Earnings Call Transcript - GDS Q4 2023

Operator, Operator

Hello ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a 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.

Laura Chen, Head of Investor Relations

Thank you. Ladies and gentlemen, thanks for standing by. Welcome to the fourth quarter and full year earnings conference call for 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.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. Ms. Jamie Khoo, our COO, is also available to answer questions. 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. Now I’ll turn the call over to GDS Founder, Chairman and CEO, William Huang. Please go ahead, William.

William Huang, Founder, Chairman and CEO

Thank you. Hello everyone. This is William. Thank you for joining us on today’s call. The number one priority of GDS management is to create value for our shareholders and drive share price recovery. Today, we are delighted to announce the landmark US $587 million equity raise for our international business. This is a big step forward in our strategy to develop and finance GDS International on a standalone basis. The equity raise also highlights how much value we have already created for our shareholders through international expansion. We have been developing our business in China for many years. We are a market leader with over 1.5 gigawatts of capacity in service and under construction. We are confident that we will maintain our competitive position and enjoy further growth, particularly when AI demand takes off. We initiated our international business in the past couple of years. Within a short period of time, it has become a second growth engine with over 330 megawatts in service and under construction, equivalent to 20% of what we have in China. GDS China and GDS International are obviously at very different stages of development. We are therefore pursuing distinct strategies for each part of our business. For China, we have two major financial objectives. Objective number one is to grow EBITDA at a steady rate. In 2023, our adjusted EBITDA grew by 9% year-on-year, all of which was from China. Objective number two is to deleverage our balance sheet. Our target is to get to below five times within three years. In order to achieve these objectives for China, we are targeting new business that fits our capacity, we are increasing asset utilization by delivering the backlog, we are spending capex only where it is needed for customer move-in, and we are preparing for asset monetization when the market allows. For international, our ambition is to create an exceptional data center platform that emulates our success in China by leveraging our industry-leading capability, strategic business relationships, and the scale economics. In 2022, we set up a new international holding company headquartered in Singapore. It acts as the vehicle for all our assets and operations outside of mainland China. We have assembled a standalone management team and today we announced that Jamie Khoo, our very capable COO, will transfer to become the CEO of GDS International. As we started to expand overseas, we focused initially on two regional hub markets: Hong Kong and Singapore-Johor-Batam, which is the hub for Southeast Asia. These two markets rank in the top 10 data center markets globally. We correctly anticipated where demand would flow. We secured the right resources and executed it well. As a result, we quickly established a market-leading presence in both places. We have secured over 200 megawatts of commitments and reservations from global as well as Chinese customers, and as of today, we already have over 70 megawatts in service and are revenue generating. We see tremendous opportunities for growth in these markets. We are very well placed with our proven track record, development pipeline, and time to market to build on this success. We are actively evaluating several new markets and expect to make further commitments in the near future. Now let’s review our performance in more detail. In 2023, we won 68,000 square meters of new customer commitments; 50,000 square meters came from China, which was similar to the prior year, and then nearly 20,000 square meters or 30% of total bookings came from international. During Q4 2023, we won two large orders in China and one for international. Both of the China orders fit our strategy of matching commitments with the capacity and have move-in periods of less than two years. The international order was from a global cloud service provider for the whole of our Hong Kong II project. As a result, our first two projects in Hong Kong are effectively sold out with long-term binding commitments. Looking forward, the demand outlook in China has not yet picked up noticeably. AI demand is coming, but it will take more time; meanwhile, our sales pipeline in Southeast Asia is very strong. We expect significant new bookings for both of our campuses in Johor in the near future. AI is undoubtedly a big factor driving demand in this market. In 2023, the gross move-in was around 69,000 square meters, 20% higher than in 2022. China move-in was around 56,000 square meters, which once again was similar to the prior year. On top of this, there was the first-time contribution from international of 12,000 square meters as one data center in Hong Kong and three data centers in Johor came into service and started ramping up. In 2023, we brought around 57,000 square meters of new capacity into service across seven data centers, four in China and three international. By the end of the year, these seven data centers had an overall utilization rate of 77%, which is consistent with our target for fast move-in and higher utilization. During 2024, we expect to bring about 81,000 square meters into service, driven by delivery commitments to customers.

Daniel Newman, CFO

Thank you, William. Turning to Slide 17, we just announced today that our wholly owned subsidiary, Digital Land Holdings, which we refer to for now as GDS International or GDSI, has entered into definitive agreements with certain institutional private equity investors for the new issue of $587 million of Series A convertible preferred shares. This first external equity capital raise for GDS International demonstrates our ability to access dedicated financing for our international business without further funding from GDS Holdings. The Series A subscription price implies a pre-money equity valuation for GDS International of $750 million. In terms of our share price, this is equivalent to approximately $3.92 per GDS Holdings ADS. The implied post-money enterprise valuation of GDSI, including forecast net debt of around $935 million as of the end of 2024, is around US $2.3 billion. This is equivalent to around 24 times GDSI’s forecast adjusted EBITDA for the full year 2025. As mentioned by William, GDS International currently has over 330 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong, Singapore, Johor, Malaysia, and Batam, Indonesia. The total development cost for this portfolio is around $2.5 billion, out of which approximately 40% has been incurred up to the end of 2023. As of the end of last year, GDSH had provided a total of around $595 million of inter-company funding to GDSI, comprising $411 million of paid-up share capital and $184 million of shareholder loans and other payables, which will be repaid immediately out of the proceeds of the Series A new issue. This will benefit GDSH in terms of higher liquidity. On a pro forma basis, including $411 million of permanent equity from GDSH and $587 million from the Series A, GDSI will have total paid-up share capital of approximately US $1 billion. As a result, GDSI will be sufficiently well capitalized with equity to complete the development of its current 330 megawatt portfolio. Post-closing, GDSH will own approximately 56.1% of GDSI in the form of ordinary shares and the remaining 43.9% equity will be held in the form of Series A shares by investors including Hillhouse, Rava Partners, Boyu, Princeville Capital, and Tekne Capital. GDSH and certain investors will have the right to appoint directors to the board of GDSI proportionate with their ownership. William will continue in his role as Chairman of the Board of GDSI, as well as Chairman and CEO of GDSH. Other key deal terms, including lock-up, QIPO and liquidation preference, amongst others, can be found in the transaction documents which we will file with the SEC. With this capital raising, it starts to make sense for us to look at GDS business in two parts. As we go through the financials, I will highlight selected numbers for international on a standalone basis and for GDS Holdings excluding international. Turning to Slide 18, for 2023 revenue increased by 6.8% and adjusted EBITDA increased by 8.8% year-on-year. In Q4 2023, revenue increased by 6.3% and adjusted EBITDA increased by 5.7% year-on-year. For the full year 2023, international had negative adjusted EBITDA of around RMB 100 million. The year-on-year growth rate for GDS Holdings excluding international would have been two percentage points higher than the consolidated number. International recorded positive adjusted EBITDA for the first time in Q4 2023. Turning to Slide 19, I will discuss the two main drivers of revenue growth, namely area utilized and MSR. For 2023, net additional area utilized was 48,000 square meters. The annual net add was slightly less than 2022 as a result of higher churn; nonetheless, total area utilized at year end was 13% higher than at the end of the prior year. During Q4 2023, we achieved net additional area utilized of 20,000 square meters, which is the highest level for many quarters. This was mainly due to the ramp-up of our first two data centers in Johor and a minimal level of churn. For 2024, we expect net additional area utilized to be higher than last year’s 48,000 with steady growth in China and increased contribution from international. Turning to the MSR metric, over the course of 2023 comparing Q4 to Q4, MSR decreased by 5%. For 2024, we expect MSR in China to decrease by around 3%, which shows it is bottoming out. The MSR for international is currently higher than for China; hence, on a consolidated basis, we expect MSR to remain at around current levels. Turning to Slides 22 and 23, for 2023 our consolidated adjusted EBITDA margin was 46.4%, which was slightly higher than for 2022 despite the fact that power tariffs in China increased again during last year. For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of 43.7%, which is a more than two percentage point drop compared with 2023. The margin for GDS Holdings excluding international should be similar to 2023. The expected drop in the coming year is therefore mainly due to international growth drag. Turning to Slide 24, in 2023 our China capex totaled RMB 3.5 billion. We have brought China capex down significantly from historic levels and we are only spending where it is necessary to generate growth. In 2024, as William mentioned, we plan to bring a further 58,000 square meters of new capacity into service in China, most of which is committed to customers with firm move-in schedules. Meanwhile, our capex guidance for China in 2024 is only RMB 2.5 billion. The very low implied capex per square meter is because we have already incurred a substantial part of the development cost. What is left is cost to complete. This pattern will continue over the next few years, giving us the ability to grow in China with relatively low incremental capex. In 2023, our international capex was around RMB 2.8 billion. Our current backlog for international stands at over 130 megawatts of committed and reserved capacity, a large part of which is yet to be built. Our capex guidance for international in 2024 is RMB 4 billion, which is largely driven by fixed delivery commitments to customers. On Slide 25, in 2023 GDS Holdings excluding international had negative cash flow before financing of just over RMB 1 billion. Our objective is to maintain positive cash flow before financing on an organic basis. We have already been positive in some quarters, and for 2024 as a whole, we expect to be close to breakeven. In 2023, international on a standalone basis had negative cash flow before financing of over RMB 3 billion. In 2024, we forecast negative RMB 4 billion, which can be fully financed by the equity raise and project debt. Looking at our leverage on Slides 26 and 27, at the end of 2023, our consolidated net debt to last quarter annualized adjusted EBITDA multiple was 8.5 times. Excluding international and pro forma for the repayment of shareholder loans, the multiple was 7.5 times. Turning to Slide 28, during 2024 we have RMB 2.3 billion of project loan amortization for China. We expect to generate an equivalent amount of new financing cash flow as a result of the repayment of shareholder loans from GDSI to GDSH and draw down under existing facilities to finance around 50% of China incremental capex. Turning to Slide 29, before I talk about guidance, I would like to flag the impairment loss of long-lived assets of around RMB 3 billion, which we reported during Q4 2023. We are required to test for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The impairment loss was mainly associated with data centers located in properties which we lease for a fixed term and a few data centers which we plan to consolidate. Turning now to guidance for the full year 2024, we expect total revenues to be between RMB 11.34 billion to RMB 11.76 billion, implying a year-on-year increase of between approximately 13.9% to 18.1%. We expect adjusted EBITDA to be between RMB 4.95 billion to RMB 5.15 billion, implying a year-on-year increase of between approximately 7% to 11.4%. On a standalone basis, we expect international to contribute around RMB 100 million to RMB 150 million of adjusted EBITDA in 2024. As I mentioned earlier, we expect total capex of around RMB 6.5 billion for the full year, comprising RMB 2.5 billion for China and RMB 4 billion for international. We’d now like to open the call to questions. Operator, please?

Operator, Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Frank Louthan from Raymond James. Please go ahead.

Frank Louthan, Analyst

Great, thank you. Just really quickly, when can we expect to see some more full breakouts of the international business - that would be the first thing; and then secondly, if you can characterize the move-in schedule of the international customers relative to what you’ve seen historically in China, and how quickly we could expect to see those customers billing inside those new developments. Thank you.

Daniel Newman, CFO

This is Dan. Today, we’ve started to provide a breakout of the capex and of the leverage, where clearly there is a significant difference looking at GDS Holdings consolidated or GDS Holdings in two parts. I did verbally give the numbers for EBITDA - I said that last year, international had negative EBITDA of RMB 100 million for the full year, and this year we expect positive EBITDA of RMB 100 to RMB 150 million. It’s not yet material in the context of GDS Holdings numbers, so we don’t propose to report segment financials, but as we move through this year and the materiality increases, we will certainly consider that. Did you want to comment about move-in?

William Huang, Founder, Chairman and CEO

Move-in compared with China, right?

Daniel Newman, CFO

Yes.

William Huang, Founder, Chairman and CEO

I think what we see is international move-in is better than what we have in China. In general, I think people all want time to market more quickly than other regions, so it’s very good and the general revenue moves faster than in China.

Frank Louthan, Analyst

Okay, great. Thank you.

Operator, Operator

Thank you for the question. One moment for the next question. Our next question comes from Eunice Liu from Goldman Sachs. Please go ahead.

Eunice Liu, Analyst

Thank you management for taking my question. This is Eunice asking a question on behalf of Timothy Zhao. My question is has the company seen a fast ramp-up of the AI related demand, especially for GDS International? Another question is what it takes to achieve the high end of your guidance in terms of revenue guidance for next year. Thank you.

William Huang, Founder, Chairman and CEO

Yes, I think in the international business, of course I think actually we don’t know what the customer move-ins are, because they’re all very confidential, so based on our current product profile, I think we do see some high density rapid requirements, plus I think the international demand varies, because it includes a lot of internet companies, OTT, and also traditional GPU cloud as well. So it’s mixed. I think we do see maybe AI type demand is already there, yes.

Daniel Newman, CFO

Eunice, your question about how do we achieve the high end of our guidance, we split the guidance into two parts. For China, we’re expecting a standalone adjusted EBITDA growth rate of around mid-single digits. This is consistent with the run rate that we’ve seen over the past couple of years in terms of quarterly move-in and the trend in MSRs and EBITDA margins. We’ve forecast this assuming that current market conditions continue through this year, maybe next year. I think the outlook could be more positive in 2025. For the international part of business, clearly the turnaround from negative RMB 100 million to RMB 100 million to RMB 150 million positive is quite significant, and that elevates the growth rate. For international, we’re forecasting bottom-up based on the time schedule for individual data centers to enter service and the customer contracts associated with those data centers which have a fixed move-in schedule, so we base the forecast largely on what are the terms of those contracts. The international business is very dynamic; it’s in an early stage. It’s already achieved significant scale, but typically for a business of this stage of development, there could be a wider range of outcomes just because things are moving so fast. I think there is potential upside in the international business as more data centers come into service.

Eunice Liu, Analyst

Thank you.

Operator, Operator

Thank you for the questions. Our next questions will come from the line of Yang Liu from Morgan Stanley. Please go ahead.

Yang Liu, Analyst

Thank you for the opportunity. I have three questions. First, could management provide more details on the international revenue contribution guidance for 2024? Second, I noticed a significant increase in your overseas megawatt data center pipeline, which was 372 megawatts at the end of last year’s third quarter. Can management update us on the pipeline development, specify the location of the new pipeline, and share the potential timeline for delivery? Additionally, what type of business is this incremental overseas pipeline targeting, such as hyperscaler or retail? My third question is about the additional sales expected for 2024. Is there a chance for total sales or area booked in 2024 to see a turnaround, particularly from a megawatt perspective? Thank you.

Daniel Newman, CFO

I’ll take the first question. Hi Yang Liu, it’s Dan here. I think we provided revenue guidance for the full year of RMB 11.34 billion to RMB 11.76 billion. We expect the revenue of international standalone to be about RMB 1.1 billion, plus or minus, as I explained in answering the previous question.

William Huang, Founder, Chairman and CEO

I believe the pipeline is very strong overall. We are seeing orders from around the world, including significant activity from China, indicating that our international business is gaining substantial momentum. Many customers are requesting delivery as quickly as possible, which reflects the high demand. Additionally, the types of customers we are engaging with vary widely, including numerous local and global tech firms, as well as many e-commerce companies, highlighting that this demand is not limited to China but is truly global. This is very exciting, and I anticipate our international business will grow much faster than expected.

Daniel Newman, CFO

I think Yang Liu was also asking about your bookings, expectation for bookings.

William Huang, Founder, Chairman and CEO

Yes, we don't want to set specific expectations because each quarter brings changes. We aim to maintain an average level from the last two years, which is 50 megawatts per year. However, based on our current pipeline, we could potentially achieve a much higher figure, perhaps even double that. But we prefer not to set expectations too high. Fifty megawatts is our baseline in the international market. Additionally, as I mentioned, this pertains to the Southeast Asian market. We are also closely monitoring new markets like North Asia and Europe.

Daniel Newman, CFO

I think Yang Liu, I just want to check, your question about increasing pipeline, if you were referring to the secured development pipeline, the reason why that’s gone up very significantly is because at our established campus, that we refer to as NTP, we acquired additional land and secured additional power. At the same time, we have established a second campus in Johor called KTP, where we have started construction, around 20 megawatts, but we plan in a single phase to go to around 100 megawatts, and we also look forward to obtaining some commitments for that site in the next few quarters.

Yang Liu, Analyst

Got it, thank you.

Operator, Operator

Thank you for the questions. Our next questions come from Daley Li from Bank of America Securities. Please go ahead.

Daley Li, Analyst

Hi management, thanks for taking my questions. I have two questions. The first one is about the China data center business. Could management share some of the demand trend for our clients, maybe for public cloud providers and the internet companies and financial companies, how the demand trended given right now, the government is publishing more policies to support AI in data centers, and how do we see the competition? My second question is about the overseas business. Congrats on the recent fundraising. How do see future financial channels in the overseas market as we try to develop more business after two to three years, in terms of financing channels? Thank you.

William Huang, Founder, Chairman and CEO

Okay, I’ll take your first question. In China, I think we do see some signals that AI demand is increasing, but based on the current chip supply issue, I think the demand is not fulfilled by our chips, so what we can tell, the chip supply in terms of a new version of Nvidia, like H20 and also some China chip supply profile, what we can see is maybe the end of this year or early next year, China data center demand will recover in a significant way. What I think this year, you can still see a lot of demand frying right now, but actually everyone is waiting for the chips, so the impact to our data center real demand, I would say it will start from next year.

Daniel Newman, CFO

Your question about financing requirements and options for international, the rationale behind the capital raise which we announced today is to ensure that we have adequate equity capital for the existing portfolio which is in service and under construction, but we are moving forward rapidly and the requirement for additional capital will depend on how the business plan evolves. We will take a view as new opportunities come up and new commitments are made. I think we’ve spoken before about a strategy of limiting the amount of capital which GDS Holdings allocates to international. We’ve allocated US $411 million; now we’re beginning to leverage our equity investment with external equity at a premium valuation. I think this first Series A capital raise has required us to establish GDS International on a standalone basis and put in place the governance and all the aspects of an intercompany relationship and so on, which is quite a challenge. I think after having done this deal and with the investor group who are now partnering with us, I think GDS International is very well placed to do further capital raises, and that could either be at the country level, as we’ve done already in Indonesia with our joint venture with INA, or it could be at the international holdco level.

Daley Li, Analyst

Thank you management.

Operator, Operator

Thank you for the questions. Our next questions come from Robert Chu from JP Morgan. Please go ahead.

Robert Chu, Analyst

Okay, thanks. Thanks Dan, thanks William. I’m asking on behalf of Gokul. I have two parts of my question. First one is on the competitive landscape and the IRR. Can you help us understand what the IRR looks like for the international business, given we have so many regional players, local players, or Chinese players competing in this market? Secondly, I think you kind of guided the international business revenue contribution for this year will be probably 9% to 10%, so you mentioned that you are considering to expand beyond this Southeast Asian market, probably Europe or North Asia. So how should we think about the revenue contribution from the international business in three to five years' time? Thanks.

Daniel Newman, CFO

Thank you, Robert. First of all for the IRRs, we have undertaken projects in Hong Kong and in Johor and in Batam. Each market has a different cost of capital, but in a very general way, the IRRs have been within the range that we target—unlevered post-tax IRRs of not less than 10% up to IRRs in the low teens. This currently compares really quite favorably with what is achievable in China at the current stage in the cycle. For the contribution of international, without giving out forecast, I think we talked before about hitting 15% of consolidated revenue or adjusted EBITDA within three years. I think that is definitely achievable and may be higher than that.

Robert Chu, Analyst

Thank you.

Operator, Operator

Thank you for the questions. One moment for the next question. The next question comes from the line of Bora Lee from RBC Capital Markets. Please go ahead.

Bora Lee, Analyst

Thank you. Hi, this is Bora on for Jon Atkin. I think William had mentioned GDS expects to enter additional markets. Can you elaborate on how you’re thinking about the margins or regions you’d like to expand and the time frame you had in mind? Secondarily, any update on the Singapore development? Thank you.

William Huang, Founder, Chairman and CEO

I think our strategy is, first of all, we see tremendous growth in Southeast Asia and the whole Asia-Pacific, which is a market we are very familiar with. I think the first step, we will still focus on Southeast Asia to maintain the market-leading position. I think this is our first priority. Meanwhile, we have already started to develop the Japan market for a while, and I think we are maybe— in the near future, we can announce some progress. I think the Japan market and the Korea market are also very attractive. They are top data center markets in the world, and we see the demand, so in general, we follow the big market, and we will also follow the high growth market in the future. But as I just mentioned, we do see some opportunities in Europe as well, but this is another future target market. Of course, this includes the Middle East. Singapore, yes, we target to deliver the launched data center by the end of 2026, so that’s our time frame, and we made some progress. We have a couple of short-listed sites, and we are already trying to make the final decision to choose the site, so I think we will tell the investors once we’ve made the final decision.

Bora Lee, Analyst

Great, thank you.

Operator, Operator

Thank you for the questions. One moment for the next question. Our next question, we have Sara Wang from UBS. Please go ahead.

Sara Wang, Analyst

Thank you for the opportunity. I have two questions. The first one is on China's business. What’s the trend of MSR or churn rate when you renew contracts with existing customers, say over the past two quarters, and then how should we think about the trend going forward? The second question is still on AI, so maybe for both China and international projects, because AI requires a higher density rack or even more advanced cooling methodology. Is there any difference between maybe high-density power racks in terms of revenue or margin profile, compared to maybe cloud demand we have seen previously? Thank you.

Daniel Newman, CFO

Yes, I’ll answer the first question and maybe William—

William Huang, Founder, Chairman and CEO

Yes, I think in general, I think the current AI—of course, AI will definitely in the future, will be the main driver to drive the data center demand. This is what’s happening in the U.S., what’s happening in Europe, and also in the Southeast Asia and the Japan market already, but it’s just a start. In terms of the difference, I think the AI guys need more big capacity. Historically, when we talk to cloud guys, demand, if we use a single deal size, let’s say internet always ask for 10 megawatts, 20 megawatts, that’s the maximum, and the cloud guys normally ask for, let’s say 30 megawatts, 40 megawatts. But now what we can see, the deal profile is totally different. A lot of our customers, they ask for 100 megawatts or 200 megawatts per campus, so that means they need more power capacity in one site, so this is one difference. The second, of course, in general average power density goes very high, so we are well prepared for that. In terms of cooling, I think everybody knows if you want to get the level of your product per rack above 20kw per rack, it’s better to start to use—try to start to use the liquid cooling. In terms of technology, we are very familiar with the liquid cooling because five years ago, we started to use the liquid cooling solution in China, so I think we’re prepared to catch up to AI demand in the future, whatever size—in terms of size, capacity of the size or power density, or cooling technology. We are all good at that.

Daniel Newman, CFO

Sara, your question about MSR, I always answer this in the same way. MSR can be affected by a number of different factors; it’s not just a reflection of change in market pricing. It’s also dependent on location and type of data center. Rather than talk about pricing on renewals, I always give some guidance or direction on the trend in MSR. I mentioned during the prepared remarks, over the past four quarters—that’s Q4 2022 to Q4 2023, the MSR decreased by 5%. Over the next four quarters—that’s Q4 2023 to Q4 2024, we expect the MSR to decrease by 3%. Most of that decrease is due to the delivery of the backlog; a smaller part is due to lower pricing on renewals. But if we were to look further forward beyond 2024 to 2025, MSR is bottoming out, which means that as you project further into the future, our revenue growth will be mainly driven by the increase in net additional area utilized, with MSR decrease becoming less and then becoming flat.

Sara Wang, Analyst

Got it, thank you.

Operator, Operator

Thank you for the questions. We have come to the end of the Q&A session. I would like to now turn the call back over to the company for closing remarks.

Laura Chen, Head of Investor Relations

Thank you once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website and Piacente Financial Communications. Bye, see you next time.

Operator, Operator

This concludes this conference call. You may now disconnect your lines. Thank you.