GDS Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 26, 2024

There are 10 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.

Operator

I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

Speaker 1

Thank you. Ladies and gentlemen, thanks for standing by for GDS Holdings Limited 4th quarter and the full year 2023 earnings conference call. At this time, all participants sorry, welcome to the Q4 and full year 2023 earnings conference call of GDS Holdings Limited. The company's results were conference call, can be viewed and downloaded from our IR website at investorsgdsservices.com. Leading today's call is Mr.

Speaker 1

William Huang, GDS' Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS' CFO, will then review the financial and operating results. Ms. Jamie Ku, our COO, is also available to answer questions.

Speaker 1

Before we continue, please note that today's forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve interior risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

Speaker 1

Further information regarding these and other risks and uncertainties is included in the company's perspective as filed with the U. S. SEC. The company does not assume any obligation to update any forward looking statements 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.

Speaker 1

GDS's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. Now I'll turn the call over to GDS's Founder, Chairman and CEO, William Huang. Please go ahead, William.

Speaker 2

Thank you. Hello, everyone. This is William. Thank you for joining us. Joining the number one priority of GDS Management and drive share price recovery.

Speaker 2

Today, we are delighted to announce the landmark $587,000,000 equity raise for our international business. This is a big step forward in our strategy on a stand alone basis. The aggregate raise also highlights how much value we have already created for our shareholders through international expansion. We have been developing our business in China for many years. We are a market leader with over 1.5 gigawatts of capacity in service and under construction.

Speaker 2

Confident that we will maintain our competitive position and enjoy further growth, particularly when AI demand takes off. We initiated our engine in the second half of the year. It has become a second growth engine with over 3 30 megawatts in service and under constructions, equivalent to 20% of what we have in China. GDS China and GDS International are obviously at very different stage of development. We are therefore pursuing distinct strategies for each part of our business.

Speaker 2

For China, we have 2 major financial objectives. Objective number 1 is to grow EBITDA at a steady rate. In 2023, our adjusted EBITDA grew by 9% year on year, all of which was from China. Objective number 2 is to deleverage our balance sheet. Our target is to get to below 5 times within 3 years.

Speaker 2

In order to achieve these objectives for China, we are targeting new business which fits our capacity. We are increasing asset utilization by delivering the backlog. We are spending CapEx only where it is needed for customer moving and we are preparing for asset monetization when the market allows. For international, our ambition is to create an exceptional data center platform, which emulates our success in China. By leveraging our industry leader capability, strategic business relationships and scale economics.

Speaker 2

In 2022, we set up a new international holding company headquartered in Singapore. It acts as the vehicle for all our assets and operations outside of Mainland China. We have assembled a standalone management team and today we announced that Jamie Coe, our very capable COO will transfer to become the CEO of TS International. As we started to expand overseas, we focused initially on 2 region hub market, Hong Kong and Singapore, Johor Batang, which is the hub for Southeast Asia. These two markets rank in the top 10 data center market globally.

Speaker 2

We collectively anticipated where demand will flow. We secured the right resource and executed it well. As a result, we quickly established a market leading presence in both place. We have secured over 200 megawatts of commitments and the reservations for from Global as well as China customers. And as of today, we already have over 70 megawatts in service and revenue generating.

Speaker 2

We see tremendous opportunities for growth in these markets. We are very well placed with our proven track record, development pipeline and a time to market to build on this success, we are actively evaluating several new markets and expect to make further commitments in the near future. Now let's review our performance in more detail. In 2023, we won 68 1,000 square meters of new customer commitments. 50,000 square meters came from which was similar to the prior year and nearly 20,000 square meters or 30% of total bookings came from international.

Speaker 2

During 4Q 2023, we won 2 large orders in China and one for international. Both of the China orders fit our strategy of matching commitments, which with capacity and have moving period of less than 2 years. The international order was from a global cloud service provider for the whole of our Hong Kong II project. As a result, our first two projects in Hong Kong are effectively sold out with long term binding commitments. Looking forward, the demand outlook in China has not yet picked up noticeably.

Speaker 2

AI demand is coming, but it will take more time. Meanwhile, our sales pipeline in Southeast Asia is very strong. We expect a significant new booking for both of our campuses in Johor in the near future. AI is undoubtedly a big factor driving a demand in this market. In 2023, the gross moving was around 69,000 square meters, 20% higher than in 2022.

Speaker 2

China move in was around 56,000 square meters, which once again was similar to the prior year. On top of this, there was the first time contribution from international of 12 square meters 12,000 square meters as one data center in Hong Kong and the 3 data centers in Johan came into service and started ramping up. In 2023, we brought around 57,000 square meters of new capacity into service across 7 data centers, 4 in China and 3 international. By the end of the year, these 3 data centers had an overall utilization rate of 77%, which is consistent with our target for faster moving and higher utilization. During 2024, we expect to bring about 81,000 square meters into service, driven by delivery commitments to customers.

Speaker 2

The overall commitments rate for this capacity is 92% and the moving schedule is confirmed. I will now pass on to Dan for the financial and operating review.

Speaker 3

Thank you, William. Turning to Slide 17. We just announced today that our wholly owned subsidiary, Digital Land Holdings, which we refer to for now as GDS International or GDSI, has entered into definitive agreements with certain institutional private equity investors for the new issue of $587,000,000 of Series A convertible preferred shares. This first external equity capital raise for GDS International demonstrates our ability to access dedicated financing for our international business without further funding from GDS Holdings. The Series A subscription price implies a pre money equity valuation for GDS International of $750,000,000 In terms of our share price, this is equivalent to approximately $3.92 per GDS Holdings ADS.

Speaker 3

The implied post money enterprise valuation of GDSI, including forecast net debt of around $935,000,000 as at the end of 2024 is around US2.3 billion dollars This is equivalent to around 24 times GDSI's forecast adjusted EBITDA for the full year 2025. As mentioned by William, GDS International currently has over 3 30 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong, Singapore, Johor, Malaysia and Batam, Indonesia. The total development cost for this portfolio is around $2,500,000,000 out of which approximately 40% has been incurred up to the end of 2023. As of the end of last year, GDSH had provided a total of around $595,000,000 of intercompany funding to GDSI, comprising $411,000,000 of paid up share capital and $184,000,000 of shareholder loans and other payables, which will be repaid immediately out of the proceeds of the Series A new issue. This will benefit GDSH in terms of higher liquidity.

Speaker 3

On a pro form a basis, including $411,000,000 of permanent equity from GDSH and $587,000,000 dollars from the Series A, GDSI will have total paid up share capital of approximately US1 $1,000,000,000 As a result, GDSI will be sufficiently well capitalized with equity to complete the development of its current 3 30 megawatt portfolio. Post closing, GDSH will own approximately 56 0.1% of GDSI in the form of ordinary shares and the remaining 43.9% equity will be held in the form of Series A shares by investors including Hill House, Rava Partners, Bouygues, Princeville Capital and Techni Capital. GDSH and certain investors will have the right to appoint directors to the Board of GDSI, proportionate with their ownership. William will continue in his role as Chairman of the Board of GDSI as well as Chairman and CEO of GDSH. Other key deal terms, including lockup, QIPO and liquidation preference, amongst others, can be found in the transaction documents, which we will file with the SEC.

Speaker 3

With this capital raising, it starts to make sense for us to look at GDS business in 2 parts. As we go through the financials, I will highlight selected numbers for international on a standalone basis and for GDS Holdings, excluding international. Turning to Slide 18. For 2023, revenue increased by 6.8% and adjusted EBITDA increased by 8.8% year on year. In 4Q 2023, revenue increased by 6.3% and adjusted EBITDA increased by 5.7% year on year.

Speaker 3

For the full year 2023, international had negative adjusted EBITDA of around RMB 100,000,000. The year on year growth rate for GDS Holdings, excluding international, would have been 2 percentage points higher than the consolidated number. International recorded positive adjusted EBITDA for the first time in 4Q 2023. Turning to Slide 19. I will discuss the 2 main drivers of revenue growth, namely area utilized and MSR.

Speaker 3

For 2023, net additional area utilized was 48,000 square meters. The annual net add was slightly less than 2022 as a result of higher churn. Nonetheless, total area utilized at year end was 13% higher than at the end of the prior year. During 4Q 'twenty three, we achieved net additional area utilized of 20,000 square meters, which is the highest level for many quarters. This was mainly due to ramp up of our first two data centers in Johor and a minimal level of churn.

Speaker 3

For 2024, we expect net additional area utilized to be higher than last year's 48,000 with steady growth in China and increased contribution from international. Turning to the MSR metric. Over the course of 2023, comparing 4Q to 4Q, MSR decreased by 5%. For 2024, we expect MSR in China to decrease by around 3%, which shows it is bottoming out. The MSR for international is currently higher than for China.

Speaker 3

Hence, on a consolidated basis, we expect MSR to remain at around current levels. Turning to Slides 2223. For 2023, our consolidated adjusted EBITDA margin was 46.4%, which was slightly higher than for 2022, despite the fact that power tariffs in China increased again during last year. For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of 43.7%, which is a more than 2 percentage point drop compared with 2023. The margin for GDS Holdings excluding international should be similar to 2023.

Speaker 3

The expected drop in the coming year is therefore mainly due to international growth drag. Turning to Slide 24. In 2023, our China CapEx totaled RMB 3,500,000,000. We have brought China CapEx down significantly from historic levels, and we are only spending where it is necessary to generate growth. In 2024, as William mentioned, we plan to bring a further 58,000 square meters of new capacity into service in China, most of which is committed to customers with firm moving schedules.

Speaker 3

Meanwhile, our CapEx guidance for China in 2024 is only RMB 2,500,000,000. The very low implied CapEx per square meter is because we have already incurred a substantial part of the development cost. What is left is cost to complete. This pattern will continue over the next few years, giving us the ability to grow in China with relatively low incremental CapEx. In 2023, our international CapEx was around RMB 2,800,000,000.

Speaker 3

Our current backlog for international stands at over 130 megawatts of committed and reserved capacity, a large part of which is yet to be built. Our CapEx guidance for international in 2024 is RMB 4,000,000,000 which is largely driven by fixed delivery commitments to customers. On Slide 25, in 2023, GDS Holdings, excluding international, had negative cash flow before financing of just over RMB 1,000,000,000. Our objective is to maintain positive cash flow before financing on an organic basis. We have already been positive in some quarters.

Speaker 3

And for 2024 as a whole, we expect to be close to breakeven. In 2023, international on a standalone basis had negative cash flow before financing of over RMB 3,000,000,000. In 2024, we forecast negative RMB 4,000,000,000, which can be fully financed by the equity raise and project debt. Looking at our leverage on Slides 26 and 27. At the end of 2023, our consolidated net debt to last quarter annualized adjusted EBITDA multiple was 8.5 times.

Speaker 3

Excluding international and pro form a for the repayment of shareholder loans, the multiple was 7.5x. Turning to Slide 28. During 2024, we have RMB 2,300,000,000 of project loan amortization for China. We expect to generate an equivalent amount of new financing cash flow as a result of the repayment of shareholder loans from GDS I to GDS H and drawdown under existing facilities to finance around 50% of China incremental CapEx. Turning to Slide 29.

Speaker 3

Before I talk about guidance, I would like to flag the impairment loss of long lived assets of around RMB 3,000,000,000, which we recorded during 4Q 2023. We are required to test for impairment whenever events or changes in circumstance indicate that the carrying amount of long lived assets may not be recoverable. The impairment loss was mainly associated with data centers located in properties, which we leased for a fixed term and a few data centers, which we plan to consolidate. Turning now to guidance. For the full year 2024, we expect total revenues to be between RMB 11,340,000,000 to RMB 11,760,000,000 implying a year on year increase of between approximately 13.9% to 18.1%.

Speaker 3

We expect adjusted EBITDA to be between RMB 4,950,000,000 to RMB 5,150,000,000, implying a year on year increase of between approximately 7% to 11.4%. On a standalone basis, we expect international to contribute around RMB 100,000,000 to RMB 150,000,000 of adjusted EBITDA in 2024. As I mentioned earlier, we expect total CapEx of around RMB 6,500,000,000 for the full year, comprising RMB 2,500,000,000 for China and RMB 4,000,000,000 for international. We'd now like to open the call to questions. Operator, please?

Operator

Thank you. We will now begin the question and answer Our first question comes from the line of Frank Louthan from Raymond James. Please go ahead.

Speaker 4

Great. Thank you. Just really quickly, when can we expect to see some more full breakouts of the international business? That would be the first thing. And then secondly, if you can characterize the move in schedule of the international customers relative to what you've seen historically in China and how quickly we could expect to see those customers billing inside those new developments?

Speaker 4

Thank you.

Speaker 3

This is Dan. Today, we've started to provide a breakout of the CapEx and of the leverage, where there's clearly a significant difference looking at GDS Holdings consolidated or GDS Holdings in 2 parts. I did verbally give the numbers for EBITDA. I said that last year, International had negative EBITDA of RMB 100,000,000 for the full year. And this year, we expect positive EBITDA of RMB 100,000,000 to RMB 115,000,000.

Speaker 3

It's not yet material, that material in the context of GDS Holdings numbers. So we don't propose to report segment financials. But as we move through this year and the materiality increases, we will certainly consider that. You want to comment about move in?

Speaker 2

Moving compared with China, right? Yes. I think what we see is international moving is better than what we have in China. In general, I think the people all want time to market more faster than other bridging. So it's very good and general revenue more faster than China.

Speaker 4

Okay, great. Thank you.

Operator

Thank you for the questions. One moment for the next question. Our next question comes from Eunice Liu from Goldman Sachs. Please go ahead.

Speaker 5

Thank you management for taking my questions. This is Eunice asking question on behalf of Timothy Zhao. My question is, has company seen a fast ramp up of the AI related demand, especially for GDS International? And also another question is on what takes to take to achieve the high end of your guidance in terms of revenue guidance for next year? Thank you.

Speaker 2

Yes. I think in the international business, of course, I think actually we don't know what our customer will be because they're all very confidential. So based on our current the product profile, I think we do have seen some high density rack requirement plus, but I think the international requirement demand is very various because including a lot of the Internet company, OTT and also traditional GPU cloud as well. So it's mixed. I think that we do see maybe AI type demands is already there.

Speaker 3

Yes. The question about how do we achieve the high end of our guidance, So we split the guidance into 2 parts. For China, we're expecting standalone adjusted EBITDA growth rate of around mid single digits. This is consistent with the run rate that we've seen over the past couple of years in terms of quarterly move in and the trend in MSRs and EBITDA margins. We forecast assuming that current market conditions continue through this year, maybe next year, I think the outlook could be more positive in 2025.

Speaker 3

For the international part of business, clearly, the turnaround from negative RMB 100,000,000 to RMB 100,000,000 to RMB 150,000,000 positive is quite significant, and that elevates the growth rates. For international, we're forecasting bottom up based on the time schedule for individual data centers to enter service and the customer contracts associated with those data centers, which have a fixed move in schedule. So we base the forecast largely on what is it what are the terms of the of those contracts. The international business is very dynamic. It's in an early stage, albeit this already achieved significant scale.

Speaker 3

But typically for business at this stage of development, there could be a wider range of outcomes just because things are moving so fast. So I think there is potential upside in the international business as it as more data centers come into service.

Speaker 5

Thank you.

Operator

Thank you for the questions. Our next questions will come from the line of Yang Liu from Morgan Stanley. Please go ahead.

Speaker 6

Thanks for the opportunity. I have three questions. The first, in terms of the overall international revenue contribution, could management elaborate or break down in the current guidance for 2024 international revenue contribution? The second question is that I made some comparison versus your disclosure at the end of Q3 last year. You had 372 megawatts pipeline megawatt data center pipeline in overseas market.

Speaker 6

And now it increased dramatically just in 1 quarter. Could management update us in terms of the pipeline development, where is the new pipeline? And yes, what will be the potential timeline to deliver that or what will be the type of business hyperscaler or retail business, etcetera? That is for the incremental overseas pipeline. And the third question is regarding the additional sales for 2024.

Speaker 6

Do you think that the total sales or area booked in 2024, if there's any chance to see a turnaround? Or from the megawatt perspective, there could be a turnaround? Thank you.

Speaker 3

I'll take the first question. Yes. So hi, Young, you've done here. I think you provided revenue guidance for the full year of $11,340,000,000 to $11,760,000,000 We expect the revenue of international standalone to be about RMB 1,100,000,000 plus or minus as I explained in answering the previous question.

Speaker 2

Yes. I think the pipeline is very, very strong in general. I see the orders from the all of the world global and also we see a lot of companies from China as well. So I think this shows the international business has a huge momentum, big very big momentum. So I think the in fact, the current a lot of customer asked for deliver as much faster as possible.

Speaker 2

So I think this is the overall demand profile. On the other hand, I think the customer type actually, as I just mentioned, very, very very there's a local a lot of local tech company, a lot of the global tech company and also a lot of the e commerce company as well. So this is not only from China, it's what we have been seeing is from the globally. So I think this is a very let us feel very, very excited. So I think the international business will grow very, very faster than what we expect.

Speaker 3

Yan, you're also asking about your bookings, expectation bookings.

Speaker 2

Yes. We don't want set up because every quarter is changed, frankly speaking. So I think it is to maintain the last 2 years average level, which means 50 megawatt per year is our base. But based on our current pipeline, we can maybe go very, very high number, maybe double, something like that. But we don't want to set up too much high exponentially on that.

Speaker 2

That. But 50% 50 megawatt is our base in the international market. Yes, but of course, as I just mentioned, this is just Southeast Asia market. We also look very closely with the for other new market like North Asia and also European market as well.

Speaker 3

I think, Yan Yu, I just want to check your question about increase in pipeline. If you were referring to the secured development pipeline, the reason why that's gone up very significantly is because at our established campus that we refer to as NTP, we acquired additional land and secured additional power. And at the same time, we have established a second campus in Johor, called KTP, where we are have started construction around 20 megawatts. But we plan in a single phase to go to around 100 megawatts, and we also look forward to obtaining some commitments to that site in the next few quarters.

Speaker 6

Got it. Thank you.

Operator

Thank you for the questions. Our next question comes from David Lee from Bank of America Securities. Please go ahead.

Speaker 7

Hi, management. Thanks for taking my question. I have two questions. The first one about the China data center business. Could management share some of the demand trend for our clients, maybe for public cloud providers and the Internet companies and some financial companies, how the demand trend?

Speaker 7

And right now, government is publishing more policy to support the AI data center, etcetera. And how do we see the competition? And my second question about the overseas business. Congrats on this recent fundraising. How do we see future like financial channel in overseas market and as we try to develop more business after like 2 to 3 years in terms of financing channel?

Speaker 7

Thank you.

Speaker 2

Okay. I'll take your first question. I think in China, I think we do see some signal that AI demand is increasing. But based on the current chip supply issue. I think the demand is not the demand actually is already there, but not fulfilled by the chips.

Speaker 2

So what we can tell is the chips supply in terms of like a new version of the NVIDIA like H20 and also some China chips supply profile. What we can see is maybe the end of this year or early of next year, China data center demand will recover in a significant way. So what I think that this year still you can see a lot of demand is frying right now, but actually every people is waiting for the chips. So impact to our data center real demand, I would say it will start from next year.

Speaker 3

Yes. Your question about the financing requirements and options for international. So the rationale behind the capital raising, which we announced today, is to ensure that we have adequate equity capital for the existing portfolio, which is in service and under construction. But we are moving forward rapidly, and the requirement for additional capital will depend on how the business plan evolves. We will take a view as new opportunities come up and new commitments are made.

Speaker 3

We've spoken before about a strategy of limiting the amount of capital, which GDS Holdings allocates to international. We've allocated US411 1,000,000 dollars Now we're starting to leverage our equity investment with external equity at a premium valuation. I think this first Series A capital raising has required us to establish GDS International on a stand alone basis and put in place the governance and all the aspects of intercompany relationships and so on, which is quite a challenge. I think it's after having done this deal and with the investor group who are now partnering with us, I think GDS International is very well placed to do further capital raisings, and that could either be at a country level, as we've done already in Indonesia with our joint venture with INA, or it could be at the international HoldCo level. Thank you, management.

Operator

Thank you for the questions. Our next question comes from Robert Hsu from JPMorgan. Please go ahead.

Speaker 8

Okay. Thanks, Will. And so I'm asking on behalf of Gokul. So I have two parts of my questions. First one is on the competitive landscape and the IR.

Speaker 8

So can you help us understand for what the IR looks like for the international business given we have seen many like either regional players or local players or Chinese player competing in this market? Secondly, I think you kind of guided the international business revenue contribution for this year will be probably 9%, 10%. So you mentioned that you are considering to expand beyond this Southeast Asian markets, probably Europe or North Asia. So how should we think about the revenue contribution from international business in probably 3, 5 years of time? Yes.

Speaker 8

Thanks.

Speaker 3

Yes. Thank you, Robert. First of all, for the IRRs, we have undertaken projects in Hong Kong and in Johor and in Batam. Each market has a different cost of capital. But if we look at it in a very general way, the IRRs have been within the range that we target have targeted historically, unlevered post tax IRRs of not less than 10% up to IRRs in the low teens.

Speaker 3

This currently compares really quite favorably with what is achievable in China at the current stage in the cycle. Yes. The contribution of international, without giving out forecast, I think we talked before about hitting 15% of consolidated revenue or adjusted EBITDA within 3 years. I think that is definitely achievable. There may be higher than that.

Speaker 8

Thank you.

Operator

Thank you for the questions. One moment for the next question. The next question comes from the line of Bora Lee from RBC Capital Markets. Please go ahead.

Speaker 9

Thank you. Hi, this is Bora on for John Atkin. So I believe William had mentioned GDS expects to enter additional markets. Can you elaborate on how you're thinking about the markets or regions and what you'd like to expand and the timeframe you had in mind? And secondarily, any update on the Singapore development?

Speaker 1

Thank you.

Speaker 2

I think our strategy is, first of all, I think we see the tremendous growth in the Southeast Asia and Asia whole Asia Pacific, which the market we are very familiar with. I think the first step we will still to focus on the Southeast Asia to get to maintain the market leading position, right. So I think this is our first priority. In the meanwhile, we already start to get back to Japan market for a while. And I think we are maybe in the near future, maybe we can announce some progress.

Speaker 2

So I think Japan market, Korea market also very attractive. It's the top market data center market in the world and we see the demand. So in general, we follow-up the big market. We will also follow-up the high growth market in the future. But as I've just mentioned, we do have see some opportunity in Europe as well.

Speaker 2

But this is another future target market, but of course, including Middle East. Singapore, yes, we target to deliver the launch the data center by the end of the 2026. So that's our time frame and we made some progress. There's a couple of shortlisted. We already tried to do the final decision to choose in the site.

Speaker 2

So I think

Speaker 3

we will

Speaker 2

tell the investor once we make the final decision.

Speaker 1

Great. Thank you.

Operator

Thank you for the question. One moment for the next question. Our next question is we have Sarah Wang from UBS. Please go ahead.

Speaker 1

Thank you for the opportunity. I have two questions. First one is on China business. So what's the trend of MSR or churn rate when you renew contracts with existing customers, say, over the past two quarters? And then how shall we think about the trend going forward?

Speaker 1

Second question is still on AI. So maybe for both China and international projects, because AI requires higher density racks or even more advanced cooling methodology. So is there any difference between maybe high density power racks in terms of revenue or margin profile compared to maybe cloud demand we have seen previously? Thank you.

Speaker 3

Yes, I'll answer the first question maybe.

Speaker 2

Yes, I think in general, I think the current AI of course, AI will definitely in the future will the main driver to drive the data center demand is what happening in U. S, what happening in Europe and also the Southeast Asia and the Japan market already. But it's just a start. In terms of the difference, I think the AI guys need more big capacity. We historically when we talk to cloud guys demand, if we use the single deal size, let's say, Internet always ask for 10 megawatt, 10 megawatt, it's as a maximum.

Speaker 2

And the cloud guys normally ask for, let's say, 30 megawatt, 40 megawatt. But now what we can see that the deal profile is a total difference. A lot of our customer, they ask for 100 Megawatt or 200 Megawatt per campus. So that means they need more power capacity in one site. So this is the one difference.

Speaker 2

The second of all, of course, I think in general, average power density goes very high. So we are well prepared for that. In terms of cooling, I think everybody know once you get it if you want to get it let your product like per rack above 20 kW per rack, it's better to start to use try to start to use the liquor cooling, right? So in terms of technology, we are very familiar of the liquor cooling because 5 years ago, we start to use the liquid cooling solution for in China. So I think we're prepared for catch up the AI demand in the future, whatever size in terms of size, capacity of the size or power density or cooling technology.

Speaker 2

We're all good at that.

Speaker 3

So your question about MSI, I always answer this in the same way and say, MSI can be affected by a number of different factors. It's not just a reflection of change in market pricing. It's also dependent on location and type of data center. Rather than talk about pricing on renewals, we always give some guidance or direction on the trends in MSR. As I mentioned during the prepared remarks, over the past 4 quarters, that's 4Q 22 to 4q 2023, the MSR decreased by 5%.

Speaker 3

Over the next four quarters, that's 4Q 'twenty three to 4Q 'twenty four, we expect the MSR to decrease by 3%. Most of that decrease is due to delivery of the backlog. A smaller part is due to lower pricing on renewals. But if we were to look further forward beyond 2024 to 2025, MSR is bottoming out, which means that as you project further into the future, our revenue growth will be mainly driven by the increase in net additional area utilized with MSR decrease becoming less and then becoming flat.

Speaker 1

Got it. Thank you.

Operator

Thank you for the questions. We have come to the end of the Q and A session. I would like to now turn the call back over to the company for closing remarks.

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact TDS Investor Relations through the contact information on our site and the Piacente Financial Communications. Bye. See you next time.

Operator

This concludes the conference call. You may now disconnect your lines. Thank you.

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Key Takeaways

  • GDS International raised $587 million in Series A convertible preferred shares at a $750 million pre-money valuation, creating a standalone platform with GDS Holdings retaining 56.1% post-closing and funding its 330 MW in service/on-construction portfolio.
  • China operations delivered 1.5 GW of capacity in service/under construction in 2023, grew adjusted EBITDA by 9% YoY, and plans RMB 2.5 billion CapEx in 2024 to bring an additional 58,000 sqm of committed capacity into service.
  • International business achieved its first positive adjusted EBITDA in Q4 2023, with 70 MW revenue generating and 200 MW committed, and expects to contribute RMB 100–150 million of EBITDA in 2024.
  • 2023 consolidated revenue rose 6.8% to RMB 10.04 billion and adjusted EBITDA by 8.8%, driven by a 13% increase in utilized area (net +48,000 sqm) and 68,000 sqm of new bookings (30% international), while MSR declined 5% YoY.
  • For 2024, GDS guides revenue of RMB 11.34–11.76 billion (+13.9–18.1%), adjusted EBITDA of RMB 4.95–5.15 billion (+7–11.4%), and total CapEx of RMB 6.5 billion (RMB 2.5 billion China, RMB 4 billion international), with MSR declines expected to bottom out.
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Earnings Conference Call
GDS Q4 2023
00:00 / 00:00