GDS Holdings Limited Q1 2023 Earnings Call
Yeah.
[music].
Okay.
Hello, Ladies and gentlemen, thank you for standing by for the GDS Holdings Limited first quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After management's prepared remarks there'll be a question and answer session. Today's conference call is being recorded.
I would now turn the call over to your host Miss Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you Hello, everyone welcome to the first quarter of 2023 earnings Conference call of GDS Holdings Limited. The company's results were issued stay newswire services earlier today and are posted online a summary presentation, which we will refer to during this earnings call can be.
It is and downloaded from our IR website at investors GDS services dotcom.
Leading today's call is Mr. William Huang GDS, founder Chairman and CEO .
Provides an overview of our business strategy and performance Mr. Dan Human GDS CFO will then review the financial and operating results Ms. Jamie Cook Our C. O O 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.
It's looking statements involve inherent risks and uncertainties as such the company's results maybe materially different from the views expressed today.
Further information regarding these and other risks or uncertainties. That's included in the company's prospectus as filed with the U S. S E C.
The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please also note that GDS earnings press release, and this conference call include discussions of unaudited GAAP measure information as well as unaudited non-GAAP financial measures.
GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
I'll now turn the call over to GDS founder Chairman and CEO William Clark. Please go ahead with them. Okay. Thank you.
Hello, everyone. This is William Thank you for joining us on today's call.
Before I review of the Q3 results.
They like to take a few minutes to highlight our strategic priorities for the next few years.
What are we focus on.
What are we trying to achieve here.
These priorities will be benchmark for checking our ongoing performance.
The luxe, although our business in mainland China.
Past couple of years, we begin to expand overseas.
<unk>.
Two of the regions in which we now operate.
Even in China and internationally.
Different stages.
Development.
Therefore, we have such a different priorities for each region in order to achieve the best outcome for our shareholders.
In mainland China, we have grown and grown our business over 20 years through several distinct phases to become the leading carrier neutral data center platform.
In most of the reason the face of crews.
As demand from cloud and Internet took off.
Our priority was to win new business.
We achieved an unprecedented level of new bookings.
The strategic relationships with all the leading customers.
And increase our market share.
Our salt strip our resource strategy.
It is a key success factor.
We invested heavily in building up our asset base in all tier one markets in order to fulfill our customer requirements.
Five years ago.
We have attempted to data centers.
Today, we have over 100.
We believe it's the largest development program undertaken by any data Center company globally.
In addition to.
In addition to the existing asset base.
We secured the land in the energy quarter to maintain continuous supply and growing for many years to come.
Now the market in mainland China is going through a period of adjustment we are in a new space.
And we have reset our priority days.
Accordingly.
Our number one priority now is to deliver that RMB 6 billion backlog, which is a result of our pasta sales success.
Is sufficiently sufficient to drive our revenue growth by over 60% over the next few years.
Number two as we have already for many years of future business.
We'll be highly selective in.
Perfect.
Pursuing new orders.
We will target opportunities, which are strategic.
Good fit to our available capacity faster moving schedules and adapted.
The financial returns.
Number three.
We would priority.
We went priorities prioritize increasing utilization of existing assets we.
We have a larger asset base.
Both in service and under construction.
<unk> is committed to the customers, but not yet utilized.
As a result, we can deliver the entire backlog.
It is a relatively small amount of incremental capex.
This enables us to achieve our growth target targets, while reducing annual capex to RMB 2 billion to 3 billion RMB I'm going forward.
Yeah.
Number four we will only initiative.
We will only.
Initiatives new projects, if there is committed the demand which confirmed the moving schedule.
We expect most of our new projects will be expansion phase phases of existing sites.
Number five building on our success was possible wave of cloud and Internet demand, where we're positioned our products and technology to capture that to capture them coming wave of AI applications.
Yeah.
Yeah.
For international.
Our priorities are winning new business and the building market presents.
Number one we aim to develop our international business into a second the gross EG.
Which creates stickiness.
In addition, no value.
GBS shareholders.
Number two we will enter and Derisk our projects with orders from our home market customers as they expand overseas.
Number three we will also.
Being secretive.
It's from top global customers.
Many of which are established relationships in China.
Then before.
We will take advantage of our low unit development costs.
<unk> comps from our scale product and the supply chain in China.
Number five we were viewed as a stand alone business and our international holding company.
Headquarter in Singapore.
Maximizing synergy synergies, which GDS, meaning China.
In one <unk> Street, our gross new our gross new bookings, what's around the Thompson square meters.
Pretty evenly became mainly in China and internationally.
Market demand in mainland China over the past few quarters has been a bit soft.
This is mainly because logic customers.
Sure.
Our scout scalable.
Capacity.
We'll need more time to absorb that inventory.
In this environment.
As I just explained we are targeting high quality business, which meets our criteria.
A good example is the full 4600 meter or nine megawatt order, which we won for Shanghai Knight Knight 18.
If a customer is a major Chinese financial institution.
Pricing is reasonable and the underlying.
Asset is assay is expansion placed on our existing two jumped campus.
On the international side, we won't.
<unk> 6400 square meters or 26 megawatts expansion order from the anchor customer for our campus in North Virginia Tech pop Joel.
You may recall that we are already building three data center on site to one.
With total power capacity of 64 megawatts, which.
Which is a fully committed by these customers.
We started two construction less than one year, one year ago on Greenfields net we are using our prefab design and a product shipped directly from China.
We are incorporating liquid cooling for part of the capacity as required by the customer.
Despite the fact that this is our first project in Southeast Asia, We will deliver.
First a fully powered a data center on this site.
Early to St <unk> Street.
We estimate that our unit development costs is 20% lower than the local market.
The ability to construct so quickly and as such a low cost give us compelling competitive advantages.
As we expand in the region.
Our gross.
Moving for the first quarter was around the 13th Southern square meter.
Consistent with the level of the past few quarters.
Our customers are.
Sounding more positive.
About <unk> business outlook.
With new business initiatives and the strategic development.
As their business picks up picks up and it will flow through to us one or two quarter later in terms of faster movie.
[noise] adjusted to the current environment.
Have slowed or slowed down our <unk>.
Capacity expansion.
In one case in history, we brought 2700 square meters of new capacity into service.
Over the rest of the year, we plan to bring up further.
57000 square meters into service.
Split between mainly in China and internationally.
All of this capacity has solid customer commitments and the confirmed moving schedules.
As a result, our efforts.
The pace of development.
Utilizing utilization rate.
Has gone up from 67% to 72% over the past year.
And at the same time, our backlog for area in service has come down from 136000 square meters to 110000 square meters.
Our mainland China business is going through a three year journey to achieve our goals.
We are making progress quarter on quarter by quarter.
We have already down the difficult part, which is to win high quality, new business and secure scarce resource.
Now, it's all about execution.
Please to stay a little patient and what chess deliver.
Our international business.
Different story.
There is a great market opportunities.
I will.
Doorstep, and we know how to wheat.
I'm excited about that.
Prospects for us to create second half GTS.
Before I hand over to Dan.
I'd like to make a few comments about my president position.
After we published the AGM notice a couple of weeks ago.
Acknowledging that investors have a number of concerns.
So was born out of my vision more than <unk>.
20 years ago.
We have built an exceptional team, which has been a major success for.
For me meeting GDS is about much more than just a financial gain.
James.
Jim on the by our passion to create something extraordinary.
This dedication remains unwavering.
And I assure you that nothing has changed in this regard.
I want to take this opportunity to adjust these consistent and emphasize my commitment to our company.
Our intent to purchase approximately $1 million.
And the possible more.
Over the next 12 months.
If I'm able to do.
So.
In addition, if the AGM proposal is passed I commit to the sustained sustaining my ownership percentage above the new schedule.
I firmly believe that our current share price does not reflect the true value of our company.
I havent completed confidence in our ability to enhance our business performance and achieve sustainable growth.
Thus create significant value for our shareholders.
Now I will pass on to Dan for financial and operating review.
Thank you Liam I.
I would like to start by talking about our financial objectives, which mirror, what William said about our business priorities.
So mainland China.
Number one we target to grow adjusted EBITDA at a mid teens percentage CAGR by.
By delivering the back book.
Number two we will become pre cash flow positive by which I mean free cash flow before financing.
Within three years.
There is already high visibility as to how we will achieve this goal.
Number three we will.
That around.
At around current levels.
And target deleveraging to below five times net debt to adjusted EBITDA.
Number four.
We will monetize assets to the extent required to recycle capital and keep within these financial parameters.
And number five we will sustain project level Unlevered post tax IRR is.
Or 10% to 13%.
Keeping discipline about new business and resources.
Okay.
For international.
One we will pursue a low risk investment strategy.
A strong firm pre commitments.
Two we will target the same investment returns on a portfolio basis as we do from mainland China.
Number three.
We aim for international to contribute over 10% of our consolidated adjusted EBITDA within three years.
Number four we will take our segregated approach to financing.
<unk> external equity and debt on a dedicated basis.
Not rely on the capital reserves GDS holdings.
And number five lastly, we will create additional value for <unk> shareholders in a way, which is measurable and helps our share price.
Now I'll talk through our financial performance for the quarter.
Turning to slide 20, where we strip out the contribution from equipment sales and the effect of FX changes.
And <unk> 23 of our service revenue grew by 2%.
Underlying adjusted EBITDA grew by six 6% quarter over quarter.
Turning to slide 21.
Net additional area utilized during the quarter to 6085 square meters.
As we disclosed previously.
Large customer is redeploying around 17000 square meters.
<unk> data centers in Beijing.
So two of our campuses and ninth Fang Hebei Province.
The move out impacts us for the first three quarters of this year.
Thereafter, the customer will move into the new locations over about six quarters.
And so its currency there will be a net increase of ore used lives by this customer, but with a timing difference.
Okay.
If we add back the churn in <unk> 'twenty three.
The underlying move in rate was similar to previous quarters at around 12600 square meters.
We expect gross additional area utilized.
To continue at these levels.
In <unk> <unk> 'twenty three.
And then to step up significantly in <unk> 'twenty three as we have contracts with folks to move in.
Yes.
Monthly service revenue per square meter.
Was RMB 2149, and $1 23.
We expect the MSR declined by around 4% comparing the final quarter of this year.
For Q 'twenty two.
Turning to slide 22.
<unk> 23.
Underlying adjusted gross profit margin was up from the prior quarter by one four percentage points.
Underlying adjusted EBITDA margin was up by two eight percentage points.
At the GP level. This was mainly due to seasonally lower utility cost.
At the EBITDA level. There was also some savings in SG&A.
Our profit margins are going to fluctuate over the course of this year.
Our guidance implies around 45% full year adjusted EBITDA margin at the midpoint, which has not changed.
Yeah.
Turning to slide 23.
In <unk> 'twenty three our organic capex in mainland China was around one 4 billion RMB.
And international Capex was 600 million RMB.
Looking at our financing position on slide 24.
At the end of <unk> 'twenty three.
Our net debt so last quarter annualized adjusted EBITDA ratio was eight one times.
If we add back the cumulative investment in international.
Round 5 billion, RMB or 700 million U S dollars.
The ratio is below seven times.
Our effective interest rate for <unk> 23.
Dropped to four 3%.
In January of this year, we issued a 580 million U S dollar CPE.
As a result.
Cash balance increased to $10 2 billion RMB, one 5 billion U S dollars at the end of the first quarter.
In a few days from now we expect to repurchase 300 million U S dollars of an existing CB when it is put.
Which will leave our pro forma cash position at around $8 3 billion RMB one.
$1 3 billion in U S dollars.
Over the remainder of 2023.
We have $2 4 billion RMB project loans to repay.
We expect to draw down a similar amount of new project loans.
Looking further ahead in 2024, we have $3 6 billion RMB of project loans to repay.
However, as a result of refinancing which we are currently working on we expect to reduce this number to $2 1 billion RMB.
Once again in 2020 for the amount of debt repayment will be more or less equal to the amount of new drawdowns.
Yeah.
Looking at our capital structure plan for mainland China on slide 25.
As I mentioned we.
Target to cap net debt at around current levels over the next three years.
We will in effect finance new investments.
A combination of operating cash flow and asset monetization to.
To the extent required.
Our operating cash flow will strengthen with higher asset utilization and reduced input as a result of lower capex.
To give you an update on the China data center funds.
We have signed the limited partnership agreement with the Investor.
We are now in the process of refinancing the first project, which we intend to inject into the fund.
We expect to receive the net cash proceeds from the fund.
145 billion RMB.
Completion of the first asset injection in the middle of this year.
Turning to slide 26.
For international.
We currently have six data centers under construction.
Two in Hong Kong and four in <unk>.
The portfolio totals over 120 megawatts of power capacity with over 100 megawatts of customer commitments.
The cost to date is around 700 million U S dollars.
Which we have financed with around 400 million U S dollars of paid up capital and shareholder loans and around 300 million in U S dollars of external debt.
We have already put in place.
Long term term loans for all of these projects.
As I mentioned previously we intend to raise additional equity externally either.
Either the project country or international whole coat holdco level.
We will pursue these options over the remainder of the year.
Turning to slide 27.
I confirm that our guidance for FY2023 revenue adjusted EBITDA and Capex remain unchanged.
I would now like to open the call to questions operator. Please.
Thank you.
Shen Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
For the benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please re enter the queue.
Our first question comes from Goku Harri <unk> from J P. Morgan Your line is open.
Yeah, Hi, Thanks, William and Dan the Carmen.
My question is on <unk>.
Our new targets in China.
So benefit A&D interesting backlog.
Could you talk a little bit about what is the time right.
We did that you expected elevated backlog and what are you getting from your existing customer.
The ability to construct and kind of.
Time to move in from contract.
From a backlog.
Maybe also for you.
Talk a little bit about what.
What would be kind of.
However, you can get to EBITDA margin as we go into this.
Let's stay at that level quite a bit the margins in the denim business.
Yeah, Hi.
We'll do a bit more of a harvest mode turning to past. Thank you.
Okay.
Thank you.
Let me clarify the financial targets.
The base year is 2023.
And for most of the financial targets, we are talking about three years, plus or minus a few quarters.
So the mid teens EBITDA.
Yeah.
For free.
Free cash flow positive.
Deleveraging to below five five times and incidentally net net income positive.
We're talking about three years.
For the <unk>.
Delivery of the backdrop, we didn't put a timeframe on that because.
Yes, a little bit meaningless, because we will still have some.
New bookings.
To be added to that.
Continuous process of adding adding new bookings.
In delivery.
Yes.
This year I think.
Net basis.
With the.
The churn that we that we took.
About the.
Net additional area utilized will be around 50.
50000 square meters.
But next year, we expect that number to be probably 20000 square meters higher than that.
It's Don.
Sir.
Our business plan base case.
Want to talk about more short term, what we're seeing in move in.
It will go.
It's too early to say it this way.
Positive seawell.
Effect of today's Dcs revenue, but if we do see some positive signal from the market.
I believe you are aware.
Our largest customer.
Currently the speed they announced that they will split.
The car business.
And also will copy.
Our goal is.
The list.
In any market right.
So in the next 18 months.
And this is very positive for me I think.
And then also the cow.
China number one number two number three call at all.
The selling price.
Which is also means the start to pursue market share is not like last year or.
Last two years to support our business plan.
Very clear signal to.
Pursue market share again, so I think it will definitely will impact our movie, but so far I think the whole.
Sentiments, so totally changed but not affect our current it's too early to say affect outcome will be but I do believe it will affect our next year. Our next to Australia is moving a schedule I wish and maybe its possible they will bring them moving scheduled more early.
Yes.
We need to finish off and talk about the EBITDA margin expectations.
Once again.
Im referring to a three year three year targets I would say, we're looking for at least.
Two percentage points higher EBITDA margin than we achieved in FY2023.
Got it that's very clear thank you thanks, Dan.
Thank you one moment for our next question.
We have a question from Jonathan Atkin's from RBC. Your line is open.
Thanks.
You talked a little bit about.
Synergies that you'll be getting in your international operations.
From China, and I think you've talked a little bit about shipping some of the.
The equipment into Malaysia can you can you talk a little bit more about.
Whether it's revenue synergies or back office or operating synergies or other types of benefits that you will get between the core Chinese company and and then offshore.
And then secondly, I was interested in the band profile that Youre seeing internationally.
Different different demand dynamics.
<unk> got fairly kind of single credit demand at least currently in <unk>.
And.
What.
What does the perspective kind of sales pipeline look like internationally.
And in Asia and western customers.
A little bit more color on that thank you.
Okay.
Okay.
John This is will.
I think.
Let me talk about it.
The <unk> team.
Managed business in mainland China.
I think it is very obvious we can leverage it is.
Our current product and supply chain and customer platform.
It is quite a unique which I don't think the other payer in this region has these kind of.
Advantage. So I think that's why we are very confident.
Based on that.
Our currency advantage.
We will fallout from our customer we will.
A follow up follow up.
Successful.
Product in China, which we I think we still.
Fully fully.
Well get that.
Right and also the supply chain is very important as well and I think it because <unk> already candidate.
<unk> reached the point, which we always.
Good with largest.
Builder in the world in the last couple of years I think this is it gave us very very unique position to get at a much cheaper.
A surprise.
Right.
Sales pipelines.
The pipeline I think yes, I think.
Now currently.
In a situation that all everybody talking about India, Southeast Asia, which is curious south Asia.
Huge demand right.
Because if you look at it.
The Chinese customer.
Customer Theyre all announced big.
A big player in this region.
And so this is not just the announcement based on what our once a.
Dialogue between all.
Tds and all our customer you do have the real demand.
This region. So in terms of pipeline for Us I think we.
We still remain there.
A very strong.
Pattern from China, and also U S customer.
Again, we also see some domestic demand.
Thanks very much.
Yes.
Thank you one moment for our next question.
Okay.
We have a question from Frank Louthan from Raymond James Your line is open.
Great. Thank you.
As you look forward what percentage of your installs in sales do you think youre going to be AI related and can you characterize the AI demand that youre seeing between the mainland China business and the international deployments.
Okay.
Yes, I think.
Number one I've seen that in China, I think we see it's a little bit early stage for AI.
Jim.
Demand right so but.
It's happening right now I think.
In China, the big platform or announced it already announced it there.
And but but we think it will impact our new booking maybe.
When you after all to you or it's a little bit.
Behind the <unk>.
Happened the eus, but I think it will happen.
So this is in China.
<unk> International business, we have we haven't.
We have seen we have seen some let's say new demand.
Fifth configuration.
It's more.
AI driven.
So, let's say we would.
I already.
I mentioned in our Southeast Asia, a data center, we're really implement the liquidity Steph. This is mainly driven by the GPU.
Type of server. So I think that this is mainly for the AI stuff, it's happening in southeast Asia.
Alrighty.
Alright, great. Thank you very much.
Thank you.
Okay.
We have.
We have a question from Peter Milliken from Deutsche Bank. Your line is open.
Yes, hi, good evening everybody.
My question is about the forward sale when was that first disclosed within the 2022 20-F or had it been announced previously because I hadn't heard of it before.
Charles.
P J.
As disclosed.
Sure.
At the time.
One transaction, but they were disclosed.
At the time when the transactions were done.
<unk>.
Counterparty banks, which incidentally amongst large banks in the world.
We're required to make disclosures.
Judy did so.
So that was.
100% in line with the legal requirements.
Requirements.
At that time.
System employed by the U S. SEC was these disclosures were made.
So called paper filings.
And.
Some institutional investors subscribed services, who searched paper filings.
And.
Yes.
Access that information.
As you know.
Now many many do not.
As a result, I think quite quite a few institutional investors, who are just kind of like relying on Bloomberg.
<unk>.
We're not aware of the disclosure.
Ironically.
In April of this year, the SEC change the system. So those disclosures would it be made electronic T now than it would have been accessible.
In the usual way.
Right, yes, so the people who invested in the secondary listing I would've liked to have known that look my my second question is really about.
Why you Wouldnt have prepared.
The bonds to be ready for this change of control event potentially you've had a few years, where you've been aware of this why werent you talking to them about changing covenant.
Rolling debts and things like that why is it all why does it lead to the southern.
Where investors have to make a quick decision on agreeing to this change of control event.
Hum.
Peter we operated in an environment, where we make very extensive disclosures.
And our articles of Association states.
And if we haven't shown the ship.
Beneficial ownership falls below 5%.
As class B shares automatically converted to class a shares.
I think everyone's knowing that.
Risk factors in our 20-F.
And I think since the completion of our Hong Kong IPO.
When its shareholding as being just above that threshold.
And it.
It could've gone below that threshold.
For any number of reasons.
If it is you don't need a relatively small number of shares.
And the capital rates for example, youre going to ship.
Going below that threshold.
This.
Should be very clearly understood simple.
Simple simple disclosure.
Ah.
Yes.
We.
Okay.
<unk> needs to make some changes to our articles.
Subsequent to our Hong Kong IPO, there is something that all the companies in our category of.
USA, Dr competence with secondary listings.
Had to commit after the.
Hong Kong IPO to implement certain changes to the articles.
So we felt that it would be.
Convenient or.
Appropriate to package together, all the changes changes to the articles.
Same time.
Turning to leasing which is just what it is.
What we've chosen to do.
Got it okay. Thank you.
Thank you.
We have a question from Edison Lee with Jefferies Group. Your line is open.
Yes.
Thank you for taking my question Hi will.
And then I.
Two questions number one is that.
One of your objectives.
At the early part of the PPG says that Youre trying to shorten the lead time from investment to invoke into two.
Less than two years.
What is the aspiration claret right now and what is your strategy to try to shorten that to less than two years.
And the second question is about how what percentage of your backlog.
Sure. Chris This is going to hit the completion of the landmark period in the next I'll say tested within 2023.
Yes.
No no no.
I missed the second part of your question.
Backlog for the second question is what percentage of backlog.
Oh, yes, okay. Okay.
We accomplished the ramp up in.
In 2000 and so.
Sure. Thanks, Thanks, Ed.
Okay.
With us here.
I think it is a characteristic of hyperscale business because the order size is very large.
Customers need to pre commit.
In order for data center companies to develop.
And.
Yes.
For like an entire data center.
Bumps.
It's pretty much standard for these contracts to give the customer quite a lot of flexibility over the amount of time.
Move in.
Yeah.
Cloud service providers because yes.
<unk>.
As.
For continuous upscale.
I think that they.
Yeah.
And past planned furthest ahead, maybe.
The resource plan with three or more years.
I had ahead of time.
And.
Yes.
And our experience habitually took the longest to move it right. So the contracts would.
Get them two years and they would actually move in over a two year period now that is extended to be honest.
Beyond two years.
But the internet companies.
Quite often.
We would see that.
They were not placing the orders so far ahead.
Very often the.
The requirement was urgent.
Maybe because their business is so dynamic.
Yes.
Our forecast and was not so well.
<unk>.
And so a key selection criterion B can you deliver in six months' time.
Delivering a nine months time.
And then all the contracts with typically.
Still have a two year move in period.
I would say on average the internet companies moved in moving faster.
Maybe then moving more like one year.
So as you know after last year.
<unk>.
Mix of our business by customer segment changed quite a bit.
Cloud, which should be and I think tayo sites.
<unk>.
Even more percent of our business is 20% in terms of our new business last year.
And then Internet was 60 and enterprise was 20.
Yes.
I think just that.
Change in itself will lead to faster and faster delivery.
But if you look at the totality of our backlog of over 200000 square meters.
I mean, well over 50% of that focus is cloud.
So that's why we have to work through the delivery of the backlog.
But then for the new.
<unk>.
What we are targeting now.
Sure sure.
Lead time from when the order is booked until the service delivery stops and then a short term move in periods.
Yes.
Does that mean that youre going to youre going to ask for a shorter booking period, even for the traditional.
CSP customers or do you think you will try to expand.
Customers in more into the non CSP customers.
Are we going to try to.
Sure.
I guess between as a contractual term.
Insist on a faster move in period for cloud service provider customers.
Yes.
Okay.
I just mentioned that.
Yes.
Alright, sorry go ahead.
Yes.
Moving past, we expected of course, the new booking last year, the new book, mainly driven by the <unk>.
In Canada.
I think.
More faster moving.
Carl.
But our core business last year last two years.
As just mentioned as part of the plan.
No.
Yes.
The new.
New business plan right now, but I think.
I hope.
I wish maybe it will happen, possibly they will move more faster.
Start from next year.
So I think the pilot positive for this.
Yes.
Sorry.
I'll just ask this follow up so does that mean that for new contracts.
Four new contracts with cloud service providers to extra ask for less than two year moving.
New country.
No country I think it's much faster to Johan.
New contract.
Asking specifically weather.
The business, we do with cloud service providers, but we will insist total cost to move it.
Is that right.
New CSP.
The new contract with yes, yes.
Yes, I think new car new cars, if do we have the new contract that means they have the real demand.
So definitely the what.
We ask for more ready to add movie.
Yes.
Otherwise they still have a lot of the inventory.
If we had the new culture from the cloud does that mean for your demand so much stronger than <unk> expect.
Okay.
So can you tell us what are you going to ask for one year, one and a half year is there any particular target.
You have here.
Okay.
You're asking about the situation that hasnt arisen yet I mean, we've got.
And more than 50% about backdrop, because already the terms already agreed.
Yes, if you look at the.
The size of our backlog to two annual moving.
<unk> three plus years of new business there right. So.
Yes, I think we already locked in most of the commercial terms for the next three or four years.
New new business.
Okay.
Thank you will probably see not more than 20% of our new bookings will be will be cloud.
Going forward.
Yeah.
So I guess that that is related to my second question, because I want to know what percentage of your backlog for areas surface.
And if they come to Tim that ramp up period.
I want to get a sense.
As to whether.
You are vulnerable to this competition period that should improve.
I guess I'm slow moving and.
And how much would that impact you.
Revenue.
Sorry.
I'll provide some guidance.
Formal guidance and direction on what is the.
Annual net add in terms of area utilized commented on.
What we expect to see in 2020 for us is <unk>.
Well, so I'm factoring in what I know.
Mark in terms of what's in those contracts.
<unk>.
Understand about our customers' intentions.
Hopefully.
Central approach is to take my direction, because I'm amalgamating a lot of different factors.
Right over whatever situations, where.
Because it takes a two year ramp.
I'm up here so.
Catherine.
Describe it as utilized as a load in.
In order to come better Gray, you won't be able to charge offs.
The whole price or that's certainly going to happen.
Yes, we are we are.
We're able to.
Commercial decision right, we are able to charge the full price yes, yes.
Yes, that's true.
Thank you.
One moment for our next question.
We have a question from Yang Lu with Morgan Stanley . Your line is open.
Thanks for the opportunity I have one question regarding the MSR.
Fred.
Jeff mentioned that you expect to.
Four percentage point drop by year.
I just want to have a better view.
How much of that will be driven by.
The mix change.
Company for new capacity I know, how much will be driven by.
Potential contract renewal.
Because I saw in the first section of the presentation of around 10% with contract about to renew this year. So about this.
MSR change or what is the assumption of the contract.
Oh here.
Behind the MSR Jonathan.
Sure.
Yes once again.
<unk>.
This is a bottom up number which is an amalgamation of.
The contracts in the backlog, which we expect to deliver the outcome that we're expecting.
In terms of pricing.
On contract renewals.
They reflected all in.
The guidance. We gave is directionally gave on MSR, which is a full Q versus <unk> number and by the way.
I will go further than to say in 2024, we think.
The decline will be about.
Around 2% to 3%.
So it's simpler to take my direction.
<unk>.
Rather than asking you to sort of disaggregate it and tool.
Right.
We follow what's happening in the U S.
And we see that.
Pricing.
As.
Soma and increasing.
<unk> tier one markets in the U S and in Europe .
Yeah, we're not in that situation yet in China.
We think we may be one or two years.
Find that.
But even at current levels.
Ah projects give us.
Reasonable returns.
Go to China through our cost of capital.
So I think the business is very sound at current levels.
Yes.
We will wait for the next one or two years.
Hopefully OTC.
The market situation improve somewhat in our favor.
Okay.
Got it thank you.
Thank you.
As there are no further questions I'd like now to turn the call back over to the company for closing remarks.
Thank you once again for joining US today. If you have further questions. Please feel free to contact GDS Investor Relations contact information on our web site or the <unk> Group Investor Relations you next time Bye bye.
This concludes the conference call you May now disconnect. Your line. Thank you.
Okay.
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Yeah.
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Okay.
Okay.
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