Q4 2019 Earnings Call
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Ladies and gentleman did east countries will begin shortly in about five to 10 minutes.
We appreciate your patience.
Ladies and gentlemen, Denise conference call will begin Charlie in about five to 10 minutes. We appreciate your patience.
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<unk> and full year to tell us anything <unk> earnings conference call. At this time all participants are in listen only mode. After managements prepared remarks, there will be a question answer session cities country. In school is being recorded I'll now turn to cold over to host missile origin.
Stimulations for the company. Please go ahead Laura.
Hello, everyone welcome to the full can I see.
Nike earnings Conference call.
Limit.
We are deeply sorry to keep you guys wastage waiting for so long, but we just have some technical issues last night.
Oh released with the FCC, so we should be fine.
The company's results were.
Yeah, you slice.
And our posted online.
Summary, presentation, which will.
During these conference calls can be viewed and download it probably still so website investors.
So the so called [noise].
Leading today's call Mr. William Wong.
Founder Chairman and CEO.
Provide an overview.
Strategy and performance.
Mr and human GDS CFO.
The financial and operating results.
Jamie Cool I would see alone.
Oh, It's also question.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provision.
Private Securities Litigation Reform Act of 1995.
So what you're looking statements.
Yeah.
Uncertainties.
As such the company's results may be materially different from the views expressed today.
Further information regarding beef and other risks and said since this is included in accomplished perspective as far out with the U.S. FCC.
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 UN audited GAAP financial information I saw that I'm on non-GAAP financial measure.
Yes.
Tedious press release contains a reconciliation of the Oh, that's it not gotten matches so the UN audited most directly comparable GAAP measures.
Well now turn the call to GDS founder Chairman and CEO William Wong. Please go ahead with him.
Okay.
[music].
I'm here you can go with Dan the Jamie.
And can join us.
Today's call [laughter].
With all the reasons.
You saw the 19th feels like a long time ago.
It appears to me to begin by talking about.
Actually my last year.
[music].
Adding.
81.
81000 square meter.
So many people.
New customers come in.
When fully delivered.
It's Adam I'm me.
Billion.
Yes, the older 345 million.
I mean gravity.
We spend a beta sand capacity, even like when you sell.
Any 95.
I mean, a in Serbia and under construction.
Yeah dishes.
[music].
Uh huh.
We currently have.
317, shallow square meters swim either [laughter] future demand.
We should be.
Anyway Dirty.
Okay.
It's very variable and a key.
Jim you continuing success.
Oh no it.
Capacity additions.
<unk>.
Our financial results.
Interest.
We grew revenue by 47.6% and I, just thought you'd be done by 74.3% year over year.
We beat guidance.
Vince.
[laughter].
Our adjusted EBITA margin came to.
Neely.
Sandy point.
Yeah.
Hi.
[laughter], we've raised the U.S. dollar 900 million everything to ensure.
Second we can keep growing actually I went to pace.
[laughter].
We established and no major strategic partnership with GE I see we should expand.
Adjustable market and the games games access.
Don't have you ever saw some equity.
Turning to slide five.
Demand was consistent is strong.
To start the 90.
What is driving driving these.
First and foremost it's called boxing.
I'd call Maki leader.
Okay.
60% revenue gross for the last quarter.
Yes in color just sort of.
Nearly 19, 19% growth.
The call in China is skewed asset early stage in total.
Penetrating large enterprises.
In addition to CLO, we haven't recently stopping it to see our customer gearing up.
If the pacing.
Fiveg take off.
That's a 22.
Customer franchise outside.
The merger the major highlight is bashing, our hyperscale customer base.
Oh, okay.
The man from top to customize whats very well [laughter] team and the continues to China.
<unk> sales.
On it ahead.
We made it brings me with several key outcome.
As a result, which we know.
I think is seeking they begin to show them service provider to almost almost all the hyperscale customer hyperscale customers in China.
So we think Baptists.
Multi maki panel.
Continues.
Long term track record.
Reputation for operational excellence.
Transparency and the financial stability.
These other differentiators, we should have taken you took him get better and I'm not easily matched.
We believe that.
Maki share at the increase in tier one markets.
With our parents accustomed to me.
We approach.
Interesting two girls cost the digital economy.
In addition to Hyperscale.
We added to some highly.
[laughter] procedure is new logos.
In the last quarter, we signed a monster sales agreement with April and a one hour of course the business from the people.
We ended up being yeah, there's great sales momentum.
No we haven't raised our sales talking 10 to 20 to 100 square meter next.
Made up.
80000 square meter meter organic growth and the trend piece all those from either from the pending acquisition in Beijing.
They've probably been lucky reflect any field.
Increased usage did you too.
I'm missing the parents appearance.
Even one cute and see where we are on track to achieve comfortably.
So then square meter neck.
And then next quarter also.
Very strong.
Isn't damaging that's a customized.
Holding back.
We expect it to make a lot of Oh, well towards the 100, salt as well, how do well hundred K target by the middle of the year.
Turning to turning to slide seven.
Not only is demand strong. It is also very noticeable that customers have Chad it yeah.
Yeah, we commit team already in to secure the Evan.
Huh.
Business after the end upward trend in our pre commitment right.
Even the EVD almost everything everything that we do if given the bi specific customer requirements.
I'm sorry nine.
As we had been seeing for a while.
The biggest a challenge.
It's keeping up with demand in tier one markets.
To deal with Big Challenge, we haven't involved evolves.
Oh Gosh, two party, resulting in free major wheat.
[laughter] because of the restructuring all data center divestment in urban areas.
We have established established a supplemental.
Subsequent events every present at the edge, Tom such as long as well, so Beijing, and Shanghai and the town shoes, just talk show.
Second.
We have increased toppy English.
Existing buildings in urban areas and the Greenfield Lynn after the edge Uptown.
We know what 50%.
And tight capacity.
Turning to development pipeline.
As compared to when I run all the 20% after the end of two Sheldon too [laughter]. Indeed, 18 increased ownership give much much more flexibility and the certainty about.
And this year.
We haven't puts tremendous abacus into building up our pipeline future projects.
We aim to have at least three years supply in each market and I haven't made great progress towards these goals.
The change about poached, it's already you maybe grapes a result.
Let's move to page 10.
Take a long.
Sample size Kim.
It's 50 kill me get them it's [noise].
From a Beijing and the Bible edge Uptown location due to the existing concentration Kerry Kerry a data standards.
We see left it along.
With that endorsement of our top customers.
And the spend.
Hi, walking with the local government.
<unk> agreement.
Oh man and the investment.
Well you know we have nothing even long problem.
Today, we have city saw those from either capacity.
In service and under construction.
A qualified data centers.
Although we understand commit to that by our customer.
We have secured another 18 83000 square meter often but the vessel capacity.
We aim to repeat a bit [laughter] other she will mark.
Another way in which we have evolved our approach is with regard to EPS issues.
We studied it off a few years ago viewing M&A as a means of adding to our [laughter].
No. We also released ads out we are increasing our pizzazz 18 locations.
Expanding our relationship with strategic customers and accelerating our gross.
That is quite different terms.
We have.
Stepped up our M&A efforts and that you have to up to be totally lost we aim to do more deals where we are actively pursuing several deals [laughter] target.
Before I hand over to Ben I would like to see a feel what's about to the currency tree.
So I'm not all seven often CLO virus.
But the I mean, how the top pet already had been to ensure number one just safety safety and the wellbeing.
Employees and all the people, we inked even correct when.
And the second.
Incident free appreciate.
So far I'm pleased to see we haven't achieved both go both ways viral infections and a zero instantly breach.
It has not be easy we meet him any change.
Policies.
Cdrs and the communication.
The business continuity is where we come from its part of our DNA.
Yes, that's we have taken have been very much appreciate it by our customers.
We received a lot of.
Was it a feedback.
Yes at a time like this that you get casket.
That's it accordingly.
[noise] appreciating sets us.
Pop.
That's a customer must remember why they do business with us.
Our reputation as being had.
Coming into the Twentytwenty.
Well field.
That's our market position and the capabilities had a daughter lobby stronger over the past the year.
While the opportunity in front of.
Keeps getting bigger.
The virus.
Epidemic is that talk tragedy, and our thoughts and prayers.
Oh with all those who has well had been effect.
During these tough time.
Digital service has paid a critical role.
We haven't all had to change our behaving and this may result in a structural shifts in how we live and work.
The importance of to and the like infrastructure has been recognized add to the highest to level off the Chinese government.
And that May result in favorable new policies.
We are waiting to see the specifics.
However, long it to take to get it through this period.
We believe that did a fundamental about what Bob <unk> position and the opportunity we remain in cash if not stronger.
With that I hand over to there for the financial and printing reviewed thank you.
Thank you William.
Starting on slide 15, where we stood no contribution from equipment sales.
[laughter] changes [laughter], if 119 finished strongly and I'm pleased to say, we beat our guidance for revenue and adjusted EBITDA.
Focusing on team.
So this revenue grew by 9.5 cents.
Well I'm just anyway.
My second one full persons.
And on underlying adjusted EBITDA grew by 8.8 cents in consecutive quarters.
Oh underlying adjusted EBITDA margin was from slightly down last quarter at 45.6%.
For the full year.
The one adjusted EBITDA margin was substantially higher at 44.7 per cent compared with 37 cents indefinitely.
Turning to slide 16.
Service revenue growth is driven mainly by customers moving in the space, which they previously committed.
Moving to drink pool to 19 was 18000 square meters, including 7800 square meters couldn't BJ knowing.
BJ noise isn't acquisition, which we entered into last few.
There's no comes yet pending a final CP.
Hi, intermediates that existing customers have entered into new contract start Ricky with US have you taken over operation is a big sensor Andre management contracts.
Oh and I saw was quite stable over the course of 29 team.
<unk> expenses flights open twitchy, Quincy, mainly due to customer location mix acquisition and the timing of mood.
Slide 16 shows the quarterly trends in margins.
In whole pinpointing underlying adjusted anyway margin decreased by one percentage point.
Mainly due to 45000 square meters, new capacity coming into service in the last two quarters.
In addition, under the BJ nine arrangements, we're getting a low double digit margins until the deal closes which is a slight driver.
The decrease was partially offset by leverage on that Shimon.
20007, 0.8 cents, a service revenue compared with 8.4% in the proportion.
Well I'll walk you underlying adjusted EBITDA margin, let's just move with 3% <unk>.
No.
Definitely crazy, we expect around one percentage point.
And then why level and the full Walton said from leveraging this unit.
Well be true could be a bit up and down.
Turning to slide 20.
Oh, so capex and that's why 19 was 5.3 billion.
Including 1.5 billion related to acquisitions that they can centers property.
[laughter] book, you 19, we paid for the whole coal to cite the Shanghai 14 building and most of the consideration.
The woman or six acquisition.
She ended last year, but also paid out 270 million RMB build to suit joint venture projects, which will be reversed when we still have a nice equity interest.
C.
The majority about Capex consists of phones and equipment, which is essentially the same in each state and the cost is easily benchmark.
We've been able to reduce our unit capex repeatedly by 3% to 4%.
He is I.
I'd expect to continue doing so.
The remainder of the topics relates to the building which could be Lisa.
Until the Ekso power consumption.
So you know topics for this.
On varied depending on specifics of each project.
Average for stages around the same level.
On slide 22.
We ended 2019, we process or 16.2 billion.
RMB 1.3 billion U.S. stores.
Around 80%, which was in the pool was mostly local currency denominated.
So those are financed leases.
This bad it's bumps around the put your cash flows.
It is substantially code sell multiyear contracts with investment grade customers.
The total loans, a covenant light well had no covenants.
[noise] the remaining 20 concerns about that.
He is made up of the C at Holdco level.
Which is unsecured and as remaining terms over five years.
It wasn't common facilities would fit holder the numerous times.
In Twentytwenty regarding for 7.5 billion RMB topics, which is elevated due to payments opinion. They said, it's a property acquisitions.
Assuming a conservative financing ratio.
40 60.
Equity today.
We will need 3 million RMB of equity.
And <unk> point 5 billion RMB <unk> debt to finance all Capex.
Well, there's pretty Pos.
We have city or 5.8 million of cash.
We expect adjusted operating cash flow this year.
The first off most of the sort of do already in place.
We have 2.5 billion or b.
Commit to spend on June.
Leading about 2 billion RMB, which we're working on right now across seven facilities, whose lives and foreign fighters.
To put this lady recon with respect to last year, we secure nearly 6.5 million or be of new debt securities.
The banking market in China is very sport.
We have a great progress what does the borrower and it's a great banking relationships I do see notably otherwise it should go continue.
Finally, we established partnerships with Penn and do you I see to ensure that we have access to diagnose funding sources I don't know block the public markets.
So does the current situation will always considering alternative funding options disease and all the potential partners.
Twice, our capital structure and cost.
Turning to slide 23.
Oh, sorry cycle has been increasing each quarter.
We ended at point going team is 180000 square meters.
<unk> to 70%.
Revenue generation area.
How does the backlog relates to the census in service.
The mountains remains in the 40 to 50000 square meter range I suppose five courses.
Driving organic moving around 10000 square meters per quarter.
Which employs about a four to five point to move in David.
The remaining part of the backlog relates to pay who says is under construction.
The amount has increased significantly but just to the study 1000 square meters again 2018.
Just over 57000 square meters at the end of last year.
No two reasons for this one is what are you mentioned.
This was a between earlier into a much greater extent.
As you can see the table on page 21, we run the taking more greenfield projects with social period is relative small children.
As a bought deal related data says its service increases.
With respect to <unk> to increase.
This is subject to the timing of project completion and other factors in the car on certain operating environment.
[laughter] finish on slide 24 without guidance.
We need the end of first quarter 2020.
So before too, though I should mention what we've already seen in the United States.
The could have enjoyed he doesn't have it is a pay off in two main ways.
Construction and move it.
At the end of January construction costs fell 16, so developed a build to suit projects came tool for Chinese new year.
There's always human so we see due to government restrictions.
We're not experiencing significant problems without supply chain as we placed orders well the bonds.
Nonetheless, we've lost a couple of months, which we will try to make up.
The kind of delay, which we've extended.
Momentarily impact up tonnage will result in the car yeah.
Moving is a much more material issue in the shorter.
As is the primary driver revenue and profit drugs.
The post quarter is usually a seasonally seasonal low practices and this was reflected in our original food cost assumptions for the current here.
As of today, it looks like I won't be twins, you moving Linda a few more several thousand square meters true original targets.
Nonetheless, we should still be able to achieve one you twin she revenue and eat all gross in the mid to high single digits quarter on.
Looking forward.
The situation is that we have a large amount of crops in service ready and waiting for customers to move it.
Oh well into the then.
Well, there's too many corporations limitation.
No so since in the supply chain.
With regard to IC hardware.
China appears to be on a cost recovery.
This will be affected by what's happening with supplies inside and outside the country.
Given the lack of visibility about price recovery, we took the view that we should revised down a little bit assumption.
Several thousand square meters incrementally both fortune.
No change any other assumptions in our full cost.
Putting this intermodal regarding for revenue of 20.6 feet Vivian RMB at the midpoint.
Probably 36.6% growth year on year.
And its own EBITDA of 2.61 billion RMB at the midpoint employing 43.1% growth year on year.
He's probably right around five percentage points lower than what we originally intended to guide.
Oh says is that this guidance is concerned.
But a pretty good in the circumstances.
We believe the route to the upside is greater than the rest of the downside.
And this is already a perfect guidance around 7.5 million RMB, which 2.5 could you maybe relates to the pending acquisitions.
BJ noise.
TJ 10, 11 12.
The building and I'm district started going.
I'd like to be afraid that one of those fundamentals remain intact.
Oh, no change that plans.
Despite the tough conditions.
We expect health business because to be highly resilient.
But as confident as ever about a medium and also could possibly.
But I don't know and part of my presentation, and we found luxury pool to questions operator.
Certainly things.
Ladies and gentleman, who will now begin to question answer session. If you wish to ask a question. Please press star one of your telephone and we trade name to be.
If you wish to consider good question. Please press the pound or has.
For the benefit of all participants on today's call. Please screening yourself.
[laughter].
[noise]. Your first question comes from the line.
Yes.
From Morgan Stanley. Please ask your question.
Give me a this is young from Morgan Stanley.
I have two questions.
First one is for William.
Oh, I'm going to the policy I notice that the recently a central government team trying to encourage that data center as a new infrastructure for the first time.
And Oh whenever youre.
Expecting come off the future policy support can we see more poracota all more funding support.
And the weather these kind of policy will change the investment return profile this industry.
I know second question.
For the new booking Oh target.
I'm not sure you felt Oh acquisition, Oh announced in December last year.
This fleet to 2019, and 2020 or is it all of the.
Ron Twentys selling square meter will fall to Twentytwenty.
Okay.
Thank you.
Okay.
Okay.
So the first a question I mean, yeah, yeah, you're right. The first of Dina send a it said.
Well what category to by the Central government has done a new strategic infrastructure in China right now.
It's a mainly driven by to Fiveg strategy right.
So I think in it.
I see it so it's no is the only thing it's too early to address say something about what happened or what's the new policy will launch specifically what are what I. We are we I invite we were invited by the central government up to discuss how to.
How are you guys [laughter], how did you give them that more advice how cheap.
Huh.
You bet the grows to a this English.
So what I can tell you said that he has a broad topic of we have discussed with the central government.
I have to say, we're the only a data center benda beam.
So number one I think what I can say when we talk about he's the how cheap.
Believe some a a common culture.
In a.
<unk>.
That's a believes there at this time limited.
But the government has to have de at kind of so I bought a total carbon colder at the point deployment. So we have discussed how to appropriately to at least some common cold to a two data center hemostatic.
And number two is that I mean are we talking about some a a topic is about Ronnie how'd shoot.
Or reduce the power costs in the future and how to reduce that.
They did they did it at alone inkjet low interest rate.
This is all disgusted so [noise].
In General I think it's positive small for us and centric unwanted water how.
To develop this English, but so far I still see and now it's a it's the stage is too early to.
And to say some seem right now.
It might be yeah.
The favorable certainly unless you get.
Yeah, I I know.
Last year we.
Entered into three acquisitions.
Uh huh.
Two was included as part of last year's New business, one through six closed.
Phasing nine.
We took over the way I described.
The third acquisition she cool Beijing, 10, 11, 12 announced in December we're working hard to close that hopefully by the middle of this year.
Let me talk about a 100000 square meter sales target for this year.
It was be it will be 80000 square leases organic.
And 20000 square meters through that specific M&A deal.
Your 80000 square meters organic is is significantly more than we've done the pool organic and yeah, we believe that.
80000 Square me, so garlic is sustainable so that's the new the new normal you all 90000 square meters.
The M&A or maybe Chris maybe some outside Yep yep.
Yeah, I I don't want a one point and we also talk about the to the central governments, how to release Hudson, how cheap coal somebody he or she see a small data Santa eat healthy does it.
For the full feed their day to day, they use the professional data center like us.
Got it thanks a lot.
[noise]. Your next question comes from the line and Jonathan Atkin from RBC. Please ask your question.
Thank you. So Dan you just sort of answered one of my questions, which was about 200000 being the new norm and I wondered do you think you could potentially do more than that given the boosting demand that you're seeing from the current environment, either organically or through M&A and then.
Wondered if we could also pivot a little bits or to the.
The changes that have been taking place at cyber Swan add any impacts on board membership and just the overall relationship I do know the test you know that their new CEO has got a lot of tied in China, but if you could maybe comment on on Saturday is one that would be interesting. Thank you.
It's too much yet because we do.
Yeah, I think yeah, we didn't change out what do you actually last last quarter, where me top of the market demand.
See you Saddam that's viewed the China datacenter markets et cetera.
It's not a the anyone not a impacted by the virus.
Because we believe the virus stuff, it's a shortened impacts so from the mid to long term a wish you a.
With your safety or that the total market webseries.
There's a number was that means we had the chance to do more in the future.
But at this yet.
First half year, maybe I'll leave it at times, but as good as well now Chad you will now check our view.
A a huge market.
I guess, we believe it didn't rising it's a it's a it's a older women a chance or in China emerging global bucket right.
Second about so it was one of the service well I think you had number what are we still maintain their relationship with US I was one we still have some you talk all that together, it's a without change every step down or anyone Oh, well deal with the institution up there with a the individual right.
So I think it either without sharing our relationship with starters one was to help each other a a passion that Jonathan called me after the the announcement and again we also.
We have did composition with Gary So I think there number one number one what we're not a chance to both see right now and then get me, though is that he's ever expect a a professor in the industry, but there's always a bring that bearable opcone no four G.S., so where we appreciate that and all that has.
I think we as Ive stayed with you with the institution not as a person. So I think the Oh, sorry for that GDS at recent with would be no change.
Thank you and then I wanted to maybe talk about any or ask you have you seen any differences in the pace of deliveries and construction by the west to the industry you talked about how the virus has affected you from essentially a labor standpoint and slowdowns related.
That but has that.
Then affecting the competitors equally or more so I'd be interested in your perspective on that.
And then you also mentioned again the increase in demand and how does that influence your I'm thinking about entering new markets in the past you sort of alluded to a couple of new.
Municipality Metros in China that you would think about investing in it the appetite for that equally as strong now or his customer demand trends change your thinking on that thank you.
Yeah.
Just doesn't phase would of.
First question is a weather has been affected like also to vessel greater extent.
[noise] I mean that Oh I'll come back [laughter].
[laughter] too.
Despite the current situation that they've been affected.
In terms of their construction time lines them.
[laughter].
I think in general I mean, there or.
The kind of situation is equal all of our competitor right.
I think it either number one.
So.
The advantage for GDF Suez, we out we have this we have a scale. We are we a more easy mole Ah well manage it internally he might you right. So in terms of other construction point of view I believe we're we managed to better than the other competitor a this.
This is my view.
Yeah. So second question, Jonathan So what do we see increasing debone in other markets you walkers and whether we have appetite to go.
Yeah, I think where we have wouldn't tends to go we have ready to go or any.
New children pocket right.
So we do a they didn't change out while we didn't change out what view, we will go through some new marketing as we mentioned losses I've come up quarter Hockey Trunking Mckee and that's something you like Kid, Angie and Oh, I'm too is that well a topic in the future and all that.
We also picked up all the base all of our cars install base customer.
A a pilot where cirrus talk about let's see how about how to go to the southeast Asia.
Thank you very much.
Ladies and gentlemen, once again for the benefit of all participants on today's call. Please limit yourself.
Thank you.
Your next question comes from the line, it's called the Senate. So from DDS. Please announce your question.
Great. Thank you.
From kind of get too if I may have number one I think you guys said in your prepared remarks, you gave some color on what leasing was looking like I can't I couldn't tell if you're talking specific to the first quarter.
Or the second quarter, both I was hoping you could kind of just.
Dig a little bit deeper into what you're currently seeing and then secondly, as it relates to the.
The movie and Ray and I appreciate.
That you're being more conservative than that number right now, but would you expect at some future point and I appreciate you're not going tell us what quarter that is are you might not know what quarter. This is what would you expect for all this to kinda catch up another words would you expect at some point, we're going to see a very sizeable quarter or to the kind of make up if you will for the lost ground.
Considering these these developments are actually still going on and at some point you know everything is going to get completed and ultimately get to a point, where all the installs are kinda back on track and if so if that's the case would you expect tend to see a notable impact on outer year.
Expectations or is this really kind of focused on a slower 2020, but by 21 under kinda back on the trajectory that we've made previously been assuming.
Yeah. Good good good times koby own let's close one yes, we need in the first quarter, we already know what we've done for the sales point of view in the first quarter and it's just.
Just a comfortably over 20000 square meters organic.
And we already have a jose very good idea.
What we're going to be able to do the second quarter.
Well troubled which hopefully the BJ 10 11 12.
Acquisition will close in the second quarter, that's 20000 square meters.
There as well.
So if you add who I know.
This is a full year target of 100000.
You said, we're going to be a long way, which I guess, yeah. It's hurting me more the hopefully [laughter] maybe.
Quite a bit more than halfway.
Towards that target.
I just mentioned that because we knew that as the facts and.
Give some.
Confidence in what we're saying toes about sales targets.
The second part [noise].
You wouldn't you say.
Quite.
Quite possibly be be the case.
We look to.
Difference when all is.
Spectra Costless since we own in schools people not predicting what the shape of the recovery is I.
We could have assumed it would be very little moving in the second quarter norms ramp up and so the fourth quarter.
We just did.
So I didn't hear and just take that come to the numbers for each quarter, Sony a few thousand square meters.
And you know the reduction resulting reduction in.
In revenue and EBITDA Kinda say, whether you are looking at it be shape U shape tool or whatever.
Interesting statistics I'll throw out some lost or I guess I.
So five or six weeks from.
Just before Chinese new year into a few weeks go there was no movement. So you've got to capacity that was being utilized and outdated census was a static.
During that time period.
Customers power usage went up by nearly four percentage points, which.
Means in simple terms that you said, they're running that service at higher utilization rate higher than normal.
Hi than they would lead to given that the operational gravitas not that's indicative.
Oh, well requirement so deploy more capacity, that's why we said customers want to do that.
So it's really it's really a question of.
What do they can I believe that.
Uh huh.
Most of the.
Current inventory. So this is really being deployed so the next wave of moving is dependent on on the production.
Hi.
Huh.
It's not.
Come through quite quickly or installing them, yeah, I would actually expense.
Quite a buddy.
Shop ramp up and then move in.
Yeah not might be.
Well be described as risk to the upside.
Great. Thank you.
Your next question comes from the line as Gokul Hariharan from JP Morgan.
Please ask your question.
Hi, Thanks for taking my question.
See you just what's missing on.
But the board.
Uh huh.
Seeing the dynamic.
Better than expected demand due to work from home and mortgage to consumption et cetera, but that's the relative lack of ability to execute on moved in our not having enough from born and like something defense and also indicative yesterday that bad thing some degree of well that's been done so.
Some capacity it's I'm.
I bet on the other could you talk about how you got the mother, beating the dead and we're not one of the doing to benefit to get that ive that any kind of.
I mean to get that and how did that.
What are you expecting that's.
How is it too.
The next couple of months I think I'd be kind of a box. The people that are you still need to be that kind of in seats in the next couple of months itself.
Second question I had oh on some of your or.
Outside of that you can take a long fong as Ah Okay City.
How one.
But I agree definitely been about all the dynamic, but keeping up in terms of operating a data center in speech and and Oh Youre able to.
Manage capacity ramp up and how probably then it makes our or just kind of any different than compared to.
Kind of different Oh, and one last question if I can tell me if I mean, the financing side I think you clearly explain where you stand in terms of availability of financing build equity in bed. This is an industry, but well a lot of financing coming over the last couple of here when you compare it does as well right when equity.
So financing because it's been about industry wide.
Financing by plane.
They still intact.
See some degree of compression that shibani industry wide. Thanks.
So first question so it goes.
First question. It was you know what can be talking about the.
She's in the supply chain customers fault.
And he solutions, we got any solutions to yes, yes, yes, [laughter] taking minutes of US yeah, yeah, what what's the best goods asking is there anything you know any solution.
To that so that problems anything.
We can do nothing frankly speaking we are not in just a a industry right server industry I think what I care, what I heard about all that our customers that.
Or try to gather more server as much possible or even in occurrence a a mock right. So I think you're pushing a lot of D or some prior to.
Just to get to sum up even strain that had to.
Country or other Maki she tried to mitigate the impact on the site. That's what have you had to me but.
So.
ER, we don't know.
Well.
What's the percentage would be probably didn't come to achieve right. So in general baby. They they are doing their best right now.
Well, what I will come from a told us.
So looks like it a at Q2, maybe a will catch up.
Catch up a a the revenue.
A little bit.
ER that that's that's my view kind of view.
Okay second question. So first and then maybe I'll go first younger can supplement.
So it's a Google.
The the Beijing municipal government stoppage introduce restrictions on the new data center poodles. They yeah, the 2016 and it became apparent during 2017.
Don't be possible to maintain sufficient supply to demand within the within the over there and we started then to work on the the backup plan.
I'd say took about two years.
A discussion distractions and song.
With the lifetime governments.
Resulting in a framework agreements, which addresses yeah.
Occasion of substantial amount of power a substantial amount of the power, which is available in that area.
And it's safe to say it was a greenfield land and an investment.
He was that that's a yeah, we chose not to time because.
The took them kind of his had where do you established major datacenter hubs in that market that pool. The connectivity. These from that Paul I was like no the whole like the SAP thought.
Into Beijing is very good so in terms of latency Sonya.
I will drop off.
This is a they completed within within that in Beijing.
But in order to.
Proceed and we really had to cover two bases one was the governments and one was out customers.
We have to convince the largest customers because a place like this you don't looking for just want to water to a customer you're looking for customers who are deployed a major amount of their own.
Capacity.
Yeah the framework agreement.
In a position to acquire the Greenfield land.
Stopped the development.
What do you go to customers wound up so yeah, we found that.
We need you to accelerate our time to market.
So yeah. It actually that the first thing we did was acquired land <unk>, which is full lifetime three four and five it shouldn't be one two and three.
Because of the time to market requirement, we leased along the buildings relief opened one we need.
To release nothing six we leave the slogan seven and that's why we have five data centers.
Area.
100%.
Committees I mean going forward you know the intention and yes, the better approach would be.
I have all about development told the Greenfield sites on the campus. So that it was just out of necessity.
Good luck.
So two questions about.
Financing.
Okay. Okay routers issues I mean, we have yes, we have access to the a public markets, we tried to sorry.
But we also have access through through to two to two called us and some very significant.
Institutions PRC institutions.
We've also expressed an interest in working with us. So I think there's a lot of scope and.
Not approach too soon to source equity and other other body right.
As far as a competition is concerned.
No no no one is anywhere remotely close to Oh scale.
This is being limited amounts of private equity participation by foreign P. and domestic P.
You know, though you know from.
The.
The pace histories.
Positions, so there's quite a few projects.
The being undertaken was with no equity and frankly no no formal dashi, there's just the reliance on credit from folks upon so I do I didn't think that on the whole competition is particularly well.
Optimized or finance, but I I didn't mean to dashboard children.
Good comfort is amongst them.
Hi, good I added more color to the use your second question I mean, there you know what we you know a pay said shoot supplemented.
Supply today, a baby Oh, right I think the people because we really like a couple of years ago. We realized he said there'd be a or how important is getting more tight enough <unk> over <unk> and did it demands.
A huge right so even in a first it first of all regional paint that we tried to meet customer to move a little bit shipped a little bit a two day demand to date.
Edge to edge up Tom, but now kind of in the us real nice.
Those.
CRADA is.
Different.
They have a same latency sensitive.
Criteria.
From a customer, but [laughter] Wong need a mall.
Big scale at a more big power capacity he wants to play more big public entity.
The only real life isn't tied pop Dee Ann campus.
Hyperscale campus.
It's the independent product.
Did that people feel our customer latency sensitive, but a high visibility for the future the supply and how to scale back one and a hyper scale.
Oh I hyperscale.
Todd passing it cannot be replacing the urban huh. That's my view that's the him if he said now become a new product.
In in that well be right.
Thank you.
Your next question comes from the line isn't done Wong from Macquarie. Please ask your question.
Hi, Matt congratulations to the strong results so.
That's my first question those.
In the past Judy since you know doing excellent job in managing the all financial leverage is I do see you guys were guiding robbery.
Strong capex spending 2020.
I guess I want to fall off.
This question on you know do we funding this capex shortly on from the you know mums bank loan side or or we need additional.
Equity reason this year and my second question is so can management share. Some colors on whether you know that can damage is actually helping more or slowing down the utilization ramp ramp up.
In the first quarter.
Thanks.
Okay.
No I live in the first question.
Uh huh.
You know coaches to raise equity capital go ahead.
So that you know as we initiated.
New projects.
Allocate from Oh.
The capital we have in hand.
Two two to capitalize in new projects.
Individual basis.
And we tried to maintain around sufficient capital to to capitalize around.
Two years worth of new new projects right. Yeah. The end of last year. We ended last year was 5.8 billion Oh gosh, I mean, most of that effectively.
Is the equity for future projects.
I said that we would need about 3 billion of equity for the new projects in.
In 2020, so that means yeah, we'd need to use about Hoffman fashion.
But then this will suit operating cash flows.
A couple coming through so yeah.
It would look like we have sufficient equity to get a street or you know two years.
The debt side.
And in.
Normal circumstances is just about execution is about having relationships on a track record.
And Ah South.
<unk> fundamentals and so.
Yes the.
Yeah, the situation when actually is that.
We.
Recall about.
4.5 billion or be a different debt.
Finance.
Capex this year.
Well, what do you have 2.5 billion of it in committed the untroubled Susan.
And the remaining to be there's actually a we're working on 3 billion of new debt. Because this is right now.
Some of which are all his dog.
So there really isn't any.
I know two risks to what we're trying to do yet at least here. The next one to two years.
So the second question is whether the virus impact is actually slowing things down speed. So I suppose the color you could say, there's a difference between slowing things down sort of move into maybe speed and seen guns other tomorrow.
Right I think it's neutral I mean as it didn't movie limited.
[music].
Stay on the kind of just a a point.
[noise], what do we can't say or does it get suffers a supply chaz looks like uncertain right. So it will impact our movie Oh customer moving this quarter or maybe a little bit the next quarter.
Uh huh.
But what we can tell it's a in China inside of China, The Medicaid said because right now.
So I think it a little bit positive for the Q2 as I've mentioned that just just before.
But it for you.
Yes.
Got it demand side I think the everybody know.
The discounts fishing.
What that a lot of the into a SaaS or your I loved into that probably a lot of ecommerce per here a lot of D.A.
A a.
Application.
Where well educated ER to them I introduced to sort of market. So I think it at all in the mid term Longtan, maybe it's will drive more demand in the future.
Great. Thanks.
Your next question comes from Arthur Lai from Citi.
Yes your question Huh.
Hi, good morning, good evening, R&D shots or nine cents <unk> I had a true kunshan maybe too that there are so the first question you've done can you talk about the contract renewal Stranger and the reason we ask these countries we recall.
IPO stage, you took about countries, sometimes goal, we set for use or even longer Ali in the middle of the negotiation always you know crunch and you know having to the detail in the tier one cici or even a re travel.
Claims on Watson, the pricing trending oh or can we get the beta epic done margin for the new country.
I wish that my question. Thank you.
[noise] that thing so the you're in page 36 itself earnings presentation does have some.
Summary of the amount of capacity, which we have coming up for renewal.
Each year.
The current years 23000 square meter capacity is a.
8.9% about total.
Commission area and it's around the same similar level in in each of the next.
Each of the next few years.
He filled into.
The individual contracts and who the customers.
That's very different Powell internet business coming off for a new.
Stacy enterprise business, and there's contracts or 135 years sued the new more often and they all quite and they and they renewed automatically.
Quite quite quite cut typically.
[music].
So I think the yeah. This question arises from from analysts and investors I knew.
What you'd like to get out which is you see some benchmarks for what the pricing will be.
When we do get too.
New significant renewals with a large crowds and.
So that customers, but.
That's going to happen this year, so I wouldn't be able to give you any empirical evidence on bass.
Okay. That's what would have said about you out kind of lay out now configuration and says a suit downtown in Asia town.
Its customers or you don't want to pay the price for the downhill.
We have an alternative options.
Suddenly we believe the downtown capacity is increasing by any longer.
And maybe maybe a ability to achieve higher selling prices that.
So two years that that is something which you can certainly.
So to customers.
During the second question was just too.
Price such to you you mentioned EBITDA margin actually.
Let's talk about the price.
Together with you didn't capex.
And then in terms of a return on investments I Trust you could it have a fundamental way so took about Robbie corporate he took about incentives.
But on launching because that doesn't really tell you.
I think im citizen.
The project returns so the unit Capex has been coming down I said the majority of it the p. any there's been coming down by about 3% to 4% Prem.
The MSR revenue per square meter does he see particularly like two or three years has come down by about five cents per on.
So you can see that the the [noise].
The degree of decline.
It is quite close.
And.
Yeah, what that.
Tells you.
Is that actually I've called I returns must be pretty well sustained.
It's the yield.
And the investment costs, Oh, moving in line with each other.
That is indeed the case.
Before I are also but anyway, you point of view here was to achieving same kind of returns over the last two to three years, which is exactly what we target to do.
Yeah I can answer your question I mean, it <unk> a anymore color on that and then number one our customer now the yet dear.
Hey, how they look after the datacenter I know, it's that seem to be with us number one being what they needed the urban Tom data center because in the future anyway adopted to the Ajay data center for it it would benefit for that for them and if he does have a demand out of habit and just talk.
Always book you. This mission critical systems as we mentioned before so I think maybe in the future edgy toppy dependable mall be edible fats if a company like.
Like two or loan they didn't see I can talk to talk a little bit they didn't see.
Sure and that they want a.
Big scale or close to the children, marking we can offer the it.
And your uptown that product to them if they want to just to pursue the cost effective I think the they already we already set to model to be too soon for the <unk> a cut them in a remote area night in three different product, which we a structure that well structured to our customer.
Thank you.
Your next question comes from frankly than from Raymond James Please ask your question.
Great. Thank you very much can you just looking back your comments earlier on the government's position.
On data centers is critical in <unk> infrastructure or do you think well that new position make indicee more competitive.
New entrants relax foreign companies booking own and operate data centers and then to your comment you just made sort of on on pricing and your cost inputs. You think your costs go up in the short term labors and shorts bought thank you.
And this has one of them so with a company.
Horses could lead to greater.
Yes more competition.
Uh huh.
Yeah.
I think yeah I.
Our view you said, if we have gotten never leaves more more flexible a more flexible to release a common cold in a chip them Aki.
ER.
We believe if you look at it in.
Yes in Beijing market, because I know you may get him up we love the love to do you a couple of years, because we constrain other problem quota.
ER common cold so if the government to release.
It doesn't happen colder quote coda too.
Bulk bottom hole that.
And we believe.
We would do more business would get a more market share in the children market.
Because it's a couple go to Barry is equal definitely customer will more focused on.
Multiples on the value.
Okay.
Service provider.
So our customers our customer our major customer. They are now look at look under the surface vendor is not a just a capacity.
Oh, yeah, because they have done a lot of D a different criteria.
Does that mean, if the cobalts as Barry getting lower that means.
But.
The other criteria.
Well be macbooks off.
From our customer so we are we're well positioned in our other bad right.
You want.
Yes, Frank on the labor costs, and they'll feel if you're talking about you know the cost of revenue how it affected.
Instruction call. So you know <unk> revenue size [noise].
Most about stall headcount by number is in data center operations.
It's.
Uh huh.
Mid to high single digit percentage.
Revenue so it's not what the biggest.
Cost Tyson.
It is one of the talks about cost structure, which we get getting quite a bit of operating leverage because well see a certain number of people who have to be dedicated to each individual things into there's also question, though that can be centralized. So we didn't see anything out of the ordinary in terms of inflation there.
Most of our people back at work actually Yeah, I think I think its into the that's pretty stopped.
The construction size.
Yeah the the.
The initial delays caused by.
Governance.
Restricting activities.
And then was the construction resumed.
Well construction workers, who came from other parts of the country undergoes importantly.
So it took some time pool the number workers on site to reach the full complement test, it's still not that I think its a.
The 25 to 6000 construction workers.
Well contractors.
But of course of 16 sites, maybe 75 cents.
Back in place so I do.
So the fundamental shortages, just a but they introduced three saying as a as people come back to their place work.
Okay, great. Thank you very much.
[noise] [noise] is there no further questions I liked and I'll turn it back.
Well go see anymore.
Thank you know once again I mean, that's today, if you have kind of questions. Please feel free to call that tedious investor relations.
Information on the website, if you fancy group Investor Relations. Thanks, all bye bye.
This concludes this conference call you may now disconnect your lines. Thank you.
[music].