Press Release

GDS Reports Third Quarter 2017 Results

Date:November 9,2017
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GDS Reports Third Quarter 2017 Results

Shanghai, China, November 9, 2017– GDS Holdings Limited (“GDS Holdings”, “GDS” or the “Company”) (NASDAQ: GDS), a leading developer and operator of high-performance data centers in China,today announced its unaudited financial results for the quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights

Ÿ  Net revenue increased by 42.8% year-over-year (“Y-o-Y”) to RMB424.4 million (US$63.8 million) in the third quarter of 2017 (3Q2016: RMB297.2 million).

Ÿ  Service revenue increased by 58.5% Y-o-Y to RMB423.0 million (US$63.6 million) in the third quarter of 2017 (3Q2016: RMB266.9 million).

Ÿ  Net loss was RMB90.3 million (US$13.6 million) in the third quarter of 2017, compared with a net loss of RMB52.6 million in the third quarter of 2016.

Ÿ  Adjusted EBITDA (non-GAAP) increased by 71.4% Y-o-Y to RMB133.7 million (US$20.1 million) in the third quarter of 2017 (3Q2016: RMB78.0 million). See “Non-GAAP Disclosure” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

Ÿ  Adjusted EBITDA margin (non-GAAP) increased to 31.5% in the third quarter of 2017 (3Q2016: 26.2%).

Operating Highlights

Ÿ   Total area committed increased by 41.3% Y-o-Y to 82,850 sqm as of September 30, 2017 (September 30, 2016: 58,627 sqm).

Ÿ   Area utilized (or revenue generating space) increased by 47.2% Y-o-Y to 50,579 sqm as of September 30, 2017 (September 30, 2016: 34,369 sqm).

Ÿ   Area in service increased by 59.4% Y-o-Y to 77,832 sqm as of September 30, 2017 (September 30, 2016: 48,822 sqm).

Ÿ   Commitment rate for area in service was 89.8% as of September 30, 2017 (September 30, 2016: 93.8%) and utilization rate was 65.0% as of September 30, 2017 (September 30, 2016: 70.4%).

Ÿ   Area under construction was 37,478 sqm as of September 30, 2017 (September 30, 2016: 37,194 sqm)

Ÿ   Pre-commitment rate for area under construction was 34.6% as of September 30, 2017 (September 30, 2016: 34.5%).

“We are delighted to celebrate the one-year anniversary of our public listing with exceptional financial and operational achievements,” said Mr. William Huang, Chairman and Chief Executive Officer. “In the third quarter of 2017, we delivered over 8,000 sqm (net) of revenue-generating space to customers, while adding over 6,000 sqm (net) to our total area committed. At the same time, we brought our second self-developed data center in Beijing in to service, started construction of a major new data center in Chengdu, and announced the acquisition of a fully operational data center in Guangzhou. These achievements reflect the strength of market demand and GDS’s leadership position in China. We are also extremely proud to have recently announced CyrusOne as our strategic partner and investor. This partnership creates significant synergies and brings unique service offerings and a compelling value proposition to our customers, while at the same time providing a meaningful source of capital to fund development for our growing pipeline of demand. As we continue to make broad-based progress on all fronts, we look forward to further advancing our strategy to be to the home of the Cloud in China.”

“In the third quarter of 2017, we continued to execute on our plans and achieved strong financial results,” said Mr. Dan Newman, Chief Financial Officer of GDS Holdings. “As a result of the smooth delivery of our contract backlog, our service revenue grew by 58.5% year-over-year during the third quarter, while at the same time, our adjusted NOI margin and adjusted EBITDA margin reached 47.6% and 31.5%, respectively, benefiting from the increased scale and operating leverage of our business. With an impressive sales and development pipeline and strong financial position, we are well-positioned to continue our solid growth momentum.”

Third Quarter 2017 Financial Results

Net revenue in the third quarter of 2017 was RMB424.4 million (US$63.8 million), a 42.8% increase over the third quarter of 2016 of RMB297.2 million and a 26.2% increase over the second quarter of 2017 of RMB336.2 million. Service revenue in the third quarter of 2017 was RMB423.0 million (US$63.6 million), a 58.5% increase over the third quarter of 2016 of RMB266.9 million and a 27.6% increase over the second quarter of 2017 of RMB331.5 million. The sequential increase in net revenue and service revenue was mainly due to full quarter revenue contribution from additional area utilized in the previous quarter and the contribution from 8,109 sqm of net additional area utilized. Revenue from IT equipment sales was RMB1.4 million (US$0.2 million), compared with RMB30.3 million in the third quarter of 2016 and RMB4.7 million in the second quarter of 2017.

Cost of revenue in the third quarter of 2017 was RMB321.7 million (US$48.4 million), a 44.6% increase over the third quarter of 2016 of RMB222.5 million and a 26.2% increase over the second quarter of 2017 of RMB254.9 million. The increase over the previous quarter was mainly due to an increase in utility cost in relation to higher area utilized, as well an increase in depreciation and amortization cost in relation to the Shenzhen 5 acquisition completed at the end of the second quarter and the new Beijing 2 data center coming into service in the third quarter of 2017. Equipment cost was RMB1.0 million (US$0.2 million), compared with RMB25.5 million in the third quarter of 2016 and RMB4.0 million in the second quarter of 2017.

           Gross profit was RMB102.7 million (US$15.4 million) in the third quarter of 2017, a 37.6% increase over the third quarter of 2016 of RMB74.6 million, and a 26.3% increase over the second quarter of 2017 of RMB81.4 million. The increase was mainly due to higher area utilized by customers. Gross profit margin was 24.2% in the third quarter of 2017, compared with 25.1% in the third quarter of 2016, and 24.2% in the second quarter of 2017.

Adjusted Net Operating Income (“Adjusted NOI”) (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 NOI was RMB201.9 million (US$30.3 million) in the third quarter of 2017, a 53.3% increase over the third quarter of 2016 of RMB131.7 million and a 29.2% increase over the second quarter of 2017 of RMB156.3 million. The increase was mainly due to higher area utilized by customers.

Adjusted NOI margin (non-GAAP) was 47.6% in the third quarter of 2017, compared with 44.3% in the third quarter of 2016, and 46.5% in the second quarter of 2017. The increase over the previous quarter was mainly due to a leverage effect realized on personnel, rent and other fixed-cost components of cost of revenue as data centers ramp up.

Selling and marketing expenses, excluding share-based compensation expenses of RMB4.7 million (US$0.7 million), were RMB18.1 million (US$2.7 million) in the third quarter of 2017, a 5.8% increase over the third quarter of 2016 of RMB17.1 million (with share-based compensation of RMB nil) and an 8.7% decrease from the second quarter of 2017 of RMB19.8 million (excluding share-based compensation of RMB3.7 million). The decrease over the previous quarter was primarily due to the sales bonus booked in the second quarter of 2017.

General and administrative expenses, excluding share-based compensation expenses of RMB7.2 million (US$1.1 million), were RMB56.8 million (US$8.5 million) in the third quarter of 2017, a 31.1% increase over the third quarter of 2016 of RMB43.3 million (with share-based compensation of RMB nil) and a 37.3% increase from the second quarter of 2017 of RMB41.4 million (excluding share-based compensation of RMB6.4 million). The increase over previous quarter was primarily due to more personnel cost as well as more professional fee cost related to acquisition.

Research and development costs were RMB2.1 million (US$0.3 million) in the third quarter of 2017, compared with RMB2.2 million in the third quarter 2016 and RMB1.2 million in the second quarter of 2017.

Net interest expenses for the third quarter of 2017 were RMB105.7 million (US$15.9 million), a 52.3% increase over the third quarter of 2016 of RMB69.4 million and a 23.3% increase over the second quarter of 2017 of RMB85.8 million. The increase over the previous quarter was mainly due to an increase of total debt to finance data center capacity expansion.

Foreign currency exchange loss for the third quarter of 2017 was RMB1.6 million (US$0.2 million), compared with a gain of RMB2.6 million in the third quarter of 2016 and a loss of RMB1.2 million in the second quarter of 2017.

Adjusted EBITDA (non-GAAP) is defined as net loss excluding net interest expenses, income tax benefits, depreciation and amortization, accretion expenses for asset retirement costs and share-based compensation expenses. Adjusted EBITDA was RMB133.7 million (US$20.1 million) in the third quarter of 2017, a 71.4% increase over the third quarter of 2016 of RMB78.0 million and a 33.8% increase over the second quarter of 2017 of RMB99.9 million. The increase was mainly due to higher area utilized by customers.

Adjusted EBITDA margin (non-GAAP) was 31.5% in the third quarter of 2017, compared with 26.2% in the third quarter of 2016, and 29.7% in the second quarter of 2017. The increase over the previous quarter was mainly due to a leverage effect realized on general and administrative expenses as well as on personnel, rent and other fixed cost components of cost of revenue as data centers ramp up.                                                       

Net loss in the third quarter of 2017 was RMB90.3 million (US$13.6 million), compared with a net loss of RMB52.6 million in the third quarter of 2016, and a net loss of RMB75.7 million in the second quarter of 2017.                                                                          

Basic and diluted loss per ordinary share in the third quarter of 2017 was RMB0.12 (US$0.02), compared with RMB0.38 in the third quarter of 2016, and RMB0.10 in the second quarter of 2017.

Basic and diluted loss per American Depositary Share (“ADS”) in the third quarter of 2017 was RMB0.95 (US$0.14), compared with RMB3.08 in the third quarter of 2016, and RMB0.80 in the second quarter of 2017. Each ADS represents eight Class A ordinary shares.                         

Sales

Total area committed at the end of the third quarter of 2017 was 82,850 sqm, compared with 58,627 sqm at the end of the third quarter of 2016 and 76,541 sqm at the end of the second quarter of 2017, an increase of 41.3% Y-o-Y and 8.2% quarter-over-quarter (“Q-o-Q”). 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 and financial service institution customers.

Data Center Resources

Area in service at the end of the third quarter of 2017 was 77,832 sqm, compared with 48,822 sqm at the end of the third quarter of 2016 and 71,577 sqm at the end of the second quarter of 2017, an increase of 59.4% Y-o-Y and 8.7% Q-o-Q. During the third quarter of 2017, the Beijing 2 data center was brought into service.

Area under construction at the end of the third quarter of 2017 was 37,478 sqm, compared with 37,194 sqm at the end of the third quarter of 2016 and 38,028 sqm at the end of the second quarter of 2017. During the third quarter of 2017, Phase 1 of the Chengdu 2 data center was newly commenced and under construction.

Commitment rate of area in service was 89.8% at the end of the third quarter of 2017, compared with 93.8% at the end of the third quarter of 2016 and 92.2% at the end of second quarter 2017. Pre-commitment rate of area under construction was 34.6% at the end of the third quarter of 2017, compared with 34.5% at the end of the third quarter of 2016 and 27.7% at the end of the second quarter 2017.

Area utilized at the end of the third quarter of 2017 was 50,579 sqm, compared with 34,369 sqm at the end of the third quarter of 2016 and 42,470 sqm at the end of the second quarter of 2017, an increase of 47.2% Y-o-Y and 19.1% Q-o-Q.

Utilization rate of area in service was 65.0% at the end of the third quarter of 2017, compared with 70.4% at the end of the third quarter of 2017 and 59.3% at the end of the second quarter 2017.

Balance Sheet

As of September 30, 2017, cash was RMB1,174.1 million (US$176.5 million). Total short-term debt was RMB991.3 million (US$149.0 million), comprised of short-term borrowings and the current portion of long-term borrowings of RMB952.7 million (US$143.2 million) and the current portion of capital lease and other financing obligations of RMB38.6 million (US$5.8 million). Total long-term debt was RMB4,950.7 million (US$744.1 million), comprised of long-term borrowings (excluding current portion) of RMB2,241.9 million (US$337.0 million), convertible bonds of RMB995.5 million (US$149.6 million) and the non-current portion of capital lease and other financing obligations of RMB1,713.3 million (US$257.5 million). During the third quarter of 2017, the Company obtained new debt facilities of RMB570.0 million (US$85.7 million).

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