Q3 2020 GDS Holdings Ltd Earnings Call
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd, third quarter, which I was Gonna 20 earnings conference call. At this time, all participants are in a listen only mode.
After managements prepared remarks, there will be a question and answer session. It's a day.
This conference call is being reported.
I would now turn the call over to your host Ms., Laura Chen head of Investor Relations for the company. Please go ahead.
Thank you.
Everyone welcome to the Threeq assets on the earnings Conference call, a GDS Holdings Ltd.
The company's results, where it should be newswire services earlier today and are posted online so.
Summary presentation, which we will refer to during this conference call will be viewed and downloaded from <unk>.
Our website.
GDS sort of free still call leading.
Leading today's call is Mr., William Wong tedious founder Chairman and CEO will provide an overview of what this is try to day and performance.
Mr. Benjamin G.S. GDS CFO will then review the financial and operating operating results.
Jamie Cool our COO is also available to answer questions.
Well we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U.S., probably good Education Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties.
As such the Companys results maybe maturity.
[noise] expressed today so.
Further information regarding these and other risks uncertainties is included in a college book prospectus as filed with the U.S.S.P.C. So.
The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please also note that todays earnings press release and this conference call include discussions of UN audited GAAP financial information as well as audited non-GAAP financial measures.
GDS press release contains a reconciliation of the unaudited non-GAAP measures to the UN audited most directly comparable GAAP measures.
I will now turn the call over to GDS founder Chairman and CEO Mr. William <unk>. Please go ahead.
Hello, everyone. This is William [noise] debt.
Well, Joe net during today's call.
Two weeks ago.
I will share some stocking is trading on the Hong Kong stock exchange.
Moving on new truck to force GDS.
I'm pleased to say that we achieved all of our objectives for the Hong Kong IPO and secondary listing.
We accounted on the high level of demand from new investors, including strong participation from China.
We significantly strengthened our every day basis.
With over 1.8 billion U.S. total net proceeds.
Moving to our competitive advantage in total financing [noise].
[noise], we established a liquid market in our share.
Hong Kong.
To complement trading.
That's it.
And last but not least we raised our profile and the reputation among customers government.
Commerce, and the investors, which help us to attract more business and the secure more resources.
Further strengthening our market leading position.
Meanwhile, our business continues to perform strongly.
During the third quarter of two D. Tempe, we added nearly 24 [noise].
They can be 4000 square meter.
46 megawatts of new customer commitments.
During the first nine both up 2020, our organic net assets was over.
72500 per square meter more than we did in the last few years.
In order to maintain our sales momentum we added over 100000 square meters two I want to secure the development pipeline income.
Mm three d., we feel in Atlanta for major new edge Uptown campus missions.
We grew revenue by 43% and adjusted EBITDA by 48 per Se you, yeah, and our EBITDA margin [noise].
I mean, the EPS, 47%.
After the beginning of this year, we targeted 100000 square meter and even net assets.
Consistent deep consisting of 80000 square meter organic growth.
Can be sold in square meter from the Beijing, 10, 11, 12 acquisition, which was a pending total [noise].
[noise] Katy we are clearly on track to achieve.
Iran, and 98000 square meter.
Organic sales.
Oh can be seven solve in square meter from M&A, including nearly 80000 square meter fund from a new acquisition engine price during the kind of reported.
If you must.
This gives us over 120000 square meter net add it for 2020.
Representing 20% outperformance.
Looking forward to to force F Y 21, we believe that's the currency level organic itself. It's this is sustainable for them.
Well with the potential acquisition, Beijing, 14, which we announced in September we already have visibility for another 20000 square meter of M&A next year.
As you can see from the [noise].
From I was just told you.
There is a consistent cabin upstream to fall apart.
<unk> type of skill older every quarter each.
Each of these older. This represents a major development by one or other of our top customers.
These developments.
Some panda in loans multiple.
People face basis to.
It will be eliminated over several years.
It would be less upscaling, the phone foundation for our future.
Yes.
Turning to slide seven huh.
Over the past few years.
We haven't made a lot of the pullback in demand in developing and meaning [laughter] meaningful relationships.
Foster growth, we new customers.
We had an exciting breakthroughs, which we announced last quarter was by dance and PVD, we aren't cheap debt.
We are actively and we are actively pursuing multiple [laughter] hyper scale opportunities with these two companies.
China's Internet sector continues to produce very logic companies, which emerge very quickly.
Typically they begin to gain by using the major topic crotch. However.
However, as they develop.
He also stopped to your point, there probably the cost and they've been quiet also data Center service.
This is where we see incremental opportunity.
Given <unk> extensive present on the call service providers in our day to say the.
You know what data centers and the multi market [laughter] Praful, we have a unique value proposition even high for hybrid car.
We are also starting to see financial institutions deploy a hybrid cars.
We have a well established a customer base of over 200 city financial institutions.
It's evolved at the I.T. architecture from the main free to server, we anticipate significant incremental opportunity.
Over the past five quarters, we have stepped up our.
Oh, well construction Co. went from 84000 square meters to 135000 square meter.
After [laughter] development assets.
At the same time, our peak amendment free CMM and rates have remained a solidly over 60%.
We have caused it to toss it to Tom Atopic net repeatedly about why execute development pipeline. It's a critical success factor.
Jewish treat to Tempe, we added over 30000 square meter so our day to day.
[noise] area Hello.
[laughter] well if interest environment.
During the fourth quarter. This quarter, we have added another 770000 square meter we.
We now have a total of over 400000 square meters. So crude and we will continue to add aggressively over the next few quarters.
It really it's that's important.
[noise] financials slide 11 [noise].
[noise] following the success of our AD you Tom strategy in Beijing, and Shanghai wouldn't meet a very significant moving to set up a new edge Uptown campus in that brief it be area.
We have tried to from the local government Greenfield.
Greenfield site in we don't.
On a 24 kilometer from the edge ups engine. It is one of the key areas identified a pool data center development in the new infrastructure Pen recently published a bike one day probably.
Once fully developed a.
It's the sites will yield a net four area.
Approximately made to me 72000 square meter Oh.
According to the initial design [noise].
We established our agile Tom campus in lymphoma near Beijing into Q 18.
A 92 to 90 day.
In less than 18 months, we have initiated a nine data center projects and execute to over 767 solvent square meter customer commitments.
He is free to compete we initiated our loans non data center.
Which contribute which contributed 25 megawatt in new order we.
We also added to our land bank with the acquisition of long phones inside is free and.
Further land acquisitions.
Wes.
On the edge of Shanahan with.
Yeah sure location.
Sure and its function during shriek, you to Trinity we lease it is free adjusted adjusted EPS.
I guess I just send beauties in concert.
With a total debt dependable natural area, all 16000 square meter.
The first of these buildings, which we we caught up kind of a sense for it and the going [noise].
Racing [noise].
[noise] 22, this slide 14.
No the two M&A deals.
Do you do reach free to compete which added to our capacity.
In an urban area of Beijing.
Today, we are not announcing a new acquisition in urban channel.
Which we call the Showtime 90.
It has talked about good basketball natural area off 100.
Well, Tom Solodyn 800 square meter a which.
7900 square meter is complete and the fully committed the total acquisition and development costs, including costs up to compete is seven.
700 to 778 million.
Yeah.
We will continue to pursue [laughter] these kind of the opportunity, which adds to our pretax income downtown location.
With that I will hand over to debt for the financial and operating review. Thank you.
Thank you William.
Starting on slide 18, where we strip out the contribution income equipment sales.
The effect of FX changes.
Yes, we do 20, Oh service revenue grew by 14.1%.
Underlying adjusted gross profit, which.
Which we previously called net operating income grew.
Grew by 12.7 per cent.
An underlying adjusted EBITDA grew by 12.5 per cent quarter over quarter book.
The Beijing 10, 11, 12 acquisition closed on June 5th Twentytwenty.
Excluding the contribution from this acquisition in both the second and third quarters.
Oh service revenue grew by around 8%.
And our adjusted gross profit grew by around 7% quarter on quarter.
Turning to slide 19.
Service revenue growth was driven mainly by delivering the committed backlog.
Net additional area utilized drinks weak eutwenty.
It was 16589 square meters country.
Continuing the recovery we saw in stepped in to Q 20.
We expect similar levels of moving in the fourth quarter.
And I saw it was 2519 RMB per square meter per month.
What else pays in kind of 11 12, it would have been slightly higher than 2533 RMB.
Turning to slide 20.
Adjusted EBITDA margin remained around 47% and we're still benefiting two small extent from Dublin concessions.
Turning to slide 23.
Oh, sorry end of September Oh, Capex year to date stood at 6.6 billion RMB.
Before he twin cheap we expect another 3.4 billion RMBS capex, including acquisition consideration for Beijing noise, Beijing, 13, and the new starting on non team deal and.
And payment for the non fun and feet on loans.
This is what gets us to out 10 billion RMB Capex guidance.
Up to the end of September we had paid cumulatively 640 million RMB as Capex for managed Bts build to suit projects that we intend to transfer interest you I see.
During Fourq you twin she we expect to transfer the first project by way of selling loans to sense, where the equity of the project company.
The proceeds will reverse smoothed called the Capex well the assets not boots is of the project company will be deconsolidated.
Looking at a point us in position on slide 24.
Pro forma for the cash proceeds with the whole go IPO.
We have 18.7 billion RMB of cash lump on street.
No net debt to EBITDA ratio is 1.2 times.
Given the ongoing levels of organic and inorganic capex assets.
And assuming the Beijing 14 acquisition closes in one Q 21.
This ratio will go back up to around four times within a couple of quarters.
Moving to costs, we will allocate and use of cash to capitalize new investments in our business plan.
And we will then leverage those investments to ensure an official overall cost of capital.
Given william's comments about the sales outlook.
The importance of adding to our land bank.
No ability to people in generating a front to the acquisitions like our recent deals for Beijing, 13, Beijing, 14, and Shanghai, launching we will not be shortage of opportunities.
Well, we are not changing our financing approach, we will strive to non sub debt capital structure.
We have an aggressive plan to refinance a substantial portion of our existing onshore RMB denominated project debt.
To achieve longer tenors and low cost.
We have multiple refinanced loans going on right now with 10 to 15 year terms backended repayment profiles and all in costs below 5% based on the current low prime right.
Finishing on slide 26, with our revised guidance.
For the full year 2020, we are raising the bottom end of our original guidance for both revenue and adjusted EBITDA and keeping the high end unchanged.
We now expect total revenue to be in the range of 5.7 billion to 5.75 billion RMB.
And adjusted EBITDA to be in the range of 2.66 to 2.67 billion RMB.
The updated estimates imply an increase of 38.3 to 39.5 per cent year on year in total revenues.
45.8, 46.4% year on year and adjusted EBITDA.
Oh Capex guidance of 10 billion RMB for the full year growth.
Remains unchanged.
We don't like to open the call to questions operator.
[noise]. Thank you.
Ladies and gentlemen, and Jimmy will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced but if you wish to cancel your request. Please press the pound or cash.
For the benefit of all participants on todays call. Please limit yourself to one question.
[laughter].
Your first question in queue comes from the line of John Atkinson from RBC.
Please ask your question John Your line is now open.
Thank you very much I'm interested on the commercial front what are you seeing in terms of customer demand.
On the Hyperscale side are they wanting to maybe think about building more of their own capacity going forward and if so does that affect you at all.
R&D Internet companies that up till now they've been pursuing a cloud first strategy is there any trend.
Trend that you're seeing where they're beginning to ship there I cheat onto their own equipment, and perhaps signing deals with more frequent deals with data centric companies such as yours. Thank you.
[noise] so Josh this when I met the first of those supposed to questions the customer booed by himself yeah. So so far we didn't see any chance you right now I think the expense is especially I mean in a in a tier one machi, which we focus.
We didn't see any changes.
Then the second question once a day.
The satcom is using yeah.
They've since come to host their own private clouds, yeah. There's a debt is very very cigna, we can't give I see a lot of D.A. logic into their company. They dig it can yeah I'd keep became more of a complicated so deep deep deep do you see do you see a call Oh Wendy's.
I grew up.
During the grew up here right now and it looks like you did add more and more they use the hybrid crossed strategy. So that's why we see this is a very we are very excited for the future a demand from if possible.
Thank you and maybe just a brief one for Dan as we kind of think about the drivers for 2021, what you're seeing in terms of your development pipeline, what you're seeing in terms of their late stage sales pipeline what are the kind of stock.
Factors to keep in mind as we think about top line growth and then what do you get a contribution might be for 2021.
[noise] sales currently drilling the you made some comments today too yeah.
Says initial expectations for L.
Sales organically and potentially.
In organically net.
Next year I think this is higher than.
Yes, what Weve said previously.
Huh.
If you were talking about a Libyan EBITDA next year of course that likes the sales by at least one year to two years.
What we.
We kind of look out there was a kind of indicator is.
How much new capacity is coming into service because.
You have the capacity, which we have on the construction is 60% to 70% pre leased pre committed.
So as new capacity comes into service that means that there's potential to deliver significant incremental back book.
In 2020, new capacity coming into service is being pushed to the fourth quarter you see there's a significant amount of new capacity coming into service in the fourth quarter. This year and then we laid out the delivery schedule in the earnings presentation, you see there is over.
50000 square meters of new capacity coming into service in the.
First off next year.
Typically up to new data centers come into service not much happens to the first quarter. It takes a couple quarters before the moving starts to build up but.
But I think the this home phone to low new capacity coming into service.
Will increase what we call the backlog relate to two areas. So this.
And then that will.
Flow through too so the step up in the.
Quarterly net addition to Eric you slice, which drives.
Revenue.
We took about EBITDA then it becomes a matter of.
Yeah, so trends and the margin central some of your colleagues. Good asked me about is moving but maybe I'll snow.
I think the EMEA saw is going to continue to decline both free slightly as it has been doing.
Over a period of time, it seems to average out around one per cent Cook.
The quarter, who discussed the.
The factors behind that it's not indicative of what's happening to returns and in fact, it may be called country to whats happening to returns.
EBITDA margin has increased significantly this year still slightly elevated due to the benefit we received from government concessions I think next year the target to achieve.
Oh, maybe another 1% one percentage point increase in EBITDA margin over and above what we achieve.
Achieved this year, let's say target because we also have.
No not plan quite number of corporate initiatives around small data centers around the as fee.
Round or renewable energy branding and communications and so on and so there will be some increased costs associated with that but you know the.
In the in the due course, it will be a increased to.
Investment.
In return from that expenditure, but I'm, just sort of cautious on margins next year, because we do plan to the crew so a corporate expense.
Thank you very much.
Your next door so net.
Comes from the line of Colby Synesael from Cowen <unk>.
Oh. Please ask your question your line is now open.
Okay, great. Thank you a few if I may 1.8 billion in proceeds from the the Hong Kong listing obviously quite a bit has this changed the companys view on market expansion are you.
Intending are focusing on going into more markets in China.
Perhaps with a with the no new proceeds or just given where you're seeing demand go and then also as part of that your interest in going outside of.
China with new builds and then my second question just quickly you mentioned the opportunity to refinance debt you have a variety of different I guess revising process can you give us a a or an idea of what the total interest expense savings you.
Do you think you might be able to achieve when all said and done. Thank you.
[noise] Oh Colby I answer the first question I think there's definitely we are I would raise the 1.8 billion a a net proceeds I think David This is a shoe our next five net our view our ambition in next five years I think if we see a tremendous.
Imagine that Uh huh.
Inside of China, and also oversee like a soft sees a share in Hong Kong as you get even China. We think we'd be leave you have more new market what calming.
Become more important.
Except to the I was Ah Ah.
Previous four key markets. So I think we do have to plan to expand our business to steal share that our business or get more market share in the current channel. Maki also we do have the very very solid plan to a move to somebody new important market in China.
But in the Meanwhile, we see and we as we talked to you already know a road show or somehow I feel we do see a lot of D.A. solid demand from our install base.
It's in southeast.
Southeast Asia expense so.
This is a we have a we are actively developing those businesses pad. So that's why I think that we are quite exciting.
Exciting at this moment, so look forward to the next couple of years.
[noise] William do you think we could see you going outside of China in 2021.
It's too early to say, we will see we will we actually get back up and the impact of the old man and they all day battery. They all do a beverage reported a business partner in southeast Asia. So I think it maybe in the near future maybe.
At the beginning of the next year, we would tell you need do you guys see a a what's the what's a exactly that the pad. It's so.
I don't want to sales until early it's too early to say, but I can tell you we activate you'd get wrapped up here right now.
[noise], Yeah, Hi, Colby Okay.
Well, it's because.
If we just isolate out the the refinancing part of what we're doing I would say that the.
Cash interest savings of 700 million RMB.
Huh.
In terms of how it gets reflected in our accounts when we refinance and in some cases, we have to Reits, we'll see how amortize portion of the front end fees that we've been code on on the initial financing. So it may not become immediately apparent in.
The first half of next year that we have reduced the effective interest free but.
If you give us a few quarters I think it will become.
Lisa next year in addition to refinancing to see incremental financing, which I believe we will be able to do on.
On these on these better terms this is a significant improvement.
Improved so what we've been doing in the past it its a.
It's a continuous improvement.
But it's not that long ago that we would do project financing at an all in cost of around 7%.
Sousa's vehicles.
In execution right now.
Well look up around 5% we less.
Got it thank you very much.
Your next question comes from the line of Gokul Hariharan from JP Morgan go.
Cool please ask your question.
Hi, Thanks for taking my questions Oh first phone now that we are developing a bigger and bigger and just on portfolio in or at least the three main Ah locations could we talk a little bit about how is the demand looking 60 cents or.
The more or don't need to fund the fourth of what you are developing at a discount I have you seen any kind of differences in terms of demand being bone density or are there other restrict the requirements second thus ending 2020 seems to me that you have a capex a lot more of the Capex is being.
A friend on inorganic if you think about the next couple of years, how should we think about organic versus inorganic or do you feel that you know again it is going to be a a bigger portion of the capital outlay assets. We think about the next couple of years and some of the opportunities.
<unk> for the downtown businesses.
Yeah, I think the upfront very directional essays of demand from day, a afforded 40 day downtime and that's edged time right now.
Since most interest you maintain a.
Very strongly yeah. So I think I think yeah. We haven't that's why we keep the API day, a actually Tom data Center, where.
When we when we also get better when we get back to the edge it to Tom the campus. So this is this strategy will continue well a buda well a a larger scale hyper scale a a campus.
In the in the edge up the time in the Meanwhile, what was to continue to viewed as a datacenter and apply the datacenter free saw senile urban Tom. So we took him in a very clearly a very very strong.
Yeah, I was just I just feel free.
Oh, yeah, but sort of book.
Total.
[laughter] Frinton dumond, that's all.
[laughter], let's.
It's the same customers yeah yeah.
Maybe a typical architectures.
Hi, just tell site is a hub.
Which will then be connected to a number of downtown sites. So.
Downtown.
Yeah. So I knew we could edge of town [laughter]. So this is a couple of.
Okay picture downtown has the edge and the interest town and so is the hot downtown as you know is a is really kind of we have to be creative to create new resource and yeah. We've done a number of acquisitions.
You to give us a.
Launched is.
New supply in Beijing to know.
Hi.
Yeah, it would be easy to abandon downtown because it is so challenging and time consuming but then we would be facing our customers.
It's part of the value that.
We are.
Provide true cope suits that we do we have a total solution to town center.
Downtown.
And then they.
Middle markets. So your question about well got it goes is.
You know what kind of income and made a comment.
Yeah. The current is run rate for organic growth HM.
Oh lead us to around like 5000 spend these relative to bifurcate thousands ground leases, but yeah, well it wasn't a void and its like you thought, though [laughter] won't be up as well.
As with the Mets comes out.
And William said that.
Next year, we can say ready does that cause that level is sustainable and we have visibility to that because we have a certain accounts with multi phase holdings, which would it give us Uh huh.
Hi, how are you how to assessing the business next year, and even and even the roster. So the animal got cautious mainly driven by our desire to create more capacity.
Downtown and each market you know there are a number of independent project developers that they always have been there continue to be and we most of them.
No the sales 19 acquisition, which we are announcing today.
Case in point the company, it's a project that we've been aware of it.
Hi.
They reached the stage of.
Completion, well, we were able to move for them and they make the acquisition as you know we've been I'd say, we've been aware these projects and a number of up a number of others.
From inception.
So that's why I think that's why we have a pipeline that's why I believe that we can sustain M&A.
Or at the current levels as well.
Moving 14, its nose down do we ask you haven't entered into.
Definitive sales purchase agreement.
If that goes ahead.
As we plan.
It gives us 20000 square meters of M&A for next year already.
And yet more than 12 months to do some more deals.
Got it understood. Thank you.
Once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced for the benefit of all participants on today's call. We mean yourself to one question and if you have additional questions.
You can reenter the queue.
Your next question on queue comes from the line of senior debt you from Goldman Sachs. Tina. Please go ahead and ask your question.
Hi management. Thank you for your time.
If I may just ask one question then it would be I think William you mentioned in your presentation that you've you've been pursuing multiple hyperscale opportunities with five times and P.D.D. So [noise].
I just thinking.
Provide more colors on that what.
Like what location. These projects may be is the edge of town downtown or.
Build to suit and then the sort of expected timeline that fees can decide.
Decided that income my life and also maybe in like three to five years, what kind of revenue contribution do you see from these these two customers. Thank you.
[noise] I think a number one I think that we start to build on what business relationship with these two new new low logo, it's a lucky stock on last quarter I think the given.
Given the time, though we do expense.
Due to more stronger relationship with them and I think according GDS kindreds position in China, Our resource platform, our data center pass them in China, which is quite a unique and it will contribute a lot of value, creating a lot of bad value for those kind of.
Customer in the future I forget those cost from the day after a man's open top us every time, a a hyperscale bowls right. So I think did a we are what will propel our full actual debt to chicken Matt already so I think it will we have competency we will have to get back to a more business.
With that so the 10 days to total too early to.
Talks with some detail because its a.
We are we are communicating with those kind of accounts very very closely so I think he oh I'm. So I'm very confident so getting some new deals from them in a net in future.
Thank you.
Your next question comes from the line of Frank moving from Raymond James Frank Let me go ahead and assets question.
Great. Thank you I wanted to just ask.
General question, you know talking about demand and and how things may change a bit and in particular, the digitization trends that you would have seen say a year ago. <unk> you know now that the dust to settle a little bit can you characterize what sort of the pace of those trends are with end users in China.
Now versus what they what they were and how much that may have have accelerated.
Yeah.
I'm sorry.
Since we've seen.
[laughter].
[laughter] yeah.
Frankly, whenever I'll speak to.
This phone.
[laughter], it's hard to.
Isolate the differences.
Going through the <unk>.
Total periods has made some clarity.
No interest in China that around the whole world.
Yeah, we were required to.
Adopt and.
Adopt new technology, so that we could look from those and.
Do everything from home do ideas from home.
That's accelerates as a structural shift.
Yeah, I'll I'll dialogue with our customers and the new business is based on you know at least say that three year toward plans.
So what happened doesn't get reflected in some short term or change book.
City, Oh, yeah. He business is going to a high level and I think that doesn't just reflect our success, but the flex there's more opportunity in the market.
And definitely now some of this is being driven by Fiveg.
Particularly say, Oh tea and smart city type of applications.
Complications.
[music].
So those four.
<unk> cloud margin stuff so.
So for enterprise customers.
Yeah, I think Frank I think the day 10 day, it's not only ticket that by day, a Colby right I think it. It's the logic is that the whole logic, it's in China, the utilization of the overwhelming to you.
Bolt and I think D.A. colleagues as we mentioned that Ghana again cost here in the early stage. So we will see in the next five years close to its cash cow pay your steel will be debt at major key a a driver to drive that things kind of the mix in the Meanwhile, and I just.
Michigan I think a lot of didnt knew each ancelotti kind of Comping, a student or you could use the China like a fake or like a I. So like a P. D. Right. If you look at the last five years. The Oh, Yeah, nothing right now they became a $10 billion company more than it had been a hobby lobby and I've.
Indeed this is just so that means the EBITDA still.
Get fat and penetrate into different the salmon penetrate a difference.
A a vertical industry. So I think that you know steel.
Yeah, a big space for the entire company to growth. So I think you need to do a good <unk> and the <unk> now being a lot of incentive comp that stops you a use not adjusted using a topic of clal. They usually be adopted to hybrid car architecture, it's low trigger a lot of profit.
Yeah, a lot of data set a quarterly Oh Hyperscale data center demand. So I think we are very confident in the Meanwhile, I I just mentioned it did they do but like a day.
Traditional financial institutions and some price they.
They also.
GAAP to test for debt architecture from the traditional architecture to day Sotheby's hybrid kabi, So people, who will free another wave of 50, Matt for Peter said, So in my view there is a free driver call Internet enterprise.
In next five or even 10 years will be day at Tiet demand are a key driver to drive that emit. So that's why we raised such big money that we tried to catch up.
This oh wait right.
But.
[laughter], but I I would add a little more on it and as Dan mentioned the Fiveg.
It's just the income and right now, but we believe.
Oh two years five would you what would trigger a mall I will just stop well share more a new application and also will be another potential key driver.
It's a gigantic data center demand.
I mean, what are some of the key application do you think that come out of five G. What are you seeing right now.
Yeah, I think there is a lot of D.A.
So far I think it's too early to talk about it but you we always see a lot of D.A. I would keep.
We we we've talked to a lot of debt traditional industry. They all talk about the Io T stop and I think yes, very clear Fiveg will a driver there the new application team from into the older stock price all the average share isn't very channel.
Including the manufacturer they should a manufacturer and it should come as you know a retail traditional industry. So I think maybe it is not very clear now, but the market is it possible that lot of the Tibetan right now.
Alright, great. Thank you very much.
Your next question comes from the line of James Huang from U.S. James Your line is now open.
Hi, Good morning management congratulations on a good result, so first question for me is I remember in the second quarter result, I'm. Dan mentioned, there were a few locations that experienced some delays in activation of power supply. So I'm just wondering whether these are resolved now and maybe a broader question on this is as a number of projects and the.
Construction gross it's getting more difficult to execute the same level of precision as the Pos and then they may be more slippage in capacity delivery.
At the time.
And then my second question is about the way don't project I, just wondering whether how supply has already been secured for that project and what's the what's the customers you have in mind for that location and also we hearing for example, there's potential other building cost is long gone, so perhaps a bit more color on the demand and.
Supply situation in that particular region is wrong. Thank you.
Okay. Thanks, Jason.
Yeah the.
Oh the reference I made was that was asked us to a couple of sites.
Yeah, we can control two large degree the construction.
But the provision of the power infrastructure and activation.
Known supplier and sometimes there's some.
Small small small delay.
Well that was fixed I think by the end of September.
Yeah. It may it may.
Happen from time to time, but it it adds up to a peak a few months free most masses, particularly when we did.
Delivery schedules for customers, but like lets called because the trial. So that is the yeah. The degree to EPS. This affects us is pretty small.
Second call it low is very assets it.
Yeah, I think we had the largest day to send to construction program in the world I try to benchmark it against some of the.
Very well known large cut through the players it looks like you know we have almost doubled the amount of capacity under construction.
And.
Yep operationally here.
Yeah, [laughter] execution is difficult lots of challenges lots of complicating factors.
I'd like to stress this as reported up because I think Germany, maybe honestly investors underestimate. This when they talk about competition you know People's plans. So it's easy to say it is not easy to.
To do it.
But weve been scaling up to 10 years net we started the three day since projects.
And.
We went through you know 10 years of increments and now we have around 20 projects.
More that's currently under construction. So yeah I think we've shown that we can oh, the sufficiently and keep execution.
She was down to the minimum net.
Your last question about PJM, Yeah, we bought learn from the government.
That means that the deal.
When the deal was so far the lines and together with the government's commitment Oh, let's see.
Coated carbon quota.
Yeah, right use of power capacity and to coordinate with the.
They bring to provision unless you something good right to provision the.
Supply.
The line is actually low case, you do a industrial.
Industrial park, especially pool basis and to Oh.
Okay.
So it's an established location.
From that respect.
Oh it was.
Build over supply well, we hope we've always we've always heard that right. The Meanwhile, you know our commitment race is 95% enough people. It would raise 60, 70%, which you will find you know any day. So they are coming in the world.
Has that level, it's a low.
Commitments and and the peak Litmos a site like this it's actually very close we said to the edge of fish, They do show them right.
It will be first in Q.
And are you a very attractive to hyperscale cloud.
So we will announce a nice customer and.
One or two quarters.
[noise] right. Thank you.
Your next question in queue comes from the line of Addison Lee <unk> from Jefferies. Eddie said go ahead and ask your question.
Hi, Good morning management. Thank you very much for taking my question I guess are the number one is about your comment on that.
Hybrid cloud demand.
And I suppose that the hybrid cloud demand is going to come from and the prices.
Rather than large scale internet companies, so it doesn't mean that proportion.
Retail <unk>.
This is going to go up I know that you guys don't want to try to distinguish between wholesale and retail, but I'm just trying to get a sense of the breakdown of that.
Demand coming from large Internet Giants.
Traditional at a price and how that's going to impact your.
Pricing.
And also your utilization rate.
[laughter].
So I think you can match or whole file as I, just mentioned and that the key to master will be at cloud service.
Service provider in a short term debt but.
But we do see a ton EPS a a company the CST adopt a day, yeah architecture to the Hobbit crop I think a day or but the man well be oh.
Mall.
From the gold more price in.
In terms of the enterprise customers eschewed everybody know day enterprise customer. They are they are they a debt subsidy time is longer than the other or Internet company and Oh I get my now and then we do see D.A. or the change of the Ah.
Architecture, So oh, we see some a a solid Saudi day, a a enterprise customer.
Uh huh.
Yes, very solid demand from day, a sub debt <unk> lodging, a a financial institution. So I think if they did it won't be the channel number one is in the channel number two I think it in the short time that they didnt. They missed you will be day number one account number two in the Internet of company and look at the numbers.
Free is as a enterprise customer so in terms of the of new customer new enterprise customer demand.
I can hear you day Nicky EPS.
For four years ago. We are we have this 350, a a customer may right now we have to almost 700, a yet to day right. Yeah right debt almost 700, that's been we assembled a a customer that a a a number a mainly driven by the number of mainly driven.
In the by the end of price customer, we never stop to get back to a new customer in a a into price area. So we will still continue to get better and the good thing is that they are not traditional its price they start to use the hybrid crop Oh, we think day, we will get a benefit from next a few years.
Yeah, right, Yeah, I think it's you're right, we use hybrid clouds Bourbon reference a large internet companies, which maybe sounds pretty unusual yeah.
But that's what we're saying.
Perfect.
The range.
So that patients a day so that they have the of the race day requirements for example video streaming.
Might rely more on say, CDN, which which they will use of public cloud but.
But there could be other business areas other station applications, which yeah.
It requires a lot of concentrations of service in which case they put that on the on Oh or private cloud and then there's a traffic migration.
Between the two so I think we you know it is right to talk about hybrid cloud.
With reference to the opportunity with large and small customers yeah, we haven't provided any.
Targets I hesitate to do so, but well the three to five year basis here, we do aim to increase the proportion those put at retail, but I suppose institution as price from where it is today and that's despite.
Yeah, well expect to see the continued very high volume gross food from kind of into that.
Thanks, Stan and William cash.
Just two follow up questions number one is.
See I mean fourth what isn't and traditional enterprise customers today have.
Bought the man ought to do one more to be done.
In core tier one cities or are they happy to be agile uptown locations or.
So how does that impact your capacity expansion and.
Number two is that if.
If you have more of these traditional enterprise customers on the retail price this doesn't mean that youre.
Well, let me ramp up more slowly than before.
Because you need to go out and find to set the price customers in retail book.
[noise], Yeah, you're right on that last point.
The enterprise.
And the price point is mainly downtime.
Yeah and maybe.
Ltd done book, which you know and the color.
Yes, 1000 square meters Pos.
Oh.
Well the size.
Which could go to edge of town, we do see some order size like that but it's.
It's it's not yeah, yeah, yeah, part about a customer mix right. Your channel. So I think you know there is price business dose required.
Downtown and the sales cycle is is longer than that and it's.
It's more cash.
Since it yeah, we are.
Increasing our sales resources.
To cover that Sequans.
We also have a lot of followme sales potential without established customer base I know, it's a 700 up suddenly hundreds of customers is.
250, almost 250 price.
The net interest fusions in that mix and that's been filled up or the.
Yes, moving 15 years.
[laughter].
Yeah, we were the first moving budding business continuity and disaster recovery.
Very high quality customer base, there and so there's a lot of potential, particularly as they start to train to like here I T architecture to share.
To make new sales to those long established customers.
Okay.
Okay. That's great. Thanks for the comments.
Your next question comes from the line of bomb GE Leap from C.I.C.C.O.G. Please ask your question [laughter] I think mentioned that Uh huh.
On the power supply.
Hi, well have multiple pipelines from work force.
Correct, it's actually not a hobby deposits I went out with deposits might impact volatile memory I was on either our own apps problem assets.
GAAP for Oh.
Oh profit.
Oh, hi assets.
So far in corporate profit pilot going forward.
Oh, sorry.
So the total so it's where the line is probably Aligners video clips checking was lower but it's a great question was [laughter].
Uh huh.
Well so well.
Well with that.
Okay.
Yeah, I think your loans Oh, no. It's a it's a it's a city or has.
As something a little bit to the power capacity number one.
Ah, but not material. So we are force Marino.
With that for the day secured a the power capacity for the future. The government I think this is our first mover advantage I think the assets.
The power supply, we're not a impact I won't deliver delivery in a lump sum area in the next couple of years.
Is that your question.
[noise].
Okay.
Once again, if you wish to ask a question. Please press star one on your telephone and for the benefit of all participants on todays call. Please limit yourself to one question.
Your next question comes from the line of John Choi from by Wall. John Please ask your question.
Oh, Hi management. Thanks for taking my question I have a quick question related to your I think initially you guys, where you guys mentioned about your Ah Yes, Yeah first off you know like next year, we'll spend a bit more on are you still able to extend <unk> a 1% EBITDA margin I think you know with the recent carbon neutral initiative by the government no.
What is our plan for on the renewable side, and how would that impact our or cost or in terms of developing and that you would that have any impact on our MSR and just quickly on down I think you mentioned about there are the app was inorganic growth. It seems to me that you ever gotten has been stepping up sense on the past 12 months or is it.
Because the projects are being more mature in the in town cities or the prices have been coming off there's any trend that you could share with us. Thank you.
[noise] [laughter], hi, Nigel unfair thanks to initiate share I think George so much free someone to initiate one GDS food.
Very good reported when they see.
Yeah, we will publish suppose yes, GE reported next year.
And until that I didn't want to come out we will set any expectations because I think there's a lot of irresponsibility in this in this area where companies talk about targets without giving any time line go any metrics and it just looks to me like a marketing.
You know we leave US yeah, we've established.
A team and we are we haven't we are enhancing.
Our expertise in the power sector.
To try to manage this better.
And it requires ingenuity and creativity.
To be able to increase portion about data centers, which use renewable energy.
And we're working hard to do that sort of take it right there.
Very seriously.
Oh.
You said the inorganic proportion seems to have stepped up and we've we've done and I think the shortcoming 19 acquisition, which we announced today that.
That was the 11th acquisition, which we've done since I think second quarter 2016 was approached M&A deal that's been around two deals.
Hi, Ryan it's just so some of those deals have been.
Being launched for example, you know one of the deals in 2019.
Who's Beijing, 10, 11, 12 suicide Treaty data centers and.
The deals that we've done in 2000, and Oh twin cities like Beijing, 13 was 20000 square meters in fat.
Soon to announce that we've been able to upscale that quite.
Quite quite significantly.
Beijing, 14, which hopefully will move forward and.
I'm sorry.
Finally finishes agreements and close next year. It's also a 20000 square meters. So it seems to me it was to doing around two deals per annum.
As you hope to maintain that too yeah, if not more.
He made a comment about acquisition multiples I, yeah, we've seen.
Two kinds of M&A opportunity.
Oh, it's a stage of development.
Most about deals being projects would show up on the construction or at least when we signed the silver purchase agreement there's still a.
Substantial amount of work to be done.
To complete those projects.
Those are in that case moving mining projects.
Single digit multiples.
Let me just say.
Stabilized EBITDA effect factoring in what we pay on the cost to complete Shanghai Knight team. You can you can kind of do the math from what weve disclose debt free fits into that.
Into that category, but then there's been a couple where we've acquired two cents, which were already complete and as I mentioned before those there's more competition.
So those kind of opportunities including from.
The financial investors.
We will do those deals for them we feel.
We see very strong [noise].
Tejas rationale of course, the multiples of a double digits now but.
I'm interested to see when the weak markets to try to develop.
Develops which would be low no it.
With respect to say to sensors, I mean, just see what kind of cap rates or data center lease will come on zone.
Expectation is gonna be it's going to be.
The way below the level at which we don't L. deals even the same.
Well the board.
Bonds to maturity sales.
Great. Thank you.
[noise] assets there are no further questions I'd like now to turn the call back over to the company for closing remarks.
Thank you everyone. Once again for joining US today. If you ask the question. Please feel free to contact GDS Investor Relations just through the contact information our website ultra something moving Investor Relations see you next quarter.
[noise] [noise]. Thank you for sensors. This concludes this conference call you may now disconnect. Your line. Thank you.
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