GDS Holdings (NASDAQ:GDS) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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The full earnings call is available at https://edge.media-server.com/mmc/p/wyis6mp8/

Summary

GDS Holdings Limited achieved 260 megawatts of new bookings in Q2 2026, raising the full-year sales target to 1 gigawatt due to strong sales momentum driven by AI demand.

The company reported a backlog increase to 757 megawatts, estimating an average adjusted EBITDA of 2.2 million RMB per megawatt, and expects the backlog to exceed 1 gigawatt by year-end.

Capital expenditures guidance was raised to 10 billion RMB for 2026, with a financing strategy of 60% debt and 40% equity at the project level.

Full-year revenue and adjusted EBITDA guidance were revised upward, reflecting strong demand and favorable market conditions.

GDS is experiencing diversified business wins across established and new markets, with significant demand from hyperscale customers and emerging AI leaders.

Management emphasized strategic customer relationships, disciplined financial management, and maintained a positive outlook on future growth and infrastructure development.

Full Transcript

OPERATOR

Hello ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's second quarter 2026 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'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

Laura Chen, Head of Investor Relations

Thank you. Hello everyone. Welcome to the second quarter 2026 earnings conference call of GDS Holdings Limited. The company's results were issued via Newflow Services earlier today and are posted online. A summary presentation which we'll refer to during this conference call can be viewed and downloaded from our IR website at investing gdsservices.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. Ben 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 includes 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 most directly comparable GAAP measures. I'll now turn over the call to GDS founder, chairman and CEO, Mr. William Huang. Please go ahead, William.

William Huang, Founder, Chairman and CEO

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's an agreed ramp-up period, usually another four quarters, which gives us visibility to the timing of new billings. Alongside new bookings, our customers also request us to reserve developable 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 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, presence across all key markets in China, track record of execution, and financing capability. The strength of our platform is clearly evident in the composition of our first-half bookings. We won significant new business from each of the three largest hyperscale customers, and 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 our bookings came from established markets and half from new markets, including Ulanqab and Horinger in Inner Mongolia and South Wan in Guangdong Province. We are progressing well with customers for our Zhongwei campus in Ningxia Province, which is another new market. This 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 reservation.

On the capacity side, we have around 3 gigawatts of developable capacity which is not yet committed or under reservation. It is mostly in new markets. In view of our current sales momentum, we are actively adding to the development pipeline in the markets where demand is growing. While pursuing our ambitions, we remain selective in terms of customers and the contract terms. We invest against binding long-term commitments from the customers and we are committed to maintaining financial discipline.

I will now pass on to Ben for the financial and operating review.

Ben Newman, Chief Financial Officer

Thank you. I'll start from the backlog build-up 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 2.2 million RMB of adjusted EBITDA per megawatt on average from this backlog. Our booked but not billed adjusted EBITDA was therefore around 1.6 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 paid 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 borrowings. The onshore bank market remains highly supportive. During 2Q26 alone we were able to complete 4.9 billion RMB of new debt financing and refinancing.

For the project equity we have various sources. We have cash of 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 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 one-time items disclosed in 1Q26. Turning to Slide 17, in order to put our first-half 2026 financial performance and revised full-year 2026 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 for 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 first half of 2026, our pro forma adjusted EBITDA increased by 12.7%. Taking the midpoint of our revised guidance for full-year 2026, the implied growth rate for pro forma adjusted EBITDA is 6.5%.

We'd now like to open the call to questions. Operator.

OPERATOR

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. For the benefit of all participants on today's call, please limit yourself to one question. If you have more follow-up questions, please re-enter the queue. A moment for our first question, and our first question comes from the line of Yang Liu from Morgan Stanley.

Please ask your question. Yang, your line is open.

Yang Liu, Analyst at Morgan Stanley

Thanks for the opportunity to ask questions and 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, one customer gets GPUs, will the take-or-pay contracts protect GDS revenue?

Thank you.

William Huang, Founder, Chairman and CEO

Okay. Yes, thank you. I think the dynamic of the demand is from the different dimensions. I think of course the key driver is still the GPU, but in terms of the domestic GPU the supplies are catching up. Yeah, it took a while in the last couple of quarters as we mentioned, but now looks like on track to catching up. This is number one. But in the meanwhile I think they also drive a lot of traditional cloud growth. What we have seen is 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 more positive. So that's why we take the more positive way to look at the current or future chips supply. So that's our view. If you look at the other, a lot of the traditional cloud business, they are still raising their target and the growth is very significant as well. So I think let's be clear there.

Yang Liu, Analyst at Morgan Stanley

Thank you. How about the take-or-pay term protect the GDS revenue?

Ben Newman, Chief Financial Officer

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's up to four quarters from when the booking is disclosed. So that part I think 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 had 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. 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.

Yang Liu, Analyst at Morgan Stanley

Thank you.

OPERATOR

Thank you. We will now proceed to take our next question. And our next question comes from Sarah Wong from UBS. Please ask your question. Sarah,

Sarah Wong, Analyst at UBS

Thank you for the opportunity to ask a question and congrats on the really solid new order signs. As Madison 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?

William Huang, Founder, Chairman and CEO

I think we are just starting to build up our relationship. So far we are very selective. Some business from this new AI leader, I think in terms of their demand profile it looks like it's getting bigger and bigger. But we are still very selective. Our main customer, the new business mainly driven by the hyperscale, a couple of years larger hyperscale. But we think that they have some new customer in future. It's the right thing to do to diversify our customer base.

So we just start to build some relationship with them right now. So of course their demands workload is here. Obviously it's inference which we believe. Yeah,

Sarah Wong, Analyst at UBS

I see. Thank you.

OPERATOR

Thank you. We will now take our next question from the line of Frank Laughen from Raymond James and Associates. Please ask your question. Frank, your line is open.

Frank Laughen, Analyst at Raymond James

Great, thank you. I wanted to get an update on your new guidance 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? Thanks,

Ben Newman, Chief Financial Officer

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 MRR, we 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 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 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.

William Huang, Founder, Chairman and CEO

Yeah, I should point out that the tier-one market, and also the new markets. This is all about the transition.

Frank Laughen, Analyst at Raymond James

Okay, great. Thank you.

OPERATOR

Thank you. And our next question comes from the line of Daley Lee from Bank of America Securities. Please ask your question, Daley. Your line is open.

Daley Lee, Analyst at Bank of America Securities

Hi, thanks management for taking a question. Congrats on the opportunity for the new orders. I have one question regarding the move-in. I remember in last earnings call we were seeing soft move-in rate in Q2 but it seems that the number is better than our market expectation. So what have been 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?

Thank you.

Ben Newman, Chief Financial Officer

I would not read anything into the quarterly fluctuations. Most of the move-in in the current year is 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 2025 and then the second, third, fourth quarter were at a lower level, consistent level. And then from the first quarter this year our bookings increased by a very large amount. That sustained in the second quarter, gave indication for the full year, that sustained.

So I think you can derive from that the outlook for move-in over May 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.

William Huang, Founder, Chairman and CEO

I think the current power quota, there's a couple of key points. Number one is now it's controlled by the central government and government as well. So basically if you apply for the power, first step is to go to the municipal level because you get the local government land commitment, their full support. Right. This is normal. Right now government is quite selective. They try to give the sort of a leader, a market leader, more allocation. That's why we have built up our land bank in the last 18 months so quickly.

And take some advantage of the TDS grant. Second, then we go to the provincial level NDRC approval, then go to the final approval from the central government, the NDRC central government. That's the key process of how we get it in a quality location.

OPERATOR

Thank you. Thank you. Thank you. We will now take our next question from the line of Edison Lee from Jefferies. Please ask your question. Edison, your line is open.

Edison Lee, Analyst at Jefferies

Thank you for taking my questions. So congrats on the good results. My question, sorry, it's really centering around just reconfirming the definition of the bookings and the reservations. So I assume that bookings mean contracts have been signed and reservations mean that it is sort of an MOU with indicated interest by the customers. And you look forward to converting that into signed contracts over the next few quarters, is my understanding correct?

Ben Newman, Chief Financial Officer

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.

William Huang, Founder, Chairman and CEO

Yeah. In the meanwhile, I think we should say based on the last 12 or 18 months' experience with the reservation, our customers exercise their reservation on a 100% basis. That's our current experience. But in terms of the phase by phase we should negotiate move-in, but in general reservation is quite certain, provide very, very high certainty for our future booking.

Edison Lee, Analyst at Jefferies

Okay, so can I follow up by asking your booking targets this year right now is 1 gigawatt. I think in the last quarter I think your target was still 500 megawatt. So this doubling of the bookings target I believe is driven by your customers or your assessment of the customer's demand. And is it possible for you to split the customer's demand into training versus inference or you have no idea how to split that?

William Huang, Founder, Chairman and CEO

I think the campus like in the new market, I think they will host different workload. It's a training plus inference. They're both they will close. Increase the guidance, I think the increased guidance is number one is that 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. But this is number one. Number two, I think GDS still maintain a lot bigger advantage which is our customers prefer.

So everybody know we step in the new growth and we start our new business plan. So I think in terms of the capital revenues even better than the other competitors. So I think the customer will more rely on us.

Edison Lee, Analyst at Jefferies

And in terms of your power reserves, can you talk about the locations of your power reserves? Otherwise

Ben Newman, Chief Financial Officer

The part that we identify as developable 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 committed or reserved.

Edison Lee, Analyst at Jefferies

So is that very different from what you disclosed in the last quarter in terms of locations? Is it aggregated base?

OPERATOR

Thank you. We will now move up to our next question. And our next question comes from the line of Timothy Chow from Goldman Sachs. Please ask your question. Timothy, your line is open.

Timothy Chow, Analyst at Goldman Sachs

Thank you madam for taking the question. I think I just want to get more clarity on the move-in, and how do you want to look at the revenue and EBITDA beyond this year? Just wondering if you can give us a breakdown, for example for this year a lot of move-ins, what is the proportion between CPU-based and GPU-based, and into next year? It seems that you are looking for the volume to be more than double to close to 700 megawatts next year. And what will be that breakdown between GPU and CPU next year?

And with that 700 megawatts move-in, of course I think the majority will be more geared toward the second half of the next year. So if that is the case then how do you think about the revenue and EBITDA growth beyond this year into 2027 and 2028. Thank you.

William Huang, Founder, Chairman and CEO

It's not, I think it's not in general. We don't have the current detailed number, specific number in terms of the breakdown there. But in general, I think I can give you the general, I mean assumption, maybe around 50-50. Yeah.

Ben Newman, Chief Financial Officer

About growth in 2027, we provide annual guidance. Obviously we won't do that until we give the full-year results and talk 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 strong indication that in 2028 GDS is going to be a pretty high growth company.

Timothy Chow, Analyst at Goldman Sachs

Thank you. And if my follow-up on the breakdown, 50-50, just wondering if that refers to both this year and next year and onwards, or how that mix can change into next year.

William Huang, Founder, Chairman and CEO

Yeah, yeah. Maybe GPU will be a little bit higher next year. Yeah. That's what I would guess. Yeah. Based on the current domestic supply is catching up, I think. Yes.

OPERATOR

Thank you. Due to the time limit of today's call, I'd 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.

Laura Chen, Head of Investor Relations

Thank you.

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.