GDS Holdings Ltd (GDS) Q2 2026 Earnings Call Transcript

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's second 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. And I'll 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 second quarter of 2026 earnings conference call of GDF 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 IA website at investmentgdfservices.com. Leading today's call is Mr. William Kwan, GDS founder, chairman, and the CEO, who will provide an overview of our building strategy and development. Mr. Van Neumann, GDS CEO, will then review the financial and operating results. Before we continue, please note that today's discussion will contain forward-written 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 insurgencies. As such, the company's results may be maturely different from the news expressed today. Further information regarding these and other risks and insurgencies is included in the company's perspective 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 of this fall includes discussions of unauditive gap financial information as well as unauditive non-gap financial measures. GDS press release contains a reconciliation of the unauditive non-gap measures to the unauditive most directly comparable gap measures. I'll now turn over the call to GDS founder, chairman, and CEO, Mr. Woyefong. Please go ahead, Will.

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 2016.

By the middle of the year, our backlog had, on average, By year-end, assuming we achieve our sales target, we expect the back 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 for 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 20 million RMB per megawatt. As we just raised our sales target for the current year, we are also raising our guidance for CapEx pay from 9 billion RMB to 10 billion RMB, 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% to 11%, this implies leverage of around 5.5 to 6 times at the project level. Our primary source of debt is onshore RMB-denominated long-term bank borings.

The onshore bank market remains highly supportive. During TUQ26 alone, we were able to complete 4.9 billion RMB of new debt financing and refinancing. For the project equity, we have various sources.

We have cash with nearly 20 billion RMB 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 CREIT 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 26 financial performance and revised full year 26 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 1Q26. For consistency, we also deduct recurring income in prior quarters, which was restructured into the one-time payment. And 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 the past half of 2026, our pro-forma adjusted EBITDA increased by 12.7%. Taking the midpoint of our revised guidance for full-year 26, the implied growth rate of pro-forma adjusted EBITDA is 6.5%. We'd now like to open the call to questions. Operator?

Thank you.

We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and write your name to be announced. To withdraw your question, please press star 11 again. For the benefit of all participants on today's call, please limit yourself to one question. If you have more follow-up questions, please re-enter the queue. A moment for our first question. And our first question comes from the line of Yang Liu from Morgan Stanley. Please ask your question. Yang, your line is open.

Thanks for the opportunity to ask questions, and congratulations on the upward revision of four-year guidance. I would like to ask about the future potential moving. I think that there's a lot of debate on your customers capex and also the availability of GPU in the market and also the constraint of computing power we also see that you expect you're moving to improve dramatically next year what could be the the downside risk for that and if there's any concern or a delay in one customer get the GPUs will the take-or-pay contract to protect GDS revenue thank you yes thank you I

the dynamic of the demands from the different uh uh uh uh dimension i think of course the key driver is still the gpu the gpu i think the in terms of the uh domestic gpu the surprise catching up yeah i think it took it it took a while in the last couple of quarters right with as we mentioned but now looks like on track to catching up this is number one but in the meanwhile i think they also drive a lot of traditional growth. What we have seen is that the new order, quite a big number is driven by the CPU. So it will not impact in terms of the supply. It's no issue. So I think this is a more positive way to look at the current or future chip supply. So that's our view. If you look at the other, a lot of these traditional cloud, they're still raising their target, and the growth is very significant as well. So I think that let's be clear there.

Thank you.

How about the take or pay term to protect the GDS revenue.

Yeah.

Yeah, yeah.

Two comments. The first is that in each contract, there is a specific delivery date when the capacity has to be available to move in by the customer. And that is a fixed date in each contract. It's up to four quarters from when the booking is disclosed. So, that part, I think, is unchangeable. After that, there's a move-in period, and it varies from contract to contract. You know, we've been very focused on trying to select contracts which had a shorter move-in period and a fixed commitment. For the purposes of forecasting, we assumed that the move-in will be, on average, over four quarters on a straight-line basis. So that is what our forecast reflects. In reality, it could be faster or it could be slower, but I don't think it will materially deviate from that. Thank you.

Thank you. We will now proceed to take our next question. And our next question comes from Sarah Wong from UBS. Please ask your question, Sarah.

Thank you for the opportunity to ask the question. and then congrats on the really solid new order signs. As mentioned, just mentioned that there's increasing demand from emerging AI leaders. So just wondering, is there any difference in their demand profile or contract terms compared to established cloud or internet type of scale customers that we already served for quite some time?

I think we are just starting to build up our organization. So far, we are very selective somehow. business from this new AI leader. I think in terms of their demand profile, it looks like it's getting bigger and bigger, but we are still very selective. Our main customer, the new business, mainly driven by the hyperscale, a couple of the larger hyperscale. But we think that there are some new customers in future. It's the right thing to do to diversify our customer ways. So we just start to build some relationships with them right now. So, of course, their demands will come with them, obviously.

Thank you. Thank you. We will now take our next question from the line of Frank Laufen from Raymond James & Associates. Please ask your question, Frank. your line is open.

Great. Thank you. I wanted to get an update on your new guidance and what does that imply for the impact of potential action with the CREAT contribution? Does that include any of that? And what would you expect that to be? How would you expect that to impact revenue and EBITDA? And then secondly, if you could just address the slowdown at MRR, how should we think about that? And if we're looking forward, are you signing contracts that should be resulting in an improvement in NMRR going forward? How should we think about that? Thanks.

Frank, first of all, on guidance, to make clear that our guidance does not take account of any further asset monetization. There's a transaction in progress under regulatory review. We can't be any more specific about the timing of that, but to be clear, it's not factored in. For the MSR, we've provided guidance about the yield in terms of EBITDA per megawatt for the backlog and the new business that we're winning, and I think that will help For forecasting, if we go back to MSR, I always make the comparison on a same quarter basis. So if we take 4Q26 compared with 4Q25, we forecast that it will be down 3% and then maybe by a similar amount next year. Part of that is the change in the location mix because there's a substantial amount of new business in new markets. And part of it is due to the legacy contracts where we have about another 18 months to go before we are through the transition of adjusting all of our contracts to the current market pricing. So our guidance this year and what we indicate in the future will fully reflect that.

Yeah, I should point out that, I mean, the Tier 1 market, I mean, also the new market, the current price level is probably stable.

This is all about a transition.

Okay, great.

Thank you. And our next question comes from the line of Daley Lee from Bank of America Securities. Please ask your question, Daley. Your line is open.

Hi. Thanks, management for taking a question. Congrats on the opportunity for the new orders. I have one question regarding the moving. I remember in last earnings call, we are sending soft moving rate in Q2, but it seems that the number is better than our in the marketing expectation so what will be the what has been the key drivers for better moving q2 and and secondly how do we see the demand supply trend in the data center market in china considering the power quarter approval progress by the government thank you David, I would not read anything into the quarterly fluctuations.

Most of the move-in in the current year is a capacity that was booked in 2025 or even before. And if you look at the bookings in 2025, they had a very strong first quarter of 2025 and then the second, third, fourth quarter were at a lower consistent level. And then from the first quarter of this year, our bookings increased by a very large amount. That sustained in the second quarter, gave an indication for the full year that that So I think you can derive from that the outlook for moving over 2020, made of 2026 and 2027. And we see a significant increase in moving in the second half of 2027, which is going to lead to a significant acceleration of EBITDA growth.

Good question.

The kind of power quality, there's a couple of key points. Number one, now it's controlled by the central government and the municipal government as So basically, if you apply it, it's to go to the municipal level to get to the local government then commemorate their full support.

Thank you. We will now take our next question from the line of Edison Lee from Jefferies. Please ask your question. Edison, your line is open.

Thank you for taking my questions. So, congrats on the good results. My question, sorry, is really centering around just reconfirming the definition of the bookings and the reservations. So I assume that bookings mean contracts have been signed and reservations mean that is being, is sort of an MOU with indicated interest by the customers and you look forward to converting that into signed contracts over the next few quarters, is my understanding correct?

Not exactly. What I'd like to make clear is that there's a sales agreement which contains a booking which is a contractual take-or-pay commitment, but within the same document we undertake to reserve capacity to enable the customer to have certainty of being able to make commitments typically at the same site in the future over a period of time. So the bookings and the reservations go together, and that's how the customers look at it from a resource planning perspective.

Yeah.

In a minute, I think we should say, based on our last 12 or 18 months experience, which the reservation, our customers exercise their reservation in a hundred percent base. That's our current experience, but in terms of case-by-face, we should negotiate the moving percent of that, but in general, reservation provides very, very high certainty for our future booking.

Okay, so can I follow up by asking your booking targets this year? Right now it's one gigawatt. i think in the last quarter i think your target was still 500 megawatt so this doubling of the bookings target i believe is driven by your customers or your assessment of the customer's demand and is it possible for you to split the customer's demand into training versus inference or you have no idea how to split that i think the the campus like in the in the new markets uh uh i think they they will host the difference of workload it's a training plus uh influence they're both both increase the guidance i think the increased guidance is

it's a number one is that the whole market demand we see is an increase if you look at it how they continue to increase their capex and that's your power reserves can you talk about

the locations of your power reserves The part we identify is the developer capacity that is almost entirely new markets. We have capacity in established markets, but it's under reservation.

So is it very different from what you disclosed in the last quarter in terms of locations? No, it's not the way we disclose it on the new market, right?

We will now move up to our next question. And our next question comes from the line of Timothy Chow from Goldman Sachs. Please ask your question, Timothy. Your line is open.

Thank you, Magdalene, for taking that question. I think I just want to get more clarity on the move-in and how do you want to look at the revenue on EBITDA beyond this year. Just wondering if you can give us a breakdown, for example, for this year, a lot of move-ins, and what is the proportion between CPU-based and GPU-based. And into next year, it seems that you are looking for the MUYIN to be more than double to close to 700 megawatts next year. And what will be that breakdown between GPU and CPU next year? And with that 700 megawatts MUYIN, of course, I think the majority will be more geared toward the second half of the next year. So if that is the case, then how do you think about the revenue and EBITDA growth, I think, beyond this year into 2007 and 2008? Thank you.

It's not – I think it's not – in general, we don't have the current detail on that specific number in terms of the breakdown there. But in general, I think I can give you the general, I mean, assumption, maybe it's around 50-50.

Yeah, about growth in 2027. We provide annual guidance, obviously we weren't doing that until we give the full-year results in around March next year. But what you can already see is that over the course of next year, there's going to be a very significant acceleration. The growth rate in 1Q, 2Q, 3Q, 4Q is going to be very different. I think what really matters is where we are at the end of the year and where we are in I believe it's already a strong indication that in 2028 GDS is going to be a pretty high growth company.

Thank you. And if you may follow up on the breakdown 50-50, just wondering if that refers to both this year and next year and onwards, or how that mix can change in the next year.

Yeah, maybe GPO will be a little bit higher next year, yeah, that's what I guess, yeah, based on the current domestic supply, it's catching up, I think, yeah.

Thank you. Due to the time limit of today's call, I would now like to turn the call back to the company for any closing remarks. Thank you all once again for joining us today and we'll see you next time. This concludes this conference call. You may now disconnect your lines. Thank you.