GDS Holdings (GDS) Q2 2026 earnings call transcript

Thank you. Hello everyone. Welcome to the second quarter of 2026 earnings conference call of GDS Holdings Ltd. The company's results were issued via Newswire Services earlier today and are posted online. A summary presentation which you will refer to during this conference call can be viewed and downloaded from our IA website at investmentgdservices. com. Leading today's call is Mr. William Hwang, GDS founder, chairman, and the CEO, who will provide an overview of our bidding strategy and performance.

Mr. Van Neumann, 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. Forge-looking statements involve inherent risks and uncertainties. As such, the company's results may be maturely different from the views expressed today. Further information regarding these and other risks and certainties is included in the company's perspective as filed with the U. S. SEC. The company does not assume any obligation to update any forge-looking statements except as required under applicable law. Please also note that GDS earnings press release and this fall includes discussions of unauditive financial information as well as unauditive non-GAAP financial measures.

GDS press release contains a reconciliation of the unauditive non-GAAP measures to the unauditive most directly comparable GAAP measures. I will now turn over the call to GDS founder, chairman, and CEO. Mr. William, please go ahead, William.

Hello, everyone. This is William. Thank you for joining us on today's call. AI is transforming our business. Our sales momentum is the strongest we have ever seen. In the second quarter, we achieved 260 megawatts of new bookings, bringing our total for the first half of 2006 to a record of 470 megawatts. During the current quarter, we are well on the way to securing further major business wins with leading customers.

We are confident today raising our full-year sales target to one gig. All of our sales agreements include a binding take-all pay commitment. This is a metric which we disclose as bookings. The sales agreement specified a delivery date, which is up to four quarters after booking. This allowed us to invest based on secure commitments. Following the delivery date, there's an agreed ramp-up period, usually another four quarters, which gives us visibility to the timing of new billings. Alongside the new bookings, our customers also request us to reserve the deployable capacity at the same size for their future needs. Reservation has become an integral part of our sales appointment. So far this year, we have secured an additional 600 megawatts of reservations from our customers.

We expect to end this year with over one gigawatt of new reservations. This provides us with high visibility for new orders in the next couple of years as customers convert reservations to binding commitments. China's tech giants and the emerging AI leaders are driving the adoption of advanced agentic models. This has led to a structural upgrade in the demand for computing power and AI infrastructure. GDS is uniquely positioned to address this opportunity as a result of our strategic customer relationships.

Presents across all key markets in China. Track record of execution and financing capability. The strength of our platform is clearly evident in the compositions of our first-half bookings. We won significantly new business from each of the three largest hyperscale customers. At the same time, we started to establish relationships with a group of emerging AI leaders Leaders, which have the potential to generate incremental demand in the future. Our new business winds have diversified across the markets. For the first half of the year, around half of our bookings came from established markets, and half from new markets, including the Ulaan-Taku and the Nolingga in the Mongolia.

And Sao Wan in Hongzong province. We are progressing well with customers for our Zhongwei campus in Ninsha province, which is another new market. This sales success validates our differentiated resource strategy. At the midpoint of this year, we have a total binding commitment for over 2 gigawatts, plus a further 600 megawatts of reservation. On the capacity side, we have around 3 gigawatts of developable capacity, which is not yet committed to end reservation. It is mostly in new markets. In view of our current sales momentum, we are actively adding to the deployment of health care in the markets, where demand is growing. While pursuing our ambitious target, we remain selected in terms of customers and the contract terms.

We invest against finding long-term commitments from the customers, and we are committed to maintaining financial discipline. I will now pass on to Dan for the financial and operating review.

Thank you, William. I'll start from the backlog buildup on slide 10. We started the current year with a backlog of 450 megawatts. By the middle of the year, our backlog had increased substantially to 757 megawatts. Based on the pricing in the contracts and our operating cost benchmarks we estimate that we can generate 2 million RMB of adjusted EBITDA per megawatt on average from this backlog Our booked but not killed adjusted ebit dial was therefore around 1 billion RMB By year end, assuming we achieve our sales target, we expect the backlog to increase further to over 1 gigawatt.

Turning to slide 11, during the first half of 2026, Our net move in was 145 megawatts. During the second half, we forecast move in of another 90 megawatts, making 235 megawatts for the full year. The move in pattern over the course of 2026 reflects the timing of bookings last year. For 2027, we forecast move-in will increase substantially to more than double the number for 2026.

The move-in will be heavily weighted for the second half of 2027. Assuming we sustain our sales momentum, 2028 should see another step up in move-in. Turning to CAPEX on slide 12, our unit CAPEX for the new capacity which we are constructing averages around 20 million RMB per megawatt.

As we just raised our sales target for the current year, we are also raising our guidance for CAPEX pay from 9 billion RMB to 10 billion RMB, most of which is in the second half. Our plan is to continue financing new investments with around 60% debt and 40% equity at the project level. Assuming we can generate a stabilized cash yield on new investments of 10 to 11%, this implies leverage of around 5.5 to 6 times at the project level. Our primary source of debt is onshore RMB-denominated long-term bank borings. The onshore bank market remains highly supportive. During 2Q26 alone, we were able to complete 4.9 billion RMB of new debt pronouncing and For the project equity, we have various sources.

We have cash with nearly 20 billion RMB on our balance sheet, and we have delevered down to 4.7 times net debt to last quarter annualized adjusted EBITDA. We have operating cash flow, which continues to strengthen. And we have our onshore asset monetization program, Which we are building up in a very deliberate way. Following our successful CREIT IPO, the first post-IPO asset injection is currently under regulatory review.

Turning to slide 16, we are revising upwards our full year revenue and adjusted EBITDA guidance to reflect a more accurate financial outlook for this year, which includes the one-time items disclosed in 1Q26.

Turning to slide 17, in order to put our first half 26 financial performance And revised full year 26 guidance into context, we have made some pro forma adjustments. Starting from reported revenue and reported adjusted EBITDA, we deduct the one time items in 1Q26. The consistency, we also deduct recurring income in prior quarters, which was restructured into the one time payment.

And we deduct the revenue and adjusted EBITDA contributed by the monetized assets prior to their deconsolidation. These adjustments establish a clean basis for comparison.

For the first half of 2026, our pro-forma adjusted EBITDA increased by 12.7%, Taking the midpoint of our revised guidance for full year 26, the implied growth rate for pro-forma adjusted EBITDA is 6.5%. We'd now like to open the call to questions. Operator?

Okay. Yes, thank you. I think the dynamic of the demands from the different dimensions, I think, of course, the key driver is still the GPU. The GPU, I think, in terms of the domestic GPU, the surprise is catching up. It took a while in the last couple of quarters, as we mentioned, but now it looks like it's on track to catching up. This is number one. But in the meanwhile, I think they also drive a lot of traditional growth. What we have seen is that the new order, quite a big number is driven by the CPU. So it will not impact in terms of the supply. It's no issue. So I think this is a more positive.

So that's why we take the more positive way to look at the current or future chip supply. So that's our view. If you look at the other, I love these traditional cloud, they are still raising their target, and the process is very significant as well. So I think that, let's be clear there.

Thank you.

How about the take-or-pay term protects the GDS revenue? Yeah Two comments The first is that in each contract there is a specific delivery date when the capacity has to be available to move in by the customer And that is a fixed date in each contract It up to four quarters from when the booking is disclosed So that part I think is unchangeable After that there a move period And it varies from contract to contract We been very focused on trying to select contracts which had a shorter move period and a fixed commitment For the purposes of forecasting, we assumed that the move-in will be, on average, over four quarters on a straight-line basis. So that is what our forecast reflects.

In reality, it could be faster or it could be slower, but I don't think it will materially deviate from that.

I think we are just starting to build up our vision. So far, we are very selective somehow. Business from this new AI leader. I think in terms of their demand profile, it looks like it's getting bigger and bigger, right? But we are still very selective. Our main customer is a new business, mainly driven by the hyperscale, a couple of the larger hyperscale. But we are, we think that they have some new customers in future. It's the right thing to do to diversify our customer ways. So we just start to build some relationship with them right now. So of course, their demand is obviously influencing, which we believe, yeah.

Frank, first of all, on guidance, to make clear that our guidance does not take account of any further asset monetization. There's a transaction in progress under regulatory review. We can't be any more specific about the timing of that. But to be clear, it's not factored in. For the MSR, we've provided guidance about the yield in terms of EBITDA per megawatt for the backlog and the new business that we're winning, and I think that will help for forecasting. If we go back to MSR, I always make the comparison on a same quarter basis. So we take 4Q26 compared with 4Q25. We forecast that it will be down 3%, and then maybe by a similar amount next year.

Part of that is the change in the location mix because there's a substantial amount of new business in new markets. And part of it is due to the legacy contracts where we have about another 18 months to go before we are through the transition of adjusting all of our contracts to the current market pricing. So our guidance this year and what we indicate in the future will fully reflect that.

I should point out that the Tier 1 market, I mean also the new market, the current price level is probably stable. This is all about a transition.

David, I would not read anything into the quarterly fluctuations. Most of the move-in in the current year is a capacity that was booked in 2025 or even before. And if you look at the bookings in 2025, they had a very strong first quarter of 2025, and then the second, third, fourth quarter were at a lower consistent level. And then from the first quarter of this year, our bookings increased by a very large amount. That sustained in the second quarter, gave an indication for the full year that that sustained. I think you can derive from that the outlook for moving over 2020, made of 2026 and 2027. We see a significant increase in moving in the second half of 2027, which is going to lead to a significant acceleration of ebitda growth.

I think the current power closing is there's a couple of key points. Number one is now it's controlled by the central government and the municipal government. So basically if you apply the polish, the first step is to go to the municipal code because you have to get the local government then commitment. They are full support. Now, the government is quite selective right now. They try to give the market leaders more allocation. That's why we have built up our land bank in the last 18 months so quickly, right, and take some advantage of the GDS grant. So second then we go to the provincial level NDRC approval then go to the final approval from the central government the NDRC on the central government That the key process of how we get a power location Thank you, Matthew.

Not exactly. What I'd like to make clear is that there's a sales agreement which contains a booking which is a contractual take-or-pay commitment, But within the same document, we undertake to reserve capacity to enable the customer to have certainty of being able to make commitments typically at the same site in future over a period of time. So the bookings and the reservations go together, and that's how the customers look at it from a resource planning perspective.

Yeah, in a minute, I think we should say based on our last 12 or 18 months experience, which the reservation, our customers exercise their reservation in a hundred percent base. That's our current experience. But in terms of the case by face by face, we should negotiate the moving, something like that. But in general, reservation is quite a certain, provided very, very high certainty for our future booking.

I think the campus like in the new markets, I think they will host different workload. It's a 20 plus inference. They're both their workloads.

Are we increased? Increased guidance? I think increased guidance is number one is the whole market demand we see is an increase. If you look at our hyperscale, they continue to increase their capex. That's in line with it. That's number one. Number two, I think the GDS still maintained a lot of advantage, which is our customers prefer. And so everybody knows we are stepping the new growth and we start our new business plan. So I think in terms of the capital revenue, even better than other competitors. So I think the customer will more rely on us.

The part that we identify is the developer capacity that is almost entirely new markets. We have capacity in established markets, but it's under reservation. There's only a small amount in established markets that is not permitted or reserved.

Jonathan Houten-Igeng Liu It's not – I think it's not – in general, we don't have the current detail number, not specific number in terms of the breakdown there. But, in general, I I can give you the general assumption, maybe 50-50.

Yeah, about growth in 2027, we provide annual guidance. Obviously, we weren't doing that until we give the full year results and report in around March next year. But what you can already see is that over the course of next year, there's going to be a very significant acceleration. The growth rate from 1Q, 2Q, 3Q, 4Q is going to be very different. I think what really matters is where we are at the end of the year and where we are in 2028. I believe it's already a strong indication that in 2028 GDS is going to be a pretty high growth company. Thank you.

Yeah, maybe the GPU will be a little bit higher next year. That's what I guess, based on the current domestic supply. I think it is.

Thank you all once again for joining us today, and we'll see you next time.