GDS Holdings Limited
Q4 2016 Earnings Call Transcript

Published: 2 Mar 2017

[Operator:]

Hello ladies and gentlemen. Thank you for standing by for GDS Holdings Limited’s Fourth Quarter and Full Year 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 fourth quarter and full year 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 financial and operating results and provide our outlook for 2017. 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’s 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. Please go ahead.

[William Huang:]

Hello everyone. This is William. Thank you for joiningtoday’scall. 2016 was a year of great achievement for GDS. As you can see on Slide 3, we grew Service Revenue by over 50% and Adjusted EBITDA by over 60%. We invested significantly to expand our capacity and our sales growth was phenomenal. We signed up customers for 25,000 square meters of new contracts, worth over $120 million in annual recurring revenue. Based on leading market research, our incremental market share grew to over 30%. We delivered nearly 15,000 square meters of Area, Utilized to customers. We added over 23,000 square meters of new capacity into service and ended the year with a very high level of commitment rate. Turning to Slide 4, our huge contract backlog has become even bigger. This gives us high visibility to future growth. At the end of 2016, we had over 23,000 square meters committed, but not yet utilized, worth over $110 million in annual recurring revenue. We are continuing to execute against our plan, delivering our backlog to customers and driving impressive revenue and operating growth quarter after quarter. On Slide 5, before I discuss our results and strategy, I would like to share our views on the market. As we have stated previously, we believe China represents the biggest data center opportunity in the world. And we believe that GDS is the best positioned in the market. It’s well documented that the digital economy in China is booming and Cloud adoption is leading the way. Compared to the USA, cloud adoption is still in its infancy, but growing fast. China’s internet giants are squarely focusing more and more on Cloud. At the same time, the Global Cloud giants are focusing more and more on the China market. All over the world, Cloud Service Providers are driving huge demand for data center capacity. Here in China, we see this trend magnified. Leading Cloud Service Providers in China are driving the majority of new demand. These guys are looking to outsource all of their requirements in Tier 1 markets. But, it’s not easy for them to do this. First, Cloud Service Provider s here require huge space and power. In China, in the big cities, that’s a big challenge. Second, they are deploying their Cloud platforms in all the Tier 1 markets at the same time, so you need to be ready everywhere. Third, they want certainty of getting capacity when and where they need it. Fourth, they want to work with people who understand their requirement and perform to a very high standard. They want flexibility and a total solution provider. Here is our golden opportunity. As we have described before, GDS is uniquely positioned in this environment, better than anyone else. We have had great success in capturing demand from Cloud. From almost nothing 3 years ago, Cloud Service Providers now account for 45% of our business, as shown on Slide 6. We believe that we are the leading supplier to the Top 3 Cloud players in China. They are all using multiple GDS datacenters. Why do we win with Cloud Service Providers? We win with these customers by having the right assets in all the right places, which nobody else has. And, these assets are backed up by a secure expansion pipeline and our 15-year solid track record of operational excellence. We believe we have a win-win partnership with the Cloud customers. They are important to us and we are also important to them. As we get stronger and stronger, this partnership also continues to grow stronger. Our strong position with Cloud service providers makes us the natural choice for enterprise customers. Our data centers offer enterprises co-location space and a unique access point to multiple Clouds. Cloud service providers attract enterprises. As we explained on our road show, this focus is central to our growth strategy and it’s working. In 2016 we added more than 120 new enterprise logos. In particular, we have had great success with a new kind of financial customer offering e-payment, online securities, clearing and settlement services. We believe this type of customer offers a long runway for expanded services. Resource supply is critical to keep up our sales momentum. We believe that our ability to source, design, and construct new projects are key competitive advantages. As shown on Slide7 at the end of 2016, we had about 25,000 square meters of Area Under Construction, of which 27% was pre-committed. In the current quarter, we are in the process of taking over a new project in Shenzhen with 10,000 square meters of high-powered space under construction, which is already 50% pre-committed to a major Cloud customer. We are actively seeking to add new projects to our development pipeline. We have promising prospects in all our markets which we aim to convert in the next few quarters. Turning to Slide 8, we are in a much stronger position now than when we began 2016. We’ve added capacity, attracted new customers, deepened our existing engagements and executed according to plan. We’ve seen across-the-board improvement and now are bigger and stronger than we ever been. There is huge growth to come from the Cloud customer segment and we want to be the hub for cloud and enterprise development. With our established relationships, we believe that we are in a good position to win this demand. In 2017, we aim to deepen our relationships with the major Cloud customers. We are aligning our resource plan to meet their requirements. We are helping them to access our enterprise customer base. At the same time, we are leveraging the Cloud platforms in our data centers to attract and add value to enterprise customers. As we enter 2017, we will leverage the solid foundation we have laid and continue to deliver resources to fulfill our sales growth. Our key objective for the current year is to be at the level of sales which we achieved in 2016 and we are confident of doing it. I will now hand over the call to Dan for the financial review.

[Dan Newman:]

Thank you, William. In this section, I will focus on 4 main areas

[Operator:]

As there are no further questions, I’d like to now turn the call back over to the Company for closing remarks.

[Laura Chen:]

Thank you once again for joining us today. If you have further questions, please feel free to contact GDS’ 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. 1