Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited second quarter 2017 earnings conference call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. 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. Hello, everyone. Welcome to the 2Q17 earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire services 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 investor.gdsservices.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman, and CEO, who will provide an overview of the business. Mr. Dan Newman, GDS CFO, will 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. 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. Securities and Exchange Commission. 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 will now turn the call over to GDS Founder, Chairman, and CEO, William Huang. Please go ahead, William.
Okay. Thank you, Laura. Hello, everyone. Welcome. Thank you for joining today's call. In 2Q17, we continued to make significant progress across all aspects of our business and further strengthened our market leadership position. You can see on slide three. On the financial side, we grew total revenue by over 40% and adjusted EBITDA by over 110% year-on-year. We invested about $60 million of CapEx to develop the capacity required by our customers. We obtained over $100 million of new debt facilities to ensure that our projects are fully funded. Turning to the operations as shown on slide four. We had another great quarter for sales, signing up customers for over 8,000 sq m net of new commitments. At mid-year, our total area committed grew to over 76,000 sq m, 72% higher than one year ago.
Our bookings in 2Q17 are worth about $40 million in terms of annual recurring revenue. Over the first half of this year, we have done over $75 million of bookings, following on from our achievement of $120 million signed up over the whole of last year. We believe that this level of new commitments put us at the top of the global league table and clearly demonstrate our sales strategy is on track. While our sales volumes are reaching new heights, I am pleased to report that the average selling price for new contracts has remained quite stable. We are also successfully renewing contracts each quarter with industry high retention rates. Churn was 0.3% in 2Q17. This reflects our high operating standards and high degree of customer satisfaction. Pricing on renewals is generally at similar levels to previous contracts.
We continued to convert the backlog to revenue-generating space, increasing our area utilized to over 42,000 sq m, 32% higher than one year ago. Now moving to slide five. Before giving more color on our sales wins and resource development, I want to update you on what is happening in the market. Cloud adoption continued to take off in China. Currently, it is around a $2 billion market in terms of annual revenue, representing around 1% of total IT spend. We share the view of the leading industry player that it is rapidly heading towards a $20 billion-$30 billion market. This transformation is happening at a faster pace in China than in the U.S. Alibaba and Tencent are reporting consistent triple digital growth rates for their cloud business.
In our view, cloud service providers, together with some of the large internet companies, account for more than 70% of new demand for data center capacity in China. From what we see, they are also seeing substantially all of their requirements for high-performance data centers in Tier 1 markets. The major cloud service providers in China are mainly Chinese. We also see some of the largest global service providers increasing their presence in China. We recognized several years ago the strategic importance of capturing demand from the hyper-scale cloud service providers. First, because they represent a large part of the market opportunity, and by serving these customers, we gain scale advantages. Second, because access to cloud infrastructure is key to attracting further customers, such as the SaaS providers and the larger enterprise to co-locate.
Third, because cloud is the platform to support the next wave of the new technology around big data, AI, and IoT, which will require a lot of the additional capacity. We continue to have great success in capturing this demand. As shown on slide six, cloud has grown from almost nothing three years ago to over 50% of our total area committed today. Our cloud customer includes both the largest Chinese and global service providers. We target customers who we believe are strategically important to the future of the digital economy. We are already a major service provider to many of the customers who matter, and continue to make progress in adding new accounts and in deepening our existing relationships. In the last quarter, we won a major new deal from a first-time customer, which is China's largest travel company and one of the world's largest online travel agents.
As previously announced, this deal will anchor our new campus in Shanghai. The customer immediately become one of our top five in terms of total area committed. With this addition, cloud plus large internet now accounts for over 75% of our total area committed, made up entirely of strategic high-potential customers. We realize that cloud is enabling the next generation of technology advancements, and we are well-aligned to capture growth. When people talk about the home of the cloud, we believe that this presence is unique in China and offers significant operational benefits to all participants in the cloud ecosystem. Serving the right customers is key to growth because once the relationship is established, they keep coming back for more. As illustrated by the chart on the right side of slide six, we have been winning incremental business from our top two customers nearly every quarter.
Just in the prior quarter, we obtained a pre-commitment from one of them for 100% of the capacity of our new Beijing Street data center. Our relationship with these customers keep getting stronger. We recently announced strategic partnerships with Alibaba and Tencent, where we were recognized a preferred vendor for both of them. What this means practice is that Alibaba and Tencent are prioritizing procurement from GDS. We, in turn, are aligning our resource development to fulfill their data center growth requirements as a matter of priority in all Tier 1 markets on a continuous basis. Beside cloud and the large internet customer, in the last quarter, we added over 20 new financials, FSI, and the large enterprise customers. Increasing our total customer counts by 5% and further diversifying our customer base.
I would like to highlight first time deal for one of the largest commercial and retail banks in China, which has its headquarters in Shanghai, and for one of the leading and best-known multinational brands in digital payment solutions. In order to enhance the value propositions of having this ecosystem of cloud, FSI, and enterprise customers, we recently applied for a new category of telecom license, which will allow us to provide a cross-connect service over our own network. I am pleased to report that we have passed several key steps in the license application process, and we are optimistic to obtain the license in the near future. The key to maintaining our sales growth momentum is resource supply. We put significant focus on our project sourcing, design, and construction management efforts and continue to deliver impressive results. As shown on slide seven.
In 2Q17, we brought three new projects in the service totaling over 10,000 sq m of capacity. Our total area of service remains almost fully sold out with 92% commitment rate. We also started three new project totaling over 13,000 sq m of additional capacity. Our area under construction at mid-year was over 38,000 sq m with a pre-commitment rate of 28%. In addition, we have soft allocated to key customers a large part of the remaining pipeline capacity. To give more color on the three new projects. In Shanghai, we added Shanghai Five, which is primarily targeted at FSI customers. It is located close to our main Shanghai campus in an area where there is a cluster of FSI data centers. We already have over 100 FSI customers at our nearby campus in Waigaoqiao Free Trade Zone.
It was important for us to have another facility well-suited to serve incremental demand from this vertical. In Shanghai, we also added Shanghai Six, the first data center on our new campus in Waigaoqiao. Shanghai Six will enable us to carry over the sales momentum from our Shanghai One, Shanghai Two, and Shanghai Three data centers, which are almost fully committed. We plan to construct the second data center on the same campus as Shanghai Six next year. In Beijing, we added Beijing Three, which is next to our Beijing One data center. Both Beijing One and our new Beijing Three data center are now fully committed. In order to support sales into 2018 and beyond, we are still looking for more supply in all our Tier One markets. We have promising targets, which we will add when the time is right.
From time to time, we also see opportunities to work with our strategic customers on hub data center projects outside of the Tier One market. We will consider these opportunities if the economics and deal structure satisfy our requirements. The combination of our established relationship with the customers who matter and our high-performance data center portfolio in all Tier One markets puts GDS in a very strong competitive position. Our seasoned and mature teams added to this and provide a platform which offers our customers truly unique value. It is getting more and more difficult to replicate what we already have. Hence, we believe that we are building a sustainable competitive advantage to strengthen our market leadership position in China. In closing, this is our fourth earnings call since becoming a U.S.-listed company.
We are proud to be reporting these results today because they demonstrate we are executing on plan, delivering what we promise, and confident moving forward. With that, I will now hand the call over to Dan for the financial review.
Thank you, William. slide 11 shows our P&L analysis for 2Q17. In order to better highlight the underlying trends, I'll start with the version shown on slide 12. Please note that all quarter-on-quarter comparison is based on pro forma numbers for 1Q17, which excludes a one-time termination fee of 44.1 million RMB booked in that quarter. On a GAAP basis, service revenue grew by 10.6% quarter-on-quarter to 331.5 million RMB in 2Q17. On a non-GAAP basis, underlying adjusted NOI grew by 16.1% quarter-on-quarter to 155.5 million RMB, and underlying adjusted EBITDA grew by 23.7% quarter-on-quarter to 100.4 million RMB. The underlying adjusted EBITDA margin was 3.2 percentage points higher at 30.3% in 2Q17, compared with 27.1% in 1Q17. Turning to slide 13. In 2Q17, there was an increase in area utilized of 4,572 sq m, which drove revenue growth.
The increase in area utilized is a significant step up from the rate of increase in prior quarters. What we are seeing now is conversion from sales backlog to revenue-generating area, particularly from some of the larger contracts which we signed with cloud service providers over the past year. The average monthly service revenue, or MSR per square meter, was RMB 2,750 in 2Q17, compared with RMB 2,708 in 1Q17. On slides 14 and 15, we show growth in net operating income and EBITDA and operating leverage. In 2Q17, we achieved an underlying adjusted NOI margin of 46.9%, which was 2.2 percentage points higher than for 1Q17. This mainly reflects operating leverage on fixed costs of data centers which are at the ramp-up stage. The NOI margin can fluctuate due to growth drag, but we are confident that the underlying trend is upwards.
To give you a better idea of the long-term potential for margin improvement, we can point to our stabilized data centers, which for this purpose we define as data centers with a utilization rate of over 80%. At the end of 2Q17, we had 27,406 sq m of area and service in self-developed data centers which were stabilized. The underlying adjusted NOI margin for these data centers was 61.1% in aggregate. At the same time, we had 32,673,000 sq m of area and service in self-developed data centers, which were still ramping up. These data centers were 91.5% committed, in other words, almost sold out, but the utilization rate was 32.5% in aggregate as they are earlier in the move-in cycle.
Based on the contract terms for area committed, we can anticipate that these data centers will attain similar NOI margin levels to the stabilized part of our portfolio once the backlog contracts are delivered. Moving on to the corporate level. Our SG&A, excluding D&A and stock-based compensation, came out at 16.9% of service revenue, compared with 17.9% in 1Q17. The volume of our sales and resource development is increasing rapidly, we do expect to achieve significant further operating leverage on our SG&A costs going forward. Turning to our investment activities. As shown on slide 16, we paid CapEx of RMB 405.7 million in 2Q17, which was a step up from the run rate over the previous four quarters. CapEx in 2Q17 included RMB 43.6 million payment related to acquisitions. Replacement CapEx accounted for 3.8% of total quarterly CapEx, compared with 3.3% in 1Q17.
Our total area under construction is 38,028 sq m across seven sites, out of which 51.7% will enter service this year. I'd like to update you on the progress of each project which was under construction at mid-year. Starting with Beijing 2, this data center actually entered service in July. A major global cloud service provider is moving in and the data center is already revenue generating. We have demand in hand from cloud customers for additional capacity in this data center. Shenzhen 4 phase 1 construction is almost complete. We're awaiting activation of the primary power supply, and we expect to bring the data center into service in the next couple of months. We have customer commitments for this data center, which are far along in the contracting process. Shanghai Four is the fourth data center on our main Shanghai campus.
We aim to bring Shanghai Four into service by the end of 2017. The other three data centers on the campus, Shanghai One, Two, and Three, are now 93.2% committed in aggregate. All of our major cloud customers are present on this campus, as well as over 100 FSI and large enterprise customers. Shanghai Four is substantially pre-allocated on a soft basis. Beijing Three is a new project which we announced in May. It is now 100% pre-committed to a major cloud service provider. We aim to bring it into service as soon as possible in 2018. Shenzhen Five is a project which we acquired while under construction in March. Phase One, which is 100% committed, entered service in late June, a full quarter ahead of schedule. One of the major cloud service providers is moving in, and the data center is already revenue generating.
Phase Two of Shenzhen Five is, in effect, a separate data center within the same building. We commenced construction of Phase Two, which is substantially pre-allocated on a soft basis. Shanghai Five is a new project which we announced in July. We have commenced construction of Phase One. We're positioning this data center to serve the FSI vertical and will secure commitments as we get closer to the completion date. Shanghai Six is the first of two data centers on our new campus in the Waigaoqiao Free Trade Zone. It's a greenfield project where our property development partner has agreed to build, suit, and lease to us the shell and core of two data center buildings. This is another case where we have worked with a partner for build to suit lease.
It's a great approach for us because it means that we end up with purpose-built data centers, which are highly marketable and rare in Tier 1 markets, but without the added capital intensity of having to own the land and basic building structure ourselves. As compared with outright ownership, it reduces our unit development cost by roughly 20%, depending on the location. While we show this project as under construction, we will not incur any material CapEx until the first shell and core is handed over to us next year. With regard to financing, as shown on slide 17, during 2Q17, we drew down RMB 432.5 million of net additional borrowings. We also booked additional debt, that's borrowings and capital leases, from the acquisition of Shenzhen Five. Our blended financing cost was 6.9% in 2Q17, compared with 7.1% in 1Q17.
Excluding the convertible bond, the cost was 6.1% in 2Q17 versus 6.2% for the prior quarter. Almost all of our loans are floating rate, linked to the PBOC rate. At the end of the quarter, our gross debt was RMB 5.5 billion, and our net debt was RMB 4 billion. The ratio of net debt to last quarter annualized pro forma adjusted EBITDA was 10 times. Fully diluted for conversion of the CB, the multiple was 7.5 times. Because we are in a heavy investment phase, consolidated net debt to EBITDA ratios may not give an accurate indication of our leverage. We incur debt before we generate EBITDA. Hence, if we exclude the financing obligations related to data centers under construction, the consolidated net debt to EBITDA multiple falls from 10 times to 6.3 times.
To take this 1 stage further, for data centers in service, the cost to complete is only RMB340.3 million. The commitment rate for data centers in service was 92.2%, and the utilization rate was 59.3% at mid-year. The difference between commitment rate and utilization rate is just a matter of timing. As the backlog is delivered, the consolidated net debt to EBITDA multiple for the in-service part of our portfolio will come down from 6.3 times to levels in line with industry norms. As things stand, all of our data centers in service and under construction, with the exception of the recently announced Shanghai Five and Shanghai Six projects, are fully funded. We are currently in discussions with banks for Shanghai Five and Shanghai Six.
The fact that we have very strong customers, high levels of pre-commitment, and many long-term contracts definitely helps us to access the debt finance which we need. As we sign up more contracts with cloud service providers, our contract length gets longer as they typically commit to 6 to 10-year contracts, often with no right of early termination without cause. These contracts further enhance our finance ability. To conclude on financing, we are strongly positioned to capture the opportunity in the China market and are growing in terms of sales at a higher rate than we foresaw previously. As an asset-based business, we are constantly looking for capital from different sources in order to supplement our capital base and to optimize our cost of capital. We're currently in discussions regarding a range of financing options at both the project and holding company level.
Whatever options we take, we are very conscious of the need to enhance returns for our existing equity holders while maintaining a stable and sustainable capital structure going forward. We will let you know about any new financing plans in due course. Turning to Slide 18. With the strong sales progress, our backlog has grown again to over 34,000 sq m. The average selling price for the contracts in the backlog is in line with our current MSR. The backlog is worth around $163 million in terms of annual recurring revenue. This provides visibility for 84% growth from a base of $195 million for the last quarter annualized service revenue in 2Q 2017. Delivery of the backlog depends on the timing of project completions and customer move-in schedules.
Over the second half of 2017, we expect the net addition in area utilized to be significantly higher than it was in 1H 2017. This will be a key driver of revenue and EBITDA growth. Based on the significant move-in, which has already taken place in the current quarter to date, and the program of delivery schedules over the remainder of the year, we are on track to achieve FY 2017 revenue and EBITDA within the range which we guided at the beginning of the year, and we reaffirm the existing guidance. With that, I will end the formal part of my presentation. We'd now like to open the call to questions. Operator?
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the pound or hash. For the benefit of all callers participating in today's call, if you wish to ask a question to management in Chinese, please also immediately restate your question in English. Our first question comes line of Colin McCallum from Credit Suisse. Please ask your question.
Yeah, thanks for the opportunity, and congrats on the numbers. My question is really just related to the competitive environment. We saw obviously the relationship that you built with Alibaba. Are you seeing them continuing to use partnership approach, or are you seeing them building a lot more of their own data centers? That's the first question. Secondly, amongst other kind of independent data center providers, who are you seeing as the main competitors when you're pitching for new contracts from your customers? Thank you.
Okay, Colin, this is William. I answer your question first. In my view, as we answered this question last quarter, I think in the second quarter, there's a competitive landscape, no any change in my view. This is number one. I want to say in Q2, we are already strengthen our customer. To keep our customer satisfaction and keep our operating track record is very important. This capability is not easy to replicate, is number one. Number two, as we show during our presentation, we keep deliver and supply in all the key markets of the resource. This is not easy. This is not a one night job. Any competitor, once they are coming, it will still take a long time. I think this is my view in what happened in the market. This is number one. Number two is, what's the question about Alibaba?
Is Alibaba partnering or building themselves?
I think Alibaba, they are in the Tier 1 city. They still keep outsourcing their, 100% outsourcing their requirement. This is what we see so far. We also see in the next couple of years, they still will keep this strategy like before. We didn't see any Alibaba self-built data center will impact the cooperation between GDS and Alibaba.
Got it. Thank you very much.
Thank you. Our next question comes line of Gokul Hariharan from JPMorgan. Please ask your question.
Hi. Thanks, William, Dan, and Laura. The first question I had is, looks like we are seeing a nice step up in terms of area utilized after remaining relatively stagnant for the last few quarters. I think Dan did mention that this is probably the early sign of some of the larger contracts that you signed, starting to come on board. Could you give a little bit more color, Dan or William, in terms of how that is going to progress over the next couple of quarters? That is my first question. Second would be, could you talk a little bit about, for your cloud customers, what is the kind of market share that you're seeing carrier neutral occupy? And within that, where would you rank GDS with the other carrier neutral vendors as well?
You mentioned that your cloud related revenue or cloud related customers account for slightly higher than 50% of the area committed as of end of Q2.
Hi, Gokul. It's Dan here. On your first question, actually, there was a step up in area utilized in the first quarter, and it stepped up again in the second quarter. I mentioned that there's been a lot of activity in the current quarter to date, which is very positive. We are expecting to see a quantum increase in the area utilized in the third quarter and the fourth quarter of this year. It ties back to, if you look at our sales pattern over the last four to six quarters, and you look at the curve, there was a very significant amount of new business in the third quarter of last year, and a lot of that was pre-commitment for data centers, which are under construction and so on.
This is something which we anticipated several quarters ago, in which we tried to communicate when we talked about the quarterly cadence. It's happening as we expected and give us comfort about our guidance. Your question about market share, I think we discussed before that there is a kind of natural 50/50 divide between carrier and carrier neutral because two availability zones, one goes to the incumbent carrier, one goes to non-incumbent. The carrier neutral target market share might be 50% in total. I would say that we are getting at least 3/4, if not more of that, because most of it is tied to the top three or four, five Chinese players. As you know, they are all our major customers. It would follow that we would be having that kind of market share on the carrier neutral side.
Okay. If I could follow up on one other question. I think we discussed the progression of potential metered power kind of arrangements with some of the larger customers. How is that progressing and when does that form a part of the overall revenue stream? Is it something that we should be really concerned about from how the revenues progress as metered power contracts become a bigger portion of the overall mix?
I don't think it's a source of concern because metered power simply means that the income we obtain from customers is linked to their actual power usage. Economically, we are close to indifferent about that. I think you're asking in terms of our contract base, maybe talk to the proportion which is on a metered unbundled basis as opposed to bundled. The metered unbundled part has been growing, and is now a substantial minority part of our contract portfolio. A significant part of the backlog contracts are structured like that. The pricing structures vary a lot from case to case, even with the same customer. We can have metered unbundled power, but it can be quite often a minimum power usage commitment.
It's not a simple matter, I think, really you should just think about this as customer preference, and not having any economic impact on us.
Okay. Got it. Thank you.
Thank you. Our next question comes line of Arthur Lai from Citigroup. Please ask your question.
Hi, William and Dan. Thanks for taking my question. I have two questions. You just mentioned that in terms of the area utilized, actually you are seeing the good signs. How is 2017 checking compared to your previous expectation? If that's ahead, what's the driver, for example, from which clients or from which end market? That's my first question. Thank you.
Thank you, Arthur. One thing you know with a high degree of certainty is what our backlog is worth because, we said it on the call, and you could always estimate it yourself. That's what the revenue will be when the backlog is fully delivered. It's just a question of the timing of delivery. Over the next one to three quarters, revenue growth will come entirely from delivery of the backlog. Contracts have fixed delivery schedules. I'd say in majority of cases, our customers are moving in ahead of those schedules, which means that from a forecasting point of view, we can't forecast just based on contractual minimum commitments. We have to forecast based on what the customers have already done and the program of move-in, which we've agreed with them and which we're implementing going forward.
What's happening right now is, I'd say, very much in line with our expectations. I think something that communicated for one or two quarters ago, as I said, in terms of the cadence this year, it's encouraging it's actually happened. It's a significant amount of move-in that's happened already in this quarter.
Okay. Thank you. For the 2018, how much capacity do you plan to add? Will it be similar to the area you add in 2017?
Arthur, it's a slightly complicated question because the capacity that we add, if you talk about new projects that we initiate, that's providing resource to fuel the sales efforts. Last year, when we were on the road for the IPO, I think at the time of the IPO, we'd done about $100 million in terms of new bookings. We ended up $120 million for the full year, which was a lot higher than the year before and would've been very high by U.S. standards. I think a lot of investors asked us, "Is that sustainable?" We said, "Yes." As you can see, we're on track this year to achieve more than that. I'd say the sales pipeline is looking very strong, some very significant deals in the pipeline.
We have to add resource to enable us to fulfill our customer requirements and maintain that sales momentum. That is a challenge, but I believe it's something that we're doing quite well, and probably doing better than anybody else in the market. What we've added, what we've announced, you can calculate in terms of square meters, 38,000 square meters under construction. I think 10,000 square meters is pre-committed. Based on disclosure, 28,000 square meters is still available for commitment. That's equivalent to slightly more than we added over the whole of last year. Last year, we added about 25,000 square meters in new bookings. Now we've got 28,000 square meters in the pipeline available for commitment to customers. You could infer that would be maybe equal to three or four quarters of new sales.
What I say there, for year 2018's revenue contract fulfillment, this funding all fully funded. What we plan to invest in next year is most of the resources for year 2019 and year 2020.
The last question probably for William. I think the first time you talked about the cross connected service, and you mentioned that you are getting the license to doing that. Can you elaborate more? This is more like some service that we can differentiate from the other carrier neutral provider, or this is actually a service that we can increase our ASP. If we look the other data center provider in overseas, they actually charge this cross connected service.
Okay. I think this is very early stage topic. As we mentioned last quarter, we are in the process to get the final approval of the license, which I mentioned that we got a significant progress, passed most of the key steps. This is number 1. Based on this, of course, we already start planning, integrate some technology, especially some SDN technology in this offering. In the short term, we are not planning to charge our customer, frankly speaking. We try to use these tools to strengthen our colo value proposition. We understand in future, because GDS has a very unique position because our strategies let GDS data center platform as a home of the cloud. We know in the future there's a huge potential to connect cloud each other, and a cloud connect cloud, customer connect customer connect multi-cloud.
It's a very strong potential demand. We don't want to capitalize immediately. We want to use this application and a new service line, which is well prepared right now to strengthen our colo position right now.
That's my answer.
Thank you, William. That's my question. Thank you. I don't have any question.
Thank you. Our next question comes from Jonathan Atkin from RBC Capital. Please ask your question.
Yes. I think you answered some of this in the last question, but maybe just to be a little more clear, the development pipeline that we look at on page seven, and in looking out for the next four to six to eight quarters, is there enough land? What you're looking at in terms of land and buildings and perhaps possible acquisitions for redevelopment and so forth, do you think you can sustain the development pipeline that you currently have? Or could that potentially contract or expand compared to what you're seeing right now?
Me?
Yeah.
Jonathan, I think that the simple answer is yes. If we look at this in three parts, the first thing is you have to have the sales capability. I think people are taking that for granted, but that is something which is immensely valuable. The customer relationships we have, the repeat business we're getting, the sense that our customers are relying on us. We adopted a strategy of maintaining continuous supply in all Tier 1 markets, long ahead, years ahead of anyone else, and I think we're still years ahead of anyone else. We have a certain amount of capacity which we categorize as held for future development. We don't disclose that every quarter. There is certainly a substantial amount of resource, which when the demand is there in the right place at the right time, we can activate.
That apart, I can tell you that there is a strong pipeline of new projects in all the markets. We've included in this presentation material, for the first time, some maps showing the location of our projects. What we wanted to highlight there was that we have campuses, and we have clusters. This matters to our customers. They want to be able to expand in the same place. They want to see visible expansion capacity. We have that in all markets. I think this is a point of competitive differentiation, which is probably often underappreciated. Yeah. Jonathan, I think I want to add a little bit of a point. I think this delivery capability, including the sourcing capability, design capability, and project management capability, and also procurement capability and financing capability.
I think the GDS, based on our last four quarter, our track record, GDS has the more experienced team and experience to well manage the future sourcing deliver method. I think now we are more confident than before. We are more confident to compare with other new player jump to the market. We have very comprehensive capability. It's not easy to replicate by the new player.
On the guidance, I was interested. Was Shenzhen five included in your earlier guidance, which you have reaffirmed? I noticed that Shenzhen four, phase one, expected for delivery in second half. I think in the prior call, you might have expected that in the first half. Just interested a little bit in that dynamic.
Okay. I can think, first of all, Shenzhen four, as Dan mentioned, we are on track to complete the construction phase one. I would like to say, it's a special case because, in terms of nationwide, our deliver track record or Shenzhen deliver track record. It is a special case because the district and not a Shenzhen government. Shenzhen one is that we call it Pingshan district. They have some special policy, and they ask for a more long process to review all the project in Pingshan. This process is more longer than initially we expect. So far it's on track. It's still in the process. Our team is working hard. It's working on that, and we believe we will get the approval soon.
Thank you very much.
Jonathan, when you're asking about one project being ahead, one project being behind, we have an enormous amount of development activity. We have an enormous amount of resource delivery to our customers. We're operating in a very dynamic market. It's inevitable that within this mosaic, there's going to be some things which are ahead and some things which are behind. I think the important thing is that when we look at it in aggregate, we are comfortably on track for the guidance that we gave some time ago.
Yeah. That's what I tried to emphasize. Even
Project Shenzhen IV, the process is longer than what we expect. Given this as a fact, I think the good things for our management team, we never bet on one project to deliver our financial result. It will not impact our year 2017 financial result.
Great. Thank you very much.
Thank you. Our next question comes line of Michael Hart from Securities. Please ask your question.
Hi. Thanks for fitting me in. I guess just first to follow up on that, the topic of Shenzhen V, which you were able to open so far ahead of schedule. As you look to the rest of the construction pipeline, are there any other potential opportunities where you might be able to pull forward deliveries of space that you've recommitted to your customers?
Mike, I think pull forward means relative to our own internal plan.
Our track record of completing projects within budget and on time has been very near perfect. Our construction time period has been shortening, and we're gaining efficiencies in terms of procurements and also in terms of standardization. There are a lot of improvements going on. It's a multi-quarter, I'd even say multi-year process. We expect to continue to improve for several years yet to come. If you're asking is there something extraordinary that's going to happen that I haven't told you about that's going to lead to significantly higher financial numbers, I think, well, frankly, we were giving guidance at the beginning of the year for revenue and EBITDA growth in the kind of, I can't remember, 50%-75% range. I hope that's enough to keep people satisfied.
Yeah, definitely. I appreciate that. I want to follow up offline to better understand some of those efficiencies. I guess the other thing I wanted to ask about was around cloud adoption. I was wondering if you could offer some additional color on what types of enterprises are leading the way in cloud adoption. Also, when you talked about the cloud revenue run rate now versus where you think it could go, I think that kind of suggests that enterprises are less than 10% of the way through the process of switching to cloud infrastructure. I wanted to get your thoughts on that, and I was wondering if you could maybe offer some additional color on which enterprise verticals are the most important drivers and whether that could be a source of additional demand for you long term. Thanks.
Michael, I'd like to answer you, but I don't think I should position myself as a kind of cloud guru. Actually, Alibaba had an investor day about a month ago, and they gave a presentation on their cloud business, and they gave quite a few examples of customer case studies or reference customer cases. They are portraying that there is a good penetration beginning to happen into larger enterprises and so on. Some of the bigger spenders in IT dollar terms. I think we're talking about our customer's customer, so perhaps I shouldn't really say anything more specific than that.
Based on my observation, a couple of the industry, they adopted to cloud very fast. First of all, the new type of the financial service provider, like payment, online trading, they use the cloud very heavily. I don't give the specific name, which is our one of our big colo customer. They adopt to the Alibaba Cloud in the last two years very heavily. Another vertical, what I think is definitely a lot of the mobile internet-based company and the video stream, they use the cloud very naturally. I think these are a couple of the industry, based on my observation, it grows very fast.
Okay. Thanks. Are you seeing bookings from these types of customers looking to locate their deployments adjacent to your cloud customers?
Yes, Mike. That's the driver of the growth in our enterprise and FSI customer base, 20 new accounts, so 5% growth in terms of that on a quarterly basis, 5% growth in terms of the number of customers. When we look at the identity of those customers, they're pretty substantial entities. A lot of them is cloud-related business. They could be a financial cloud customer, for example, who is operating online and leveraging the cloud infrastructure that our other customers have in our data centers.
Yeah, we do see some very significant trend. A lot of our colo customer, they are being used in a cloud with not only Ali, but also the other cloud in GDS very actively. This is number 1. Number 2 is we see some customer, they used to be not GDS target customer, because they want to sit close to the Alibaba Cloud or other cloud, they move a lot of their production server to our data center. They have become our new vertical customer.
Great. Thank you very much.
Thank you. As there are no further questions, I'll next turn the call back to today's company for some closing remarks.
Yeah. Thank you once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website and The Piacente Group Investor Relations. Thank you.