Prepared remarks
Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's Second Quarter 2026 Earnings Conference Call. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.
Thank you. Hello, everyone. Welcome to the Second Quarter 2026 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via newswire 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 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. 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 2026 to a record 470 megawatts. During the current quarter, we are well on the way to securing further major business wins with leading customers. We are confidently raising our full year sales target to 1 gigawatt. All of our sales agreements include a binding take-or-pay commitment. This is a metric which we disclose as bookings. The sales agreements specify a delivery date, which is up to four quarters after bookings. This allows us to invest based on secured commitments. Following the delivery date, there is 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 deployable capacity at the same site for their future needs. Reservation has become an integral part of our sales agreements. So far this year, we have secured an additional 600 megawatts of reservations from our customers. We expect to end this year with over 1 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 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, presence across all key markets in China, track record of execution and financing capabilities. The strength of our platform is clearly evidenced in the composition of our first half bookings. We won significant 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, which have the potential to generate incremental demand in the future. Our new business wins are diversified across the markets. For the first half of the year, around half of our bookings came from the established markets and half from new markets, including Ulanqab and Horinger in Inner Mongolia and Shaoguan in Guangdong Province. We are progressing well with customers for our Changshu campus in Jiangsu Province, which is another new market. This new sales success validates our differentiated resource strategy. At the midpoint of this year, we have total binding commitments for over 2 gigawatts plus a further 600 megawatts of reservations. On the capacity side, we have around 3 gigawatts of developable capacity, which is not yet committed or reserved. It is mostly in new markets. In view of our current sales momentum, we are actively adding to the deployment pipeline in the markets where demand is growing. While pursuing our ambitious target, we remain selective in terms of customers and the contract terms. We invest against binding long-term commitments from 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 RMB 2.2 million of adjusted EBITDA per megawatt on average from this backlog. Our booked but not billed adjusted EBITDA was therefore around RMB 1.6 billion. 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 to 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 RMB 20 million per megawatt. As we just raised our sales target for the current year, we are also raising our guidance for CapEx paid from RMB 9 billion to RMB 10 billion, 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 6x at the project level. Our primary source of debt is onshore RMB-denominated long-term bank borrowings. The onshore bank market remains highly supportive. During 2Q '26 alone, we were able to complete RMB 4.9 billion of new debt financing and refinancing. For the project equity, we have various sources. We have cash of nearly RMB 20 billion on our balance sheet, and we have delevered down to 4.7x 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 C-REIT 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 onetime items disclosed in 1Q '26. 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 onetime items in 1Q '26. For consistency, we also deduct recurring income in prior quarters, which was restructured into the onetime 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 of pro forma adjusted EBITDA is 6.5%. We'd now like to open the call to questions. Operator?
Questions and answers
And our first question comes from Yang Liu of Morgan Stanley.
Congratulations on the upward revision of full year guidance. I would like to ask about the future potential move-in. I think that there's a lot of debate on your customers' CapEx and also the availability of GPU in the market and also the constraint of computing power. We also see that you expect your move-in to improve dramatically next year. What could be the downside risk for that? And if there's any concern or a delay in one customer getting the GPUs, will the take-or-pay contract protect GDS revenue?
Yes. Thank you. I think the dynamics of demand depend on multiple dimensions. Of course, the key driver is still the GPU. But in terms of domestic GPU supply, it is catching up. It took a while over the last few quarters, but now it looks on track to catch up. That is number one. In the meanwhile, we are also seeing a lot of traditional cloud growth. What we have seen is that a significant portion of new orders is driven by CPU-based demand, so GPU supply constraints have not been an issue for all orders. We take a positive view on current and future chip supply. On the cloud side, many traditional cloud customers are still raising their targets and their growth is significant as well.
How about the take-or-pay term protecting the GDS revenue?
Yes, two comments. The first is that in each contract there is a specific delivery date when the capacity has to be available for the customer to move in, and that is a fixed date in each contract. It's up to four quarters from when the booking is disclosed. So that part is unchangeable. After that, there's a move-in period, and it varies from contract to contract. We've been very focused on trying to select contracts which have a shorter move-in 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.
And our next question comes from Sara Wang from UBS.
Congrats on the really solid new order signs. As management just mentioned that there is increasing demand from emerging AI leaders. So just wondering, is there any difference in their demand profile or contract terms compared to established cloud or Internet hyperscale customers we already served for quite some time?
I think we are just starting to build up our team focused on these new AI leaders. So far, we are being very selective with that business. In terms of their demand profile, it looks like it's getting bigger and bigger, but our main new business is still driven by a couple of large hyperscalers. We think it is the right thing to do to diversify our customer base, so we are starting to build relationships with these emerging AI customers now. The demand from these new customers is clearly accelerating, which we believe will generate incremental demand in the future.
We will now take our next question from the line of Frank Louthan from Raymond James & Associates.
I wanted to get an update on what your new guidance is and what does that imply for the impact of potential action with the C-REIT contribution? Does that include any of that? And what would you expect that to be — how would you expect that to impact revenue and EBITDA? And then secondly, if you could just address the slowdown in MRR, how should we think about that? And if we're looking forward, are you signing contracts that should be resulting in an improvement in MRR going forward? How should we think about that?
Frank, first of all, on guidance, to be clear 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 MRR, 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 MRR, I always make the comparison on a same quarter basis. So if we take 4Q '26 compared with 4Q '25, we forecast that it will be down around 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 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 in the Tier 1 markets and in the new markets the current price level is stable. It is all about the transition to the current pricing environment.
And our next question comes from the line of Daley Li from Bank of America Securities.
Congrats on the upward trend for the new orders. I have one question regarding the move-in. I remember in last earnings call, we were seeing a soft move-in rate in Q2, but it seems the number is better than market expectation. So what were the key drivers for better move-in in Q2? And secondly, how do we see the demand and supply trend in the data center market in China, considering the power quota approval progress by the government?
I would not read too much into the quarterly fluctuations. Most of the move-in in the current year is capacity that was booked in 2025 or even before. If you look at the bookings in 2025, we had a very strong first quarter 2025 and then the second, third and fourth quarters were at a lower, consistent level. Then from the first quarter of this year, our bookings increased by a very large amount and that's sustained in the second quarter. We gave an indication for the full year that's sustained. So I think you can derive from that the outlook for move-in over the remainder of 2026 and 2027. We see a significant increase in move-in in the second half of 2027, which is going to lead to a significant acceleration of EBITDA growth.
I think there are a couple of key points on power approvals. Number one, approvals are controlled at municipal and provincial levels as well as the central government. The first step is to apply for power at the municipal level because local government commitment and support are critical. The government is being selective and tends to give preferential allocation to market-leading companies. That's why we have been able to build up our land bank quickly in the last 18 months and take advantage of the GDS brand. Next we move to provincial-level approvals and then to the final approval from the central government and the NDRC. That's the key process for obtaining power allocation for a location.
We will now take our next question from the line of Edison Lee from Jefferies.
So congrats on the good results. My question is really centered around reconfirming the definition of the bookings and the reservations. So I assume that bookings mean contracts have been signed and reservations mean that are sort of an MOU indicating interest by the customers, and you look forward to converting that into signed contracts over the next few quarters. Is my understanding correct?
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.
Yes. Based on our last 12 to 18 months of experience, customers have exercised their reservations at nearly a 100% rate. That's our current experience. Reservations provide very high certainty for our future bookings, although there can be case-by-case variations that we negotiate.
Okay. So can I follow up by asking your booking targets this year? Right now it is 1 gigawatt. I think in the last quarter your target was still 500 megawatts. So this doubling of the bookings target, I believe, is driven by your customers or your assessment of the customers' demand. And is it possible for you to split the customers' demand into training versus inference? Or do you have no idea how to split that?
I think campuses in the new markets will host different workloads: training plus inference. Both workloads are increasing. The reason we increased the guidance is twofold. Number one, overall market demand is higher. If you look at our hyperscalers, they continue to increase their CapEx, and that's in line with what we see. Number two, GDS maintains many advantages, and customers prefer to work with us. We have stepped into the new growth areas and started new business plans. So customers will more and more rely on us.
And in terms of your power reserves, can you talk about the locations of your power reserves?
The developable capacity that we identify is almost entirely in new markets. We do have capacity in established markets that is under reservation. So there's only a small amount in established markets that is not committed or reserved.
So is it very different from what you disclosed in the last quarter in terms of locations?
It's broadly consistent with what we disclosed last quarter.
We will now move to our next question and our next question comes from the line of Timothy Zhao from Goldman Sachs.
I just want to get more clarity on the move-in and how you want us to look at the revenue and EBITDA beyond this year. Just wondering if you can give us a breakdown, for example, for this year many move-ins — what is the proportion between CPU-based and GPU-based? And into next year, it seems like you are looking for the move-in to be more than double to close to 700 megawatts next year. What will be the breakdown between GPU and CPU next year? And with that 700 megawatt move-in, of course, I think the majority will be toward the second half of next year. So if that is the case, how do you think about the revenue and EBITDA growth into '27 and '28?
We don't have detailed specific numbers to share by workload at this time. In general, a reasonable assumption is around a 50-50 split between CPU and GPU workloads.
About growth in 2027, we will provide annual guidance when we report full year results next March. 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 to 2Q to 3Q to 4Q will be quite different, and what really matters is where we finish the year and the starting point for 2028. I believe it's already a strong indication that in 2028, GDS is going to be a high-growth company.
And my follow-up on the 50-50 breakdown — does that refer to both this year and next year and onwards, or how could that mix change into next year?
GPU may be a little higher next year, based on the current trajectory of domestic supply catching up. So the mix could tilt somewhat toward GPU next year.
Thank you. Due to the time limit of today's call, I would now like to turn the call back to the company for any closing remarks.
Thank you all once again for joining us today, and see you next time.
This concludes this conference call. You may now disconnect your lines. Thank you.