GDS Holdings Limited (GDS) 2026 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited second-quarter 2026 earnings conference call. (Operator Instructions) Today's conference call is being recorded. And 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 second-quarter 2026 earnings conference call of GDS Holdings Limited. The company's results were issued through newswire services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be used and downloaded from our IR website investors.gds-services.com. Leading today's call is Mr. William Huang Chairman of GDS will provide an overview of our strategy, and fulfillment. 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 US 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 range expressed today. Further information regarding these and other risks and uncertainties is released in the company's prospectus as filed with the US 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 on this earnings call include discussions of unaudited GAAP financial information as well as unaudited non-financial -- non-GAAP financial measures. GDS' press release contains a reconciliation of the unaudited non-GAAP measures (inaudible) most directly comparable GAAP measures.

I will now turn over the call to GDS Founder, Chairman and CEO, Mr. William Huang, Please go ahead, William.

Hello, everyone. This is William. Thank you for joining us on today's call. AI is transforming our business. Our sales momentum is the strongest we have ever seen. In the second quarter, we achieved 260 megawatts of new bookings, bringing our total for the first half of 2026 to a record 470 megawatts. During the current quarter, we are well underway securing some major business wins with leading customers. We are confidently raise our -- raising our full year sales target to 1 gigwatt.

Bottom line of sales agreements include a binding take-or-pay commitment. This is a metric which we disclosed as bookings. The sales agreement specifiy the delivery date, which is up to four quarters after bookings. This allowed us to invest based on secured commitments. Following the delivery date gets a brief ramp-up period usually in another four quarters, which gives us visibility to the timing of new quarter billings. Alongside new bookings, our customers also request us to reserve the developable capacity at the same site for their future needs.

Reservation has become an integral part of our sales agreement. So far this year, we have secured an additional 600 megawatts of reservations for our -- from our customers. We expect to end this year with over 1 gigawatt of new reservations. This provides us with high visibility for new orders in the next couple of years as customers convert reservations to binding commitments.

China's tech giant and emerging AI leaders are driving the adoption of advanced agentic models. This has led to a structural upgrade in the demand for computing power and AI infrastructure. GDS is uniquely positioned to address this opportunity as a result of our strength as strategic customer relationships presents across all key markets in China, track record of execution and financing capability.

The strength of our platform is clearly evident in the composition of our first half bookings. We won significant new business from each of the three largest hyper-scale customers. At the same time, we started to establish relationships with a group of emerging AI leaders, which have the potential to generate incremental demand in the future.

Our new business wins are diversified across the markets. For the first half of the year, around half our bookings came from established markets and half from new markets, including Ulanqab and Horinger in Inner Mongolia, and Shaoguan in Guangdong province. We are progressing well with customers for our Zhongwei campus in Ningxia province, which is another new market.

This sales success validate our differentiation resource strategy. At the midpoint of this year, we had total binding commitments for over 2 gigawatts plus a further 600 megawatts of reservation. On the capacity side, we have around 3 gigawatts of developable capacity, which is not yet committed to under reservation. It is mostly in new markets.

In view of our current sales momentum, we are actively adding to the development pipeline in the market where demand is flowing, while we are pursuing our ambitious target, we remain selective in terms of customers and the contract terms. We invested against finding long-term commitments for -- from the customers, and we are committed to maintaining financial discipline.

I will now pass on to Dan for the financial and operating review.

Thank you, William. I'll start from the backlog buildup on slide 10. We started the current year with a backlog of 450 megawatts. By the middle of the year, our backlog had increased substantially to 757 megawatts. Based on the pricing in the contracts and our operating cost benchmarks, we estimate that we can generate RMB2.2 million of adjusted EBITDA per megawatt on average from this backlog, Our booked but not billed adjusted EBITDA was therefore around RMB1.6 billion. By year-end, assuming we achieve our sales target, we expect the backlog to increase further to over 1 gigawatt.

Turning to slide 11. During the first half of 2026, our net Move-In was 145 megawatts. During the second half, we forecast Move-In of another 90 megawatts, making 235 megawatts for the full year. The Move-In pattern over the course of 2026 reflects the timing of bookings last year. For 2027, we forecast Move-In will increase substantially to more than double the number for 2026. The Move-In will be heavily weighted to the second half of 2027. Assuming we sustain our sales momentum, 2028 should see another step up in Move-In.

Turning to CapEx on slide 12. Our unit CapEx for the new capacity which we are constructing averages around RMB20 million per megawatt. As we just raised our sales target for the current year, we are also raising our guidance to CapEx paid from RMB9 billion to RMB10 billion, most of which is in the second half.

Our plan is to continue financing new investments with around 60% debt and 40% equity at the project level. Assuming we can generate a stabilized cash yield on new investments of 10% 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 borrowings. The onshore bank market remains highly supportive.

During 2Q '26 alone, we were able to complete RMB4.9 billion for new debt financing and refinancing. For the project equity, we have various sources. We have cash of nearly RMB20 billion on our balance sheet and we have deleveraged down to 4.7 times net debt to last quarter annualized adjusted EBITDA. We have operating cash flow, which continues to strengthen. And we have our onshore asset monetization program, which we are building up in a very deliberate way. Following our successful C-REIT IPO, the first post-IPO asset injection is currently under regulatory review.

Turning to slide 16. We are revising upward our full year revenue and adjusted EBITDA guidance to reflect a more accurate financial outlook for this year, which includes the onetime items disclosed in 1Q '26. Turning to slide 17, in order to put our first half 2026 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 onetime items in 1Q '26.

For consistency, we also deduct recurring income in prior quarters, which was restructured into the onetime payment. And we deduct the revenue and adjusted EBITDA contributed by the monetized assets prior to their deconsolidation. These adjusters established a clean basis for comparison. For the first half 2026, our pro forma adjusted EBITDA increased by 12.7%, taking the midpoint of our revised guidance, both full year '26, the implied growth rate for pro forma adjusted EBITDA is 6.5%.

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

(Operator Instructions)

Yang Liu, Morgan Stanley.

Thanks for the opportunity to ask questions and congratulations on the upward revision of full year guidance. I would like to ask about the future potential Move-In. 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 your moving to improve dramatically next year. What could be the downside risk for that? And if there is any concern or a delay in when customer get GPUs, will the take or pay contracts to protect GDS revenue? Thank you.

Yes, thank you. I think the dynamic of the demand from the different damage, I think of course, the key driver is still the GPU, I think in terms of the domestic GPU, the surprise catching up. Yeah. It took a while in the last couple of quarters, right, as we mentioned. But now it looks like you're on track to catching up. This is number one.

But in the meanwhile, I think they also drive a lot of traditional cloud that growth. What we have seen is the new order quite a big number is driven by the -- generally speaking. So it will not impact in terms of the supply. There's no issue. So I think this is a world positive. So that's why we take the 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 the traditional cloud business, they are 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. 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 is 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. 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.

Sara Wang, UBS.

Thank you for the opportunity to ask a question and then congrats on the really solid new order size. As management just mentioned that there's increasing demand from emerging AI leaders. So just wondering is there any difference in the demand profile or contract terms compared to established cloud or Internet hyperscale customers we already served for quite some time.

I think we just started to build up our relationship. So far, we're very significant some business from this AI new leader. I think in terms of the demand profile, it looks like it's getting bigger and bigger, but we have still very senator. But our main customer base and the new business mainly driven by the hyperscale that a couple of large hyperscale. But we are -- we think that there are some new customers in the future. It's the right thing to do to diversify our customer ways. So we just start to build some relationship with them right now. So of course, the demand work on business or this is difference. And which we believe, yeah.

I see. Thank you.

Frank Louthan, Raymond James Associates.

Great, thank you. I wanted to get an update on what is your new guidance and what does that imply for the impact of potential action with the C-REIT 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 what -- and if we're looking forward, are you signing contracts that should be re-resulting in an improvement in MRR going forward? How should we think about that? Thanks.

Great. 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 the forecasting. If we go back to MSR, I always make the comparison on a same quarter basis.

So if we take 4Q '26 compared with 4Q '25, we forecast that it will be down 3% and then maybe by a similar amount next year. So part of that is the change in the location mix because there's a substantial 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, we 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 levels might be stable in all about the transition.

Okay, great. Thank you.

Daley Li, Bank of America Securities.

Hi. Thanks, management for taking my question. Congrats on the opportunity for the new orders. I have one question regarding the moving -- I remember in last earnings call, we are seeing soft moving rate in Q2, but it seems that the number is better than our market expectation. So what will be the -- what have been the key drivers for better moving in Q2?

And secondly, how do we see the demand and supply trend in the data center market in China considering the power quarter approval progress by the government? Thank you.

Daley, I would not read anything into the quarterly fluctuations. Most of the move in the current year is the capacity that was booked in 2025 or even before. And if you look at the bookings in 2025, we had a very strong first quarter '25. And then the second, third and 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's sustained in the second quarter indication for the full year that sustained. So I think you can derive from that, the outlook for Move-In over major of 2026 and in 2027, we see a significant increase in Move-In the second half of 2027, which is going to lead to a significant acceleration of EBITDA growth..

I think in the current part of call, there's a couple of key points. I mean, number one, now it's controlled by the central government and the municipal government as well. So basically, if you apply the poles, first step is to go to the municipal because getting the local government commitment they are approved before, right? This is number one.

I think now government is quite a selective right now. They try to give some the leader -- market leader, more education, that's why we have built up our ramp in the last 18 months so quick, right, and take some advantage of the GDS brand, right?

So second there, we go to the prevention level NDRC approval, then go to as the final approval from the central government NDRC or the central government. That's the key part of how we get it out of the location.

Thank you.

Edison Lee, Jefferies.

Hey. Thank you for taking my question. So congrats on the good results. My question so it's 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, I 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 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 that typically at the same site in 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 meanwhile, I think we should say based on what the last 12 or 18 months experience, which the reservation our customers exercise their reservation in a 100% basis. That's our current experience. But in terms of the case by case, which is to negotiate the moving of that in general, reservation is quite certain provide very, very high certainty for our future bookings.

Okay. So can I follow up by asking your booking targets this year. Right now, it's 1 gigawatt. I think in the last quarter, I think your target was still 500 megawatt. So just doubling of the bookings target, I believe, is driven by your customers or your assessment of the customers' demand? And is it possible for you to split the customers demand into training versus inference or you have no idea how to split that?

I think the numbers like in the new market, I think they will host a different workload such as training plus influence. They're both their workload is. I think the increased guidance is, number one, is that the whole market demand we see is an increase. If you look at our kind of hyperscale. They continue to increase their CapEx. And that's in line with the business. That's number one.

Number two, I think the GDS still maintained a lot of advantage, which is our customers prefer and -- so everybody knows we are tapping the new growth, and we start our new business plan. So I think in terms of the capital revenues even better than other competitors. So I think the customer will more rely on us.

And in terms of your power reserves, can you talk about the locations of your power reserves.

So the part we identify is developable capacity, that is almost entirely in new markets. We had capacity in established markets, but it's under reservation, only a small amount in established markets that have not remitted all reserves.

So is it very different from what you disclosed in the last quarter in terms of locations?

We disclose order book end market, yes.Reservation right. Reservation is creating the tier market and. It is an aggregate base.

Timothy Zhao, Goldman Sachs.

Well, thank you management for taking my question. I think I just want to get more clarity on the move and how do you want to look at the revenue and EBITDA, I think beyond this year? Just wondering if you can give us a breakdown as for example, for this year, a lot of wins, what is the proportion between CPU-based and GPU base. And into next year, it seems like you are looking for the Monve-IN to be more than double to close to 700 megawatts next year? And what will be the breakdown between GPU and CPU next year?

And with that 700 megawatts Move-In, of course, I think the majority will be more geared towards 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 '27 and '28? Thank you.

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

Yes, about growth in 2027 we provide annual guidance. Obviously, we were doing that until we give the full year results and talk 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 of the growth rate from 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 2028. So I believe it's already a strong indication that in 2028, GDS is going to be a pretty high-growth company.

Thank you. And my 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 GPU will be a little bit higher next year? Yeah, that's what I guess. Yeah. Based on the current domestic supply is catching up. I think yes.

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 guys, again for joining us today, and see you next time.

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