Q3 2025 GDS Holdings Ltd Earnings Call
Speaker #1: Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's third quarter 2025 earnings conference call. At this time, all participants are in listen-only mode.
Speaker #1: After management prepares remarks, there will be a question-and-answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen.
Speaker #1: Head of Investor Relations for the company. Please go ahead, Laura.
Speaker #2: Thank you. Hello, everyone. Welcome to the third quarter 2025 earnings conference call of GDS Holdings Limited. The company's results were issued via newswire services earlier today and are posted online.
Speaker #2: A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdservices.com. Leading today's call is Mr. William Huang, GDS founder, chairman, and CEO, who will provide an overview of our business strategy and performance.
Speaker #2: Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties; as such, the company's results may be materially different from the views expressed today.
Speaker #2: Further information regarding these and other risks and uncertainties is included in the company's prospectus, as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.
Speaker #2: Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures.
Speaker #2: The 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, Mr. William.
Speaker #2: Huang: Please go ahead, William. William: Thank you.
Speaker #3: Hello, everyone. This is William. Thank you for joining us on today's call. During the third quarter, our revenue increased by 10.2%, and our adjusted EBITDA increased by 11.4% year-on-year.
Speaker #3: Maintaining the healthy growth trend since our business began to recover last year. During Q3 2025, our growth additional area utilized was around 23,000 square meters.
Speaker #3: We are on track to achieve our highest ever year of moving, as we continue to deliver the long-term backlog. In addition, we are now delivering the 40,000 square meter, or 1,502 megawatt, order which we won in the first quarter of this year.
Speaker #3: By being selective with new business, we have successfully shortened the book-to-build period and reduced our backlog. Nonetheless, we still have visibility for over 70,000 square meters moving from the backlog next year.
Speaker #3: Our total new bookings for the first nine months is 75,000 square meters, all 240 megawatts. We expect to achieve nearly 300 megawatts for the full year, which is the big step up from the level of the past few years.
Speaker #3: Around 65% of our bookings in 2025 are AI-related. Nonetheless, AI demand in China is still at a very early stage. If we look at the big picture, the domestic tech industry has reached a critical juncture, with major players making unprecedented financial commitments to AI infrastructure.
Speaker #3: This marks a definitive end to the previous downturn and signals the beginning of a robust recovery for the data center sector. All of our major customers are committed to the massive scale of this new investment cycle.
Speaker #3: With CAPEX plans of hundreds of billions, underscoring the intensity of the new AI arms race, leading local chip companies are making continuous development progress in terms of performance, efficiency, and capacity.
Speaker #3: The growth of the domestic chip segment will secure the long-term growth of the AI infrastructure industry. We have unwavering confidence in the AI demand to come based on the development and the ramp-up of domestic technologies.
Speaker #3: We believe that new bookings in the coming years could be better. And this is what we are preparing for in our strategic plan. There are two essential ingredients to win big in AI.
Speaker #3: Power the land and access to capital. We have already secured around 900 megawatts of powered land in and around Tier 1 markets, which is suitable for AI demand.
Speaker #3: Particularly for AI inferencing. In addition, based on our communications with our customers, we are in the process of securing more powered land in complementary locations, and we believe that 900 megawatts will not be enough.
Speaker #3: On the financing side, we recently completed the first IPO of a data center REIT in China. The transaction was a huge success. We intend to inject more assets into the REIT next year and establish a continuous pipeline of asset monetization.
Speaker #3: The REIT gives us a significant competitive advantage in terms of accessing capital from the domestic equity market. It enables us to monetize assets efficiently.
Speaker #3: Repeatedly, and at the lowest possible cost. The China market is at an inflection point. The outlook for the data center industry is very exciting.
Speaker #3: Our market position is as strong as ever. Over the past few years, we have taken a conservative approach. We improved our asset utilization and significantly strengthened our balance sheet.
Speaker #3: Going forward, we will maintain our financial discipline while, at the same time, taking a more aggressive approach to new business. I will now pass it on to Dan for the financial and operating review.
Speaker #4: Thank you, William. Starting on slide 15, as William mentioned, in Q3 2025, our reported adjusted EBITDA grew by 11.4% year-on-year. At the end of Q1 2025, we deconsolidated the data center project companies which we sold to the ABS.
Speaker #4: And then, during Q3 2025, we deconsolidated the data center project companies, which we sold to the CREIT. In order to present a consistent trend, we have adjusted historical numbers to remove the EBITDA contribution of the deconsolidated companies for the first nine months of 2025 and for the comparative period.
Speaker #4: On this pro forma basis, our adjusted EBITDA for the first nine months grew by 15.4%. Turning to slide 16, our CREIT started trading on the Shanghai Stock Exchange on August 8th.
Speaker #4: As of yesterday's close, the CREIT units were priced at 4.375 RMB, 45.8% up from the IPO price. At this level, the CREIT is trading at 24.6 times EV to the projected 2026 EBITDA, as disclosed in the CREIT offering memorandum.
Speaker #4: The implied dividend yield is 3.6% based on the projected cash available for distribution, as stated in the offering memorandum. It is our strategic objective to grow and diversify our CREIT.
Speaker #4: So that it is a viable option for us to recycle capital on a repeated basis thereby unlocking value for GDS shareholders and freeing up funds for new investment.
Speaker #4: Under current regulations, we are permitted to apply for approval for the first post-IPO asset injection six months after the IPO date, i.e., during Q2 2026.
Speaker #4: Thereafter, it will take some time to complete the regulatory review process. For the first IPO post-IPO asset injection, we are preparing assets with a target enterprise value of around 4 to 6 billion RMB.
Speaker #4: This compares with an enterprise value of 2.4 billion RMB for the assets which we injected into the CREIT at IPO. With the creation of the CREIT platform, we have the opportunity to invest in new data centers ramp up, operate, and then once the track record qualifies, to monetize over a five to six year investment cycle.
Speaker #4: Even if we take a very conservative view on potential future exit multiples into the CREIT, the return on new investment is still very compelling.
Speaker #4: This could not have happened at a better time as we address the upcoming AI demand wave. We think it's a game changer. Turning to slide 17, for the first nine months of 2025, our organic capex was ¥3.8 billion.
Speaker #4: We still expect our organic capex for the full year to be around 4.8 billion RMB. However, net of the cash proceeds of the asset monetization, our capex will be around 2.7 billion RMB.
Speaker #4: As shown on slide 18, our operating cash flow for the full year will be around RMB 2.5 billion. Therefore, after taking into account the asset monetization proceeds, our China business is almost self-funding.
Speaker #4: Turning to slides 19 and 20, our net debt to last quarter annualized adjusted EBITDA multiple decreased from 6.8 times at the end of Q4 2024 to 6.0 times at the end of Q3 2025.
Speaker #4: The decrease is mainly due to the cash proceeds from the asset monetization and the deconsolidation of debt from the project companies sold to the ABS and CREIT.
Speaker #4: As well as the offshore equity capital raised, which we did in Q2 2025, we are benefiting from the favorable interest rate environment in China, with our effective interest rate dropping to 3.3%.
Speaker #4: Turning to slide 22, after nine months, we are on track to achieve the midpoint of our revenue guidance and at or above the top end of our EBITDA guidance for the full year of 2025.
Speaker #4: Our growth rate during the current year has clearly benefited from the strong new bookings in Q1 2025 and a short book-to-bill period. This gives a clear illustration of how our growth rate can accelerate with a pickup in demand.
Speaker #4: The relatively subdued new bookings since Q2 2025 will affect our growth rate next year. However, in our internal projections, we foresee higher bookings next year leading to growth acceleration thereafter.
Speaker #4: We'd now like to open the call to questions, operator.
Speaker #2: Thank you. We will now begin the question-and-answer session. To ask a question, please press *11 on your telephone and wait for a name to be announced.
Speaker #2: For the benefit of all participants on today's call, please submit yourself to one or two questions. If you have more questions, please re-enter the queue.
Speaker #2: Our first question comes from the line of Yang Liu of Morgan Stanley. Please go ahead.
Speaker #3: Thanks for the opportunity. I have two questions here. The first one is regarding the China market inflection. As William just mentioned, the China market is approaching the inflection point.
Speaker #3: What do we need to see to see that really happen in the near future? And in terms of the strategy to go a little bit more aggressive in China, could you please elaborate more on, for example, where's the location or what type of project et cetera are you planning?
Speaker #3: The second question is regarding the overall investment profile. Because now we have a series platform, and it is a very effective way to recycle capital. What is the new overall investment return with the CREIT scheme?
Speaker #3: Thank
Speaker #3: you. Okay.
Speaker #4: I think, number one question is, yeah, I think how to explain the aggressive approach. I think what we see in the market demands very strong in China. I think our customers announced their big investment in the next five years.
Speaker #4: I think now another signal is domestic chips catching up. Just as I mentioned, I think in terms of the efficiency, chip efficiency, and production capacity, I think all improve a lot.
Speaker #4: And that means the real data center opportunity is coming. So we will position ourselves well, as I just mentioned. I think we still have the largest land bank, the power of the land bank, in and around tier-one markets.
Speaker #4: This is a very good for the future inferencing. Another is I think the China tech player. They will continue to do massive training. So I think in order to catch up this opportunity we will acquire more land in some very cheap power location and as much close to the let's say tier one city.
Speaker #4: Yeah. So I think this is our strategy, and a lot of the land acquisition is in process. Maybe something will happen, and we can announce in the next earnings call.
Speaker #4: This is number one. Number two, I think there may can experience about the REITs.
Speaker #3: Sure. The unit economics of the data center investment in China are very solid. The selling price is stable, and the unit development cost has come down to a level that is very efficient.
Speaker #3: And this allows us to generate typically 11% to 12% cash-on-cash yield on new investment. What has changed is the way that we can look at and evaluate investment if we take the approach of investing, which may take one year to construct and then one year for the customer to move in fully.
Speaker #3: We have to hold the asset and operate for three years to establish the track record, which is required before assets can be injected into CREITs.
Speaker #3: But then in the following year, which would be year five or six, we can consider an asset injection. Even if we use a exit multiple or cap rate which has been very conservative compared with even where we IPO'd our CREIT.
Speaker #3: But we look at the IRR over a five to six year period. Then it is in the mid in the low to mid teens.
Speaker #3: And the levered IRR, the return on equity is well into the 20s. I think fundamentally this is very
Speaker #3: attractive. Yeah.
Speaker #4: I added one more point. I think we believe now is the right timing. To step in the market because number one, I think the price is more stable.
Speaker #4: Number two, I think the development cost is almost at the bottom of the in terms of history, right? So I think this is the right timing to maintain very good return is the right timing.
Speaker #4: Yeah.
Speaker #3: Hey, thank
Speaker #3: Thank you for the questions.
Speaker #2: One moment for the next question. Our next question comes from Sarah Wang of UBS. Please go ahead.
Speaker #5: Thank you. And again, congratulations on the solid results. It's great to hear that GDS is being more aggressive in acquiring new business opportunities. I have one question, but two parts.
Speaker #5: So I think Dan just mentioned we're expecting higher bookings next year. So, regarding this booking, does that include our potentially new power land acquired in relatively lower power tariff regions?
Speaker #5: And then second question is that if we are going into complementary markets on top of our 900 megawatts resources, then how shall we think about the is there any difficulties in acquiring new power code out?
Speaker #5: Because this year we have heard like NDRC, they're actually relatively rationalizing or controlling the new power code release in China in general. Yeah, that’s my question.
Speaker #5: Thank you.
Speaker #4: Okay. The first question I think that I would new booking next year, right? We're not fully relying on the new acquisition of the land.
Speaker #4: We're definitely we will if we can successfully secure the land, power the land, we can do more, right? So this is our focus of whatever our focus base yeah.
Speaker #4: The second question: what's the second?
Speaker #5: Power
Speaker #5: Power Power difficulty. Oh, I think the power
Speaker #4: Codes are always, I mean in general, not easy, right? But based on our track record and the repetition, I think a lot of governments are willing to work with us.
Speaker #4: So for us, it's not a that challenge for us. We have a lot of the experience in the past in the last 10 years to build up the right relationship with the governments and the power company.
Speaker #5: Got it. Thank
Speaker #5: you. Thank you for the questions.
Speaker #2: One moment for the next question. The next question comes from the line of Frank Luthen from Raymond James and Associates. Please go
Speaker #2: ahead. Great.
Speaker #4: Thank you. Can you give us an update on day one on private round funding and potential updates for a possible IPO? And then what is the outlook on your customers getting GPUs and be able to ramp their installs going forward?
Speaker #4: When do we expect that to crack open? Thanks.
Speaker #3: Yeah, I think I answered a couple. Maybe Dan can add more color. I think I have to say that after CRC, after Series B, I think Day 1 is fully independent.
Speaker #3: So we cannot represent day one anymore since that time, right? But we still can give some highlight information about day one because we quite enjoyed equity value increase, right, for our shareholders.
Speaker #3: I think all businesses in Asia Pacific and Europe, which we already announced the markets we have stepped into, remain very, very good, very, very positive.
Speaker #3: And the demand still remained very, very strong. So I think the day one’s business is on the right track and could be better, so that’s all I can tell you.
Speaker #3: Maybe, if you are interested, we can introduce you to the right people on day one to experience more detail. Yeah.
Speaker #3: Yeah. Okay.
Speaker #4: And on the potential for additional installs to ramp?
Speaker #3: Print costs without the new business.
Speaker #3: In Day One, I foot.
Speaker #3: think. Yeah.
Speaker #4: I just want to emphasize that I remain very, very strong in my positive view for the future. Yeah. I cannot provide any more details.
Speaker #4: I cannot represent this as a GDS earnings call, right? Sorry about that. Thank you.
Speaker #4: you. Thank you for
Speaker #2: the questions. The next questions will come from Michael Elias from PD Cohen. Please go
Speaker #4: Great. Thanks for taking the questions. So, in the U.S., when we think about the training workloads that we're seeing, we're seeing gigawatt-scale projects getting deployed.
Speaker #4: And I'm curious, when you think about what training will look like in China, are you seeing the opportunity to deploy at that kind of a scale, i.e., on the gigawatt range?
Speaker #4: And then second question is can you give us an update as you think about these AI data centers that you expect to build? What the time to build those data centers are and how that varies from traditional cloud data centers?
Speaker #4: And if I can squeeze it in, are there any notable constraints or long lead-time items that we should be aware of? Thank you.
Speaker #3: I think, scale-wise, our client is talking about the gigawatt level. I mean, new demand, right? So I think this is just like three years ago with what was happening in the U.S. The numbers we are talking about, every big player is discussing gigawatt-sized new demand.
Speaker #3: So I think it's catching up. That's what we have been seeing. We have seen so in terms of type to market, right? I think the in China, we can build very fast.
Speaker #3: I think the normally nine to twelve months is very normal. Yes, I start from the piling to deliver, right? In extreme cases, we can build, let's say, even within eight months.
Speaker #3: So that's our record in China.
Speaker #1: Any bottlenecks or no?
Speaker #3: No, I don't think in terms of development, yeah, the supply chain in China is not...
Speaker #3: insured. Got
Speaker #4: Got it. Thanks for the call. I really appreciate it.
Speaker #4: it. Thank you
Speaker #2: For the questions, the next questions will come from the line of Daily Lee of Bank of America Securities. Please go.
Speaker #2: ahead. Hi,
Speaker #5: management. Thanks for taking my question. I have two questions here. First one is about the we got new orders for the China market. Like near 30 megawatts.
Speaker #5: Could you share what's the can you hear me? Sorry. Go ahead.
Speaker #3: Go ahead. Go ahead. Go, go, go. Sorry. Yeah.
Speaker #5: Yeah. Yeah. Could you give some color about the AI exposure? What is this from? What's the percentage from AI, and is this about inferencing model training for the recent order?
Speaker #5: Number two, for the second one is about we heard the Chinese government gave some window guidance in 2022 this year to tighten the data center supply in China.
Speaker #5: And do you see any impact to us and to the market? Thank you.
Speaker #5: you. Yeah, I
Speaker #3: Think, yeah, new order from, yeah.
Speaker #1: Okay. In our prepared remarks, we commented that we will probably reach nearly 300 megawatts in terms of new bookings for the whole of 2025.
Speaker #1: I think we had 240 megawatts up to the end of the first quarter. And there's some good new business in the fourth quarter. We also stated that by our estimation, around 65% of the new bookings this year are AI related.
Speaker #1: We only have a presence in tier-one markets. So that is AI and tier-one markets. That's going to be mainly AI inferencing, or it can be a combination of AI inferencing and training.
Speaker #1: And it's being deployed within the established cloud regions and cloud availability zones. And then the
Speaker #1: second question was. Window
Speaker #3: guidance about the carbon corporation. I think this is always happened in the tier one market, right? So but we are lucky we already prepared for that.
Speaker #3: And that's why I mentioned we still have almost 900 megawatts part of the land. This power is all gathered by Carbon Corporation or near tier one market.
Speaker #3: It's very difficult to apply new around the tier one market. But in the remote area, I think I didn't hear any I didn't hear any about the window guidance because the power in those places is the big problem is how to sell, right?
Speaker #3: It's not so the power is a capacity. It's very large in a remote area. So getting the power, I think it's not very, very difficult.
Speaker #3: And local government is very encouraged the data center operator build the data center in those places. Yeah, location.
Speaker #3: Yeah. Thank
Speaker #5: You. Wait a minute there. Thank you.
Speaker #3: Thank you. Thank you for the
Speaker #2: questions. Our next question comes from Timothy Chow of Goldman Sachs. Please go
Speaker #6: Thank you, Manager, for taking my question, and congrats on the solid results. I have two questions. First is about the pricing trend. I'm just wondering if you can share some color on how you think about the MSI trend into Q4 and next year.
Speaker #6: It's actually given that, probably, the company is entering into a peak renewal period for the contract that was signed maybe five to seven years ago. Then, how should we think about the MSI trend into next year?
Speaker #6: Second is about the overall market and the competitive landscape. I think right now you have been emphasizing time to remember, I think maybe five If you cloud data centers and 5G years ago when there was a wave about the network, there was also a wave of increased data center supply in China.
Speaker #6: Just wondering, if you think about where we are right now, how do you view the overall industry supply and demand dynamics? Thank you.
Speaker #1: Yeah, the first part of your question about the downward price reset when our install-based contract comes up for renewal. This has been going on for a few years and will continue for a few years more.
Speaker #1: And the impact of that gets reflected in our MSI and I always give some comment on future expectations. Now I'd say that over the 2026, we expect the MSI to decrease by 3 to 4%.
Speaker #1: That's on average comparing one Q versus one Q, two Q versus two Q, and so on. This is not only a function of the downward price reset; we also have elevated higher levels of move-ins, and that adds a dilutive effect on MSI.
Speaker #1: So that 3 to 4% reflects the combination of those
Speaker #1: factors.
Speaker #3: Yeah, I think I
Speaker #3: I had a little bit of my points. I think all the new build data centers have had quite stable prices over the last two years. Nothing has changed.
Speaker #3: I think this is very good. But in the meanwhile, I think the cost is more stable, right? So if you look at it, all the new build asset return is very decent.
Speaker #3: So I think this is a way to relook at the MSI, right? Because the new campus, new building, in general, I think compared with the edge data center, the enterprise data center, even cloud data center, the price definitely goes went down a lot.
Speaker #3: But if you look at the asset return, since two years ago, it's very, very similar, very and this price is very, very stable. Return is also very stable.
Speaker #3: It's 100% fit the risk to inject the risk.
Speaker #1: Tim also asked about the competitive landscape.
Speaker #3: Competitive landscape, I think the new competition, I think if you try to gather your customer trust and the reliable, you should show your financial capability.
Speaker #3: Now our customers are more care about the financial capability. Not just the capability you can build. Everybody can build easily, right? I think if you try to commit a customer 500 megawatt or one gigawatt campus in the future, I think the financial our customer definitely will consider about do you have the capability to access the capital market?
Speaker #3: What's the cash position you have right now? So, this is very, this is a new competitive advantage. In terms of this, I think we are much more way ahead than any competitor else, right?
Speaker #3: So I think this is not just a land power competition. It's also the capability of the access to capital market. So in terms of this, if I look around, I think not that much company both has the land capability, power the land capability, and will position and let's say financing capability,
Speaker #3: yeah. Thank you for the
Speaker #2: questions. Due to the time limits of today's call, I would like to now turn the call back over to the company for any closing remarks.
Speaker #7: Thank you once again for joining us today, and see you next time. Bye.