What happened

Shares of GDS Holdings (GDS -1.76%) jumped on Tuesday after the Chinese data center operator reported its third-quarter results. GDS beat analyst estimates for both revenue and earnings, and it boosted its full-year outlook. The stock was up about 9.8% at 3 p.m. EST.

So what

GDS reported third-quarter revenue of $111.1 million, up 79.7% year over year in local currency and about $8.3 million higher than the average analyst estimate. Area in service rose 89.3% year over year to 147,342 square meters; the commitment rate for area in service was 96.3%; and the utilization rate was 68.3%.

Servers in a data center.

Image source: Getty Images.

Earnings per share came in at a loss of $0.02, $0.03 better than analysts were expecting. Adjusted earnings before interest, taxes, depreciation, and amortization jumped 125.3% year over year to $43.8 million. "Despite macro market conditions, we continue to see strong demand for high-performance data center capacity in China from across our customer franchise, driven mainly by cloud adoption and AI deployment," said GDS CEO William Huang.

GDS now expects to produce full-year revenue of at least RMB2,750 million, or about $395 million. That new minimum is up 4.6% from the company's previous guidance. Adjusted EBITDA is expected to be at least RMB1,020 million, or about $147 million, up 5.9% from the previous guidance.

Now what

GDS is growing quickly, but it's also taking on a tremendous amount of debt. Total debt, including capital leases, stood at $1.79 billion at the end of the third quarter, up nearly 100% in local currency since the end of 2017.

Through the first nine months of the year, interest expense exceeded GDS's gross profit. Gross margin was 22% in that period, down from 26.1% in the prior-year period. While GDS impressed the market with its third-quarter report, revenue is the only number moving in the right direction.