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GDS Holdings Limited Reports Third Quarter 2020 Results


GDS Holdings Limited

iCrowdNewswire   Nov 17, 2020  2:47 PM ET

GDS Holdings Limited, a leading developer and operator of high-performance data centers in China, today announced its unaudited financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Financial Highlights

Operating Highlights

“We recorded another quarter of strong growth, propelled by sustained sales momentum,” said Mr. William Huang, Chairman and Chief Executive Officer. “During the third quarter, we secured approximately 24,000 sqm (net) of new customer commitments. With one quarter left for 2020, we have already exceeded the organic sales performance for the whole of last year. To underpin our growth, we added to our land bank in Beijing and Shenzhen and increased our presence in key locations with strategic acquisitions in Beijing and Shanghai. While celebrating the fourth anniversary of our U.S. IPO and Nasdaq listing on November 2, 2020, we completed our Hong Kong IPO and secondary listing on the Main Board of the Hong Kong Stock Exchange, an important milestone and the beginning of a new chapter for our company.”

“Our financial performance was once again robust in the third quarter with 43.0% revenue growth and 48.3% adjusted EBITDA growth,” commented Mr. Dan Newman, Chief Financial Officer. “Our adjusted EBITDA margin remained at 47.0%, compared with 45.4% a year ago. Through our successful IPO in Hong Kong, we raised over US$1.8 billion of net proceeds, significantly strengthening our capital base to support our future business expansion.”

Third Quarter 2020 Financial Results

Net revenue in the third quarter of 2020 was RMB1,524.7 million (US$224.6 million), a 43.0% increase over the third quarter of 2019 of RMB1,066.2 million and a 13.6% increase over the second quarter of 2020 of RMB1,342.2 million. Service revenue in the third quarter of 2020 was RMB1,522.4 million (US$224.2 million), a 43.8% increase over the third quarter of 2019 of RMB1,058.9 million and a 14.1% increase over the second quarter of 2020 of RMB1,334.5 million. The increase over the previous quarter was mainly due to full quarter revenue contribution from additional area utilized in the previous quarter (including from the Beijing 10, 11, 12 (“BJ10/11/12”) acquisition which closed on June 5, 2020) and the contribution from 16,589 sqm of net additional area utilized in the third quarter of 2020 which mainly related to the Kunshan 2 (“KS2”), Beijing 6 (“BJ6”), Beijing 12 (“BJ12”), and Langfang 7 (“LF7”) data centers. Revenue from IT equipment sales was RMB2.4 million (US$0.4 million), compared with RMB7.3 million in the third quarter of 2019 and RMB7.7 million in the second quarter of 2020.

Cost of revenue in the third quarter of 2020 was RMB1,115.8 million (US$164.3 million), a 40.9% increase over the third quarter of 2019 of RMB792.0 million and a 13.7% increase over the second quarter of 2020 of RMB981.1 million. The increase over the previous quarter was mainly due to an increase in power consumption as a result of higher area utilized, and an increase in depreciation and amortization costs related to new data centers coming into service or acquired in the previous quarter, namely KS2, Langfang 6 (“LF6”), LF7, and BJ10/11/12, and in the third quarter of 2020, namely Kunshan 3 (“KS3”), Shanghai 15 (“SH15”) and Langfang 2 (“LF2”). These increased costs were partially offset by a lower level of IT equipment cost due to a lower level of IT equipment sales.

Gross profit was RMB409.0 million (US$60.2 million) in the third quarter of 2020, a 49.1% increase over the third quarter of 2019 of RMB274.2 million, and a 13.3% increase over the second quarter of 2020 of RMB361.1 million. Gross profit margin was 26.8% in the third quarter of 2020, compared with 25.7% in the third quarter of 2019, and 26.9% in the second quarter of 2020.

Adjusted Gross Profit1 (“Adjusted GP”) (non-GAAP) is defined as gross profit excluding depreciation and amortization, accretion expenses for asset retirement costs and share-based compensation expenses allocated to cost of revenue. Adjusted GP was RMB812.3 million (US$119.6 million) in the third quarter of 2020, a 42.2% increase over the third quarter of 2019 of RMB571.0 million and an 12.7% increase over the second quarter of 2020 of RMB721.0 million.

Adjusted GP margin1 (non-GAAP) was 53.3% in the third quarter of 2020, compared with 53.6% in the third quarter of 2019, and 53.7% in the second quarter of 2020. The decrease over the previous quarter was mainly due to seasonally higher power consumption.

Selling and marketing expenses, excluding share-based compensation expenses of RMB13.6 million (US$2.0 million), were RMB21.5 million (US$3.2 million) in the third quarter of 2020, a 3.5% decrease from the third quarter of 2019 of RMB22.3 million (excluding share-based compensation of RMB10.3 million) and a 27.7% increase from the second quarter of 2020 of RMB16.9 million (excluding share-based compensation of RMB12.9 million). The increase over the previous quarter was primarily due to the resumption of a normal level of sales and marketing activities which were disrupted by COVID-19 in the second quarter of 2020.

General and administrative expenses, excluding share-based compensation expenses of RMB49.8 million (US$7.3 million), depreciation and amortization expenses of RMB71.5 million (US$10.5 million), and operating lease cost relating to prepaid land use rights of RMB6.9 million (US$1.0 million), were RMB75.3 million (US$11.1 million) in the third quarter of 2020, a 22.0% increase over the third quarter of 2019 of RMB61.7 million (excluding share-based compensation expenses of RMB26.9 million and depreciation and amortization expenses of RMB16.9 million) and a 9.5% increase from the second quarter of 2020 of RMB68.7 million (excluding share-based compensation of RMB35.6 million, depreciation and amortization expenses of RMB47.6 million, and operating lease cost relating to prepaid land use rights of RMB4.7 million). The increase over the previous quarter was primarily due to the resumptions of a normal level of corporate activities which were disrupted by COVID-19 in the second quarter of 2020.

Research and development costs were RMB11.0 million (US$1.6 million) in the third quarter of 2020, compared with RMB6.2 million in the third quarter 2019 and RMB10.2 million in the second quarter of 2020.

Net interest expenses for the third quarter of 2020 were RMB339.2 million (US$50.0 million), a 40.7% increase over the third quarter of 2019 of RMB241.0 million and a 12.8% increase over the second quarter of 2020 of RMB300.6 million. The increase over the previous quarter was mainly due to higher total gross debt balance to finance data center capacity expansion.

Foreign currency exchange loss for the third quarter of 2020 was RMB134 thousand (US$20 thousand), compared with a loss of RMB2.8 million in the third quarter of 2019 and a loss of RMB4.6 million in the second quarter of 2020.

Others, net for the third quarter of 2020 was RMB10.5 million (US$1.5 million), compared with RMB4.6 million in the third quarter of 2019 and RMB11.0 million in the second quarter of 2020.

Net loss in the third quarter of 2020 was RMB204.6 million (US$30.1 million), compared with a net loss of RMB108.6 million in the third quarter of 2019 and a net loss of RMB101.0 million in the second quarter of 2020.

Adjusted EBITDA (non-GAAP) is defined as net loss excluding net interest expenses, income tax expenses (benefits), depreciation and amortization, operating lease cost relating to prepaid land use rights, accretion expenses for asset retirement costs, share-based compensation expenses and gain from purchase price adjustment. Adjusted EBITDA was RMB717.1 million (US$105.6 million) in the third quarter of 2020, a 48.3% increase over the third quarter of 2019 of RMB483.7 million and a 13.2% increase over the second quarter of 2020 of RMB633.4 million.

Adjusted EBITDA margin (non-GAAP) was 47.0% in the third quarter of 2020, compared with 45.4% in the third quarter of 2019, and 47.2% in the second quarter of 2020. The slight decrease over the previous quarter was mainly due to seasonally higher power consumption.

Basic and diluted loss per ordinary share in the third quarter of 2020 was RMB0.18 (US$0.03), compared with RMB0.11 in the third quarter of 2019, and RMB0.10 in the second quarter of 2020.

Basic and diluted loss per American Depositary Share (“ADS”) in the third quarter of 2020 was RMB1.42 (US$0.21), compared with RMB0.87 in the third quarter of 2019, and RMB0.77 in the second quarter of 2020. Each ADS represents eight Class A ordinary shares.

Sales

Total area committed and pre-committed at the end of the third quarter of 2020 was 357,344 sqm, compared with 242,435 sqm at the end of the third quarter of 2019 and 333,461 sqm at the end of the second quarter of 2020, an increase of 47.4% Y-o-Y and 7.2% quarter-over-quarter (“Q-o-Q”), respectively. In the third quarter of 2020, net additional total area committed was 23,884 sqm, including significant contributions from the Langfang 4 (“LF4”), Langfang 9 (“LF9”), and Guangzhou 6 (“GZ6”) data centers. The sales increase was driven primarily by booming Cloud adoption in China leading to higher demand from Cloud service providers, as well as significant new commitments from large Internet customers.

Data Center Resources

Area in service at the end of the third quarter of 2020 was 279,618 sqm, compared with 198,097 sqm at the end of the third quarter of 2019 and 266,260 sqm at the end of the second quarter of 2020, an increase of 41.2% Y-o-Y and 5.0% Q-o-Q. In the third quarter of 2020, KS3, SH15 and LF2 data centers came into service.

Area under construction at the end of the third quarter of 2020 was 135,871 sqm, compared with 84,765 sqm at the end of the third quarter of 2019 and 133,208 sqm at the end of the second quarter of 2020, an increase of 60.3% Y-o-Y and 2.0% Q-o-Q, respectively. In the third quarter of 2020, construction commenced on the Kunshan 4 (“KS4”) and LF9 data centers. KS4 is one of the three adjacent buildings which the Company is developing at a site in Kunshan, around 6 km away from its existing Kunshan campus. KS4 has a net floor area of approximately 3,500 sqm. The remaining two buildings on the site, namely Kunshan 5 and Kunshan 6 with a combined net floor area of approximately 12,800 sqm, are currently held for future development. KS4 is expected to come into service in 1H21. LF9 is a leased building in Langfang, located around 10 km away from the Company’s existing Langfang cluster. LF9 has a net floor area of approximately 10,830 sqm and it has been fully pre-committed. LF9 is expected to come into service in 1H21.

Commitment rate of area in service was 95.8% at the end of the third quarter of 2020, compared with 91.7% at the end of the third quarter of 2019 and 94.1% at the end of second quarter 2020. Pre-commitment rate of area under construction was 65.9% at the end of the third quarter of 2020, compared with 71.6% at the end of the third quarter of 2019 and 62.3% at the end of the second quarter of 2020.

Area utilized at the end of the third quarter of 2020 was 209,751 sqm, compared with 137,820 sqm at the end of the third quarter of 2019 and 193,162 sqm at the end of the second quarter of 2020, an increase of 52.2% Y-o-Y and 8.6% Q-o-Q. Net additional area utilized was 16,589 sqm in the third quarter, which mainly came from additional area utilized in the KS2, BJ6, BJ12 and LF7 data centers.

Utilization rate of area in service was 75.0% at the end of the third quarter of 2020, compared with 69.6% at the end of the third quarter of 2019 and 72.5% at the end of the second quarter of 2020.

Langfang Land Site 3

During the third quarter of 2020, the Company acquired all the equity interests in a target company which owns the right of use for a new greenfield site (namely Langfang Land Site 3), which is located within the Company’s existing Langfang cluster, close to the LF7 data center. Langfang Land Site 3 has a land area of approximately 34,600 sqm and, once developed, will yield a net floor area of approximately 18,750 sqm according to the initial design. Langfang Land Site 3 is currently held for future development.

Beijing 14 Acquisition

On September 22, 2020, the Company announced that it has extended a legally-binding offer to acquire 100% of the equity interests in target companies which own a major data center in the Shunyi district of Beijing (“BJ14”) (the “BJ14 Acquisition”). The target companies are owned by a private equity fund controlled by CITIC Private Equity Funds Management Co., Limited (“CPE”), a leading alternative asset manager in China, and its affiliated parties. The offer has been accepted, with exclusivity terms agreed by both parties.

BJ14 is one of the largest and highest quality data center assets in the Beijing market. It is located adjacent to the Company’s Beijing 5 data center and 8 kilometers from its BJ10/11/12 data center campus, forming a cluster in the Shunyi District of Beijing which can generate significant operation synergies. BJ14 has a net floor area of over 19,000 sqm. It is fully committed by five hyperscale customers, including a new large internet customer logo. BJ14 is fully operational and is currently approximately 68% utilized. It is expected to be fully utilized in 2022.

The total enterprise value of the BJ14 Acquisition is approximately RMB3.8 billion, with a further RMB500 million contingent on the acquisition by the target companies of the property interests in the site.

Liquidity

As of September 30, 2020, cash was RMB6,004.5 million (US$884.4 million). Total short-term debt was RMB2,047.1 million (US$301.5 million), comprised of short-term borrowings and the current portion of long-term borrowings of RMB1,811.4 million (US$266.8 million) and the current portion of finance lease and other financing obligations of RMB235.7 million (US$34.7 million). Total long-term debt was RMB20,107.0 million (US$2,961.4 million), comprised of long-term borrowings (excluding current portion) of RMB10,119.0 million (US$1,490.4 million), convertible bonds of RMB2,009.8 million (US$296.0 million) and the non-current portion of finance lease and other financing obligations of RMB7,978.2 million (US$1,175.0 million). During the third quarter of 2020, the Company obtained new debt financing and re-financing facilities of RMB4,662.0 million (US$686.6 million).

Recent Developments

Hong Kong Initial Public Offering

On November 2, 2020, the Company successfully completed its Hong Kong Initial Public Offering of 160,000,000 Class A ordinary shares (the “Shares”), equivalent to 20,000,000 American Depositary Shares (“ADSs”). The Shares began trading on the Main Board of the Hong Kong Stock Exchange on the same day under the stock code “9698”. The public offering price was HK$80.88 per Share, equivalent to approximately US$83.49 per ADS, based upon each ADS representing eight Shares and an exchange rate of HK$7.7498 to US$1.002. On November 6, 2020, the Company announced that the underwriters had fully exercised their over-allotment option in respect of 24,000,000 Shares, equivalent to 3,000,000 ADSs, to cover over-allocations. The Company received net proceeds from this offering of approximately HK$14,417.3 million (US$1,860.3 million), after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by the Company.

Huidong Land

In order to supplement its resource supply in the Greater Bay Area, the Company recently entered into a land use right grant contract with the local government to acquire a greenfield site in Huidong County, Huizhou City, Guangdong Province (“Huidong Land”). Huizhou is one of the key areas identified for data center development in the Guangdong Province’s recently published New Infrastructure plan. The site is located within the Greater Bay Data Center Industrial Park, around 24 km away from the Company’s Shenzhen 4 data center. Huidong Land has a land area of approximately 115,000 sqm, and once fully developed, will yield a net floor area of approximately 72,000 sqm according to the initial design.

Shanghai 19 Acquisition

The Company recently acquired a data center project in Shanghai (“SH19”), located in the same area as its existing Waigaoqiao data center cluster. SH19 has a net floor area of approximately 12,789 sqm, and is being developed in two phases. SH19 Phase 1, with a net floor area of approximately 7,963 sqm, has just come into service. It is fully committed by one of the Company’s existing top customers. SH19 Phase 2, with a net floor area of approximately 4,826 sqm, is currently under construction. It is expected to come into service in 2H21. The estimated total acquisition and development cost of SH19, including cost to date, cost to complete and acquisition premium, is approximately RMB778 million.

Updated Business Outlook

For the full year of 2020, the Company now expects its total revenues to be in the range of RMB5,700 million to RMB5,750 million, increasing the low end of the original guidance of RMB5,510 million by approximately 3.4% and keeping the high end of the original guidance of RMB5,750 million unchanged. For the full year of 2020, the Company now expects its adjusted EBITDA to be in the range of RMB2,660 million to RMB2,670 million, increasing the low end of the original guidance of RMB2,550 million by approximately 4.3% and keeping the high end of the original guidance of RMB2,670 million unchanged. The updated estimates imply an increase of 38.3% to 39.5% Y-o-Y in total revenues and 45.8% to 46.4% Y-o-Y in adjusted EBITDA. The Company’s guidance for capital expenditure of RMB10,000 million for the full year of 2020 remains unchanged.

Conference Call

Management will hold a conference call at 7:00 p.m. U.S. Eastern Time on November 16, 2020 (8:00 a.m. Beijing Time on November 17, 2020) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

United States: +1-845-675-0437
International: +65-6713-5090
Hong Kong: +852-3018-6771
Mainland China: 400-620-8038
Conference ID: 6869567

Participants should dial in at least 10 minutes before the scheduled start time and provide the Conference ID to the Operator to be connected to the conference. Due to conditions surrounding the outbreak of COVID-19, participants may experience longer than normal hold period before being assisted to join the call. The Company thanks everyone in advance for their patience and understanding.

A telephone replay will be available approximately two hours after the call until November 24, 2020 07:59 AM U.S. ET by dialing:

United States: +1-646-254-3697
International:
Hong Kong:
Mainland China:
+61-2-8199-0299
+852-3051-2780
400-632-2162
Replay Access Code: 6869567


Contact Information:

International: +61-2-8199-0299








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