Hello, ladies and gentlemen. Thank you for standing by, for GDS Holdings Limited First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management 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. Hello, everyone, and welcome to the first quarter 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.gdsservices.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 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, Laura. Hello, everyone. This is William. Thank you for joining us on today's call. We started 2025 with very solid results. In the first quarter, we achieved revenue growth of 12% and adjusted EBITDA growth of 15% year-on-year. It is the highest growth rate for the past two years. This is a result of our continued focus on backlog delivery and the new orders with faster move-in schedule. Our gross move-in during Q1 '25 was around 20,000 square meters, all in Tier 1 markets. Our utilization rate reached 75.7%. Quarterly move-in has stayed at a consistent level since the beginning of last year. We expect the pace of move-in to continue through this year, with around 40% of the current backlog to be delivered by year-end. The demand environment has turned the corner with AI developments. This has led to an initial wave of demand for AI training in remote locations. Now the demand is coming to Tier 1 markets with AI inferencing. We believe inferencing could be a much bigger and more sustainable opportunity over multiple years. The mega deal of 152 megawatts that was signed during Q1 ’25 is a perfect example and evidence of stronger demand during this AI era. This new order requires us to deliver data centers within six months. The customer committed to moving fully within the following six months. The entire cycle for obtaining the new order to full utilization is about one year. This is a high-quality AI-driven new business with no moving risk, as we confirmed with the customers. Looking forward, there are still uncertainties around AI chip supply in China in the short term. Our customers are working out their deployment plans. As chip supply becomes clearer, we expect demand to take off. In terms of capacity supply, we are well-positioned to capture these opportunities. We already have around 900 megawatts of capacity held for future developments in and around Tier 1 markets. As I mentioned, we believe the coming wave for AI demand is going to be largely from inferencing, which requires large sites in Tier 1 markets. We have multiple sites sustainable for AI inferencing around Beijing, Shanghai, and Shenzhen. As demand continues to grow and the time to deliver becomes key, our held-for-development capacity will become more valuable. We believe there is a good chance that we will develop all of these 900 megawatts and more within the next four years. On the financing side, we made significant progress with our asset monetization program. We completed the first ADS transaction in Q1 '25, and we are making good progress on the C-REIT transaction. Our asset monetization strategy gives us financing flexibility in terms of being able to recycle cash in China when we need to. It gives us the option to capitalize on new projects. Lastly, I would like to share some key operation updates for DayOne. In Q1 '25, DayOne added 70 megawatts of new commitments, which brings its total power commitments to over 530 megawatts. In the current quarter, they also made substantial progress in expanding its footprint. They obtained customer commitments for their Thailand project. In addition, they made a breakthrough into a completely new market, Europe, and landed their first project in Finland, together with secured customer commitments. The orders for Thailand and Finland are expected to total over 220 megawatts, which will be added to power committed in the next few months. This will bring total power commitments to over 750 megawatts. DayOne is ahead of schedule to meet the target of 1 gigawatt of total power committed within three years. The new market expansion demonstrated DayOne’s capability of working with world-leading tech companies to provide total data center solutions. DayOne creates new markets where customers can efficiently scale up within a short lead time. It has done this successfully in Malaysia and Indonesia, and will do so again in Thailand and Finland. This capability is truly what sets DayOne apart. Now, I will pass on to Dan for the financing and operating review.

Thank you, William. Over the past few years, our financial objectives have been to get back onto a higher growth track in terms of EBITDA, while at the same time strengthening our financial position and deleveraging. With the advent of AI demand in China, we can look forward over the next few years to more and better growth opportunities. However, as we capture these opportunities, we will maintain strict financial discipline. We believe that this is the right approach, which has the potential to create significant equity value with low investment and financing risk. Starting on Slide 13. In Q1 '25, revenue increased by 12% year-on-year. This was a result of an increase in total area utilized of 14.6% and a decrease in MSR per square meter of 2.6%, as compared with Q1 '24. In Q1 '25, adjusted EBITDA increased by 16.1% year-on-year. In addition, we realized a gain on deconsolidation of subsidiaries sold to the ABS of over RMB1 billion, which we have not included in adjusted EBITDA. The adjusted EBITDA margin for Q1 '25 was 48.6% compared with 46.9% in Q1 '24. The higher margin was mainly due to lower operating costs. Over the next three quarters, we expect quarterly adjusted EBITDA to increase on average by high single digits percentage year-on-year. This accounts for the deconsolidation of EBITDA with the completion of the ABS transaction on March 31, 2025. As shown on Slide 16, subject to achieving performance conditions, we will receive total cash consideration of up to RMB1.8 billion for the sale of the ABS, out of which we will reinvest up to RMB500 million for our 30% share of the ABS issue. The first installment of cash proceeds has been received and booked in Q2 '25. In addition, we have deconsolidated debt and other liabilities of approximately RMB1.1 billion. The implied EV to EBITDA for the sale to ABS is around 13 times, which we believe sets an important benchmark for our forthcoming C-REIT offering and for the valuation of our stabilized China assets as a whole. We are making good progress with the establishment of an onshore listed C-REIT. It is moving forward faster than expected. We've received approval from NDRC and it is now being reviewed by CSRC and the Shanghai Stock Exchange. The application documents are filed publicly. Subject to obtaining all necessary approvals, we hope to launch and complete the offering later this year. The C-REIT transaction will be very strategic. It will establish a further valuation benchmark for our stabilized data centers in China, and we will create a vehicle into which we can potentially drop down further assets in the future, if we choose to do so. On Slide 22, we show the pro forma deleveraging effect of the ABS and C-REIT. The ABS is a done deal, while for the C-REIT, we made working assumptions for illustrative purposes. As you can see, we are able to support total CapEx in the current year of RMB4.8 billion before taking into account the proceeds of asset monetization while lowering our net debt and leverage ratios. Turning to Slide 23 on business outlook. When we gave guidance at the last quarter end, we already assumed that the ABS would be deconsolidated from the beginning of Q2 '25. If we complete the C-REIT this year, it will have some impact on our financials, but we still think that we can meet our original revenue and adjusted EBITDA guidance. Thus, we're keeping the previously provided guidance of total revenue and adjusted EBITDA unchanged. The C-REIT transaction, if completed, will also impact our investment cash flow. As of now, we keep our CapEx guidance unchanged, which just includes gross CapEx less the initial proceeds from the ABS transaction. Finishing on Slide 24. Now that we have deconsolidated DayOne, it is important to look at the equity value of GDS on a sum of the parts basis. In addition to our equity value creation in China, we expect the value of our equity interest in DayOne to appreciate significantly. Based on the Series B benchmark from last year, our equity interest in DayOne was worth around $1.3 billion or $7 per GDS ADR. William mentioned that DayOne is already on track to achieve total power commitments of over 750 megawatts in the next few months. As DayOne achieved optimal operating leverage, its EBITDA per megawatt should trend upwards towards industry benchmark levels. This gives us an indication of the current level of contracted EBITDA, which can be converted to actual EBITDA as backlog contracts are delivered over the next few years.

We'd now like to open the floor to questions. Operator?

Thanks for the opportunity. Two questions from my side. First, congratulations on the solid result. My first question is regarding the China demand, especially from the hyperscaler side. We start to hear a lot of noise on the chipset supply since March. Could management update us in terms of their demand quarter-to-date given a lot of things happened in the past two months? Is there still any order coming in, in the second quarter of Q2 date? Yeah. That's my first question. My second question is regarding the financial guidance because Dan just mentioned that previous guidance does not factor in the ABS deconsolidation. And now the deal got closed and actually you don't need to change the guidance. So, what should be the expectation on the three quarters of the contribution from that project to full year number? Yeah. Thank you.

Okay. This is William. Let me address the first question. Demand is very strong overall, and we expect that AI-related demand will continue to be robust. We consider ourselves fortunate as our assets are located in Tier 1 markets, where this demand is primarily driven by inference. Inference implies that customers are less dependent on GPUs and will lean more towards hybrid and traditional systems. Therefore, we anticipate that our demand will persist. It's too early to set specific targets, but we currently have 900 megawatts allocated for future development, which is well positioned. I believe we can effectively utilize and sell this 900 megawatts within four years. We are very optimistic about that. In the short term, there will still be substantial training demand, but that has not been our primary focus over the past couple of years.

So, when we gave EBITDA guidance, at the midpoint, it implied year-on-year growth, full year ‘25 versus ‘24 of 8.5%. And we had assumed that the ABS transaction would close at the end of Q1, which indeed it did. If we had not done that ABS transaction, we would have continued to consolidate the underlying assets for the second, third and fourth quarters of this year. On that basis, I showed in the last cycle that our annual growth rate in terms of EBITDA would have been around 11%. So the impact of the ABS transaction closing at the end of Q1 is to reduce full year EBITDA by around RMB130 million, that's what we would have consolidated over the next three quarters and to reduce the annual growth rate from RMB0.11 down to the guided 8.5%. Now of course, we completed the first quarter, and we announced our year-on-year growth rate was 16%, which is clearly well above that level of growth. That's why I try to give some indication of the expected growth rate year-on-year in the second, third, and fourth quarters. I said it won't be as high as the first quarter, but it should be high-single digits in percentage terms on average each quarter, 2Q versus 2Q, 3Q versus 3Q, 4Q versus 4Q.

Yeah. I want to add one point. I think, yes, based on what we know and understand, our customers have already tested domestic GPU for a while. So I think if the chip supply has some issues, I think in the next 12 months, domestic GPU will catch up.

Okay. Thank you for the opportunity to ask a question. I just have one question. Given GDS is actually expanding beyond Southeast Asia and even into Europe, can we compare the IRR profile or EBITDA yield across different markets, for example, Johor, Thailand or Finland, and also compare that to China? Thank you.

Sara, I have to correct you. It's not GDS. It's our DayOne. What we've seen so far, and it's across several different markets, if you simply take, say, the development yield, it's in the low teens, which is quite healthy and higher than what we currently achieve in China on a certain investment cost basis. And that probably reflects that in the markets in which DayOne is operating, there's a slightly different supply-demand balance from China. But it's a good leading indicator because as AI demand really takes off in China in Tier 1 markets, we can see that demand-supply balance shifting in China. Hopefully, that will lead to better yields in China as well.

Great. Thank you. Can you give us an idea of when you expect the China business to be self-funding and does this new wave of AI demand push that out a little bit? And then if you can comment on whether you have the full amount of funding for the 750 megawatts of commitments at DayOne, that'd be great. Thanks.

The first part of Frank's question is that, so in China, we are roughly breakeven in terms of free cash flow before financing. We were actually positive free cash flow before financing last year. And in the current year, we should start looking at free cash flow before financing. We look at net debt. With the contribution from two asset monetization transactions, we should be able to bring down that debt over the course of the year. This means we are already, through operating cash flow and asset monetization, able to generate sufficient cash flow and to deconsolidate debt on the sale of assets. This is at least equal to the amount of annual CapEx. William mentioned that we are quite confident that over the next four years, we could potentially develop our entire land and power bank in Tier 1 markets, which is around 900 megawatts and maybe more. If we did that evenly over four years, it would equate to around RMB5 billion of annual CapEx, similar to this year's level. With the operating cash flow, which we expect to grow over that time period, and the ability to monetize assets through the listed C-REIT vehicle, we believe we will be able to repeat the pattern of this year's financing in terms of investment cash flow being offset by operating cash flow and asset monetization proceeds.

Yes. I believe if they want to raise money, it's not an issue and can easily access all international capital markets.

We are now going to proceed with our next question. The question has come from Edison Lee from Jefferies Hong Kong. Please ask your question.

Hi, William and Dan. Congratulations on another great quarter. I have, in fact, two questions. Number one is about your growth new area committed in the first quarter at 46,000 square meters. I think that's a new high in many quarters. So, can you share some color as to how many customers this new number is coming from and where the locations are for this 46,000 square meters? And then number two is, there has been some talk in the industry in China about new government regulations controlling the expansion of AI data centers. Right now, they need to approve any project 7 megawatts or above. There is also some talk in the industry that China does not want or prefer private companies to be building AI data centers; they prefer SOEs to be building AI data centers. I understand a lot of your power reserve has been obtained some years ago already. So I just want to know whether there's any risk that the government actually needs to reopen the book and we approve some of your power. What are your thoughts on these market talks right now? Thank you.

Okay. I think the first question is, I believe Q1 was mainly driven by one of our traditional hyperscale customers. I think it's located in Nangang, which is at a console, very close to Shanghai and Beijing. So this is exactly, if everybody remembers during the call era, we used to represent 50% of the cloud parts in this major city or around this major city. So we are very, very lucky at that era. So now inference, I think we benefit from that inference demand because I just mentioned, right? The inference model is more like a hybrid, using both GPU and CPU cloud. So they will cooperate together. So I think this answers your first question. The other question is about the control of AI data centers. Based on my understanding, mainly it is for SOE investment. I should point out that for our 900 megawatts of capacity, we have already obtained the power energy quota for most of it. So, this new guidance and new policy will not impact us.

We are now going to proceed with our next question. The questions come from the line of Daley Li from Bank of America. Please ask your question.

Hi, management. Thanks for taking my question. Congrats on the solid demand trend. I have two questions. Number one is about the overseas business. Recently, we received around 70 megawatts of new orders. Could management give some color about the mix of the clients for China and overseas, and/or the mix of AI and non-AI? Given the AI diffusion policy has been withdrawn by the U.S., how could you share some color about the client feedback regarding future new orders or the moving progress for the international business? My second question is about our series issuance in the China market. I saw the news which received the first round of feedback from the CSRC, and how do we see the progress? Can we expect to date in the second half of this year, or what is the timeline, please? Thank you.

Yes. The first question, I think if everybody remembers, we used to talk about our clients for DayOne. In general, it’s mixed. We successfully got orders from both international and Chinese customers. I think we used to speak about our main clients from China, who primarily deploy to support their e-commerce, video business and social media. They mostly use high-performance CPUs. In general, over the last three years, based on our understanding, our total capacity serves around 90% for CPU and only about 10% for GPU. So this is, I think everyone remembers the last couple of quarters when we discussed the international market; that hasn't changed. As for the C-REIT offering, we've been through many rounds of review and approval. The stage we're currently at is that the listing application is being reviewed by the Chinese securities regulator, CSRC, and the Shanghai Stock Exchange. This is a public process. Perspectives and key documents have been filed and are available for public access. We've been asked questions just like in the U.S. SEC process, where applicants must address various inquiries, and our responses will also be publicly filed. Typically, this stage takes a few months. We don't take anything for granted. But if all goes well, we hope to receive clearance to proceed with the offering and listing, ideally be able to do so later this year and complete the process, lifting the C-REIT before the end of this year.

Good evening, William, Dan, and Laura. Thanks for taking my question. I'm asking a question on behalf of our analyst, Timothy Zhao. Our first question is on GDS China. Could you elaborate more on the pricing outlook for the China business? And my second question is on DayOne. We've noticed your EBITDA margin improved during the latest quarter. Could you explain the drivers behind that? Thank you.

Yeah. I think the outlook for the China business remains very stable, and we are confident about pricing. The current new business prices are very stable across various markets in China, be it Beijing, Shanghai, or Shenzhen. So this remains our outlook for the future.

DayOne had an EBITDA margin in Q1 '25 of 31%. For a company that started generating revenue only about five quarters ago, this is already quite remarkable. My understanding is that DayOne's ramp-up over the next few years, as it delivers its backlog, will be very rapid. As this happens, DayOne will be able to achieve higher operating leverage on its corporate costs and business development costs. I think within a few years, you'll see that EBITDA margin trend upwards towards industry benchmark levels.

Thank you. This concludes the question-and-answer session. I'd like now to turn the call back over to the company for closing remarks. Thank you.

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

This concludes this conference call. Thank you all for participating. You may now disconnect your line. Thank you.