Prepared remarks
Hello, ladies and gentlemen, thank you for standing by for GDS Holdings Limited's First Quarter 2026 Earnings Conference Call. The 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.
Hello, everyone. Welcome to the First Quarter 2026 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.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. 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. 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. 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. 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 Huang. Please go ahead, William.
Hello, everyone. This is William. Thank you for joining us on today's call. Over the past few quarters, we have seen a resurgence in data center demand driven by AI. We believe this is the beginning of a multiyear growth story, supported by increasing availability of domestic chips. Customers are planning their future deployments at unprecedented scale with a high degree of conviction. As market leader, GDS is well prepared to address these opportunities to the fullest extent. We have the trust of all the key customers, a multi-gigawatt development pipeline in strategic locations and a very strong balance sheet. Up to the end of 1Q '26, our total bookings stood at 1.8 gigawatts. In our 3-year business plan, we target adding 500 megawatts to 800 megawatts of new bookings every year, with the potential to do more. To deliver this capacity, we are prepared to commit RMB 30 billion to RMB 50 billion of new investment over the next 3 years. The economics of the data center business in China is solid, and this new investment will create significant value for our shareholders. On the last earnings call, we announced a sales target for 2026 of at least 500 megawatts. In the year-to-date, we have already done over 340 megawatts of new bookings, and we are still being selective. We are well on track to reach or exceed our full year target. We have won significant new orders from all of our largest customers for deployments across the whole of our platform, including the new markets. For the hyperscale business, customers are planning gigawatt scale deployments in single clusters. When they sign new sales agreements with us, they commit to a certain amount of capacity, which we disclose as bookings, and ask us to reserve the rest of the sites for their subsequent phases. In the year-to-date, total new bookings plus reservations comes to over 1 gigawatt. The reservations give us near certainty of winning follow-on orders within the next one or two years. In order to fulfill our customer requirements, we expanded our platform to new locations, which can accommodate the largest AI deployments. These new locations integrate well with our platform in established markets, enabling us to serve diversified customer requirements. Anticipating the demand trend, we increased our secured landbank to nearly 4 gigawatts. Typically, we are purchasing land from the government exclusively for our data center development. As we obtain customer commitment, we will be granted a power quota for this site. We synchronize the timing of construction with new bookings and fixed move-in schedules. Over the past 15 months, we initiated over 100,000 square meters or 400 megawatts of new construction, which is almost entirely pre-committed. Our backlog has increased to over 200,000 square meters or almost 600 megawatts, most of which will become biddable within the next 6 to 8 quarters. As this occurs, our growth will start to accelerate. AI in China is a transformational opportunity. We are highly motivated to support this development and we will commit all the necessary resources to the expansion of our AI infrastructure platform. I will now pass on to Dan for the financial and operating review.
Thank you, William. For our new business, the unit development cost averages around RMB 20,000 per kilowatt or USD 3 million per megawatt, depending on specification, cooling technology and location. Pricing for new business is stable, and at current levels we're able to generate an adjusted gross profit yield of 10% to 11% for stabilized assets. As shown on Slide 13, across the whole of our in-service portfolio, the adjusted gross profit yield is currently around 11%. We calculate this ratio based on adjusted gross profit, which includes the cash cost of operating assets, divided by gross PP&E, which includes replacement CapEx already incurred and, for conservatism, we added back historic impairment charges. The portfolio yield has been stable at around 11% for the past few years, based on a portfolio with utilization rate of around 75%. As our new bookings are delivered, we expect the portfolio yield to remain in the 10% to 11% range, which, in our view, is a reasonable return. Assuming a 6-year investment cycle of development, ramp-up, stabilized operations and then asset monetization, we expect to generate a return on equity of around 20% from the incremental investment. This underpins our confidence in growing the business. As shown on Slide 13, during the first quarter, net additional area utilized was around 16,000 square meters. During the current quarter, this metric will be slightly lower. And then in the second half of the year, it will rebound to around 20,000 square meters per quarter. During the second half of next year, as we start to see the flow-through from this year's higher level of new bookings, the move-in rate will step up noticeably. MSR on Slide 16 is a useful metric for financial forecasting purposes, but must be seen together with unit development cost. This is why we think it's more relevant to look at the gross profit yield or cash-on-cash yield as a measure of the economics of our business. Turning to Slide 18, during the first quarter, we recorded 7.9% growth in revenue and 8% growth in adjusted EBITDA after excluding one-time items, which arose in the normal course of business. We find it useful to look at our growth rates on a pro forma basis, adding back the deconsolidated revenue and adjusted EBITDA of the assets we monetized in March and July of 2025. This shows pro forma revenue and adjusted EBITDA growing at 12% to 13% after excluding one-time items. Turning to Slides 19 and 20, in 1Q '26, our organic CapEx was RMB 770 million. In addition, we received cash proceeds of RMB 2.7 billion or USD 385 million from the sale of a small part of our equity interest in Day 1, which is recorded in investing cash flow. We also received cash proceeds of RMB 2.1 billion or USD 300 million from the issue of convertible preferred shares, which is recorded in financing cash flow. As a result of the capital recycling and new issue, we are now sitting on over RMB 19 billion or USD 2.7 billion of cash and time deposits. This is an ideal situation to be in as we prepare for a new growth phase. Turning to Slide 23, our net debt to last quarter annualized adjusted EBITDA has decreased from 6.8x at the end of 2024 to 4.7x at the end of the first quarter of 2026. As we step up our investment, this ratio will increase to between 5x to 6x, which we consider an acceptable level. Finishing on Slide 25, we maintain our full year guidance unchanged. Now we'd like to open the call to questions. Operator?
Questions and answers
And now we're going to take our first question, and it comes from the line of Yang Liu from Morgan Stanley.
I would like to hear your comment on the pricing for the data center business. I think Dan previously mentioned that the overall pricing environment is stable. But could you please break it down by different markets or locations? Because from time to time, we hear that in certain markets there's a little bit of undersupply and also in certain markets there are some relatively aggressive bids from telcos, et cetera. Could you please comment on the pricing in different markets, please?
Yes, Liu. I think in the last earnings call, we already said the new incremental demand driven by AI—large-scale data center demand. In general, the price is pretty stable. Of course, in the whole market, you cannot stop some bidders; they use pricing tools to try to win. But that's not normal, and in my view, in some regions some deals are one-time and do not represent the whole market situation. Our view remains what we experienced last quarter, which is quite stable.
Now we're going to take our next question, and the question comes from the line of Gokul Hariharan from JPMorgan.
My question is basically on the development cost. Dan, I think you mentioned roughly RMB 20,000 per kilowatt or USD 3 million per megawatt, if I remember right. That number sounds a lot lower than what it used to be a few years back when you updated those numbers, I think. Could you talk a little bit about what the variables are that have changed? Is it mostly the location that has really changed? Or are there any other factors that have really changed to kind of reduce that development cost over the last maybe 2 to 3 years?
I would say that the unit development cost on a like-for-like basis, whether we're talking in established markets or new markets, has decreased by about 15% over the past 3 years. That would be the case with the MEP—the mechanical and electrical plant—which accounts for about 70% of the total development cost. I'd also say that land, concrete, steel and construction cost has been quite stable if we measure it on a per square meter basis; unit cost is relatively flat, but the power density has increased. So if we measure that part on a per kilowatt basis, it might appear to have come down as well. So overall, on a per kilowatt basis, the decrease is about 15% over 3 years.
Yes. I would add a couple of things. First, the scale is unprecedented, so scale also reduces cost. Larger scale gives vendors and manufacturers benefits, and they are willing to reduce price. Second, the architecture of AI data centers compared to previous cloud architectures has changed a lot, and that also helps drive down costs. Those are two additional reasons.
Now, we are going to take our next question. The question comes from the line of Xinyi Wang from UBS.
So I have one question regarding first quarter CapEx. I think the first quarter CapEx is RMB 770 million. It is a little bit modest given the strong orders we signed year-to-date and especially given the majority of the new orders should be new builds. So may I ask what's the reason behind the gap?
Sara, I would point you to our full year CapEx guidance, which remains unchanged. The timing of incurring CapEx per quarter is not that significant. The first quarter includes Chinese New Year, and it tends to be historically slightly below the level of the other three quarters. So I don't have any other more fundamental explanation than that.
Now we're going to take our next question. The question comes from the line of Frank Louthan from Raymond James & Associates.
Of the roughly RMB 30 billion to RMB 50 billion that you discussed in capital you're spending, how much of that will you be funding yourselves versus maybe with some JV investors or with capital recycling from some of your other assets?
Frank, let me just go over these numbers again and make sure everyone is clear. William was talking about having a sales plan of 500 megawatts to 800 megawatts over the next 3 years. If you apply the logic of RMB 20,000 per kilowatt or USD 3 million per megawatt, that's how you end up with total CapEx over 3 years of between RMB 30 billion to RMB 50 billion. If we take the midpoint, say RMB 40 billion, historically we have financed our investments quite conservatively with around 60% project debt to total development cost. So we would be able to obtain and draw down about 60% of RMB 40 billion, which is RMB 24 billion of new debt. That would leave RMB 16 billion to finance. We have several sources for that. We have our operating cash flow, which last year was nearly RMB 3 billion. We have our ongoing asset monetization program, which we're developing step by step. And we also have RMB 19 billion of cash and time deposits on our balance sheet. So I think we're in a strong position to finance that level of investment, and other options may arise, such as development partnerships and so on.
Now we are going to take our next question. The next question comes from the line of Ellie Jiang from Macquarie.
I just wanted to get a sense on the new bookings trajectory. The year-to-date 340 megawatts new bookings seems to be very encouraging. Considering the current token consumption and how AI agents are significantly boosting that compute demand, how would you evaluate upside surprises on the current scale?
Potential for upside.
Yes. Number one, we are very confident in the 500 megawatt number for new bookings; that is our base case. We are considering higher booking scenarios, but it's too early to say what level we can ultimately reach. We remain very disciplined in selecting orders in terms of move-in price and customer quality. Generally, we are confident we can do more, but we want high-quality orders. Regarding Neocloud business models, Neocloud is not new in China; historically there are many large platform GPU service providers and we already serve them indirectly. From a long-term perspective, we are starting to build relationships with them. So far, we haven't done direct business with them, and we will evaluate opportunities carefully. We will maintain discipline on financial return and risk. If there are high-quality Neocloud partners, we are willing to explore building relationships and doing business with them.
Now we are going to take our next question. The question comes from the line of Timothy Zhao from Goldman Sachs.
Regarding the pace of the growth in additional area utilized, after the first quarter, can you share your latest outlook for the rest of this year in terms of the move-in pace and what are the key moving factors that may affect the rate ramp up?
Timothy, I addressed this in the prepared remarks. It was 16,000 square meters in the first quarter. It will be a lower number in the second quarter, and then it will rebound to around 20,000 square meters in the third quarter and fourth quarter of this year. Next year, we will see a significant step up, particularly in the second half of 2027, in the third and fourth quarters. If we look at 2026 and 2027 as a whole, I think the move-ins this year will be somewhat over 70,000 square meters. Next year's number is likely to be very substantially larger, maybe double that order of magnitude.
Sure. Understood. Can I ask a follow-up, if I may? Just wondering, behind these assumptions, how much of that is contributed by domestic chips versus imported chips? I just wonder if you can share more color.
Yes. If your question is whether import chips will affect our move-in timing, frankly, this year's forecast is not based on imported chips. It is all based on the domestic chip supply chain. So it will not impact our current estimation. If imports come through, that may create upside, who knows.
Now we're going to take our next question. The question comes from the line of Daley Li from Bank of America Securities.
My question is about our land and power resources. We have secured quite strong resources in 1Q. Are we planning to expand our resources in the following quarters? If so, what kind of areas would we focus on?
I think we already addressed this last quarter. We will continue to develop both new markets and established markets because in China, training and inference demands are happening at the same time. GDS is a platform player, not just a project player, and we try to fulfill all kinds of AI demand, whether training or inference. We aim to be well positioned to capture different paces of AI demand.
Due to the time limit of today's call, I will now turn the call back over to the company for any closing remarks.
Thank you once again for joining us today. See you next time. Bye.
Thank you.
This concludes today's conference call. You may now disconnect your lines. Thank you.