of performance. We recorded 11% growth in both revenue and adjusted EBITDA. We beat the top end of our adjusted EBITDA guidance. And with the contribution from asset monetization, we were free cash flow positive. AI in China has really taken off. Increasing availability of domestic high-performance chips is a key enabler. All our major customers are investing in hyperscale computing infrastructure to support AI adoption. As a result, we are seeing robust recovery in data center demand across both new markets and established markets. It is an exciting time to be a data center company again. To address this opportunity, we are building up our resources and funding. On the resource side, we are working on a 3-gigawatt pipeline comprising big clusters in new growth market. This will complement the 700 megawatts of powered land, which we are holding for future development in low latency established markets. On the funding side, we have increased our cash reserves to over USD 2.8 billion, including proceeds from the recent sell-down of our stake in DayOne and the CPS new issue. Furthermore, our success last year in opening up channels for asset monetization gives us a competitive advantage in accessing equity onshore. During 4Q '25, our gross additional area utilization utilized was around 23,000 square meters. For the full year, gross move-in was over 86,000 square meters, our highest ever level. Our move-in target for 2026 is similar to last year. However, as our bookings step up over the current year, it will lead to higher move-in 1 year forward. During 4Q '25, our gross additional area committed was over 21,000 square meters. For the full year, our new bookings was over 96,000 square meters or over 300 megawatts, 3x the level of the past 3 years. In 2026, we are aiming over 500 megawatts of gross new bookings, another big step-up from the last year. We expect 60% to 70% of new business to come from AI. So far this year, we have already secured 200 megawatts of new orders plus over 500 megawatts of MOUs, which are a strong indicator of future commitments. This 700 megawatts of total demand comes mainly from 3 of our largest customers. It's a great start towards our full year sales target. Now the domestic chip supply is more certain. We are moving fast to secure multi-gigawatts of additional powered land in new markets, which can support big cluster deployments. We are focusing on the 3 locations: Horinger in Inner Mongolia, Zhongwei in Ningxia province and Shaoguan in Guangdong province. We have already won over 400 megawatts of new orders and MOUs for these locations. These new growth markets, all of which are official national hubs integrate well with our existing platform, enabling us to serve the different needs of our diversified customer base. We are very excited about the opportunities in front of us and look forward to growth in sync with China's AI development. I will now pass on to Dan for the financial and operating review.

Thank you, William. Starting on Slide 17. In FY '25, revenue and adjusted EBITDA increased by 10.8% year-on-year. During the year, we completed 2 asset monetization transactions, an ABS in 1Q '25 and the C-REIT IPO in 3Q '25, following which we deconsolidated the underlying data center project companies. If we add back the deconsolidated revenue and EBITDA, the pro forma growth rates were 13.2% for revenue and 14.2% for adjusted EBITDA. Turning to Slide 20. Our MSR per square meter has been declining due to a combination of lower market selling price and change in location mix to include more edge of town sites and going forward, new growth markets. Comparing 4Q '25 with 4Q '24, the decrease was 2.4%. At the same time, we have also seen a comparable decrease in unit development costs. As a result, the overall yield on our portfolio as measured by adjusted gross profit divided by gross PP&E, excluding construction in progress, has remained steady at around 11%. Looking forward, we expect further MSR reduction of 3% to 4% by the end of 2026 due to the same combination of factors. However, the yield on our new investments in both established and new markets continues to be in the 10% to 11% range. Turning to Slide 23. In 2025, our organic CapEx was RMB 4.7 billion, in line with our guidance. Net of the cash proceeds from asset monetization of RMB 2.3 billion, our CapEx was around RMB 2.4 billion. As shown on Slide 24, our operating cash flow for the full year was around RMB 3.4 billion. The significant improvement year-on-year was helped by a reduction in AR days from 109 in 4Q '24 to 82 days in 4Q '25 as a result of our tight control of collections. After taking into account asset monetization proceeds, we achieved positive cash flow prefinancing of RMB 1 billion. In 2026, we are guiding for organic CapEx of around RMB 9 billion, which corresponds to our 500-megawatt plus sales target. This year's CapEx will contribute to next year's growth. We have started work on a follow-on asset injection into our C-REIT. We have selected an asset which is larger than the seed asset for the IPO. We aim to complete the asset injection in the second half of 2026, if possible. However, we have not included any assumed proceeds in our CapEx guidance. Turning to Slide 25. During the first quarter of 2026, we raised $385 million through the partial sell-down of our stake in DayOne. After the sell-down, our remaining stake is worth $2.2 billion or $11 per GDS ADS benchmarked to DayOne's Series C new issue price. We also issued $300 million of convertible preferred shares to Huatai Capital Investment. As a result, we are now sitting on nearly RMB 20 billion or $2.8 billion of cash. This is an ideal situation to be in as we prepare for a new growth phase. Turning to Slide 26 and 27. Our net debt to last quarter annualized adjusted EBITDA decreased from 6.8x at the end of 2024 to 5.8x at the end of 2025. The decrease is mainly due to a combination of positive cash flow prefinancing, the deconsolidation of debt of the project companies sold to the ABS and C-REIT and the proceeds of the equity capital raise, which we did in 2Q '25. If we add back the purchase of time deposits, which is included in our reported investment cash flow and the proceeds of the capital recycling and new issue in 1Q '26, our net debt-to-EBITDA ratio decreases to 4.8x. At the beginning of 2023, we set a target of achieving positive cash flow prefinancing and net debt-to-EBITDA of below 5x within 3 years. Looking back, it was an aggressive target, but I'm pleased to say that we made it. Turning to Slide 29. For FY '25, we achieved the midpoint of our revenue guidance and beat the top end of our adjusted EBITDA guidance. For 2026, we expect total revenues to be between RMB 12.4 billion to RMB 12.9 billion, implying a year-on-year increase of between approximately 8.5% to 12.8%. For adjusted EBITDA, we expect between RMB 5.75 billion to RMB 6 billion, implying a year-on-year increase of between approximately 6.4% to 11%. As a result of the asset monetizations during 2025, the year-on-year growth rates are not directly comparable. If we add back the forecast revenue and adjusted EBITDA for the data center project companies sold to the ABS and C-REIT, the implied growth rate of our pro forma revenue and adjusted EBITDA guidance is approximately 1.6 percentage points higher. This is shown on Slide 30. We'd now like to open the call to questions. Operator, please?

[Operator Instructions] Our first question comes from the line of Yang Liu from Morgan Stanley.

First, congratulations on the very strong booking year-to-date. I have 2 questions. The first is about the conversion from MOU to contract. What is the timetable behind this kind of conversion? Or what is the potential risk for this kind of conversion? Or what do we need to do or what do our customers need to do behind this kind of conversion? That's my first question. And the second question is about the competition in the new key focus area like Inner Mongolia, Zhongwei and Shaoguan. We know that GDS has been far leading in Tier 1 market. But how about in those new focus areas? Are we seeing more competition or less competitor in those places? And what is the GDS advantage there?

Okay. The first question, I think this is a high certainty to convert to our order. This is number one. In terms of the timing, I think it's within 2 quarters. I think it's a high chance we can convert to the real contract. So we are very confident on that, the number one. Number two, I think in terms of the new market, right, new market, I think the current market before we step in, I think there's some data center already -- data center operator already there. But it's never too late because now the government set up a very high barrier right now. Number one, they will measure -- I mean, they will measure the criteria for they choose a partner to able to acquire the land, they have a couple of the criteria. Number one, they will seriously look at the company's track record. Second, they will make sure you have the customer commitment behind you. And number third, they also will look at your financial capability as well. So this is the current government, how they look at a partner, a potential partner. So I think if that's the case, which it is, it's already set up a high barrier. And we think we will be able to still sit on the leading position.

Our next question comes from the line of Jonathan Atkin from RBCCM.

So you referenced a lot of your orders and current interest being AI-oriented. Can you talk about a little bit about the non-AI kind of traditional cloud, even enterprise types of workloads and the demand trends that you're seeing there? And then any further color around the types of AI workloads? And would you associate it primarily with large foundation models or inference or what?

I think the majority, I mean, the demands are driven by a very clear -- driven by the AI, right, GPU type data center demand. Of course, I think the traditional cloud still grows and they are more associated with the AI demand. So I think that's the kind of profile. It's not like before 100% driven by the traditional cloud. Now the cloud still grows, but more associated with the AI. That's a slight change in the driver, right? So what's the second question?

Type of AI application.

Inference or machine learning, the workload.

The workload of AI.

I think -- of course, the training still continue. That's for sure, because China is still behind the U.S., right, for a couple of years, and now it's catching up. So it looks like the training is still -- is a key driver to drive the data center demand. But in the meanwhile, I think the large language model owner, they start to, I mean, a lot of demand is also driven by the inferencing right now. That's why our Tier 1, let's say, traditional market still get the growth in the last year. And we are also -- we also estimate this year still have a very strong demand from both AI type and inference type and cloud.

And then I wonder if you could maybe just touch on the competitive environment, and it probably varies a little bit by region and market and so forth. But in terms of other projects that your peers are pursuing, how would you characterize competition that is meeting the demand? And is that at all different from the last time you gave us an update?

General -- competitive environment in new markets, competitive...

Yes, I think if you are aware, if GDS seriously step in a new market, we definitely will dominate the market. That's how we look. That's our behavior, right? So otherwise, we would not step in, right? We definitely get ready to step in and give. Over time, I think we will take the absolutely leading ship in this region. So I think the competition in AI in China, data center competition in China just a start for AI. So I think it's a good timing to step in, especially if you have enough financial capability that's more easy to win the battle, right?

Our next question comes from the line of Sara Wang from UBS.

Congratulations again on the really solid new bookings. So I have two questions. The first one is on supply. So I still remember that earlier last year, management took a very rational and cautious stance on taking new orders because back then, there were some uncertainties around chip supply. However, given the strong order and MOU momentum year-to-date, should we interpret that as a sign that chip supply has improved meaningfully? And then or in other words, from a supply side perspective, are there any factors constraining project delivery? So that's my first question. And then my second question is that I noticed that GDS powered land reservation has increased from 900 megawatts last quarter to 3.7 gigawatts this quarter. So may I ask where are the main locations of the new resources? And how does the project returns in this new area differ from our existing projects?

Yes, I think we have the different view, right? So we are always looking more deeply to the industry. So that's why we are also. That means we are very disciplined to CapEx investment. So last year, we are slightly conservative because of the chip supplies still were not that certain. So this year, the certainty is more improved, right? I think in terms of the U.S. export policy changes and the domestic chips also catching up. If you recall, a couple of quarters ago, when we talk about this, we stay on the very -- we would always say we wait and see, right? So that's the right strategy to more disciplined to making CapEx investment. Now we are much comfortable because the whole environment change adapted to a more positive, more certainty. So I think that's -- we think it's the right timing to step in, in a big way, right? Land bank, I think in terms of land bank, I just mentioned in my script, right? So I think there's Horinger in Inner Mongolia and Zhongwei in Ningxia province and Shaoguan, it is in the Guangdong province. I think that's all the national hub data center hub, right? So I think the location will be great for future and well recognized by all our existing customers.

And how should we think about the project returns?

Sara, as I said during the script, we're still able to generate a simple cash-on-cash yield of 10% to 11%, whether we're taking on new business in established markets or new markets. And with our business model of developing, ramping up and holding for the qualification period and then monetizing, that yield is sufficient for us to realize a return on equity above 20%.

Our next question comes from the line of Gokul Hariharan from JPMorgan.

My first question is on the 200-megawatt order that you've already secured. Could you talk a little bit about the nature of the urgency of the projects, obviously, given AI demand seems to be accelerating. When do you expect to deliver this to customers? Is it also more like an accelerated schedule like we saw with the 150-megawatt order that we saw last year? That's my first question. And secondly, just trying to understand a little bit on the realized MSR trends. Previously, we were expecting MSR to start to flatten out a little bit in 2027. But now obviously, our location mix is probably changing a little bit in response to some of the new demand trends. So Dan, maybe could you help us understand how MSR is likely to shape up, let's say, 1 or 2 years out from now, the realized MSR based on the contracts that you're signing right now?

Sure, Gokul. The 200-megawatt new orders, you can assume for forecasting that it will take us 4 quarters on average to deliver. And then it will be a 4-quarter ramp-up. This is faster than historically when we were doing the more traditional cloud business, and it's consistent with our parameters in terms of selecting new business. The MSR decrease, it will continue beyond next year. I think in 2028, it's probably 3% to 4% again. But the offset in terms of higher volume growth is going to lift our overall growth rate. In 2026, I think William said that we're expecting our move-in to be similar to last year, which is in the sort of 80,000 to 90,000 square meter range. But if all goes to plan in terms of meeting our sales target this year, we'll be looking at a move-in, which could be like double that next year. So it's a combination of those 2 factors is going to drive our growth higher.

Understood. Just one follow-up on the locations as we are adding some of these newer locations, which are a little bit more remote sites, but obviously, the new data center centers for the country. Is the customer concentration high in some of these new locations? Like previously, when we went to build-to-suit, I think it became very much like very customer specific. How should we think about the customer concentration in some of these new locations like Shaoguan or Inner Mongolia, et cetera?

Yes. I think the global views everywhere, every data center company now is getting more concentrated in terms of customer. I think that maybe global -- in China, maybe top 3. That's a trend, right? In the global point of view, I think it's 4 or 5 companies, right, everybody is at the trend. If you position you are a hyperscale data center operator, a dev ops center operator, right? It's not a traditional colo. If you look at the colo business, this looks like more diversified, right? But this is the reality.

I'd just add that the contract length for this kind of business is certainly at the long end or longer than what we typically have been before. So quite often find 10-year contracts, which I think derisks the investments in these projects.

Yes. I think in terms of customer number, GDS already had 1,000 customers, right? So of course, the new demand is mainly driven by the top 3 AI player in China, right?

Our next question comes from the line of Frank Louthan from Raymond James & Associates.

This is Rob on for Frank. So just looking at the demand and the bookings, what's the growth in demand that you're seeing from your nondomestic Chinese customers year-over-year? And what would you say is the outlook for that going forward?

Rob, the demand is from Chinese customers almost entirely. I think the market opportunity is around 3 gigawatts per annum, concentrated, as William said, in the very largest customers. So we talk about 500-megawatt sales target, put it into the context of that kind of scale of addressable market.

Our next question comes from the line of Timothy Zhao from Goldman Sachs.

Two questions here. One is really on the resource expansion that you mentioned about the 3 gigawatts pipeline into a new growth market. Just wondering, I think, between the 3 key hubs that you mentioned Inner Mongolia, Ningxia and Guangdong, what is the like difference or similarities among those regions in terms of customer preference or the IT workload, the pricing, et cetera? And the follow-on question related to that is that what is the regional breakdown between those 3 key hubs out of the 3 gigawatts pipeline that you have or out of the 500 megawatts MOUs that you disclosed year-to-date? And second question is on the CapEx. I think given that you have very strong sales momentum year-to-date and to convert that 500 megawatts into contract probably around 2 quarters, do you see any possibilities to further revise up the CapEx guidance for this year?

I think there are 3 new market, I think the work is similar. Major workload is still training, plus partially is inference, right? And in the meanwhile, we just mentioned in the traditional market, which is low latency market, right? We also got a lot of order from our customer, the large language model customer because they start to -- already start to deploy the inference workload. So I think it's quite balance. In general, I think maybe it's 65% to 70% will go to the new market and still 30% to 40% is go to traditional market, right, which we used to call the Tier 1 market. That's sort of the difference of workload.

Tim, on your question regarding CapEx, as I mentioned earlier, you should assume that it takes us 4 quarters to build because in many cases, we're talking about new build in a site which is where we have no previous presence. So we commenced construction in 1Q '26, it's for delivery to customer in 1Q '27. So as we win new business going through this year, that will lead to more starts. But I think the CapEx guidance of RMB 9 billion is adequate. I would not expect to change that.

Our next question comes from the line of Ellie Jiang from Macquarie.

I just have one question that's more longer term. Just now management talked about the data center demand in China is just at the beginning of picking up. Would it be fair if we look in the next 3 to 5 years to kind of narrow the U.S. trajectory, I mean, especially on kind of how the large hyperscalers have been accelerating the CapEx deployment pace? And do you see similar commitments from our key customers? And lastly, how do you really see the longer-term kind of market size and positioning in that trajectory?

Yes. If you look at for our estimation, I think that yes, China demand will like a growth trajectory more like the U.S. because it's just behind a couple of years, right? That's happening right now. So if the -- last year, we just -- we talked about that demand is already there. It's all about just about the chip supply, right? Now it looks like it is getting much better, more positive right now, more certainty in terms of the chip supply. So it will go -- it will same pace to similar pace as the U.S., right? So I think the CapEx, if you look at the last 2 years, all the big AI company, tech company continue to raise their CapEx guidance, just like what happened in the U.S.

Got it. And if I may, sorry, if we continue on that route, would it be possible at one point because just now management talked about the MSR still declining slightly all the way until 2028. But would it be possible at some point, we still see hyper demand really building in, especially given how the open clause or all these agentic integration seems to be driving token consumption by 10x or even 20x. Then at some point, would it be possible for us to see even stronger pricing power down the road?

Yes, it could be. I think it could be. I think if you look at the U.S. price let's say, adoption profile in the last 5 years, it's -- if you look at it 5 years ago, the U.S. price used to be down to USD 60 per kW, right? Now it's 3x average, right? So 2x or 3x average. So that's profile, I think that will be a high chance it will be, right? I give you a sense in the whole, I mean, western part of China, the total power capacity now -- as of now, just 30 megawatts -- gigawatts to available to supply the future growth. In general, it is still limited, right?

Our next question comes from the line of Daley Li from Bank of America Securities.

Congrats on the strong orders for year-to-date and for the MOU. My first question is about the 500 megawatts MOU. Could management introduce is this mainly for 2026 -- sorry, 2027? And how many years -- what could be the time horizon or time period? Is it like 1 or 2 year or like 3-year contract -- potential contracts? My second question is about the CapEx and the financing, the update. And given the RMB 9 billion CapEx, how do we see the financing and the need and given we have strong cash on hand right now?

Yes. Sorry...

500-megawatt MOU, the delivery time...

Yes, the delivery time is, as I mentioned before, is 4 quarters. So the business that we're winning in the current first quarter of this year is going to contribute to move in next year. And it's logical that if we meet our sales target of 500 megawatt then next year's move-in could be around double current year's move-in. It would flow through like that. The contract lengths, I think much longer than what you mentioned. It will be 7 to 10 years, mostly at the 10-year end of that. For financing, last year, we were self-funding in China. But that was achieved when our CapEx was RMB 5 billion, and we were able to complete 2 asset monetizations last year in ABS and the C-REIT. So now our CapEx has gone up to RMB 9 billion, and we have a plan for an asset monetization that we can't be sure, but we aim to complete that in the second half of the year. I don't know whether we will be self-funding in China. Let's say, CapEx is RMB 9 billion, operating cash flow is RMB 3 billion and maybe there's some proceeds from asset monetization. If there's anything left, it will be very easy for us to finance that in the traditional way with project debt.

There are no further questions at this time. So I'll hand the call back to Laura for closing remarks.

Thank you all once again for joining us today, and see you next time. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.