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GDS Holdings Ltd
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Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Today’s 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.
Thank you, operator. Hello, everyone. Welcome to the first quarter 2024 earnings conference call of GDS Holdings Limited. The company's results were issued via newswire services earlier today and 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. Ms. Jamie Khoo, CEO of GDS International, is also available to answer questions.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. And 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 release -- 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, William Huang. Please go ahead, William.
Hello, everyone. This is William. Thank you for joining us on today's call. The top priority of GDS's senior management team is to create value for our shareholders and drive share price recovery. Our business now has 2 distinct segments, China and international.For China, we believe that the key to creating shareholder value is, first, to get back on to a higher growth track in terms of EBITDA; second, to generate a positive free cash flow before financing and a reduced debt; and third, to position strategically for the coming AI wave.For International, the Series A capital raising sets a benchmark of nearly $4 per GDS share. We believe that this value will appreciate significantly as we build on our initial success.Now let's review our progress towards these goals in more detail, starting with China on Slide 5. The key to restoring higher growth in China is the move-in rate. Over the past couple of years, we focused our sales efforts on opportunities with fast move-in schedules and the reasonable pricing. Even though the market as a whole slowdown, we've made good progress with winning this kind of business. The results of our efforts are now starting to become visible in our gross additional area utilized.In 1Q '24, the gross move-in for China was 17,000 square meters, all of which was in Tier 1 markets. It's the highest since 2020. Going forward, based on contractual commitments in the backlog, we expect gross move-in to continue at these higher levels.From the beginning of 1Q '24, we stopped recognizing revenue and deducted 12,000 square meters from area utilized for 3 B-O-T data centers, which we plan to transfer to the customer on an accelerated basis. During 1Q '24, this was around 60,000 square meters of customer churn, most of which we immediately replaced with new customer commitments in our 1Q '24 bookings.Over the next couple of quarters, we expect the impact of these onetime factors to diminish. As a result, net additional area utilized in China will set up in line with the improved gross move-in.How do we achieve steady EBITDA growth while at the same time generating positive free cash flow before financing? The key is increased utilization of existing assets and to only incur additional CapEx when needed to deliver capacity to customers with confirmed move-in schedules.In 1Q '24, we brought 14,000 square meters of new capacity into service in China at 3 data centers: in Shanghai, Guangzhou and Langfang. The commitment rate for these 3 data centers is 100%. By the end of quarter, the utilization rate was already over 40%. This is the pattern which we are aiming for.In the past couple of years, we put the brakes on our development program in China, completing around 30,000 square meters of projects per annum in 2022 and 2023. In the current year, we expect higher level of completions at around 60,000 square meters due to the higher level of customer move-in. However, to deliver this capacity, we only need to incur the cost to complete, which works out at around RMB 2.5 billion or less than USD [indiscernible] per megawatt.[Audio Gap] Slide 8, we are [Audio Gap] area utilized by over 50%, while only needed to incur cost to complete of around RMB 7.4 billion.Turning to our sales on Slide 9. [Audio Gap] market, we have been selectively [Audio Gap] which fits our capacity and have the right [Audio Gap].In 1Q '24, new bookings in China were around 9,000 square meters, most of which relates to inventory at data centers in service.So far, there [ have ] [Audio Gap] a lot of AI-driven demand in Tier 1 markets. However, there have been AI developments in remote locations, which are not our focus. These deployments are mainly for AI development [Audio Gap] AI-enabled applications. Nonetheless, it is an encouraging lead indicator of latency-sensitive AI demand coming to [Audio Gap].As we have seen in our International business, AI requires unprecedented scale and fast delivery. We are very well-placed to satisfy this kind of requirement in China Tier 1 markets because of the land and power which we have secured at multiple sites. We will use this resource very strategically to capture the AI wave.Turning to International on Slide 12. Our International strategy is based on anticipating new waves of demand and evolving requirements, moving decisively to secure land and power with short time to market, winning gaming change -- winning game-changing customer orders, leveraging our competitive strengths to execute faster and more efficiently, and financing the business on a standalone basis.Within a few years of launching our International strategy, we are well on the way to developing a market-leading presence in 3 of the world's largest data center hubs, namely Singapore/Johor/Batam, Hong Kong, and Tokyo.Across these 3 hubs, we currently have 75 megawatts in service, 196 megawatts under construction, and over 500 megawatts of land and power supply held for future development subject to demand. All of this capacity could be constructed and delivered within 3 to 4 years, which is a critical consideration for customers.We currently have 182 megawatts of commitments, which around 40% from leading global customers. In 1Q '24, we won an 18 megawatts order from local cloud player. And in the current quarter, we won 43 megawatts order from a global cloud service provider. Both of these orders were for our 2 Johor campuses. Our pipeline of new business for Johor is exceptionally strong, and I am pleased to report that we are in the process of contracting our first business for Batam. Meanwhile, in Hong Kong, we already sold out our first 2 data centers. In Tokyo, we are partnering for 2 new data centers, which we believe will be highly marketable.In today's market, it is very typical for customers to require a short lead time to delivery of only a few quarters. They then commit to rapid move-in. Our ability to meet these requirements sets us apart.As a proof point, we have already delivered 70 megawatts in Johor, which was 100% revenue generating by the end of the 1Q '24. We have another 86 megawatts backlog in Johor, most of which is scheduled for delivery and will become revenue-generating over the next 6 quarters.Due to the accelerated sales pipeline and strong investor demand, we decided to upsize Series A new issue by USD 85 million to USD 672 million. This successful new issue demonstrates our ability to access capital for international standalone basis. We have now established a channel for future capital raises and future value benchmarking.I will now pass on to Dan for the financial and operating review.
Thank you, William. Turning to Slide 15. From 2Q '24, we will start to provide segment reporting in our earnings release. As you can see, we have already included most of the segment information in our 1Q '24 earnings presentation.We will define 2 segments: DigitalLand Holdings Limited and its subsidiaries, which comprises all of our business and assets outside of Mainland China, except for some minor third-party data centers in Hong Kong, will be referred to as GDSI or International.GDS Holdings Limited and all of its subsidiaries, excluding GDSI, which comprises our ultimate holding company and all of our business and assets in Mainland China, will be referred to as GDSH or China.Turning to Slide 16. In 1Q '24, consolidated revenue increased by 9.1% and adjusted EBITDA increased by 4.7% year-on-year.Starting with the China segment. In 1Q '24, GDSH revenue increased by 1.8% and adjusted EBITDA decreased by 1.6% year-on-year. Without the B-O-T transfers, GDSH revenue would have increased by 3.4% and GDSH adjusted EBITDA would have increased by 1.4% year-on-year.GDSH revenue growth was mainly driven by an increase in total area utilized of 7.5% year-on-year, offset by reduction in MSR. GDSH adjusted EBITDA growth was further impacted by higher power tariffs during the past year, which resulted in a decrease in GDSH adjusted EBITDA margin from 48.6% in 1Q '23 to 46.9% in 1Q '24.In 1Q '24, net additional area utilized for China before the B-O-T transfers was 10,858 square meters, which is slightly higher than the average for the prior 4 quarters. Looking forward, we expect net additional area utilized for China to step up over the next few quarters as a result of higher gross move-in and reduced impact from onetime factors.We also expect the reduction in MSR to slow down, and assuming that power tariffs remain at current levels, we expect GDSH adjusted EBITDA margin to stabilize with just the usual seasonal fluctuations.Turning to International. GDSI recorded strong revenue growth and adjusted EBITDA growth, as its first data centers enter service and began to ramp up with nearly 20,000 square meters of net additional area utilized in a single quarter. Because of the scheduled delivery and move-in commitments, we expect the numbers for GDSI to increase rapidly.Turning to Slide 19. In 1Q '24, our China CapEx totaled RMB 894 million. CapEx during the first quarter is usually elevated as payables are settled on an accelerated basis before Chinese New Year. We expect lower CapEx per quarter over the rest of the year and still maintain our RMB 2.5 billion guidance for China CapEx for the full year.In 1Q '24, our International CapEx was around RMB 702 million. As William mentioned, we have an 87 megawatt backlog to deliver over the next 6 quarters. In addition, we plan to purchase additional land in Johor and Singapore, and to commence new projects as we win customer commitments. Our CapEx guidance for International in 2024 is RMB 4 billion. Based on the strong sales pipeline, International CapEx may accelerate over the next few quarters.Turning to Slide 20. Cash flow before financing for the China segment has fluctuated between positive and negative for the past 5 quarters. It was negative in 1Q '24 due to slower collections and faster payments, which follows the same pattern for the past 3 years. We still expect to be close to or breakeven for the full year. We expect to receive proceeds from the B-O-T transfer in the second or third quarter.In 1Q '24, International on a standalone basis had negative cash flow before financing of over RMB 730 million. With the proceeds of Series A, we have enough capital to complete all of the current projects.Turning to Slide 22. On 26th of March, we announced that we had entered into definitive agreements with certain private equity investors to subscribe for USD 587 million of Series A convertible preferred shares newly issued by GDSI.On 13th of May, we entered into amendments to the definitive agreements, which included increasing the size of Series A new issue to USD 672 million at the same pre-money equity valuation of USD 750 million. We expect the Series A new issue to close on 4th of June.Post closing, and on an as-converted basis, GDSH will own approximately 52.7% of the equity interest of GDSI in the form of ordinary shares. The remaining 47.3% equity interest will be held in the form of Series A shares by the private equity investors.Turning to Slide 23. Proceeds of the equity capital raised by GDSI is ring fenced. We therefore believe that it makes more sense to look at our leverage on a segment basis. After closing of Series A, GDSI will repay all shareholder loans and other amounts due to GDSH. At the end of 1Q '24, this totaled RMB 1.7 billion.On a pro forma basis, the cash balance of GDSH will increase to RMB 9 billion, all of which is available to support the China business. The net debt to last quarter annualized adjusted EBITDA multiple for GDSH was 7.7x. This calculation does not take into account the value of GDSH equity interest in GDSI.Turning to Slide 24. During the period from 2Q '24 to 4Q '24, we have RMB 1.7 billion of project loan amortization for China. We continue to successfully refinance GDSH onshore project loans, extending maturity and lowering cost. We are also able to draw down on existing project loan facilities to finance a substantial part of GDSH incremental CapEx. As you can see in the loan maturity schedule, GDSI has obtained 5-year project term loans to finance its developments.Turning to Slide 25. We are not changing our formal guidance for FY '24 consolidated revenue, adjusted EBITDA, and CapEx.We'd now like to open the call to questions. Operator?
[Operator Instructions]We will now go ahead with our first question, which is from Jonathan Atkin from RBC Capital Markets.
I got one question around China domestic business and then maybe on International, if I could throw that in.Inside of China, what are you seeing -- apart from the utilization rate on a square meter basis that you have reported, what are you seeing with respect to power draw and customer behavior around increasing that -- increasing to draw power that they're contractually able to utilize? Any trend there that might be instructive in terms of increasing demand or maybe follow-on demand from customers?And then my question on International is that, GDSI, it appears they have a lot of project loans, and I wonder if you could provide a little bit of color on cost of capital and just the sort of counterparties that you have for these loans, are they domestic, international, et cetera?
It's Dan. I'll try to answer your questions. For the first one about the power draw in China, most of our established data centers, which are utilized by the large cloud and Internet customers, are already operating at maximum power. The entire available power capacity of the data centers is committed to the customers. And they, of course, operate their own business at a very high level of operating efficiency. So we don't have a situation in which there is [ spare ] power capacity which is not being utilized or monetized.On the other hand, for new data center developments, we are typically constructing at a higher power density. The power density for new developments is quite often over 3 kilowatts per square meter. So that may be an indicator of what is behind -- what you're asking, behind your question.For the project loans in the International business, we're taking similar approach to the way in which we finance China business, which is to allocate capital project by project and then to leverage that with debt at the local level.The customer contracts which have been signed most -- mainly in Malaysia, are priced either in U.S. dollars or in Malaysian ringgit. So our income is both U.S. dollar and Malaysian ringgit. So far we are borrowing in Malaysian ringgit, and we are aiming to minimize the FX exposure through that.The loans are with -- from a syndicate of banks who are already very familiar with us. And we expect to go through the same pattern that we did in China of establishing a structure, developing relationships with local banks, and over time transitioning to having very predominantly local bank relationships.
And then for Japan, the 36 megawatts, can you give us a sense of when you would intend to start construction?
Yes. So Jonathan, this is Jamie. So on the Japan side, our partner which is Gaw Capital will be doing up the construction of the [indiscernible]. So that will be completed and [ passed ] on to us by 2025 -- end 2025 or early 2026. So then we will start our approach, our [ M&E ] construction and that will bring us to Q4 2026 for deliveries.
We will now take our next question. This is from the line of Yang Liu from Morgan Stanley.
I have 2 questions here. The first question is regarding the asset monetization in China because previously management mentioned about this strategy. What are the opportunities you are seeing in the market? And what is the current plan? Or what should we expect on this front? And should we think the transfer of B-O-T is a part of that or not? That is the first question.
Yes. Yang, let me answer that question, and then [ you ] will answer your -- ask your next question.First of all, on the B-O-T transfer, this is very specific. We have 15 B-O-T data centers. This transfer involves 3 of them. One of the 3 is at a campus where it is the only data center that we have invested in and operate. So that is being transferred [ really ] for the sake of operational efficiency.The other 2 data centers, the customer had a change in plan in terms of how they wish to utilize those data centers, which includes the way in which they are fitted out. So this is not any change of strategy. It's not something that we expect to happen in the future. We came to a mutual agreement. We will recover our investment plus a reasonable return over the period of time, which our capital has been invested. And it will make a small positive contribution to our cash flow before financing when the proceeds are received either in this quarter or next quarter.We talk more generally about asset monetization. Yes, I appreciate -- yes, we have talked about that for some time. It is most definitely a strategic objective of ours. And I think that we are moving in the right direction. We have not ceased to make efforts. And currently, we have a number of projects ongoing, including one end of the spectrum [ C-REIT ] or China REIT, one degree over from that is what referred to in China as a private REIT, which involves exactly the same structure as a public REIT, but doesn't have the public REIT at the top of it, and that is a stepping stone in terms of monetizing an asset which can then subsequently be injected into a public REIT.And we also have other structures which are more like financing. And we're dealing with China's leading insurance companies, leading RMB private equity funds and even some U.S. funds, who are looking at assets in China. I think we're very determined about this. And I think there's a chance we get something done before the end of this year. [ Plus ] it's not in any of the numbers or guidance that we've provided, but clearly, it would make a contribution to our free cash flow before financing. And I'm quite sure it will be accretive.
Yes. I have another question in terms of the CapEx outlook beyond 2024. Do you think the China part of the CapEx can further come down next year if the demand stay at current level, or if the gross move-in stay at the current pretty good run rate?
Yes. We -- our business plan assumes that our growth rate picks up, mainly because of the contracts between the backlog. So we're not taking a view on broader market developments. We're simply basing that on what we already have secured and are working to deliver. So we expect the move-in to go -- it already has at a gross level -- to go to a high level and to continue at that level for the foreseeable future.The CapEx guidance for this year was RMB 2.5 billion. Well, it's too early to give guidance. But in our business plan, CapEx in the next -- each of the next 1 or 2 years is around that level or lower.
We will now take our next question. This is from Frank Louthan from Raymond James.
This is [ Rob ] on for Frank. You might have touched on this a little bit earlier, but what's the impact of higher interest rates on your customers' business? And how should we think about that impact going forward?
Yes. Rob, I have to say, in China, the interest rate trend has been the opposite of what you've seen in the U.S. [ and ] most of the developed markets [ because ] -- The reference interest rate for us, we refer to is the -- over 5-year loan prime rate, it's the lowest that it's been in -- since we started our business. Not only that, but the margin that banks charge in our project financing facilities, which is a spread over the -- over 5-year loan prime rate has come down to either just a few basis points over, or quite often now several tens of basis points under the loan prime rate. So our financing costs in China -- debt financing costs in China is the lowest it's ever been.Our customers are mainly large cloud and Internet companies, [ which ] in China, most of them don't have any debt. So I don't think that probably affect our customers' business very much either way.
We will now take the next question. This is from the line of Cooper Elias from TD Cowen.
You have Cooper [ Belanger ] on here for Michael Elias.I wanted to ask a quick question regarding the segmentation. Obviously, you provide guidance for GDSI and GDSH CapEx separately. Should we expect the same thing going forward in terms of revenue, adjusted EBITDA, et cetera?
Yes. Thank you, Cooper. For the time being, the answer is not in a formal sense. So -- but during the prepared remarks, we will continuously update and give some direction on the key performance indicators, both operating and financial KPIs. Maybe after a few quarters we might revisit that. But for now, I think we split out on a historical basis all the numbers that really matter. I think the only one which we have not split is MSR because, for now, it's not material to look at China and this national MSR because there's not enough difference. But when there is, we will spit that out. And then we will provide commentary on each of these metrics on a China and International basis. So I think that will probably get you a long way until we provide formal guidance for GDSH and GDSI separately.
We now have a follow-up question. This is from the line of Yang Liu from Morgan Stanley.
Yes. I would like to ask first on the demand side. Do you see that the demand from China customers are getting better maybe than 3 or 6 months ago? Because we saw that leading Internet companies are increasing their CapEx meaningfully in recent quarters. I'm not sure if that is transferring to GDS demand? And of course, previously, we saw the overseas demand is pretty good, but I just want to have an update on that front, compared with 3 months ago, is it getting better or moderate a little bit?And another question, I also would like to ask, because we saw the financing -- [ peer ] financing got upsized. So that means the GDS Holding -- stakes in GDSI will further decline to [ 52-something ], right? I just want to ask whether GDS has the strategy to consolidate GDSI in the long run? Do you feel comfortable if the future financing run -- the stakes drop below 50%? Yes, that is my question. Or if -- another thing, do you have a firm plan to spin off GDSI?
Liu, I think I answered the demand question. I mean, in China, I think we see the demand, it starts to recover. But I think it's already implicated to us because if you see our first quarter move-in speed up, and it's -- since 2020, it's the most high quarter in last 2 years -- last 4 years even, right? So this is already -- that's where we would expect, and we will benefit on that.And for the new incremental, I think the -- we've already seen some of the new incremental, mainly driven by the AI, right, maybe it's training purpose. This is also -- as I just mentioned, some deal is to go to the remote area, which is not our focus. But we will see the demand -- follow-up is -- follow-up demand from the, let's say, [ influence ] or AI-enabled application. So we will see this trend definitely will benefit to us in near future. So I think the -- in general, the demands recovered -- start to recover. And we -- our target is getting more customer, moving more fast. This is what we expect. This is what happened in China.For the International, I think the simple answer is that demand is getting more strong, so -- than 3 months ago. And this is -- number one is, there's more different customers -- multinational customers coming to discuss with us or try to find some resource in Johor and Batam as well. And the deal size is getting more bigger. So I think the -- we have very, very confident we will get more deal in the next 12 months, let's say. I think that's what's happening. It's happening in the International market.Even in Japan, I think the -- after we just announced that, there's a lot of sales leads coming up. So I think the -- if we deliver it by the end of 2026, definitely, we have some pre-sale in Japan.
So I'll [indiscernible] -- Let me answer the other part of your question. So the perspective of GDS Holdings, I think what really matters is that GDS International is as successful as possible and that the value of our investment in GDS International appreciates as much as possible. In order to optimize the success of GDS International, it is highly likely that GDS International will undertake further capital [ raisings ]. When that happens, we have to see what the consequences are in terms of our ownership percentage and ability to consolidate.To some degree, we already anticipated this when we structured the Series A new issue. We included certain unique rights to protect the position of GDSH. But also to ensure that, in future, we are able to initiate an IPO and spin-off, meaning distribute the shares to our shareholders if we think that, that is in the best interest of our shareholders, because it's important not only that the value of our investment in International increases, but that value accrues to our shareholders. It is not reflected in our share price, and then we have to find another way to ensure that the value accrues to our shareholders. So that was one of the things that we have a unique right to make a decision in the future on whether we wish to go down that path.
[Operator Instructions] And we will now take our next question. This is from the line of Gokul Hariharan from JPMC.
William, you did talk about some of the initial AI demand that is starting to show up in China, especially for training. Could you talk a little bit about what kind of data center capacity or power profile that you need to prepare? Are there distinct differences in terms of the kind of data centers required for AI workloads that you are hearing from your customers compared to the regular cloud data centers that you've always had? And do you feel that you'll have to start increasing to build some of these data centers eventually? Or you don't think that you can accommodate them in the existing data centers themselves?
Yes. I think the AI [ DC ] [ is ], it depends on how you define it, right? So -- I think the -- if you think the data center host, GPU is AI DC, actually, we're already there, right? So -- but typically, I think our existing, let's say, data center in all the Tier 1 market or the top Tier 1 -- big city, so already has enough power capacity to fulfill the high-density server. That's what -- that's configuration we already set up in a couple of years ago. So our new data center in the last, let's say, at least last 6 or -- 5 or 6 years, we already built very high power density data center already. This is number 1.Number 2, I think, in terms of the differences, maybe not -- it's popular right now, but I think China data center -- AI data center required more, maybe in the future, more cooling -- air cooling system to calibrate the cooling stuff. But this is nothing new for us. We already built a cooling type data -- liquid cooling type data center 4 years [Audio Gap] our 2 -- one -- 2 of the largest customer as well. So I think this is already -- for us, I think AI DC is nothing new for us, right?We also build a lot of the similar liquid cooling data center in Johor in the last -- since last year. So this is many difference. Number 1, I think in terms of the [Audio Gap] number 1 is large scale, number 2 is a high power [Audio Gap] maybe future [Audio Gap].[Technical Difficulty]
Hello?
Yes. We're still here.
Oh, okay. I missed out the last part of William's answer, sorry about that. My next question is on the --
I mean, I [indiscernible]
Oh, okay. Go ahead, William. Sorry.
Yes. [ Gokul ], I think, my conclusion is that [indiscernible] start to -- implemented a couple of years ago for the liquid [Audio Gap] type data center. This is mainly -- now everybody call this as AI data center, right? So we already have. Most of our Tier 1 market data center suit for this kind of requirement. Yes.
My second question is on International, maybe to William and Jamie. What are you seeing in terms of the local competitors, especially in Malaysia? And [ somewhere ] we are also seeing in Indonesia, there's a lot of announcements coming through from local competitors, coming from [indiscernible] industry, coming from other utility industries as well. Are you starting to see them in some of the bids that you're participating in? Or this is still a separate market for you compared to the local players who are announcing big data center [ deals ]?
I think, in Malaysia, typically, let's say Malaysia or Indonesia, Batam, right, I think we definitely have the first mover advantage, number 1. I think because we are the [ pioneer ] to step in this market and because we already know -- we know better than anyone else in this region about the technology trends, and we know we are much better understanding of our customer needs, so we know where they will go and when they will go, and how we will do, right? So I think this is a different advantage we already have than anyone else in this market.So frankly speaking, before 2028, I think most of the power in this region, we already secured most of the power. So I think the -- even a lot of new player jump into this market. There's -- I think the time to market were way behind us.
We will now take our next question. [Operator Instructions] Next question is from the line of Sara Wang from UBS.
Just one quick question. So for the China business, given the backlog might be [ signed ] a couple of years ago, so I'm just wondering if the AI-driven demand will simply drive acceleration of execution of the previous backlog? Or will there be any changes to the contract term signed maybe previously?
[Operator Instructions]
Sorry. We try to answer this question, operator.
YesYes, yes. Of course, I think the move-in -- I think, in China, the main driver is Internet and [indiscernible] traditional cloud and AI. Traditional cloud is still very slow. And now most of the demand is driven by the AI, yes, and the Internet. So I think we have -- as I mentioned, we already start to benefit on that, right? So our first quarter move-in is mainly driven by the AI Internet company. And we expect it will continue. Yes. Is that your question? Yes.
Yes, not really. So, I'm just wondering if the AI-driven demand will simply drive acceleration of backlog ramp-up? Or will there be any changes to the contract terms given the backlog might be signed a couple of years ago?
Yes. Let me [ have a go ]. Yes. Obviously, our backlog is mainly cloud service providers.
Yes.
So I listened to China's largest cloud service provider's earnings call, and they talked about how they're integrating AI into their cloud business and how AI development is driving demand for their cloud business. So I think if you have cloud service providers in your backlog, then, yes, their successful development and bring to market AI-enabled products and services will contribute to, you could call it, AI growth, but also to demand for cloud services.
As there are no further questions, I'd like to now turn the call back over to the company for closing remarks.
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This concludes this conference call. You may now disconnect your line. Thank you.