Q3 2022 GDS Holdings Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Limited third quarter 2022 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.
Uh huh.
First Scott.
I'll now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Okay.
Hello, everyone welcome to the first quarter 2022 earnings conference call of GDS Holdings Limited. The company's results were issued Stan Newswire services earlier today and are posted online.
Re presentation, which we will refer to during this conference call can be viewed and downloaded from our IR website at investors GDS services dotcom.
Leading today's call is Mr. William Huang GDS, founder Chairman and CEO , who will provide an overview of our business strategy and performance Mr. Daniel Lee GDS CFO will then review the financial and operating results Ms. Jamie Cook. Our CFO is also available to answer questions.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995 bullets.
Forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Further information regarding these and other risks and uncertainties is included in our companies.
Backers as filed with the U S. S E C.
<unk> does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please also note that Gds's earnings press release, and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable.
Both GAAP measures.
I'll now turn the call over to GDS founder Chairman and C. O Williams Paul. Please go ahead William.
Thank you.
Hello, everyone. This is William Thank you for joining us on today's call.
I am pleased to report another quarter of solid results.
We grew revenue by 15% and adjusted the EBITDA by 11%.
Demonstrating that our business is resilient and defensive.
In the current uncertain.
Environment, we are managing through that with the following priorities.
In China, we are focused on delivering the backlog.
Keep your capex down to what is essential.
And that being selective about new business.
I'll say the China, we are stepping up our international expansion.
And it has been proven to be a we mean strategy with the groundbreaking older secreted during the quarter.
While we are holding tight in China and are waiting for recovery.
We have created a second ago growth engine.
And at the same time, we are strengthening our financial position by monetizing assets in China, and then raising raising private equity for our international business.
Overall, we remain very confident of our strategic position.
We're on the right path to achieve our goals.
While demand in China is slowly slowly during the current period, there are still significant new business opportunities.
Large internet companies are growing.
They are building out their own passports and deploy in new locations, they often favorite largest sites around the chiller market.
If the customer is the strategic and the men matched our resource inventory, we will go after the new business.
A good example is the nine megawatt order, which we won in the third quarter.
Tax driven retail platform.
It is a four hour tensions one data center, which is partly in service.
And partly under construction.
Another 20 megawatt order from a different customer in the current quarter.
Which fits the same pattern.
I'll start with China.
We are building up our market presents during the quarter.
We received a letter.
The water from a Chinese internet customer.
64 megawatt deployment better know Sanjay on Tech Park Joel This is a clear proof.
Of concepts for our Singapore, you hope what kind of strategy.
It lays a strong foundation for our continued expansion expansion in southeast Asia.
During the first nine months of this year, our new bookings.
Bookings totally totaled 61000 square meters, including including 28000 square meters from the international business.
We will definitely exceed our 70000 square meters target for the whole.
Yeah.
Yeah.
The new.
Commandment mixed this year is around that 60% larger Internet 10, 3% financial institution and a 10, 8%.
Cloud customers.
The profile of our customer our new new business in terms of the markets and the customer segments is very different from even one or two years ago.
This shows how we have being able to evolve our strategy to capture gross.
Yeah.
Our backlog totaled 12 totals 258000 square meters out of which 122000 square meter neither related to data centers, which are already in service.
We haven't reviewed our backlog with customers there.
There are commitments are solid.
The underlying capacity is scarce resource in key locations and the customers will need for their future expansion.
Our backlog is mainly spread across 10 call and a larger internet customers.
A couple of them had asked US. So then moving period of four two years to.
Two three years.
Which we will agree on the other hand, we see that some of the large internet orders, which we have one more recently.
Have shopping the shorter moving period than the normal two year schedule.
Yes, the moving rates.
Pick up over the medium term as the market recovers and as these new contracts kicking.
We expect to have one of the true event from the from the backlog around 3000 square meters or one 2% of the total backlog.
Customer has agreed to pay us.
So to stand true termination fee.
We are managing our capacity expansion in sync or instinct will be as a result, we have brought the utilization rate back up over 17%.
Over the past.
Our installed base is very solid over.
Over the past five years, our Treasury has averaged just over zero zero point of 5%.
Per quarter.
She is a substance substantially lowered their global benchmarks.
Over the next couple of quarters.
We're having one customer churning around.
17000 square meters of area utilizing utilized there.
As a large internet company, whose scares has scared has increased.
Enormously in the past few years.
This has led them to reconfigure their overall.
Architect.
I'm pleased to say that around half the true capacity will come back to us after a few quarters.
As the customer deploy that deploys.
The other.
And the other GDS sites.
In fact over time, there's a good chance that did a customer's new departments with us will grow much bigger than the chair.
Turning to turning to slide nine.
In the first nine months of this year, we brought 23000 square meters of capacity into service.
In the last caught off to attempt to 'twenty two.
To bring another 500000 square meters into service.
Compared with our original plan for this year.
Pushed it back nearly 59000 square meters.
I appreciate it into two.
You too.
FY 'twenty three and beyond.
This will help us to materially.
Okay.
Opex, which Dan will explain later.
Over the past.
Yes, we have built <unk> into the leading.
Development at <unk>.
And operator of high performance data center.
Centers in China, and a top five player globally.
Our unique platform.
Okay, and multinational call and internet companies, so seamlessly deploy their it infrastructure in our in all of us in all of China tier one markets.
In recent years.
Our home market customers accelerate their expansion in.
Into a high growth market overseas.
They are asking for our support.
An exciting opportunity.
Our platform beyond mainland China.
Yeah.
Okay.
Stronger demand from existing customers.
To address this.
With enhanced focus we have set up a new international holding company as a vehicle for all of our assets and operations all signed up remaining China.
It is a headquarter in Eric.
Headquartered in Singapore, and the and the over the next couple of years and it will have its own dedicated management.
We believe that we can rapidly grow GTS international into leading reading know and.
FEMSA platform for leveraging our industry.
That.
This is the relationships and the scale.
<unk> International has the potential to become a major value.
<unk> for our shareholders.
Two of the worlds largest.
Data center markets.
Our doorstep in Hong Kong and Singapore.
And that therefore.
It is therefore makes sense for us to focus initially on building up our presents in raw disease regional hubs.
We ended the telecom market many years ago, leveraging third party data center capacity to some mainly financial institution customers.
In recent years the demand profile in Hong Kong has changed with Hyperscale driving the majority of gross new purpose built data centers are required to fulfill this demand.
We initiated our past for self development in Hong Kong in 2018, we selected west West of Colo as the best location to serve both both enterprise and Hyperscale customers.
And a part of our first.
Brownfield sites for redevelopment as Hong Kong one.
We then source the three other projects in close proximity to Hong Kong, one, creating a virtual campus.
The multi year supply pipeline.
This is a highly beneficial beneficiary of four.
Customers as it is in May.
Enables them to lend lend and expand in.
In the same location and all treated with optimal efficiency.
Is that unique proposition in Hong Kong, we have already sold out Hong Kong, one two leading China call global car and MSI customers, demonstrating our competitive edge.
Singapore ranks in the top five data center markets globally.
It was also one of the fastest fastest growing.
However in 2019, the Singapore government temporarily paused, new data center approvals due to the purchase of <unk>.
Resources and inbox impacted all I'll review.
When we were considering our strategy for southeast Asia, we feel that Thats, the biggest opportunity and the right pace to stocks was by.
Adjusting the spill over demand from Singapore.
This situation is very familiar to us from our edge of town.
Demand in China as tier one markets.
We moved all of the early.
We moved early and decisive decisive decisive sibley to secure land in a power for Hyperscale development asset.
Diverse sites in close proximity to Singapore as a result, we are well ahead of other players executing these Singapore Jehol patent strategy.
I'll, let you host site in Malaysia, we locked up a sufficient resource for 280 megawatts of development at and those are Jerry a tech path.
We have the landmark 64 megawatt customer.
Customer win which I already spoke about and the strong strong sales pipeline.
On a per ton.
That aside in Indonesia, we locked up the 88.
58 megawatts for future development.
We have already received the Mou from a potential anchor customer and expanded the order to come in the next couple of quarters.
Oh.
We aim to submit an application for Singapore project approval in the near future and are also evaluating opportunities in other Asia Asia.
Capital cities to future expand our footprint in the region.
Like I mentioned earlier, we haven't grown into the leading pair renewed chip platform in China by building up continued supply in tier one markets and are focusing on.
<unk> customers.
Exactly what we are doing with our international business will result secured and some great customer wins.
We are on the right track to achieve our vision.
We had we have been through difficult periods in the past the challenges.
We are experiencing now are for the short term while the data center industry is for the long term.
During this time of uncertainty we continue to continue to build up our position by expanding our customer base and enhancing our market presents both in China and outside of China.
We remain very confident about our future.
Now I will I will now pass on to Dan for financial and operating review. Thank you.
Thank you William.
Starting on slide 17.
Where we strip out the contribution from equipment sales and the effect of FX changes.
The <unk> 20 to <unk>.
Service revenue grew by two 8%.
And underlying adjusted EBITDA grew by 1% quarter on quarter.
Our underlying adjusted EBITDA margin was 45, 1% compared to 46% in the previous quarter.
Turning to slide 18.
Service revenue growth is driven mainly by delivery of the committed backlog.
Net additional area utilized during the <unk> 22.
Was 14184 square meters.
Around 5000.
300 square meters was.
It was in tier one markets and.
The remaining 8800 square meters from <unk> projects.
In the fourth quarter of 2022.
We expect moving to be a few thousand square meters lower.
As a result of the first part of the churn, which we had mentioned.
Yes.
Monthly service revenue per square meter.
Was RMB 2237.
Compared to RMB 2265, the previous quarter.
The decrease is mainly due to dilution from the move in.
Projects.
For FY 'twenty, two as a whole we still expect MSR to decline by around 5% year on year.
Turning to slide 19.
Our underlying adjusted gross profit margin was slightly down on the prior quarter.
57%.
Adjusted EBITDA margin was just under one percentage point lower.
At 45, 1%.
And <unk> 22.
Utility costs was 31, 6% of service revenue.
Paired with 30% in <unk>, 22, and 28, 8% and <unk> through 'twenty one.
Turning to slide 20.
2022.
Transitioning here in <unk>.
Bringing down Capex in mainland China on the one times and increasing investments overseas on the other hand.
Our organic capex in mainland China will be around RMB 6 billion.
2022.
Which is a few billion lower than the past couple of years.
We expect a further significant drop in mainland China organic Capex next year.
So up to <unk> 22.
We will have no more material acquisition consideration outstanding.
With a landmark business win and Joel we are accelerating our capex.
Contract is for delivery next year.
Accordingly, we expect international Capex of RMB 2 billion. This year rising to RMB 4 billion next year.
Yeah.
Looking at our financing position on slide 21.
At the end of <unk> 'twenty two.
We have RMB nine 1 billion.
All U S. Dollar was $1 3 billion of cash on our balance sheet.
And our net debt to last quarter annualized adjusted EBITDA ratio was seven six times on a consolidated basis.
Our effective interest rate dropped to four 4%.
To make it more clear.
I would like to lay out a preliminary view of our FY 'twenty three investments and funding plans.
Starting with uses of funds in mainland China.
We expect organic Capex next year to be around RMB, three 5 billion.
From RMB 6 billion this year.
We are able to bring it down to this level.
We already have substantial capacity and service to support moving.
Furthermore, the cost to complete all the capacity in service and under construction in mainland China is only RMB seven 1 billion.
And as William described we are pushing back project completions over several years.
Scheduled debt repayment for mainland China will amount to around RMB 2 billion.
Some of which we will refinance as we always do.
Our preliminary assessment of total uses for mainland China in FY 'twenty three is therefore around RMB five 5 billion excluding refinancing.
Turning to sources to mainland China.
We expect to have positive operating cash flow.
RMB 1 billion.
In addition, we expect to draw down around RMB, two 1 billion of new project debt.
Renting, 60% plus incremental capex.
We have RMB nine $1 billion available for drawdown under committed project finance facilities and mainland China.
To supplement our sources, we are pursuing an asset monetization strategy.
Developing several structures with different partners.
So far we have signed the subscription agreements with a sovereign wealth fund.
Offshore China data Center PON.
Which is still subject to execution of other agreements regulatory approvals as private faction of various conditions.
We have also signed a detailed term sheet with a well known industrial property company for the sale and partial leaseback of one of our properties.
Taken together, we expect to generate around RMB 3 billion of cash proceeds.
From the first acid injection into the phones and the sale and leaseback.
Thereafter, we have the option of doing.
More through these and other structures.
In Africa.
We expect our total sources for mainland China in FY 'twenty three.
To amount to over RMB 6 billion.
Which would be sufficient to cover our total usage.
We are selective asset monetization.
We can fully fund the growth of our business in mainland China until it becomes self financing after two or three years.
Turning to international.
As I mentioned previously we expect total capex for international in FY 'twenty three.
RMB 4 billion or U S dollars $550 million.
We expect to finance, 60% of this say RMB two 4 billion.
While U S dollar $340 million with project debt.
And the facilities are already in place.
For the palace, we plan to raise private equity.
So the GDS international is separately capitalized.
We recently started talking to potential investors about this opportunity.
As you can imagine there is a lot of interest in partnering with GDS one of the world's leading data center companies.
International expansion and our high growth region.
We plan to raise sufficient private equity to fully capitalize GDS International's current business plan and one or more funding rounds.
With this approach we can grow the international business Ambitiously without further capital injections from GDS Holdings.
Over the next few years, we believe that the combination of asset monetization in mainland China.
External capital raise for international can meet our funding requirements and a consistent and well structured way.
At the end of this year, we expect our cash position to be around RMB seven 5 billion.
<unk> dollars $1 1 billion.
This is sufficient to cover all short term debt at GDS holdings level.
Including the CEB, which is portable and <unk> 23.
We have no long term debt outstanding of GDS holdings level, which is repayable until 2027 at the earliest.
Yes.
Turning to slide 22, we reconfirm that our revised guidance for FY 'twenty to revenue and adjusted EBITDA.
The original guidance for FY 'twenty, two capex remain unchanged.
We'd now like to open the call to questions operator please.
Certainly for.
For the benefit of all participants on today's call. Please limit yourself to one question.
You have more questions. Please re enter the queue.
Ladies and gentlemen to ask a question you will need to press star one.
One once again to ask a question. Please press star one one.
And our first question comes from the line of Yang with Morgan Stanley .
Okay.
Thanks for the opportunity to ask questions.
My question.
It's related to weak.
Phil.
I think the third quarter GTS delivered very strong.
So they sell almost 30000 square meter.
The management is thinking about it.
Sustainable level or we should combine to Q3 Q together.
Do you think that the previous target of AP.
So on square meter is achievable.
We didnt mention that the 70000 square meter targets revised down after <unk>.
The company will definitely exceeded that.
Whether the company can go back to previous patent like 20000 square meter per quarter and <unk> 80 per.
Per year.
Do you think that is achievable targets. Thank you.
I think.
Yes.
Revised guidance sales guidance in Q2 right.
Wood adjusted to the 70000 square meters.
But now we are very confident to achieve above this number.
In total year's level I think.
Looks like.
Next a couple of cube, we still cannot maintain this.
Uh huh.
Momentum.
So far.
Thank you okay. Thank you.
Our next question comes from the line of Ciena Howl with Goldman Sachs.
Sacks.
Hi management. Thank you very much for the detailed presentation. So I have a question on the customer churn front.
I'm wondering because now we're talking about potential reopening of China in the second quarter of 2023.
Have we seen any early sign of like customers demand start to recover and on the other hand any.
Any potential further ontic customer Charles maybe on the horizon that we should be watching out for.
I think in them.
Number one I think.
Yes.
This year actually here, it's very clear this top players they are slow down.
Capex full year.
And we see what we can tell you any well recover.
Definitely.
But still need tied because up to Colby.
Our policy in China didn't change a lot it's all.
On the other hand, I think game.
What do we what do we see that.
The internet.
Yes.
Prayer is very active this year, it's much active them before.
Due to their it.
Structure.
Changing a bit.
Business still growing in China, and all site to China. So.
So in our.
Our view maybe next year.
The call will slightly recover.
But the internet logic intend to accomplish still maintain a very active.
Demand in next year, so that's our current view.
In terms of.
Yes.
Yes, yes, sorry.
<unk> surcharges.
Answer the part about.
Yes.
Sure sure yes, yes.
Yes, yes, okay.
Excuse me.
Yeah.
From the fourth quarter of this year to the fourth quarter of next five quarters.
We have a total of 80000 square meters.
Uh huh.
Ara you slides, which comes up for.
Renewal.
And how does that we mentioned state one churn event holding 17000 square meters.
Other than that.
No.
Significant churn that we aware of what we expect.
Nor is there any other.
Early termination of contracts that we're aware of or expect.
And as regards the one churn event that William.
Spoke about.
It's actually a result of the companies or the customer success.
Because of the extraordinary growth.
And therefore, the evolution of that.
Architecture, So it's in no way.
A negative.
Or even.
A systemic issue.
We are fortunate we competed.
For the new deployments and we won the majority of it I'm.
So really there is only a timing difference between churning in one place and moving in another place and Thats. When you mentioned I think eventually it will be yes.
<unk> new migration.
100 <unk>.
Dr Chin.
Yes.
Okay sorry.
Yes, yes.
Yes.
Thank you Joe.
Thank you.
And our next question.
That comes from with RBC capital markets.
Thank you I wondered.
For Dan if you could maybe talk a little bit about the.
Sources of funds and you've talked about inside of China debt financing and.
What are we looking at in terms of current debt financing conditions, what what cost of jets.
And then on the equity side for outside of China.
Maybe a little bit of color around the types of parties that.
That you foresee doing business with and that have shown interest so far.
Yes.
The sources of funds you are talking about the project debt component in China. So do you know.
Our approach.
Has been skewed.
Project finance, each each data center developments and to put that.
Project finance in place.
Section of the project, so that between the capital, which we allocate to the projects and the project.
Our committed project finance facility of the project is fully financed.
So the situation we find ourselves in is it based on.
The expected level of Capex next year in China, but as I mentioned was around $3 5 billion.
And out of which.
We expect to debt finance, 660%, which is just over $2 billion.
So that would be the total amount of new project debt drawdown.
But it's already.
The facilities are already in place.
Not over $9 billion.
RMB.
<unk>.
Undrawn available for drawdown project finance facilities. So there's practically no new financing, we need to do in order to payable to.
<unk> achieved that drawdown is just a fraction of what is available.
To us, but more generally speaking the project finance market in China for data centers, and particularly for us is as as supportive as ever.
Data centers are.
<unk> C L.
Area of infrastructure frequently and repeatedly emphasized by the government in various areas.
Policy statements.
And therefore, the financial sector.
Very supportive in terms of allocating allocating credit and so on to.
The two data centers.
Most of our decks most of our project debt is typically is floating rate.
It's floating rate against that.
Benchmark, which we call D over a five year loan prime rates, which doesn't change very much its not theres not a fully market rate that was not volatile.
Over the course of this year I think it's come down by 35 basis points.
So it's exactly the opposite experience of the U S. Most of the rest of the world.
L L pricing benchmark for that is actually lower this year and I think our effective interest rate, which we just reported a four 4% is the lowest in our history.
For the.
International capital raise.
You asked me, what kind of investments, where we're talking to so.
This is a spread.
Uh huh.
We've been approached by a variety of investors.
We initiated a process to.
Yeah.
Explore more.
More authority.
The.
The potential sources of capital.
I think at one point I would make about this is that.
And we've raised capital we always try to do it in a value added way.
There is not just about money, but it's also about.
The financial or the capital provider brings to us in terms of.
Added value to the to the business. So I think that's really what we're looking forward. We're looking for an investor who can be a partner and also add value to the business.
Thank you.
Thank you.
And our next question comes from.
Your line of Erin <unk> with J P. Morgan.
Yes, hi.
Hi, Good morning, Thanks for taking my question My question is going to be.
T J expense in general.
Congrats on this win.
Okay.
Alright.
This project.
Mike.
Oh for MSR.
China.
Yes.
Sorry.
Line is not very clear can you repeat your question. Please thank you.
Okay.
Yes.
I will now ship eventually.
Okay.
Okay.
Okay.
Hey, how are you.
Hello.
Hello.
Okay.
We can hear you very well can you repeat your question.
Our next question will be coming from the line of Michael <unk> with Cowen.
Okay.
Hopefully I come through clearly.
I had a question for you related to the churn.
Could you guys give a little bit of color on when you expect that churn is it in one tranche or is it in multiple tranches and then also is that in just one tier one market or is that in Egypt.
A town or even remote remote sites any color there would be helpful. Thanks.
Yeah, Hi, Michael D with.
17000 square meter churn.
I'll be around 3000 square meters in the fourth quarter this year.
And I think the balance will be.
Spread across the first two quarters.
Of next year.
And it's all in one tier one markets.
It involves several different sites in several different data centers, but I think its highly marketable capacity.
And given time, we wouldn't have any problem.
Reselling that capacity to other to other data to other customers.
Thank you I appreciate that color and just as a follow up question as we think of the cadence.
Net installs moving forward and I feel like one overhang was the was the elections just as you look to next year are you seeing any indications from customers that they can pick up the pace of their installs into into your facilities. Thank you.
Microsoft's came about the the monthly move quarterly moving rate, whether we see any potential pickup.
Yes, as I, just mentioned I think that if you.
Have a view for next year I think.
We are slightly.
But.
Yes.
It will cost a much longer time.
But they start to recover.
That's my view net in next year, and but what I, what do we see that.
The new order from the Internet and will be.
Speed is much higher than what do we expect.
It's a combination.
Thank you.
Thank you.
And our next question comes from the line of Frank Louthan with resin.
Raymond James.
Great. Thank you.
Talk a little bit more about the international expansion I mean, where what are you finding that more attractive is it just the certainty of the business environment is it better growth.
And will the customers being new to you or will you be sort of following some of your current mainland China customers. There. Thank you.
Yes.
So Frank and then.
<unk> will.
We will add in.
The logic of our international expansion to sustain the same with the launch of our business in China.
And our proposition to our customers is to be a solution to how they deploy their it and we.
And we try to integrate our data centers into a platform to be present in all the tier one markets wherever our customers have critical mass of demand.
That takes us into Hong Kong that takes us.
Into Singapore and adjacent areas.
Yes.
I would say that the growth rates in southeast Asia are currently higher than.
In China I think there is a.
Huge hinterland.
In Southeast Asia, where.
There are many many aspects of the digital economy are taking off.
And the opportunity over the next 10 years is probably as good as anywhere in the entire world.
And.
To begin with it's very concentrations and around Singapore.
It will it will spit out from from there. So that's the attraction.
Of the customers. So I think it's three <unk>.
<unk>.
Half.
<unk> insight.
Cooperation and demand from our home market customers as we go into these areas that's clearly a.
The big advantage.
But.
We will definitely win significant business from non Chinese customers.
Sure.
I can say that total total confidence in it.
Hong Kong for our Hong Kong, one data center.
We have order from one of the largest cloud players in China, and one of the largest cloud.
Cloud players globally.
And I think.
Given the give us give us a little bit of time and Youll see that we have a mix of China and global customers set out in our southeast Asia.
Data centers are not necessarily new customers, because we made some of those global customers in China.
But I'd, just say that non Chinese customers that we will sell it outside of China.
Yes, I think in fact to the southeast Asian markets represent almost 50% the China, China market is already very.
A sizable market.
And the grocery is I believe the grocery in this region the demand growth rate is much higher than other region.
So this is.
Totally.
The market profile totally fits GDS.
Two two.
To generate more big scale.
Older industry. So I think this is.
We're very excited about the opportunity and then we also believe we have very very stronger a competitive edge to win the future market in this region.
Okay, great. Thank you.
Thank you.
And our next question comes from the line of Cerro.
Wayne.
Thank you Keith.
Hello, Hello can you hear me.
Yes, hi, Kevin Thank you.
Thank you just one quick question on the delivery schedule.
I noticed the Denver barometer too.
Deliver.
22. This theory is revised down by roughly 20000 square meter and then the delivery time for next year remains largely unchanged. So is it because most of the.
Projects in China somehow related.
Later into 2024 or beyond.
Okay.
So we still have a lot of flexibility.
Data Center development has very distinct phases and it is very modular.
Uh huh.
<unk> incurred.
A certain amount of cost for the projects, which are under construction.
And we Couldnt time and phase out.
Uh huh.
How we incur additional cost is really tied to.
When the customer needs to take delivery.
I think for the area under construction, so the 60% pre committed.
So those those sales agreements have a.
Stop date delivery date in them.
That's when the customer.
<unk> is entitled to begin to move it but if the customer agrees to delay or defer that start date, then we couldnt delay or defer.
The Capex I think we can actually continue to pushback.
The completion of the projects.
So it takes a opportunity to repeat a number I mentioned.
Prepared remarks.
Look at the area, which we have.
On the construction.
Well over 100000 square meters.
But the cost to complete all of it is just over $7 billion.
RMB.
We talked about.
Mainland China organic Capex next year being around $3 5 billion.
So that's approximately 50% of the cost to complete all the remaining.
Capacities that gives you some.
Idea of what our run rate Capex is.
Versus the capacity that we could bring into service.
Got it just one quick follow up so given the flexibility in our delivery schedule do we see any risks to our committed square meter.
Yes.
You mean the backlogs.
We have.
240000, something square meter backlog.
And.
We mentioned that there was one.
Early termination.
From that backlog.
Which is actually a partial early terminations NOLA early termination of the inspire commitment from that customer and it's 3000 square meters.
Thats.
1% of the backlog.
And in that case, because it's an early termination.
A substantial I would say very substantial termination fee that we will receive either this quarter or next quarter.
So thats.
Very immaterial amount of churn from the backlog.
We have the financial protection is the the termination fee.
Got it thank you.
Thank you.
Earnings from the line of.
Alex Wang with Daiwa.
Okay.
Okay.
Yes.
Okay.
Alrighty.
Sure.
Alex we cant hear you.
Hello, Hi, yes.
Based upon the final.
Okay Alright.
Regarding our customer diversification strategy, so the puzzle customer bad risks.
Rough there.
Sandra.
This partner, so I won't get them all color about.
The incremental cost of arc <unk>.
Arthur.
Regarding.
Although our customer mix about the longer term picture.
Regarding hochberg.
We have a national landscape about it.
Personally from Colorado.
Several courtyards about are you, allowing a great mix would be.
Further.
Recover.
In terms of 344.
And then the second question I had regarding about customer bogey in progress are reimbursed and some hard work delays there a bogey okay.
From full year, two or three years.
Feedback from copper copper imbalance Pandora.
Uh huh.
Coming from international.
Thank you.
Yes.
The first question was about.
Increasing the number of customers regarding this about.
New enterprise customers, because thats with us on the consumer and the second question was.
Which types of customers were requesting extended.
Move in Paris from two to three years.
Maybe I can answer that one.
So.
We didnt mention.
If you look at that total backlog.
Most of it almost all of it actually pertains to around 10 customers.
I think nine out of the trend.
Chinese cloud and Internet companies and maybe the Tencent as a non Chinese calvin's that company.
There's only a couple.
Requested.
Extended move in periods.
The first Chinese cloud or Internet companies.
Companies, the way and what about the entities.
Enterprise enterprise business opportunities.
I think the if you look at our first of two quarters.
Our new order, mainly driven by the enterprise customer special finishes that.
That's our very solid customer base and we also added more new industry new customer in this year were made very very significant progress to acquire new customers to strengthen our customer base in this year, given our strategy, we always did likely.
Again again in the last few years. So I think we are so thats why we are our order SKU maintained very stable.
Stable.
Yes.
As situations so even in this year, but we still can get rich.
It's a very high level of new bookings.
If compared with Seth.
Our our peers all global peers.
So our new order bookings still maintain very high level. So.
So I think.
That's all base benefit based on we have very strong.
Customer base, and we continue to keep apps.
That the customer base.
So that's so this year I think in that.
In the next year.
Steel will focus on the Hyperscale plus.
Very good high quality enterprise customer.
Thank you.
And our next question comes from the line of <unk>, Li with Ci Cc.
Okay.
Hi management. Thanks for taking my question, just a small one regarding overseas business.
Thanks Al.
On the construction data centers in the Lithia Hoffman, calling program method and ready for service.
Sure.
Hi, Ross.
Argos book mobile data revenue growth rate and margin.
Yes.
Overseas.
<unk> definition includes Hong Kong.
Where we were the first data center Hong Kong one.
Come into service in the next.
A couple of months.
That is fully committed.
Mainly to China and global cloud.
And the move in rate there will be over.
Over two years, which is standard and typical for power players.
For the.
The commitment that we've announced the level for <unk>.
64 megawatts for <unk>.
It's actually three data center buildings.
It's the entire phase one of our development on that site.
And.
The delivery will be the second half of next year.
And we expect to move in.
Be very fast for the entire capacity.
And that illustrative of what William was mentioning that some internet companies have.
<unk>.
Place orders shorter.
At a time ahead of when they require delivery and then yes.
Yes.
Commit to a faster move in.
And we typically see with cloud customers.
So as you have mentioned revenue and EBITDA I think the international business will be.
Modestly EBITDA negative next year.
Be around breakeven in the year after it could be better but that's a.
Our base case.
Sure.
Thank you.
And we have a follow up question from the line of Yang Liu Morgan Stanley .
Okay.
Pardon me Yang please check your mute button.
Thank you for another.
Oh opportunity to ask a question.
I take a look at your Capex plan and the operating cash flow and also the.
That.
Do you think.
If we are at.
Look a little bit forward going into 2024, with a little bit higher operating cash flow and.
Also similar or even a little bit down a.
Capex do you think of free cash flow positive.
Hugo.
For the China business in 2024, thank you.
I think it's close.
Yes.
We would expect to hope that operating cash favorable growth.
And.
Organic capex might be lower.
So the gap the gap to being self financing will narrow down.
Uh huh.
We may pursue asset monetization not.
Not just to fund that gap, but we made pursuant to to deleverage as well.
Asset monetization generates cash proceeds, but it may also lead to some debt deconsolidation.
So I think the strategy is not purely and simply driven by.
Uses of funds.
The liquidity, but also by.
By leverage.
But I think that's at this point.
We put in.
A considerable amount of work.
On developing the structures that we've already talked about.
<unk> sale leaseback in the data center.
And frankly, the international capital raised and we're working on other structures, which we havent yet disclosed.
The objective is to have optionality.
We're working with different partners with different structures, even in this difficult time.
Very strong interest.
The commitment from from these partners to to getting these deals done.
I think it gives us optionality as to how much capital we want to recycle raise.
Regardless of whether the.
Whether the mainland China business.
Free cash flow positive, we might we might still be doing it.
Got it thank you.
Thank you.
Is this.
I would like to now turn the call back over to the company for closing remarks.
Thank you all once again for joining US today. If you have further questions. Please feel free to contact GDS investor relations through the contact information all websites or the PSA group Investor Relations.
Your next time Bye Bye this does conclude.
This concludes this conference call you may now disconnect your lines. Thank you.
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