GDS Holdings Limited
Q3 2016 Earnings Call Transcript

Published: 5 Dec 2016

[Operator:]

Hello ladies and gentlemen. Thank you for standing by for GDS Holdings Limited’s Third Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and- answer session. Today’s conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the Company. Please go ahead, Laura.

[Laura Chen:]

Hello everyone and welcome to the third quarter 2016 earnings conference call of GDS Holdings Limited. The Company’s results were issued via newswire services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investors.gds-services.com. Leading today’s call is Mr. William Huang, GDS’s Founder, Chairman and Chief Executive Officer, who will provide an overview of the business. Mr. Dan Newman, GDS’s Chief Financial Officer, will then review the Company’s third quarter 2016 operational and financial 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. Further information regarding these and other risks and uncertainties is included in the Company’s prospectus as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law Please also note that GDS’s earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS’ press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to GDS’s Founder, Chairman and Chief Executive Officer, William Huang who will start his discussion on slide 3. Please go ahead.

[William Huang:]

Hi everyone. Thank you for joining our first quarterly earnings conference call as a NASDAQ-listed public company. Our Initial Public Offering on November 2nd was an important milestone for our Company. It enhances our brand and it increases our transparency. This will help us extend our market leadership position. Turning to Slide 4, we are very pleased to report a record quarter with robust financial and operating results, as you can see on slide four. Let’s move on to Slide 5 that highlights our sales achievement. We have added nearly 70% to our total area committed year-over-year. This accelerating growth is primarily driven by strong demand from cloud service providers, which has taken off as gigantic companies like Alibaba and Tencent have made it their strategic priority. From what we know about our customers and where they are at, there is a long runway ahead and incremental demand is huge. We are just in the early stages of cloud development here in China. In addition, we won two significant new customers which add to our outstanding portfolio of market-leading customers. One is a top-tier Internet giant in China and the other is a top-three technology company from the US. We also won substantial new business from our existing customers. Turning to our data centers on Slide 6, our construction plan is moving forward smoothly, on schedule and within budget. Our current projects will add around 37 thousand square meters of capacity, which is already nearly 35% pre-committed. We continue to look for opportunities to increase capacity to meet growing demand. In closing, I’m thrilled about the tremendous data center opportunities in China and the rapidly escalating demand we are seeing from our Internet, E-commerce and Cloud customers. As a first-mover and market pioneer in China, we are well positioned to capture the opportunities, grow the business and deliver shareholder value. With that, I will now turn the call over to our CFO, Dan Newman, who will discuss our financial results and additional key operating metrics.

[Dan Newman:]

Thank you, William, and hello everyone. Slide 8 summarizes our third quarter results. Service revenue grew by 57% year-over-year and 14% sequentially in the third quarter of 2016. Our adjusted EBITDA margin hit 26.2%, a sign of our operating leverage. On Slide 9, you will see the total area committed increased 70% year-over-year and 31% sequentially to 58 thousand square meters. Total area utilized increased 63% year-over-year and 7% sequentially to 34 thousand square meters. As a result of the strong sales growth, contract backlog (the difference between area committed and utilized) nearly doubled. Contract backlog is an important metric as it provides visibility to our future revenue growth. Out of our 24 thousand square meter backlog as of September 30, 2016, around 11 thousand square meters relate to area already in service and 13 thousand square meters relate to area under construction. Based on minimum contractual commitments, the backlog will be largely delivered within the next four to five quarters. We always plan on the basis of contractual minimums, but in practice, we consistently see our customers moving in ahead of schedule. Average Selling Price (NYSE

[Laura Chen:]

Thank you once again for joining us today. If you have further questions, please feel free to contact GDS’s investor relations through the contact information on our website or The Piacente Group Investor Relations.

[Operator:]

This concludes this conference call. You may now disconnect your line. Thank you.