Equinix, Inc. (NASDAQ:EQIX) Q1 2024 Earnings Call Transcript

Equinix, Inc. (NASDAQ:EQIX) Q1 2024 Earnings Call Transcript May 11, 2024

Equinix, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Equinix First Quarter Earnings Conference Call [Operator Instructions]. I would now like to turn the call over to Chip Newcom, Senior Director of Investor Relations. You may begin.

Chip Newcom: Good afternoon, and welcome to today’s conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we’ve identified in today’s press release and those identified in our filings with the SEC, including our most recent Form 10-K filed February 16, 2024, and recently filed Form 10-Q. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is Equinix’ policy not to comment on its financial guidance during the quarter unless it’s done through an explicit public disclosure.

In addition, we’ll provide non-GAAP measures on today’s conference call. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses these measures in today’s press release on the Equinix Investor Relations page at www.equinix.com. We’ve made available on the IR page of our Web site a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page of our Web site from time to time and encourage you to check our Web site regularly for the most current available information. With us today are Charles Meyers, Equinix’ CEO and President; and Keith Taylor, Chief Financial Officer.

Following our prepared remarks, we’ll be taking questions from sell-side analysts. In the interest of wrapping this call up in 1 hour, we’d like to ask these analysts to limit any follow-on questions to one. At this time, I’ll turn the call over to Charles.

Charles Meyers: Thank you, Chip. Good afternoon and welcome to our Q1 earnings call. We had a great start to 2024 driven by our highest Q1 bookings performance on record, strong conversion rates, completely favorable pricing dynamics, and lower-than-expected churn, all resulting in our 85th key quarter of top-line revenue growth, the longest such streak of any S&P 500 company. We closed more than 3,800 deals across more than 3,100 customers for the quarter demonstrating both the scale and the consistency of our go-to-market machine. And we again saw accelerating hyperscale demand translate into robust xScale leasing in both EMEA and Asia. While we continue to operate in an environment of broader economic uncertainty, and see some level of corresponding customer caution, our forward-looking pipeline is strong, and we remain optimistic about the opportunity ahead.

Digital transformation, particularly given the rapid adoption of AI, serves as a powerful catalyst for economic expansion, and our customers remain steadfastly committed to their digital initiatives, recognizing the pivotal role they play in fostering long-term revenue growth and driving operational efficiency. As we continue to make digital infrastructure more powerful, more accessible and more sustainable, we’re thrilled that Merrie Williamson has joined our team as chief customer and revenue officer. Merrie is an operational and visionary leader with unique skills and experience to help drive the next chapter of our growth and brings a proven track record of building new routes to market, enhancing the customer experience, and accelerating go-to-market productivity.

On the sustainability front, we continue to advance our bold future first agenda, with Gartner estimating that by 2027, 80% of CIOs will have performance metrics tied to the sustainability of their IT organization. It’s clear to us that companies are prioritizing sustainability in their digital infrastructure decisions. We recently published our ninth Annual ISR Report and continued our industry leadership with 96% renewable energy coverage across our growing portfolio, marking our sixth consecutive year with over 90% coverage. Equinix PPAs now support more than one gigawatt of new clean energy in high-impact markets, and we continue to seek additional clean energy projects that will support our growth. In late April, we were pleased to announce our first renewable PPA in Singapore, an important part of our plan to continue to grow in this strategically critical market.

This project will provide 75 megawatts of solar and is in line with Singapore’s Green Plan 2030, which seeks to have all business sectors supported by cleaner energy sources. In parallel, we remain highly focused on improving the energy efficiency of our existing facilities as measured by power usage effectiveness. In 2023, we invested $78 million in high-returning efficiency projects, improving our average annual PP&E by over 8% year over year to 1.42, another lever in continuing to drive performance in our stabilized assets. We also continue to make progress on adjusting the thermostat in our facilities, with more than 50 of our data centers now operationally ready to enable A1A and strong industry support for the implementation of this important new temperature standard.

Turning to our results as depicted on Slide 3, revenues for Q1 were $2.1 billion, up 7% over the same quarter last year driven by strong recurring revenues and xScale fees. Adjusted EBITDA was up 6% year-over-year and AFFO per share was meaningfully better than expectations due to strong operating performance. Interconnection revenues stepped up 9% year over year. These growth rates are all on a normalized and constant-currency basis. Our unmatched scale and reach continue to drive performance in our data center services portfolio. Given strong underlying demand for digital infrastructure and the long duration in delivering new capacity, we see a growing scarcity mindset, and therefore we continue to invest broadly across our global footprint.

We currently have 50 major projects underway in 34 markets across 21 countries, including 14 xScale builds, representing more than 16,000 cabinets of retail and more than 50 megawatts of xScale capacity through the end of 2024. This quarter we added new projects in Frankfurt, Madrid, Osaka, and Silicon Valley. Key multi-market wins this quarter include ServiceNow, expanding with Equinix in multiple locations globally, powering their continued growth including new GenAI workloads, and Wasabi technologies, a cloud object storage service provider expanding across all three regions to support their continued growth. Our MRR per cabinet continues to rise increasing $119 year over year on a normalized and constant-currency basis to $2,258 driven by continued mark-to-market momentum, solid attach rates for interconnection and digital services, and increasing power densities.

With respect to our net cabinets building capacity constraints in certain key markets and the meaningful delta in power density between churned cabs and booked cabs continues to pressure this metric. But gross additions remain strong and our booked kilowatts in the retail business were at near-record levels. Given strong bookings and upcoming capacity additions, we expect billable cabs to increase in the second half and continue to see cabinet growth as part of the long-term growth story for the business. Turning to our industry-leading global interconnection franchise, we now have more than 468,000 total interconnections deployed on our platform. In Q1, interconnection adds picked up to 6,200 supported by healthy gross adds and a moderation of consolidations into higher bandwidth connections, and we continue to see a healthy pricing dynamic with a roughly 16% spread in the quarter between churned interconnects and new additions.

Internet exchange saw peak traffic up 5% quarter over quarter and 24% year over year to nearly 38 terabits per second led by the Americas. We remain confident that Equinix’s unique and durable advantages will continue to position our platform as the logical point of nexus for buyers and sellers of digital services to come together to fuel digital transformation and unlock the enormous potential of AI. This year, Gartner projects the spending on public cloud services will grow 20% to reach $679 billion as business needs and emerging technologies, including GenAI, drive cloud model innovation. We’re seeing this translate into strong demand across multiple vectors with key cloud and IT customers broadly and with the hyperscalers specifically. In the quarter, we added one new native cloud on-ramp in Madrid, bringing us to 220 native cloud on-ramps across our portfolio, spanning 47 metros.

This represents a nearly 40% market share of private cloud on-ramps in the markets where we operate. We remain an integral and growing part of hyperscaler architectures, with these customers collectively representing more than $1.3 billion of annualized revenue in Q1 in our retail business alone, with deployments across an average of more than 60 of our data centers around the world. Importantly, we’re also seeing strong go-to-market momentum with these market-shaping players as we partner to meet end-customer needs for hybrid cloud and private AI, making the hyperscalers some of our most productive channel partners. In our xScale program, demand remains robust as cloud and AI needs are translating into strong pre-leasing activity. Since our last earnings call, we’ve pre-leased an incremental 48 megawatts capacity across our Frankfurt 10, Osaka 4, and Osaka 5 assets, including approximately 34 megawatts leased in mid-April.

This brings total xScale leasing to nearly 350 megawatts globally with nearly 90% of our operational and underconstruction capacity leased, and a meaningful pipeline of opportunities to drive continued xScale momentum in the quarters to come. Additionally, in mid-April, we announced our first US xScale joint venture with PGIM Real Estate for our SV12x asset. When combined with our existing joint ventures in Europe, Asia Pacific and Latin America, this new JV will bring the expected global xScale portfolio to more than $8 billion in investment across more than 35 facilities and greater than 725 megawatts of power capacity when fully built out. We’re also making good progress on additional planned xScale opportunities in the US, and we look forward to updating you on those developments in the coming quarters.

Shifting to our digital services portfolio, Equinix Fabric and Network Edge continue to overindex relative to the broader business. We see solid interest from customers looking to use the combination of Fabric, Network Edge and Metal for their digital infrastructure requirements. In support of this need, our engineering teams recently completed the integration of Metal and Fabric, significantly improving the VC creation experience for Metal users. Wins across the business included global security leader CrowdStrike, exploring a cloud-adjacent storage solution on platform Equinix in EMEA to leverage proximity to Equinix’s rich ecosystem of cloud and storage provider customers. And an online AI and data analytics education company building out AI infrastructure to support learning for global practitioners.

Our channel program delivered another solid quarter with channel and partner influence deals accounting for over 30% of gross bookings and over 60% of new logos. We continue to see growth from the hyperscalers and from other key partners like AT&T, Avant, Dell, Kyndryl, and Zenlayer with wins across a wide range of industry segments and a broad mix of Equinix services. As we expand into new markets, our partners are accelerating our efforts to sell the global platform. In Q1, we had a number of wins with Zenlayer in Malaysia, including delivering co-locations and interconnection solutions to a fintech firm, extending its reach into Kuala Lumpur, as well as supporting logistics consulting firm extending into Johor. We also saw a win with Kyndryl who also selected Platform Equinix to service some of its largest customers in Canada, including from the public sector.

So let me turn the call over to Keith and cover the results for the quarter.

Keith Taylor: Great. Thanks, Charles, and good afternoon to everyone. As highlighted by Charles, we had a strong start to the year, delivering better-than-planned results across each of our core financial metrics. Our net bookings were meaningfully better than expected. We had strong customer momentum, lower-than-expected churn, and continued positive pricing actions, and our forward-looking pipeline remains deep as we look to execute against our plan for the remainder of the year. Global MRR per cabinet, our ARPU metric measured in US dollars, continues to show momentum across all three regions. With each of our regions now eclipsing to $2,000 for the first time despite the weaker foreign currency relative to the US dollar.

Also our xScale business continues to perform very well having leased another five assets year to date with a meaningful pipeline of opportunities for the quarters to come. Now, as many of you know, Equinix’s competitive advantage in the marketplace is derived from both our interconnected digital ecosystems and our industry-leading global scale and reach. But also Equinix’s operational reliability and putting the customer at the center of everything we do is a third competitive advantage. As an example, our global ops teams strive to deliver greater than six-ninths of annual availability to our customers, which means being up and running for all, but approximately 30 seconds a year on average. To achieve this outcome, our ops team performed thorough capacity reviews and regularly monitored both our average and peak customer power draw against the shared facility capacity to ensure we can support our commitments to our customers.

As demonstrated throughout our greater than 25-year history, we’ve reliably delivered against these operational commitments, which is why nearly 90% of our new reported bookings activity has historically come from existing customers, and by reliably delivering on our commitments to our customers, our team has also been able to deliver sustained value accretion to you, our shareholders. As an additional update, we’re also pleased to share that the audit committee of the company’s board of directors conducted and has substantially completed a previously announced independent investigation with the assistance of independent third-party professional advisors. Based on the findings of the independent investigation, the audit committee has concluded that Equinix’s financial reporting has been accurate and the application of its accounting practices has resulted in an appropriate representation of its operating performance.

The audit committee had full discretion over the scope of the investigation and was not restricted in any way. As part of this assessment, the audit committee did not identify any accounting inconsistencies or errors requiring an adjustment to or restatement of previously issued financial statements or non-GAAP measures. Also as previously disclosed, shortly after the release of the short seller report, we received a subpoena from the US Attorney’s Office from the Northern District of California. Additionally, on April 30th, 2024, we received a subpoena from the Securities and Exchange Commission. We are cooperating fully with both subpoenas and do not expect to comment further on such matters until appropriate to do so. Now, let me cover the highlights from the quarter.

Note that all growth rates in this section are on a normalized and constant-currency basis. As depicted on Slide 4, global revenues were $2.127 billion, up 7% over the same quarter last year in the upper half of our guidance range on a constant-currency basis. As expected, non-recurring revenue stepped down sequentially yet still remained elevated as a percentage of revenue due to the level of xScale leasing activity in the quarter. For Q2, given our strong Q1 net bookings activity and increased non-recurring revenues related to our APAC xScale business in April, Q2 revenues are expected to step up 2% to 3% over the prior quarter. Q1 revenues, net of our FX hedges included a $14 million headwinds when compared to our prior FX guidance rates due to the strong US dollar in the quarter.

Global Q1 adjusted EBITDA was $992 million or 47% of revenues, up 6% over the same quarter last year and above the top end of our guidance range due to lower utilities expense and timing of spend. Q1 adjusted EBITDA, net of our FX hedges, included $6 million FX headwind when compared to our prior guidance rates and $1 million of integration costs. Global Q1 AFFO was $843 million, up 8% over the same quarter last year and above our expectations due to strong operating performance and lower-than-expected net interest expense. As planned, we had seasonally lower recurring CapEx spend, consistent with prior years. Q1 AFFO included a $4 million FX headwind when compared to our prior guidance rates. Global Q1 MRR was better than expected at 2.1%.

For the full year, we continue to expect MRR churn to average in the 2% to 2.5% quarterly guidance range. Turning to our regional highlights, these full results are covered on Slides 5 through 7. On a year-over-year normalized basis, APAC was our fastest-growing region at 12% followed by the Americas and EMEA regions both growing at 6%. The Americas region had a great quarter with strong bookings performance led by the public sector activity and healthy pickup in exports to the other regions as our team sold across our global platform. We saw particular strength in our Atlanta, Culpeper, and Miami metros, as well as a strong interest in the additional soon-to-be open capacity in the New York Metro. Our EMEA business delivered a strong quarter with robust gross bookings activity including an increased mix of medium and larger footprint deals.

In the quarter, we saw booking strength in our Barcelona, Frankfurt and Paris markets. And finally, Asia Pacific region had a great quarter with firm pricing and strength from our digital services products, including increased adoption of inter metro connections on Equinix Fabric as customers continue to focus on their network optimization efforts. In the quarter, we saw Good Inc. recently opened capacity in Malaysia and continued momentum in our largest markets in the region including Hong Kong, Tokyo and Sydney. And now looking at our capital structure, please refer to Slide 8. Our net leverage remained low relative to our peers at 3.6 times our annualized adjusted EBITDA. Our balance sheet decreased approximately $31.9 billion, including unrestricted cash balance of over $1.5 billion.

Our cash balance decreased quarter-over-quarter as our strong operating cash flow was more than offset by the growth investments and the quarterly cash dividend. As noted previously, and given our strong balance sheet and liquidity position, we plan to remain opportunistic as it relates to the timing, size and currency of our future capital market activities, including when we plan to refinance the $1 billion of debt maturing later this year. Turning to Slide 9. For the quarter, capital expenditures were $707 million including seasonally lowered recurring CapEx of $21 million. Since our last earnings call, we opened three retail projects in Mexico City, Mumbai and Paris. We also purchased our Dublin 2, Mumbai 2 and Stockholm 3 assets, as well as land for development in Santiago, Chile.

Revenues from owned assets increased at 67% of our recurring revenues, and more than 90% of the current retail expansion investment will be on owned land or owned buildings with long-term ground leases. Now, we’re also entering a stage in our asset lifecycle where we’re evaluating select opportunities to invest in highly valued IBXs that have been operating for 20 years or longer. Starting this quarter, we added a new category of non-recurring CapEx spend to our disclosures, referred to as redevelopment CapEx, to track these investments to enhance the capacity, efficiency and operating standards of facilities in this category, and to attract capital investments that are intended to meaningfully extend the economic life of assets. Our first redevelopment project is DC2, one of our original IBXs that opened in the early 2000s, and home to our networking ecosystem in northern Virginia.

Total estimated spend on this DC2 project will approximate $76 million broken into two primary categories of CapEx investment, redevelopment and recurring. We expect the $56 million redevelopment portion of the investment to yield meaningful additional space and power capacity, and, given the favorable pricing environment and high customer demand for the DC2 asset, we anticipate that this capacity will generate additional revenues and cash flow that should result in an IR well above our current stabilized asset yields. The remaining portion of the investment, which relates to maintaining our existing revenues, such as roof replacement, will be categorized as typical as recurring CapEx. Now moving to Slide 10. Our capital investments have continued to deliver strong returns.

Consistent with prior years in Q1, we completed the annual refresh of our IBX categorization exercise, and our stabilized asset count increased by a net six IBXs. Our now 180-stabilized asset increased recurring revenues by 5% year over year on a constant-currency basis, a quarter-over-quarter step-down as we lap the power price actions in 2023. Stabilized assets were collectively 84% utilized and generated a 26% cash-on-cash return on the gross PP&E invested. And finally, please refer to Slides 11 through 15 for updated summary of 2024 guidance and bridges. Do note all growth rates are on a normalized and constant-currency basis. For the full year 2024, we’re maintaining our underlying revenue outlook with expected top-line growth of 7% to 8%, a reflection of our continued strong momentum.

We’re raising our underlying 2024 adjusted EBITDA guidance by $5 million due to lower integration spend. We’re raising our underlying 2024 AFFO guidance by $25 million to now grow between 10% and 13% compared to the previous year due to lower net interest expense. AFFO per share is now expected to grow between 8% and 11%. 2024 CapEx is expected to range between $2.8 billion and $3 billion including about $220 million of recurring CapEx spend. So let me stop here, and I’ll turn the call back to Charles.

Charles Meyers: Thanks, Keith. In closing, we continue to see our customers derive compelling value from platform Equinix, leveraging our superior global reach, our scaled digital ecosystem, our market-leading interconnection platform and our greater-than-25-year track record of delivering on our commitments to fuel their investments in digital transformation. We are delighted to see the continued strength and fundamentals of our business, we remain highly confident in the integrity of our financials and we are as optimistic as ever that we’ll continue to be an important partner for digital leaders as they accelerate AI investments and embrace hybrid and multi-cloud as the clear architecture of choice. Before we turn to Q&A, I want to spend a few minutes on my transition.

In reflecting on the last six years, it has been both a pleasure and a privilege to be the CEO of Equinix, showing up every day in service to our customers, to our employees, and to our shareholders. As I transition to the role of Executive Chairman later this quarter, I’ll continue to take an active part in the business as Adaire Fox-Martin steps into the CEO role. Adaire is an extremely accomplished executive with a proven ability to deliver sustained value to the full range of stakeholders. I’m confident that she brings the experience, the skills, and the passion that we need to inspire our teams and support the evolving needs of our customers, driving growth and unlocking the extraordinary power of Platform Equinix. I look forward to working with Adaire in this next chapter of the Equinix journey.

I’d also like to thank Peter Van Camp, a shining example of the magic of Equinix over the last 25 years, and look forward to partnering with him as he moves from our Executive Chairman to Special Advisor to the board. I look forward to further collaboration with both Adaire and the broader leadership team as we continue on our path as the world’s digital infrastructure company capturing and creating new opportunities and leveraging our distinctive advantages to ensure digital leaders can harness our trusted platform to create and interconnect the foundational digital infrastructure that enhances our world. So let me stop there and open it up for questions.

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Q&A Session

Operator: Thank you [Operator instructions]. Our first question will come from Jon Atkin of RBC.

Jon Atkin: xScale, just interested in what you’re seeing in terms of targeted unlevered returns that you’re underwriting. Any difference given the strong demand profile? And then, it looks like you’ve got $1 billion of senior notes coming due late this year, $1.2 billion due in 2025, and I just wondered what you’re thinking in terms of refinancing cost of debt and whether a non-U.S. jurisdiction might provide a cost advantage.

Charles Meyers: Jon, I’ll take the first piece and then Keith can both add to that and then take the second piece on the refinancing. Look, xScale, you’re right, continues to perform extremely well. We’ve seen huge pre-leasing activity over the last several quarters and I think we continue to see a lot of demand out there and a lot of confidence that we’ll be able to effectively pre-sell that capacity as well and under returns that I think are in line with — I mean, I do think we’re seeing relatively firm pricing. I also think we’re seeing rising costs, and so I think that the combination of those things leaves us with, I think, a level of underwriting that is at or above kind of where we probably were last year and feeling very confident in the range where we are on cash and cash returns overall.

Keith Taylor: And Jon, maybe I just want to add on to what Charles said there. I think it’s important to appreciate that there’s a fee stream that Equinix continues to enjoy on a larger revenue base to compensate for the higher costs that Charles alluded to. So when I think about our all-in returns, they’re really quite attractive as a business, and as we’ve talked about over the last few years, they’re at a point where also that it’s not only the recurring and nonrecurring stream that we get, I think there’s opportunity over some period of time as our partners think about mentioning monetizing some of their investments to promote fees associated with it. So overall, again, I think the return profile, as Charles alluded to, is attractive, recognizing it’s a higher cost model than it was previously, and you’ll see that in our results.

As it relates to really the debt that’s being refinanced, I’m going to maybe approach it from a different perspective, because when you think about the cost, I really want to talk about the spread. Partially, the spread is really about what do we think we can borrow over whatever the base rate is. And as I made reference to it — and I’m going to pause here for a second, Jon. Can you hear me?

Jon Atkin: Absolutely, yes.

Keith Taylor: We had a funny — something going on with our conference line here. So I think about it more spread, and again, I made the reference in the prepared remarks that we’re going to look at the timing and the currency in which we borrow money. Suffice it to say between how we raise our capital and where we need it to refinance the existing debt, we’re really looking at different markets. And so the spread, I think, you should expect, based on where we were, I think somewhere between 105 and 115 basis points over base, whatever that is. Now, we might do it in euro, we might do it in dollar, and we could swap it depending on where the cash flows are needed, but suffice it to say, I think we’re in a really good spot to enjoy a spread relative to others that is very competitive.

The last comment I would just say is, look, the markets are very volatile right now, but for obvious reasons, you see that. And that’s why I think it’s important to talk about the spread. Suffice it to say, I think we will have ample access to capital. It just depends on the timing of when we execute against that transaction. So whether it’s this year or it’s next year refinancing, I think we’re in a really good spot. And then I think as everybody is also aware, we have effectively an unused line of credit of $4 billion. So if the markets aren’t there for whatever reason, we can always draw on that and then refinance at a later date, but I don’t foresee that as being an issue for us.

Charles Meyers: Jon, I would back up a little bit to the xScale and just say in addition to the underwriting continuing to be strong, pre-leasing activity strong, I think we’re seeing exactly it play out very much as we expected in terms of how the whole thing fits together from a platform strategy standpoint. So very pleased with the xScale business and very pleased with how it fits in overall in terms of driving the broader value of the platform to our customers.

Jon Atkin: Just given the demand profile and the pricing dynamic that we’ve heard elsewhere, would low teens be an unreasonable kind of assumption to think about for unlevered return development yields or not?

Keith Taylor: I think it’s reasonable. Of course, certain markets have different price points as you can appreciate. But one of the things I think, at a broad range, I think low teens is very, very appropriate on an unlevered basis. And I don’t think we can — you can’t lose sight, generally speaking, of the supply and sort of the demand sort of dynamics here, that supply is going to continue to be — it’s going to be difficult to deliver into the marketplace. And so when you look at the demand profile, I think pricing will continue to remain very, very firm. So on an unlevered basis, we can get a really nice return and you add on the fee structure that we can enjoy as a business. And we recently announced the Silicon Valley 12 transaction. Again, we’re very pleased with the overall structure and type of deal we’re doing there, and we’re working really hard to bring that to a fully stabilized position and you know what, the returns that you’re considering.

Operator: The next question comes from Nick Del Deo of MoffettNathanson.

Nick Del Deo: Charles, best of luck in the new role. I appreciate all the time you spent with us on these calls and other forums over the years. First, can you share any details regarding the mechanics of the internal review, like who is engaged to perform the work or the aspects of the accounting that was reviewed and how far back they went? Any suggestions for go-forward changes? Then anything along those lines would be super helpful.

Charles Meyers: I’ll give you a bit of that, and Keith can certainly add to it. The mechanics that we did, the audit committee obviously was the one conducting that, and we have a very experienced audit committee acting independently. And then they retained independent advisors in WilmerHale, the law firm that led the investigation, as well as AlixPartners, the forensic accountants, independent forensic accountants that led that. And they looked at, particularly surrounding, obviously, the accounting-related matters that were sort of referenced in the allegations in the short report. And as a public company, as frustrating as it might be, that’s our obligation to undertake an investigation to look into those. And so we tried to keep people focused on the business, while that investigation took place and we tried to focus on serving our customers while the audit committee led that investigation alongside the advisors.

They collected the right information that they deemed as appropriate to validate and understand the concerns that were there and making a judgment and an assessment about the accuracy of our financial reporting, both on a GAAP basis and the non-GAAP measures that were involved here. And again, as we said in the press release and in the prepared remarks here, they came back with a level of confidence in those results and in the accuracy of those results. And so while the investigation remains open, in large part, because we have to sort of navigate the subpoenas with the SEC and the DOJ, we feel great about the outcome. I feel like it really speaks to the integrity of our team, which, as I said, I have great confidence in and in the integrity of our financials.

So I’ll leave it there, and if there’s anything you want to add there Keith?

Keith Taylor: No, I think, well said, Charles. Thanks.

Nick Del Deo: Again, great to hear. Thanks for sharing those details. I guess one other topic, Keith, you noted that DC2 is going through a redevelopment, obviously, a crown jewel facility for you guys. I guess you noted the attractive IRRs associated with the investments. I guess can you expand a little bit on the work that you’re doing to that data center and what you think those CapEx dollars might unlock from a revenue perspective?

Keith Taylor: It’s one of those ones — we’ve been working on this initiative for roughly a year, because it is a new category of expansion CapEx. And certainly, what you’re trying to do is do two things. One, we want to extend effectively the life of the asset further than people would typically anticipate. We’re really going in and doing is really a heart transplant in a live environment. It’s one of our highest-performing assets in the portfolio. And so to give you a perspective, it’s substantial because we refer to the $76 million, so you get a sense it’s not something that’s small. It’s going to do two things. It’s going to extend the life. It’s going to create more revenue opportunities. And think of the range of 15% to 20% of an augmentation to an already high revenue environment.

So that’s the kind of value you can extract from it. The $20 million, the recurring CapEx component, will be doing roof replacement and some other things, and so that will go through the recurring line. But it’s the $56 million — in the prepared remarks, we really talked about the fact that this is going to get a yield, a return for us on an IRR basis better than stabilized assets. So it gives you a sense it’s in the 30s. If you decide to put sort of the end-of-life stuff that was recurring into the mix, you’re still in the 20s. So it gives you a sense of the investment decision that we’re making is very, very substantial in a very critical asset. The last thing I also want to leave you with, when we make this type of decision, part of the reason we were really calling it a redevelopment is this isn’t like getting something done over a quarter.

Again, high-density live environment is going to take two to three years to get this done. So it gives you a sense of the level of investment. It’s not like replacing a motor. We’re basically taking out the guts of the entire IBX and replacing it with basic new and updated equipment. So overall, I’d just say it’s one of those things. There’s not a huge portfolio, but I think over the next three to five years or something like that, you should expect something like six to eight assets could fall into that mix. Again, it has to be older than 20 years, and we have to invest more than $20 million for it to be considered a redevelopment CapEx item.

Charles Meyers: I’ll just add a little more color, Nick, in that. So I think that the type of CapEx investment, as you said, is in the base infrastructure required to operate the data center, power, cooling, etc. But the big difference here is that — and we’re seeing this dynamic play out because of the sort of rising density needs across the business, where we are, at times, needing to derate space and actually have space come off of the sort of — go on to what we refer to as engineering hold. And in situations where you can unlock additional usable power, either through power efficiency projects or this kind of redevelopment investment, where you’re putting entirely new equipment in, if you can unlock that power and match it to the space that is unused or on hold, you get meaningful, incremental capacity.

And that’s really the big difference here, is you’re getting incremental capacity that starts to feel like another phase of a project. And so in this case, DC2 is coming out of the stabilized assets, which, by the way, hurts stabilized asset pool, goes back into expansion. And the reason is because it’s a really meaningful uptick in the overall capacity available from that facility. And that’s really the litmus test that we use to say, OK, is it appropriate to qualify as a redevelopment project? And in this case, very, very much so given the customer demand for that asset.

Operator: The next question comes from Aryeh Klein of BMO Capital Markets.

Aryeh Klein: Congrats, Charles, on the transition. I guess going back to xScale, I think about 40% of all the leasing done by xScale since launch has been since the beginning of the fourth quarter. How does the pipeline look relative to the amount of leasing that’s been done recently? And then when fully built out, you noted having about 725 megawatts of capacity. So you’re essentially almost halfway there with what’s leased. Are you looking to add more to that? Are you rethinking just how big the platform can be and the investments you want to make in it?