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{"index": 3, "prompt": {"input": [{"id": "3450fd2b", "content": "\nBEGIN INPUT DOCUMENTS\n\nBEGIN DOCUMENT 1:\n# ASX Release\n27 February 2024\n\n## 1H24 Record Results\n\nNEXTDC Limited (ASX: NXT) (“NEXTDC” or “the Company”) today announced its financial results for the halfyear ended 31 December 2023 (“1H24”).\n\n**1H24 financial highlights**\n\n Total revenue increased A$49.4 million (31%) to A$209.1 million (1H23: A$159.7 million)\n\n-  Net revenue[1] up A$10.7 million (8%) to A$149.1 million (1H23: A$138.4 million)\n\n-  Higher power prices and related power passthrough revenues positively impacting total revenue\n\n Underlying EBITDA[2,3] increased A$4.5 million (5%) to A$102.0 million (1H23: A$97.5 million)\n\n Invested A$220 million to progress capital development projects (1H23: A$330 million)\n\n Liquidity (cash and undrawn debt facilities) of A$2.1 billion at 31 December 2023[4]\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the 1H24 results:\n\n_“We are pleased to deliver another record result in 1H24, with the business continuing to exhibit solid growth_\n_across key metrics during this reporting period._\n\n_The Company remains well capitalised to take advantage of its strong forward sales pipeline as well as continue to_\n_build its forward sales and earnings outlook._\n\n_As demand continues to be bolstered by the broad adoption of new technologies such as generative AI, the_\n_business remains in an outstanding position to support customer growth requirements across the Enterprise,_\n_Government and Hyperscale verticals.”_\n\n**Business performance**\n\nFor the 12 months to 31 December 2023:\n\n Contracted utilisation increased 64.8MW[5] (77%) to 149.0MW\n\n-  Record forward order book of 68.8MW[6] is projected to ramp into billing across FY25 to FY29, underpinning\n\nfuture growth in revenues and earnings\n\n Customer numbers up by 218 (13%) to 1,919 (31 December 2022: 1,701)\n\n Interconnections[7] grew 906 (5%) to 18,207, representing 9.2% of net revenue\n\n1 Comprises total revenue less direct costs\n2 EBITDA is a non-statutory financial metric representing earnings before interest, tax, depreciation and amortisation. Non-statutory\nfinancial metrics have been extracted from the interim financial report\n3 Refer to page 27 of the 1H24 Results Presentation for a reconciliation to Underlying EBITDA\n4 Reflects 31 December 2023 cash position of $589 million and a further $1.5 billion of undrawn capacity\n5 Represents increase in utilisation over the 12-month period from 31 December 2022 to 31 December 2023\n6 Forward order book represents the difference between the contracted utilisation (149.0MW) and billing utilisation (80.2MW) at the end\nof 1H24\n7 Comprises both physical and elastic cross connects\n\n\n-----\n\n**Development activity**\n\n 4MW of built capacity was added to S3 Sydney, with 20MW in progress and a further 20MW of capacity now in\n\nplanning\n\n M2 Melbourne added 3MW of built capacity, with 12MW in progress and a further 15MW in planning\n\n PH1 Port Hedland opened to customers with 0.5MW of built capacity\n\n Development works continue for new regions A1 Adelaide, D1 Darwin and NE1 Newman, with A1 Adelaide\n\nexpected to open to customers in 1H25\n\n Digital Transformation Agency (DTA) Certified Strategic status granted for S3 Sydney & M3 Melbourne, putting\n\nthese sites in a stronger position to serve government clients\n\n Smart cooling system upgrades now installed in S1 Sydney, M1 Melbourne and P1 Perth to deliver more\n\nefficient winter cooling performance from these facilities\n\n**FY24 guidance reaffirmed**\n\nBased on current billing, contracted utilisation levels and expected new customer contracts, NEXTDC provides the\nfollowing guidance for FY24:\n\n Total revenue in the range of A$400 million to A$415 million (unchanged)\n\n-  Net revenue in the range of A$296 million to A$304 million, up 6-9% on FY23 (unchanged)\n\n Underlying EBITDA in the range of A$190 million to A$200 million (unchanged)\n\n Capital expenditure in the range of A$850 million to A$900 million (unchanged)\n\nCommenting on the reaffirmed FY24 guidance, Mr Scroggie said:\n\n_“NEXTDC’s first half performance shows that the Company remains on track to achieve its key revenue and_\n_underlying EBITDA targets. We expect to deliver another strong operating and financial performance in FY24 and_\n_remain very well placed to support customer growth as well as take advantage of growth opportunities as they_\n_arise.”_\n\nAuthorised for release by the Board of NEXTDC Limited.\n\n**ENDS**\n\nFor more information:\n\n**Simon Guzowski**\nT: +61 2 8072 4943\n[E: investorrelations@nextdc.com](mailto:investorrelations@nextdc.com)\n\n[NEXTDC Investor Centre: www.nextdc.com/our-company/investor-centre](http://www.nextdc.com/our-company/investor-centre)\n\n\n-----\n\n### About NEXTDC\n\nNEXTDC is an ASX 100-listed technology company and Asia’s most innovative Data Centre-as-a-Service\nprovider. We are building the infrastructure platform for the digital economy, delivering the critical power,\nsecurity and connectivity for global cloud computing providers, enterprise and Government.\n\nNEXTDC is recognised globally for the design, construction and operation of Australia’s only network of\nUptime Institute certified Tier IV facilities, and one of only a few data centre operators in the Southern\nHemisphere to achieve Tier IV Gold certification for Operational Sustainability. NEXTDC has a strong focus\non sustainability and operational excellence through renewable energy sources and delivering world-class\noperational efficiency. Our data centres have been engineered to deliver exceptional levels of efficiency and\nthe industry’s lowest Total Cost of Operation through NABERS 5-star energy efficiency.\n\nNEXTDC’s corporate operations have been certified carbon neutral under the Australian Government’s\n_Climate Active Carbon Neutral Standard._\n\nOur Cloud Centre partner ecosystem is Australia’s most dynamic digital marketplace, comprising carriers,\ncloud providers and IT service providers, enabling local and international customers to source and connect\nwith cloud platforms, service providers and vendors to build complex hybrid cloud networks and scale their\ncritical IT infrastructure services.\n\nNEXTDC is where the cloud lives®.\n\n[To learn more, visit www.nextdc.com](about:blank)\n\n\n-----\nEND DOCUMENT 1\n\nBEGIN DOCUMENT 2:\n# FY23  Annual Report\n\n\n-----\n\nAwards and Certifications\n\nAwards Certifications and global standards\n\nFrost & Sullivan ISO 27001:2013\n\nInformation Security Management System\n\n**2023** **\u0007Winner: Australian Data Centre**\n\n(ISMS) certification (S1, S2, B1, B2, M1, \u001b\u001a\u0019\u0018\u0017\n\nCompany of the Year \u0016\u0015\u0014\u0013\u001b\u0017\u0018\u0012\n\nM2, P1, P2, C1 and Head office) \u0016\u0011\u0010\u000f\u000e\n\n**2023** **\u0007Winner: APAC Customer Value**\n\nLeadership Award ISO 14001:2015\n\nEnvironmental Management System\n\n**2022** **\u0007Winner: Australian Data Centre**\n\nCompany of the Year certification (S1, S2, B1, B2, M1, M2, P1, P2, C1 and Head office) \u001b\u001a\u001e\u0019\u0018\u001e\u0017\u0016\u0015\u0014\u0013\u0012\u0011\u0010\u0010\u0012\n\n**2021** **\u0007Winner: Australian Data Centre**\n\nCompany of the Year ISO 9001:2015\n\nQuality Management System\n\n**2021** **\u0007Winner: APAC Australia’s Most Reliable**\n\nData Centre Provider certification (S1, S2, B1, B2, M1, M2, P1, P2, C1 and Head office) \u001b\u001a\u0019\u0018\u0017\u0016\u0015\u0014\u0013\u0013\u0012\n\n**2020** **\u0007Leader: Australian Data Centre**\n\nServices Radar Report ISO 45001:2018\n\nOccupational health and safety\n\n**2019** **\u0007Winner: Visionary Innovation**\n\nLeadership Award, Global Data Centre management systems (S1, S2, B1, B2, \n\nM1, M2, P1, P2, C1 and Head office) \u001b\u001a\u0019\u0018\u0018\u0017\n\nInfrastructure and Operations\n\nSOC 1 / SOC 2\n\nAustralian Business Awards\n\nSuite of assurance reports from the\n\n**2020** **\u0007Winner: Sustainable Company of the** AICPA issued to provide assurance on\n\nYear system‑level controls operated as a\n\ndata centre service organisation.\n\nUptime Brill Awards, Asia-Pacific\n\nPCI-DSS\n\n**2019** **\u0007Winner: Best Practices Award - Global**\n\nPayment Card Industry Data Security\n\nData Centre Infrastructure and Standard certification issued scope of\n\nOperations Visionary Innovation information security controls operated\n\nLeadership Award as a data centre service provider.\n\nEnergy and sustainability Uptime Institute certifications\ncertifications\n\nNABERS\nNational Australian Built Environment\nRating System. NEXTDC's M1 and S1\ncertified to NABERS 5-Star and P1 to\n4.5-Star rating for energy efficiency.\n\nClimate Active\nAustralian Government, Climate\nActive certified for carbon neutrality.\n\nTRUE certification\nTrue (Total Resource Use and Efficiency)\nis a zero waste certification program\nfocused on waste reduction and\nrecycling. NEXTDC S1 Sydney achieved\nCertified level TRUE Certification.\n\n\n-----\n\nContents\n\nAwards and Certifications **2**\n\nHighlights **4**\n\nLetter from the Chairman **5**\n\nLetter from the CEO **9**\n\nAbout NEXTDC **12**\n\nEnvironmental Sustainability **13**\n\nClimate Change **14**\n\nNEXTDC’s Business Features **17**\n\nOur People and Culture **19**\n\nMarket Growth Demonstrated by NEXTDC **21**\n\nDirectors’ Report **22**\n\nRemuneration Report – Audited **34**\n\nAuditor’s Independence Declaration **60**\n\nCorporate Governance Statement **61**\n\nFinancial Report **62**\n\nDirectors’ Declaration **114**\n\nIndependent Auditor’s Report **115**\n\nShareholder Information **121**\n\nCorporate Directory **123**\n\n\n-----\n\n**D1 Darwin**\n\n[operational data centres]\nHighlights 12\n\n**B1 Brisbane** **B2 Brisbane**\n\n1,820\ncustomers\n\n**C1 Canberra** **M1 Melbourne**\n\n100%\n\n**M2 Melbourne** **M3 Melbourne**\n\ncarbon neutral\ncorporate operations\n\n750[+] **P1 Perth** **P2 Perth**\n\npartners\n\n8 **S1 Sydney** **S2 Sydney**\npublic clouds\n\n**S3 Sydney** **SC1 Sunshine Coast**\n\n15\ncloud on-ramps\n\n**A1 Adelaide**\n\n**PH1 Port Hedland**\n\n6 3\ndata centres in **KL1 Kuala Lumpur** data centres\ndevelopment **AK1 Auckland** in planning\n\n\n**M4 Melbourne**\n\n**S4 Sydney**\n\n**S5 Sydney**\n\n\n17,816\ninterconnections\n\n\n-----\n\nWelcome to NEXTDC’s Annual Report for the fiscal year\nended 30 June, 2023. It has been another outstanding\n12 months for the Company with our key financial\nmetrics once again showing record growth during the\nreporting period.\n\nThe ongoing scaling of our national platform and\nexpansion into Asia has been driven by a focussed\ncommitment from our team and its leadership. They\nhave driven the growth of our business and taken\ncolocation revenues, interconnection, ecosystem\ndevelopment, EBITDA and contracted utilisation to\nnew heights.\n\nIn an environment where macro-economic forces such\nas rising geo-political tensions, supply chain constraints\nand rising inflation have created domestic and\ninternational disruption, the demand for digital\n\n##### Letter from \n\ninfrastructure has never been stronger and our role as\nAustralia’s leading, customer-centric data centre\nservices provider has never been more relevant.\n\n##### the Chairman\n\nAppetite for growth\n\nAfter nearly 13 years since foundation, we have now\n\n_AI is expected to fundamentally_ consolidated a presence in all key Australian markets\n_change the infrastructure_ and are making ongoing strategic investments in key\n\ngrowth markets while we also extend the platform\n\n_requirements of many of_ further abroad.\n_our customers.\"_ Our foundations in the industry are also supporting\n\nentry into new domestic markets. This includes\nAdelaide and Darwin as well as key customer-driven\nedge opportunities such as in Port Hedland and\nNewman in Western Australia, where the resources\nsector continues to be focussed on seeking business\nadvantage from digital transformation.\n\nOne of the pleasing developments in FY23 was our\nMay announcement that we are executing on our Asian\ngrowth strategy, with our first Malaysian data centre\nbeing the A$1 billion development of the Kuala Lumpur\n(KL1) facility.\n\nKuala Lumpur is an ideal location for NEXTDC to launch\nits Asian expansion. With subsea fibre optic cable and\nnew global satellite communications infrastructure\nbeing deployed at this location, Malaysia is within\nmilliseconds of all the key economic centres in the\nregion.\n\nIts location, stable democracy, well-educated\npopulation, historic English language and governance\nrules, and commitment to economic development\nmakes it ideal for us to help accelerate our customers’\ndigital journey.\n\nWith the exception of mature markets like Singapore\nand Australia, the Asian countries of interest to us are\nat a much earlier stage in their digital transformation.\nWithout question, the pathway of a developing digital\neconomy requires significant investment in digital\ninfrastructure that NEXTDC can profitably contribute to.\n\nIt is with great confidence that we forge ahead with\nthe development of our first overseas data centres in\n**Douglas Flynn** Kuala Lumpur, Malaysia and Auckland, New Zealand.\n\n**CHAIRMAN**\n\n\n-----\n\nFunded for growth\n\nHaving upsized NEXTDC’s debt facilities in FY23 by an incremental A$400 million to A$2.9 billion, as well as having\nraised an additional A$618 million in equity, we are well-funded for the growth opportunities before us.\n\nOur strategy continues to be centred on supporting the growth requirements of existing customers, both\ndomestically and now internationally. NEXTDC has strong relationships with key customers and the decision makers\nwho make deployment decisions both in Australia and Asia.\n\nOur company has world competitive technology and engineering design intellectual property with a differentiated\noffering that is as relevant in key Asian markets as it is in Australia. Accordingly, we are confident that the business is\nwell placed to win an attractive share of the rising opportunities in these markets.\n\nAs customers become even more dependent on the resilience, security and interconnection of their digital\ninfrastructure, the relevance of our value proposition continues to be enhanced. Our third-generation facilities at S3\nSydney and M3 Melbourne offer unrivalled flexibility in the spaces available for our customers. Our independently\ncertified Tier IV sites deliver a level of fault tolerance that allows us to offer our 100% uptime guarantee. These are\nstrategic differentiators that are valued by our customers.\n\nOur third generation M3 Melbourne data centre in West Footscray is now fully operational.\n\n\n-----\n\nPositive key\nfinancial metrics\n\nDuring FY23, we saw total\nrevenue, underlying EBITDA\nand contracted utilisation\ngrow by 25%, 15% and\n47%, respectively, while\ninterconnections (up by 7%\nto 17,816) and customer\nnumbers (up 13% to 1,820)\nalso continue to strengthen,\nall of which is very positive\nfor the bottom line.\n\nOur ecosystem continues to flourish as one\nof the premier marketplaces in the digital\neconomy with over 750 cloud, carrier and\ndigital service provider partners offering\nEnterprise and Government customers the\ndata sovereignty and security they require.\n\nAI changes everything two largest markets for the burgeoning demands of\n\nhyperscale, enterprise and Government customers.\n\nIn recent months, we have started to see the rapid\n\nThe majority of wins achieved in FY23 are so large and\n\nemergence of artificial intelligence (AI) applications.\n\nlong-term in nature that they will take several years to\n\nThis is encouraging the major cloud service providers\n\ngo live in full. Importantly they lock in future cashflow\n\nas well as a range of technology suppliers to scale up\n\nfor the Company.\n\nin support of the massive data management challenges\nthat come with bringing these megatrends into Meanwhile, these new FY23 contracts have stimulated\ncommon use. accelerated planning for new developments in Sydney\n\n(S4 and S5) and Melbourne (M4), with land now\n\nAI is expected to fundamentally change the secured for all three of these projects.\ninfrastructure requirements of many of our customers.\nTraditional on-premise data centres are not suited to\nthis technology given its requirement for denser power Growing the team and capabilities\ndeployments, liquid cooling solutions, 100% uptime\n\nFrom a resourcing point-of-view, we are well positioned\n\nand a thriving ecosystem of interconnected services.\n\nto take advantage of the opportunities before us. We\n\nMeanwhile, higher power consumption means energy have substantially bolstered the team across the\nefficiency, carbon accountability and broader country with particular attention to safety management,\n\nsecurity, customer service and experience, global\n\nsustainability challenges remain critical. These are all\n\noperations and facilities management.\n\nvalue propositions NEXTDC has built its business on,\nleaving us well-placed to play an important role in this At the same time, we have built a quality team in Kuala\ntechnological revolution. Lumpur to lead the development there and serve as\n\nthe beach head for our expansion into other Asian\nmarkets.\n\nContracted utilisation jumps\n\nAcross the business, we continue to invest in talent\n\nFY23 saw the Company achieve a record increase in acquisition, training and development to ensure we\nthe level of contracted utilisation, which rose 39.2MW have the skills and experience to support our growth\n(47%) to finish at 122.2MW, with the Company’s objectives. Ultimately, it is our human capital that will\n\nremain at the heart of our expansion and success.\n\nSydney (S3) and Melbourne (M2 and M3) facilities\nparticularly in demand. The large boost to contracted To that end, I have to say that I take comfort from the\nutilisation for the year is a direct result of these extraordinary commitment and expertise shown by our\n\n\n-----\n\nInvestor confidence, good governance standards for quality assurance, information security,\n\nenvironmental management and workplace health\n\nDuring Q4, the Company launched a very successful and safety.\nA$618 million Entitlement Offer to help fund NEXTDC’s\ninternational expansion as well as the accelerated\nfit-out of new contracted hyperscale commitments at Supporting sustainable digital growth\nS3. We are very pleased with the confidence\nshareholders showed in taking up their entitlements. NEXTDC maintains commitment to demonstrating\n\noperating efficiency credentials. During FY23, our S1\n\nWith one additional share available for every eight and M1 data centres maintained their NABERS 5-star\nshares held, the rate of take up amongst institutional energy ratings while P1 was awarded 4.5-star status\ninvestors came in at 99%, with a further 87% of retail during the reporting period. All our facilities continue to\nshares also taken up by existing shareholders. All target the lowest possible Power Utilisation\nshares not taken up by institutional and retail investors Effectiveness (PUE) operating metrics. PUE is the\nwere taken up by sub-underwriters, all of whom were internationally standardised measurement for energy\nalso existing shareholders in NEXTDC. efficiency and sustainable data centre performance and\n\ncritical to a scorecard closely scrutinised by hyperscale,\n\nWe have also been vigilant in the management of\n\ngovernment and enterprise customers.\n\ncorporate governance, sustainability and community\nengagement priorities with details shared via our Business risk is another area we continue to actively\nEnvironmental, Social and Governance (ESG) Report monitor. NEXTDC’s risk management framework is an\nand Corporate Governance Statement (CGS) with integral component of our corporate governance and is\nFY23 iterations now published on our website at central to achieving our operational objectives. NEXTDC\nwww.nextdc.com. continues to review enterprise risk in alignment with\n\nits Board-endorsed Risk Appetite Statement.\n\nOur performance in these areas is important to\nmaintaining the confidence of our customers, I would like to thank our staff, our management team\nemployees, investors and other stakeholders who are and our Board members for their support and\nfocussed on our commitment to ethical and sustainable contribution this year.\noperating practices.\n\nIn conclusion, I’d like to say that all of us at NEXTDC\nare excited about what comes next. In the 12 years\n\nCertified as sovereign since NEXTDC’s foundation, we have achieved\n\noutstanding growth and proven NEXTDC’s ability to\n\nRegulatory compliance continues to be an important, succeed in a globally competitive industry. As we make\ncomplex and evolving task for the Company and our our first infrastructure investments beyond Australian\ncustomers, particularly as we expand into the Asian shores, we have every confidence we can bring that\nregion, with data security and sovereignty continuing success to bear in the broader region.\nto be key objectives.\n\nWe are just at the beginning of the most exciting time\n\nWe were particularly pleased to work closely with the in the history of humankind, where data is the most\nMalaysian Government on the recent launch of our KL1 precious business commodity in the world.\nKuala Lumpur facility. Through close cooperation with\nlocal authorities in Malaysia we were able to achieve NEXTDC is in an outstanding position to continue\nMalaysia Digital status, replicating that nation’s building and operating the platforms that will enable\nequivalent to the Australian Government’s Certified current and future digital acceleration.\nStrategic status we already hold domestically.\n\nWe continue to invest in our Uptime Institute Tier IV\ncertification for Design and Construct, with both our\nGen 3 facilities in Sydney (S3) and Melbourne (M3)\ncompleting this process during FY23. We are no less **Douglas Flynn**\ncommitted to maintaining certification to key ISO **CHAIRMAN**\n\n_In the almost 13 years since_\n_NEXTDC’s foundation,_\n_we have achieved_\n_outstanding growth and_\n_proven NEXTDC’s ability_\n_to succeed in a globally_\n_competitive industry._\n\n\n-----\n\nI am pleased to present to you NEXTDC s Annual Report\nfor the financial year ended 30 June 2023. It has been\nanother extraordinary year of growth and achievement,\ndriven by our unwavering commitment to the pursuit of\nexcellence, delivering the world’s highest standard of\ndata centre and interconnection services.\n\nThe strong financial metrics in this annual report along\nwith the record-breaking level of new sales in FY23 lock\nin a solid rate of growth over the next decade as we\ndeliver these very large infrastructure projects for our\ncustomers for many years to come.\n\nDigital acceleration\n\nThe increasing digitisation of businesses as well as the\nexponential growth of data capture, sharing, storage\nand analysis have combined to create a thriving digital\neconomy. Forbes estimates that approximately 90% of\nthe world’s data has been generated in just the past\ntwo years, with over 2.5 quintillion bytes of additional\n\n##### Letter from \n\ndata produced daily.\n\nThriving ecosystems of clouds, carriers, service\n\n##### the CEO providers and customers required to manage all this\n\ninformation, have become ever-more dependent on\nresilient, secured and interconnected digital\ninfrastructure.\n\n_As a leading player in this industry,_\n\nRecord level of contract wins\n\n_we are well positioned to leverage_\n\nDuring FY23 we were very pleased to experience\n\n_this growth and continue to provide_\n\nunprecedented demand for the Company’s services,\n\n_innovative solutions to our customers.\"_ resulting in overall contracted utilisation growing\n\n39.2MW (47%) to finish the year with 122.2MW in total.\nPleasingly, this demand came from a broad range of\nindustries including hyperscale cloud providers, financial\nservices, mining, retail, satellite communications,\ngovernment, media and entertainment. We were also\nsuccessful renewing and expanding service contracts\nwith pre-existing customers during the reporting period\nbased on our ongoing service quality.\n\nOpportunity knocks\n\nWe are in the beginning of the fourth industrial\nrevolution. Change is happening at an unprecedented\nrate, and with innovation cycles shortening, we find\nourselves at the precipice of unprecedented digital\neconomic growth. This is further fuelled everyday by AI,\nwhich itself is accelerating other megatrends such as\nrobotics, virtual reality, 5G, the Internet of Things and\nmany more.\n\nUbiquitous and democratised technology adoption is\nand will continue to drive an explosion of global data\nwith commerce and lifestyle evolutions taking digital\nservices into exciting new frontiers.\n\nIncreasingly, colocation services, cloud platforms and\ninterconnection services are enabling organisations to\nleverage these capabilities rapidly, sustainably and\nwithout the traditional time to build and capital\nconstraints.\n\nAs a leading player in this industry, we are well-\npositioned to leverage this growth and continue to\n\n**Craig Scroggie** provide innovative solutions to our customers.\n\nEnterprises are embracing digital transformation and we\n\n**CHIEF E XECUTIVE OFFICER**\n\nhave successfully navigated this landscape over the last\n\n\n-----\n\nAI and megatrends driving pipeline and\ninfluencing strategic direction\n\nWe have identified several key megatrends shaping the\nindustry and influencing our strategic direction. Trends\nsuch as AI, augmented reality, 5G, IoT, 3D printing, and\ncloud computing are converging to form a new wave of\ninnovation.\n\nBy aligning our business strategy and services with\nthese megatrends, we are poised to stay ahead of the\ncurve and deliver the innovative solutions our\ncustomers need now and into the future.\n\nDemand forecasts continue to surge\n\nThe data centre services industry continues to\nexperience remarkable growth and presents abundant\nopportunities for NEXTDC, our customers and partners.\n[Research company, Arizton’s latest market report,](https://www.arizton.com/market-reports/australia-data-center-market-investment-analysis)\nforecast Australia’s data centre industry to grow at a\ncompound annual growth rate (CAGR) of 7.1% during\n[2022-2028, while ResearchAndMarkets predicts that](https://www.researchandmarkets.com/reports/5740677/asia-pacific-data-centre-market-size)\nthe Asia-Pacific Data Centre Market will reach\nUS$53.58 billion in 2028 and expand at a CAGR of 12%\nfrom 2023 to 2028.\n\nWe have spent 12 years developing a world class\nservice offering as well as a unique customer\necosystem and we have a successful business model\nin Australia that has proven to be scalable and that is\nready to expand into the broader Asia-Pacific region.\n\nDuring FY23, we purchased land and made\nannouncements for new data centre developments in\nKuala Lumpur and Auckland. We look forward to sharing\nfurther such developments in the years ahead as we\ntake advantage of the growth opportunities in Asia\nPacific markets.\n\nDomestic growth\n\nBuilding on our strong foundation, we continue to scale\nour platform domestically. We saw new, state-of-theart, hyperscale facilities opened in Sydney (S3) and\nMelbourne (M3) in the first half of FY23. More recently,\nwe also completed construction of an Innovation\nCentre that is home to our new Mission Critical\nOperations (MCX) services in M2 Melbourne.\n\nStage 2 of S3 also reached practical completion in\nFY23, giving us capacity to serve immediate record\n\n\ncustomer growth requirements and to meet forecast\nfuture demand. To take advantage of growth\nopportunities, we also purchased land for the\ndevelopment of M4 in Port Melbourne, S5 in Macquarie\nPark (Sydney) as well as new mining industry driven\nedge sites in Port Hedland and Newman (Western\nAustralia).\n\nConstruction of PH1 Port Hedland and A1 Adelaide\ncommenced during FY23. D1 Darwin also progressed\nand will be the most advanced modular data centre\ndesigned and built by NEXTDC yet, with site works and\nmodule delivery during 1H24 that will be open in\nQ4 FY24. NEXTDC’s third Edge Data Centre (NE1\nNewman) began development in early FY24, shortly\nafter the land was secured. All four of these new sites\nare expected to go live during FY24 or early FY25.\n\nOpportunity in Asia Pacific\n\nMeanwhile, digital growth in Asia is tracking ahead of\nglobal averages, which is why the development of our\nKL1 Kuala Lumpur, and AK1 Auckland data centres\nrepresent significant new frontiers.\n\nAs we expand across the region, we will continue to\ndeliver the same sustainability innovations and critical\ninfrastructure standards that have been the foundations\nof our success to date.\n\nCommitment to safety\n\nAt NEXTDC, we continue to place the highest priority\non the safety of our operations. We strive tirelessly to\nensure every team member, contractor, customer, and\nvisitor is safe whilst at one of our facilities.\n\nWe have a proactive safety program implemented to\nprovide a safe and healthy working environment as\nevidenced by our ISO 45001 (Health and Safety)\ncertification. We manage a range of initiatives to\nmitigate the risks associated with both our construction\nprojects as well as our operational facilities\nmanagement.\n\nWe empower all employees and contractors to act in a\nsafe manner and to be an active advocate on safety\nissues. We seek out global best practices through\nthese engagements and with our customers, industry\nand WHS peak bodies with the aim of achieving our\nSafety-First goal of zero injuries in the workplace.\n\n\nThe official launch of our new S3 Sydney data centre, located in Artarmon.\n\n\n-----\n\nSustainability more important than ever\n\nOperating to the highest standards of energy\nefficiency, water preservation and waste management\nhave been priorities for NEXTDC from its foundation.\nWe are committed to building an infrastructure platform\nthat is reliable, secure and highly energy efficient.\n\nOur strong emphasis on energy efficiency and\nsustainability must be achieved without compromising\nworld-class operational excellence. Our aggressive\nsustainability targets will be supported by design and\noperational innovation to reduce and optimise power\nconsumption.\n\nWe continue to invest in improving water efficiency and\nwaste management. Early in FY24 we were pleased to\nreceive the TRUE Certification level for our S1 Sydney\nfacility. This is only granted by independent body, Green\nBusiness Certification Inc. to companies that can\ndemonstrate they have held a land-fill waste diversion\nrate of over 90% for a full 12-month period.\n\nWe seek to design, build and operate the most energy\nefficient digital platform in the country. NEXTDC has\nbeen certified as carbon neutral for its own internal\noperations since 2018. In 2021 we launched\nNEXTneutral allowing customers to offset the carbon\nfootprint of their digital infrastructure in our facilities\nthrough our ONEDC infrastructure management portal.\nIt is an accessible and easily self-provisioned solution\ncosting customers less than a cup of coffee per kW of\npower usage.\n\nInnovation is in our DNA\n\nInnovation is and always has been at the core of our\nbusiness. In FY23, NEXTDC continued to be recognised\nfor global industry leadership in data centre\nengineering, customer experience and energy\nefficiency. We continue to invest in our Uptime Institute\n(UI) Tier III certification for first-generation facilities and\nTier IV certification for the design, construction, and\noperations for our second and third generation sites.\n\nBoth S3 and M3 have now undergone and received Tier\nIV certification which continues to help us set the\nbenchmark for the world’s highest quality, resiliency\nand operational standards.\n\n\nAward recognition\n\nMore broadly, the industry continues to recognise our\nachievements in engineering and operational\nexcellence. NEXTDC was recently recognised for the\nthird consecutive year as Frost & Sullivan’s 2023\nAustralian Data Centre Services Company of the Year.\nThis award was presented for NEXTDC’s expertise in\nthe industry and our dedication to customer\nexperience.\n\nSupporting the Company’s international growth\nambitions, we were also pleased to be awarded with\nFrost & Sullivan’s 2023 Asia-Pacific Customer Value\nLeadership Award. This award similarly recognised\nNEXTDC’s innovation, product portfolio, energy\nefficiency and operational excellence.\n\nFY24 strategic priorities and key initiatives\n\nOur goal is to continue winning new business by\nleading the hybrid computing revolution and taking our\nproven interconnection and infrastructure services into\nnew markets across the Asia-Pacific. We will continue\nto demonstrate industry leadership through innovation,\noperational and technical excellence, and ecosystem\nstrength to make us the premier marketplace for the\ndigital economy.\n\nIn conclusion, I am extremely proud of our team and\ntheir FY23 achievements. We remain dedicated to\ndelivering exceptional services to our customers,\nmeeting their evolving needs and driving innovation in\nthe industry.\n\nI would also like to express my sincere gratitude to our\ninvestors for their continued support, as well as the\nguidance we receive from our Board of Directors and\nthe dedication of our outstanding team members.\n\nI have complete confidence that, together, we will\ncontinue to grow our share of this exciting market and\nbuild the infrastructure that powers the digital\neconomy.\n\n**Craig Scroggie**\n\n**CHIEF E XECUTIVE OFFICER**\n\n\nIn FY23, we celebrated NEXTDC’s first step into Asia with the KL1 Kuala Lumpur launch.\n\n\n-----\n\nAbout NEXTDC\n\nVision and purpose\n\nNEXTDC’s vision is to help\nenterprises harness the digital age\nand improve our society through the\nadvancement of technology.\n\nOur purpose is to be the leading\ncustomer‑centric data centre\nservices company, delivering\nsolutions that power, secure\nand connect enterprise and\nGovernment customers.\n\nValue proposition and business strategy\n\nNEXTDC is an ASX 100-listed technology company,\nenabling businesses through customer-focused data\ncentre and mission critical services and network\nsolutions. With a national footprint of 12 highly\nresilient, certified data centres, NEXTDC provides\nsecure, reliable, high-performance infrastructure\nsolutions in Australia’s most cloud-connected data\ncentre network.\n\nRecognised by Frost & Sullivan as Australian Data\nCentre Services Provider of the Year for the last three\nyears, NEXTDC is Australia’s only independent data\ncentre provider operating a nationwide network of\nTier III and IV facilities in all major national\ngrowth markets.\n\nOur capital investments involve nationally significant\nand interconnected facilities, including projects now\nunder development in Port Hedland, Newman, Adelaide\nand Darwin. We are also poised for expansion into\nKuala Lumpur, Malaysia, where we have established a\nregional office, have announced the development of\nKL1 and are recruiting staff.\n\nOur digital infrastructure platform addresses the rapidly\ngrowing demand for next generation data centres with\nhigh interconnectivity, high-density power capability,\nfirst-class physical security and industry benchmark\nenergy efficiency.\n\nAdvanced digital infrastructure platform\n\nAs the leading independent Australian data centre\noperator with a nationwide network of Uptime Institute\ncertified Tier III and Tier IV facilities in the market, we\nprovide world-class services to local and international\norganisations.\n\nOur facilities are designed, built and operated to the\nhighest standards. We remain the only provider in the\nAustralian market to offer a 100% uptime guarantee for\n\n\n-----\n\nEnvironmental FY23 Sustainability Highlights\nSustainability\n\nNEXTDC's M1 and S1 have\n\nWe are passionate about preserving our planet and\n\nmaintained their NABERS\n\nachieving our corporate mission in the most sustainable\n\n5-Star ratings for energy\n\nand ethical way possible. We place strong emphasis on\n\nefficiency throughout FY23,\n\nenergy efficiency and sustainability without\n\nwith P1 achieving 4.5-Star\n\ncompromising the delivery of world-class operational\n\nrating this year.\n\nexcellence.\n\nOur aim is to develop a net zero pathway quantifying\nthe Company’s full value chain to 2030 and beyond.\nNEXTDC recognises this is a major ambition and is\ncommitted to disclosing its roadmap to net zero, taking\ninto consideration our operational, regulatory and Both our Power Usage\nlegislative constraints in a competitive market. Effectiveness (PUE) and Water\n\nUsage Effectiveness (WUE)\n\nOur goal is to build and operate the most energy\n\nmetrics are consistently\n\nefficient at-scale data centres in Australia and have an\n\nimproving as facilities reach\n\nongoing focus on sustainable and innovative design,\n\nfull utilisation, a trend that\n\nengineering and operational excellence.\n\ncontinued in FY23.\n\nManaging digital carbon footprints\n\nIn the face of ongoing digital transformation and\nthe growing carbon footprints of IT\n\nAchieved more than 90%\n\ninfrastructure, our carbon offset program\n\ndiversion rate at four of our\n\n(NEXTneutral) offers an approachable and easy\n\nfacilities in FY23, with S1\n\nto use solution for customers striving to reach\n\nfacility becoming the first data\n\ntheir corporate ESG goals. Our customers’\n\ncentre in Australia to achieve\n\nappreciate the simple and convenient option we\n\nTRUE Zero Waste certification\n\nare providing to help them realise their own\n\nwell ahead of the plan in\n\ncarbon neutral goals. In FY23, we have seen a\n\nAugust 2023.\n\n40% increase in customer uptake of our\nNEXTneutral program compared to previous\nyear.\n\nWe have continued our certification as carbon\nneutral for our corporate function up to FY22,\nwith FY23 certification expected in October\n2023. This is a process we have undertaken National PUE average:\nsince 2018 under the Climate Active program,\nAustralia’s only Commonwealth Government-\naccredited carbon neutral certification scheme.\nOther ways we seek to manage and reduce our 1.39\ncarbon footprint include: (Power Usage Effectiveness)\n\n-  Prioritising renewable energy in our data\ncentres, including solar installations\n\n-  Procuring carbon credits for our unavoidable\ncarbon usage through the Qantas Future\nPlanet program\n\n-  Rooftop solar panels installed in S1, P1, SC1\nand M3 sites in addition to the existing array\n\nRefer to FY23 ESG\n\nof panels at M1.\n\nReport for more\ndetails on our\nsustainability journey\n\nRead now\n\n\n-----\n\nGovernance\n\n##### Climate\n\nThe Board of Directors (‘the Board’) is ultimately\nresponsible for identifying and assessing the nature\n\n##### Change and extent of internal and external risks, including\n\nclimate-related risks. Several Non-Executive Directors\n\nContinuing NEXTDC’s on the Board have previous executive experience in\n\nemissions-intensive sectors including engineering,\n\nclimate journey operations, mining and resources, and are well-versed\n\nin climate-related issues. The Audit and Risk\n\nNEXTDC acknowledges that the global climate Management Committee (ARMC) supports the Board in\nis warming at unprecedented levels, with considering climate-related risks as part of the\nwidespread impacts on human and natural Company’s financial reporting process, internal control\nsystems. We share the aim of the Paris structure, risk management systems (financial and\nAgreement to keep a global temperature rise non-financial), and the internal and external audit\nthis century to well below 2 degrees Celsius process. The Investment Committee also considers\nabove pre-industrial levels and the ambition to these issues in the business development context.\nfurther limit warming to below 1.5 degrees The Chief Legal Officer updates the Board on risk and\nCelsius. We are committed to decarbonisation compliance activities every quarter. It further receives\nto prevent or minimise severe, pervasive, and ongoing reporting through its ARMC and direct\nirreversible climate change impacts on people reporting at least twice annually. Both forms of update\nand the ecosystem in the future. include content on climate-related risks, opportunities,\n\nNEXTDC’s vision is to help enterprises harness and compliance issues faced by the Company. The\nthe digital age with a view to improving society Board also receives regular briefings on management’s\nthrough the advancement of technology. We progress in implementing the TCFD work plan and the\nbelieve digitalisation acts as an enabler of ongoing development and implementation of NEXTDC’s\ndecarbonisation and plays an important role in climate change strategy.\nclimate action, for example, by providing digital NEXTDC’s Executive Leadership Team (CXO) reports\nsolutions that can improve energy efficiency, directly to the Board and is responsible for climate\ninventory management, and business efficiency action and environmental sustainability in NEXTDC’s\nby aggregating computing into energy efficient operations. The Chief Operating Officer (COO) and the\nenvironments, reducing travel and Chief Financial Officer (CFO), hold primary\ntransportation and substituting physical responsibility for strategic leadership on climate-related\nproducts for digital information. issues and their financial impact. The Chief of\n\nNEXTDC continues to support the important Engineering and Design (CE&D) also holds climate-\nwork of the Task Force on Climate‑Related related responsibilities.\nFinancial Disclosures (TCFD) and is Performance against a number of the metrics outlined\nimplementing its recommendations based on in the Metrics and Targets section is included in\nthe four key pillars: governance; strategy; risk relevant CXO remuneration plans. The short-term\nmanagement; and metrics and targets. incentive hurdles include a range of operational and\nFollowing the previous work completed to climate-related metrics, including operational uptime,\nidentify the Company’s climate-related risks Power Usage Efficiency (PUE) metrics (directly linked\nand opportunities, in FY23, NEXTDC has to greenhouse gas (GHG) emissions) and other\ndeepened its understanding of the impacts of compliance and operational criteria which are reviewed\nclimate change on the business. This year the in line with the Board’s strategic priorities.\nCompany further developed its approach and\nplans to address climate change and its related NEXTDC’s analysis of the impact of climate-related\nimpacts across the business and disclose its risks and opportunities is supported by external climate\nactions and alignment with the change subject matter experts.\nrecommendations of TCFD.\n\nWe are committed to\ndecarbonisation to prevent or\nminimise severe, pervasive,\nand irreversible climate\nchange impacts on people and\nthe ecosystem in the future.\n\n\n-----\n\nStrategy\n\nNEXTDC’s aim is to offer customers Australia’s most energy efficient, sustainably managed data centre services. This\ncore objective is supported by high standards of engineering, design and operational excellence. Climate-related\nissues and their impact on data centre performance are intrinsically linked to NEXTDC’s business strategy and\nfinancial performance.\n\nIn FY21, NEXTDC undertook a process to identify the climate-related risks and opportunities for its business,\nstrategy, and financial planning. Both physical and transition risks and opportunities were identified using the TCFD\nframework. This work continued in FY22 as the Company further defined its climate related performance metrics.\n\nScenario analysis\n\nIn FY23, NEXTDC deepened its understanding of the impacts of climate change on its operations by conducting its\nfirst scenario analysis exercise. This consisted of a qualitative assessment of how climate risks and opportunities may\nchange under future scenarios based on high level assumptions of how the energy and the physical climate system\nmight evolve in the future. Three scenarios were selected by NEXTDC to conduct its climate scenario analysis with\nrespect to the level of warming compared to pre-industrial levels. The scenarios and their inputs and assumptions are\nsummarised in the table below.\n\nScenario Base case (BAU) High transition risk (1.5°C) High physical risk (>3°C)\n\nDescription Under a BAU scenario, while The transition to a low Climate change impacts\nglobal emissions will continue carbon economy will be could be severe and\nto increase, the increase will be supported by market and far-reaching, including\nslower than historical trends, regulatory reform, widespread displacement,\nas recent mitigation efforts and including increased food and water insecurity,\nlegislated policies come into demand for sustainable and loss of biodiversity.\naction. These efforts, however, products and services and This may lead to political\nwill not be enough to meet reallocation of capital instability, conflicts, and\nglobal climate goals and towards the low carbon humanitarian crises.\nprevent the most catastrophic economy. Companies that Business as usual may be\nclimate impacts in some fail to adapt will face largely unsustainable, and\nregions in line with an above market risks and potential businesses may need to\n2-degree temperature stranded assets in adapt by shifting to more\ntrajectory. A BAU scenario emissions intensive resilient business models\ncombines transition risks industries. Climate policy and developing new\n(recent policy and regulatory will be introduced globally, products and services that\ndevelopments in progressive including carbon pricing. align with a 3-degree\nmarkets) and physical risks world.\n(climate impacts in vulnerable\nregions). Impacts will be\nparticularly felt in emerging\neconomies, creating political\ninstability, conflict and\nmigration.\n\nAssumptions -  IEA STEPS scenario[1] -  IEA NZE scenario[2] -  Little climate regulation\nand inputs -  Increase in volatility and price -  Mandatory carbon and limited enforcement\n\nof electricity, gas and water pricing -  Increasing volatility,\n\nprices and disruption of\n\n-  Limited deployment of -  Australian Government’s\n\nelectricity, gas and water\n\nrenewables Rewiring the Nation\n\nsupply\n\nPolicy leading to lower\n\n-  Increased frequency of\n\nelectricity prices and -  Limited deployment of\n\nextreme flood events,\n\ngrowth of clean renewables\n\nparticularly in QLD, NT and\n\neconomy\n\nWA -  Extreme weather events\n\n-  Increased and more are felt more severely\n\n-  Increase in high wildfire risk\n\nvolatile prices for gas than BAU\n\ndays\n\nand water\n\n-  Increased flood and\nrainfall risk (not as\nsevere as BAU)\n\n**1** \u0007 The International Energy Agency (IEA)’s Stated Policies Scenario reflects current policy settings based on specific policies that are in place as well\nas those that have been announced by governments around the world.\n**2** \u0007 The IEA’s Net Zero Emissions scenario sets out a pathway for the global energy sector to achieve net zero emissions by 2050 and does not rely on\nemissions reductions from outside the energy sector to achieve its goals.\n\n\n-----\n\nThe following transition and physical risk-related Risk Management\nparameters were considered when assessing the\n\nNEXTDC’s Risk Management framework and\n\nimpact of the base case, high transition risk and high\n\nprocedures set the baseline for us to assess, monitor\n\nphysical risk scenarios on NEXTDC’s operations:\n\nand manage our climate change risks.\n\n-  Legislated/regulated carbon pricing\n\nNEXTDC’s Enterprise-Wide Risk Register (EWRR)\n\n-  Rising electricity and gas costs captures risks that can affect the achievement of its\n\n-  Increase in water prices goals, including addressing climate change related\n\n-  Flood risk exposure (direct and indirect) risks. The EWRR is updated and shared with the Board\n\nat least annually. In addition, the Environmental and\n\n-  Wildfire exposure (direct and indirect)\n\nClimate Risk Register, supplementary to the EWRR,\n\nConsistent with TCFD recommendations, short, captures all transitional and physical climate change\nmedium and long-term timeframes were used to risks identified for long term monitoring. Please also\nstructure the risk assessment in the context of refer to the climate change risk and opportunities\nNEXTDC’s growth plans: disclosed within the FY23 ESG Report, for details\n\naround the most significant risks. Other processes that\n\n-  **(S) Short term time horizon of 0-3 years:**\n\ncarefully consider climate-related risks include the\n\nFocussed on existing operations and conditions in\n\nEngineering and Design Risk Register and the Central\n\nAustralia and further near-term domestic growth.\n\nOperations Risk Register. These are reviewed and\n\n-  **(M) Medium term time horizon of 3-10 years:** updated periodically, with their review cadence\nFocussed on potential climate driven changes to dependent on the subject matter and business unit.\nconditions in Australia and considerations for\ninternational growth.\n\nMetric and targets\n\n-  **(L) Long term time horizon of beyond 10 years:**\n\nNEXTDC’s metrics and targets demonstrate its\n\nTo consider additional large-scale changes, including\n\ncommitment to adapting to climate change and\n\nsubstantial physical impacts of climate change.\n\nincreasing the resilience of its services. The Company’s\ndisclosure currently focuses on a subset of climate-\n\nRisk and opportunities related metrics with sufficiently reliable data. As noted\n\nin the Strategy section, in FY23 NEXTDC reviewed the\n\nIn 2021, NEXTDC identified its climate risks and metrics it reports to ensure that they align with\nopportunities and developed a Risk and Opportunity industry standards, compliance requirements and\nInventory. In FY23, the Company reviewed and updated stakeholder expectations. The metrics reported for\nits climate risk and opportunity inventory, to consider FY23 can be found within the FY23 Environmental,\nimpacts to its business practices from changes in the Social and Governance Report.\ntransition and/or physical climate landscape.\n\nNEXTDC continued to be certified carbon neutral under\n\nNEXTDC’s potentially significant climate-related risks the Climate Active Carbon Neutral Standard for\nand opportunities, as well as the key controls and risk Organisations for FY23. As noted earlier, performance\nreduction measures, are detailed within its FY23 against sustainability goals is an element of the KMP’s\nEnvironmental, Social and Governance Report. remuneration plans. The short-term incentive (STI)\n\nhurdles include a range of operational and climate-\nrelated metrics, including operational uptime, PUE\n\nMonitoring climate-related risks and\n\nmetrics (directly linked to GHG), and other compliance\n\nopportunities\n\noperational criteria. In order to incorporate different\n\nNEXTDC monitors its climate-related risks and perspectives on climate-related matters and gain\nopportunities as well as its climate impact and actions experience with the metrics and measurement\nusing a number of performance metrics. In FY23, the methods, the Company continues to track a selection\nCompany reviewed the climate metrics it measures and of different metrics internally. This allows NEXTDC to\nreports, to consider the appropriateness for providing gain deeper insights into the relationship between its\nmeaningful updates to the industry and to meet operations, climate related metrics, and disclosure\nstakeholder expectations. framework.\n\nMoving forward\n\nIn FY23, NEXTDC completed a qualitative scenario analysis to test the resilience of its strategies and\nfinancial performance. In FY24, the Company will further this by developing quantitative inputs to stress\ntest the financial impacts of climate change on its operations (using the scenarios outlined in the Strategy\nsection above).\n\nNEXTDC intends to continue the journey to convert its operational performance ambitions for efficiency and\nenergy usage into short/medium GHG reduction targets. Ultimately the aim is to develop a net zero\npathway quantifying the Company’s full value chain to 2030 and beyond. NEXTDC recognises this is a major\nambition and is committed to disclosing its roadmap to net zero, taking into consideration its operational,\nregulatory and legislative constraints in a competitive market.\n\n\n-----\n\nNEXTDC’s\nBusiness Features\n\nConnecting to the cloud in world‑class\nfacilities\n\nSince 2010, we have been helping our customers’\nbusiness transformations through innovative data\ncentre solutions, connectivity services and\ninfrastructure management software.\n\nThe power of our network-rich ecosystem enables our\ncustomers to source and connect with cloud platforms,\nservice providers and vendors to build and scale their\nintegrated hybrid cloud deployments.\n\nOur competitive advantage\n\nOur nationwide, and soon to be international data\ncentre network sets us apart. We have facilities in five\nAustralian capital cities: Brisbane, Sydney, Canberra,\nMelbourne and Perth; as well as our first regional\nfacility at Maroochydore on the Sunshine Coast. New\ndata centres in Adelaide, Darwin, Port Hedland and\nNewman are currently under development with\nNEXTDC's first offshore facilities in Kuala Lumpur and\nAuckland now also in development.\n\nThis seamless digital infrastructure platform offers our\ncustomers a streamlined experience with one\nagreement and consistent pricing and service levels.\n\nMarket-leading expertise\n\nOur award-winning in-house engineers and operational\nteams are recognised as leaders in their industry. Our\npeople work together with our customers to create\ncustomised solutions that solve real-world challenges.\n\nStrong commitment to safety\n\nWe aim to provide\nand maintain a safe\nand healthy working\nenvironment for all\nworkers, customers and\nvisitors. Our Safety First\ncorporate goal is zero\nworkplace injuries. Mission Critical spaces (MCX)\n\nIn FY23 we announced the launch of MCX\n– our mission critical operations centres.\n\nHaving achieved ISO 45001 (Health and Safety) Within selected data centres, we now\ncertification, our safety culture is also documented and offer our customers highly secure,\naudited. Our safety management system is resilient and interconnected operational\nimplemented and managed by our dedicated in-house spaces for mission critical functions. This\nteam and addresses the unique operating environment ensures mission critical customer teams\nof a data centre. However, we also believe that safety and processes are always on, always\nis everyone’s responsibility, and we encourage all secured and always connected.\nemployees and partners to be an advocate for safety in\n\n\n-----\n\nData protection, security and compliance\n\nWe adhere to the Australian Privacy Act and other\nregulatory frameworks to ensure the protection of\npersonal data. As such, we:\n\n-  collect a minimal amount of customer Personally\nIdentifiable Information (PII), limited to activities such\nas account and contact management, marketing and\nto permit entry to facilities\n\n-  maintain a clear delineation between the data we\nhold as part of managing our business and the data\nthat our customers hold or process\n\n-  do not interact with or manage any data stored on\nour customers’ equipment.\n\nAddressing concerns around data sovereignty, all our\nfacilities, except for the recently acquired SC1 Edge\ndata centre, have been independently assessed and\ncertified by the Digital Transformation Agency (DTA) as\nCertified Strategic (Enclave).\n\nOur security practice adheres to a best practice ‘All\nHazards’ approach, supported by advanced biometric\nand surveillance security technology. Each of our data\ncentres feature multi-zone security layers.\n\nWe operate in compliance with globally recognised\nbest practice standards in critical areas including\nsecurity (ISO 27001, SOC1, SOC2, PCI DSS and SCEC),\nenvironmental sustainability (ISO 14000), workplace\nhealth and safety (ISO 45001), quality assurance\n(ISO 9001), energy efficient built environments\n(NABERS) and operational sustainability (Uptime\nInstitute Tier IV Gold).\n\nWe comply with the Clean Energy Regulator’s\nannual reporting requirement on National\nGreenhouse Gas and Emissions (NGER\nReport) and continue to report to the\nWorkplace Gender Equality Agency (WGEA).\nOur Modern Slavery Statement is issued\nannually in complying with the requirement\nof Modern Slavery Act 2018 (Cth).\n\nInterconnectivity made easy\n\nSecure and resilient interconnectivity (both physical\nand virtual) is the backbone of the modern digital\neconomy. Our data centres are home to 16 direct\non-ramps to the world’s largest cloud platforms, as well\nas Australia’s richest sovereign ecosystem of carriers\nand digital services providers.\n\nIn addition to the direct physical connections offered\nwithin NEXTDC facilities, our AXON virtual\ninterconnection platform unites our customers with the\norganisations, networks and cloud providers to which\nthey need to be successful. Meanwhile, our data\ncentre footprint is connected to Asia and the world.\n\nScalable solutions\n\nOur hyperscale colocation services consist of secure,\nresilient and reliable high-density data centre\noutsourcing solutions. Our customers benefit from\nscalability and flexibility with solutions customised to\n\n\n#### 750+\ntrusted ecosystem partners\n\n\nLeading with our partner ecosystem\n\nOur partner ecosystem is one of the largest and most\ndiverse independent networks of IT service providers,\ncarriers and cloud providers in Australia. This includes a\nbroad range of local and international cloud platforms,\nas-a-Service providers, independent software vendors,\nadvisory firms, telecommunications carriers and other\nconnectivity partners.\n\nOur Partner Program centres around a channel-first\ngo-to-market model, incorporating more than 750\nproviders including:\n\n-  **Global public cloud providers:**\nAWS, Microsoft, Google, IBM, Oracle, OVHcloud and\nAlibaba\n\n-  **Large IT services providers:**\nNTT Group, Atos, DXC, NEC, IBM, Kyndryl, Logicalis,\nData#3, Interactive, Infosys and Wipro\n\n-  **Technology advisory firms:**\nAccenture and Deloitte\n\n-  **Telecommunications providers:**\nOptus, Telstra, Vocus, TPG, AT&T, PCCW, Aussie\nBroadband, Spirit, Uniti, ViaSat, Starlink\nand Superloop\n\n-  **Specialist cloud and managed service providers:**\nNetskope, Iron Mountain, Over the Wire, AUCloud,\nBlue Connections, Nexthop, ZettaNet, Teradata,\nCloud Plus and Somerville Group, 11:11 Systems,\nLeaseWeb, Datto and Akamai\n\nGovernment partner\n\nIn FY23 we were appointed by the Digital\nTransformation Agency (DTA) as a panellist on the Data\nCentre Facilities Supply Panel Contract. This allows us\nto service all Federal, State and Local Government\nagencies directly. In addition, we are a DTA Certified\nStrategic hosting partner for government bodies.\n\nONEDC data centre management\n\nONEDC is our data centre infrastructure management\ntool, allowing customers to simplify, streamline and\nsecurely manage their data centre operations. It can be\nused for everything from real-time temperature,\nhumidity and power monitoring; managing access\nrequests and user permissions; to booking parking,\ndeliveries and staging rooms - and much more.\n\nOnsite customer support\n\nOur Remote Hands service supports customers\nthroughout their infrastructure lifecycle, performing the\nday-to-day infrastructure and interconnection tasks to\nkeep things running smoothly. Our highly skilled team\nmembers hold awards and accreditations with leading\n\n\n-----\n\nLiving our values\n\n##### Our People Our goal as a company is to have every one of our\n\npeople living our six core values. We encourage our\nemployees to share their stories and we empower staff\nto speak out when they see behaviours that are\n\n##### and Culture\n\ninconsistent with our values.\n\nCustomer First\n\nWe are obsessed with\ndelivering the world’s best\ncustomer experience.\n\nOne Team\n\nWe are an elite team working\ntogether with super stars\nplaying in every position.\n\nBright Ideas\n\nThe best way to predict\nthe future is to create it.\n\nPursuit of Excellence\n\nWe are relentless in our\npursuit of excellence,\nnot perfection.\n\nStraight Talk\n\nWe don’t talk bull, we have\ncrucial conversations, we\ndisagree and then we commit.\n\nFrugal Not Cheap\n\nWe spend our money where\nit matters the most.\n\n\n-----\n\nGiving back to communities\n\nOur purpose is to help create opportunity for our future\ngenerations. We place immense value and take pride in\nthe relationships we form in business, and in the\ncommunities in which we live and work.\n\nWith our community project called, ‘Live to Give’, we\nare proud to support the lives of those around us,\nthrough six charity and giving programs - The Smith\nFamily, UN Women, SolarBuddy, Beyond Blue, Cancer\nCouncil and The Red Cross. We are also part of the\nPledge 1% movement and have an active workplace\n\nAbove: Some of NEXTDC’s proud winners at the staff\n\ngiving program with dollar-for-dollar donation matching\n\nawards night during the NEXT Frontier All Company\n\nfor these six partner charitable organisations.\n\nConference.\n\nOur people can access up to three days of paid\nvolunteer days per year as well as an emergency\nmanagement leave benefit of up to four weeks. They\ncan also take up additional paid volunteer days to\nparticipate in skills-based volunteering opportunities in\nour local communities.\n\nDiversity, Equity and Inclusion\n\nWe believe our greatest strengths come from the\npeople who make up our team. Diversity, Equity and\nInclusion (DEI) are core to our success strategy.​ We\nembrace our differences and diversity of identity,\nexperience and ideas, pushing boundaries to promote\ninclusive behaviours across the company.\n\nOur aim is to achieve a 40:40:20 ratio; meaning 40%\nmen, 40% women, 20% flexible across our employees,\nmanagement, and the Board by 2030. This approach\ndrives meaningful female representation and is\ninclusive of people who identify as non-binary. To\nfurther show our support for achieving this gender Above: NEXTDC staff assembling StudentBuddy\nbalance, we are working in partnership with 40:40 solar lights for NEXTDC’s workplace giving partner,\nVision, which seeks to move beyond tokenism and SolarBuddy.\nachieve a 40:40 ratio through business-oriented,\nstructural transformation. We have joined their pledge\nto achieve gender balance at an executive leadership\nlevel by 2030.\n\nCurrently, 34% of NEXTDC’s workforce is female with a\nstrong representation of mature workers. The company\nalso demonstrates gender diversity at Board level.\n29% of our Board members were female during FY23,\nincreasing to 38% in August 2023, with the\nappointment of Maria Leftakis to the Board, a strong\nreflection of gender diversity being a key focus and\npriority for the Company at all levels. Our parental leave\nprogram offers primary caregivers up to 20 weeks of\npaid leave. We also facilitate 10 keeping-in-touch days\nfor staff on parental leave to help them transition back\nto work.\n\nAs another step forward in fostering gender equality,\nwe have now established a partnership with Work180\nwhose vision is to create a world in which there is fair\nand equal representation, opportunities, and pay for all\nwomen. Through this partnership, Work180 will support Goal to achieve by 2030\nNEXTDC with industry insights, benchmarking and have\nendorsed NEXTDC as an employer of choice for women\nto help us attract, retain and support all women\nat NEXTDC.\n\n# 40 40: 20:\n\nWOMEN MEN FLEXIBLE\n\n\n-----\n\nMarket Growth Demonstrated by NEXTDC\n\n30 June 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019\n\nECONOMIC INDICATORS\n\nCustomers[1] 1,820 1,613 1,507 1,324 1,145\n\nCross Connects[2] 17,816 16,613 14,718 13,051 10,972\n\nCAPACITY AND UTILISATION\n\nOperating facilities [3] 12 11 9 9 9\n\nInstalled capacity[4] 133.4MW 113.9MW 95.8MW 78.8MW 58.4MW\n\nContracted customer utilisation [5] 122.2MW 83.0MW 75.5MW 70.0MW 52.5MW\n\n% of installed capacity 92% 73% 79% 89% 90%\n\nBilling customer utilisation [6] 77.7MW 72.8MW 65.4MW 52.8MW 37.7MW\n\n% of installed capacity 58% 64% 68% 67% 65%\n\n\n**1** Customers: the number of counterparties (including partners) which have executed a Master Services Agreement with NEXTDC.\n**2** Cross Connects: the number of both physical and elastic cross connects.\n**3** Operating Facilities: The number of facilities which were operational at the reporting date.\n**4** Installed Capacity: MW built includes the designed power capacity of the data centre halls fitted out at each facility. Further investment into\ncustomer related infrastructure, such as backup power generation, cooling equipment or rack infrastructure may be made in line with customer\nrequirements.\n**5** Contracted Customer Utilisation: Total of all sold capacity in MW including customers with deferred contract commencement dates.\n**6** Billing Customer Utilisation: Total of all sold capacity in MW where the service has commenced.\n\n\n-----\n\nDirectors’ Report\n\nThe Directors present their report on the consolidated\n\nThe Directors present their report on the consolidated entity (referred to hereafter as ‘NEXTDC’, the ‘Company’\nentity (referred to hereafter as ‘NEXTDC’, the ‘Company’ or the ‘Group’) consisting of NEXTDC Limited and the\nor the ‘Group’) consisting of NEXTDC Limited and the entities it controlled at the end of, or during, the year ended\nentities it controlled at the end of, or during, the year ended 30 June 2023.\n30 June 2023.\n\nDirectors\n\nDirectors\n\nThe following persons were Directors of the Company\n\nThe following persons were Directors of the Company during the year, and up to the date of this report:\nduring the year, and up to the date of this report:\n\n-  Douglas Flynn\n\n-  Douglas Flynn\n\n-  Craig Scroggie\n\n\nKey financial highlights include:\n\nKey financial highlights include:\n\n-  Revenue of $362.4 million vs upgraded guidance\n\n-  Revenue of $362.4 million vs upgraded guidance range of $350 - 360 million (FY22: $291.0 million)\nrange of $350 - 360 million (FY22: $291.0 million)\n\n-  Underlying EBITDA[1,2] of $193.7 million vs upgraded\n\n-  Underlying EBITDAguidance range of $192 - 196 million (FY22: $169.0 [1,2] of $193.7 million vs upgraded\nguidance range of $192 - 196 million (FY22: $169.0 million)\nmillion)\n\n-  Capital expenditure of $690.4 million vs guidance\n\n-  Capital expenditure of $690.4 million vs guidance range of $670 - 720 million (FY22: $604.8 million)\nrange of $670 - 720 million (FY22: $604.8 million)\n\n-  Statutory net profit/(loss) after tax of $(25.6) million\n\n-  Statutory net profit/(loss) after tax of $(25.6) million (FY22: profit of $9.1 million)\n(FY22: profit of $9.1 million)\n\n-  Operating cash flow of $126.5 million (FY22: $117.2\n\n-  Operating cash flow of $126.5 million (FY22: $117.2 million)\nmillion)\n\n-  Cash of $766 million at 30 June 2023\n\n-  Cash of $766 million at 30 June 2023\n\n-  Successfully upsized its existing $2.5 billion senior\n\n-  Successfully upsized its existing $2.5 billion senior debt facility to a new aggregate limit of $2.9 billion\ndebt facility to a new aggregate limit of $2.9 billion\n\n-  Contracted 39.2MW of new capacity\n\n-  Contracted 39.2MW of new capacity\n\nFinancial performance\n\nFinancial performance\n\nNEXTDC achieved a number of significant milestones and\n\nNEXTDC achieved a number of significant milestones and enjoyed a period of strong growth in the 12 months to 30\nenjoyed a period of strong growth in the 12 months to 30 June 2023.\nJune 2023.\n\nThe Group continued to experience significant growth in\n\nThe Group continued to experience significant growth in the number of customers, orders and total revenue. As at\nthe number of customers, orders and total revenue. As at 30 June 2023, NEXTDC was billing for 77.7MW (2022:\n30 June 2023, NEXTDC was billing for 77.7MW (2022: 72.8MW) of capacity.\n72.8MW) of capacity.\n\n\n\n-  Craig Scroggie\n\n-  Stuart Davis\n\n-  Stuart Davis\n\n-  Dr Gregory J Clark AC\n\n-  Dr Gregory J Clark AC\n\n-  Stephen Smith\n\n-  Stephen Smith\n\n-  Jennifer Lambert\n\n-  Jennifer Lambert\n\n-  Dr Eileen Doyle\n\n-  Dr Eileen Doyle\n\n-  Maria Leftakis (appointed 24 August 2023)\n\n-  Maria Leftakis (appointed 24 August 2023)\n\nPrincipal activities\n\nPrincipal activities\n\nDuring the year, the principal continuing activities of the\n\nDuring the year, the principal continuing activities of the Group consisted of the development and operation of\nGroup consisted of the development and operation of independent data centres in Australia.\nindependent data centres in Australia.\n\nOperating and financial review\n\nOperating and financial review\n\nDuring the year, the Company has:\n\nDuring the year, the Company has:\n\n-  Completed the final building of S3 Sydney to support\n\n-  Completed the final building of S3 Sydney to support continued customer growth, with an additional data hall\ncontinued customer growth, with an additional data hall available for customers, increasing built capacity in\navailable for customers, increasing built capacity in NSW/ACT from 60MW at the end of FY22 to 64MW at\nNSW/ACT from 60MW at the end of FY22 to 64MW at the end of FY23. A new site for S5 Sydney was\nthe end of FY23. A new site for S5 Sydney was acquired, close to our S1 and S2 Sydney sites, which\nacquired, close to our S1 and S2 Sydney sites, which will be able to support a new 60MW facility.\nwill be able to support a new 60MW facility.\n\n-  M3 Melbourne completed on time and on budget, with\n\n-  M3 Melbourne completed on time and on budget, with three new data halls available to support customers.\nthree new data halls available to support customers. 13.5MW of new capacity was added, increasing built\n13.5MW of new capacity was added, increasing built capacity in Victoria from 40MW at the end of FY22 to\ncapacity in Victoria from 40MW at the end of FY22 to 53.5MW at the end of FY23. A new site for M4\n53.5MW at the end of FY23. A new site for M4 Melbourne was acquired, close to our M1 Melbourne\nMelbourne was acquired, close to our M1 Melbourne site, which will support a new 80MW facility.\nsite, which will support a new 80MW facility.\n\n-  Acquired new international sites KL1 Kuala Lumpur\n\n-  Acquired new international sites KL1 Kuala Lumpur and AK1 Auckland. These sites are able to deliver new\nand AK1 Auckland. These sites are able to deliver new facilities of 65MW and 10MW+ respectively.\nfacilities of 65MW and 10MW+ respectively.\n\n\n1 EBITDA is a non-statutory financial metric representing earnings before interest, tax,\ndepreciation and amortisation Non statutory financial metrics have been extracted from the\n\n\n2 FY23 underlying EBITDA excludes costs related to early stage offshore operating expenses,\nacquisition and funding opportunities as well as investment in associates\n\n\n-----\n\nA summary of consolidated revenues and segment EBITDA for the year is set out below:\n\n**Segment revenues** **Segment EBITDA**\n\n**30 June 2023** **30 June 2022** **30 June 2023** **30 June 2022**\n\n**$’000** **$’000** **$’000** **$’000**\n\nVic 117,404 101,870 86,130 81,849\n\nNSW/ACT 182,915 135,614 112,731 98,507\n\nRest of Australia 58,644 50,890 40,894 37,936\n\nInternational 144 -  (2,105) (2,319)\n\nOther 3,262 2,670 2,054 40\n\nTotal segment revenue/EBITDA 362,369 291,044 239,704 216,013\n\nNet profit/(loss) after tax was $(25.6) million (2022: $9.1 million).\n\nNon-statutory underlying earnings before interest, tax, depreciation and amortisation (EBITDA) improved from $169.0 million in\nFY22 to $193.7 million in FY23. Reconciliation of statutory profit to EBITDA and underlying EBITDA is as follows:\n\n\n**30 June 2023**\n\n**$’000**\n\n\n**30 June 2022**\n\n**$’000**\n\n\n**Change**\n\n\nNet profit/(loss) after tax (25,641) 9,139\n\nAdd: finance costs 78,988 49,269\n\nLess: interest income (10,969) (1,757)\n\nAdd/(less): income tax expense/(benefit) 2,402 (10,797)\n\nAdd: depreciation and amortisation 137,870 106,853\n\n**EBITDA** 182,650 **152,707** 20%\n\nAdd: expensed SaaS costs previously capitalised -  3,071\n\nAdd: early stage offshore operating expenses 2,885 2,410\n\nAdd: acquisition and funding opportunities 2,065 1,049\n\nAdd: share of loss on investment in associate 4,262 1,879\n\nAdd: impairment of investment in associate 1,799 7,921\n\n**Underlying EBITDA** 193,661 **169,037** 15%\n\n\nFunding and financial position\n\nIn FY23, NEXTDC secured an incremental $400 million in\nsenior debt capacity, bringing the facility to a new\naggregate limit of $2.9 billion, as well as favourable\namendments to existing financial covenants and terms.\nThe additional debt capacity is expected to provide\nNEXTDC with additional headroom to fund its medium to\nlonger term growth aspirations.\n\nDetails of the new facility limits are summarised as follows:\n\n-  $800 million – Term Loan Facility\n\n-  $600 million – Capital Expenditure Facility\n\n-  $800 million – Revolving Credit Facility (multicurrency)\n\n-  $300 million – Term Loan Facility\n\n-  $100 million – New Term Loan Facility\n\n-  $300 million – New Revolving Credit Facility\n\nThe $100 million New Term Loan Facility was drawn down\nin February 2023.\n\n\nCash and cash equivalents at 30 June 2023 totalled $766\nmillion (2022: $457 million), which combined with the\nundrawn senior syndicated debt facility of $1.5 billion, gave\nthe Group access to $2.3 billion in available liquidity at 30\nJune 2023.\n\nNEXTDC’s balance sheet position is underpinned by\napproximately $3.8 billion in total assets.\n\nSales performance\n\nWe have continued to focus our sales strategy on\npartnering with providers of infrastructure, platforms and\npackaged services. The flexibility we offer by being carrier\nand vendor neutral allows customers a choice of carriers\nand systems integrators, leading to an increase in the\nnumber of unique customers to 1,820 at 30 June 2023 (up\nfrom 1,613 at 30 June 2022).\n\nDuring the year NEXTDC increased its contracted\nutilisation by 47% from 83.0MW at the end of FY22 to\n122.2MW at the end of FY23.\n\nNSW/ACT’s contracted utilisation increased by 38.5MW\nduring FY23 to 80.8MW as at 30 June 2023, with contracted\nutilisation accounting for 126% of built capacity (64.0MW).\n\n\n-----\n\nOur contracted utilisation in Victoria fell slightly by 0.2MW to\n33.1MW during the period from 1 July 2022 to 30 June\n2023 as our first material order at M1 Melbourne moved from\na wholesale to rack order with contracted utilisation\naccounting for 62% of built capacity (53.5MW).\n\nContracted utilisation for the rest of Australia grew 0.8MW\nduring FY23 to 8.2MW as at 30 June 2023, with contracted\nutilisation accounting for 51% of built capacity (15.9MW).\n\nWe are earning revenue from numerous products including\nwhite space, rack ready, project fees and value-added\nservices. During FY23 interconnection generated 7.1% of\ntotal recurring revenue.\n\nNEXTDC continues to develop its go-to-market strategy\nthrough channel partnerships with major\ntelecommunications and IT service providers, allowing it to\nincrease the breadth and depth of its selling capability\nwithout adding to its sales operating cost base.\n\nContinuous innovation\n\nAs an organisation in Australia’s rapidly growing IT\ninfrastructure sector, it is essential that NEXTDC seek the\ncontinuous development and innovation of its systems,\nproducts and services.\n\nAll data centres have achieved and continue to be certified\nto ISO 27001 Information Security Management System,\nISO 9001 Quality Management System, ISO 14001\nEnvironmental Management System and most recently the\nISO 45001 for WHS Management System. These\ncertifications confirm that NEXTDC has an integrated\nmanagement system that provides a systematic approach\nto risk management, protection of company information\nand continuous improvement. An exception to this is\nNEXTDC’s edge data centre in the Sunshine Coast (SC1)\nand the newly established S3 Sydney and M3 Melbourne\nfacilities who are already operated in line with national\nstandards. Our intention is to complete this process within\nthe next 12 months, where this is applicable to the service\nwe provide.\n\nOngoing customer demand has seen NEXTDC develop\ninnovative ways to augment data centre capacity beyond\nthe original designs, with the addition of higher power\ndensities and the development of additional data halls.\nEven though power consumption is increasing as our\nfacilities become more populated, their overall energy\nefficiency has improved over time through economies of\nscale and increased utilisation of existing infrastructure.\n\nNEXTDC has a continuous process of testing and tuning its\ndata centres to optimise energy efficiency and stability\nto ensure that Power Usage Effectiveness (PUE) targets\nare achieved. The average PUE throughout the year\nacross all NEXTDC data centres, is now 1.39, exceeding\nour target of 1.40 and comparing very favourably with the\nAustralian and Global industry average.\n\n\nEnergy efficiency and sustainability remain key areas of\nfocus for the Group. Our data centre facilities have been\nengineered to deliver extremely high energy efficiency,\nlowering the carbon footprint for our customers. Our M1\nMelbourne and S1 Sydney data centres were the first data\ncentres in Australia to achieve a National Australian Built\nEnvironment Rating System (NABERS) 5-Star rating for\nenergy efficiency. In FY23, we included our P1 Perth\nfacility in the NABERs certification portfolio, achieving a\n4.5-star rating. NEXTDC’s second-generation data\ncentres are already delivering very high levels of energy\nefficiency, enabled by next-generation engineering and\ncontinuous tuning, which is aimed at setting new levels of\nenergy efficiency. Our third-generation data centres, made\noperational in FY23, are expected to raise the bar to a\nwhole new level.\n\nAs facilities approach full capacity and incremental cooling\ninfrastructure is no longer needed, rooftop solar becomes\nan option at some of the more mature sites. NEXTDC owns\nand operates its own solar array on the roof of its M1\ndata centre and has also been a Principal Partner to the\nMelbourne Renewable Energy Project (MREP) since its\ninception in 2014. In FY23, another 300kW of solar panels\nwent live on our S1 rooftop, and a 17kW solar panel, having\nbeen installed on the SC1 rooftop, went live in August 2023.\nAdditionally, the installation of solar panels on our M3\n(60kW) and P1 (198kW) rooftops is now complete and will\nbe operational in the next few months.\n\nBusiness strategies and prospects\nfor future financial years\n\nThe Group continues to develop its strong and growing\npipeline of sales opportunities across each of its operating\nmarkets. Based on the number of positive utilisation\ntrends such as cloud and mobile computing, growth in\ninternet traffic and data sovereignty, we expect that\ndemand for carrier and vendor neutral outsourced data\ncentre services will continue to grow strongly for the\nforeseeable future.\n\nThe Company has a number of strategies to benefit from\nthis growth including but not limited to:\n\n-  Continuing to sell capacity in existing facilities;\n\n-  Growing its presence in existing data centre markets\nwhere its existing facilities are close to being fully\nutilised;\n\n-  Expanding its footprint into new data centre markets in\nAustralia such as Adelaide, Darwin, Port Hedland and\nNewman;\n\n-  Expanding its presence into new offshore markets\nsuch as New Zealand and Malaysia; and\n\n-  Launch of new products.\n\nBased on the factors listed above, the Group expects its\nrevenue to continue growing in the foreseeable future.\n\n\n-----\n\nBusiness risks\n\nNEXTDC’s risk management framework is an integral\ncomponent of its corporate governance and central to\nachieving its strategic and operational objectives.\n\nNEXTDC continues to review its enterprise risks against\nthe Board endorsed Risk Appetite Statement. We have\nimplemented systems and processes to identify risks at an\nearly stage to ensure they are managed accordingly. The\nresponsibilities, objectives, and processes of risk\nmanagement are described in our internal Risk\nManagement Procedure and guidelines. Further details on\nNEXTDC’s Risk Management Framework can be found in\nthe Company’s most recent Corporate Governance\nStatement which can be located at the Company’s website\n(www.nextdc.com).\n\nThe following key business risks have remained focus\nareas, as they can adversely affect the Company’s\nfinancial performance:\n\n**Business Management and Governance**\n\n-  _Fraud, Bribery and Corruption:_ Fraud, bribery or any\nother unethical behaviour could significantly impact the\ntrust and confidence of NEXTDC’s customers,\nshareholders and other stakeholders. NEXTDC’s\nBoard approved Statement of Delegated Authority is\nembedded within all levels of NEXTDC’s business\nprocesses. All NEXTDC staff and Directors undergo\nCode of Conduct training and pursuant to the\nCompany’s Whistleblower Policy, employees are\nencouraged to come forward and report if they see\nany unethical behaviour.\n\n-  _Training and Development: Operating and maintaining_\ndata centres requires highly trained employees and\nlack of sufficient training and development could result\nin safety and environmental incidents, efficiencies and\nlow morale. Along with the broader Company-wide\ntraining and development program, all data centre\noperations staff receive on the job training and\nrefreshers as required.\n\n-  _Technology Advances:_ NEXTDC operates in a\ncompetitive sector. Any failure to keep up with the\nlatest technology or not having the business systems\nthat support the scale and pace of business\nexpansion could result in reputational damage and a\ndownturn in customer demand. To mitigate this risk,\nthe Company promotes mutual research and\ndevelopment projects and strategic alliances with its\nsuppliers, regularly attends industry conferences and\nis a member of the Uptime Institute, an independent\nthought leader and certification body in IT and data\ncentres. NEXTDC’s Business Transformation Program\nhas been established to support initiatives that ensure\nthe business evolves to meet the ongoing needs of its\ncustomers.\n\n-  _Employee Engagement: Having an engaged workforce_\nis vital to achieving our strategic objectives. It enables\nus to attract and retain workers who share the same\npurpose, values and goals. NEXTDC is invested in\nincreasing employee engagement and managing\nturnover. Among others, NEXTDC’s ‘The Way We\nWork’ program continues to provide ongoing flexibility to\nour team, recognising there is no one-size-fits-all\nsolution to how we work. More details on our social\nsustainability initiatives are noted in the FY23\nEnvironmental Social and Governance Report, which\ncan be located under the Corporate Governance\n\n\n_Workplace, Health and Safety:_ Employees are\nNEXTDC’s most important assets and ensuring they\nare healthy and safe is our top priority. We are\ncommitted to providing and maintaining a safe and\nhealthy working environment for all our employees,\ncustomers, and visitors. We continue to look for new\nways to achieve our Safety-First corporate goal of\nZERO injuries within the workplace. Incident prevention\nis of utmost importance and vital to safety and\nultimately, the success of the organisation. All NEXTDC\nfacilities, with the exception of our SC1 facility in the\nSunshine Coast and the newly established S3 Sydney\nand M3 Melbourne facilities, are certified to ISO 45001,\nWHS Management System certification.\nNEXTDC maintained positive safety results for FY23,\nwith the Company not recording any lost time injuries\n(LTIFR) across its data centre operations.\nActive management of WHS issues both in the\noperation of data centres and in their development is\nmandated and central to creating a culture where it is\nsafe to speak up and report any hazards or incidents.\nNEXTDC has also sought to implement a process of\ncontinual review and improvement through its safety\nassurance programs with the team’s performance and\nsafety initiatives reported to the Board.\nThis includes the added focus on mental health. Our\nstrategy for providing a safe workplace also focuses on\nprotecting people from harm by identifying and\nmanaging workplace risks to mental health; building\ncapacity to respond and support people experiencing\nmental ill-health and promoting positive mental health\nand wellbeing. To further evolve our approach to\npromoting positive mental health in the workplace and\nproviding support to team members we have trained\nvolunteer Mental Health First Aid Officers (MHFAO) at\nour facilities who may be able to offer help to someone\nexperiencing a mental health problem. Our MHFAOs\nhave successfully completed a Mental Health First Aid\ncourse delivered by an accredited instructor and hold a\ncurrent Mental Health First Aid Australia certificate. To\ndate, we have 33 volunteer MHFAOs across our sites\nwho are passionate about mental health and supporting\ntheir peers.\nAs we continue to invest in mental health and team\nsafety, we engaged health services provider Sonder in\nearly FY23 to promote organisational wellbeing and\nimplement additional safety programs.\nSonder provides our people and their families with realtime access to a team of medical, mental health and\nsafety experts that are ready to assist with their\nwellbeing needs, 24 hours a day, 7 days a week.\nNEXTDC’s Construction Safety Management System\ncontinues to benchmark its safety performance and\nactivities during the construction of our new data\nfacilities. NEXTDC continues to improve the standard\nof our new facilities by embracing lessons learned\nduring the design, construction and operational phases\nof all our sites. Our Safety in Design process captures\nthese lessons, to be reviewed by every project team as\npart of our site design process and to ensure they are\naddressed with engineering solutions, as far as\npossible. This process promotes improved systems\nand capabilities that strengthen our safety performance\nand culture. Our ultimate goal is zero injuries.\n\n\n-----\n\n_Energy Usage and Emissions: NEXTDC is dedicated to_\ndevising and monitoring the best methods of managing\ndata centres to ensure energy efficiency and minimise\nimpact on the environment and our natural resources. It is\nthe nature of our business that, as our customer loads\nincrease, so will our own energy usage and emission. Our\nfacilities are designed, engineered, and operated to\noptimise their energy efficiency. NEXTDC has invested\nsignificantly in improving energy efficiencies by focussing\non its environmental objectives, operational efficiencies\nand best in class data centre designs. NEXTDC is\ncommitted to achieving NABERS certified rating for our\ndata centres, with each data centre having a target Power\nUsage Effectiveness (PUE) rating to be as energy efficient\nas possible. In FY23, we achieved a national average PUE\nof 1.39, a figure which compares very favourably with the\nAustralian and Global industry average and below our own\ntarget.\n\n**Maintain 100% Uptime Guarantee**\n\n_Unable to Provide Service:_ A catastrophic failure or\nequipment malfunction at a NEXTDC data centre could\nresult in the Company not being able to provide power\nand cooling to support our customers’ equipment, thus\nbreaching our service level agreements and incurring\ncontractual liabilities. To address this risk, all of\nNEXTDC’s data centres are designed and built with\nsufficient redundancy in place (including redundant\npaths for power and cooling) to enable components to\ngo offline and be repaired or maintained without\naffecting our customers’ IT equipment. A sound\nassurance and maintenance program, periodic recovery\ntestings, in-house design expertise and third-party peer\nreview and certification are among the many controls in\nplace to manage the risks of not being able to meet our\n100% uptime guarantee.\n\n**Building New Sites/Data Centres**\n\n_Development: NEXTDC is involved in the development_\nof data centres in Australia and overseas and also the\nexpansion of existing facilities and new Edge and\nremote sites. Generally, development projects have a\nnumber of risks including (i) the risk that suitable sites\nor required planning consents and regulatory\napprovals, including approvals from the local water\nauthority and the local power distribution grid operator,\nare not obtained or, if obtained, are received later than\nexpected, or are adverse to NEXTDC’s interests, or\nare not properly adhered to; (ii) the escalation of\ndevelopment costs (including the costs of construction\nand fit out and any associated delays) beyond those\noriginally expected; (iii) unforeseen project delays or\nsupply chain issues, or delays in delivery beyond the\ncontrol of NEXTDC including for example the timely\nsupply of critical data centre infrastructure or\ncomponents related to the site’s development or a data\ncentre build or fit out and commissioning programs; and\n(iv) non-performance/breach of contract by a contractor\nor sub-contractor in relation to any of the above.\nIncreases in supply or falls in demand could influence\nthe acquisition of sites, the timing and value of sales and\ncarrying value of projects.\nTo fundamentally manage these risks, NEXTDC has\nimplemented management processes designed to drive\nconsistency in the planning, design, engineering,\nprocurement and project management for each site.\n\n\n\n-  _Customer demand: Development of new and existing_\ndata centres is capital intensive and sometimes\nundertaken without pre-sales commitment from\ncustomers. There is a risk that there will not be enough\ncustomer demand to achieve a sufficient return on\ninvestment. NEXTDC’s business model to become the\nlargest independent, carrier neutral channel ecosystem\nin the Asia-Pacific region aims to manage this risk\nby developing sites mindful of market demand and\ncustomer needs with the aim of offering a service and\nconnectivity compelling to our customers. NEXTDC’s\nnext-generation of data centres are particularly\nfocussed on more scalable fit-outs. This will allow us\nto stay in step with demand whilst lowering our initial\ncapital outlay as well as being able to more closely align\nincremental capital investment with incremental\ncustomer contracts. We are also aiming to increase\nsales by providing complementary products and\nservices.\n\n**Ensuring Financial Health of the Company**\n\n-  _Funding:_ NEXTDC’s business is capital intensive in\nnature and our continued growth relies on the\nacquisition and development of new and existing data\ncentres, along with investment in new technologies.\nFailure to obtain sufficient capital on favourable terms\nmay hinder NEXTDC’s ability to expand and pursue\ngrowth opportunities, which may reduce\ncompetitiveness and have an adverse effect on financial\nperformance. To address this risk, NEXTDC has sought\nto obtain funding from various sources in order to not\nbecome over-reliant on any one form of funding as well\nas to maintain adequate liquidity to be able to cope with\nsurges in customer demand as well as to take\nadvantage of any attractive investment opportunities.\n\n**Security of Data and Information**\n\n-  _Physical Security Breach:_ Physical security is the\nfoundation of data centre security and security risk\nmanagement is an integral part of NEXTDC’s purpose,\ngovernance and operations. A breach could seriously\ninterfere with NEXTDC’s or its customers operations,\ndamaging their and our reputation. NEXTDC’s security\nrisk management program is designed to safeguard our\nassets, people, property and information as well as\ncustomer equipment, security and operational\nenvironments. NEXTDC customers rely on our\nphysical security to prevent unauthorised access to\nthe space where their equipment resides. NEXTDC\nseeks to provide customers with the highest standards\nof security. The protection of NEXTDC data centres is\nenhanced using successive layers of physical security.\nAt each level, these limit access to only those with the\nappropriate authorisation, be it access to the entrance,\ncommon, storage or staging areas, private cages, data\nhall environment or support infrastructure. NEXTDC’s\nsecurity and protection measures reflect ongoing\nchanges in the risk environment and protect the integrity\nof customer information in our care.\n\n\n-----\n\n-  _Privacy & Data Security:_ NEXTDC collects a minimal\namount of Personally Identifiable Information (PII),\nlimited to activities such as account and contract\nmanagement, marketing and to permit entry into its\nfacilities. NEXTDC does not store, interact with or\nmanage any data stored on its customers’ equipment.\nCustomers are responsible for managing their own IT\nequipment and data security. All PII is securely\nmanaged in compliance with applicable data protection\nlaws and regulations covering all aspects of our\noperations and information security practices based on\nISO 27001 controls. However, a breach, disclosing\ninformation about NEXTDC operations could damage\nits reputation and interfere with its operations. NEXTDC\nis certified by the Australian Federal Government’s\nDigital Transformation Agency (DTA) as a Certified\nStrategic Enclave hosting provider of data centre\nservices. Certified Strategic status is the highest level of\ncertification attainable and recognition of our alignment\nwith the highest certification standards assuring\nFederal, State and local government organisations on\nsecurity and data sovereignty issues.\n\n-  _Cyber Risk: Cyber resilience is an important element of_\ncustomer data security. NEXTDC’s Security\nOperations Centre actively supports and responds to\ncyber threats. Our Cybersecurity framework, based on\nISO 27001 enables us to manage cybersecurity-related\nrisk. We also perform third-party audits to benchmark\nrelevance and effectiveness.\n\n**Revenue Generation and Customer Growth**\n\n-  _Customer Management: NEXTDC is committed to_\nbuilding a culture that values our customers and\nprovides the best experience for them, from the first to\nthe last point of contact. This is central to all phases of\nthe customer lifecycle. Besides measuring ourselves\nagainst key customer metrics, we continue to evolve our\ncustomer resourcing models to ensure we deliver great\nservice and monitor the outcomes and feedback.\n\n-  _Meeting Customer Requirements:_ Some of our\ncustomers and channel partners are large, wellestablished businesses. Not delivering the appropriate\nsolution within the required timeframe to meet their\nrequirements could significantly impact our brand\nreputation as well as the ability to win further\nopportunities. To minimise this risk, NEXTDC engages\nits in-house engineering and project management\nteams to ensure customers are provided with the\noptimal solution, delivered on time and on budget.\nEach customer has an assigned Customer Success\nManager to provide support as they transition from\nsales prospects to active users of our products.\n\n-  _Innovating to stay competitive: Innovation is at the heart_\nof everything we do. NEXTDC’s on-going strategic\ninitiatives include a focus on research and development\ndesigned to foster innovation and excellence in data\ncentre development and operations. A large part of that\nis our interactions with customers which are essential in\nunderstanding which solutions and innovations can\ndrive value for customers, and demand in the relevant\nindustry sectors and to ensure that NEXTDC continues\nto retain its competitive advantage.\n\n\nSignificant changes in the state of\naffairs\n\nOther than what has already been mentioned in this report,\nthere have been no further significant changes in the state\nof affairs of the Group during FY23.\n\nMatters subsequent to the end of the\nfinancial period\n\nNo matters or circumstances have arisen since 30 June\n2023 that have significantly affected the Group’s\noperations, results or state of affairs, or may do so in future\nyears, except as disclosed below:\n\nOn 23 August 2023, NEXTDC Limited announced the\nCompany’s contracted utilisation has increased by\n25MW (21%) to 145MW.\n\nLikely developments and expected\nresults of operations\n\nLikely developments in the operations of the Group that\nwere not finalised at the date of this report include the\ncontinued fit out of data centre capacity in existing facilities\nand the pursuit of further growth opportunities.\n\nDividends\n\nIn considering dividend policy the Board considers the\ndemand for capital to invest in growth, its level of retained\nearnings and the availability of franked earnings.\n\nAlthough the Company is expanding operating cashflow,\nNEXTDC is some way from paying tax and consequently\nfrom generating franking credits. The Company continues\nto experience strong demand for its services and\nconsequently is continuing to make substantial capital\ninvestment into the business. It is unlikely that NEXTDC will\npay any dividend in the next two years.\n\nDividends were neither paid nor declared during the year.\n\n\n-----\n\nEnvironmental regulation\n\nNEXTDC is constantly monitoring and revising the best\nway to manage our data centres to minimise the impact to\nthe environment. Environmental regulation relevant to\nNEXTDC’s operations are set out below.\nThe FY23 Environmental, Social and Governance Report\n(located at www.nextdc.com) provides further details on\nhow NEXTDC addresses matters of environmental and\nsocial sustainability.\n\n**Greenhouse gas and energy data reporting**\n**requirements**\n\nNEXTDC monitors its carbon emissions for reporting and\nis registered under the National Greenhouse and Energy\nReporting Act (“NGER”). Additionally, corporate operations\nare certified 100% carbon neutral under the Australian\nFederal Government’s Climate Active program (previously\nknown as the National Carbon Offset Standard, or NCOS).\nWe have continued to achieve carbon neutrality by\noffsetting emissions associated with our corporate\noperations. NEXTDC’s NEXTneutral, a certified carbon\nneutral colocation solution offered as an opt-in product to\nour customers, allows our customers to voluntarily have\ntheir carbon footprint off-set to be 100% carbon neutral on\nthe same basis as NEXTDC’s organisational 100% carbon\nneutral accreditation.\n\nAll NEXTDC data centres are certified to ISO 14001,\nEnvironmental Management System certification. An\nexception to this is NEXTDC’s edge data centre in the\nSunshine Coast (SC1) and the newly established S3\nSydney and M3 Melbourne facilities that are already\noperated in line with national standards. Our intention is to\ncomplete this process within the next 12 months, where\nthis is applicable to the service we provide.\n\n**NEXTDC’s Climate Change Journey and Taskforce**\n**on Climate related Financial Disclosures (TCFD)**\n**implementation**\n\nRefer to page 14 of the Annual Report for further details on\nour alignment with the recommendations of TCFD.\n\nInsurance of officers\n\nDuring the period, NEXTDC Limited paid a premium of\n$3,365,500 (FY22: $4,217,414) to insure the Directors\nand Officers of the Group.\n\nThe liabilities insured include legal costs that may be\nincurred in defending civil or criminal proceedings that\nmay be brought against individuals in their capacity as\nofficers of entities in the Group and any other liabilities or\namounts sought against them in connection with such\nproceedings. This does not include liabilities that arise\nfrom conduct involving a wilful breach of duty by the\nofficers or the improper use by the officers of their position\nor of information to gain advantage for themselves or\nsomeone else or to cause detriment to the Group. The\nDirectors & Officers Liability insurance also covers security\nclaims against the Company itself. It is not possible\nto apportion the premium between amounts relating to\nthe insurance against legal costs to defend the officers\nand those relating to other liabilities.\n\n\nProceedings on behalf of the Company\n\nNo person has applied to the Court under section 237 of\nthe Corporations Act 2001 for leave to bring proceedings\non behalf of the Group, or to intervene in any proceedings\nto which the Group is a party, for the purpose of taking\nresponsibility on behalf of the Group for all or part of those\nproceedings.\n\nNo proceedings have been brought or intervened in on\nbehalf of the Group with leave of the Court under section\n237 of the Corporations Act 2001.\n\nRounding of amounts\n\nThe Company is of a kind referred to in ASIC Corporations\n(Rounding in Financial/Directors' Reports) Instrument\n2016/191, relating to the ‘rounding off’ of amounts in the\nfinancial statements. Amounts in the financial statements\nhave been rounded off in accordance with that Class\nOrder to the nearest thousand dollars, or in certain cases,\nto the nearest dollar.\n\n\n-----\n\nInformation on Directors\n\n**DOUGLAS FLYNN**\n\n**Chairman**\n**Non-Executive Director (since September 2013)**\n\nEXPERIENCE AND EXPERTISE\n\nDouglas (Doug) was appointed to the Board in September\n2013 as an Independent Non-Executive Director and\nsubsequently was appointed as Chairman in April 2014.\n\nDoug has over 30 years of international experience in the\nmedia and information and communication technology\nindustries, including holding various senior management\nand board positions.\n\nDoug is the current Chairman of IMEXHS Limited, a\nmedical imaging technology provider.\n\nPreviously, Doug was Chief Executive of newspaper\npublisher, Davies Brothers Limited, which was acquired\nby News Corporation in 1989. In 1995, he was appointed\nthe Managing Director of News International Plc.\n\nAfter leaving News International in 1998, Doug joined Aegis\nGroup Plc and was appointed as CEO in 1999, where he was\ninstrumental in doubling the size of the company and\nestablished a global market research business Synovate\nand internet services business Isobar.\n\nFrom 2005 to 2008, Doug served as the Chief Executive\nof facilities management provider Rentokil Initial Plc.\n\nDoug graduated in Chemical Engineering from the\nUniversity of Newcastle, New South Wales and received\na Master of Business Administration with distinction from\nthe University of Melbourne.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  IMEXHS Limited (March 2020 – present)\n\nFORMER DIRECTORSHIPS\n\n-  Seven West Media Limited\n\n-  iSentia Group Limited\n\n-  APN Outdoor Group Limited\n\n-  Konekt Limited\n\nSPECIAL RESPONSIBILITIES\n\n-  Chairman of the Board\n\n-  Member of the Remuneration and Nomination\nCommittee\n\n-  Member of the Investment Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nDoug holds 180,252 fully paid ordinary shares in NEXTDC\nLimited.\n\n\n**CRAIG SCROGGIE**\n\n**Chief Executive Officer (since June 2012)**\n**Managing Director (since November 2010)**\n\nEXPERIENCE AND EXPERTISE\n\nCraig Scroggie is the Chief Executive Officer and Managing\nDirector of NEXTDC, Australia’s leading Data-Centre-as-aService provider. Prior to becoming CEO in June 2012, Mr\nScroggie served on the Board of Directors since IPO (2010)\nas a Non-Executive Director, including as Chairman of the\nAudit and Risk Management Committee.\n\nMr Scroggie has more than 25 years’ experience in the ICT\nindustry, having held senior positions with Symantec,\nVeritas Software, Computer Associates, EMC Corporation\nand Fujitsu. Prior to joining NEXTDC, Mr Scroggie was\nSymantec’s Vice President & Managing Director for the\nPacific Region.\n\nMr Scroggie currently serves on the Board of Sovereign\nCloud Holdings (ASX:SOV) and also serves on the\nUniversity of Southern Queensland Business School\nAdvisory Board and is Chairman of the La Trobe University\nBusiness School Advisory Board and holds the position of\nAdjunct Professor.\n\nMr Scroggie is a Graduate of the University of Southern\nQueensland and holds an Advanced Certificate in\nInformation Technology, a Graduate Certificate in\n\nManagement, a Postgraduate Diploma in Management, a\nMaster of Business Administration; and is a Graduate and\nFellow of the Australian Institute of Company Directors.\n\nIn 2013 Mr Scroggie was awarded the University of\nSouthern Queensland Faculty of Business & Law Alumnus\nof the Year and in 2015 was inducted into the ARN ICT\nIndustry Awards Hall of Fame.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  Sovereign Cloud Holdings Limited ‘AUCloud’\n\n(November 2021 - present)\n\nFORMER DIRECTORSHIPS\n\n-  Nitro Software Limited (September 2021 – April 2023)\n\nSPECIAL RESPONSIBILITIES\n\n-  Member of the Investment Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nCraig holds 442,691 fully paid ordinary shares and\n1,301,523 performance rights.\n\n\n-----\n\n**DR GREGORY J CLARK AC**\n\n**Non-Executive Director (since April 2014)**\n\nEXPERIENCE AND EXPERTISE\n\nDr Gregory J Clark AC is a world-renowned technologist,\nbusinessman and scientist, with extensive corporate and\nBoard experience in Australia, the USA and Europe.\n\nDr Clark brings to the Board international business experience\nand a distinguished career in micro-electronics, computing\nand communications. He was previously Principal of Clark\nCapital Partners, a US based firm that has advised\ninternationally on technology and the technology marketplace.\n\nDuring his career, Dr Clark also held senior executive roles\nat IBM, News Corporation and Loral Space and\nCommunications. At IBM he was a senior scientist in their\nResearch Division in NY. At News Corporation he was\nPresident of Technology and on the Executive Committee\nwith responsibility for all technical aspects of digital media\ncreation and delivery. Dr Clark was responsible for News\nCorporation’s transformation of its media assets from an\nanalogue platform into a digital platform for both program\ncreation and delivery. In addition, he was responsible for\nall technology companies within News Corporation.\n\nHe was President and Chief Operating Officer at Loral\nSpace and Communications, the world’s largest\ncommercial satellite manufacturer and one of the largest\noperators, with responsibility for all development,\nmanufacturing, marketing and sales.\n\nWhile at News Corporation and Loral Space and\nCommunications, Dr Clark was Chairman and/or on the\nBoard of a number of wholly owned subsidiaries including\nNDS, Globalstar, SatMex, Skynet, Loral Space Systems,\nKesmai, Etak and others.\n\nDr Clark is an Honorary Professor at the Australian National\nUniversity and a Fellow of the Australian Academy of\nScience, a Fellow of the Academy of Technology and\nEngineering and a Fellow of the American Physical\nSociety.\n\nFORMER DIRECTORSHIPS\n\nDr Clark served on the Board of the ANZ Banking Group\n(also chairing the Board’s Technology Committee) which\nhe stepped down from in November 2013 after nine years\nof service.\n\nSPECIAL RESPONSIBILITIES\n\n-  Member of the Remuneration and Nomination\nCommittee\n\n-  Member of the Investment Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nGregory holds 74,110 fully paid ordinary shares in\nNEXTDC Limited.\n\n\n**STUART DAVIS**\n\n\n**Non-Executive Director (since September 2013)**\n\nEXPERIENCE AND EXPERTISE\n\nStuart has over 30 years’ experience as an international\nbanker with the HSBC Group including roles in Hong Kong,\nNew York, Taiwan, India and Australia. Most recently he\nwas CEO India for the Hongkong and Shanghai Banking\nCorporation Limited (2009-2012), CEO and Executive\nDirector for HSBC Bank Australia Limited (2002-2009) and\nCEO HSBC Taiwan (1999-2002). He was a member of\nthe Australian Bankers Association from 2002 to 2009\nand Deputy Chairman from 2006 to 2009.\n\nStuart holds a LLB from Adelaide University and is a\nGraduate of the Australian Institute of Company Directors.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  PayPal Australia Limited (July 2016 – present)\n\n-  BSP Financial Group (September 2017 – present)\n\n-  Appen Limited (March 2022 - present)\n\nFORMER DIRECTORSHIPS\n\nStuart previously held directorships with subsidiaries of\nHSBC Group until 2012, Built Holdings Pty Ltd. and\nMoboom Limited.\n\nSPECIAL RESPONSIBILITIES\n\n-  Chairman of the Remuneration and Nomination\nCommittee\n\n-  Member of the Audit and Risk Management Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nStuart holds 42,930 fully paid ordinary shares in NEXTDC\nLimited.\n\n\n-----\n\n**JENNIFER LAMBERT**\n\n**Non-Executive Director (since 1 October 2019)**\n\nEXPERIENCE AND EXPERTISE\n\nMs Jennifer Lambert has extensive business and\nleadership experience at senior executive and board level\nwith more than 25 years of financial management and\naccounting experience.\n\nCurrently Ms Lambert is a Non-Executive Director of\nBlueScope Steel Limited, REA Group Limited and Investa\nProperty Group, and Chairs each of their Audit\nCommittees. Ms Lambert is also a non-executive director\nof two not for profit entities.\n\nMs Lambert was Group Chief Financial Officer of 151\nProperty (formerly Valad Property Group) for 13 years\nwhere her responsibilities included operational and\nstrategic finance, tax, treasury, legal and compliance. Prior\nto this, Ms Lambert was a director at\n\nPricewaterhouseCoopers specialising in capital raisings,\nstructuring and due diligence for acquisitions and disposals\nacross various industries.\n\nJennifer holds a Bachelor of Business (Accounting and\nFinance) from University of Technology Sydney and Master\nof Economics from Macquarie University. Her professional\nassociations include being a member of The Chartered\nAccountants Australia New Zealand and a Fellow of the\nAustralian Institute of Company Directors.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  BlueScope Steel Limited (September 2017 – present)\n\n-  REA Group Limited (December 2020 – present)\n\n-  Investa Property Group (October 2021 - present)\n\nFORMER DIRECTORSHIPS\n\n-  Mission Australia (retired November 2020)\n\nSPECIAL RESPONSIBILITIES\n\n-  Chair of the Audit and Risk Management Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nJennifer holds 28,000 fully paid ordinary shares in\nNEXTDC Limited.\n\n\n**STEPHEN SMITH**\n\n\n**Non-Executive Director (since 1 July 2019)**\n\nEXPERIENCE AND EXPERTISE\n\nStephen (Steve) Smith is widely respected amongst the\nglobal ICT community. Steve has a deep background and\nexpertise in managing market leading technology\n\nbusinesses, particularly in the data centre industry.\n\nSteve served as CEO and President of Equinix Inc for over\na decade (2007-2018), transforming it into the largest\nenterprise data centre platform in the world. Under Steve’s\nleadership Equinix grew from 17 data centres operating in\n10 markets and a US$2 billion market cap, to\napproximately 200 data centres with a US$38 billion\nmarket cap and operations in 24 countries on five\ncontinents.\n\nSteve is currently the CEO of Zayo Group, a leading\nprovider of fibre infrastructure, with dense, high-quality\nnetworks in every major market in North America and many\nin Western Europe. Prior to his time at Zayo Group and\nEquinix, Steve held senior leadership positions at Hewlett\nPackard (2005-2006) which included serving as its Senior\nVice President - Worldwide HP Services; Lucent\nTechnologies Inc. (2004-2005), where he was appointed\nas Vice President, Global Professional and Managed\nServices and Electronic Data Systems Corporation (EDS)\n(1987-2004), where he served in a number of capacities\nincluding Chief Sales Officer and President, Asia-Pacific.\n\nSteve also had a successful eight-year career in the U.S.\nArmy where, among other roles, he was aide de-camp to\nthe office of the Commander in Chief of the U.S. Armed\nForces in the Pacific.\n\nSteve holds a Bachelor of Science in Engineering from the\nU.S. Military Academy at West Point.\n\nCURRENT EXECUTIVE ROLES\n\n-  Zayo Group Holdings, CEO\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  Zayo Group Holdings (October 2020 – present)\n\nFORMER DIRECTORSHIPS\n\nSteve has served on several boards including Flexential\nInc, Volterra Semiconductor Corporation, 3Par Inc, Actian\nCorporation, NetApp Inc and F5 Networks Inc.\n\nSPECIAL RESPONSIBILITIES\n\n-  Chairman of the Investment Committee\n\nINTERESTS IN SHARES AND OPTIONS\n\nNil\n\n\n-----\n\n**MARIA LEFTAKIS**\n\n**Non-Executive Director (since 24 August 2023)**\n\nEXPERIENCE AND EXPERTISE\n\nMrs Leftakis is recognised as an industry leader in\nshareholder engagement and corporate governance\nadvisory, having worked with both domestic and\ninternational companies in Australia for over 25 years. She\noffers deep commercial and industry expertise having\nfounded and led a number of successful stakeholder\nadvisory businesses.\n\nShe is currently the Chair of Morrow Sodali, Asia Pacific,\none of the largest global shareholder and governance\nadvisory firms. In this role, Mrs Leftakis is also responsible\nfor advising on acquisitions and growth opportunities. Prior\nto this, she was the firm’s CEO for Asia Pacific and a\nmember of the global Executive Committee, responsible for\nthe groups business performance and growth strategy.\n\nAs the Managing Director of a number of shareholder\nadvisory businesses, including Georgeson Shareholder\nCommunications (2000 – 2006, acquired by\n\nComputershare Limited) and Global Proxy Solicitation Pty\nLtd (2006 – 2017, acquired by Morrow Sodali), Mrs Leftakis\nhas become one of the leading advisors in this space, using\nher entrepreneurial experience to advise many ASX listed\ncompanies on issues including M&A, demergers, activism\nresponse and capital restructures.\n\nMaria holds a Bachelor of Economics (Finance and\nAccounting) from the University of Sydney as well as an\nExecutive Master of Business Administration from the\nAustralian Graduate School of Management, University of\nNew South Wales. Maria is also a member of the Australia\nInstitute of Company Directors.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  Morrow Sodali Pty Ltd, Chair - APAC\n\nSPECIAL RESPONSIBILITIES\n\n-  Member of the Audit and Risk Management Committee\n\n-  Member of the Remuneration and Nomination\nCommittee\n\nINTERESTS IN SHARES AND OPTIONS\n\nNil\n\n\n**DR EILEEN DOYLE**\n\n\n**Non-Executive Director (since August 2020)**\n\nEXPERIENCE AND EXPERTISE\n\nDr Doyle has had an internationally recognised career with\nclose to four decades of diverse business experience at\nboth executive and board level.\n\nHer experience covers a wide range of industries including\nlogistics, technology and research, property, financial\nservices, manufacturing, building and construction and\nsport.\n\nDr Doyle has previously served as the Chairman of the\nworld’s largest export coal loader, PWCS (1998-2009) and\nDeputy Chairman of CSIRO to 2016, after 10 years of\nservice.\n\nDr Doyle currently serves on the Board of DBI Limited,\nSantos Limited and Airservices Australia. She has\nsignificant experience across Audit, Remuneration and\nSustainability Committees. Dr Doyle’s experience also\nincludes appointments at major government bodies\nAustrade, CSIRO, Newcastle Port Corporation, the\nNational Steering Committee on eHealth and the NSW\nInnovation and Productivity Council.\n\nDr Doyle holds a Ph.D. in Applied Statistics from the\nUniversity of Newcastle, was a Fulbright Scholar (Business\nManagement: Columbia University), is a Fellow of the\nAcademy of Technology and Engineering and a Fellow of\nthe Australian Institute of Company Directors (FAICD).\n\nDr Doyle is also a Foundation Fellow of The Australian\nAssociation of Angel Investors (FAAAI) and the author of\n“Call a Business Angel”.\n\nOTHER CURRENT DIRECTORSHIPS\n\n-  DBI Limited (October 2020 – present)\n\n-  Airservices Australia (April 2021 – present)\n\n-  Santos (December 2021 - present)\n\n-  Kinetic Group (May 2022 – present)\n\nFORMER DIRECTORSHIPS\n\n-  Oil Search Limited (February 2016 – December 2021)\n\n-  GPT Group (March 2010 – May 2019)\n\n-  Boral Limited (March 2010 – October 2020)\n\nSPECIAL RESPONSIBILITIES\n\n-  Member of the Audit and Risk Management Committee\n\nINTERESTS IN SHARES AND OPTIONS\nEileen holds 17,250 fully paid ordinary shares in NEXTDC\nLimited.\n\n\n-----\n\n**MICHAEL HELMER**\n\n\n**Company Secretary and Chief Legal Officer (since**\n**February 2015)**\n\nMichael has over 28 years’ experience in the legal sector\nand has previously served as Director of Legal Services\n(Asia Pacific) for global software maker Symantec. Before\nthat, Michael was based in London at specialist technology\nfirm Field Fisher Waterhouse. Michael has held senior legal\nroles in Barclays, Coles Myer and was General Counsel at\nEuropean on-line shopping site shopsmart.com as well as\nAustralian anti-malware maker PC Tools.\n\nMichael is a seasoned strategic advisor with deep\nknowledge of the legal and compliance environments in\nwhich technology and ecommerce businesses operate. His\nwork is particularly focussed on their corporate and\noperating environments, ecommerce, security and\n\ncompliance requirements as well as technology and IP law,\nM&A and capital raising.\n\nMichael has obtained a Bachelor of Laws, Bachelor of\nScience (Monash) and is admitted as a legal practitioner in\nAustralia as well as in England and Wales. Michael is a\nmember of the Association of Corporate Counsel and has\nserved as their Victorian President (ACLA) as well as a\nmember of its National Board. Michael holds a Certificate\nin Governance Practice and is a Fellow of the Governance\nInstitute of Australia (FGIA). He is also a member of the\nAustralian Institute of Company Directors and a graduate\nof their Company Directors course (GAICD).\n\nMeetings of Directors\n\nThe number of meetings of the Company's Board of Directors and of each board committee held during the year, and the\nnumber of meetings attended by each director is as follows:\n\n**Meetings of Committees**\n\n\nFull meetings of Audit and Risk\nDirectors Management\n\nCommittee\n\n**A** **B** **A** **B**\n\nDouglas Flynn 6 6 N/A N/A\n\n\nRemuneration and\nNomination\n\nCommittee\n\n\nInvestment\nCommittee\n\n\nCraig Scroggie 6 6 N/A N/A N/A N/A 2 2\n\nStuart Davis 6 6 5 5 2 2 N/A N/A\n\nDr Gregory J Clark AC 6 6 N/A N/A 2 2 2 2\n\nStephen Smith 5 6 N/A N/A N/A N/A 2 2\n\nJennifer Lambert 6 6 5 5 N/A N/A N/A N/A\n\nDr Eileen Doyle 6 6 5 5 N/A N/A N/A N/A\n\nA = Number of meetings attended\nB = Number of meetings held during the time the Director held office or was a member of the committee during the period\nN/A = Not applicable. Not a member of the relevant Committee\n\n\n-----\n\nRemuneration Report – Audited\n\nThis report sets out the remuneration arrangements for NEXTDC’s Directors and other Key\nManagement Personnel (KMP) for the year ended 30 June 2023 (FY23). It is prepared in\naccordance with section 300A of the Corporations Act 2001 (Corporations Act) and has been\naudited as required by section 308(3C) of the Corporations Act.\n\nThis report is divided into the following sections:\n\n|Col1|Page|\n|---|---|\n|1. Message from the Chair of the Remuneration and Nomination Committee|35|\n|2. The Persons covered by this Report|37|\n|3. Overview of Remuneration Governance Framework|37|\n|3.1. Senior Executive Remuneration (SER) Policy|37|\n|3.2. Senior Executive Remuneration Benchmarks|39|\n|3.3. Senior Executive Remuneration Mix|39|\n|3.4. Senior Executive Remuneration and Performance|40|\n|3.5. Variable Remuneration – Short Term Incentive (STI) Plan|41|\n|3.6. Variable Remuneration – Long Term Incentive (LTI) Plan|43|\n|3.7. Risk Management and Clawback Provisions|45|\n|4. STI and LTI Performance outcomes for FY23|46|\n|4.1. STI Vesting Outcomes|46|\n|4.2. LTI Vesting Outcomes|48|\n|5. Employment terms for Directors and Senior Executives|48|\n|5.1. Non-Executive Directors|48|\n|5.2. Senior Executives|49|\n|6. Statutory Remuneration|50|\n|6.1. Senior Executive Remuneration|50|\n|6.2. Non-Executive Director Remuneration|52|\n|6.3. Changes in Securities Held Due to Remuneration|53|\n|6.4. Director and Senior Executive Shareholdings|57|\n|6.5. Remuneration Received (Non-statutory)|58|\n\n\n-----\n\n**1.** **MESSAGE FROM THE CHAIR OF THE REMUNERATION AND NOMINATION COMMITTEE**\n\nNEXTDC’s Remuneration Report details how its executive remuneration outcomes are linked to both its corporate and individuals’\nperformance for the 2023 financial year. The report details our remuneration policy for FY23 and the alignment between executive\nremuneration and shareholder outcomes.\n\nIn FY23, NEXTDC achieved a number of key performance milestones:\n\n\n**Total revenue**\n\n###### $362.4M\n\n-  $71.3M (25%)\n\n**Contracted utilisation**\n\n###### 122.2MW\n\n-  39.2MW (47%)\n\n\n**Underlying EBITDA[1]**\n\n###### $193.7M\n\n-  $24.6M (15%)\n\n**Debt Facility**\n\n###### $2.9B\n\n\n**Operating cashflow**\n\n###### $126.5M\n\n-  $9.3M (8%)\n\n**Capital expenditure**\n\n###### $690.4M\n\n\nThe Company’s remuneration policies remain under continuous review by the Remuneration and Nomination Committee (the\n“Committee”) throughout the year with the aim of ensuring alignment with the Company’s strategic objectives and to ensure\nretention of key talent. Noting that shareholder interests and community expectations are key elements of this process, the\nCommittee is mindful that the Company is a high-performance business focussed on its growth objectives and its broader\nenvironmental and social responsibilities.\n\nThe Committee is also aware of broader trends in the executive space, and mindful of competitors and comparator groups in\nAustralian and international markets, and unlisted competitors.\n\nThis year’s Senior Executive remuneration program, which was confirmed by the Committee, set performance targets with\nreference to key project milestones and shareholder expectations. Financial performance, key business deliverables and\nbroader behavioural and health and safety metrics were all incorporated into the program. The Committee is also focussed on\noperational efficiencies and driving environmental outcomes as part of its strategic focus.\n\nThe Committee continues to reflect on the balance of its disclosures of operational information in the context of executive\nperformance. It believes there is a clear benefit in providing as much transparency as possible but will, at times, be circumspect\nabout some of the details if it feels this could erode the Company’s competitive or strategic advantage. For now, the Committee\nbelieves an appropriate balance has been struck, and it will continue to take shareholder feedback on these matters and make\nrefinements so as to maintain an appropriate balance between these two considerations.\n\nIn terms of the overall remuneration structure for FY23 the Committee is of the view that its components, as described in this\nRemuneration Report, are strongly aligned with shareholder value.\n\n\n-----\n\n**Looking forward – Senior Executive remuneration in FY24**\n\nTo ensure the remuneration framework remains fit-for-purpose for the next phase of the Company’s strategy and growth, the\nCommittee undertook a review of the existing Senior Executive remuneration framework in FY23, with input from external\nadvisors as well as recent remuneration benchmarking at regional management levels in Asia and into privately owned\ncompanies in Australia. The review considered several factors, including prevailing economic conditions, current and future\nstrategic priorities, retention of key executive talent and the appropriateness of the current framework in meeting industry\nopportunities and risks.\n\nFollowing the review, the Board has determined to make the following remuneration changes for FY24:\n\n-  A 15% increase in fixed remuneration for Senior Executives, including the CEO, effective 1 July 2023. This reflects\ntheir demonstrated contribution towards the Company’s global strategic growth, including a 33% increase in market\ncapitalisation since the end of FY22 (44% from the start of FY21), benchmarking against the regional management\nlevels in Asia as well as privately owned peers in Australia, and a 14% increase in the Australian Consumer Price\nIndex since their previous increase in fixed remuneration in January 2021; and\n\n-  Modifications to the existing long-term incentive (LTI) plan to further generate Senior Executive share ownership and\nalignment with long-term shareholder interests, whilst ensuring that we continue to motivate and retain high-performing\nand innovative executive talent in a competitive market. With several key regional expansion projects underway and\nthe high demand for experienced Senior Executives in our industry, this alignment is critical to our ongoing success\nand ability to drive long-term shareholder value.\n\nFurther details on the fixed remuneration increase can be found below, with full details of the FY24 LTI plan to be disclosed in\nthe Notice of 2023 AGM and FY24 Remuneration Report.\n\nThe Committee and I are looking forward to further engaging with our shareholders and will be listening carefully to your\ncomments and observations concerning our remuneration policies and practices.\n\n**Stuart Davis**\n**Chairman – Remuneration and Nomination Committee**\n\n1FY23 underlying EBITDA excludes costs related to early stage offshore operating expenses, acquisition and funding opportunities, as well\nas investment in associates.\n\n\n-----\n\n**2.** **THE PERSONS COVERED BY THIS REPORT**\n\nKey Management Personnel (“KMP”) include Non-Executive Directors and Senior Executives. The term\n“Senior Executives” refers to the CEO and those executives with authority and responsibility for planning,\ndirecting and controlling the activities of the Company and the Group, directly or indirectly.\n\nTABLE 1: KEY MANAGEMENT PERSONNEL\n\nNON-EXECUTIVE DIRECTORS\n\n|Name|Position|\n|---|---|\n|Douglas Flynn|Non-Executive Chairman since 30 April 2014 Member of the Remuneration and Nomination Committee Member of the Investment Committee|\n|Stuart Davis|Non-Executive Director Chair of the Remuneration and Nomination Committee Member of the Audit and Risk Management Committee|\n|Dr Gregory J Clark AC|Non-Executive Director Member of the Remuneration and Nomination Committee Member of the Investment Committee|\n|Stephen Smith|Non-Executive Director Chair of the Investment Committee|\n|Jennifer Lambert|Non-Executive Director Chair of the Audit and Risk Management Committee|\n|Dr Eileen Doyle|Non-Executive Director Member of the Audit and Risk Management Committee|\n\n\n\nSENIOR EXECUTIVES\n\n|Name|Position|\n|---|---|\n|Craig Scroggie|Chief Executive Officer, Managing Director|\n|Simon Cooper|Chief Operating Officer|\n|Oskar Tomaszewski|Chief Financial Officer|\n|David Dzienciol|Chief Customer and Commercial Officer|\n\n\n\n**3.** **OVERVIEW OF REMUNERATION GOVERNANCE FRAMEWORK**\n\nOur mission is to be the leading customer-centric data centre services company, delivering solutions that power, secure and\nconnect enterprise. NEXTDC’s remuneration policy is designed to incentivise and reward Senior Executives for achieving its\noverarching objectives of building market-leading sales performance, hosting the country’s largest independent ecosystem of\ncarriers, cloud and IT service providers and enabling customers to source and connect with suppliers and partners in an integrated\nhybrid cloud environment.\n\nOur remuneration framework, applicable to the 2023 financial year is outlined and summarised below.\n\n**3.1 Senior Executive Remuneration (SER) Policy**\n\nThe Senior Executive Remuneration Policy applies to Senior Executives who are defined as:\n\n-  The Chief Executive Officer who is accountable to the Board for the Company’s performance and long-term planning;\n\n-  Heads of Business Units, or those with key functional roles, or essential expertise, that report directly to the Chief Executive\nOfficer;\n\n-  Other executive roles classified as KMP under the Corporations Act; and\n\n-  Other roles or individuals nominated by the Board from time to time.\n\n\n-----\n\nFIGURE 1: REMUNERATION GOVERNANCE FRAMEWORK\n\n**BOARD** **REMUNERATION AND NOMINATION** **MANAGEMENT**\n\n- Approves the overall remuneration **COMMITTEE** - Provides information relevant to\npolicy and ensures it is competitive, The Remuneration and Nomination remuneration decisions and makes\nfair and aligned with the long-term Committee is delegated responsibility by recommendations to the\ninterests of the Company and the Board to make recommendations on: Remuneration and Nomination\nshareholders - The remuneration policies and Committee\n\n- Approves Senior Executives and framework\nother key management personnel - Non-Executive Director remuneration\nremuneration - Remuneration for Senior Executives\n\n- Assesses Company performance and and other key management\ndetermines STI and LTI outcomes for personnel\nSenior Executives - The extent of the Senior Executives’\n\nachievements against performance\ntargets and the remuneration\noutcomes\n\n- Executive incentive arrangements\n\n**CONSULTATION WITH** **REMUNERATION CONSULTANTS AND OTHER EXTERNAL ADVISORS**\n**SHAREHOLDERS AND** The Remuneration and Nomination Committee may appoint and engage independent advisors directly in\n**OTHER STAKEHOLDERS** relation to Executive remuneration matters. These advisors:\n\n- Review and provide recommendations on the appropriateness of Senior Executive remuneration\n\n- Provide independent information to assist with remuneration decisions\nAdvice or recommendations provided are used to assist the Board. Remuneration decisions are undertaken\nthrough the Board and Remuneration and Nomination Committee process.\n\nBenchmarking data was provided by Morrow Sodali in FY22 and FY23 to review Senior Executive and NonExecutive remuneration. No remuneration recommendation as defined in Section 9B of the Corporations\nAct 2001 was made. The Board is satisfied that any advice provided by Morrow Sodali was made free from\nundue influence from any of the KMP.\n\n\nThe SER policy details how executive remuneration is structured, benchmarked and adjusted in response to changes in the\ncircumstances of the Company. NEXTDC’s Senior Executives Total Remuneration Package (TRP) includes the following\ncomponents:\n\nFIGURE 2: TOTAL FY23 REMUNERATION (IF MAXIMUM INCENTIVE PAYMENTS ARE RECEIVED)\n\n\n-----\n\n**3.2 Senior Executive Remuneration Benchmarks**\nWhen considering executive remuneration, the Committee frequently has reference to domestic and international industry\nbenchmarks relevant to its market sector, growth and value as well as unlisted competitors, general market conditions and the\nindividual’s role and performance. Factors specific to the data centre industry are also evaluated to ensure a high degree of\nalignment with strategic goals and in order to foster high retention rates in the leadership team and in the business more\nbroadly. The Committee continues to be mindful of strong and ongoing competitive pressures for top talent in the sector both\ninternationally and locally. The Committee considerations include the following fundamentals in setting executive remuneration\npackages:\n\n-  The individual’s skillsets and contribution to long term revenue and EBITDA growth;\n\n-  Their contribution to the delivery of key strategic goals and milestones;\n\n-  Their contribution to key measures of operational excellence including those relating to running of the business, the\nCompany’s strategic initiatives, safety and cultural values;\n\n-  Their relevant industry knowledge, experience and connections;\n\n-  Domestic and international comparators with whom NEXTDC must compete for talent; and\n\n-  Prevailing economic conditions.\n\nAs outlined in the Chairman’s comments, during FY23, the Committee evaluated Senior Executives’ fixed remuneration and\nTRP, in line with movements in the Australian Consumer Price Index, as well as the trajectory of the Company's growth,\nstrategic objectives and priorities, scarcity of talent, and changes in a roles’ complexity and NEXTDC’s geographical spread.\nFollowing this review, the Board approved a 15% increase in fixed remuneration for Senior Executives (including the CEO) for\nFY24, taking into account their demonstrated contribution towards the Company’s growth, reflected by a 33% increase in the\nCompany’s market capitalisation since the end of FY22 (44% since the start of FY21). The review also considered appropriate\nbenchmarking against regional management levels in Asia as well as privately owned peers in Australia (recognising that\nNEXTDC competes for Senior Executive talent with both listed and unlisted companies).\n\nThe Committee’s view is that the nature of the business and its local and international customer base, relationships and\ncompetitors are such that its TRP levels should continue to be assessed against both domestic and international remuneration\nbenchmarks.\n\n**3.3 Senior Executive Remuneration Mix**\n\nThe Senior Executive remuneration mix refers to the proportion of remuneration that executives can receive as fixed versus\nany variable “at risk” remuneration component. Assuming performance is at a level at which incentives pay out in full,\napproximately 71% of the TRP remuneration received is performance related.\n\nThe graph below sets out the remuneration mix if maximum incentive payments are received for the CEO and other Senior\nExecutive KMP for FY23.\n\nFIGURE 3: FY23 POTENTIAL REMUNERATION MIX\n\nFIXED (29%) AT RISK (71%)\n\nFixed Remuneration (29%) STI (14%) Deferred STI (14%) LTI – 3 Year (21.5%) LTI – 4 Year (21.5%)\n\n\n-----\n\n**3.4 Senior Executive Remuneration and Performance**\n\nThe Board has determined that significant remuneration opportunities should continue to be contingent on realising the\nCompany’s ongoing financial and operational objectives. The Committee is disclosing further detail in relation to how incentive\noutcomes were determined in FY23 to ensure shareholders gain an appropriate level of insight into the key strategic and project\nmilestones set for Senior Executives remuneration. The Committee is aiming to set these to ensure NEXTDC’s executive\ncontinue to be focussed on developing and growing its first-class data centre business, customer success and expanding its\nnational and international network of data centres. These remain the key drivers for shareholder value creation and continue to\nbe the cornerstones of our incentive program.\n\nBelow see Senior Executive remuneration and performance assessed relative to NEXTDC’s performance over the past five\nyears:\n\n\nTABLE 2: HISTORICAL COMPANY PERFORMANCE\n\n169.7 200.8 246.1 291.0 **362.4** **▲ 25%** 85.1 104.6 134.5 169.0 **193.7** **▲ 15%**\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\n**Total revenue ($M)** **Underlying EBITDA ($M)** **Net profit/(loss) before tax ($M)**\n\n52.5 70.0 75.5 83.0 **122.2** **▲ 47%** 6.49 9.88 11.86 10.64 **12.58** **▲ 18%** 2,230 4,496 5,403 4,859 **6,474** **▲ 33%**\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\nFY19 FY20 FY21 FY22 FY23\n\n\n**Contracted utilisation (MW)** **Share price* ($)** **104.6** **Market capitalisation* ($M)**\n\n*Closing share price as at 30 June\n\n\nFY23 underlying EBITDA excludes costs related to early stage offshore operating expenses, acquisition and funding\nopportunities, as well as investment in associates.\n\n\n-----\n\n**3.5 Variable remuneration – Short Term Incentive (STI) Plan**\n\nThe Committee recognises that NEXTDC is a capital-intensive business that requires significant investment for infrastructure\nto be built prior to generating income from customer contracts. With NEXTDC operating in a high-growth industry, the Company\nneeds to continue to expand its infrastructure investment to keep pace with customer demand. It is on this basis that the Board\nand Committee places emphasis on revenue and underlying EBITDA generation as well as delivery of projects and maintaining\nstrong operational performance when incentivising Senior Executives.\n\nThe composition of performance metrics comprising the FY23 STI program are as follows:\n\nFIGURE 4: FY23 STI PERFORMANCE METRICS\n\n**10%** Underlying EBITDA\n\n**15%**\n\nTotal Revenue\n\n**40%**\n\nMajor Project\nDelivery\n\nOperations\n\n**35%**\n\n\n**FINANCIAL YEAR 2023 STI PLAN**\n\nThe purpose of the STI Plan is to provide an incentive for Senior Executives to achieve against the Company’s strategic\nobjectives by delivering or exceeding on annual business plan requirements to ensure sustainable superior returns for\nshareholders. Key terms of the FY23 STI Plan are detailed below.\n\n\n\n|Feature|Description|Col3|Col4|\n|---|---|---|---|\n|Opportunity|Subject to the achievement of the Gateway, participants may achieve up to a stretch (maximum) award of 100% of their Base Salary Package.|||\n|Gateway|In order to qualify for any award under the FY23 STI incentive program, underlying EBITDA achieved in FY23 must be at least 95% of the midpoint value of the initial guidance range given for underlying EBITDA performance in that year. In FY23 that gateway was set at $184.3m. A further performance gate for this year was fulfilling the Company’s uptime obligations to its customers. No STI is to be awarded to any individual acting in breach of the Company’s code of conduct.|||\n|Measurement period|The Company’s financial year i.e., from 1 July 2022 to 30 June 2023.|||\n|Performance metrics|In FY23 the below Company Key Performance Indicators (KPIs) were selected as being the most relevant drivers for improving financial performance and growth in shareholder value.|||\n||Metric|Weighting|Reason for selection|\n||Underlying EBITDA1|Up to 40%|Indicates the Company’s underlying profitability, a measure best suited to its stage of development: • 50% achieved at bottom end of initial guidance range ($190m) • 100% achieved at top end of initial guidance range ($198m) • A linear progression to be applied between the limits.|\n||Total Revenue|Up to 35%|Indicates the Company’s level of incremental growth in new business for the period, an essential criterion in assessing NEXTDC’s financial and operational performance: • 50% achieved at bottom end of initial guidance range ($340m) • 100% achieved at top end of initial guidance range ($355m) • A linear progression to be applied between the limits.|\n\n\n-----\n\n|Feature|Description|Col3|Col4|\n|---|---|---|---|\n||Major Project Delivery|Up to 15%|This component is for agreed major projects and clear, definable outcomes that drive future growth in capabilities, revenue, and earnings. Projects are mostly identified at or prior to the beginning of the financial year but may also be added as the financial year progresses. Projects may complete within the year or flow into the following year. In applying measures against performance, the time and cost will be that approved in the original approved project submission. These may be modified as to scope, time and costs in subsequent approved Board submissions. In calculating the award, weighting was to be given to each of the major projects as indicated in Figure 5 below.|\n||Operations|Up to 10%|This component is for key operational metrics that affect service level standards expressed in uptime performance, data centre energy efficiency as well as measures relating to the health and safety of our employees and visitors. In calculating the award, weighing was given to each performance component as indicated in Figure 6 below.|\n|Delivery of STI|Payments will be in cash unless otherwise determined by the Board and will normally be paid in September following the Measurement Period subject to the deferral of 50% of the final STI payment, which may be delivered in cash or by grant of rights to acquire fully paid ordinary shares. Deferring 50% of the awarded STI for a period of 12 months is intended to promote sustainability of annual performance over the medium term, acts as a retention mechanism and facilitates the exercise of malus provisions should the Board determine to exercise its discretion.|||\n|Board discretion|If the Company’s overall performance during the Measurement Period is substantially lower than expectations and has resulted in a significant loss to shareholders’ value, the Board may abandon the STI Plan for the Measurement Period or adjust STI pay outs.|||\n|Forfeiture and termination|In the event of cessation of employment due to dismissal for cause, all unvested deferred STI’s are forfeited. In the event of cessation of employment due to resignation, all unvested deferred STI’s are forfeited unless otherwise determined by the Board. In the event of cessation of employment due to death, total and permanent disability or redundancy, unvested deferred STI’s will continue on-foot and be subject to the original terms as though employment had not ceased, unless the Board determines otherwise. In any other circumstances the Board has discretion to determine how the unvested deferred STI’s will be treated upon cessation of employment with the Company.|||\n|Malus/ Clawback Provisions|The Board retains the ability to reduce or apply malus/clawback to awards where the participant has acted fraudulently or dishonestly or is in material breach of their obligations to the Company; where the Company becomes aware of material misstatements or omissions in the financial statements of the Company; where the Company is required by or entitled under law or Company policy to reclaim remuneration; or where any circumstances occur that the Board determines to have resulted in an unfair benefit to the recipient.|||\n\n\n-----\n\nFIGURE 5: FY23 STI POTENTIAL – MAJOR PROJECT DELIVERY\n\nMajor Project 1 (20%): S3 - delivery of Phase 2 on time (50%) and\non budget (50%)\n\n**5% [5%]** Major Project 2 (20%): M2 - delivery of Stage 3 MCX tower on time\n\n**20%** (50%) and on budget (50%)\n\n**10%** Major Project 3 (20%): M3 - delivery of key client capacity including\n\nservices and rack ready on time (50%) and on budget (50%)\nMajor Project 4 (10%): SC1 - delivery of rack ready inventory and\ninfrastructure upgraded to NDC standards\n\n**10%**\n\nMajor Project 5 (10%): A1 - completion of detailed design and\n\n**20%** development approvals on time\n\nMajor Project 6 (10%): D1 - completion of detailed design and\n\n**10%**\n\ndevelopment approvals on time\nMajor Project 7 (5%): B2 - expansion of Data Hall 1 on time (50%)\n\n**20%** and on budget (50%)\n\nMajor Project 8 (5%): KL1 - Malaysia - MDEC status conferred, land\nacquired, and development approvals submitted\n\n\nFIGURE 6: FY23 STI POTENTIAL – OPERATIONS\n\nWH&S: achieve LTIFR <2.7 and >90% of site safety\nleadership inspections per executive\n\n**30%**\n\n**40%**\n\nPUE: PUE of <1.4 for all facilities commencing at least\n60 days prior to the end of the measurement period\n\nTeam training: 95% completion of all team training\nprograms focussed on diversity, inclusion, safety and\n\n**30%**\n\nsocial impact\n\n\n**3.6 Variable remuneration – Long Term Incentive (LTI) Plan**\n\n**FINANCIAL YEAR 2023 LTI PLAN**\n\nThe aim of the LTI Plan is to provide an incentive for Senior Executives to help achieve the Company’s strategic objectives\nand to deliver performance that is sustainable and aligned with shareholder interests. It also acts as a retention mechanism\nto maintain a stable team of high performing executives. The current LTI Plan is the NEXTDC Limited Equity Incentive Plan\n(EIP).\n\nThe Committee recognises that continual review is required to ensure the program remains in step with the Company’s rapid\ngrowth, and in line with trends, both of ASX market peers and international competitors.\n\n**Feature** **Description**\n\n|Opportunity/ Allocation|Maximum LTI value was set at 150% of Base Salary Packages. The LTI grant of Performance Rights is calculated by applying the following formula: Number of Performance Rights = Base Package x Maximum LTI% ÷ Right Value NB: The Right Value is the volume weighted average share price of Shares over the 10 trading days following the release of the Company’s FY22 results. The “Maximum LTI %” recognises that the stretch level of Rights will be granted when stretch performance is achieved.|\n|---|---|\n\n\n-----\n\n|Feature|Description|Col3|\n|---|---|---|\n|Measurement period|The measurement period for the LTI award will now be extended to include tranches which vest after the 3rd and 4th years. For FY23, the LTI award comprises: • Tranche 1 (50% of the total LTI award), which will be tested after three years and be eligible to vest at that time; and • Tranche 2 (50% of the total LTI award), which will be tested after four years and be eligible to vest at that time. In all cases performance is measured over a period commencing from the end of the day of the release of the Company’s full year results (for this award it is the release of the FY22 results) to the end of the day of the release of its results for the relevant year (in this case, it is FY25 and FY26). No component will be subject to re-testing.||\n|Performance conditions|Vesting of each tranche of the LTI award is subject to two performance conditions: 1. Gateway Hurdle Vesting of the Performance Rights is subject to an initial gateway hurdle of NEXTDC achieving positive total shareholder return (TSR) over the relevant measurement period for that tranche. If the gateway hurdle is not met, the rights under the EIP automatically lapse even if the TSR Hurdle (described below) is achieved. 2. TSR Hurdle In addition to the Gateway Hurdle, vesting under the EIP is subject to a relative TSR performance condition. The TSR Hurdle is determined by ranking NEXTDC’s TSR over the measurement period for the relevant tranche, relative to the TSR of companies in the ASX 100 Accumulation Index (Index). Vesting of the EIP rights will be determined by reference to the following vesting schedule:||\n||NEXTDC’s TSR over the Measurement Period|Percentage of Rights that vest|\n||Less than TSR of Index|Nil|\n||At TSR of Index|25%|\n||Between TSR of Index and TSR of Index + 5%|Pro rata vesting from 25% to 100% on a straight-line basis|\n||TSR of Index + 5% or greater|100%|\n||The scale requires that the Company deliver a TSR to shareholders that is at least as good as the overall market (as indicated by the TSR of the Index over the measurement period) before any vesting may occur. Full vesting does not become available until the TSR of the Company reaches the TSR of the Index over the measurement period plus 5% p.a. This would, in the view of the Board, represent an outstanding outcome for shareholders. The Committee has again reviewed whether the introduction of a second LTI performance measure is appropriate. For now, it remains their and the Board’s view that an additional measure is not appropriate at NEXTDC’s current stage of development. The Committee regards the continued application of a relative TSR performance measure to be the most effective method for aligning long-term executive performance with shareholder wealth outcomes and will review the appropriateness of the single measure LTI program on an annual basis.||\n\n\n**Reason for selection** TSR was selected as it recognises the total returns (share price movement and dividends\nassuming they are reinvested into Company shares) that accrue to shareholders over the\nMeasurement Period. This measure creates the most direct alignment between shareholder return\nand rewards realised by Senior Executives. The measurement period for assessing TSR\nperformance is aligned with the release of results to ensure that the share price upon which TSR\nis determined at the start and end of the measurement period reflects an informed market.\n\nMarket adjusted TSR was selected to ensure that participants do not receive windfall gains from\nbroad market movements unrelated to the performance of the Senior Executives.\n\nThe positive TSR gate ensures that Senior Executives cannot benefit from the LTI Plan when\nshareholders have lost value over the Measurement Period. Vesting commences upon NEXTDC’s\nTSR matching the Index TSR, with full vesting occurring once NEXTDC’s TSR exceeds the Index\nTSR by 5% compound annual growth over the measurement period. This hurdle has been\ndetermined with regard for the historic performance of the ASX 100 Accumulation Index whereby\n5% compound annual growth or greater represents upper quartile performance.\nThis would, in the Board’s view, represent an outstanding outcome for the Company.\n\n\n-----\n\n|Feature|Description|\n|---|---|\n|Exercise of vested Incentive Rights|Upon vesting the Board will determine the extent to which their value will be delivered in Shares and/or cash. The Board will also determine whether Shares will be issued or acquired for participants via the Employee Share Trust (EST) and if the EST is used, whether new issues or on-market purchases of Shares will be undertaken by the trustee of the EST. No amount is payable by participants to exercise vested Incentive Rights.|\n|Forfeiture and termination|In the event of cessation of employment due to dismissal for cause, all unvested Incentive Rights are forfeited. In the event of cessation of employment due to resignation, all unvested Incentive Rights are forfeited unless otherwise determined by the Board. In the event of cessation of employment due to death, total and permanent disability or redundancy, unvested performance rights will continue on-foot and be subject to the original terms as though employment had not ceased, unless the Board determines otherwise. In any other circumstances the Board has discretion to determine how the unvested Performance Rights will be treated upon cessation of employment with the Company.|\n|Board discretion|The Board retains discretion to modify vesting outcomes. Incentive Rights that do not vest will lapse. Board discretion to vary vesting will generally only be applied when the vesting that would otherwise apply is considered by the Board to be inappropriate, and when it would not align with shareholder returns.|\n|Change of Control|In circumstances where there is a likely change in the control of NEXTDC, the Board has discretion to determine the level of vesting (if any) having regard to the portion of the measurement period elapsed, performance to date against performance conditions and any other factors it considers appropriate. If an actual change in the control of the Company occurs before the Board can exercise this discretion, unless the Board determines otherwise, unvested Performance Rights will vest and become exercisable in proportion to the Company's performance against the TSR Hurdle up to the date of the change of control.|\n|Malus/Claw back Provisions|The Board retains the ability to reduce or apply malus/clawback to awards where the participant has acted fraudulently or dishonestly or is in material breach of their obligations to the Company; or where the Company becomes aware of material misstatements or omissions in the financial statements of the Company; or any circumstances occur that the Board determines to have resulted in an unfair benefit to the recipient.|\n|Hedging|The Company prohibits the hedging of Incentive Rights and Restricted Shares by Participants.|\n\n\n**3.7 Risk Management and Clawback Provisions**\n\nA sound risk management culture is important to NEXTDC. The Company’s STI and LTI Plans have been designed to\nprotect the Company from the risk of unintended or unjustified pay outcomes by allowing risk factors to be taken into\naccount over long periods and by way of a variety of measures that are considered key to the Company’s success. For\nexample:\n\n-  Basing the STI on a number of performance measures, including initial gateway hurdles before any STI is able to be\npaid (subject also to malus/clawback provisions)\n\n-  Deferring a component (50%) of STI to ensure alignment with shareholder value and compliance with NEXTDC’s codes of\nconduct and corporate governance\n\n-  Distributing remuneration components across both long and short-term performance-based mechanisms to\nencourage prudent risk taking in line with the overall objectives of the Company.\n\nWhile formal shareholding requirements are not imposed for Senior Executives, the CEO has a material holding in\nNEXTDC, holding shares and vested performance rights valued at approximately 12 times base salary at 30 June 2023.\n\nBoard discretion is applied to the vesting of all STIs and LTIs to ensure any proposed awards are aligned with shareholder\nreturns. As noted, the Board also retains the ability to reduce or clawback awards in the event of serious misconduct or a\nmaterial misstatement in the Company’s financial statements.\n\n\n-----\n\n**4.** **STI AND LTI PERFORMANCE OUTCOMES FOR FY23**\n\n**4.1 STI Vesting Outcomes**\n\nThe Executives performance against the FY23 STI performance measures – as previously described in section 3.5 above are\nas follows. The Committee continues to be of the view that they were highly relevant to the Company’s financial performance\nand to growing shareholder value. The individual components contributed to the overall composition of the STI award as follows:\n\nFIGURE 7: CALCULATION OF STI OUTCOMES\n\n\n**Gateway Test**\n\nEBITDA greater than\n\n95% of the midpoint\n\nof the initial guidance\n\nrange\n\nFulfilment of uptime\n\nobligations to\n\ncustomers\n\n\n**Maximum STI Value**\n\nSTI opportunity of up\n\nto 100% of Base\n\n\n**Performance Measure**\n\nGroup EBITDA\n\nTotal Revenue\n\nMajor Project Delivery\n\nOperations\n\n\n**Weighting**\n\n40%\n\n35%\n\n15%\n\n10%\n\n\n**STI Outcome**\n\nSTI outcome is\n\nsubject to Board\n\nassessment and\n\ndiscretion\n\n\nUpon review of the above performance criteria set for the FY23 STI Program, the Committee has determined that 88% of the\nFY23 STI opportunity be awarded to the participants. The FY23 STI outcome was determined by the Committee and approved\nby the Board. This outcome strictly reflects the performance against the performance criteria set out for this year’s program.\nThere has been no further discretion applied to these outcomes.\n\nThe individual components of this assessment were as follows:\n\n\n**Type of**\n**performance**\n\n\n\n\n|performance measure and weighting at target|KMP Performance measure|FY23 performance|Level of Achievement (% of Stretch)|\n|---|---|---|---|\n|Financial 75%|Underlying EBITDA (40%): This percentage was awarded out of a maximum of 40% and was arrived at on the basis that the Company achieved underlying EBITDA of $193.7 million against the initial guidance range of $190 million (50%) to $198 million (100%) for this metric set by the Committee. See section 3.5 for more details on its method of calculation including the minimum EBITDA gateway also set for this metric.|$193.7 million|73%|\n||Total Revenue (35%): This percentage was out of a maximum award of 35% and was arrived at on the basis that the Company achieved $362.4 million out of the initial guidance range of $340 million (50%) to $355 million (100%) for this metric set by the Committee. See section 3.5 for details on the method of calculation.|$362.4 million|100%|\n\n\n-----\n\n**Type of**\n**performance**\n\n\n\n\n|performance measure and weighting at target|KMP Performan|nce measure|FY23 performance|Level of Achievement (% of Stretch)|\n|---|---|---|---|---|\n|Non-Financial 25%|Major Project Delivery (15%):|Major Project 1 (20%): S3 – delivery of Phase 2 on time (50%) and on budget (50%)|Achieved|100%|\n|||Major Project 2 (20%): M2 – delivery of Stage 3 MCX tower on time (50%) and on budget (50%)|Achieved|100%|\n|||Major Project 3 (20%): M3 - delivery of key client capacity including services and rack ready on time (50%) and on budget (50%)|Achieved|100%|\n|||Major Project 4 (10%): SC1 - delivery of rack ready inventory and infrastructure upgraded to NDC standards|Achieved|100%|\n|||Major Project 5 (10%): A1 – completion of detailed design and development approvals on time|Achieved|100%|\n|||Major Project 6 (10%): D1 - completion of detailed design and development approvals on time|Not achieved|0%|\n|||Major Project 7 (5%): B2 - expansion of Data Hall 1 on time (50%) and on budget (50%)|Achieved|100%|\n|||Major Project 8 (15%): KL1 - Malaysia – MDEC status conferred, land acquired, and development approvals submitted|Achieved|100%|\n||Operational Metrics (10%):|WH&S: achieve LTIFR rate <2.7, and achieve >90% of site safety leadership inspections per executive (2 per executive)|Achieved|100%|\n|||PUE: PUE of <1.4 for all facilities commencing at least 60 days prior to the end of the measurement period|Achieved|100%|\n|||Team Training: 95% completion of all team training programs focused on diversity, inclusion, safety and social impact|Achieved|100%|\n\n\n-----\n\n**4.2 LTI Vesting Outcomes**\n\nThe measurement period for the FY20 LTI was between 29 August 2019 and 29 August 2022. The vesting condition attached\nto the FY20 LTI was based on NEXTDC’s TSR over the measurement period, against the relative performance of the S&P /\nASX 200 Accumulation Index (AXJOA), with vesting percentages to be determined by the following scale, as outlined in the 30\nJune 2020 Annual Report:\n\n|NEXTDC’s TSR over the Measurement Period|Percentage of Rights that Vest|\n|---|---|\n|Less than TSR of Index|Nil|\n|At TSR of Index|25%|\n|Between TSR of Index and TSR of Index + 5%|Pro rata vesting from 25% to 100% on a straight-line basis|\n|TSR of Index + 5% or greater|100%|\n\n\n\nNEXTDC’s performance against the vesting conditions is summarised below:\n\nMarket TSR 5.9%\n\nTSR required to achieve stretch hurdle 10.9%\n\nTSR achieved 18.9%\n\n\nBased on the above assessment, the stretch target was achieved, and the Board determined that 100% of the LTI granted in\nFY20 vested, with rights converting to shares following the release of the FY22 Annual Report.\n\nThe measurement period for the FY21 LTI is for approximately a three-year period, beginning from the end of trade on the day\nof release of the FY20 results, and ending upon the end of the day of release of the annual results for FY23. The vesting\ncondition attached to the FY21 LTI is based on NEXTDC’s TSR over the measurement period, against the relative performance\nof the S&P / ASX 200 Accumulation Index (Index).\n\nGiven vesting is not able to be determined until the end of day of release of the FY23 annual results, the Board will determine\nvesting following the release of the FY23 Annual Report.\n\n**5.** **EMPLOYMENT TERMS FOR DIRECTORS AND SENIOR EXECUTIVES**\n\n**5.1 Non-Executive Directors**\n\nOnce appointed all Non-Executive Directors enter into a service agreement with the Company in the form of a letter of\nappointment. The letter summarises the Board policies and terms, including compensation relevant to the office of the Director.\n\nAll current Non-Executive Directors carry an initial contract duration of three years (subject to election and re-election by\nshareholders). The employment contracts for the Non-Executive Directors do not carry notice period provisions, nor do they\nprovide for any termination benefits.\n\nAll Directors must retire from office at the third annual general meeting after the Director was last elected and will then be\neligible for re-election. Upon cessation of a Director’s appointment, the Director will be paid his or her Director’s fees on a prorata basis, to the extent that they are unpaid.\n\nThe Non-Executive Director Remuneration Policy applies to Non-Executive Directors of the Company in their capacity as\nDirectors and as members of committees, and may be summarised as follows:\n\n-  Remuneration comprises:\n\n– Board fees\n– Committee fees\n– Superannuation\n– Other benefits\n– Securities (if appropriate at the time).\n\n-  Remuneration is managed within the aggregate fee limit (AFL) or fee pool of $1,600,000 which was approved by\nshareholders at the FY20 AGM in November 2020.\n\n-  The Non-Executive Director Remuneration Policy contains guidelines on when the Board should seek adjustment to the\n\n\n-----\n\n-  Remuneration should be reviewed annually.\n\n-  Non-Executive Directors are not entitled to termination benefits.\n\n-  The level of Board Fees (being the fees paid for membership of the Board, inclusive of superannuation and exclusive of\ncommittee fees) will be set with reference to the median of comparable ASX listed companies.\n\n-  Committee fees may be used to recognise additional contributions to the work of the Board by members of committees, but\nin a manner that, when combined with Board Fees, will not exceed the 75[th] percentile of comparable ASX listed companies.\n\n-  The Company does not currently provide securities as part of Non-Executive Director remuneration.\n\nIn accordance with the Non-Executive Director Remuneration Policy, during FY23 the Remuneration and Nomination\nCommittee conducted an annual review of Non-Executive Director remuneration. The review was informed by an independent\nbenchmarking exercise with reference to ASX-listed companies of a similar size as well as recent recruitment benchmarking at\nregional management levels in Asia and into privately owned companies in Australia. The benchmarking exercise compared\nNXT to companies that are directly comparable in terms of market capitalisation, with 10 larger and 10 smaller than NXT within\nthe ASX100 index only. In conjunction with the benchmarking exercise, the review also considered other factors such as\nsurrounding market conditions and sentiment, the trajectory of the Company’s growth, strategic objectives, and the\ngeographical spread of the Company.\n\nAs a result of the review, it was determined that an increase in Non-Executive Director remuneration was warranted, effective\nfrom October 2022.\n\nThe rates of fees including superannuation contributions in respect of the 2023 financial year are as follows:\n\nTABLE 3: NON-EXECUTIVE DIRECTOR FEE SCHEDULE\n\n**From July 2022** **From October 2022**\n\nBoard Chair $330,000 per annum $430,000 per annum\n\nNon-Executive Director $152,000 per annum $170,000 per annum\n\nAudit and Risk Management Committee Chair $35,000 per annum $40,000 per annum\n\nRemuneration and Nomination Committee Chair $35,000 per annum $40,000 per annum\n\nInvestment Committee Chair $35,000 per annum $40,000 per annum\n\nCommittee Member $15,000 per annum $17,000 per annum\n\n**Recommended Non-Executive Director Shareholding**\n\nNon-Executive Directors are encouraged to accumulate shares on their own behalf, over a three-year period, of equivalent\nvalue to their average annual Directors’ fees.\n\n**5.2 Senior Executives**\n\nRemuneration and other terms of employment for the Chief Executive Officer and other key management personnel are also\nformalised in service agreements.\n\nThe CEO’s base salary package has remained consistent at $1.32 million since FY19 noting that effective 1 July 2022 his\nsalary package saw a minor increase of $1,724 as a result of the Company’s commitment to contribute a 0.5% increase in\nSuper Guarantee Contribution (SGC). Since his appointment to the role in 2012, the CEO has overseen the Company’s\nexpansion. Over the last four years, NEXTDC has achieved:\n\nNEXTDC is unique among ASX-listed companies due to its high capital-intensity and growth prospects requiring further capital\nto be invested ahead of demonstrable revenues and profits. Most comparable peers are US-based, as is the more comparable\nexecutive talent. The Board considered the Company’s long-term strategy and potential and determined that the CEO’s\nremuneration remains appropriate in context of the skills and experience necessary to lead NEXTDC.\n\n\n-----\n\nOther major provisions of the agreements relating to service agreements are set out below.\n\nTABLE 4: SERVICE AGREEMENTS\n\n**Name** **Duration of Contract** **Notice Period[1]** **Termination Payments[2]**\n\nCraig Scroggie No fixed term 18 months 18 months\n\nSimon Cooper No fixed term 12 months 12 months\n\nOskar Tomaszewski No fixed term 12 months 12 months\n\nDavid Dzienciol No fixed term 12 months 12 months\n\n1 Effective 1 July 2022, Craig Scroggie’s notice period has increased from 12 months to 18 months until the end of FY24, at which point it will\nrevert back to 12 months, with notice periods for all other KMP changed from 6 months to 12 months for this same period as a function of a\none-off 25% bonus paid to KMP and senior executives in FY22.\n\n2 Base salary payable if the Company terminates employees with notice, and without cause (for example, reasons other than unsatisfactory\nperformance).\n\n**6. STATUTORY REMUNERATION**\n\n**6.1 Senior Executive Remuneration**\n\nThe following table outlines the remuneration received or due to be received by Senior Executives of the Company during the\n2023 and 2022 financial years and has been prepared in accordance with the Corporations Act and the relevant accounting\nstandards. The figures provided under the LTI are based on accounting values and do not necessarily reflect actual payments\nreceived during the year.\n\n\n-----\n\n**6. STATUTORY REMUNERATION (CONTINUED)**\n\nTABLE 5: STATUTORY REMUNERATION\n\n**Name** **Year** **Salary** **Super**\n**contri-**\n**butions**\n\n\n**Base Salary Package** **STI** **LTI**\n\n\n**Subtotal** **STI[2]** **% of TRP** **LTI** **Total**\n\n**remuner-**\n**ation**\n\n**package**\n\n\n**Non-**\n**monetary**\n**benefits**\n\n\n**Leave**\n**benefits[1]**\n\n\nCraig Scroggie 2023 1,298,306 25,292 3,674 (63,259) 1,264,013 1,161,458 36% 779,914 3,205,385\n\nSimon Cooper 2023 478,306 25,292 1,837 2,453 507,888 441,907 35% 305,469 1,255,264\n\nOskar Tomaszewski 2023 478,306 25,292 -  6,132 509,730 441,907 35% 301,554 1,253,191\n\nDavid Dzienciol 2023 478,306 25,292 -  (8,585) 495,013 441,907 36% 301,554 1,238,474\n\n**Total** **2,733,224** **101,168** **5,511** **(63,259)** **2,776,644** **2,487,179** 36% **1,688,491** **6,952,314**\n\n**Base Salary Package** **STI** **LTI**\n\n\n**STI[2]** **% of TRP** **LTI** **Total**\n\n**remuner-**\n**ation**\n\n**package**\n\n\n**Name** **Year** **Salary** **Super**\n\n**contri-**\n**butions**\n\n\n**Non-**\n\n**monetary**\n**benefits**\n\n\n**Leave**\n\n**benefits[1]**\n\n\n**Subtotal** **Special**\n\n**bonus**\n\n\nCraig Scroggie 2022 1,298,306 23,568 3,585 (3,329) 1,322,130 330,900 1,177,486 33% 740,987 3,571,502\n\nSimon Cooper 2022 478,306 23,568 1,770 19,010 522,653 125,900 447,054 30% 385,170 1,480,777\n\nOskar Tomaszewski 2022 478,306 23,568 -  19,010 520,883 125,900 447,054 30% 373,705 1,467,542\n\nDavid Dzienciol 2022 478,306 23,568 -  41,085 542,959 125,900 447,054 30% 373,705 1,489,618\n\n**Total** **2,733,223** **94,272** **5,355** **75,775** **2,908,626** **708,598** **2,518,648** **31%** **1,873,567** **8,009,439**\n\n(1) Leave benefits in the basic package includes the net movement of short-term leave benefits such as annual leave and long-term leave benefits such as long service leave.\n\n(2) 50% of the 2022 and 2023 STI are subject to 12-month deferral (excluding the FY22 special bonus payment), with employees being able to elect whether this is delivered in cash or equity.\n\n\n-----\n\n**6.2 Non-Executive Director Remuneration**\n\nStatutory Remuneration received by Non-Executive Directors in FY23 and FY22 is disclosed below.\n\nTABLE 6: NON-EXECUTIVE DIRECTOR REMUNERATION\n\n**Name** **Financial year** **Board fees** **Superannuation** **Total**\n\nDouglas Flynn FY23 413,139 25,292 438,431\n\nDr Gregory J Clark AC FY23 179,825 18,882 198,707\n\nStuart Davis FY23 199,981 20,998 220,979\n\nStephen Smith FY23 204,250 -  204,250\n\nJennifer Lambert FY23 204,463 -  204,463\n\nDr Eileen Doyle FY23 164,878 17,312 182,190\n\n**Total** **FY23** **1,366,536** **82,484** **1,449,020**\n\nDouglas Flynn FY22 336,432 23,568 360,000\n\nDr Gregory J Clark AC FY22 165,455 16,545 182,000\n\nStuart Davis FY22 183,636 18,364 202,000\n\nStephen Smith FY22 186,292 708 187,000\n\nJennifer Lambert FY22 187,000 -  187,000\n\nDr Eileen Doyle FY22 151,818 15,182 167,000\n\n**Total** **FY22** **1,210,633** **74,367** **1,285,000**\n\n\n-----\n\n**6.3 Changes in Securities Held Due to Remuneration**\n\nTABLE 7: CHANGES IN SECURITIES HELD DUE TO REMUNERATION\n\n\n**Name** **Instrument** **Balance at**\n**start of**\n**the year**\n\n\n**Granted** **Exercised** **Lapsed** **Balance at end**\n**of the year**\n\n\nCraig Scroggie Performance Rights 1,104,755 196,768 -  -  1,301,523\n\nSimon Cooper Performance Rights 412,934 74,864 -  -  487,798\n\nSimon Cooper Deferred Rights 57,467 22,153 -  -  79,620\n\nOskar Tomaszewski Performance Rights 397,801 74,864 -  -  472,665\n\nDavid Dzienciol Performance Rights 312,901 74,864 -  -  387,765\n\nDavid Dzienciol Deferred Rights 38,192 22,153 -  -  60,345\n\n\n-----\n\nPerformance Rights\n\nThe following table details performance rights that have been provided to key management personnel.\n\nTABLE 8: PERFORMANCE RIGHTS PROVIDED TO KEY MANAGEMENT PERSONNEL\n\n\n**Name** **Financial**\n\n**Year**\n**Granted**\n\n\n**Number of**\n\n**Performance**\n\n**Rights**\n\n\n**Vested during**\n\n**the year**\n\n\n**Exercised**\n\n**during the**\n\n**year**\n\n\n**Vested and**\n\n**exercisable**\n**at the end of**\n\n**the year**\n\n\n**Unvested at**\n\n**the end of the**\n\n**year**\n\n\nCraig Scroggie 2017 223,325 -  -  223,325 - \n\n2018 194,987 -  -  194,987 - \n\n2019 208,202 -  -  208,202 - \n\n2020 216,393 216,393 -  216,393 - \n\n2021 113,989 -  -  -  113,989\n\n2022 147,859 -  -  -  147,859\n\n2023 196,768 -  -  -  196,768\n\n**1,301,523** **216,393** **-** **842,907** **458,616**\n\nSimon Cooper 2017 83,747 -  -  83,747 - \n\n2018 73,121 -  -  73,121 - \n\n2019 77,287 -  -  77,287 - \n\n2020 80,328 80,328 -  80,328 - \n\n2021 42,314 -  -  -  42,314\n\n2022 56,137 -  -  -  56,137\n\n2023 74,864 -  -  -  74,864\n\n**487,798** **80,328** **-** **314,483** **173,315**\n\nOskar Tomaszewski 2017 80,025 -  -  80,025 - \n\n2018 69,871 -  -  69,871 - \n\n2019 74,132 -  -  74,132 - \n\n2020 77,049 77,049 -  77,049 - \n\n2021 40,587 -  -  -  40,587\n\n2022 56,137 -  -  -  56,137\n\n2023 74,864 -  -  -  74,864\n\n**472,665** **77,049** **-** **301,077** **171,588**\n\nDavid Dzienciol 2018 64,996 -  -  64,996 - \n\n2019 74,132 -  -  74,132 - \n\n2020 77,049 77,049 -  77,049 - \n\n2021 40,587 -  -  -  40,587\n\n2022 56,137 -  -  -  56,137\n\n2023 74,864 -  -  -  74,864\n\n**387,765** **77,049** **-** **216,177** **171,588**\n\n\n-----\n\nThe fair values of each performance right at grant date are as follows:\n\n|Financial year granted|Fair value at grant date|\n|---|---|\n|2017|$1.63|\n|2018|$3.32|\n|2019|$3.07|\n|2020|$4.61#|\n|2021|$6.80#|\n|2022|$6.09|\n|2023|$4.83|\n\n\n\n# Except for Craig Scroggie whose rights were granted at a fair value of $6.02 in 2021 (2020: $3.30)\n\n\n-----\n\nDeferred Rights\n\nThe following table details deferred rights that have been provided to those key management personnel who elected to\nreceive the deferred component of their STI in shares rather than cash.\n\nTABLE 9: DEFERRED RIGHTS PROVIDED TO KEY MANAGEMENT PERSONNEL\n\n\n**Name** **Financial**\n\n**Year**\n**Granted**\n\n\n**Vested during**\n\n**the year**\n\n\n**Number of**\n\n**Deferred Share**\n\n**Rights**\n\n\n**Exercised**\n\n**during the**\n\n**year**\n\n\n**Vested and**\n\n**exercisable at**\n\n**the end of the**\n\n**year**\n\n\n**Unvested at**\n\n**the end of the**\n\n**year**\n\n\nSimon Cooper 2019 18,347 -  -  18,347 - \n\n2020 6,899 -  -  6,899 - \n\n2021 15,867 -  -  15,867 - \n\n2022 16,354 16,354 -  16,354 - \n\n2023 22,153 -  -  -  22,153\n\n**79,620** **16,354** **-** **57,467** **22,153**\n\nDavid Dzienciol 2020 6,618 -  -  6,618 - \n\n2021 15,220 -  -  15,220 - \n\n2022 16,354 16,354 -  16,354 - \n\n2023 22,153 -  -  -  22,153\n\n**60,345** **16,354** **-** **38,192** **22,153**\n\nThe fair value of the deferred rights at grant date is as follows:\n\n**Financial year granted** **Fair value at grant date**\n\n|2019|$6.34|\n|---|---|\n|2020|$6.10|\n|2021|$11.58|\n|2022|$13.41|\n|2023|$10.09|\n\n\n\nDeferred rights under the Senior Executive STI Plan are granted following release of the annual results. The shares vest one\nyear from the grant date. On vesting, each right automatically converts into one ordinary share. Senior Executives do not\nreceive any dividends and are not entitled to vote in relation to the rights during the vesting period. If a Senior Executive ceases\nemployment before the rights vest, they have six months from the cessation of employment or the vesting date, whichever is\nlater, to exercise their deferred rights. Any rights not exercised in this period will automatically lapse.\n\nThe fair value of the rights is determined based on the volume weighted average trading price of the Company’s shares over\nthe 10 trading days following release of the Company’s annual results.\n\n\n-----\n\n**6.4 Director and Senior Executive Shareholdings**\n\nDuring FY23, KMP and their related parties held shares in NEXTDC directly, indirectly or beneficially as follows:\n\nTABLE 10: DIRECTOR AND SENIOR EXECUTIVE SHAREHOLDINGS\n\n\n**Received**\n**during the**\n**year on the**\n**exercise of**\n**an option**\n**or right**\n\n\n**Shares**\n\n**held**\n**nominally**\n**at 30 June**\n\n**2023**\n\n\n**Received**\n**during the**\n**year as**\n**compensation**\n\n\n**Other**\n**changes**\n\n\n**Closing**\n**balance**\n\n\n**Opening**\n**balance**\n\n\n**Holder**\n\n**DIRECTORS**\n\n\nDouglas Flynn 160,223 -  -  20,029 180,252 180,252\n\nDr Gregory J Clark AC 66,048 -  -  8,062 74,110 74,110\n\nStuart Davis 38,160 -  -  4,770 42,930 42,930\n\nStephen Smith -  -  -  -  -  - \n\nJennifer Lambert 24,000 -  -  4,000 28,000 28,000\n\nDr Eileen Doyle 13,800 -  -  3,450 17,250 17,250\n\n**SENIOR EXECUTIVES**\n\nCraig Scroggie 389,191 -  -  53,500 442,691 435,511\n\nSimon Cooper 150,341 -  -  (10,000) 140,341 14,846\n\nOskar Tomaszewski 75,610 -  -  831 76,441 - \n\nDavid Dzienciol 30,968 -  -  7,656 38,624 - \n\nThe Non-Executive Directors of the Company did not receive any shares in NEXTDC on behalf of the Company in respect of\nthe 2022 and 2023 financial reporting periods.\n\nLoans to Directors and Executives\n\nThere were no loans to Directors or other key management personnel at any time during the year.\n\n\n-----\n\n**6.5 Remuneration Received (Non-statutory)**\n\n**Remuneration received in FY23**\n\nThe amounts disclosed below as Senior Executive remuneration for FY23 reflect the actual benefits received by each Senior\nExecutive during the reporting period. The remuneration values disclosed have been determined as follows:\n\n_Fixed remuneration_\nFixed remuneration includes base salaries received, paid leave, payments made to superannuation funds, and the taxable\nvalue of non-monetary benefits received, and excludes any accruals of annual or long service leave.\n\n_Short-term incentives_\nAwarded STI represents bonuses that were awarded to each Senior Executive in relation to FY23 performance, 50% of\nwhich will be paid in FY24. 50% of the STI bonuses awarded are deferred for 12 months, with employees being able to elect\nwhether the award will be delivered in cash or equity. Deferred STI represents the remaining 50% of the FY23 STI that is\nexpected to vest in FY24.\n\n_Long term incentives_\nThe value of vested rights was determined based on the intrinsic value of the rights at the date of vesting, being the difference\nbetween the share price on that date, and the exercise price payable by the Senior Executive. The performance rights that\nvested in FY23 were granted in 2020.\n\nTABLE 11: REMUNERATION RECEIVED IN FY23\n\n\n**Awarded STI**\n\n**(cash)**\n\n\n**Deferred**\n\n**STI**\n\n**(cash or**\n\n**equity)**\n\n\n**Name** **Fixed**\n**Remuneration**\n\n\n**Vested**\n\n**LTI**\n\n\n**Total Value**\n\n\nCraig Scroggie 1,327,273 580,729 580,729 2,012,455 4,501,186\n\nSimon Cooper 505,435 220,954 220,954 747,050 1,694,393\n\nOskar Tomaszewski 503,598 220,954 220,954 716,556 1,662,062\n\nDavid Dzienciol 503,598 220,954 220,954 716,556 1,662,062\n\n**Total** **2,839,904** **1,243,591** **1,243,591** **4,192,617** **9,519,703**\n\nThe amounts disclosed above are not the same as the remuneration expensed in relation to each KMP in accordance with\naccounting standards. The Directors believe that the remuneration received is more relevant to users for the following reasons:\n\n-  The statutory remuneration expensed is based on historic cost and does not reflect the value of the equity instruments\nwhen they are actually received by the Senior Executives\n\n-  The statutory remuneration shows benefits before they are actually received by the Senior Executives\n\n-  Where rights do not vest because a market-based performance condition is not satisfied (e.g. TSR), the Company must\nstill recognise the full amount of expenses even though the Senior Executives will never receive any benefits.\n\n-  Share based payment awards are treated differently under the accounting standards depending on whether the\nperformance conditions are market conditions (no reversal of expense) or non-market conditions (reversal of expense\nwhen shares fail to vest), even though the benefit received by the Senior Executives is the same (nil where equity\ninstruments fail to vest).\n\nThe information in this section has been audited together with the rest of the remuneration report.\n\n\n-----\n\nAudit and non-audit services\n\nDetails of the amounts paid or payable to the auditor (PricewaterhouseCoopers Australia) for audit and non-audit services during\nthe year are disclosed in Note 24 Remuneration of auditors.\n\nThe Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s\nexpertise and experience with the Company and/or the group are important.\n\nThe board of directors, in accordance with advice provided by the Audit and Risk Management Committee, is satisfied that the\nprovision of the non-audit services is compatible with the general standard of independence for auditors imposed by the\nCorporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor did not compromise the\nauditor independence requirements of the Corporations Act 2001 for the following reasons:\n\n-  all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not\nimpact the impartiality and objectivity of the auditor, and\n\n-  none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code\nof Ethics for Professional Accountants.\n\nAuditor’s independence declaration\n\nA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out\non page 60.\n\nAuditor\n\nPricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report\n\nis made in accordance with a resolution of the Directors.\n\n**Craig Scroggie**\n**Managing Director and Chief Executive Officer**\n\n28 August 2023\n\n\n-----\n\nAuditor’s Independence Declaration\n\n\nAuditor’s Independence Declaration\n\nAs lead auditor for the audit of NEXTDC Limited for the year ended 30 June 2023, I declare that to the\nbest of my knowledge and belief, there have been:\n\n(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in\nrelation to the audit; and\n\n(b) no contraventions of any applicable code of professional conduct in relation to the audit.\n\nThis declaration is in respect of NEXTDC Limited and the entities it controlled during the period.\n\nMichael Shewan Brisbane\n\nPartner 28 August 2023\nPricewaterhouseCoopers\n\nPricewaterhouseCoopers, ABN 52 780 433 757\n480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001\nT: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au\n\nLiability limited by a scheme approved under Professional Standards Legislation.\n\n\n-----\n\nCorporate Governance Statement\n\nNEXTDC has established a strong governance framework that defines the roles and\nresponsibilities of NEXTDC’s Board, management team, employees and suppliers.\n\nNEXTDC continues to be committed to the highest levels of integrity and ethical standards in all its business\npractices, recognising that effective and transparent corporate governance is critical to its success. The framework\ncontinues to evolve as we seek continual improvements in the way we conduct the business.\n\nThe Corporate Governance Statement has been approved by the Board and fully supports the intent of the Australian\nSecurities Exchange (“ASX”) Corporate Governance Council’s new 4th edition of Corporate Governance Principles and\nRecommendations (“4th Edition Governance Principles”). NEXTDC meets all the requirements of 4th Edition\nGovernance Principles.\n\nThis Statement describes NEXTDC’s key governance practices and articulates how decision‑making is guided to meet\nstakeholder expectations of sound corporate governance, acknowledging the Company’s specific and broader\nresponsibilities to its shareholders, customers, suppliers, employees, and the communities in which it operates.\n\nAt NEXTDC, corporate governance is an essential element of how we operate. It refers to the overarching monitoring\nand reporting of the Company’s business operations and is the combination of processes implemented and monitored\nby the Board and the Executive team to direct, manage and scrutinise NEXTDC’s activities.\n\nWe aim to maintain and build on our relationships with our shareholders, customers, suppliers, team members, and\nthe broader community to achieve our vision of becoming Australia’s most trusted data centre provider. We are\nfocused on operating in a socially responsible and ethical manner, and meeting the highest standards of integrity and\ncultural sensitivity whilst adhering to clear corporate governance standards.\n\nNEXTDC’s values are anchored in its Corporate Social Responsibility (CSR) policies, which are the guiding principles in\nour Corporate Governance Program. This includes:\n\n-  a solid risk management framework, complete with internal controls\n\n-  procedures as well as operational processes such as, for example, our policies relating to team members’ conduct,\ntraining and operational standards and our dealings with shareholders and the ASX\n\n-  a regular reporting cadence to the Board and CXO team to enable them to manage, monitor and report on\nNEXTDC’s performance and its risk management; and\n\n-  regular internal audits based on best practice standards to independently verify the effectiveness of corporate\ngovernance, risks management and internal control processes to identify and manage operational gaps.\n\nNEXTDC’s Corporate Governance Framework continues to evolve\nas we continue to foster trust, attract investors, inspire employee\nconfidence and maintain our reputation and value in the market.\nFurther details on how NEXTDC’s Corporate Governance aligns with\nthe 4th Edition Governance Principles can be found in the Company’s\nFY23 Corporate Governance Statement and Appendix 4G available at\n[https://www.nextdc.com/investor-centre/corporate-governance.](http://www.nextdc.com/investor-centre/corporate-governance)\n\n\nRead the statement\n\n\n.\n\n\n-----\n\nFinancial Report\n\n**NEXTDC Limited**\nABN 35 143 582 521\n**Financial report**\n**for the year ended 30 June 2023**\n\n\n-----\n\n**Financial Report**\n\nThese financial statements are the consolidated financial statements of the consolidated entity consisting of\nNEXTDC Limited (ABN 35 143 582 521) and its subsidiaries. A list of major subsidiaries is included in note 25.\nNEXTDC Limited is a company limited by shares, incorporated and domiciled in Australia. The financial\nstatements are presented in the Australian currency.\n\nNEXTDC’s registered office is:\n20 Wharf St Brisbane QLD 4000\n\nA description of the nature of the consolidated entity's operations and its principal activities is included in the\nDirectors' Report, which is not part of these financial statements.\n\nThe financial statements were authorised for issue by the Directors on 28 August 2023.\n\nThe Directors have the power to amend and reissue the financial statements.\n\nConsolidated Statement of Comprehensive Income 64\nConsolidated Balance Sheet 65\nConsolidated Statement of Changes in Equity 66\nConsolidated Statement of Cash Flows 67\nNotes to the Consolidated Financial Report 68\nDirectors' Declaration 114\nIndependent Auditor's Report to the Members 115\nShareholder information 121\nCorporate directory 123\n\n\n-----\n\nConsolidated Statement of Comprehensive Income\nFor the year ended 30 June 2023\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\nNote\n\n\n**REVENUE FROM CONTINUING OPERATIONS**\nRevenue from contracts with customers 4 **362,369** 291,044\n\n**OTHER INCOME**\nOther income 4 **11,806** 2,686\n\n**EXPENSES**\nDirect costs **(82,998)** (43,520)\nEmployee benefits expense **(43,484)** (44,407)\nData centre facility costs **(22,099)** (16,890)\nDepreciation and amortisation expense **(137,870)** (106,853)\nProfessional fees **(6,682)** (3,513)\nMarketing costs **(1,908)** (1,148)\nOffice and administrative expenses **(17,324)** (19,988)\nFinance costs 5 **(78,988)** (49,269)\nShare of loss on investment in associate **(4,262)** (1,879)\nImpairment of investment in associate **(1,799)** (7,921)\n**Profit/(loss) before income tax** **(23,239)** **(1,658)**\n\nIncome tax benefit/(expense) 21 **(2,402)** 10,797\n**Profit/(loss) after income tax** **(25,641)** **9,139**\n\n**PROFIT/(LOSS) IS ATTRIBUTABLE TO:**\nOwners of NEXTDC Limited **(25,641)** **9,139**\n\n**OTHER COMPREHENSIVE INCOME**\n_Items that may be reclassified to profit or loss_ **-** - \n\nGain/(loss) on cash flow hedges **16,135** 33,421\nExchange differences on translation of foreign operations **(3,061)** 368\nCosts of hedging **(734)** (640)\nHedging gain/(loss) reclassified to profit or loss **(17,625)** 3,235\nIncome tax relating to these items **759** (10,797)\n**Total comprehensive income/(expense)** **(30,167)** **34,726**\n\nAttributable to:\nOwners of NEXTDC Limited **(30,167)** **34,726**\n\n**Cents** Cents\n\n**EARNINGS/(LOSS) PER SHARE FOR PROFIT/(LOSS)**\n**ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE**\n**GROUP:**\nBasic earnings/(loss) per share 3 **(5.55)** 2.00\nDiluted earnings/(loss) per share 3 **(5.55)** 1.99\n\nThe notes following the financial statements form part of the financial report.\n\n\n-----\n\nConsolidated Balance Sheet\nAs at 30 June 2023\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nNote\n\n\n**ASSETS**\n**CURRENT ASSETS**\nCash and cash equivalents **765,841** 456,562\nTrade and other receivables 6 **54,186** 44,335\nDerivative financial instruments 14(a) **8,727** 6,449\nOther assets 7 **24,500** 20,356\n**Total current assets** **853,254** **527,702**\n\n**NON-CURRENT ASSETS**\nProperty, plant and equipment 9 **2,894,900** 2,359,059\nOther assets 7 **18,565** 14,168\nIntangible assets 10 **51,979** 38,218\nInvestment in associates 25(b) **6,271** 8,315\nDerivative financial instruments 14(a) **25,030** 29,539\n**Total non-current assets** **2,996,745** **2,449,299**\n\n**TOTAL ASSETS** **3,849,999** **2,977,001**\n\n**LIABILITIES**\n**CURRENT LIABILITIES**\nTrade and other payables 8 **72,537** 81,606\nLease liabilities 11 **6,681** 6,232\nRevenue received in advance **12,548** 16,495\n**Total current liabilities** **91,766** **104,333**\n\n**NON-CURRENT LIABILITIES**\nProvisions **1,384** 1,035\nRevenue received in advance **44,839** 43,715\nBorrowings 15 **1,365,429** 1,058,762\nLease liabilities 11 **69,963** 70,628\n**Total non-current liabilities** **1,481,615** **1,174,140**\n\n**TOTAL LIABILITIES** **1,573,381** **1,278,473**\n\n**NET ASSETS** **2,276,618** **1,698,528**\n\n**EQUITY**\nContributed equity 13 **2,371,154** 1,762,663\nReserves **28,965** 33,725\nAccumulated losses **(123,501)** (97,860)\n\n**TOTAL EQUITY** **2,276,618** **1,698,528**\n\nThe notes following the financial statements form part of the financial report.\n\n\n-----\n\nConsolidated Statement of Changes in Equity\nFor the year ended 30 June 2023\n\n\n**Contributed**\n**equity**\n**$'000**\n\n\n**Reserves**\n\n**$'000**\n\n\n**Accumulated**\n**losses**\n**$'000**\n\n\n**Total**\n**equity**\n**$'000**\n\n\nNote\n\n\n**Balance at 1 July 2021** **1,759,777** **7,693** **(107,012)** **1,660,458**\n\nProfit/(loss) for the year -  -  9,139 9,139\nOther comprehensive income -  25,574 13 25,587\nTotal comprehensive income **-** **25,574** **9,152** **34,726**\n\n**TRANSACTIONS WITH OWNERS IN THEIR**\n**CAPACITY AS OWNERS:**\nContributions of equity, net of transaction costs and\ntax 13(b) (26) -  -  (26)\nShare based payments - conversion of rights to\nshares 2,912 (2,912) -  - \nShare based payments - value of employee services -  3,370 -  3,370\n**Balance at 30 June 2022** **1,762,663** **33,725** **(97,860) 1,698,528**\n\n\n**Contributed**\n**equity**\n\nNote **$'000**\n\n\n**Reserves**\n\n**$'000**\n\n\n**Accumulated**\n**losses**\n**$'000**\n\n\n**Total**\n**equity**\n**$'000**\n\n\n**Balance at 1 July 2022** **1,762,663** **33,725** **(97,860) 1,698,528**\n\nProfit/(loss) for the year -  -  (25,641) (25,641)\nOther comprehensive loss -  (4,526) -  (4,526)\nTotal comprehensive loss **-** **(4,526)** **(25,641)** **(30,167)**\n\n**TRANSACTIONS WITH OWNERS IN THEIR**\n**CAPACITY AS OWNERS:**\nContributions of equity, net of transaction costs and tax 13(b) 604,778 -  -  604,778\nShare based payments - conversion of rights to shares 13(b) 3,713 (3,713) -  - \nShare based payments - value of employee services -  3,479 -  3,479\n**Balance at 30 June 2023** **2,371,154** **28,965** **(123,501) 2,276,618**\n\nThe notes following the financial statements form part of the financial report.\n\n\n-----\n\nConsolidated Statement of Cash Flows\nFor the year ended 30 June 2023\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nNote\n\n\n**OPERATING ACTIVITIES**\nReceipts from customers (inclusive of GST) **383,895** 314,239\nPayments to suppliers and employees (inclusive of GST) **(209,462)** (151,291)\n**174,433** 162,948\nInterest paid **(57,949)** (42,308)\n(Payments for)/proceeds from bank guarantees **(315)** (4,867)\nInterest received **10,303** 1,403\n**Net cash inflow from operating activities** 23(a) **126,472** **117,176**\n\n**INVESTING ACTIVITIES**\nPayments for property, plant and equipment **(683,729)** (564,022)\nPayments for intangible assets **(22,270)** (17,819)\nPayments for investment in associate **(4,017)** (18,088)\n**Net cash (outflow) from investing activities** **(710,016)** **(599,929)**\n\n**FINANCING ACTIVITIES**\nProceeds from borrowings **300,000** 300,000\nTransaction costs in relation to loans and borrowings **(8,952)** (12,089)\nProceeds from issues of shares and other equity securities 13(b) **617,942** - \nTransaction costs paid in relation to issue of shares 13(b) **(14,807)** (26)\nPrincipal elements of lease payments **(1,124)** (904)\n**Net cash inflow from financing activities** **893,059** **286,981**\n\n**Net increase/(decrease) in cash and cash equivalents** **309,515** (195,772)\nCash and cash equivalents at the beginning of the year **456,562** 652,334\nEffects of exchange rate changes on cash and cash equivalents **(236)** - \n**Cash and cash equivalents at the end of the year** **765,841** **456,562**\n\nThe notes following the financial statements form part of the financial report.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n\n**Contents of the notes to the consolidated financial report**\n\nPage\n\n1 Basis of preparation 69\n\n**BUSINESS PERFORMANCE** 71\n\n2 Segment performance 71\n\n3 Earnings/(loss) per share 73\n\n4 Revenue and other income 74\n\n5 Expenses 76\n\n**OPERATING ASSETS AND LIABILITIES** 77\n\n6 Trade and other receivables 77\n\n7 Other assets 78\n\n8 Trade and other payables 79\n\n9 Property, plant and equipment 80\n\n10 Intangible assets 82\n\n11 Leases 84\n\n**CAPITAL AND FINANCIAL RISK MANAGEMENT** 86\n\n12 Capital risk management 86\n\n13 Contributed equity 86\n\n14 Financial risk management 89\n\n15 Borrowings 95\n\n**ITEMS NOT RECOGNISED** 96\n\n16 Commitments 96\n\n17 Contingencies 96\n\n18 Events occurring after the reporting period 96\n\n**EMPLOYEE REMUNERATION** 97\n\n19 Key management personnel 97\n\n20 Share-based payments 97\n\n**OTHER** 99\n\n21 Income tax 99\n\n22 Deferred tax 101\n\n23 Cash flow information 102\n\n24 Remuneration of auditors 103\n\n25 Interests in other entities 104\n\n26 Parent entity financial information 106\n\n27 Summary of significant accounting policies 107\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**1** **Basis of preparation**\n\nThe 2023 financial statements notes have been grouped into the following sections:\n\n-  Section 1 Business performance\n\n-  Section 2 Operating assets and liabilities\n\n-  Section 3 Capital and financial risk management\n\n-  Section 4 Items not recognised\n\n-  Section 5 Employee remuneration\n\n-  Section 6 Other\n\nEach section sets out the accounting policies applied along with details of any key judgements and estimates\nmade or information required to understand the note.\n\nNEXTDC Limited (the Company) is domiciled in Australia. The registered office is 20 Wharf St, Brisbane QLD\n4000.\n\nThe nature of the operations and principal activities of the Company and its controlled entities (referred to as ‘the\nGroup’) are described in the Segment information.\n\nThe consolidated general purpose financial statements of the Group for the year ended 30 June 2023 were\nauthorised for issue in accordance with a resolution of the Directors on 28 August 2023.\n\nThe financial statements:\n\n-  Have been prepared in accordance with the requirements of the Corporations Act 2001 (Cth), Australian\nAccounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board\n(AASB) and International Financial Reporting Standards as issued by the International Accounting Standards\nBoard\n\n-  Have been prepared on an historical cost basis, except for derivatives measured at fair value\n\n-  Are presented in Australian dollars and, unless otherwise stated, all values have been rounded to the nearest\nthousand dollars ($'000) under the option available under the Australian Securities and Investments Commission\n(ASIC) Corporations (Rounding in Financial/Directors' Report) Instrument 2016/191\n\n-  Present reclassified comparative information where required for consistency with the current year’s presentation\n\n-  Adopt all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to\nthe operations of the Group and effective for reporting periods beginning on or after 1 July 2022\n\n-  Do not early adopt any other Accounting Standards and Interpretations that have been issued or amended but\nare not yet effective.\n\n**(a) Principles of consolidation and equity accounting**\n\n_(i)_ _Associates_\nAssociates are all entities over which the Group has significant influence but not control or joint control. This is\ngenerally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates\nare accounted for using the equity method of accounting (see (ii) below), after initially being recognised at cost.\n\n_(ii) Equity method_\nUnder the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to\nrecognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the\nGroup's share of movements in other comprehensive income of the investee in other comprehensive income.\nDividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying\namount of the investment.\n\nWhere the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity,\nincluding any other unsecured long-term receivables, the Group does not recognise further losses, unless it has\nincurred obligations or made payments on behalf of the other entity.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**(a) Principles of consolidation and equity accounting (continued)**\n\n_(ii) Equity method (continued)_\nUnrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the\nextent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction\nprovides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees\nhave been changed where necessary to ensure consistency with the policies adopted by the Group.\n\nThe carrying amount of equity-accounted investments is tested for impairment in accordance with the policy\ndescribed in note 27(g).\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**Business performance**\n\n**2** **Segment performance**\n\n**(a) Description of segments**\n\nManagement considers the business from a geographic perspective and has identified five reportable segments,\nbeing each geography where the Group operates data centre facilities and the last capturing financial information\nfrom operations that do not naturally fit into any particular geography. As these segments do not exist as a\nseparate legal entity, information such as income tax expense and segment liabilities are not prepared and\nprovided to management for review and therefore not presented.\n\nDuring the year, management reassessed the basis for grouping its operating segments into reportable\nsegments. As a result of a change in the way chief operating decision makers review information, management\nhas determined that Queensland (Qld) and Western Australia (WA), along with South Australia and Northern\nTerritory, should be combined in to one reportable segment (Rest of Australia) effective 1 July 2022. The Other\nsegment also no longer includes any international operations, as these are now presented as a distinct\nInternational segment. Comparative information has also been combined to reflect this change.\n\n**(b) Segment information provided to management**\n\nThe segment information provided to management for the reportable segments is as follows:\n\n**Rest of** **Inter-**\n**30 June 2023** **Vic NSW/ACT** **Australia** **national** **Other** **Total**\n$'000 $'000 $'000 $'000 $'000 $'000\n\nRevenue from external customers 117,404 182,915 58,644 144 3,262 362,369\nDirect and facility costs (26,712) (64,132) (13,581) (68) (604) (105,097)\nEmployee benefits expense (4,403) (5,003) (3,927) (822) (122) (14,277)\nOther expenses (159) (1,049) (242) (1,359) (482) (3,291)\n**Segment EBITDA** **86,130** **112,731** **40,894** **(2,105)** **2,054** **239,704**\n\nSegment assets 987,949 1,323,155 492,905 77,470 -  2,881,479\nUnallocated assets -  -  -  -  968,520 968,520\n**Total segment assets** **987,949 1,323,155** **492,905** **77,470** **968,520 3,849,999**\n\n(1,105,353)(1,506,070) (551,549) (77,614) (971,782)(4,212,368)\n\n**Rest of** **Inter-**\n**30 June 2022** **Vic NSW/ACT** **Australia** **national** **Other** **Total**\n$'000 $'000 $'000 $'000 $'000 $'000\n\nRevenue from external customers 101,870 135,614 50,890 -  2,670 291,044\nDirect and facility costs (16,769) (33,044) (9,210) -  (1,387) (60,410)\nEmployee benefits expense (3,054) (3,687) (3,555) (313) (323) (10,932)\nOther expenses (198) (376) (189) (2,006) (920) (3,689)\n**Segment EBITDA** **81,849** **98,507** **37,936** **(2,319)** **40** **216,013**\n\nSegment assets 770,871 1,060,964 405,912 3,964 -  2,241,711\nUnallocated assets -  -  -  -  735,290 735,290\n**Total segment assets** **770,871 1,060,964** **405,912** **3,964** **735,290 2,977,001**\n\n(852,720)(1,159,471) (443,848) (1,645) (735,330)(3,193,014)\n\nThere was no impairment charge or other significant non-cash item recognised in relation to the above segments\nin 2023 (2022: nil).\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**2** **Segment performance (continued)**\n\n**(c) Other segment information**\n\n_(i)_ _Profit/(loss) before tax_\nManagement assesses the performance of the operating segments based on a measure of EBITDA. Interest\nincome and expenditure are not allocated to segments, as this type of activity is driven by the central treasury\nfunction, which manages the cash position of the Group.\n\n\nA reconciliation of profit/(loss) before income tax is provided as follows:\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nTotal segment EBITDA **239,704** 216,013\nEmployee benefits expense (non-facility staff) **(29,207)** (33,475)\nInvestment in associate **(6,061)** (9,800)\nOther income **11,806** 2,686\nFinance costs **(78,988)** (49,269)\nDepreciation and amortisation expense **(137,870)** (106,853)\nOverheads and other expenses **(22,623)** (20,960)\n**Profit/(loss) before tax** **(23,239)** **(1,658)**\n\n\nA reconciliation of depreciation and amortisation is provided as follows:\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nSegment depreciation and amortisation expense **126,113** 95,851\nHead office depreciation and amortisation expense **11,757** 11,002\n**Total depreciation and amortisation expense** **137,870** **106,853**\n\n_(ii) Segment liabilities_\nAs noted above, the segment liabilities for each operating segment are not required by executive management\nfor purposes of their decision making. As such, these are not provided to management and not categorised.\n\n**(d) Segment reporting**\n\nOperating segments are reported in a manner consistent with the internal reporting provided to the executive\nmanagement team. The executive management team is responsible for allocating resources and assessing\nperformance of the operating segments. The executive management team is the chief operating decision making\nbody and consists of the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and Chief\nCustomer and Commercial Officer.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**3** **Earnings/(loss) per share**\n\n**(a) Earnings/(loss) per share**\n\n\n**30 June**\n**2023**\n**Cents**\n\n\n30 June\n2022\nCents\n\n\nTotal basic EPS attributable to the ordinary equity holders of the Group **(5.55)** 2.00\n\n**(b) Diluted earnings/(loss) per share**\n\nTotal diluted EPS attributable to the ordinary equity holders of the Group **(5.55)** 1.99\n\n**(c) Reconciliation of earnings/(loss) used in calculating earnings per share**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**BASIC EARNINGS/(LOSS) PER SHARE**\nProfit/(loss) attributable to equity holders of the Group used in calculating basic\nEPS:\n**Profit/(loss) used in calculating basic earnings/(loss) per share** **(25,641)** **9,139**\n\n**DILUTED EARNINGS/(LOSS) PER SHARE**\nProfit/(loss) from continuing operations attributable to the equity holders of the\nGroup:\nUsed in calculating diluted earnings/(loss) per share **(25,641)** **9,139**\n**Profit/(loss) attributable to the equity holders of the Group used in**\n**calculating diluted EPS** **(25,641)** **9,139**\n\n**(d) Weighted average number of shares used as the denominator**\n\n\n**2023**\n**Number of**\n**shares**\n\n\n2022\nNumber of\nshares\n\n\nWeighted average number of ordinary shares used as the denominator in\ncalculation basic earnings/(loss) per share **462,337,135** 456,477,169\nPlus potential ordinary shares **-** 2,501,174\nWeighted average number of ordinary shares and potential ordinary shares used\nas the denominator in calculating diluted earnings/(loss) per share **462,337,135** **458,978,343**\n\n**(e) Information concerning the classification of securities**\n\n_(i)_ _Performance rights and deferred rights_\nThe number of performance rights and deferred rights included in the diluted earnings per share calculation is\nbased on the number of shares that would be issuable if the end of the period were the end of the vesting period.\nHowever, they are not included in the calculation where the inclusion would result in a decreased loss per share\nor increased earnings per share.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**3** **Earnings/(loss) per share (continued)**\n**(f)** **Earnings/(loss) per share**\n\n_(i)_ _Basic earnings/(loss) per share_\n\n-  the profit/(loss) attributable to owners of the Group, excluding any costs of servicing equity other than\nordinary shares\n\n-  by the weighted average number of ordinary shares outstanding during the financial year.\n\n_(ii) Diluted earnings/(loss) per share_\nDiluted earnings/(loss) per share adjusts the figures used in the determination of basic earnings per share to take\ninto account the weighted average number of additional ordinary shares that would have been outstanding\nassuming the conversion of all dilutive potential ordinary shares.\n\n**4** **Revenue and other income**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**FROM CONTINUING OPERATIONS**\nData centre services revenue **357,179** 290,000\nRental revenue from landbank properties **5,190** 1,044\n**Total revenue from contracts with customers** **362,369** **291,044**\n\nInterest income **10,969** 1,757\nOther items included in gains **837** 929\n**Total other income** **11,806** 2,686\n\nspace\n\n**(a) Revenue recognised in relation to contract liabilities**\n\nThe following table shows how much of the revenue recognised in the current reporting period relates to\ncarried-forward revenue received in advance.\n**30 June** 30 June\n**2023** 2022\n**$'000** $'000\n\n_Revenue recognised that was included in the contract liability balance at the_\n_beginning of the year_\nData centre services revenue **9,754** 8,863\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**4** **Revenue and other income (continued)**\n\n**(b) Revenue recognition**\n\nAASB 15 establishes principles for reporting the nature, amount, timing, and uncertainty of revenue and cash\nflows arising from an entity’s contracts with customers and requires application of a five-step process to identify\nthe contract with the customer, identify performance obligations in the contract, determine transaction price,\nallocate the transaction price to the performance obligations and recognise revenue when performance\nobligations are satisfied.\n\nRevenue is recognised for the major business activities as follows:\n\n_(i)_ _Data centre services_\nData centre services revenue primarily consist of recurring monthly service fees and upfront project fees.\n\nRevenue from the provision of recurring monthly service fees is recognised in the accounting period in which the\nservices are rendered. Project fees primarily comprise installation services relating to a customer’s initial\ndeployment. As this is not considered to be a distinct service, revenue is deferred and recognised over the term\nof the contract with the customer, taking into account renewal options that are held by the customer.\n\nThe Group applies the practical expedient in the revenue standard and does not disclose information about the\ntransaction price allocated to remaining performance obligations on contracts that are unsatisfied, as the Group\nhas the right to consideration from its customers in an amount that corresponds directly with the value to the\ncustomer of the Group’s services to date. This is applied to all its data centre services revenue, on the basis that\nthe upfront project fees are not a significant portion of each contract.\n\nThe Group enters into contracts with customers that guarantee certain performance measures such as uptime\nand on time delivery of services. If these guarantees of service performance are not achieved, the Group reduces\nrevenue for any credits or cash payments that may be due to customers under contract. Key areas of estimation\ninclude the amount of the service credits, the likelihood that the service credits will be claimed, and the time\nperiod over which they impact revenue.\n\nCustomer incentives provided by way of upfront discounts are contract assets that are amortised via a reduction\nin revenue over the expected contract life - refer to note 7(c).\n\n_(ii) Rental revenue from landbank properties_\nRental revenue from landbank properties relates to rental revenue received from short term tenants occupying\nproperties purchased for future expansion activities.\n\n_(iii) Interest income_\nInterest income is calculated by applying the effective interest rate to the gross carrying amount of a financial\nasset, except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets,\nthe effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss\nallowance).\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**5** **Expenses**\n\n**(a) Finance costs**\n\nThe Group has identified a number of significant expense items below that impacted financial performance for the\nyear:\n**30 June** 30 June\n**2023** 2022\n**$'000** $'000\n\nCosts on extinguishment of loans **-** (23,290)\nModification gain **-** 26,481\nInterest expense and finance charges **(73,446)** (46,923)\nInterest expense on lease liabilities **(5,542)** (5,537)\n\n**Total** **(78,988)** (49,269)\n\nDuring the year ended 30 June 2022, NEXTDC completed an amendment to its existing Senior Debt Facilities.\nThe refinance was deemed a modification of the original facility, and a modification gain of $26.5 million was\nrecognised immediately in profit and loss. Establishment fees of $23.3 million were written off on these facilities in\nthe prior year.\n\nRefer to note 15 for details on borrowings and note 11 for details on interest expense on lease liabilities for the\nyear.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**Operating assets and liabilities**\n\n**6** **Trade and other receivables**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nNote\n\n\nTrade receivables 6(a) **47,073** 31,964\nLoss allowance 14(c) **(1,873)** (2,467)\n**45,200** **29,497**\n\nInterest receivable 6(b) **1,152** 486\nGST receivable **2,223** 3,321\nOther receivables **5,611** 11,031\n**Total** **54,186** **44,335**\n\n**(a) Trade receivables**\n\n_(i) Classification as trade receivables_\n\nTrade receivables are amounts due from customers for goods sold or services performed in the ordinary course\nof business. They are generally due for settlement within 30 - 60 days and therefore are all classified as current.\nTrade receivables are recognised initially at the amount of consideration that is unconditional unless they contain\nsignificant financing components, when they are recognised at fair value. The Group holds the trade receivables\nwith the objective to collect the contractual cash flows and therefore measures them subsequently at amortised\ncost using the effective interest method.\n\n_(ii) Fair values of trade and other receivables_\n\nDue to the short-term nature of the trade and other receivables, their carrying amount is considered to be the\nsame as their fair value.\n\n_(iii) Impairment and risk exposure_\n\nInformation about the Group's impairment policies, calculation of loss allowance and exposure to credit risk,\nforeign currency risk and interest rate risk can be found in note 14.\n\n**(b) Interest receivable**\n\nInterest receivable relates to interest accrued on term deposits. Credit risk of this is assessed in the same\nmanner as cash and cash equivalents which is detailed in note 14.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**7** **Other assets**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n**CURRENT**\nPrepayments **6,314** 4,562\nCapitalised transaction costs 7(a) **2,430** 732\nSecurity deposits 7(b) **9,665** 10,943\nCustomer incentives 7(c) **4,260** 2,629\nOther current assets **1,100** 869\nContract costs 7(d) **731** 621\n**Total other assets - current** **24,500** **20,356**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n**NON-CURRENT**\nCustomer incentives 7(c) **10,423** 9,040\nCapitalised transaction costs 7(a) **7,141** 4,271\nContract costs 7(d) **1,001** 857\n**Total other assets - non-current** **18,565** **14,168**\n\n**(a) Capitalised transaction costs**\n\nFees paid on establishment of loan facilities are recognised as transaction costs of the loan. To the extent that it\nis probable that some or all of the facility will be drawn down, the fee is deferred until draw down occurs, at which\npoint it will be amortised over the remaining term of the facility. To the extent there is no evidence that it is\nprobable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity\nservices and amortised over the period of the facility to which it relates. Refer to note 15 for further details on the\nGroup's loan facilities.\n\n**(b) Security deposits**\n\nIncluded in the security deposits was $9.2 million (2022: $8.8 million) relating to deposits held as security for\nbank guarantees.\n\n**(c) Customer incentives**\n\nThe customer incentive balance includes amounts where customers are offered incentives in the form of free or\ndiscounted periods. It also includes amounts paid to customers where guarantees of service performance are not\nachieved as set out in Note 4(b)(i). In these cases, the dollar value of the incentive or cash payment is recorded\nas an asset and amortised on a straight-line basis over the life of the contract as described in Note 4(b)(i).\n\n**(d) Contract costs**\n\nEligible costs that are expected to be recovered are capitalised as a contract cost and amortised over the\nexpected customer life.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**8** **Trade and other payables**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\nTrade payables **37,742** 18,306\nAccrued capital expenditure **16,489** 41,272\nAccrued expenses **8,384** 9,694\nOther creditors **9,922** 12,334\n**Total trade and other payables** **72,537** **81,606**\n\n_(i) Recognition and measurement_\n\nTrade and other payables, including accruals, are recorded when the Group is required to make future payments\nas a result of purchases of assets or services provided to the Group prior to the end of financial period. The\namounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are\npresented as current liabilities unless payment is not due within 12 months from the reporting date. They are\nrecognised initially at their fair value and subsequently measured at amortised cost using the effective interest\nmethod.\n\n_(ii) Fair values of trade and other payables_\n\nDue to the short-term nature of trade and other payables, their carrying amount is considered to be the same as\ntheir fair value.\n\n_(iii) Risk Exposure_\n\nAs the majority of payables are in Australian dollars, management does not believe there are any significant risks\nin relation to these financial liabilities. Refer to note 14 for details of the Group’s financial risk management\npolicies.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**9** **Property, plant and equipment**\n\n\n**Assets**\n**in the**\n**course of**\n**construction**\n**$'000**\n\n\n**Office**\n**furniture**\n**and**\n**equipment**\n**$'000**\n\n\n**Land and**\n**buildings**\n**$'000**\n\n\n**Plant and**\n**machinery**\n**$'000**\n\n\n**Computer**\n**equipment**\n**$'000**\n\n\n**Right of**\n**use assets** **Total**\n**$'000** **$'000**\n\n\n**Movements**\n\n\n**30 June 2023**\nOpening net book\namount 575,631 1,027,727 662,161 21,645 1,472 70,423 2,359,059\nExchange differences (2,825) -  -  -  -  -  (2,825)\nAdditions 669,552 6 73 306 56 531 670,524\nDepreciation charge -  (34,382) (78,376) (10,662) (442) (5,499) (129,361)\nDisposal -  -  -  (64) (5) -  (69)\nTransfers (1,001,952) 759,466 129,880 31,882 3,130 77,594 - \nTransfers (to)/from\nintangibles (1,635) (4) (52) (737) -  -  (2,428)\n**Closing net book**\n**amount** **238,771** **1,752,813** **713,686** **42,370** **4,211** **143,049** **2,894,900**\n\nCost 238,771 1,843,409 1,093,414 76,327 6,779 164,260 3,422,960\nAccumulated\ndepreciation -  (90,596) (379,728) (33,957) (2,568) (21,211) (528,060)\n**Net book amount** **238,771** **1,752,813** **713,686** **42,370** **4,211** **143,049** **2,894,900**\n\n\n**Assets**\n**in the**\n**course of**\n**construction**\n**$'000**\n\n\n**Office**\n**furniture**\n**and**\n**equipment**\n**$'000**\n\n\n**Land and**\n**buildings**\n**$'000**\n\n\n**Plant and**\n**machinery**\n**$'000**\n\n\n**Computer**\n**equipment**\n**$'000**\n\n\n**Right of**\n**use assets** **Total**\n**$'000** **$'000**\n\n\n**30 June 2022**\nOpening net book\namount 211,144 915,769 660,992 16,602 1,759 74,737 1,881,003\nExchange differences (219) -  -  -  -  -  (219)\nAdditions 576,973 9,218 745 568 9 -  587,513\nDepreciation charge -  (18,364) (73,026) (6,804) (365) (4,314) (102,873)\nDisposals/ write off (1,678) -  -  (14) (2) -  (1,694)\nTransfers (205,918) 121,104 73,450 11,293 71 -  - \nTransfers (to)/from\nintangibles (4,671) -  -  -  -  -  (4,671)\n**Closing net book**\n**amount** **575,631** **1,027,727** **662,161** **21,645** **1,472** **70,423** **2,359,059**\n\nCost 575,631 1,083,941 963,513 44,940 3,598 86,135 2,757,758\nAccumulated\ndepreciation -  (56,214) (301,352) (23,295) (2,126) (15,712) (398,699)\n**Net book amount** **575,631** **1,027,727** **662,161** **21,645** **1,472** **70,423** **2,359,059**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**9** **Property, plant and equipment (continued)**\n\n**(a) Property, plant and equipment**\n\nLand and buildings are shown at historical cost less any accumulated depreciation and any accumulated\nimpairment losses.\n\nProperty, plant and equipment is stated at historical cost less depreciation. Costs capitalised include external\ndirect costs of materials and services and employee costs.\n\nSubsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,\nonly when it is probable that future economic benefits associated with the item will flow to the Group and the cost\nof the item can be measured reliably. The carrying amount of any component accounted for as a separate asset\nis derecognised when replaced. All other repairs and maintenance are charged to the Consolidated Statement of\nComprehensive Income during the year in which they are incurred.\n\nDepreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual\nvalues, over their estimated useful lives as follows:\n\n**Category** **Useful life**\nBuildings 40 years\nPlant and machinery 2-25 years\nComputer equipment 1-15 years\nOffice furniture and equipment 5-10 years\nRight-of-use assets 1-99 years\n\nThe assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each\nreporting year, considering key assumptions including changes in technology, physical conditions and potential\nclimate change implications.\n\nAn asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount\nis greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing\nproceeds with carrying amount. These are included in the Consolidated Statement of Comprehensive Income.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**10 Intangible assets**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\nRights and licences **17** 192\nInternally generated software **37,156** 22,176\nSoftware under development **14,806** 15,850\n**Total intangible assets** **51,979** **38,218**\n\n\n**Internally**\n**generated**\n**software**\n**$'000**\n\n\n**Software**\n**under**\n**development** **Total**\n**$'000** **$'000**\n\n\n**Rights and**\n**licenses**\n**$'000**\n\n\n**Movements**\n\n\n**30 June 2023**\nOpening net book amount at 1 July 2022 192 22,176 15,850 38,218\nAdditions – externally acquired -  2,074 -  2,074\nAdditions – internally developed -  -  17,768 17,768\nAmortisation (217) (8,292) -  (8,509)\nTransfers -  20,447 (20,447) - \nTransfers from property, plant and equipment 42 751 1,635 2,428\n**Closing net book amount** **17** **37,156** **14,806** **51,979**\n\n**At 30 June 2023**\nCost 254 60,157 14,806 75,217\nAccumulated amortisation (237) (23,001) -  (23,238)\n**Net book amount** **17** **37,156** **14,806** **51,979**\n\n\n**Internally**\n**generated**\n**software**\n**$'000**\n\n\n**Software**\n**under**\n**development** **Total**\n**$'000** **$'000**\n\n\n**Rights and**\n**licences**\n**$'000**\n\n\n**30 June 2022**\nOpening net book amount 13 15,673 5,059 20,745\nAdditions – externally acquired 6 472 -  478\nAdditions – internally developed -  -  16,791 16,791\nAmortisation (20) (3,960) -  (3,980)\nTransfers 193 9,991 (10,184) - \nTransfer from property, plant and equipment -  -  4,671 4,671\nDisposals -  -  (487) (487)\n**Closing net book amount** **192** **22,176** **15,850** **38,218**\n\n**At 30 June 2022**\nCost 212 36,885 15,850 52,947\nAccumulated amortisation (20) (14,709) -  (14,729)\n**Net book amount** **192** **22,176** **15,850** **38,218**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**10 Intangible assets (continued)**\n\n**(a) Intangible assets**\n\n**RIGHTS AND LICENCES**\n\nCertain licences that NEXTDC possesses have an indefinite useful life and are carried at cost less impairment\nlosses and are subject to impairment review at least annually and whenever there is an indication that it may be\nimpaired.\n\nOther licences that NEXTDC acquires are carried at cost less accumulated amortisation and accumulated\nimpairment losses. Amortisation is recognised on a straight-line basis over the estimated useful life which is\ngenerally 25 years. The estimated useful life and amortisation method are reviewed at the end of each annual\nreporting period.\n\n**INTERNALLY GENERATED SOFTWARE**\n\nInternally developed software is capitalised at cost less accumulated amortisation. Amortisation is calculated\nusing the straight-line basis over the asset’s useful economic life which is generally four to seven years. Their\nuseful lives and potential impairment are reviewed at the end of each financial year.\n\nCosts incurred in configuring or customising SaaS arrangements can only be recognised as intangible assets if\nthe implementation activities create an intangible asset that the entity controls and the intangible asset meets the\nrecognition criteria. Those costs that do not result in intangible assets are expensed as incurred, unless they are\npaid to the suppliers of the SaaS arrangements to significantly customise the cloud-based software for the Group,\nin which case the costs are recorded as a prepayment for services and amortised over the expected renewable\nterm of the arrangement.\n\n**SOFTWARE UNDER DEVELOPMENT**\n\nCosts incurred in developing products or systems and costs incurred in acquiring software and licenses that will\ncontribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to\nsoftware and systems. Costs capitalised include external direct costs of services and employee costs.\n\nAssets in the course of construction include only those costs directly attributable to the development phase and\nare only recognised following completion of technical feasibility and where the Group has an intention and ability\nto use the asset.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**11 Leases**\n\n**(a) Leases**\n\n_(i)_ _Amounts recognised in the Consolidated Balance Sheet_\nThe Consolidated Balance Sheet includes the following amounts relating to leases:\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**Right-of-use assets ***\nProperties **58,642** 61,985\nMotor Vehicles **-** 18\nConnectivity Links **34,316** 8,420\nLand **50,091** - \n\n**143,049** **70,423**\n\n-  included in the line item ‘Property, plant and equipment’ in the Consolidated Balance Sheet.\n\n**Lease liabilities**\nCurrent **6,681** 6,232\nNon-current **69,963** 70,628\n\n**76,644** **76,860**\n\nAdditions to the right-of-use assets during the 2023 financial year totalled $78.1 million composed of $50.3 million\nto Land, $27.3 million to Connectivity links and additions to Properties of $0.5 million (2022 : nil).\n\n_(ii) Amounts recognised in the Consolidated Statement of Comprehensive Income_\nThe Consolidated Statement of Comprehensive Income shows the following amounts relating to leases:\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\nDepreciation charge on Properties **3,863** 3,817\nDepreciation charge on Motor Vehicles **18** 76\nDepreciation charge on Connectivity Links **1,399** 421\nDepreciation charge on Land **219** - \nInterest expense (included in Finance costs) **5,542** 5,537\n\n**11,041** **9,851**\n\nThe total cash outflow for leases in 2023 was $6.2 million (2022 : $6.0 million).\n\n_(iii) The Group’s leasing activities and how these are accounted for_\nThe Group has a number of leases over property, motor vehicles, and connectivity links that have varying terms,\nescalation clauses and renewal rights.\n\nLeases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset\nis available for use by the Group. Each lease payment is allocated between the liability and finance cost. The\nfinance cost is charged to the Consolidated Statement of Comprehensive Income over the lease term so as to\nproduce a constant periodic rate of interest on the remaining balance of the liability for each year. The\nright-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line\nbasis.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**11 Leases (continued)**\n\n**(a) Leases (continued)**\n\n_(iii) The Group’s leasing activities and how these are accounted for (continued)_\n\nAssets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include\nthe net present value of the following lease payments:\n\n-  fixed payments (including in-substance fixed payments), less any lease incentives receivable\n\n-  variable lease payments that are based on an index or a rate\n\n-  amounts expected to be payable by the Group under residual value guarantees\n\n-  the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and\n\n-  payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.\n\nLease payments to be made under reasonably certain extension options are also included in the measurement of\nthe liability.\n\nThe lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily\ndetermined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used.\n\nTo determine the incremental borrowing rate, the Group:\n\n-  where possible, uses recent third-party financing received by the individual lessee as a starting point,\nadjusted to reflect changes in financing conditions since third party financing was received\n\n-  makes adjustments specific to the lease, eg. term, country, currency and security.\n\nRight-of-use assets are measured at cost comprising the following:\n\n-  the amount of the initial measurement of lease liability\n\n-  any lease payments made at or before the commencement date less any lease incentives received\n\n-  any initial direct costs, and\n\n-  restoration costs.\n\nPayments associated with short-term leases of equipment and vehicles and all leases of low-value assets are\nrecognised on a straight-line basis as an expense in the Consolidated Statement of Comprehensive Income.\nShort-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment\nand small items of office furniture.\n\n_(iv) Extension and termination options_\nExtension and termination options are included in a number of property and equipment leases across the Group.\nThese are used to maximise operational flexibility in terms of managing the assets used in the Group’s\noperations. The majority of extension and termination options held are exercisable only by the Group and not by\nthe respective lessor.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**Capital and financial risk management**\n\n**12 Capital risk management**\n\nThe Group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that\nit can continue to provide returns to its shareholders and benefits to its stakeholders and to maintain an optimal\ncapital structure to reduce the cost of capital.\n\nIn the future, the Directors may pursue funding options such as debt, sale and leaseback of assets, additional\nequity and various other funding mechanisms as appropriate in order to undertake its projects and deliver\noptimum shareholders’ return.\n\nThe Group intends to maintain a gearing ratio appropriate for a company of its size and growth.\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nTotal borrowings and lease liabilities **1,442,073** 1,135,622\nLess: derivative financial instruments **(33,757)** (35,988)\nLess: cash and cash equivalents **(765,841)** (456,562)\n**Net debt** **642,475** **643,072**\n\nTotal equity **2,276,618** 1,698,528\n**Total capital** **2,919,093** **2,341,600**\n\n**Gearing ratio** **22.0%** **27.5%**\n\nThe change in the gearing ratio was primarily driven by the equity fundraising activities during the period. Refer to\nnote 13 for movements in ordinary share capital.\n\nThe Group manages its capital structure by regularly reviewing its gearing ratio to ensure it maintains an\nappropriate level of gearing within facility covenants. This ratio is calculated as net debt divided by total capital.\nNet debt is calculated as total interest bearing financial liabilities, less cash and cash equivalents. Total capital is\ncalculated as equity, as shown in the Consolidated Balance Sheet, plus net debt.\n\n**13 Contributed equity**\n\n**(a) Share capital**\n\n\n**30 June**\n**2023**\n**Number of**\n**Shares**\n\n\n30 June\n2022\nNumber of\nShares\n\n\n**30 June**\n**2023**\n\n\n30 June\n2022\n\n\nNote\n\n\nFully paid ordinary shares 13(c) **514,646,636 2,371,154,000** 456,654,443 1,762,662,999\nTreasury shares - LFSP 13(e) **861,813** **1,851,502** 861,813 1,851,502\n**Total share capital** **515,508,449 2,373,005,502** **457,516,256 1,764,514,501**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**13 Contributed equity (continued)**\n\n**(b) Movements in ordinary share capital**\n\n**Number of**\n**Date** **Details** **Notes** **shares** **$'000**\n\nOpening balance 456,664,872 1,761,629\n15 September 2021 Conversion of rights to shares - deferred STI (d) 42,421 491\n15 September 2021 Conversion of rights to shares - LTI (d) 808,963 2,421\nTransaction costs -  (26)\n**Sub-total** **457,516,256** **1,764,515**\n\nLess shares held by NEXTDC Share Plan Pty Ltd (e) (861,813) (1,852)\n**Balance** **456,654,443** **1,762,663**\n\n**Number of**\n**Date** **Details** **Note** **shares** **$'000**\n\nOpening balance 457,516,256 1,764,515\n16 September 2022 Conversion of rights to shares - deferred STI (d) 45,137 605\n21 September 2022 Conversion of rights to shares - LTI (d) 730,203 3,108\n23 May 2023 Issue of capital - institutional investors (c) 38,523,092 416,049\n7 June 2023 Issue of capital - retail investors (c) 18,693,761 201,893\nTransaction costs -  (14,807)\nDeferred tax credit/(debit) recognised directly in\nequity -  1,643\n**Sub-total** **515,508,449** **2,373,006**\n\nLess shares held by NEXTDC Share Plan Pty\nLtd (e) (861,813) (1,852)\n**Balance** **514,646,636** **2,371,154**\n\n**(c) Ordinary shares**\n\nIn May 2023, the Group issued 38,523,092 ordinary shares to institutional investors at a price of $10.80. In June\n2023, the Group issued an additional 18,693,761 ordinary shares to retail investors at a price of $10.80 per share\nas part of the same equity raising transaction.\n\nOrdinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in\nproportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary\nshares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled\nto one vote.\n\nOrdinary shares have no par value and the Group does not have a limited amount of authorised capital.\n\n**(d) Performance rights and deferred share rights**\n\nPerformance rights and deferred share rights, which subject to satisfaction of a performance hurdle, give rise to\nan entitlement to the value of an ordinary share in NEXTDC Limited. The Board has discretion to determine if the\nvalue will be provided in shares, cash or a combination of shares and cash. The Board determined that 100% of\nthe FY20 LTI and those FY21 deferred STIs that elected to take shares rather than cash, would vest in shares,\nwith 45,137 and 730,203 ordinary shares issued on 16 and 21 September 2022 respectively.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**13 Contributed equity (continued)**\n\n**(e) Loan funded share plan**\n\nThe Group operated a legacy Loan Funded Share Plan remuneration scheme which was designed to attract and\nretain key employees. The arrangement involved the issue of shares to NEXTDC Share Plan Pty Ltd, whose sole\npurpose was to hold shares as trustee for its beneficiaries (its participants). The participants were required to\nmeet service requirements before being entitled to access these shares.\n\nThe fair value at grant date of the shares was determined using either a Black-Scholes or binomial option pricing\nmodel that took into account the exercise price, the term of the option, the impact of dilution, the share price at\ngrant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free\ninterest rate for the term of the loan. The assessed fair value was recognised as share-based payments.\n\n**30 June** 30 June\n**2023** 2022\n\nShares held by the Trust but not allocated **861,813** 861,813\n\n**(f)** **Dividend reinvestment plan**\n\nThe Group does not have a dividend reinvestment plan in place.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management**\n\nThe Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price\nrisk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of\nfinancial markets and seeks to minimise potential adverse effects on the financial performance of the Group.\n\nDuring the financial year, NEXTDC secured an incremental $400 million in senior debt capacity, bringing the\nfacility to a new aggregate limit of $2.9 billion, as well as favourable amendments to existing financial covenants\nand terms.\n\nThe Company's $2.9 billion Syndicated Debt Facilities comprise the following tranches:\n\n-  $800 million - Term Loan Facility (fully drawn)\n\n-  $600 million - Capital Expenditure Facility ($400 million undrawn)\n\n-  $800 million - Revolving Credit Facility (multi-currency) (undrawn)\n\n-  $300 million - Term Loan Facility (fully drawn)\n\n-  $100 million - New Term Loan Facility (fully drawn)\n\n-  $300 million - New Revolving Credit Facility (undrawn)\n\nThe facilities have a maturity date of 3 December 2026, except for the $300 million Term Loan Facility, which has\na maturity date of 3 December 2028.\n\nNEXTDC is exposed to interest rate volatility due to the variable rate on its Syndicated Debt Facilities. To mitigate\nthe interest rate risk associated with this floating element, NEXTDC has entered into a series of interest rate\nswaps under which, the amounts drawn under the facilities have their base interest fixed until 3 December 2024.\n\nA derivative asset and associated cash flow hedge reserve has been taken up at 30 June 2023 to account for\nthese transactions.\n\nThe Group’s transactions are predominantly conducted in Australian dollars. Overall, management assesses the\nGroup’s exposure to financial risk as low. However, the Group does have a financial risk management program in\nplace. The Group does not enter into or trade financial instruments for speculative purposes.\n\n\nThe Group holds the following financial instruments:\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**FINANCIAL ASSETS**\nCash and cash equivalents **765,841** 456,562\nTrade and other receivables **54,186** 44,335\nDerivative financial instruments **33,757** 35,988\nSecurity deposits **9,665** 10,943\n**Total financial assets** **863,449** **547,828**\n\n**FINANCIAL LIABILITIES**\nTrade and other payables **72,537** 81,606\nBorrowings **1,365,429** 1,058,762\nLease liabilities **76,644** 76,860\n**Total financial liabilities** **1,514,610** **1,217,228**\n\n**(a) Derivatives**\n\n_(i)_ _Fair value measurement_\nFor information about the methods and assumptions used in determining the fair value of derivatives refer to note\n27 (j)(ii).\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management (continued)**\n\n**(a) Derivatives (continued)**\n\n_(ii) Hedging reserves_\nThe Group’s hedging reserves relate to the following hedging instruments:\n\n\n**Cash flow hedge reserve**\n\n\n**Cost of**\n**hedging**\n**reserve**\n**$'000**\n\n\n**Cashflow**\n**Hedge**\n**Reserve**\n**$'000**\n\n\n**Total hedge**\n**reserves**\n**$'000**\n\n\n**Opening balance 1 July 2021** **100** **(433)** **(333)**\nAdd: Change in fair value of hedging instrument recognised in\nOCI -  33,421 33,421\nAdd: Costs of hedging deferred and recognised in OCI (640) -  (640)\nLess: reclassified from OCI to profit or loss - included in finance\ncosts 246 2,989 3,235\nLess: Deferred tax -  (10,797) (10,797)\n**Closing balance 30 June 2022** **(294)** **25,180** **24,886**\n\n**Opening balance 1 July 2022** **(294)** **25,180** **24,886**\nAdd: Change in fair value of hedging instrument recognised in\nOCI -  16,135 16,135\nAdd: Costs of hedging deferred and recognised in OCI (734) -  (734)\nLess: reclassified from OCI to profit or loss - included in finance\ncosts 556 (18,181) (17,625)\nLess: Deferred tax -  759 759\n**Closing balance 30 June 2023** **(472)** **23,893** **23,421**\n\n_Hedge effectiveness_\nHedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective\neffectiveness assessments, to ensure that an economic relationship exists between the hedged item and hedging\ninstrument.\n\nThe Group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference\nrate, reset dates, payment dates, maturities and notional amount. As all critical terms matched during the year,\nthere is an economic relationship.\n\n**(b) Market risk**\n\nMarket risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of\nchanges in market prices. Market risk for the Group is comprised of foreign exchange risk and interest rate risk.\n\n_(i)_ _Foreign exchange risk_\nThe Group does not currently have any significant operations outside Australia and its transactions are\npredominantly conducted in Australian dollars. Consequently, management has determined that the Group has\nlittle exposure to foreign exchange risk. On this basis, the Group does not have any active risk mitigation\nstrategies in relation to foreign exchange risk.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management (continued)**\n\n**(b) Market risk (continued)**\n\n_(ii) Cash flow and fair value interest rate risk_\nThe Group’s main interest rate risk arises from its various fixed-rate term deposits and its syndicated debt facility\n(refer to note 15(a)). The floating rate loan tranches expose the Group's borrowings to changes in interest rates.\nThe embedded interest rates for the lease liabilities are fixed, consequently the interest rate risk in relation to\nthese instruments is limited.\n\n_Instruments used by the group_\nThe Group has incorporated derivative financial instruments to manage its exposure to interest rates. Under its\ninterest rate swaps, the Group agrees to exchange the difference between the contracted fixed and floating rate\ninterest amounts determined on a notional principal amount. Within these interest rate swaps, there is embedded\nfloor protection at 0%, which is consistent with the terms of the underlying senior debt facility.\n\nThe following table details the notional principal amounts and remaining terms of interest rate swap contracts\noutstanding at the end of the reporting period:\n\n\n**Average contracted fixed**\n**interest rate**\n\n\n**Notional principal amount**\n**Fair value (AUD)**\n**(AUD)**\n\n\n**Receive floating**\n**pay fixed** **2023** 2022 **2023** 2022 **2023** 2022\n**%** % **$'000** $'000 **$'000** $'000\nLess than 1 year 1.8290% 0.2458% $800,000 $800,000 8,727 6,449\n1 to 2 years 3.1546% 1.7431% $1,400,000 $1,100,000 25,030 29,539\n\n_Effects of hedge accounting on the consolidated financial position and performance_\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**_Interest rate swaps_**\nHedge ratio **1:1** 1:1\nChange in fair value of outstanding hedging instruments since 1\nJuly **5,714** 38,138\nChange in value of hedged item used to determine hedge\neffectiveness **5,411** 38,017\n\n**SENSITIVITY**\n\nThe table below shows the impact of 100 basis points movement (net of hedging) in the interest rate curve on the\nconsolidated entity’s profit and equity after tax for both derivatives and non-derivative financial instruments at 30\nJune 2023, with all other variables held constant.\n\n**Impact on other components of**\n**Impact on post-tax profit** **equity**\n**2023** 2022 **2023** 2022\n**$'000** $'000 **$'000** $'000\n\nInterest rate - increase by 100 basis\npoints * **-** -  **11,444** 10,746\nInterest rate - decrease by 100 basis\npoints * **-** -  **(11,632)** (10,658)\n\n-  Holding all other variables constant\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management (continued)**\n\n**(c) Credit risk**\n\nCredit risk arises from counterparties holding cash and cash equivalents, security deposits, trade and other\nreceivables, and derivatives.\n\n_(i)_ _Cash and cash equivalents and security deposits_\nDeposits are placed with Australian banks or independently rated parties with a minimum rating of ‘A’ class in\nboth short term and long term. To reduce exposure deposits are placed with a variety of financial institutions.\n\nThe credit quality of financial assets can be assessed by reference to external credit ratings (if available) or to\nhistorical information about counterparty default rates:\n**30 June** 30 June\n**2023** 2022\n**$'000** $'000\n\n**CASH AT BANK**\nA rated **202,546** 93,826\nAA rated **563,295** 362,736\n**TOTAL** **765,841** **456,562**\n\n**SECURITY DEPOSITS**\nAA Rated **9,155** 8,840\nUnrated **510** 2,103\n**TOTAL** **9,665** **10,943**\n\nIn determining the credit quality of these financial assets, NEXTDC has used the long-term rating from Standard\n& Poor’s as of July 2023.\n\n_(ii) Trade and other receivables_\nCustomer credit risk is managed subject to the Group’s established policy, procedures and control relating to\ncustomer credit risk management. Credit evaluations are performed on all customers. Outstanding customer\nreceivables are monitored regularly.\n\nThe Group aims to minimise concentration of credit risk by undertaking transactions with a large number of\ncustomers. Revenues from data centre services of $168.8m were derived from two customers, contributing\n$87.4m (24%) and $81.4m (22%) respectively (2022: $66.7m (23%) and $64.0m (22%) respectively). Revenues\nfrom these two customers were derived across numerous orders at multiple data centre facilities with the\nunderlying orders having a range of different expiry dates. In addition, receivable balances are monitored on an\nongoing basis with the intention that the Group’s exposure to bad debts is minimised.\n\nThe maximum exposure to credit risk at the end of the reporting period is the carrying value of each class of the\nfinancial assets mentioned above and each class of receivable disclosed in Note 6. The Group does not require\ncollateral in respect of financial assets.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management (continued)**\n\n**(c) Credit risk (continued)**\n\n_(ii) Trade and other receivables (continued)_\nThe Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which\npermits the use of the lifetime expected loss provision for all trade receivables.\n\nTo measure the expected credit loss, receivables have been grouped based on days overdue. The methodology\napplied in estimating expected credit losses below is consistent with that applied for the year ended 30 June\n2022.\n\nThe judgements and associated assumptions have been made within the context of the impact of COVID-19,\nhigher interest rate environment, and reflect historical experience as well as other factors that are considered to\nbe relevant, including expectations of future events that are believed to be reasonable under the current\ncircumstances, such as the duration of the pandemic, economic impact of higher interest rates, the actions of\ngovernments, the responses of businesses and consumers across different industries, and the associated impact\non the global economy. Accordingly, the Group's expected credit loss estimates are inherently uncertain, and as\na result, actual results may differ from these estimates.\n\nThe loss allowance provision as at 30 June 2023 is determined as follows:\n\n**1 to 30** **31 to 60** **More than 60**\n**30 June 2023** **Current** **days past due** **days past due** **days past due** **Total**\n**$'000** **$'000** **$'000** **$'000** **$'000**\nExpected loss rate 2% 10% 15% 50% - \nGross carrying amount 39,968 5,382 932 791 47,073\nLoss allowance provision 799 538 140 396 1,873\nNet receivables 39,169 4,844 792 395 45,200\n\n**1 to 30** **31 to 60** **More than 60**\n**30 June 2022** **Current** **days past due** **days past due** **days past due** **Total**\n**$'000** **$'000** **$'000** **$'000** **$'000**\nExpected loss rate 2% 10% 15% 50% - \nGross carrying amount 25,667 2,395 677 3,225 31,964\nLoss allowance provision 513 239 102 1,613 2,467\nNet receivables 25,154 2,156 575 1,612 29,497\n\n_(iii) Derivatives_\nCredit risk for derivative financial instruments arises from the potential failure by counterparties to the derivative\ntransaction contract to meet their obligations. The credit risk exposure to interest rate swaps is the fair value of\nthese contracts. All derivative financial instruments are with our major international banking partners, all of which\nhave a minimum credit rating of ‘A’ in the long-term rating from Standard & Poor’s as of July 2023.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**14 Financial risk management (continued)**\n\n**(d) Liquidity risk**\n\nPrudent liquidity risk management implies maintaining sufficient cash and marketable securities and the\navailability of funding through an adequate amount of committed credit facilities to meet obligations when due.\n\nManagement also actively monitors rolling forecasts of the Group’s cash and cash equivalents.\n\n_(i)_ _Maturities of financial liabilities_\nThe table below analyses the Group’s financial liabilities into relevant maturity groupings based on their\ncontractual maturities for all financial liabilities.\n\nThe amounts disclosed in the table are the contractual undiscounted cash flows.\n\n**Total**\n\n**Between** **contractual**\n\n**Contractual Maturities of Financial Liabilities**\n**Within 12** **1 and 5** **Over 5** **cash** **Carrying**\n**months** **years** **years** **flows** **amount**\n\n**2023** **$'000** **$'000** **$'000** **$'000** **$'000**\n\nTrade payables **37,742** **-** **-** **37,742** **37,742**\nAccrued capital expenditure **16,489** **-** **-** **16,489** **16,489**\nAccrued expenses **8,384** **-** **-** **8,384** **8,384**\nLease liabilities **6,681** **24,749** **149,805** **181,235** **76,644**\nBorrowings **103,965 1,358,528** **332,912** **1,795,405 1,365,429**\n**Total non-derivatives** **173,261 1,383,277** **482,717** **2,039,255 1,504,688**\n\n**2022**\nTrade payables 18,306 -  -  18,306 18,306\nAccrued capital expenditure 41,272 -  -  41,272 41,272\nAccrued expenses 9,694 -  -  9,694 9,694\nLease liabilities 6,231 24,992 155,609 186,832 76,860\nBorrowings 35,935 889,285 315,725 1,240,945 1,058,762\n**Total non-derivatives** **111,438** **914,277** **471,334** **1,497,049 1,204,894**\n\n**(e) Fair value measurements**\n\n_(i)_ _Trade and other payables_\nThe fair value of trade and other payables is disclosed in note 8.\n\n_(ii) Borrowings_\nThe fair value of borrowings is disclosed in note 15(c).\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**15 Borrowings**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n**NON-CURRENT**\nBorrowings **1,365,429** 1,058,762\n\n**(a) Bank loan**\n\nThe Company's $2.9 billion Syndicated Debt Facilities comprise the following tranches:\n\n-  $800 million - Term Loan Facility (fully drawn)\n\n-  $600 million - Capital Expenditure Facility ($400 million undrawn)\n\n-  $800 million - Revolving Credit Facility (multi-currency) (undrawn)\n\n-  $300 million - Term Loan Facility (fully drawn)\n\n-  $100 million - New Term Loan Facility (fully drawn)\n\n-  $300 million - New Revolving Credit Facility (undrawn)\n\nThe $300 million Term Loan Facility has a maturity of 3 December 2028, while the remaining $800 million Term\nLoan Facility, $600 million Capital Expenditure Facility and $800 million Revolving Credit Facility have a maturity\ndate of 3 December 2026.\n\nOn 13 January 2023, NEXTDC Limited announced that it had entered into a new Syndicated Facility Agreement\nin relation to a new $400 million senior debt facility, of which $100 million was drawn on 15 February 2023 with\n$300 million remaining on a Revolving Credit Facility, both of which have a maturity date of 3 December 2026.\n\nNEXTDC is exposed to interest rate volatility due to the variable rate on its Syndicated Debt Facilities. To mitigate\nthe interest rate risk associated with this floating element, NEXTDC has entered into a series of interest rate\nswaps under which, the amounts drawn under the facilities have their base interest rate fixed until 3 December\n2024.\n\nA derivative asset and associated cash flow hedge reserve has been taken up at 30 June 2023 to account for\nthese transactions.\n\nThe Syndicated Debt Facilities are secured by the Group's properties.\n\n**(b) Compliance with loan covenants**\n\nThe Group has complied with the financial covenants of its borrowing facilities during the 2023 financial year\n(2022: complied).\n\n**(c) Fair value**\n\nMaterial differences are identified for the following borrowings:\n**2023** 2022\n**Carrying** Carrying\n**amount** **Fair value** amount Fair value\n**$'000** **$'000** $'000 $'000\n\nTerm loan facility **1,365,429** **1,451,905** 1,058,762 1,123,983\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**15 Borrowings (continued)**\n\n**(d) Borrowings**\n\nBorrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently\nmeasured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption\namount is recognised in the Consolidated Statement of Comprehensive Income over the period of the borrowings\nusing the effective interest method. Fees paid on the establishment of loan facilities are recognised as\ntransaction costs of the loan. To the extent that it is probable that some or all of the facility will be drawn down,\nthe fee is deferred until the draw down occurs, at which point it will be amortised over the remaining term of the\nfacility. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the\nfee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it\nrelates.\n\n**Items not recognised**\n\n**16 Commitments**\n\n**(a) Capital commitments**\n\nCapital expenditure contracted for at the end of each reporting year but not recognised as liabilities is as follows:\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nProperty, plant and equipment **172,144** 253,282\n**Total capital commitments** **172,144** **253,282**\n\n**17 Contingencies**\n\n**(a) Contingent assets**\n\nThe Group did not have any contingent assets during the year or as at the date of this report.\n\n**(b) Contingent liabilities**\n\nThe Group did not have any contingent liabilities during the year or as at the date of this report.\n\n**GUARANTEES**\n\nFor information about guarantees given by entities within the Group, please refer to Note 7(b).\n\n**18 Events occurring after the reporting period**\n\nSince the end of the reporting period, no matters have arisen which significantly affected or may significantly\naffect the operations of the Group, the results of those operations, or the state of affairs of the Group in future\nfinancial years, except as disclosed below:\n\n-  On 23 August 2023, NEXTDC Limited announced the Company’s contracted utilisation has increased by 25MW\n(21%) to 145MW\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**Employee remuneration**\n**19 Key management personnel**\n\n**(a) Key management personnel compensation**\n\n\n30 June\n2022\n\n\n**30 June**\n**2023**\n\n\nShort-term employee benefits **6,592,448** 7,176,458\nPost-employment benefits **183,654** 168,639\nLong-term benefits **(63,259)** 75,775\nShare-based payments **1,688,491** 1,873,567\n**Total key management personnel compensation** **8,401,334** **9,294,439**\n\n**Comprising**\nSenior Executives **6,952,314** 8,009,439\nNon-Executive Directors **1,449,020** 1,285,000\n**Total** **8,401,334** **9,294,439**\n\nDetailed remuneration disclosures are provided in the Remuneration Report.\n\n**(b) Loans to key management personnel**\n\nThere were no loans made to key management personnel during the year (2022: nil).\n\n**(c) Other transactions with key management personnel**\n\nThere were no other transactions with key management personnel during the year (2022: nil).\n\n**20 Share-based payments**\n\n**(a) Performance rights**\n\nThe performance rights plan was established by the Board of Directors to provide long-term incentives to the\nGroup’s Senior Executives based on total shareholder returns (TSR) taking into account the Group’s financial\nand operational performance. Under the Plan, eligible participants may be granted performance rights on terms\nand conditions determined by the Board from time to time. Outstanding performance rights were granted during\nthe course of FY21, FY22 and FY23. The vesting conditions for the FY21 grant relate to TSR exceeding the ASX\n200 Accumulation Index over the measurement period, while the vesting conditions for the FY22 and FY23\ngrants relate to TSR exceeding the ASX 100 Accumulation Index over the measurement period. Vesting of the\nFY21 rights will be tested on or around the day following the release of the annual results for the year ended 30\nJune 2023. The FY22 and FY23 rights include tranches which vest after the third and fourth years, and will be\ntested on or around the day following the release of each of the annual results for 2024, 2025 and 2026\nrespectively.\n\nPerformance rights are granted by the Company for nil consideration. The Board has discretion to determine if\nthe value will be provided in shares, cash or a combination of shares and cash. Rights granted under the plan\ncarry no dividend or voting rights.\n\nThe fair value of the rights at the date of valuation was determined using the Black-Scholes Option Pricing Model\nto be equal to the volume weighted-average price (VWAP) ending on the day before the grant date, less the\ndividends expected over the period from the expected grant date to the completion of the measurement period,\nadjusted for the expected probability of achieving the vesting conditions.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**20 Share-based payments (continued)**\n\n**(a) Performance rights (continued)**\n\n\n**30 June**\n**2023**\n**Number of**\n**Rights**\n\n\n**30 June**\n**2023**\n**Average Fair**\n**Value**\n\n\n30 June\n2022\nNumber of\nRights\n\n\n30 June\n2022\nAverage fair\nvalue\n\n\nOpening balance **1,628,802** **$5.37** 1,966,120 $4.24\nGranted during the year **706,467** **$4.83** 501,888 $6.09\nVested during the year **(730,203)** **$4.22** (808,963) $3.07\nForfeited during the year **(14,847)** **$5.69** (30,243) $5.39\n**Closing balance** **1,590,219** **$5.65** **1,628,802** **$5.37**\n\n**(b) Deferred shares - executives short-term incentive scheme**\n\nUnder the Group’s short-term incentive (STI) scheme for FY22, executives received 50% of the annual STI\nachieved in cash, with 50% deferred for 12 months. Executives were able to elect whether the deferred\ncomponent would be delivered in cash or equity. The FY22 tranche of deferred rights were granted in September\n2022 and will vest on or around September 2023, being 12 months after the date on which they were granted.\nThey automatically convert into one ordinary share each on vesting at an exercise price of nil. The executives do\nnot receive any dividends and are not entitled to vote in relation to the deferred shares during the vesting period.\nIf an executive ceases to be employed by the Group within this period, they will have 6 months from cessation of\nemployment or the vesting date (whichever is later) to exercise the deferred share right. Any rights not exercised\nwithin this period will automatically lapse.\n\nThe number of rights to be granted was determined based on the currency value of the achieved STI divided by\nthe volume weighted-average price at which the Company’s shares were traded on the Australian Securities\nExchange over the 10 days following the release of the Group's FY22 results, being $10.09.\n**2023** 2022\n\nNumber of rights to deferred shares granted **61,162** 45,137\n\n**(c) Expenses arising from share-based payment transactions**\n\nTotal expenses arising from share-based payment transactions recognised during the year as part of employee\nbenefit expense were as follows:\n**30 June** 30 June\n**2023** 2022\n**$'000** $'000\n\nPerformance rights **2,817** 2,767\nShares issued under employee share scheme **273** 220\n**Total expenses arising from share-based payment transactions** **3,090** **2,987**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**Other**\n\n**21 Income tax**\n\n**(a) Income tax expense**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n_Deferred income tax_\nDecrease / (increase) in deferred tax assets less deferred tax credited to equity **3,936** (18,815)\nIncrease / (decrease) in deferred tax liabilities less deferred tax credited to equity **(1,534)** 8,018\n**Sub-total** **2,402** **(10,797)**\n\nIncome tax (benefit)/expense is attributable to:\nProfit/(loss) from continuing operations **2,402** (10,797)\n\n**2,402** **(10,797)**\n\n**(b) Numerical reconciliation of income tax expense to prima facie tax payable**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nProfit/(loss) from continuing operations before income tax expense **(23,239)** (1,658)\nTax at the Australian tax rate of 30% **(6,972)** (497)\n\n_Tax effect of amounts which are not deductible (taxable)_\n_in calculating taxable income:_\nShare-based payments **(1,218)** (2,618)\nPrior period adjustments **256** (256)\nDerecognition of temporary differences on current year tax losses **8,137** - \nDerecognition/(re-recognition) of temporary differences **1,893** (8,181)\nPermanent differences (excluding prior period adjustments and share based\npayments) **306** 755\n**Income tax (benefit)/expense** **2,402** **(10,797)**\n\n**20,837** 12,455\n\n**(c) Amounts recognised directly in equity**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\nAggregate current and deferred tax arising in the reporting period and not\nrecognised in net profit or loss or other comprehensive income but directly\ndebited or credited to equity:\nDeferred tax credited/(debited) directly to equity **(2,402)** 10,797\n\n**(d) Tax losses**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nUnused tax losses for which no deferred tax asset has been recognised **81,833** 56,909\nPotential tax benefit @ 30.0% **24,550** 17,073\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**21 Income tax (continued)**\n\n**(d) Tax losses (continued)**\n\n**Income tax**\n\nThe income tax expense or revenue for the period is the tax payable on the current period’s taxable income\nbased on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and\nliabilities attributable to temporary differences and to unused tax losses.\n\nThe current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the\nend of the reporting period in Australia. Management periodically evaluates positions taken in tax returns with\nrespect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where\nappropriate on the basis of amounts expected to be paid to the tax authorities.\n\nDeferred income tax is provided in full, using the liability method, on temporary differences arising between the\ntax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax\nliabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not\naccounted for if it arises from initial recognition of an asset or liability in a transaction other than a business\ncombination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred\nincome tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end\nof the reporting period and are expected to apply when the related deferred income tax asset is realised or the\ndeferred income tax liability is settled.\n\nDeferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is\nprobable that future taxable amounts will be available to utilise those temporary differences and losses.\n\nDeferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets\nand liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and\ntax liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a\nnet basis, or to realise the asset and settle the liability simultaneously.\n\nCurrent and deferred tax is recognised in the Consolidated Statement of Comprehensive Income, except to the\nextent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax\nis also recognised in other comprehensive income or directly in equity, respectively.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**22 Deferred tax**\n\n**(a) Deferred tax assets**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**The balance comprises temporary differences attributable to:**\nTax losses **24,550** 17,073\nBlack-hole expenditure deductible in future years **2,959** 2,282\nProperty, plant and equipment **2,623** 2,104\nLease liabilities **22,993** 23,058\nEmployee benefits **3,223** 3,952\nInvestment in associate **4,750** 2,932\nLoss allowances **562** 740\nExpenses deductible in future years **575** 1,943\nRevenue received in advance **17,216** 18,063\nR&D offsets **2,046** 2,046\n**Total deferred tax assets** **81,497** **74,193**\n\nSet-off of deferred tax liabilities pursuant to set-off provisions (Note 22(b)) **(38,087)** (40,380)\nDeferred tax assets not recognised **(43,410)** (33,813)\n**Net deferred tax assets** **-** **-**\n\nDeferred tax assets may be a combination of unused tax losses, offsets and timing differences based on\nmanagement’s foreseeable forecasts, to the extent that it is probable that taxable profit will be available against\nwhich the losses, offsets and timing differences can be utilised. Significant management judgement is required to\ndetermine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of\nfuture taxable profits together with future tax planning strategies.\n\nIn FY20 the Group derecognised deferred tax assets in relation to carry-forward tax losses and temporary\ndifferences as it believed they no longer met the requirement to be recognised, stemming from the impact that\nthe recent growth and expansion activity has had on taxable profits. Despite the derecognition, these\ncarry-forward tax losses and offsets can be carried forward indefinitely and have no expiry date.\n\n**(b) Deferred tax liabilities**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n**The balance comprises temporary differences attributable to:**\nBorrowings **5,443** 7,031\nLease assets **22,517** 22,514\nProperty, plant and equipment **-** 38\nDerivative - Ineffective (P&L) **181** 91\nDerivative - FV (Equity) **9,946** 10,706\n**Total deferred tax liabilities** **38,087** **40,380**\n\nSet-off of deferred tax liabilities pursuant to set-off provisions (Note 22(a)) **(38,087)** (40,380)\n**Net deferred tax liabilities** **-** **-**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**23 Cash flow information**\n\n**(a) Reconciliation of profit after income tax to net cash inflow from operating activities**\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**Profit/(loss) for the year after income tax** **(25,641)** **9,139**\nDepreciation and amortisation **137,870** 106,853\nNon-cash employee benefits expense share-based payments **3,479** 2,987\nSenior debt modification gain **-** (26,481)\nCosts on extinguishment of Notes and loans **-** 23,290\nAmortisation of borrowing costs **20,136** 8,437\nNet (gain)/loss on derivatives **-** (304)\nIncome tax expense/(benefit) **2,402** (10,797)\nImpairment of investment in associate **1,799** 7,921\nShare of loss on investment in associate **4,262** 1,879\n\n**CHANGE IN OPERATING ASSETS AND LIABILITIES**\n(Increase) / decrease in trade and other receivables **(9,306)** 4,472\n(Increase) / decrease in prepayments and other current assets **(391)** (1,370)\n(Increase) / decrease in interest receivable **(666)** (354)\n(Increase) / decrease in cash used in bank guarantee **(315)** (4,867)\n(Increase) / decrease in GST **1,224** (1,922)\n(Increase) / decrease in other assets **(255)** (357)\nDecrease / (increase) in customer incentives **(3,014)** (8,783)\nDecrease / (increase) in trade and other payables **9,388** 804\nDecrease / (increase) in other operating liabilities **(10,344)** 3,574\nDecrease / (increase) in employee entitlements **(2,241)** 4,304\nDecrease / (increase) in interest payable **909** 1,398\nDecrease / (increase) in revenue in advance **(2,824)** (2,647)\n**Net cash inflow from operating activities** **126,472** **117,176**\n\n**(b) Net debt reconciliation**\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**Net debt**\n\n\nCash and cash equivalents **765,841** 456,562\nBorrowings - repayable within one year **2,046** 216\nBorrowings - repayable after one year **(1,410,362)** (1,099,850)\n**Net debt** **(642,475)** **(643,072)**\n\nCash and liquid investments **765,841** 456,562\nGross debt - fixed interest rates **(42,887)** (40,872)\nGross debt - variable interest rates **(1,365,429)** (1,058,762)\n**Net debt** **(642,475)** **(643,072)**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**23 Cash flow information (continued)**\n\n**(b) Net debt reconciliation (continued)**\n\n**Other**\n**assets** **Liabilities from financing activities**\n\n\n**Leases**\n**due within**\n**1 year**\n**$'000**\n\n\n**Leases**\n**due after**\n**1 year**\n**$'000**\n\n\n**Borrow.**\n**due within**\n**1 year**\n**$'000**\n\n\n**Borrow.**\n**due after 1**\n**year** **Total**\n**$'000** **$'000**\n\n\n**Cash**\n**$'000**\n\n\n**Net cash as at 1 July 2021** 652,334 (5,970) (71,325) -  (783,489) (208,450)\nCash flows (195,772) -  -  -  (297,735) (493,507)\nOther non-cash movements -  (262) 697 6,449 52,001 58,885\n**Net debt as at 30 June 2022** 456,562 (6,232) (70,628) 6,449 (1,029,223) (643,072)\n\nCash flows 309,279 -  -  -  (297,785) 11,494\nOther non-cash movements -  (449) 665 2,278 (13,391) (10,897)\n**Net cash as at 30 June 2023** 765,841 (6,681) (69,963) 8,727 (1,340,399) (642,475)\n\n**24 Remuneration of auditors**\n\nDuring the year the following fees were paid or payable for services provided by PricewaterhouseCoopers\nAustralia (PwC), the auditor of the parent entity, NEXTDC Limited, by PwC's related network firms and by\nnon-related audit firms:\n\n**(a) PwC Australia**\n\n**2023** 2022\n**$** $\n\nAudit and other assurance services\nAudit and review of financial statements **751,655** 615,350\nOther assurance services **-** 141,290\n**Total remuneration for audit and other assurance services** **751,655** **756,640**\n\nOther services\nOther services **15,000** - \n**Total services provided by PwC Australia** **766,655** **756,640**\n\n**(b) Network firms of PwC Australia**\n\n_(i)_ _Audit and other assurance services_\n\nAudit and review of financial statements **32,696** 13,565\n\nSpace\n**Total remuneration of network firms of PwC Australia** **32,696** **13,565**\n\n**(c) Non-PwC audit firms**\n\nNEXTDC Limited did not engage with any other non-PwC audit firms.\n\n**Total services provided by PwC** **799,351** **770,205**\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**25 Interests in other entities**\n\n**(a) Material subsidiaries**\n\nThe Group’s principal subsidiaries at 30 June 2023 are set out below. Unless otherwise stated, they have share\ncapital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership\ninterests held equals the voting rights held by the Group.\n\n\n**Place of**\n**business/**\n**country of** **Ownership interest held** **Principal**\n**incorporation** **by the group** **activities**\n**2023** 2022\n\n\n**Name of entity**\n\n\nProperty\nHolding\n\nNEXTDC Holdings Trust No. 1 Australia **100** 100 Company\n\nHolding\nNEXTDC Holdings No. 1 Pty Ltd Australia **100** 100 Company\n\nProperty\nHolding\n\nNEXTDC Holdings Trust No. 3 Australia **100** 100 Company\n\nHolding\nNEXTDC Holdings No. 3 Pty Ltd Australia **100** 100 Company\n\nCompany\nNEXTDC Ventures Pty Ltd Australia **100** 100 Investment\n\nHolding\nNEXTDC Ventures Holdings No. 1 Pty Ltd Australia **100** 100 Company\n\nProperty\nHolding\n\nNEXTDC New Zealand Limited New Zealand **100** -  Company\n\nHolding\nNEXTDC New Zealand Holdings Limited New Zealand **100** -  Company\n\nHolding\nNEXTDC Holdings Trust No. 4 Australia **100** -  Company\n\nProperty\nHolding\n\nNSC Sub Trust Australia **100** -  Company\n\nProperty\nHolding\n\nNEXTDC SDN. BHD. Malaysia **100** -  Company\n\n**(b) Interests in associates and joint ventures**\n\n_(i)_ _Significant judgement: existence of significant influence_\nOn 22 November 2021, NEXTDC Limited acquired a 19.99% interest in an ASX listed entity, Sovereign Cloud\nHoldings (ASX: SOV), via an upfront placement of $12.4 million. Following the placement, NEXTDC acquired a\nfurther $4.5 million in shares via a follow-on pro rata entitlement offer to maintain its 19.99%\nshareholding.Transaction costs of $1.1 million incurred as part of the acquisition have been capitalised against\nthe investment.\n\nFollowing acquisition, NEXTDC Limited was entitled to one seat on the board of Sovereign Cloud Holdings and\nnow participates in all significant financial and operating decisions.\n\nOn 29 June 2023, NEXTDC Limited acquired a further $4.0m in shares via a pro-rata non-renounceable\nentitlement offer, increasing its shareholding to 33.61%. With the increased ownership and continued board set,\nthe Group maintains that it has significant influence over this entity.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**25 Interests in other entities (continued)**\n\n**(b) Interests in associates and joint ventures (continued)**\n\n_(ii) Summarised financial information for associates and joint ventures_\nThe tables below provide summarised financial information for those associates that are material to the Group.\nThe information disclosed reflects the amounts presented in the financial statements of the relevant associates\nand not NEXTDC Limited’s share of those amounts. They have been amended to reflect adjustments made by\nthe entity when using the equity method, including fair value adjustments and modifications for differences in\naccounting policy.\n**Sovereign Cloud**\n**Holdings**\n\n\n30 June\n2022\n$'000\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n**Summarised balance sheet**\n\n\nTotal current assets **17,241** 30,928\nTotal non-current assets **16,702** 15,060\n\n< blank header row >\nTotal current liabilities **5,263** 5,716\nTotal non-current liabilities **3,776** 2,402\n**Net assets** **24,904** **37,870**\n\n< blank header row >\n\n**30 June** 30 June\n**2023** 2022\n**$'000** $'000\n**Reconciliation to carrying amounts:**\n**Net assets** **24,904** 37,870\nGroup’s share in % **33.61%** 19.99%\nGroup’s share in $ **8,370** 7,570\nGoodwill / (impairment) **(2,099)** 745\n**Carrying amount** **6,271** 8,315\n\n**30 June** 30 June\n**2023** 2022\n**Reconciliation of carrying value of investment** **$'000** $'000\nOpening balance **8,315** - \nAdditions **4,017** 18,115\nShare of loss **(4,262)** (1,879)\nImpairment charge (iii) **(1,799)** (7,921)\n**Carrying amount** **6,271** 8,315\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\n**Summarised statement of comprehensive income**\n\n\nRevenue **6,795** 4,242\n\n< blank header row >\n**Profit/(loss) from continuing operations** **(21,283)** **(15,522)**\n\n< blank header row >\n**Loss for the year** **(21,283)** (15,522)\n**Total comprehensive income** **(21,283)** **(15,522)**\n\n< blank header row >\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**25 Interests in other entities (continued)**\n\n**(b) Interests in associates and joint ventures (continued)**\n\n_(iii) Impairment_\nNEXTDC's 33.61% stake in Sovereign Cloud Holdings Limited (ASX: SOV) was tested for impairment at the\nreporting date. While the strategic merit and underlying business case behind the Company's investment in SOV\nremains unchanged an impairment indicator was identified due to SOV shares trading to $0.055 per share at 30\nJune 2023.\n\nGiven the difference between SOV's trading price and the carrying value of SOV shares in NEXTDC's accounts,\nthe Company has determined an impairment charge of $1.8 million should be taken up for the year ended 30\nJune 2023.\n\n**26 Parent entity financial information**\n\nThe individual financial statements for the parent entity, NEXTDC Limited, show the following aggregate\namounts:\n\n\n**30 June**\n**2023**\n**$'000**\n\n\n30 June\n2022\n$'000\n\n\nCurrent assets **848,466** 522,960\nNon-current assets **2,786,529** 2,214,542\n**TOTAL ASSETS** **3,634,995** **2,737,502**\nCurrent liabilities **91,559** 104,248\nNon-current liabilities **1,481,615** 1,175,617\n**TOTAL LIABILITIES** **1,573,174** **1,279,865**\n**NET ASSETS** **2,061,821** **1,457,637**\n\nShareholders' equity\nContributed equity **2,371,154** 1,752,598\nReserves **32,105** 33,805\nRetained earnings **(341,438)** (328,766)\n**TOTAL EQUITY** **2,061,821** **1,457,637**\n\nProfit/(loss) for the year after tax **(12,672)** 25,615\nTotal comprehensive income/(loss) for the year **(12,672)** 25,615\n\n**(a) Reserves**\n\nDue to the requirements of accounting standards, the loan provided by NEXTDC Limited (parent entity) to\nNEXTDC Share Plan Pty Ltd requires the loan in respect of the loan funded share plan to be recorded as an\nissue of treasury shares and a corresponding debit to equity (treasury share reserve).\n\n**(b) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries**\n\nAs at 30 June 2023, NEXTDC Limited did not have any guarantees in relation to the debts of subsidiaries.\n\n**(c) Contingent liabilities of NEXTDC Limited (parent entity)**\n\nThe parent entity did not have any contingent liabilities as at 30 June 2023 or 30 June 2022.\n\n**(d) Contractual commitments by NEXTDC for the acquisition of property, plant and equipment**\n\nAs at 30 June 2023, of the contractual commitments detailed in Note 16, $169.8 million relate to NEXTDC\nLimited as parent entity.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**26 Parent entity financial information (continued)**\n\n**(e) Determining the parent entity financial information**\n\nThe financial information for the parent entity has been prepared on the same basis as the consolidated financial\nstatements, except as set out below.\n\n_(i)_ _Tax consolidation legislation_\nNEXTDC Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation\nlegislation.\n\nThe head entity, NEXTDC Limited, and the controlled entities in the tax consolidated Group account for their own\ncurrent and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated\nGroup continues to be a stand-alone taxpayer in its own right.\n\nIn addition to its own current and deferred tax amounts, NEXTDC Limited also recognises the current tax\nliabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed\nfrom controlled entities in the tax consolidated Group.\n\nThe entities have also entered into a tax funding agreement under which the wholly-owned entities fully\ncompensate NEXTDC Limited for any current tax payable assumed and are compensated by NEXTDC Limited\nfor any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are\ntransferred to NEXTDC Limited under the tax consolidation legislation. The funding amounts are determined by\nreference to the amounts recognised in the wholly-owned entities’ financial statements.\n\nThe amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice\nfrom the head entity, which is issued as soon as practicable after the end of each financial year. The head entity\nmay also require payment of interim funding amounts to assist with its obligations to pay tax instalments.\n\nAssets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as\ncurrent amounts receivable from or payable to other entities in the Group.\n\nAny difference between the amounts assumed and amounts receivable or payable under the tax funding\nagreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.\n\n_(ii) Investments in subsidiaries, associates and joint venture entities_\nInvestments in subsidiaries are accounted for at cost in the financial statements of NEXTDC Limited.\n\n**27 Summary of significant accounting policies**\n\nThe principal accounting policies adopted in the preparation of these consolidated financial statements are set\nout below. These policies have been consistently applied to all the years presented, unless otherwise stated. The\nfinancial statements are for the consolidated entity consisting of NEXTDC Limited and its subsidiaries. NEXTDC\nis a public company limited by shares, incorporated and domiciled in Australia.\n\n**(a) Reporting Period and Comparative information**\n\nThese financial statements cover the period 1 July 2022 to 30 June 2023. The comparative reporting period is 1\nJuly 2021 to 30 June 2022.\n\n**(b) Basis of preparation**\n\nThis general purpose financial report has been prepared in accordance with Australian Accounting Standards\nand interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001.\nNEXTDC Limited is a for-profit entity for the purpose of preparing the financial statements.\n\n_(i)_ _Compliance with IFRS_\nThe consolidated financial statements of the NEXTDC Group also comply with International Financial Reporting\nStandards (IFRS) as issued by the International Accounting Standards Board (IASB).\n\nThe consolidated financial statements were authorised for issue by the Board of Directors on the date the\nDirectors' Report is signed. The Directors have the power to amend and reissue the financial statements.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(b) Basis of preparation (continued)**\n\n_(i)_ _Compliance with IFRS (continued)_\n\n_(ii) New and amended standards adopted by the group_\n\nNone of the new standards and amendments to standards that are mandatory for the first time for the financial\nyear beginning 1 July 2022 affected any of the amounts recognised in the current period or any prior period and\nare not likely to affect future periods.\n\n_(iii) Historical cost convention_\nThese financial statements have been prepared under the historical cost convention, except for derivatives\nmeasured at fair value.\n\n_(iv) New standards and interpretations not yet adopted_\n\nThere are no standards that are not yet effective that would be expected to have a material impact on the Group\nin the current or future reporting periods and on foreseeable future transactions.\n\n**(c) Critical accounting estimates**\n\nEstimates and judgements are continually evaluated and are based on historical experience and other factors,\nincluding expectations of future events that may have a financial impact on the entity and that are believed to be\nreasonable under the circumstances.\n\nThis note provides an overview of the areas that involved a higher degree of judgement or complexity, and of\nitems which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong.\n\n_(i)_ _Deferred taxation_\nDeferred tax assets may be a combination of unused tax losses, offsets and timing differences based on\nmanagement’s foreseeable forecasts, to the extent that it is probable that taxable profit will be available against\nwhich the losses, offsets and timing differences can be utilised. Significant management judgement is required to\ndetermine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of\nfuture taxable profits together with future tax planning strategies.\n\nThe Group previously derecognised deferred tax assets in relation to carry-forward tax losses and temporary\ndifferences as it believed they no longer met the requirement to be recognised, stemming from the impact that\nthe recent growth and expansion activity has had on taxable profits. Despite the derecognition, these\ncarry-forward tax losses and offsets can be carried forward indefinitely and have no expiry date.\n\n_(ii) Income taxes_\nThe Group is subject to income taxes in the jurisdictions in which it operates. Judgement is required in\ndetermining the provision for income taxes. There are certain transactions and calculations undertaken during the\nordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax\nliabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is\ndifferent from the amounts that were initially recorded, such differences will impact the current and deferred\nincome tax assets and liabilities in the period in which such determination is made.\n\n_(iii) Leases_\nThe Group is required to determine the measurement of lease liabilities based on the present value of remaining\nlease payments, discounted using the Group’s incremental borrowing rate at commencement date. Judgement is\nrequired in determining an appropriate incremental borrowing rate, and the Group has determined the rate based\non the effective interest rate of its most recent borrowings, adjusted to the specific term of each lease. In\ndetermining the lease term, management considered all relevant facts and circumstances that create an\neconomic incentive to either exercise an extension option, or not exercise a termination option. Extension options\nare only included in the lease term if it is reasonably certain to be extended. The assessment is reviewed if a\nsignificant event or significant change in circumstances occurs which affects this assessment, and that is within\nthe control of the lessee.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(c) Critical accounting estimates (continued)**\n\n_(iv) Revenue from contracts with customers_\nKey judgements in the recognition of revenue from contracts with customers include the identification of\nperformance obligations within the contracts, allocation of the transaction price within the contract to the identified\nperformance obligations, treatment of the upfront project fees and treatment of any variable consideration\nsubsequent to initial commencement. Refer to Note 4 for further details.\n\n_(v) Impairment_\nAssessment of indicators of impairment and the determination of CGUs for impairment purposes require\nsignificant management judgment. Indicators of impairment may include changes in the Group's operating and\neconomic assumptions or possible impacts from emerging risks such as climate change and the transition to a\nlow carbon economy. Considering the location and nature of our assets as well as our continued focus on\noperational resilience and business continuity programs, at this stage, we do not consider the potential impacts of\nclimate change and the transition to a low carbon economy to be an impairment indicator.\n\n**(d) Employee Share Trust**\n\nThe Group has formed two entities to administer the Group's employee share schemes. The trusts are\nconsolidated, as the substance of the relationships are that the trusts are controlled by the Group. Shares held by\nNEXTDC Share Plan Pty Ltd and NEXTDC Employee Share Plan Trust are disclosed as treasury shares and\ndeducted from contributed equity.\n\n**(e) Share-based payments reserve**\n\nThe share-based payments reserve is used to recognise:\n\n-  the grant date fair value of long-term incentives issued to participants\n\n-  the grant date fair value of shares issued to participants\n\n-  the issue of shares held by NEXTDC Share Plan Pty Ltd and NEXTDC Employee Share Plan Trust\n\n**(f)** **Functional and presentation currency**\n\nThese consolidated financial statements are presented in Australian dollars, which is the Group’s functional\ncurrency.\n\n**(g) Impairment of assets**\n\nIntangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for\nimpairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other\nassets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount\nmay not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount\nexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell\nand value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which\nthere are separately identifiable cash inflows which are largely independent of the cash inflows from other assets\nor groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are\nreviewed for possible reversal of the impairment at the end of each reporting period.\n\nConsideration has been given to the potential financial impacts of climate change related risks on the carrying\nvalue of the Group's assets through a qualitative review of the Group's climate change risks and mitigating\nactions. This review did not identify any material financial reporting impacts.\n\n**(h) Cash and cash equivalents**\n\nFor the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents\nincludes cash on hand, deposits held at call with financial institutions and term deposits with original maturities of\nthree months or less that are readily convertible to known amounts of cash and which are subject to an\ninsignificant risk of changes in value.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(i)** **Investments and other financial assets**\n\n_(i)_ _Classification_\nThe Group classifies its financial assets in the following measurement categories:\n\n-  those to be measured subsequently at fair value (either through OCI or through profit or loss), and\n\n-  those to be measured at amortised cost.\n\nThe classification depends on the entity’s business model for managing the financial assets and the contractual\nterms of the cash flows.\n\nFor assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For\ninvestments in equity instruments that are not held for trading, this will depend on whether the Group has made\nan irrevocable election at the time of initial recognition to account for the equity investment at fair value through\nother comprehensive income (FVOCI).\n\nThe Group reclassifies debt investments when and only when its business model for managing those assets\nchanges.\n\n_(ii) Measurement_\nAt initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset\nnot at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of\nthe financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.\n\n_Debt instruments_\nSubsequent measurement of debt instruments depends on the Group’s business model for managing the asset\nand the cash flow characteristics of the asset. There are three measurement categories into which the Group\nclassifies its debt instruments:\n\n-  Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent\nsolely payments of principal and interest are measured at amortised cost. Interest income from these\nfinancial assets is included in finance income using the effective interest rate method. Any gain or loss arising\non derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with\nforeign exchange gains and losses. Impairment losses are presented as separate line item in the\nconsolidated income statement.\n\n-  FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where\nthe assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI.\nMovements in the carrying amount are taken through OCI, except for the recognition of impairment gains or\nlosses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When\nthe financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified\nfrom equity to profit or loss and recognised in other gains/(losses). Interest income from these financial\nassets is included in finance income using the effective interest rate method. Foreign exchange gains and\nlosses are presented in other gains/(losses) and impairment expenses are presented as separate line item in\nthe consolidated income statement.\n\n-  FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss\non a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net\nwithin other gains/(losses) in the year in which it arises.\n\n_Equity instruments_\nThe Group subsequently measures all equity investments at fair value. Where the Group’s management has\nelected to present fair value gains and losses on equity investments in OCI, there is no subsequent\nreclassification of fair value gains and losses to profit or loss following the derecognition of the investment.\nDividends from such investments continue to be recognised in profit or loss as other income when the Group’s\nright to receive payments is established.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(i)** **Investments and other financial assets (continued)**\n\n_(ii) Measurement (continued)_\n_Equity instruments (continued)_\nChanges in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the consolidated\nincome statement as applicable. Impairment losses (and reversal of impairment losses) on equity investments\nmeasured at FVOCI are not reported separately from other changes in fair value.\n\n_(iii) Impairment_\nThe group assesses on a forward looking basis the expected credit losses associated with its debt instruments\ncarried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been\na significant increase in credit risk. For trade receivables, the group applies the simplified approach permitted by\nAASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see\nnote 14 for further details.\n\n**(j)** **Derivatives and hedging activities**\n\n_(i)_ _Classification of derivatives_\nDerivatives are only used for economic hedging purposes and not as speculative investments. However, where\nderivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for accounting\npurposes and are accounted for at fair value through profit or loss. They are presented as current assets or\nliabilities to the extent they are expected to be settled within 12 months after the end of the reporting period.\n\nThe Group designates derivatives as hedges of a particular risk associated with the cash flows of recognised\nassets and liabilities and highly probably forecast transactions (cash flow hedge). At inception of the hedge\nrelationship, the Group documents the economic relationship between hedging instruments and hedged items\nincluding whether changes in the cash flows of the hedging instruments are expected to offset changes in the\ncash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its\nhedge transactions.\n\nThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow\nhedges is recognised in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective\nportion is recognised immediately in profit or loss, within other gains/(losses).\n\nThe Group designates interest rate swaps as cash flow hedges of highly probable forecast interest. The interest\nrate swaps have floor options embedded within; in this case the Group designates only the intrinsic value of the\noptions as the hedging instrument.\n\nGains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in\nthe cash flow hedge reserve within equity. The changes in the fair value of the aligned time value of the option\nare recognised in other comprehensive income and accumulated in the cost of hedging reserve. If the hedged\nitem is transaction-related, the time value is reclassified to profit or loss when the hedged item affects profit or\nloss.\n\nIf the hedged item is time period related, then the amount accumulated in the cost of hedging reserve is\nreclassified to profit or loss on a rational basis. Those reclassified amounts are recognised in profit or loss in the\nsame line as the hedged item. If the hedged item is a non-financial item, then the amount accumulated in the cost\nof hedging reserve is removed directly from equity and included in the initial carrying amount of the recognised\nnon-financial item. Furthermore, if the Group expects that some or all of the loss accumulated in cost of hedging\nreserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.\n\n_(ii) Fair Value measurement_\nThe fair value of the interest rate swaps which the group has entered into are not traded in an active market (for\nexample, over-the-counter derivatives), and are determined using valuation techniques which maximise the use\nof observable market data and rely as little as possible on entity-specific estimates. Given all significant inputs\nrequired to fair value these interest rate swaps are observable, the instrument is classified as level 2.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(k) Provisions**\n\nProvisions for asset replacement and make good obligations are recognised when the Group has a present legal\nor constructive obligation as a result of past events, it is probable that an outflow of resources will be required to\nsettle the obligation and the amount has been reliably estimated. Provisions are not recognised for future\noperating losses.\n\nWhere there are a number of similar obligations, the likelihood that an outflow will be required in settlement is\ndetermined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of\nan outflow with respect to any one item included in the same class of obligations may be small.\n\nProvisions are measured at the present value of management's best estimate of the expenditure required to\nsettle the present obligation at the end of the reporting year. The discount rate used to determine the present\nvalue is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific\nto the liability. The increase in the provision due to the passage of time is recognised as interest expense.\n\n**(l)** **Employee benefits**\n\n_(i) Short-term Obligations_\nLiabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within\n12 months after the end of each reporting period in which the employees render the related service are\nrecognised in respect of employees’ services up to the end of the reporting period and are measured at the\namounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in\npayables.\n\n_(ii) Other long-term employee benefit Obligations_\nThe liability for long service leave and annual leave which is not expected to be settled within 12 months after the\nend of the reporting period in which the employees render the related service is recognised in the provision for\nemployee benefits and measured as the present value of expected future payments to be made in respect of\nservices provided by employees up to the end of the reporting period. Consideration is given to expected future\nwage and salary levels, experience of employee departures and periods of service. Expected future payments\nare discounted using market yields at the end of the reporting period on national government bonds with terms to\nmaturity and currency that match, as closely as possible, the estimated future cash outflows.\n\n_(iii) Share-based Payments_\nShare-based compensation benefits are provided to participants via the Long Term Incentive Plan.\n\nThe fair value of performance rights is recognised as an employee benefits expense with a corresponding\nincrease in equity. The total amount to be expensed is determined by reference to the fair value granted, which\nincludes any market performance conditions and the impact of any non-vesting conditions but excludes the\nimpact of any service and non-market performance vesting conditions.\n\nNon-market vesting conditions are included in the assumptions. The total expense is recognised over the vesting\nperiod, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each\nperiod, the Group revises its estimates of the number of rights that are expected to vest based on the non-market\nvesting conditions. It recognises the impact of the revision to original estimates, if any, in the Consolidated\nStatement of Comprehensive Income, with a corresponding adjustment to equity.\n\n_(iv) Retirement benefit Obligations_\nExcept for the statutory superannuation guarantee charge, the Group does not have any other retirement benefit\nobligations.\n\n**(m) Rounding of amounts**\n\nThe Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument\n2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial\nstatements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in\ncertain cases, to the nearest dollar.\n\n\n-----\n\nNotes to the Consolidated Financial Report\n30 June 2023\n(continued)\n\n**27 Summary of significant accounting policies (continued)**\n\n**(n) Goods and Services Tax (GST)**\n\nRevenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred\nis not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the\nasset or as part of the expense.\n\nReceivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of\nGST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the\nConsolidated Balance Sheet.\n\nCash flows are presented on a gross basis. The GST components of cash flows arising from investing or\nfinancing activities which are recoverable from, or payable to the taxation authority, are presented as operating\ncash flows.\n\n**(o) Parent entity financial information**\n\nThe financial information for the parent entity, NEXTDC Limited, disclosed in note 26 has been prepared on the\nsame basis as the consolidated financial statements.\n\n**(p) Assets in the course of construction**\n\nAssets in the course of construction are shown at historical cost. Historical cost includes directly attributable\nexpenditure on data centre facilities which at reporting date, has not yet been finalised and/or ready for use.\nAssets in the course of construction are not depreciated.\n\nAssets in the course of construction are transferred to property, plant and equipment upon successful testing and\ncommissioning.\n\n**(q) Revenue received in advance**\n\nRevenue received in advance primarily relates to the advance consideration received from customers in relation\nto project fees and service credits, for which revenue is recognised over time. Refer to Note 4 (b) for details in\nrelation to the revenue recognition policy for project fees and service credits.\n\n\n-----\n\nDirectors' Declaration\n30 June 2023\n\n**In the Directors' opinion:**\n\n(a) the financial statements and notes set out on pages 64 to 113 are in accordance with the Corporations Act\n_2001, including:_\n\n(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory\nprofessional reporting requirements, and\n\n(ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2023 and of\nits performance for the financial year ended on that date, and\n\n(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they\nbecome due and payable, and\n\n(c) at the date of this declaration, there are reasonable grounds to believe that the Group will be able to pay\nits debts as and when they become due and payable, and\n\nNote 27 confirms that the financial statements also comply with International Financial Reporting Standards as\nissued by the International Accounting Standards Board.\n\nThe Directors have been given the declarations by the chief executive officer and chief financial officer required\nby section 295A of the Corporations Act 2001.\n\nThis declaration is made in accordance with a resolution of Directors.\n\nCraig Scroggie\nManaging Director and Chief Executive Officer\n\n28 August 2023\n\n\n-----\n\nIndependent Auditor’s Report\n\nIndependent auditor’s report\n\nTo the members of NEXTDC Limited\n\n**Report on the audit of the financial report**\n\n**Our opinion**\n\nIn our opinion:\n\nThe accompanying financial report of NEXTDC Limited (the Company) and its controlled entities\n(together the Group) is in accordance with the Corporations Act 2001, including:\n\n(a) giving a true and fair view of the Group's financial position as at 30 June 2023 and of its\nfinancial performance for the year then ended\n\n(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.\n\n_What we have audited_\nThe Group financial report comprises:\n\n-  the consolidated balance sheet as at 30 June 2023\n\n-  the consolidated statement of comprehensive income for the year then ended\n\n-  the consolidated statement of changes in equity for the year then ended\n\n-  the consolidated statement of cash flows for the year then ended\n\n-  the notes to the consolidated financial report, which include significant accounting policies and\nother explanatory information\n\n-  the directors’ declaration.\n\n**Basis for opinion**\n\nWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under\nthose standards are further described in the Auditor’s responsibilities for the audit of the financial\n_report section of our report._\n\nWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis\nfor our opinion.\n\n_Independence_\nWe are independent of the Group in accordance with the auditor independence requirements of the\n_Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical_\nStandards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence\n_Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also_\nfulfilled our other ethical responsibilities in accordance with the Code.\n\nPricewaterhouseCoopers, ABN 52 780 433 757\n480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001\nT: +61 7 3257 5000, F: +61 7 3257 5999\n\nLiability limited by a scheme approved under Professional Standards Legislation.\n\n\n-----\n\n**Our audit approach**\n\nAn audit is designed to provide reasonable assurance about whether the financial report is free from\nmaterial misstatement. Misstatements may arise due to fraud or error. They are considered material if\nindividually or in aggregate, they could reasonably be expected to influence the economic decisions of\nusers taken on the basis of the financial report.\n\nWe tailored the scope of our audit to ensure that we performed enough work to be able to give an\nopinion on the financial report as a whole, taking into account the geographic and management\nstructure of the Group, its accounting processes and controls and the industry in which it operates.\n\n**_Materiality_** **_Audit scope_** **_Key audit matters_**\n\n-  For the purpose of our audit we -  Our audit focused on -  Amongst other relevant\nused overall Group materiality of where the Group made topics, we communicated\n$4.6 million, which represents subjective judgements; the following key audit\napproximately 2.5% of the Group's for example, significant matters to the Audit and\nEarnings Before Interest, Tax, accounting estimates Risk Management\nDepreciation and Amortisation, after involving assumptions Committee:\nadjusting for an impairment charge and inherently uncertain\n\n−Data Centre Services\n\non the investment in associates future events.\n\nRevenue Recognition\n\n(adjusted EBITDA).\n\n-  NEXTDC has data\n\n−Property, Plant and\n\n-  We applied this threshold, together centres operating in\n\nEquipment.\n\nwith qualitative considerations, to capital cities across\ndetermine the scope of our audit Australia. -  These are further described\nand the nature, timing and extent of in the Key audit matters\nour audit procedures and to section of our report.\nevaluate the effect of misstatements\non the financial report as a whole.\n\n-  We chose adjusted EBITDA\nbecause it is a benchmark against\nwhich the performance of the Group\nis commonly measured.\n\n-  We utilised a 2.5% threshold based\non our professional judgement,\nnoting it is within the range of\ncommonly acceptable thresholds.\n\n\n-----\n\n**Key audit matters**\n\nKey audit matters are those matters that, in our professional judgement, were of most significance in\nour audit of the financial report for the current period. The key audit matters were addressed in the\ncontext of our audit of the financial report as a whole, and in forming our opinion thereon, and we do\nnot provide a separate opinion on these matters. Further, any commentary on the outcomes of a\nparticular audit procedure is made in that context.\n\n**_Key audit matter_** **_How our audit addressed the key audit matter_**\n\n**Data Centre Services Revenue Recognition**\n_Refer to note 4 - Data centre services revenue_\n_$357.2m_\n\nThe Group applies AASB 15 Revenue from Contracts We performed the following procedures, amongst\nwith Customers to account for the services it provides others:\nto its customers. Accounting for revenue recognition\nwas a key audit matter due to the:\n\n-  Assessed whether the Group’s accounting\npolicies were in accordance with the\n\n-  significance of revenue to understanding the requirements of AASB 15 Revenue from\nfinancial results for users of the financial Contracts with Customers;\nreport; -  Evaluated the judgements made by the\n\n-  complexity involved in applying the Group in applying the accounting policy by\nrequirements of AASB 15 given the number obtaining an understanding of the revenue\nof revenue components and contracts with components and considering the terms and\ncustomers with bespoke terms and conditions of a sample of contracts;\nconditions, including in relation to recurring -  For a sample of contracts for each revenue\nservice fees, upfront project fees and component tested, we:\nservice credits; -  developed an understanding of the\n\n-  judgements required by the Group in key terms of the arrangement\napplying the requirements of AASB 15, such including parties, term dates,\nas: performance obligations, fees and\n\n-  identifying the performance payment terms;\nobligations under its contracts with -  considered the Group’s\ncustomers; identification of performance\n\n-  determining the transaction price, obligations and allocation of the\nconsidering the terms in the transaction price to the\ncontracts relating to recurring performance obligations;\nservice fees, upfront project fees, -  recalculated the amount of revenue\nand service credits; and which the Group has recognised,\n\n-  the method of allocating the taking into account the terms of the\ntransaction price in the contract to contracts for recurring service fees,\nthe performance obligations. upfront project fees, and service\n\ncredits.\n\n-  Evaluated the reasonableness of the\ndisclosures made in Note 4 in light of the\nrequirements of Australian Accounting\nStandards.\n\n\n-----\n\n**_Key audit matter_** **_How our audit addressed the key audit matter_**\n\n**Property, Plant and Equipment**\n_Refer to note 9 - Property, Plant and Equipment_\n_$2,895m_\n\nNEXTDC has continued to invest in new data centres Our audit approach included testing individually large\nduring the period, and to expand its existing data value additions and transfers, while the residual\ncentre infrastructure. These growth projects require balance was tested on a sample basis. We performed\nsignificant capital outlay which results in the the following procedures, amongst others:\ncapitalisation of external and internal costs into\nProperty, Plant and Equipment.\n\n-  developed an understanding of and\nevaluated the Group’s cost capitalisation\n\nDuring the current year, $670m has been capitalised policy;\nas additions to assets in the course of construction,\nand $1,002m has been transferred from assets in the\n\n-  assessed the processes implemented by the\n\ncourse of construction to the appropriate class of\n\nGroup for the measurement of capitalised\n\nProperty, Plant and Equipment.\n\ncosts;\n\nCosts should be capitalised and depreciated in line\n\n-  sample tested capitalised costs to related\n\nwith Australian Accounting Standards which outline\n\ndocumentation, including assessing whether\n\nthe criteria required to be met for costs to be\n\nthey meet the criteria for capitalisation with\n\ncapitalised, and the treatment to be applied in the\n\nreference to Australian Accounting\n\ndepreciation of the costs capitalised.\n\nStandards;\n\nThis was a key audit matter because of the:\n\n-  assessed the appropriateness of\ncapitalisation of internal costs, in particular\n\n-  significance of the additions balance to the salaries and wages; and\nConsolidated Balance Sheet;\n\n-  for a sample of assets, assessed the\n\n-  potential significance of the additions appropriateness of the timing and method of\nbalance to the Consolidated Statement of transfers from assets in the course of\nComprehensive Income should the costs not construction to the appropriate property,\nmeet the criteria required for capitalisation; plant and equipment asset class, and\n\nrecalculated the amount of depreciation that\n\n-  judgement involved in assessing whether the Group had recognised.\ninternal costs meet the criteria for\ncapitalisation;\n\n-  significance of the depreciation expense to\nthe Consolidated Statement of\nComprehensive Income; and\n\n-  the judgements applied in determining the\nappropriate timing of transfers from assets in\nthe course of construction to the appropriate\nclass of Property Plant and Equipment, and\nthe calculation of the depreciation expense.\n\n\n-----\n\n**Other information**\n\nThe directors are responsible for the other information. The other information comprises the\ninformation included in the annual report for the year ended 30 June 2023, but does not include the\nfinancial report and our auditor’s report thereon.\n\nOur opinion on the financial report does not cover the other information and accordingly we do not\nexpress any form of assurance conclusion thereon through our opinion on the financial report. We\nhave issued a separate opinion on the remuneration report.\n\nIn connection with our audit of the financial report, our responsibility is to read the other information\nand, in doing so, consider whether the other information is materially inconsistent with the financial\nreport or our knowledge obtained in the audit, or otherwise appears to be materially misstated.\n\nIf, based on the work we have performed on the other information that we obtained prior to the date of\nthis auditor’s report, we conclude that there is a material misstatement of this other information, we are\nrequired to report that fact. We have nothing to report in this regard.\n\n**Responsibilities of the directors for the financial report**\n\nThe directors of the Company are responsible for the preparation of the financial report that gives a\ntrue and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001\nand for such internal control as the directors determine is necessary to enable the preparation of the\nfinancial report that gives a true and fair view and is free from material misstatement, whether due to\nfraud or error.\n\nIn preparing the financial report, the directors are responsible for assessing the ability of the Group to\ncontinue as a going concern, disclosing, as applicable, matters related to going concern and using the\ngoing concern basis of accounting unless the directors either intend to liquidate the Group or to cease\noperations, or have no realistic alternative but to do so.\n\n**Auditor’s responsibilities for the audit of the financial report**\n\nOur objectives are to obtain reasonable assurance about whether the financial report as a whole is\nfree from material misstatement, whether due to fraud or error, and to issue an auditor’s report that\nincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that\nan audit conducted in accordance with the Australian Auditing Standards will always detect a material\nmisstatement when it exists. Misstatements can arise from fraud or error and are considered material\nif, individually or in the aggregate, they could reasonably be expected to influence the economic\ndecisions of users taken on the basis of the financial report.\n\nA further description of our responsibilities for the audit of the financial report is located at the Auditing\nand Assurance Standards Board website at:\nhttps://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our\nauditor's report.\n\n\n-----\n\n**Report on the remuneration report**\n\n**Our opinion on the remuneration report**\n\nWe have audited the remuneration report included in pages 34 to 58 of the directors’ report for the\nyear ended 30 June 2023.\n\nIn our opinion, the remuneration report of NEXTDC Limited for the year ended 30 June 2023 complies\nwith section 300A of the Corporations Act 2001.\n\n**Responsibilities**\n\nThe directors of the Company are responsible for the preparation and presentation of the\nremuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility\nis to express an opinion on the remuneration report, based on our audit conducted in accordance with\nAustralian Auditing Standards.\n\nPricewaterhouseCoopers\n\nMichael Shewan Brisbane\n\nPartner 28 August 2023\n\n\n-----\n\nShareholder Information\nShareholder Information\n30 June 2023\n\nThe following shareholder information was applicable as at 8 August 2023.\n\n**Distribution of equity securities**\n\n**Number of** **Number of**\n**Holding** **investors** **securities**\n\n100,001 and over 80 416,533,059\n10,001 - 100,000 2,008 41,439,858\n5,001 - 10,000 2,902 20,489,224\n1,001 - 5,000 12,299 29,516,394\n1 - 1000 18,384 6,668,101\n**Total** **35,673** **514,646,636**\n\nUnmarketable parcels 623 5,452\n\n**Equity security holders**\n\nThe names of the twenty largest holders of quoted equity securities are listed below:\n\n**Name**\n\n**Percentage of**\n**Number held** **issued shares**\n\n1. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 153,142,713 29.76\n2. J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 112,516,607 21.86\n3. CITICORP NOMINEES PTY LIMITED 51,187,452 9.95\n4. BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> 25,368,732 4.93\n5. NATIONAL NOMINEES LIMITED 19,412,986 3.77\n6. BNP PARIBAS NOMS PTY LTD <DRP> 9,450,098 1.84\n7. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH\nSUPER CORP A/C> 6,432,530 1.25\n8. UBS NOMINEES PTY LTD 3,105,198 0.60\n9. BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD\n<DRP A/C> 2,964,364 0.58\n10. PACIFIC CUSTODIANS PTY LIMITED NXT EMP SHARE PLAN TST 2,654,001 0.52\n11. BNP PARIBAS NOMS(NZ) LTD <DRP> 2,642,985 0.51\n12. NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> 2,311,225 0.45\n13. LATIMORE FAMILY PTY LTD <LATIMORE FAMILY A/C> 2,146,250 0.42\n14. CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV\nA/C> 2,101,586 0.41\n15. BNP PARIBAS NOMINEES PTY LTD <PITCHER PARTNERS DRP> 1,677,520 0.33\n16. AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED 1,550,000 0.30\n17. MUTUAL TRUST PTY LTD 1,131,600 0.22\n18. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,029,577 0.20\n19. SUAVE INVESTMENTS PTY LTD 756,844 0.15\n20. NETWEALTH INVESTMENTS LIMITED 663,793 0.13\n\n**402,246,061** **78.18**\n\n**Number** **Number**\n**Unquoted equity securities** **on issue** **of holders**\n\nPerformance rights - issued in FY21 389,388 24\nPerformance rights - issued in FY22 494,364 36\nPerformance rights - issued in FY23 706,467 37\nDeferred share rights - issued in FY23 61,162 3\n\n\n-----\n\nShareholder Information\n30 June 2023\n(continued)\n\n**Substantial holders**\n\nSubstantial holders in the Company based on ASX lodgements up until 8 August 2023 are set out below:\n\n**Number** **Percentage of**\n**Substantial holders** **held** **issued shares**\n\nUniSuper Limited 29,194,768 6.38%\nBlackRock Group 29,878,481 6.02%\nVanguard Group 25,882,240 5.02%\n\n**Voting rights**\n\nThe voting rights attaching to each class of equity securities are set out below:\n\n_(i)_ _Ordinary shares_\nOn a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a\npoll each share shall have one vote.\n\n_(ii) Performance rights and deferred share rights_\nNo voting rights.\n\n\n-----\n\nCorporate Directory\n\nNEXTDC Limited\nCorporate Directory\n\n**Directors** Douglas Flynn\n_Chairman_\nCraig Scroggie\n_Managing Director and Chief Executive Officer_\nStuart Davis\n_Non-Executive Director_\nDr Gregory J Clark AC\n_Non-Executive Director_\nStephen Smith\n_Non-Executive Director_\nJennifer Lambert\n_Non-Executive Director_\nDr Eileen Doyle\n_Non-Executive Director_\nMaria Leftakis (appointed 24 August 2023)\n_Non-Executive Director_\n\n**Company secretary** Michael Helmer\n\n**Registered office** 20 Wharf St\nBrisbane Qld 4000\nTel: +61 7 3177 4777\n\n**Website address** www.nextdc.com\n\n**Auditor** PricewaterhouseCoopers\n480 Queen Street\nBrisbane Qld 4000\n+61 7 3257 5000\n\n**Solicitors** Clayton Utz\nLevel 28, Riparian Plaza\n71 Eagle Street\nBrisbane Qld 4000\n\nHerbert Smith Freehills\nANZ Tower\n161 Castlereagh Street\nSydney NSW 2000\n\n**Share register** Link Market Services\nLevel 21,10 Eagle Street\nBrisbane Qld 4000\nTel: 1300 554 474 (in Australia)\nTel: +61 (2) 8280 7111 (overseas)\n\n**Stock exchange listing** NEXTDC Limited shares are listed on the Australian\nSecurities Exchange (ASX) under ticker code NXT.\n\n\n-----\n\n1 July 2022 to 30 June 2023 For any queries about NEXTDC’s\n\nNEXTDC Limited Annual Report please contact us at www.nextdc.com/contact\n\n\n-----\nEND DOCUMENT 2\n\nBEGIN DOCUMENT 3:\n# ASX Release\n28 February 2023\n\n## 1H23 Record Results\n\nNEXTDC Limited (ASX: NXT) (“NEXTDC” or “the Company”) today announced its financial results for the halfyear ended 31 December 2022 (“1H23”).\n\n**1H23 financial highlights**\n\n Data centre services revenue increased A$15.2 million (10%) to A$159.7 million (1H22: A$144.5 million)\n\n Underlying EBITDA[1,2] increased A$12.5 million (15%) to A$97.5 million (1H22: A$85.0 million)\n\n Operating cash flow increased A$1.8 million (3%) to A$71.3 million\n\n Pro forma liquidity (cash and undrawn debt facilities) of A$2.0 billion at 31 December 2022[3]\n\n-  New Debt Facility secured post 31 December 2022, including an incremental A$400 million of capacity as\n\nwell as favourable amendments to existing financial covenants and terms\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the 1H23 results:\n\n_“We are pleased to deliver another record result in 1H23, with the business reporting strong metrics across the_\n_board._\n\n_NEXTDC’s upsized liquidity position and record forward sales pipeline provides the Company with a strong_\n_position to not only achieve its FY23 guidance but to accelerate its growth in the medium term._\n\n_The Company’s record financial performance and outlook is a testament to the quality of NEXTDC’s leading_\n_national digital infrastructure platform.”_\n\n**Business performance**\n\nFor the 12 months to 31 December 2022:\n\n Contracted utilisation increased 3.2MW[4] (4%) to 84.2MW\n\n Customer numbers grew by 132 (8%) to 1,701 (31 December 2021: 1,569)\n\n Interconnections[5] rose 1,422 (9%) to 17,301, representing 7.9% of recurring revenue\n\n**Development activity**\n\n M3 Melbourne open on time and budget with 13.5MW of initial capacity as well as further work underway to\n\nadd an incremental 4.5MW to support early customer contracted requirements\n\n Ongoing work to complete the S3 Sydney base building (Phase 2), with a further 10MW of capacity now in plan\n\n Uptime Institute Tier IV certifications for Constructed Facility were received for M3 Melbourne and S3 Sydney\n\n1 EBITDA is a non-statutory financial metric representing earnings before interest, tax, depreciation and amortisation. Non-statutory\nfinancial metrics have been extracted from the interim financial report\n2 Refer to page 43 of the 1H23 Results Presentation for a reconciliation to Underlying EBITDA\n3 Reflects 31 December 2022 cash position of $364 million, $100m of incremental debt drawn Financial Close of the New Debt Facility\nannounced on 13 January 2023 and a further $1.5 billion of undrawn capacity\n4 Represents pro-forma increase in utilisation over the 12-month period from 31 December 2021 (as disclosed in NEXTDC’s ASX\nannouncement on 31 January 2022) to 31 December 2022\n5 Comprises both physical and elastic cross connections\n\n\n-----\n\n New sites secured for Sydney and Melbourne availability zones:\n\n-  S5 provides future expansion in the Macquarie Park availability zone and was settled during 1H23\n\n-  M4 provides future expansion in the Port Melbourne availability zone and was settled in early 2H23\n\n**Updated FY23 guidance**\n\nBased on current billing, contracted utilisation levels and expected new customer contracts, NEXTDC provides the\nfollowing upgraded guidance for FY23:\n\n Data centre services revenue towards the top end of A$340 million to A$355 million (range unchanged)\n\n Underlying EBITDA in the range of A$190 million to A$198 million (unchanged)\n\n Capital expenditure in the range of A$620 million to A$670 million (upgraded from A$380 million to A$420\n\nmillion)\n\n-  This range has been updated to reflect the recent M4 and S5 land acquisitions, resulting in higher spend\n\nthan originally forecast, as well as amongst other things, having received development approval for A1\n\nAdelaide as well as the anticipated development approval of D1 Darwin and PH1 Port Hedland\n\nCommenting on the updated FY23 guidance, Mr Scroggie said:\n\n_“NEXTDC remains on track to deliver another record financial performance in FY23 on the back of strong_\n_performance in 1H23. With total liquidity of A$2 billion and record sales pipeline, the Company remains in an_\n_outstanding position to take advantage of further customer growth.”_\n\nAuthorised for release by the Board of NEXTDC Limited.\n\n**ENDS**\n\nFor more information:\n\n**Simon Guzowski**\nT: +61 2 8072 4943\n[E: investorrelations@nextdc.com](mailto:investorrelations@nextdc.com)\n\n[NEXTDC Investor Centre: www.nextdc.com/our-company/investor-centre](http://www.nextdc.com/our-company/investor-centre)\n\n\n-----\n\n### About NEXTDC\n\nNEXTDC is an ASX 100-listed technology company and Asia’s most innovative Data Centre-as-a-Service\nprovider. We are building the infrastructure platform for the digital economy, delivering the critical power,\nsecurity and connectivity for global cloud computing providers, enterprise and Government.\n\nNEXTDC is recognised globally for the design, construction and operation of Australia’s only network of\nUptime Institute certified Tier IV facilities, and the only data centre operator in the Southern Hemisphere to\nachieve Tier IV Gold certification for Operational Sustainability. NEXTDC has a strong focus on sustainability\nand operational excellence through renewable energy sources and delivering world-class operational\nefficiency. Our data centres have been engineered to deliver exceptional levels of efficiency and the\nindustry’s lowest Total Cost of Operation through NABERS 5-star energy efficiency.\n\nNEXTDC’s corporate operations have been certified carbon neutral under the Australian Government’s\n_Climate Active Carbon Neutral Standard._\n\nOur Cloud Centre partner ecosystem is Australia’s most dynamic digital marketplace, comprising carriers,\ncloud providers and IT service providers, enabling local and international customers to source and connect\nwith cloud platforms, service providers and vendors to build complex hybrid cloud networks and scale their\ncritical IT infrastructure services.\n\nNEXTDC is where the cloud lives®.\n\n[To learn more, visit www.nextdc.com](about:blank)\n\n\n-----\nEND DOCUMENT 3\n\nBEGIN DOCUMENT 4:\n# ASX Release\n29 August 2022\n\n## FY22 Record Results – Exceeds FY22 EBITDA Guidance\n\nNEXTDC Limited (ASX: NXT) (“NEXTDC” or “the Company”) today announced its financial results for the\nfinancial year ended 30 June 2022 (“FY22”).\n\n**FY22 financial highlights**\n\n Data centre services revenue up A$45.0 million (18%) to A$291.0 million (FY21: A$246.1 million)\n\n Underlying EBITDA[1,2] increased A$34.5 million (26%) to A$169.0 million (FY21: A$134.5 million)\n\n-  exceeding top-end of upgraded FY22 Guidance range of A$163 million to A$167 million\n\n Statutory net profit (loss) after tax of A$9.1 million (FY21: (A$23.6) million)\n\n Balance sheet now underpinned by A$2.4 billion in Property, Plant and Equipment\n\n-  capital expenditure of A$604.8 million largely invested in new developments at S3, M2 and M3\n\n Liquidity of A$1.9 billion at 30 June 2022\n\n-  new A$2.5 billion senior syndicated debt facilities in December 2021, offering an extra A$650 million of\n\nliquidity\n\n Inflation well managed and assisting with revenue growth\n\n-  key components of ongoing development activity contracted\n\n-  strong pricing performance and majority of customer contracts have price escalation clauses and/or power\n\npass-through mechanisms\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the FY22 results:\n\n_“We are pleased to deliver another record result in FY22, with the Company’s underlying EBITDA performance_\n_coming in ahead of the upgraded guidance range provided at the time of NEXTDC’s 1H22 results in February._\n\n_In FY22, NEXTDC continued to grow its connection-rich customer ecosystem and remains ideally positioned to_\n_capture the benefits of prevailing industry tailwinds driven by the growth in cloud computing and accelerated_\n_digitisation._\n\n_In a high-inflation and supply constrained economic environment, the continued performance of NEXTDC’s leading_\n_national portfolio of premium data centres reinforces the highly resilient nature of the Company’s digital_\n_infrastructure assets.”_\n\n1 EBITDA is a non-statutory financial metric representing earnings before interest, tax, depreciation and amortisation. Non-statutory\nfinancial metrics have been extracted from the financial report\n2 Refer to page 32 of the FY22 Results Presentation for the reconciliation to Underlying EBITDA\n\n\n-----\n\n**Business performance**\n\nFor FY22:\n\n Contracted utilisation increased 7.5MW (10%) to 83.0MW\n\n-  Record performance in key partner, network and enterprise sectors\n\n-  Strong growth in pipeline visibility across the portfolio\n\n Total customers grew by 106 (7%) to 1,613 (30 June 2021: 1,507[3])\n\n Interconnections[4] increased by 1,895 (13%) to 16,613, representing 7.7% of recurring revenue\n\n**Development activity**\n\n S3 Sydney open on time and budget, with 12MW of capacity built during FY22\n\n M2 Melbourne fitout continued with 6MW of capacity added to support customer requirements with building\n\nexpansion works continuing on time and budget\n\n Target capacity at M2 Melbourne now expanded from 60MW to 100MW\n\n M3 Melbourne building construction on time, on budget, with practical completion of Stage 1 (13.5MW of initial\n\ncapacity) on target for 1H23\n\n An additional 4.5MW of capacity is being added at M3 Melbourne to support early customer contracted\n\nrequirements\n\n Continued expansion works at NEXTDC’s newly acquired first edge data centre SC1 Sunshine Coast\n\n Planning and design works for new D1 Darwin and A1 Adelaide facilities underway\n\n**FY23 Guidance**\n\nNEXTDC provides the following guidance for FY23:\n\n Data centre services revenue in the range of A$340 million to A$355 million (FY22: A$291 million)\n\n Underlying EBITDA[5] in the range of A$190 million to A$198 million (FY22: A$169 million)\n\n Capital expenditure in the range of A$380 million to A$420 million (FY22: $603 million)\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the FY23 guidance:\n\n_“We continue to see digital transformation driving outperformance in our partner and network sectors, as they_\n_support the enterprise in their shift to hybrid and multi-cloud._\n\n_NEXTDC’s world class efficiency standards and rich ecosystem is driving further acceleration in our customer’s_\n_transition from expensive legacy infrastructure to highly efficient, secure and reliable vendor neutral co-location._\n\nAuthorised for release by the Board of NEXTDC Limited.\n\n**ENDS**\n\n3 Historical customer numbers have been updated to reflect a data cleansing exercise undertaken in FY22 as part of an ERP\nreplacement project\n4 Comprises both physical and elastic cross connections\n5 FY23 underlying EBITDA excludes costs related to review works into potential data centre investments in Asia, acquisition\nopportunities as well as investment in associates\n\n\n-----\n\nFor more information:\n\n**Simon Guzowski**\nT: +61 2 8072 4943\n[E: investorrelations@nextdc.com](mailto:investorrelations@nextdc.com)\n\n[NEXTDC Investor Centre: www.nextdc.com/our-company/investor-centre](http://www.nextdc.com/our-company/investor-centre)\n\n\n-----\n\n### About NEXTDC\n\nNEXTDC is an ASX 100-listed technology company and Asia’s most innovative Data Centre-as-a-Service\nprovider. We are building the infrastructure platform for the digital economy, delivering the critical power,\nsecurity and connectivity for global cloud computing providers, enterprise and Government.\n\nNEXTDC is recognised globally for the design, construction and operation of Australia’s only network of\nUptime Institute certified Tier IV facilities, and the only data centre operator in the Southern Hemisphere to\nachieve Tier IV Gold certification for Operational Sustainability. NEXTDC has a strong focus on sustainability\nand operational excellence through renewable energy sources and delivering world-class operational\nefficiency. Our data centres have been engineered to deliver exceptional levels of efficiency and the\nindustry’s lowest Total Cost of Operation through NABERS 5-star energy efficiency.\n\nNEXTDC’s corporate operations have been certified carbon neutral under the Australian Government’s\n_Climate Active Carbon Neutral Standard._\n\nOur Cloud Centre partner ecosystem is Australia’s most dynamic digital marketplace, comprising carriers,\ncloud providers and IT service providers, enabling local and international customers to source and connect\nwith cloud platforms, service providers and vendors to build complex hybrid cloud networks and scale their\ncritical IT infrastructure services.\n\nNEXTDC is where the cloud lives®.\n\n[To learn more, visit www.nextdc.com](http://www.nextdc.com/)\n\n\n-----\nEND DOCUMENT 4\n\nBEGIN DOCUMENT 5:\n# ASX Release\n23 February 2022\n\n## 1H22 Record Results and FY22 Guidance Upgraded\n\nNEXTDC Limited (ASX: NXT) (“NEXTDC” or “the Company”) today announced its financial results for the halfyear ended 31 December 2021 (“1H22”).\n\n**1H22 financial highlights**\n\n Data centre services revenue increased $22.9 million (19%) to $144.5 million (1H21: $121.6 million)\n\n Underlying EBITDA[1,2] increased $19.3 million (29%) to $85.0 million (1H21: $65.7 million)\n\n Operating cash flow increased $5.9 million[3] (9%) to $69.5 million\n\n Liquidity (cash and undrawn debt facilities) of $2.1 billion at 31 December 2021\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the 1H22 results:\n\n_“We are pleased to deliver another record result in 1H22, with strong metrics across the business that now_\n_positions the Company to provide upgraded earnings guidance for FY22. NEXTDC’s leading national digital_\n_infrastructure platform continues to demonstrate strong growth and critical resilience as it continues to mature.”_\n\n**Business performance**\n\nFor the 12 months to 31 December 2021:\n\n Contracted utilisation increased 10.0MW[4] (14%) to 81.0MW[5]\n\n Customer numbers grew by 144 (10%) to 1,569 (31 December 2020: 1,425[6])\n\n Interconnections[7] rose 1,968 (14%) to 15,879, representing 7.3% of recurring revenue\n\n**Development activity**\n\n S3 Sydney building construction tracking on time, on budget, with practical completion of Stage 1 (12MW of\n\ninitial capacity) on target for 2H22\n\n M2 Melbourne fitout continued with 3MW of capacity added to support customer requirements. Building\n\nexpansion works continue on time, on budget, with 3MW of additional capacity being added to support\n\ncustomer growth\n\n M3 Melbourne building construction on time, on budget, with practical completion of Stage 1 (13.5MW of initial\n\ncapacity) on target for 1H23. An additional 4.5MW of capacity is being added to support early customer\n\ncontracted requirements\n\n1 EBITDA is a non-statutory financial metric representing earnings before interest, tax, depreciation and amortisation. Non-statutory\nfinancial metrics have been extracted from the interim financial report\n2 Refer to page 30 of the 1H22 Results Presentation for a reconciliation to Underlying EBITDA\n3 Noting that 1H21 operating cash flow has been restated to reflect a change in accounting policy. For further information refer to note 2\nof the 1H22 Interim Financial Report\n4 Represents increase in utilisation over the 12-month period from 31 December 2020 to 31 December 2021\n5 Represents pro-forma 1H22 contracted utilisation as disclosed in NEXTDC’s ASX announcement on 31 January 2022\n6 Historical customer numbers have been updated to reflect a data cleansing exercise undertaken in 1H22 as part of an ERP\nreplacement project\n7 Comprises both physical and elastic cross connections\n\n\n-----\n\n In December 2021, NEXTDC acquired its first edge data centre Sunshine Coast (SC1), an operational site with\n\n0.2MW of built capacity, targeting 1MW+ at completion\n\n New sites secured for D1 Darwin and A1 Adelaide\n\n**FY22 upgraded guidance**\n\nBased on current billing, contracted utilisation levels and expected new customer contracts, NEXTDC provides the\nfollowing upgraded guidance for FY22:\n\n Data centre services revenue in the range of $290 million to $295 million (upgraded from $285 million to $295\n\nmillion)\n\n Underlying EBITDA[8] in the range of $163 million to $167 million (upgraded from $160 million to $165 million)\n\n Capital expenditure in the range of $530 million to $580 million (upgraded from $480 million to $540 million)\n\nCommenting on the upgrade to guidance, Mr Scroggie said:\n\n_“As a result of the strong 1H22 performance, the Company is able to upgrade its FY22 Guidance as well as_\n_accelerate project investments in 2H22. With liquidity of over $2 billion, combined with record operating cashflow,_\n_NEXTDC is in an outstanding position to take advantage of current and future customer opportunities and to press_\n_its advantage into new regions and edge locations.”_\n\nAuthorised for release by the Board of NEXTDC Limited.\n\n**ENDS**\n\nFor more information:\n\n**Alex Teo**\nT: +61 2 8072 4976\n[E: investorrelations@nextdc.com](mailto:investorrelations@nextdc.com)\n\n[NEXTDC Investor Centre: www.nextdc.com/our-company/investor-centre](http://www.nextdc.com/our-company/investor-centre)\n\n8 FY22 underlying EBITDA excludes costs related to review works into potential data centre investments in Asia, acquisition opportunities, investment in\nassociates as well as the impact of IFRIC’s guidance in relation to customisation and configuration spend on cloud software platforms\n\n\n-----\n\n### About NEXTDC\n\nNEXTDC is an ASX 100-listed technology company and Asia’s most innovative Data Centre-as-a-Service\nprovider. We are building the infrastructure platform for the digital economy, delivering the critical power,\nsecurity and connectivity for global cloud computing providers, enterprise and government.\n\nNEXTDC is recognised globally for the design, construction and operation of Australia’s only network of\nUptime Institute certified Tier IV facilities, and the only data centre operator in the Southern Hemisphere to\nachieve Tier IV Gold certification for Operational Sustainability. NEXTDC has a strong focus on sustainability\nand operational excellence through renewable energy sources and delivering world-class operational\nefficiency. Our data centres have been engineered to deliver exceptional levels of efficiency and the\nindustry’s lowest Total Cost of Operation through NABERS 5-star energy efficiency.\n\nNEXTDC’s corporate operations have been certified carbon neutral under the Australian Government’s\n_Climate Active Carbon Neutral Standard._\n\nOur Cloud Centre partner ecosystem is Australia’s most dynamic digital marketplace, comprising carriers,\ncloud providers and IT service providers, enabling local and international customers to source and connect\nwith cloud platforms, service providers and vendors to build complex hybrid cloud networks and scale their\ncritical IT infrastructure services.\n\nNEXTDC is where the cloud lives®.\n\n[To learn more, visit www.nextdc.com](http://www.nextdc.com/)\n\n\n-----\nEND DOCUMENT 5\n\nBEGIN DOCUMENT 6:\n# ASX Release\n28 August 2023\n\n## FY23 Record Results\n\nNEXTDC Limited (ASX: NXT) (“NEXTDC” or “the Company”) today announced its financial results for the\nfinancial year ended 30 June 2023 (“FY23”).\n\n**FY23 financial highlights**\n\n Total revenue up A$71.3 million (25%) to A$362.4 million (FY23 Guidance: A$350 – A$360 million[1])\n\n Underlying EBITDA[2,3] up A$24.6 million (15%) to A$193.7 million (FY23 Guidance: A$192 – A$196 million[1])\n\n Operating cash flow up A$9.3 million (8%) to A$126.5 million\n\n Capital expenditure up A$85.6 million (14%) to A$690.4 million (FY23 Guidance: A$670 – A$720 million[1])\n\n Liquidity of A$2.3 billion at 30 June 2023\n\n-  Cash of A$766 million\n\n-  Undrawn debt facilities of A$1.5 billion\n\nNEXTDC Chief Executive Officer and Managing Director, Craig Scroggie, commented on the FY23 results:\n\n_“We are pleased to deliver another record result in FY23, with strong growth in revenue, underlying EBITDA and_\n_contracted utilisation. The Company is accelerating its development activities to grow our inventory in line with_\n_elevated customer demand.”_\n\n_With liquidity of approximately A$2.3 billion, NEXTDC is exiting FY23 in a strong financial position to be able to_\n_take advantage of the opportunities presented by the exponential tailwinds of enterprise modernisation and cloud_\n_computing, in addition to the unprecedented acceleration of AI-driven applications driving one of the most powerful_\n_computational transformations in our lifetime.”_\n\n**FY23 business performance**\n\n Contracted utilisation increased 39.2MW (47%) to 122.2MW[4]\n\n Customer numbers increased 207 (13%) to 1,820 (30 June 2022: 1,613)\n\n Interconnections[5] increased 1,203 (7%) to 17,816, representing 7.1% of FY23 recurring revenue\n\n**Development activity**\n\n First international development sites secured for planned data centres KL1 Kuala Lumpur and AK1 Auckland\n\n New sites secured for Sydney and Melbourne availability zones:\n\n-  S5 Sydney provides future expansion in the Macquarie Park availability zone (settled 1HFY23)\n\n-  M4 Melbourne provides future expansion in the Port Melbourne availability zone (settled 2HFY23)\n\n1 NEXTDC FY23 guidance dated 11 May 2023\n2 EBITDA is a non-statutory financial metric representing earnings before interest, tax, depreciation and amortisation. Non-statutory\nfinancial metrics have been extracted from the FY23 financial report\n3 Refer to page 27 of the FY23 Results Presentation for a reconciliation to Underlying EBITDA\n4 Excluding the impact of the increase in contracted utilisation announced on 23 August 2023\n5 Comprises both physical and elastic cross connects\n\n\n-----\n\n Final building works complete at S3 Sydney, with 4MW of capacity added in FY23 and 16MW in the process of\n\nbeing built to support recent contract wins. A further 12MW is currently in planning\n\n Expansion works continue at M2 Melbourne, with 12MW in the process of being built and a further 9MW is\n\ncurrently in planning\n\n Edge site PH1 Port Hedland is nearing completion, with NE1 Newman underway\n\n Development works continue for new regions A1 Adelaide and D1 Darwin\n\n**FY24 guidance**\n\nNEXTDC provides the following guidance for FY24:\n\n Total revenue in the range of A$400 million to A$415 million (FY23: A$362.4 million)\n\n-  Net revenue growth of 6% to 9% (FY23: A$279.4 million)\n\n-  Higher power passthrough revenues expected in 1HFY24 before moderating in 2HFY24\n\n-  Margins to expand from 2HFY24 as contracted price escalation flows through and power costs decrease\n\n-  The forward order book of 44.5MW[6] (67.7MW on a pro forma basis[7]) is projected to begin to convert into\n\nrevenues by the end of FY24 and then ramp up over FY25-FY29\n\n- \n\n Underlying EBITDA[8] in the range of A$190 million to A$200 million (FY23: A$193.7 million)\n\n-  Step change in NEXTDC’s cost base ahead of material uplift in installed capacity (MW built) to reflect\n\nsignificant customer order wins in recent months\n\n-  Australian facility costs to increase in the range of A$12 to A$16 million, driven by increases in staffing\n\nlevels as well as investments in landbank properties for future expansion\n\n-  Corporate costs to increase in the range of A$5 to A$7 million, with most of this investment going into\n\nSales, Capital Works and Technology\n\n-  Operating leverage is projected to accelerate in line with the conversion of the forward order book to\n\nrevenue from FY25\n\n Capital expenditure in the range of A$850 million to A$900 million (FY23: A$687 million)\n\n-  Expansion works at S3 Sydney to support customer orders, first tranche of S4 Sydney land due to settle in\n\nFY24 and S5 Sydney planning works underway\n\n-  Accelerated expansion for M2 Melbourne and M4 Melbourne planning works underway\n\n-  A1 Adelaide and D1 Darwin developments on track to achieve practical completion in 1HFY25\n\n-  PH1 Port Hedland and NE1 Newman on track – both having received first orders ahead of opening\n\n-  Commencement of construction at KL1 Kuala Lumpur and AK1 Auckland with both facilities expected to\n\nachieve practical completion in 1HFY26\n\n-  Additional capacity in plan at M2 Melbourne, M3 Melbourne, S3 Sydney, B2 Brisbane and P2 Perth in line\n\nwith customer demand\n\n6 Forward order book represents the difference between the contracted utilisation (122.2MW) and billing utilisation (77.7MW) at the end\nof FY23\n7 Reflects forward order book adjusted for the 23.2MW of new sales disclosed in the Contracted Utilisation update dated 23 August\n2023\n8 FY24 underlying EBITDA excludes costs related to NEXTDC’s activities in offshore markets, acquisition opportunities and investment\nin associates\n\n\n-----\n\nMr Scroggie, commented on the FY24 outlook:\n\n_“FY24 represents a critical investment year for NEXTDC to expand and enhance its market-leading platform_\n_capabilities, making the necessary investments to leverage the next decade of growth, both domestically and_\n_internationally. At the core of the future growth of AI and cloud computing lies the pivotal role of the_\n_underlying digital infrastructure. This technological backbone, encompassing our data centres and networks,_\n_establishes the very foundation upon which the remarkable capabilities of both AI and cloud rely, and this_\n_moment in time is an inflection point for the Company._\n\n_The scalability, speed, and reliability of these technologies are intricately tied to the strength of this digital_\n_foundation. As the insatiable demand for computational power from AI and cloud intensifies, the seamless_\n_synergy between these technologies and our digital infrastructure becomes paramount, giving us great_\n_confidence that these investments will position the Company for extraordinary future growth.”_\n\nAuthorised for release by the Board of NEXTDC Limited.\n\n**ENDS**\n\nFor more information:\n\n**Simon Guzowski**\nT: +61 2 8072 4943\n[E: investorrelations@nextdc.com](mailto:investorrelations@nextdc.com)\n\n[NEXTDC Investor Centre: www.nextdc.com/investor-centre](http://www.nextdc.com/investor-centre)\n\n\n-----\n\n### About NEXTDC\n\nNEXTDC is an ASX 100-listed technology company and Asia’s most innovative Data Centre-as-a-Service\nprovider. We are building the infrastructure platform for the digital economy, delivering the critical power,\nsecurity and connectivity for global cloud computing providers, enterprise and Government.\n\nNEXTDC is recognised globally for the design, construction and operation of Australia’s only network of\nUptime Institute certified Tier IV facilities, and the only data centre operator in the Southern Hemisphere to\nachieve Tier IV Gold certification for Operational Sustainability. NEXTDC has a strong focus on sustainability\nand operational excellence through renewable energy sources and delivering world-class operational\nefficiency. Our data centres have been engineered to deliver exceptional levels of efficiency and the\nindustry’s lowest Total Cost of Operation through NABERS 5-star energy efficiency.\n\nNEXTDC’s corporate operations have been certified carbon neutral under the Australian Government’s\n_Climate Active Carbon Neutral Standard._\n\nOur Cloud Centre partner ecosystem is Australia’s most dynamic digital marketplace, comprising carriers,\ncloud providers and IT service providers, enabling local and international customers to source and connect\nwith cloud platforms, service providers and vendors to build complex hybrid cloud networks and scale their\ncritical IT infrastructure services.\n\nNEXTDC is where the cloud lives®.\n\n[To learn more, visit www.nextdc.com](about:blank)\n\n\n-----\nEND DOCUMENT 6\n\nEND INPUT DOCUMENTS\n\nAnswer the following question using the input documents provided above.\n\nSTART QUESTION\n\nBased on the provided documents, rank the Non-Executive Directors by their board fees for FY23 in descending order.\n\nEND QUESTION\n", "role": "user"}], "target": "1. Douglas Flynn\\n2. Jennifer Lambert\\n3. Stephen Smith\\n4. Stuart Davis\\n5. Dr Gregory J Clark AC\\n6. Dr Eileen Doyle", "id": 36, "group_id": 36, "metadata": {"question": "Based on the provided documents, rank the Non-Executive Directors by their board fees for FY23 in descending order.", "data_source_urls": "https://23251048.fs1.hubspotusercontent-na1.net/hubfs/23251048/ASX%20Announcements/2597207-%20NXT%20-%20FY23%20Results%20Announcement.pdf;https://www.nextdc.com/hubfs/23251048/Downloadable%20PDFs/FY22%20Half%20Year%20Results%20Announcement.pdf;https://23251048.fs1.hubspotusercontent-na1.net/hubfs/23251048/ASX%20Announcements/2597206-%20NXT%20-%20FY23%20Annual%20Report.pdf;https://nextdc.com/hubfs/ASX%20Announcements/2687355--%20NXT%20-%20Half%20Year%20Results%20Announcement.pdf?_gl=1*1nwjtak*_gcl_au*MTA0Njk2OTEzOS4xNzI0MjAyOTA4*_ga*MzAwNzE4MTU5LjE3MjQyMDI5MDg.*_ga_VHJQX0G2KZ*MTcyNDQwMDU5MC41LjEuMTcyNDQwMDYwNy40My4wLjA;https://www.nextdc.com/hubfs/23251048/Downloadable%20PDFs/1H23%20Results%20Announcement.pdf;https://www.nextdc.com/hubfs/23251048/Downloadable%20PDFs/FY22%20Results%20Announcement.pdf", "input_tokens": 80406}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "long_context", "weight": 0.09999999999999999, "dataset_name": "aa_lcr", "subset_name": "default"}
{"index": 4, "prompt": {"input": [{"id": "58f4e47d", "content": "\nBEGIN INPUT DOCUMENTS\n\nBEGIN DOCUMENT 1:\n**Digital Realty Reports Fourth Quarter 2023 Results**\n\n**Austin, TX — February 15, 2024 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation, and**\ninterconnection solutions, announced today financial results for the fourth quarter of 2023. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $0.08 per share in 4Q23, compared to ($0.02) in 4Q22\n\n-  Reported FFO per share of $1.53 in 4Q23, compared to $1.45 in 4Q22\n\n-  Reported Core FFO per share of $1.63 in 4Q23, compared to $1.65 in 4Q22\n\n-  Reported Constant-Currency Core FFO per share of $1.62 in 4Q23 and $6.57 per share for the twelve months ended December 31, 2023\n\n-  Reported “Same-Capital” cash NOI growth of 9.9% in 4Q23\n\n-  Reported rental rate increases on renewal leases of 8.2% on a cash basis in 4Q23\n\n-  Signed total bookings during 4Q23 that are expected to generate $110 million of annualized GAAP rental revenue, including a $39 million\ncontribution from the 0–1 megawatt category and $13 million contribution from interconnection\n\n-  Introduced 2024 Core FFO per share outlook of $6.60 - $6.75\n\n**Financial Results**\n\nDigital Realty reported revenues of $1.4 billion in the fourth quarter of 2023, a 2% decrease from the previous quarter and an 11% increase from the\nsame quarter last year.\n\nThe company delivered net income of $20 million in the fourth quarter of 2023, and net income available to common stockholders of $18 million, or\n$0.08 per diluted share, compared to $2.33 per diluted share in the previous quarter and ($0.02) per diluted share in the same quarter last year.\n\nDigital Realty generated Adjusted EBITDA of $700 million in the fourth quarter of 2023, a 2% increase from the previous quarter and 9% increase over\nthe same quarter last year.\n\nThe company reported Funds From Operations (FFO) of $484 million in the fourth quarter of 2023, or $1.53 per share, compared to $1.55 per share in\nthe previous quarter and $1.45 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered Core FFO per share of $1.63 in the fourth\nquarter of 2023, compared to $1.62 per share in the previous quarter and $1.65 per share in the same quarter last year. Digital Realty delivered\nConstant-Currency Core FFO per share of $1.62 for the fourth quarter of 2023 and $6.57 per share for the twelve-month period ended December 31,\n2023.\n\n“Our fourth quarter results marked the culmination of a transformative year for Digital Realty. We delivered on our strategic priorities and positioned\nthe company for the growing opportunity that lies ahead,” said Digital Realty President & Chief Executive Officer Andy Power. “During the fourth\nquarter, we bolstered and diversified our capital sources through the formation of two new development joint ventures, while continuing to evolve our\nportfolio to capture the tremendous opportunities created by AI.”\n\n**Leasing Activity**\n\nIn the fourth quarter, Digital Realty signed total bookings that are expected to generate $110 million of annualized GAAP rental revenue, including a $39\nmillion contribution from the 0–1 megawatt category and a $13 million contribution from interconnection.\n\nThe weighted-average lag between new leases signed during the fourth quarter of 2023 and the contractual commencement date was 16 months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $210 million of annualized rental revenue during the quarter.\nRental rates on renewal leases signed during the fourth quarter of 2023 increased 8.2% on a cash basis and 10.6% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the fourth quarter of 2023 are summarized by region and product as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $13,068 57 $228 4.5 $241\n\n> 1 MW 7,520 66 115 3.9 160\n\nOther [(1)] 300 5 62 — —\n\n**Total** **$20,887** **128** **$163** **8.4** **$204**\n\n**EMEA [(2)]**\n\n0-1 MW $17,189 87 $198 6.3 $226\n\n> 1 MW 44,669 306 146 25.7 145\n\nOther [(1)] 49 2 28 — —\n\n**Total** **$61,908** **395** **$157** **32.0** **$161**\n\n**Asia Pacific [(2)]**\n\n0-1 MW $9,225 27 $343 2.8 $273\n\n> 1 MW 4,453 28 158 3.0 124\n\nOther [(1)] 128 4 30 — —\n\n**Total** **$13,806** **59** **$233** **5.8** **$196**\n\n**All Regions [(2)]**\n\n0-1 MW $39,482 171 $231 13.7 $241\n\n> 1 MW 56,642 400 142 32.6 145\n\nOther [(1)] 477 11 44 — —\n\n**Total** **$96,601** **582** **$166** **46.3** **$173**\n\n**Interconnection** **$13,483** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$110,084** **582** **$166** **46.3** **$173**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(2) Based on quarterly average exchange rates during the three months ended December 31, 2023.\n\n**Investment Activity**\n\nDuring the fourth quarter, Digital Realty signed definitive agreements with Brookfield Infrastructure Partners L.P., Cyxtera Technologies and Digital Core\nREIT to successfully resolve the relationship with Cyxtera. These agreements were completed in conjunction with Brookfield's announced agreement to\nacquire Cyxtera, pursuant to its Plan of Reorganization under its Chapter 11 proceedings. As part of the agreements, Brookfield would acquire Digital\nRealty’s interest in four data centers for approximately $275 million, Digital Realty would redeploy $55 million to buy out Cyxtera’s leases in three\nDigital Realty data centers in Singapore and Frankfurt, Brookfield would grant Digital Realty a purchase option to acquire a data center outside of\nLondon, UK, Brookfield would assume the leases in three data centers previously leased to Cyxtera, and Brookfield would amend the leases in these\nthree data centers in New Jersey and Los Angeles, accelerating the expiration date to September 2024. Subsequent to year end, Digital Realty closed on\nthe transactions and exercised its purchase option to acquire the data center outside of London, UK, which is expected to close at the end of the first\nquarter.\n\nAs previously disclosed, in mid-November, Digital Realty and Realty Income Corporation established a joint venture to support the development of two\nbuild-to-suit data centers in Northern Virginia. Realty Income initially invested approximately $200 million to acquire an 80% equity interest in the\nventure, while Digital Realty maintains a 20% interest. Each partner will fund its pro rata share of the remaining development costs for the two facilities.\nThe build-to-suit facilities are 100% pre-leased and are expected to generate a 6.9% initial cash lease yield upon lease commencement in mid-2024.\n\nAlso previously disclosed, in December, Digital Realty and Blackstone Inc. announced a $7 billion joint venture to develop four hyperscale data center\ncampuses across Frankfurt, Paris and Northern Virginia. The campuses are planned to support the construction of 10 data centers with approximately\n500 megawatts of potential IT load capacity. Blackstone will initially invest approximately $700 million to acquire an 80% equity interest in the joint\nventure, while Digital Realty maintains a 20% interest. Digital Realty will manage the development and day-to-day operations of the joint venture, for\nwhich it will receive customary fees. Subsequent to year end, the first phase of the joint venture closed on hyperscale data center campuses in Paris and\nNorthern Virginia, while the second phase is scheduled to close later this year, upon obtaining the required regulatory approvals.\n\nAdditionally, Digital Realty completed the sale of an option maintained on a second parcel of land in Sydney, Australia with an area of 21 acres for\napproximately AU$29 million or $20 million.\n\n\n-----\n\nFurther during the fourth quarter, Digital Realty exercised its option to purchase approximately 19 acres of land (PAR 8 11) in Paris, France for\napproximately €70 million or $77 million. The parcel of land, previously leased to Digital Realty, is currently under development to support up to 77\nmegawatts of IT load. Subsequent to year end, Digital Realty closed on PAR 8 – 11.\n\nIn addition, during the fourth quarter, Digital Realty closed on the acquisition of approximately three acres adjacent to its existing campus near Athens,\nGreece for approximately €6 million or $6 million. This land can support the development of an additional data center (ATH5) with up to 15 megawatts\nof IT load.\n\nSubsequent to year end, GI Partners executed its option to acquire an additional 15% interest in two stabilized hyperscale data center buildings in\nChicago, increasing their interest from the 65% interest acquired in the third quarter to 80%. The top-up, completed at the same terms as the initial\nclosing, resulted in approximately $68 million of gross proceeds to Digital Realty.\n\n**Balance Sheet**\n\nDigital Realty had approximately $17.4 billion of total debt outstanding as of December 31, 2023, comprised of $16.8 billion of unsecured debt and\napproximately $0.6 billion of secured debt and other. At the end of the fourth quarter of 2023, net debt-to-Adjusted EBITDA was 6.2x, debt-pluspreferred-to-total enterprise value was 29.8% and fixed charge coverage was 3.8x. Pro forma for the completion of the Blackstone development joint\nventures announced in December 2023, the completion of asset sales, and the issuance of common stock subsequent to year end, net debt-to-Adjusted\nEBITDA was 5.8x.\n\nDuring the quarter, Digital Realty sold 8.7 million shares of its common stock at a weighted average price of $133.21 per share through its ATM\nprogram, for net proceeds of approximately $1.1 billion. Subsequent to year end, the company sold 0.6 million shares of its common stock at a\nweighted average price of $133.43 per share for net proceeds of approximately $84 million.\n\nSubsequent to year end, the company retired $240 million of the $740 million U.S. dollar term loan.\n\n\n-----\n\n**2024 Outlook**\n\nDigital Realty introduced its 2024 Core FFO per share and Constant-Currency Core FFO per share outlooks of $6.60 - $6.75. The assumptions underlying\nthe outlook are summarized in the following table.\n\n**As of**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments (1)\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-Capital\" cash NOI growth (2)\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (Net of Partner Contributions) (3)\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx (4)\n\nRecurring CapEx + capitalized leasing costs (5)\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations / share**\n\n\n**February 15, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n4.0% - 6.0%\n\n6.0% - 8.0%\n\n+100 - 200 bps\n\n2.0% - 3.0%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.80 - $1.95**\n\n$4.40 - $4.40\n\n**$6.20 - $6.35**\n\n$0.40 - $0.40\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “Same-Capital” pool includes properties owned as of December 31, 2022 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2023-2024, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Excludes land acquisitions and includes Digital Realty’s share of JV contributions. Figure is net of JV partner contributions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a\nreconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “SameCapital” Cash NOI are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to\nAdjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash\nNOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items such as debt issuances, that have not yet occurred, are out of the Company's control and/or cannot be reasonably\npredicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP\nfinancial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial\nmeasures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on February 15, 2024, a presentation will be posted to the Investors\n[section of the company’s website at https://investor.digitalrealty.com. The presentation is designed to accompany the discussion of the company’s](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\nfourth quarter 2023 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and\nChief Financial Officer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 0216634 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until March 15, 2024. The telephone replay can be accessed by dialing +1 (877) 344-7529\n(for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 4147003. The webcast replay can be accessed on\nDigital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data meeting place and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected data communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 25+ countries\n[on six continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and X.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n\n**Financial Supplement**\n\n\n**Unaudited and in Thousands, Except Per Share Data** **Fourth Quarter 2023**\n\n**Three Months Ended** **Twelve Months Ended**\n\n**31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22** **31-Dec-23** **31-Dec-22**\n\nRental revenues $885,694 $886,960 $869,298 $870,975 $834,374   $3,512,926 [ $3,141,488 ]\n\nTenant reimbursements - Utilities 316,634 335,477 330,416 317,148 247,725 1,299,676 941,891\n\nTenant reimbursements - Other 46,418 64,876 46,192 40,150 46,045 197,636 199,663\n\nInterconnection & other 106,413 107,305 104,521 101,695 97,286 419,934 379,641\n\nFee income 14,330 7,819 14,908 7,868 7,508 44,926 24,506\n\nOther 144 — 932 887 168 1,963 4,645\n\n**Total Operating Revenues** **[ $1,369,633 ]** **$1,402,437** **$1,366,267** **$1,338,724** **$1,233,108** **[ $5,477,061 ]** **$4,691,834**\n\nUtilities $366,083 $384,455 $374,934 $346,364 $268,561   $1,471,836 [ $1,005,070 ]\n\nRental property operating 237,118 223,089 224,762 224,861 222,430 909,830 820,746\n\nProperty taxes 40,161 72,279 46,718 40,424 42,032 199,581 175,631\n\nInsurance 3,794 4,289 4,385 4,355 4,578 16,823 16,114\n\nDepreciation & amortization 420,475 420,613 432,573 421,198 430,130 1,694,859 1,577,933\n\nGeneral & administration 109,235 108,039 105,964 107,766 104,452 431,004 398,669\n\nSeverance, equity acceleration and legal expenses 7,565 2,682 3,652 4,155 15,980 18,054 23,498\n\nTransaction and integration expenses 40,226 14,465 17,764 12,267 17,350 84,722 68,766\n\nProvision for impairment 5,363 113,000 — — 3,000 118,363 3,000\n\nOther expenses 5,580 1,295 655 — 3,615 7,529 12,438\n\n**Total Operating Expenses** **[ $1,235,598 ]** **$1,344,206** **$1,211,407** **$1,161,388** **$1,112,127** **[ $4,952,600 ]** **$4,101,865**\n\n**Operating Income** **$134,035** **$58,231** **$154,860** **$177,335** **$120,981** **$524,461** **$589,969**\n\nEquity in earnings / (loss) of unconsolidated joint ventures (29,955) (19,793) 5,059 14,897 (28,112) (29,791) (13,496)\n\nGain / (loss) on sale of investments (103) 810,688 89,946 — (6) 900,531 176,754\n\nInterest and other income / (expense), net 50,269 24,812 (6,930) 280 (22,894) 68,431 8,918\n\nInterest (expense) (113,638) (110,767) (111,116) (102,220) (86,882) (437,741) (299,132)\n\nIncome tax benefit / (expense) (20,724) (17,228) (16,173) (21,454) 17,676 (75,579) (31,551)\n\nLoss from early extinguishment of debt — — — — — — (51,135)\n\n**Net Income** **$19,884** **$745,941** **$115,647** **$68,839** **$763** **$950,311** **$380,327**\n\nNet income / (loss) attributable to noncontrolling interests 8,419 (12,320) 2,538 (111) 3,326 (1,474) (2,455)\n\n**Net Income Attributable to Digital Realty Trust, Inc.** **$28,304** **$733,621** **$118,185** **$68,728** **$4,089** **$948,838** **$377,872**\n\nPreferred stock dividends (10,181) (10,181) (10,181) (10,181) (10,181) (40,725) (40,725)\n\n**Net Income / (Loss) Available to Common Stockholders** **$18,122** **$723,440** **$108,003** **$58,547** **($6,093)** **$908,113** **$337,147**\n\nWeighted-average shares outstanding - basic 305,781 301,827 295,390 291,219 289,365 298,603 286,334\n\nWeighted-average shares outstanding - diluted 314,995 311,341 306,819 303,065 301,712 309,065 297,919\n\nWeighted-average fully diluted shares and units 321,173 317,539 313,021 309,026 307,546 315,113 303,708\n\nNet income / (loss) per share - basic $0.06 $2.40 $0.37 $0.20 ($0.02) $3.04 $1.18\n\nNet income / (loss) per share - diluted $0.08 $2.33 $0.37 $0.19 ($0.02) $3.00 $1.13\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|Col3|Col4|Col5|Col6|Col7|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|Three Months Ended Reconciliation of Net Income to Funds From Operations (FFO) 31-Dec-23 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 Net Income / (Loss) Available to Common Stockholders $18,122 $723,440 $108,003 $58,547 ($6,093) Adjustments: Non-controlling interest in operating partnership 410 16,300 2,500 1,500 (586) Real estate related depreciation & amortization (1) 410,167 410,836 424,044 412,192 422,951 Reconciling items related to non-controlling interests (15,377) (14,569) (14,144) (13,388) (13,856) Unconsolidated JV real estate related depreciation & amortization 64,833 43,215 35,386 33,719 33,927 (Gain) / loss on real estate transactions 103 (810,688) (89,946) (7,825) 572 Provision for impairment 5,363 113,000 — — 3,000||||||Twelve Months Ended|||\n|||||||31-Dec-23 31-Dec-22|||\n|||||||$908,112 $337,147 20,710 7,914 1,657,239 1,547,865 (57,477) (22,110) 177,153 123,099 (908,356) (177,332) 118,363 3,000|||\n|Funds From Operations $483,621 $481,535 $465,844 $484,745 $439,915 Weighted-average shares and units outstanding - basic 311,960 308,024 301,593 297,180 295,199 Weighted-average shares and units outstanding - diluted (2)(3) 321,173 317,539 313,021 309,026 307,546 Funds From Operations per share - basic $1.55 $1.56 $1.54 $1.63 $1.49 Funds From Operations per share - diluted (2)(3) $1.53 $1.55 $1.52 $1.60 $1.45 Thr e e Months End ed Reconciliation of FFO to Core FFO 31-Dec-23 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 Funds From Operations $483,621 $481,535 $465,844 $484,745 $439,915 Other non-core revenue adjustments (146) (27) 27,454 (887) (3,786) Transaction and integration expenses 40,226 14,465 17,764 12,267 17,350 Loss from early extinguishment of debt — — — — — Severance, equity acceleration and legal expenses (4) 7,565 2,682 3,652 4,155 15,980 (Gain) / Loss on FX revaluation (24,804) 451 (7,868) (6,778) 14,564 Other non-core expense adjustments 1,956 1,295 655 — 3,615||||||$1,915,745 $1,819,583 304,651 292,123 315,113 303,708 $6.29 $6.23 $6.20 $6.03 Twelve M on t hs Ended|||\n|||||||31-Dec-23 31-Dec-22|||\n|||||||$1,915,745 $1,819,583 26,393 8,768 84,722 68,766 — 51,135 18,054 23,498 (39,000) (24,694) 3,905 12,388|||\n|Core Funds From Operations $508,417 $500,402 $507,501 $493,500 $487,638 Weighted-average shares and units outstanding - diluted (2)(3) 312,356 308,539 301,806 297,382 295,519||||||$2,009,820 $1,959,444 305,138 292,528|||\n|Core Funds From Operations per share - diluted (2) $1.63 $1.62 $1.68 $1.66 $1.65 (1) Real Estate Related Depreciation & Amortization Thr e e Months End ed 31-Dec-23 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 Depreciation & amortization per income statement $420,475 $420,613 $432,573 $421,198 $430,130 Non-real estate depreciation (10,308) (9,777) (8,529) (9,006) (7,179)||||||$6.59 $6.70 Twelve M on t hs Ended|||\n|||||||31-Dec-23 31-Dec-22|||\n|||||||$1,694,859 $1,577,933 (37,619) (30,068)|||\n|Real Estate Related Depreciation & Amortization|$410,167|$410,836|$424,044|$412,192|$422,951||$1,657,239|$1,547,865|\n\n\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value of shares of Digital Realty\ncommon stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This same approach was utilized to calculate FFO/share. The\npotential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs – causing diluted share count to be higher for FFO than for Core FFO and AFFO. When\ncalculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the denominator assumes all shares have been put back to Digital Realty.\n\n|Three Months Ended 31-Dec-23 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 Teraco noncontrolling share of FFO $7,135 $11,537 $9,645 $11,069 $7,213|Col2|Col3|Col4|Col5|Col6|Twelve Months Ended|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|||||||31-Dec-23 31-Dec-22|||\n|||||||$39,386 $11,919|||\n|Teraco related minority interest|$7,135|$11,537|$9,645|$11,069|$7,213||$39,386|$11,919|\n\n\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control\ntransactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly improbable. See above for calculations of FFO and the share\ncount detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted average common stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the Definitions\nsection.\n\n(4) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|\n|---|---|\n|Three Months Ended Reconciliation of Core FFO to AFFO 31-Dec-23 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 Core FFO available to common stockholders and unitholders $508,417 $500,402 $507,501 $493,500 $487,638 Adjustments: Non-real estate depreciation 10,308 9,777 8,529 9,006 7,179 Amortization of deferred financing costs 5,744 5,776 5,984 4,072 3,753 Amortization of debt discount/premium 973 1,360 1,339 1,301 1,276 Non-cash stock-based compensation expense 9,226 14,062 13,893 13,056 16,042 Straight-line rental revenue (21,992) (14,080) (16,151) (16,194) (29,392) Straight-line rental expense (4,999) 1,427 520 (515) (208) Above- and below-market rent amortization (856) (1,127) (1,195) (1,226) (762) Deferred tax (benefit) / expense 33,448 (8,539) 1,339 (9,795) (4,885) Leasing compensation & internal lease commissions 9,848 12,515 11,611 11,067 9,578 Recurring capital expenditures (1) (142,808) (90,251) (53,498) (40,465) (109,999)|Twelve Months Ended|\n||31-Dec-23 31-Dec-22|\n||$2,009,820 $1,959,444 37,619 30,068 21,575 13,987 4,973 4,829 50,238 62,242 (68,417) (83,604) (3,567) 4,401 (4,404) (696) 16,452 (12,491) 45,040 42,117 (327,022) (266,466)|\n|AFFO available to common stockholders and unitholders (2) $407,306 $431,322 $479,873 $463,807 $380,220 Weighted-average shares and units outstanding - basic 311,960 308,024 301,593 297,180 295,199 Weighted-average shares and units outstanding - diluted (3) 312,356 308,539 301,806 297,382 295,519 AFFO per share - diluted (3) $1.30 $1.40 $1.59 $1.56 $1.29 Dividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22 Diluted AFFO Payout Ratio 93.6% 87.3% 76.7% 78.2% 94.8%|$1,782,308 $1,753,831 304,651 292,123 305,138 292,528 $5.84 $6.00 $4.88 $4.88 83.5% 81.4%|\n\n\n\n**Three Months Ended** **Twelve Months Ended**\n\n**Share Count Detail** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22** **31-Dec-23** **31-Dec-22**\n\n|Weighted Average Common Stock and Units Outstanding 311,960 308,024 301,593 297,180 295,199 Add: Effect of dilutive securities 396 515 213 202 320|Col2|Col3|Col4|Col5|Col6|304,651 292,123 487 405|Col8|\n|---|---|---|---|---|---|---|---|\n|Weighted Avg. Common Stock and Units Outstanding - diluted|312,356|308,539|301,806|297,382|295,519|305,138|292,528|\n\n\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building\nup to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the Definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of FFO and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n**Assets**\n\nInvestments in real estate:\n\n\n**31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22**\n\n\nReal estate $27,306,369 $25,887,031 $27,087,769 $27,052,022 $26,136,057\n\nConstruction in progress 4,635,215 5,020,464 4,635,939 4,563,578 4,789,134\n\nLand held for future development 118,190 179,959 193,936 194,564 118,452\n\n**Investments in Real Estate** **$32,059,773** **$31,087,453** **$31,917,644** **$31,810,164** **$31,043,643**\n\nAccumulated depreciation and amortization (7,823,685) (7,489,193) (7,739,462) (7,600,559) (7,268,981)\n\n**Net Investments in Properties** **$24,236,089** **$23,598,260** **$24,178,182** **$24,209,605** **$23,774,662**\n\nInvestment in unconsolidated joint ventures 2,295,889 2,180,313 2,040,452 1,995,576 1,991,426\n\n**Net Investments in Real Estate** **$26,531,977** **$25,778,573** **$26,218,634** **$26,205,180** **$25,766,088**\n\nOperating lease right-of-use assets,net $1,414,256 $1,274,410 $1,291,233 $1,317,293 $1,351,329\n\nCash and cash equivalents 1,625,495 1,062,050 124,519 131,406 141,773\n\nAccounts and other receivables, net [(1)] 1,278,110 1,325,725 1,158,383 1,070,066 969,292\n\nDeferred rent, net 624,427 586,418 613,796 627,700 601,590\n\nGoodwill 9,239,871 8,998,074 9,148,603 9,199,636 9,208,497\n\nCustomer relationship value, deferred leasing costs & other intangibles, net 2,500,237 2,506,198 2,825,596 3,015,291 3,092,627\n\nAssets held for sale 478,503 — 593,892 — —\n\nOther assets 420,382 401,068 414,078 386,495 353,802\n\n**Total Assets** **$44,113,257** **$41,932,515** **$42,388,735** **$41,953,068** **$41,484,998**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities, net $1,812,287 $1,698,780 $2,242,258 $2,514,202 $2,150,451\n\nUnsecured term loans, net 1,560,305 1,524,663 1,548,780 1,542,275 797,449\n\nUnsecured senior notes, net of discount 13,422,342 13,072,102 13,383,819 13,258,079 13,120,033\n\nSecured and other debt, net of discount 630,973 574,231 554,594 560,955 528,870\n\nOperating lease liabilities 1,542,094 1,404,510 1,420,239 1,443,994 1,471,044\n\nAccounts payable and other accrued liabilities 2,168,983 2,147,103 2,214,820 1,923,819 1,868,884\n\nDeferred tax liabilities, net 1,151,096 1,088,724 1,128,961 1,164,276 1,192,752\n\nAccrued dividends and distributions 387,988 — — — 363,716\n\nSecurity deposits and prepaid rents 401,867 385,521 417,693 392,021 369,654\n\nObligations associated with assets held for sale 39,001 — 4,990 — —\n\n**Total Liabilities** **$23,116,936** **$21,895,634** **$22,916,155** **$22,799,620** **$21,862,853**\n\nRedeemable non-controlling interests 1,394,814 1,360,308 1,367,422 1,448,772 1,514,680\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share, 110,000 shares authorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share, 392,000 shares authorized [(5)] 3,088 3,002 2,967 2,888 2,887\n\nAdditional paid-in capital 24,396,797 23,239,088 22,882,200 22,126,379 22,142,868\n\nDividends in excess of earnings (5,262,648) (4,900,757) (5,253,915) (4,995,982) (4,698,313)\n\nAccumulated other comprehensive (loss), net (751,393) (882,996) (741,484) (652,486) (595,798)\n\n**Total Stockholders' Equity** **$19,117,535** **$18,190,026** **$17,621,456** **$17,212,490** **$17,583,334**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $438,081 $441,366 $436,099 $444,843 $419,317\n\nNoncontrolling interest in consolidated joint ventures 45,892 45,182 47,603 47,342 104,814\n\n**Total Noncontrolling Interests** **$483,972** **$486,547** **$483,702** **$492,185** **$524,131**\n\n**Total Equity** **$19,601,507** **$18,676,573** **$18,105,158** **$17,704,675** **$18,107,465**\n\n|Total Liabilities and Equity|$44,113,257|$41,932,515|$42,388,735|$41,953,068|$41,484,998|\n|---|---|---|---|---|---|\n\n\n\n(1) Net of allowance for doubtful accounts of $41,204 and $33,048 as of December 31, 2023 and December 31, 2022, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 liquidation preference ($25.00 per share), 8,000 shares issued and outstanding as of December 31, 2023 and December\n31, 2022.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 liquidation preference ($25.00 per share), 8,400 shares issued and outstanding as of December 31, 2023 and December\n31, 2022.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 liquidation preference ($25.00 per share), 13,800 shares issued and outstanding as of December 31, 2023 and December\n31, 2022.\n\n(5) Common Stock: 311,608 and 291,148 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n**Amortization and Financial Ratios**\n\n**Unaudited and Dollars in Thousands**\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **31-Dec-23** **[30-Sep-23 ]** **[30-Jun-23 ]** **[31-Mar-23 ]** **[31-Dec-22 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$18,122** **$723,440** **$108,003** **$58,547** **($6,093)**\n\nInterest 113,638 110,767 111,116 102,220 86,882\n\nIncome tax expense (benefit) 20,724 17,228 16,173 21,454 (17,676)\n\nDepreciation & amortization 420,475 420,613 432,573 421,198 430,130\n\n**EBITDA** **$572,958** **$1,272,048** **$667,866** **$603,420** **$493,243**\n\nUnconsolidated JV real estate related depreciation & amortization 64,833 43,214 35,386 33,719 33,927\n\nUnconsolidated JV interest expense and tax expense 42,140 27,000 32,105 18,556 53,481\n\nSeverance, equity acceleration and legal expenses 7,565 2,682 3,652 4,155 15,980\n\nTransaction and integration expenses 40,226 14,465 17,764 12,267 17,350\n\n(Gain) / loss on sale of investments 103 (810,688) (89,946) — 6\n\nProvision for impairment 5,363 113,000 — — 3,000\n\nOther non-core adjustments, net (35,439) 1,719 22,132 (14,604) 15,127\n\nNon-controlling interests (8,419) 12,320 (2,538) 111 (3,326)\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Adjusted EBITDA** **$699,509** **$685,943** **$696,604** **$667,804** **$638,969**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the Definitions section.\n\n**Three Months Ended**\n\n**Financial Ratios** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22**\n\nTotal GAAP interest expense $113,638 $110,767 $111,116 $102,220 $86,882\n\nCapitalized interest 33,032 29,130 27,883 26,771 24,581\n\nChange in accrued interest and other non-cash amounts (66,013) 44,183 (60,612) 38,137 (67,909)\n\n**Cash Interest Expense [(2)]** **$80,657** **$184,081** **$78,387** **$167,128** **$43,554**\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(3)]** **$156,851** **$150,079** **$149,181** **$139,172** **$121,645**\n\n**Coverage**\n\nInterest coverage ratio [(4)] 4.0x 4.3x 4.5x 4.7x 5.3x\n\nCash interest coverage ratio [(5)] 6.4x 3.4x 7.4x 3.7x 11.9x\n\nFixed charge coverage ratio [(6)] 3.8x 4.1x 4.2x 4.4x 4.9x\n\nCash fixed charge coverage ratio [(7)] 5.8x 3.2x 6.6x 3.5x 10.0x\n\n**Leverage**\n\nDebt to total enterprise value [(8)(9)] 28.6% 30.6% 33.3% 37.3% 35.2%\n\nDebt-plus-preferred-stock-to-total-enterprise-value [(9)(10)] 29.8% 32.0% 34.7% 38.9% 36.8%\n\nPre-tax income to interest expense [(11)] 1.2x 7.7x 2.0x 1.7x 1.0x\n\nNet Debt-to-Adjusted EBITDA [(12)] 6.2x 6.3x 6.8x 7.1x 6.9x\n\n(2) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash\ninterest expense to be a useful measure of interest as it excludes non-cash-based interest expense.\n\n(3) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred stock dividends.\n\n(4) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(5) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(7) Adjusted EBITDA divided by the sum of cash interest expense and preferred stock dividends (including our pro rata share of unconsolidated joint venture cash fixed\ncharges).\n\n(8) Total debt divided by market value of common equity plus debt plus preferred stock.\n\n(9) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(10) Same as (8), except numerator includes preferred stock.\n\n(11) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(12) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less\ncash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital\nRealty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\n\n-----\n\n**Definitions**\n\n**Funds From Operations (FFO):**\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts,\nor Nareit, in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with\nGAAP), excluding (i) gains (or losses) from real estate transactions, (ii) provision for impairment, real estate related depreciation and amortization\n(excluding amortization of deferred financing costs), (iii) unconsolidated JV real estate related depreciation & amortization, (iv) non-controlling interests\nin operating partnership, (v) depreciation related to non-controlling interests and (vi) after adjustments for unconsolidated partnerships and joint\nventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and\ngains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance\nmeasure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely\nrecognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other\nREITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from\nuse or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of\nour data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of\nFFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the Nareit definition and, accordingly, our FFO\nmay not be comparable to other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, (i) unconsolidated joint venture real estate\nrelated depreciation & amortization, (ii) unconsolidated joint venture interest expense and tax, (iii) severance, equity acceleration and legal expenses,\n(iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi) provision for impairment, (vii) other non-core adjustments, net,\n(viii) non-controlling interests, (ix) preferred stock dividends, and (x) issuance costs associated with redeemed preferred stock. Adjusted EBITDA is\nEBITDA excluding (i) unconsolidated joint venture real estate related depreciation & amortization, (ii) unconsolidated joint venture interest expense and\ntax, (iii) severance, equity acceleration and legal expenses, (iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi)\nprovision for impairment, (vii) other non-core adjustments, net, (vii) non-controlling interests, (ix) preferred stock dividends, and (x) gain on / issuance\ncosts associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts,\ninvestors, and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges\nincluding interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or\nother recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and\nAdjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs’ EBITDA and Adjusted\nEBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a\nmeasure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating\nexpenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry\nanalysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is NOI less straight-line rents and above- and below-market rent\namortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis.\nSame-Capital Cash NOI represents buildings owned as of December 31, 2021 of the prior year with less than 5% of total rentable square feet under development and\nexcludes buildings that were undergoing, or were expected to undergo, development activities in 2022-2023, buildings classified as held for sale, and buildings sold or\ncontributed to joint ventures for all periods presented (prior period numbers adjusted to reflect current same-capital pool). However, because NOI and cash NOI exclude\ndepreciation and amortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could\nmaterially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI\ndifferently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash NOI. NOI and cash NOI should be considered only as\nsupplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint\nventure debt, less cash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including\nDigital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is total debt plus preferred stock divided by total debt plus the liquidation value of preferred stock and the market value of outstanding\nDigital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common\nstock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest and preferred stock dividends. For the quarter ended December 31,\n2023, GAAP interest expense was $114 million, capitalized interest was $33 million and preferred stock dividends was $10 million.\n\n|Reconciliation of Net Operating Income (NOI) Three Months Ended (in thousands) 31-Dec-23 30-Sep-23 31-Dec-22 Operating income $134,035 $58,231 $120,981 Fee income (14,330) (7,819) (7,508) Other income (144) — (168) Depreciation and amortization 420,475 420,613 430,130 General and administrative 109,235 108,039 104,452 Severance, equity acceleration and legal expenses 7,565 2,682 15,980 Transaction expenses 40,226 14,465 17,350 Provision for impairment 5,363 113,000 3,000 Other expenses 5,580 1,295 3,615|Twelve Months Ended 31-Dec-23 31-Dec-22|\n|---|---|\n||$524,461 $589,969 (44,926) (24,506) (1,963) (4,645) 1,694,859 1,577,933 431,004 398,669 18,054 23,498 84,722 68,766 118,363 3,000 7,529 12,438|\n|Net Operating Income $708,003 $710,505 $687,831 Cash Net Operating Income (Cash NOI) Net Operating Income $708,003 $710,505 $687,831 Straight-line rental revenue (22,085) (14,185) (32,226) Straight-line rental expense (4,745) 1,632 (680) Above- and below-market rent amortization (856) (1,127) (762)|$2,832,102 $2,645,122|\n||$2,832,102 $2,645,122 (40,480) (69,998) (2,901) 2,857 (4,404) (696)|\n|Cash Net Operating Income $680,317 $696,826 $654,164 Constant Currency CFFO Reconciliation Three Months Ended (in thousands, except per share data) 31-Dec-23 30-Sep-23 31-Dec-22 Core FFO (1) $508,417 $487,638 Core FFO impact of holding '22 Exchange Rates Constant (2) (3,781) —|$2,784,317 $2,577,283|\n||Twelve Months Ended 31-Dec-23 31-Dec-22|\n||$2,009,820 $1,959,444 (3,964) —|\n|Constant Currency Core FFO $504,636 $487,638 Weighted-average shares and units outstanding - diluted 312,356 295,519 Constant Currency CFFO Per Share $1.62 $1.65|$2,005,856 $1,959,444 305,138 292,528 $6.57 $6.70|\n\n\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2023 constant with average currency translation rates that were applicable to the same periods in 2022.\n\n\n-----\n\nThis document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2024 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more\nof these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks\nand uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  decreased rental rates, increased operating costs, or increased vacancy rates;\n\n-  increased competition or available supply of data center space;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers, and business partners during a pandemic, such as COVID-19;\n\n-  the expected operating performance of anticipated near-term acquisitions and descriptions relating to these expectations;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws, and regulations, including related to taxation, real estate, and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2022, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, PDx,\nData Gravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks\nand service marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 1\n\nBEGIN DOCUMENT 2:\n**Digital Realty Reports First Quarter 2023 Results**\n\n**Austin, TX — April 27, 2023 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation and**\ninterconnection solutions, announced today financial results for the first quarter of 2023. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $0.19 per share in 1Q23, compared to $0.22 in 1Q22\n\n-  Reported FFO per share of $1.60 in 1Q23, compared to $1.60 in 1Q22\n\n-  Reported Core FFO per share of $1.66 and Constant-Currency Core FFO per share of $1.69 in 1Q23, compared to $1.67 in 1Q22\n\n-  Reported “Same-Capital” cash NOI growth of 3.4% in 1Q23\n\n-  Reported rental rate increases on renewal leases of 4.5% on a cash basis in 1Q23\n\n-  Signed total bookings during 1Q23 that are expected to generate $83 million of annualized GAAP rental revenue, including a $34 million\ncontribution from the 0-1 megawatt category and a record $14 million contribution from interconnection\n\n-  Maintained 2023 Core FFO per share outlook of $6.65 - $6.75\n\n**Financial Results**\n\nDigital Realty reported revenues for the first quarter of 2023 of $1.3 billion, a 9% increase from the previous quarter and a 19% increase from the same\nquarter last year.\n\nThe company delivered first quarter of 2023 net income of $69 million, and net income / (loss) available to common stockholders of $59 million, or\n$0.19 per diluted share, compared to ($0.02) per diluted share in the previous quarter and $0.22 per diluted share in the same quarter last year.\n\nDigital Realty generated first quarter of 2023 Adjusted EBITDA of $668 million, a 5% increase from the previous quarter and an 11% increase over the\nsame quarter last year.\n\nThe company reported first quarter of 2023 funds from operations (FFO) of $485 million, or $1.60 per share, compared to $1.45 per share in the\nprevious quarter and $1.60 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered first quarter of 2023 Core FFO per share of\n$1.66, compared to $1.65 per share in the previous quarter and $1.67 per share in the same quarter last year. Digital Realty delivered ConstantCurrency Core FFO per share of $1.69 for the first quarter of 2023.\n\n**Leasing Activity**\n\nIn the first quarter, Digital Realty signed total bookings that are expected to generate $83 million of annualized GAAP rental revenue, including a $34\nmillion contribution from the 0-1 megawatt category and a record $14 million contribution from interconnection.\n\n“Our first quarter results demonstrate the inflection we have been anticipating in our operating business, driven by a combination of steady, broadbased demand across our segments and markets, as well as reduced data center availability,” said Digital Realty President & Chief Executive Officer\nAndy Power. “Improving fundamentals, along with continued focus and execution on PlatformDIGITAL®’s customer value proposition, put Digital Realty\nfirmly on the path toward sustainable, organic core growth.”\n\nThe weighted-average lag between new leases signed during the first quarter of 2023 and the contractual commencement date was sixteen months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $155 million of annualized GAAP rental revenue during the\nquarter. Rental rates on renewal leases signed during the first quarter of 2023 rolled up 4.5% on a cash basis and up 6.4% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the first quarter of 2023 are summarized by region as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**The Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $12,265 60 $204 3.6 $281\n\n> 1 MW 27,464 189 145 19.7 116\n\nOther [(1)] 581 19 30 — —\n\n**Total** **$40,310** **269** **$150** **23.3** **$142**\n\n**EMEA [(2)]**\n\n0-1 MW $20,273 73 $278 5.5 $308\n\n> 1 MW 7,357 59 125 5.5 111\n\nOther [(1)] 17 1 33 — —\n\n**Total** **$27,647** **132** **$209** **11.0** **$209**\n\n**Asia Pacific [(2)]**\n\n0-1 MW $1,252 8 $156 0.5 $225\n\n> 1 MW — — — — —\n\nOther [(1)] 21 — 44 — —\n\n**Total** **$1,273** **8** **$149** **0.5** **$225**\n\n**All Regions [(2)]**\n\n0-1 MW $33,790 141 $239 9.6 $294\n\n> 1 MW 34,821 248 140 25.2 115\n\nOther [(1)] 619 20 30 — —\n\n**Total** **$69,230** **410** **$169** **34.8** **$164**\n\n**Interconnection** **$14,063** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$83,293** **410** **$169** **34.8** **$164**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(2) Based on quarterly average exchange rates during the three months ended March 31, 2023.\n\n**Investment Activity**\n\nDuring the first quarter, a venture jointly owned by Digital Realty and a third party disposed of a stabilized data center in Ashburn, Virginia.\n\nDuring the first quarter, MC Digital Realty acquired a three-acre land parcel, which could support up to 24MW of IT load in Osaka, Japan, for ¥950\nmillion or $7 million.\n\nAlso during the first quarter, Teraco acquired a freehold interest of the Cape Town 1 site, a land and building shell, which they had previously leased.\n\n\n-----\n\n**Balance Sheet**\n\nDigital Realty had approximately $17.9 billion of total debt outstanding as of March 31, 2023, comprised of $17.3 billion of unsecured debt and\napproximately $0.6 billion of secured debt and other. At the end of the first quarter of 2023, net debt-to-Adjusted EBITDA was 7.1x, debt-pluspreferred-to-total enterprise value was 38.9% and fixed charge coverage was 4.4x.\n\nDuring the first quarter of 2023, Digital Realty completed a $740 million two-year U.S. dollar term loan with an initial maturity date of March 31, 2025\nand a one-year extension option.\n\n\n-----\n\n**2023 Outlook**\n\nDigital Realty maintained its 2023 Core FFO per share and constant-currency Core FFO per share outlook of $6.65 - $6.75. The assumptions underlying\nthe outlook are summarized in the following table.\n\n\n**As of**\n\n**February 16, 2023**\n\n$5.700 - $5.800 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.00 - $1.05\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n4.5% - 5.5%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**As of**\n\n**April 27, 2023**\n\n$5.500 - $5.600 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n5.5% - 6.0%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments (1)\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-capital\" cash NOI growth (2)\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (3)\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx (4)\n\nRecurring CapEx + capitalized leasing costs (5)\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations / share**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “same-capital” pool includes properties owned as of December 31, 2021 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2022-2023, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Includes land acquisitions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, and\ndefinitions of FFO and Core FFO are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common\nstockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total\nenterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items, such as debt issuances, that have not yet occurred, are out of the Company's control and/or cannot be\nreasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forwardlooking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the\ncorresponding GAAP financial measures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on April 27, 2023, a presentation will be posted to the Investors section of\n[the company’s website at https://investor.digitalrealty.com/. The presentation is designed to accompany the discussion of the company’s first quarter](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n2023 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and Chief Financial\nOfficer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 4681490 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com/.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until May 27, 2023. The telephone replay can be accessed by dialing +1 (877) 344-7529\n(for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 9334829. The webcast replay can be accessed on\nDigital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data “meeting place” and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 28 countries on six\n[continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and Twitter.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n**Unaudited and Dollars in Thousands, Except Per Share Data** **First Quarter 2023**\n\n**Three Months Ended**\n\n**31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\nRental revenues $870,975 $834,374 $787,839 $767,313 $751,962\n\nTenant reimbursements - Utilities 317,148 247,725 251,420 218,198 224,547\n\nTenant reimbursements - Other 40,150 46,045 49,419 52,688 51,511\n\nInterconnection & other 101,695 97,286 95,486 93,338 93,530\n\nFee income 7,868 7,508 6,169 5,072 5,757\n\nOther 887 168 1,749 2,713 15\n\n**Total Operating Revenues** **$1,338,724** **$1,233,108** **$1,192,082** **$1,139,321** **$1,127,323**\n\nUtilities $346,364 $268,561 $271,844 $223,426 $241,239\n\nRental property operating 224,861 222,430 205,886 198,076 194,354\n\nProperty taxes 40,424 42,032 39,860 47,213 46,526\n\nInsurance 4,355 4,578 4,002 3,836 3,698\n\nDepreciation & amortization 421,198 430,130 388,704 376,967 382,132\n\nGeneral & administration 107,766 104,452 95,792 101,991 96,435\n\nSeverance, equity acceleration, and legal expenses 4,155 15,980 1,655 3,786 2,077\n\nTransaction and integration expenses 12,267 17,350 25,862 13,586 11,968\n\nImpairment of investments in real estate — 3,000 — — —\n\nOther expenses — 3,615 1,096 70 7,657\n\n**Total Operating Expenses** **$1,161,388** **$1,112,127** **$1,034,701** **$968,950** **$986,087**\n\n**Operating Income** **$177,335** **$120,981** **$157,381** **$170,371** **$141,236**\n\nEquity in earnings / (loss) of unconsolidated joint ventures 14,897 (28,112) (12,254) (34,088) 60,958\n\nGain / (loss) on sale of investments — (6) 173,990 — 2,770\n\nInterest and other income / (expense), net 280 (22,894) 15,752 13,008 3,051\n\nInterest (expense) (102,220) (86,882) (76,502) (69,023) (66,725)\n\nIncome tax benefit / (expense) (21,454) 17,676 (19,576) (16,406) (13,244)\n\nLoss from early extinguishment of debt — — — — (51,135)\n\n**Net Income** **$68,839** **$763** **$238,791** **$63,862** **$76,911**\n\nNet income / (loss) attributable to noncontrolling interests (111) 3,326 (1,716) (436) (3,629)\n\n**Net Income Attributable to Digital Realty Trust, Inc.** **$68,728** **$4,089** **$237,075** **$63,426** **$73,282**\n\nPreferred stock dividends, including undeclared dividends (10,181) (10,181) (10,181) (10,181) (10,181)\n\n**Net Income / (Loss) Available to Common Stockholders** **$58,547** **($6,093)** **$226,894** **$53,245** **$63,101**\n\nWeighted-average shares outstanding - basic 291,218,549 289,364,739 286,693,071 284,694,064 284,525,992\n\nWeighted-average shares outstanding - diluted 303,064,832 301,712,082 296,414,726 285,109,903 285,025,099\n\nWeighted-average fully diluted shares and units 309,026,076 307,546,353 302,257,518 290,944,163 290,662,421\n\nNet income / (loss) per share - basic $0.20 ($0.02) $0.79 $0.19 $0.22\n\nNet income / (loss) per share - diluted $0.19 ($0.02) $0.75 $0.19 $0.22\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n**Unaudited and in Thousands, Except Per Share Data** **First Quarter 2023**\n\n**Three Months Ended**\n\n**Reconciliation of Net Income to Funds From Operations (FFO)** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\n**Net Income / (Loss) Available to Common Stockholders** **$58,547** **($6,093)** **$226,894** **$53,245** **$63,101**\n\nAdjustments:\n\nNon-controlling interest in operating partnership 1,500 (586) 5,400 1,500 1,600\n\nReal estate related depreciation & amortization (1) 412,192 422,951 381,425 369,327 374,162\n\nDepreciation related to non-controlling interests (13,388) (13,856) (8,254) -  - \n\nUnconsolidated JV real estate related depreciation & amortization 33,719 33,927 30,831 29,022 29,320\n\n(Gain) / loss on real estate transactions (7,825) 572 (173,990) (1,144) (2,770)\n\nImpairment of investments in real estate -  3,000 -  -  - \n\n|Funds From Operations - diluted $484,745 $439,915 $462,306 $451,949|$465,412|\n|---|---|\n\n\n\nWeighted-average shares and units outstanding - basic 297,180 295,199 292,536 290,528 290,163\n\nWeighted-average shares and units outstanding - diluted (2)(3) 309,026 307,546 302,258 290,944 290,662\n\n**Funds From Operations per share - basic** **$1.63** **$1.49** **$1.58** **$1.56** **$1.60**\n\n**Funds From Operations per share - diluted (2)(3)** **$1.60** **$1.45** **$1.55** **$1.55** **$1.60**\n\n**Three Months Ended**\n\n**Reconciliation of FFO to Core FFO** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\n**Funds From Operations - diluted** **$484,745** **$439,915** **$462,306** **$451,949** **$465,412**\n\nOther non-core revenue adjustments (887) (3,786) (1,818) 456 13,916\n\nTransaction and integration expenses 12,267 17,350 25,862 13,586 11,968\n\nLoss from early extinguishment of debt -  -  -  -  51,135\n\nSeverance, equity acceleration, and legal expenses (4) 4,155 15,980 1,655 3,786 2,077\n\n(Gain) / Loss on FX revaluation (6,778) 14,564 (1,120) 29,539 (67,676)\n\nOther non-core expense adjustments -  3,615 1,046 70 7,657\n\n|Core Funds From Operations - diluted $493,500 $487,638 $487,931 $499,386|$484,490|\n|---|---|\n\n\n\nWeighted-average shares and units outstanding - diluted (2)(3) 297,382 295,519 292,830 290,944 290,662\n\n|Core Funds From Operations per share - diluted (2) $1.66 $1.65 $1.67 $1.72|$1.67|\n|---|---|\n\n\n\n(1)     Real Estate Related Depreciation & Amortization **Three Months Ended**\n\n**31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\nDepreciation & amortization per income statement $421,198 $430,130 $388,704 $376,967 $382,132\n\nNon-real estate depreciation (9,006) (7,179) (7,279) (7,640) (7,970)\n\n|Real Estate Related Depreciation & Amortization $412,192 $422,951 $381,425 $369,327|$374,162|\n|---|---|\n\n\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value\nof shares of Digital Realty common stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This\nsame approach was utilized to calculate FFO/share. The potential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs –\ncausing diluted share count to be higher for FFO than for Core FFO and AFFO. When calculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the\ndenominator assumes all shares have been put back to Digital Realty.\n\n**Three Months Ended**\n\n**31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\nTeraco noncontrolling share of FFO $11,069 $7,213 $4,706 -  - \n\n**Teraco related minority interest** **$11,069** **$7,213** **$4,706** **-** **-**\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the\noccurrence of specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we\nconsider highly improbable. See above for calculations of diluted FFO and the share count detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted\naverage common stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the definitions section.\n\n(4) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n**Unaudited and in Thousands, Except Per Share Data** **First Quarter 2023**\n\n**Three Months Ended**\n\n**Reconciliation of Core FFO to AFFO** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\n**Core FFO available to common stockholders and unitholders** **$493,500** **$487,638** **$487,931** **$499,386** **$484,490**\n\nAdjustments:\n\nNon-real estate depreciation 9,006 7,179 7,279 7,640 7,970\n\nAmortization of deferred financing costs 4,072 3,753 3,270 3,330 3,634\n\nAmortization of debt discount/premium 1,301 1,276 1,146 1,193 1,214\n\nNon-cash stock-based compensation expense 13,056 16,042 15,948 15,799 14,453\n\nStraight-line rental revenue (16,194) (29,392) (18,123) (17,278) (18,810)\n\nStraight-line rental expense (515) (208) 2,679 (2,237) 4,168\n\nAbove- and below-market rent amortization (1,226) (762) (465) 196 335\n\nDeferred tax (benefit) / expense (9,795) (4,885) (5,233) (769) (1,604)\n\nLeasing compensation & internal lease commissions 11,067 9,578 9,866 9,411 13,261\n\nRecurring capital expenditures (1) (40,465) (109,999) (66,200) (43,497) (46,770)\n\n|AFFO available to common stockholders and unitholders (2)|$463,807|$380,220 $438,097 $473,173 $462,341|\n|---|---|---|\n\n\n\nWeighted-average shares and units outstanding - basic 297,180 295,199 292,536 290,528 290,163\n\nWeighted-average shares and units outstanding - diluted (3) 297,382 295,519 292,830 290,944 290,662\n\n**AFFO per share - diluted (3)** **$1.56** **$1.29** **$1.50** **$1.63** **$1.59**\n\nDividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22\n\n**Diluted AFFO Payout Ratio** **78.2%** **94.8%** **81.5%** **75.0%** **76.7%**\n\n**Three Months Ended**\n\n**Share Count Detail** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\n**Weighted Average Common Stock and Units Outstanding** **297,180** **295,199** **292,536** **290,528** **290,163**\n\nAdd: Effect of dilutive securities 202 320 294 416 499\n\n|Weighted Avg. Common Stock and Units Outstanding - diluted|297,382|295,519 292,830 290,944 290,662|\n|---|---|---|\n\n\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a\nbuilding up to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of diluted FFO available to common stockholders and unitholders and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Consolidated Balance Sheets**\n\n**Unaudited and in Thousands, Except Share and Per Share Data** **First Quarter 2023**\n\n**31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\n**Assets**\n\nInvestments in real estate:\n\nReal estate $27,052,022 $26,136,057 $24,876,600 $24,065,933 $23,769,712\n\nConstruction in progress 4,563,578 4,789,134 4,222,142 3,362,114 3,523,484\n\nLand held for future development 194,564 118,452 34,713 37,460 107,003\n\n**Investments in real estate** **$31,810,164** **$31,043,643** **$29,133,455** **$27,465,507** **$27,400,199**\n\nAccumulated depreciation and amortization (7,600,559) (7,268,981) (6,826,918) (6,665,118) (6,467,233)\n\n**Net Investments in Properties** **$24,209,605** **$23,774,662** **$22,306,537** **$20,800,389** **$20,932,966**\n\nInvestment in unconsolidated joint ventures 1,995,576 1,991,426 1,912,958 1,942,549 2,044,074\n\n**Net Investments in Real Estate** **$26,205,180** **$25,766,088** **$24,219,495** **$22,742,937** **$22,977,040**\n\nCash and cash equivalents $131,406 $141,773 $176,969 $99,226 $157,964\n\nAccounts and other receivables[ (1)] 1,070,066 969,292 861,117 797,208 774,579\n\nDeferred rent 627,700 601,590 556,198 554,016 545,666\n\nCustomer relationship value, deferred leasing costs\n3,015,291 3,092,627 3,035,861 2,521,390 2,640,795\n& other intangibles, net\n\nGoodwill 9,199,636 9,208,497 8,728,105 7,545,107 7,802,440\n\nOperating lease right-of-use assets 1,317,293 1,351,329 1,253,393 1,310,970 1,361,942\n\nOther assets 386,495 353,802 384,079 385,202 420,119\n\n**Total Assets** **$41,953,068** **$41,484,998** **$39,215,217** **$35,956,057** **$36,680,546**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities $2,514,202 $2,150,451 $2,255,139 $1,440,040 $943,325\n\nUnsecured term loans 1,542,275 797,449 729,976 — —\n\nUnsecured senior notes, net of discount 13,258,079 13,120,033 12,281,410 12,695,568 13,284,650\n\nSecured debt and other, net of premiums 560,955 528,870 491,984 158,699 160,240\n\nOperating lease liabilities 1,443,994 1,471,044 1,363,712 1,418,540 1,472,510\n\nAccounts payable and other accrued liabilities 1,923,819 1,868,884 1,621,406 1,619,222 1,572,359\n\nDeferred tax liabilities, net 1,164,276 1,192,752 1,145,097 611,582 649,112\n\nAccrued dividends and distributions — 363,716 — — —\n\nSecurity deposits and prepaid rent 392,021 369,654 341,552 341,140 346,911\n\n**Total Liabilities** **$22,799,620** **$21,862,853** **$20,230,276** **$18,284,791** **$18,429,107**\n\nRedeemable non-controlling interests - operating\n1,448,772 1,514,680 1,429,920 41,047 42,734\npartnership\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share,\n110,000,000 shares authorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share,\n2,888 2,887 2,851 2,824 2,824\n392,000,000 shares authorized [(5)]\n\nAdditional paid-in capital 22,126,379 22,142,868 21,528,384 21,091,364 21,069,391\n\nDividends in excess of earnings (4,995,982) (4,698,313) (4,336,201) (4,211,685) (3,916,854)\n\nAccumulated other comprehensive (loss), net (652,486) (595,798) (862,804) (475,561) (188,844)\n\n**Total Stockholders' Equity** **$17,212,490** **$17,583,334** **$17,063,920** **$17,138,632** **$17,698,207**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $444,843 $419,317 $421,484 $432,213 $444,029\n\nNoncontrolling interest in consolidated joint\n47,342 104,814 69,617 59,374 66,470\nventures\n\n**Total Noncontrolling Interests** **$492,185** **$524,131** **$491,101** **$491,587** **$510,499**\n\n**Total Equity** **$17,704,675** **$18,107,465** **$17,555,021** **$17,630,219** **$18,208,706**\n\n**Total Liabilities and Equity** **$41,953,068** **$41,484,998** **$39,215,217** **$35,956,057** **$36,680,546**\n\n(1) Net of allowance for doubtful accounts of $36,240 and $33,048 as of March 31, 2023 and December 31, 2022, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and\n\noutstanding as of March 31, 2023 and December 31, 2022, respectively.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $210,000 liquidation preference, respectively ($25.00 per share), 8,400,000 and 8,400,000 shares issued and\n\noutstanding as of March 31, 2023 and December 31, 2022, respectively.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 and $345,000 liquidation preference, respectively ($25.00 per share), 13,800,000 and 13,800,000 shares issued and\n\noutstanding as of March 31, 2023 and December 31, 2022, respectively.\n\n(5) Common Stock: 291,298,610 and 291,148,222 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n**Amortization and Financial Ratios**\n\n**Unaudited and Dollars in Thousands** **First Quarter 2023**\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **31-Mar-23** **[31-Dec-22 ]** **[30-Sep-22 ]** **[30-Jun-22 ]** **[31-Mar-22 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$58,547** **($6,093)** **$226,894** **$53,245** **$63,101**\n\nInterest 102,220 86,882 76,502 69,023 66,725\n\nLoss from early extinguishment of debt — — — — 51,135\n\nIncome tax expense (benefit) 21,454 (17,676) 19,576 16,406 13,244\n\nDepreciation & amortization 421,198 430,130 388,704 376,967 382,132\n\n**EBITDA** **$603,419** **$493,244** **$711,676** **$515,642** **$576,337**\n\nUnconsolidated JV real estate related depreciation & amortization 33,719 33,927 30,831 29,023 29,319\n\nUnconsolidated JV interest expense and tax expense 18,556 53,481 11,948 6,708 21,111\n\nSeverance, equity acceleration, and legal expenses 4,155 15,980 1,655 3,786 2,077\n\nTransaction and integration expenses 12,267 17,350 25,862 13,586 11,968\n\n(Gain) / loss on sale of investments — 6 (173,990) — (2,770)\n\nImpairment of investments in real estate — 3,000 — — —\n\nOther non-core adjustments, net (14,604) 15,127 (94) 31,633 (48,858)\n\nNon-controlling interests 111 (3,326) 1,716 436 3,629\n\nPreferred stock dividends, including undeclared dividends 10,181 10,181 10,181 10,181 10,181\n\n(Gain on) / Issuance costs associated with redeemed preferred stock — — — — —\n\n**Adjusted EBITDA** **$667,804** **$638,969** **$619,786** **$610,994** **$602,994**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the definitions section.\n\n**Three Months Ended**\n\n**Financial Ratios** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **31-Mar-22**\n\nTotal GAAP interest expense $102,220 $86,882 $76,502 $69,023 $66,725\n\nCapitalized interest 26,771 24,581 17,304 14,131 14,751\n\nChange in accrued interest and other non-cash amounts 38,137 (67,909) 31,860 (43,952) 52,324\n\n**Cash Interest Expense [(2)]** **$167,128** **$43,554** **$125,666** **$39,202** **$133,800**\n\nPreferred dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(3)]** **$139,172** **$121,645** **$103,987** **$93,335** **$91,657**\n\n**Coverage**\n\nInterest coverage ratio [(4)] 4.7x 5.3x 6.1x 6.6x 6.1x\n\nCash interest coverage ratio [(5)] 3.7x 11.9x 4.6x 12.6x 4.0x\n\nFixed charge coverage ratio [(6)] 4.4x 4.9x 5.5x 6.0x 5.5x\n\nCash fixed charge coverage ratio [(7)] 3.5x 10.0x 4.3x 10.4x 3.7x\n\n**Leverage**\n\nDebt to total enterprise value [(8)(9)] 37.3% 35.2% 34.5% 27.1% 25.5%\n\nDebt plus preferred stock to total enterprise value [(9)(10)] 38.9% 36.8% 36.2% 28.5% 26.8%\n\nPre-tax income to interest expense [(11)] 1.7x 1.0x 4.1x 1.9x 2.2x\n\nNet Debt to Adjusted EBITDA [(12)] 7.1x 6.9x 6.7x 6.2x 6.3x\n\n(2) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash interest expense to be a\nuseful measure of interest as it excludes non-cash based interest expense.\n\n(3) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred dividends.\n\n(4) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(5) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(7) Adjusted EBITDA divided by the sum of cash interest expense, and preferred dividends (including our pro rata share of unconsolidated joint venture cash fixed charges).\n\n(8) Mortgage debt and other loans divided by market value of common equity plus debt plus preferred stock.\n\n(9) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(10) Same as (8), except numerator includes preferred stock.\n\n(11) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(12) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less cash and cash equivalents\n(including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint\nventure EBITDA), multiplied by four.\n\n\n-----\n\n**Definitions**\n\n**Funds From Operations (FFO):**\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts,\nor Nareit, in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with\nGAAP), excluding gains (or losses) from real estate transactions, impairment of investment in real estate, real estate related depreciation and\namortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling\ninterests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental\nperformance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after\nadjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures\ntrends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will\nbe used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and\namortization and captures neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic\neffect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited.\nOther REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to other REITs’ FFO. FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration, and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, unconsolidated joint venture real estate\nrelated depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses,\ntransaction and integration expenses, gain on sale / deconsolidation, impairment of investments in real estate, other non-core adjustments, net, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted\nEBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense\nand tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, impairment of\ninvestments in real estate, other non-core adjustments, net, non-controlling interests, preferred stock dividends, including undeclared dividends, and\ngain on / issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by\nsecurities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before\nrecurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for\ncapital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may\ncalculate EBITDA and Adjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs’\nEBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in\naccordance with GAAP as a measure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental\nproperty operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by\nstockholders, company management and industry analysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is\nNOI less straight-line rents and above- and below-market rent amortization. Cash NOI is commonly used by stockholders, company management and\nindustry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and\namortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic\neffect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs\nmay calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash\nNOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata\nshare of unconsolidated joint venture debt, less cash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash)\ndivided by the product of Adjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the\nliquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units,\nassuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments\nand preferred dividends. For the quarter ended March 31, 2023, GAAP interest expense was $102 million, capitalized interest was $27 million and\nscheduled debt principal payments and preferred dividends was $10 million.\n\n**Reconciliation of Net Operating Income (NOI)** **Three Months Ended**\n\n**(in thousands)** **31-Mar-23** **31-Dec-22** **31-Mar-22**\n\n**Operating income** **$177,335** **$120,981** **$141,236**\n\nFee income (7,868) (7,508) (5,757)\n\nOther income (887) (168) (15)\n\nDepreciation and amortization 421,198 430,130 382,132\n\nGeneral and administrative 107,766 104,452 96,435\n\nSeverance, equity acceleration, and legal expenses 4,155 15,980 2,077\n\nTransaction expenses 12,267 17,350 11,968\n\nOther expenses — 3,615 7,657\n\n**Net Operating Income** **$713,965** **$687,831** **$635,734**\n\n**Cash Net Operating Income (Cash NOI)**\n\n**Net Operating Income** **$713,965** **$687,831** **$635,734**\n\nStraight-line rental revenue (16,327) (32,226) (6,530)\n\nStraight-line rental expense (510) (680) 3,646\n\nAbove- and below-market rent amortization (1,226) (762) 335\n\n**Cash Net Operating Income** **$695,902** **$654,164** **$633,185**\n\n**Constant Currency CFFO Reconciliation** **Three Months Ended**\n\n**(in thousands)** **31-Mar-23** **31-Mar-22**\n\n**Core FFO [(1)]** **$493,500** **$484,490**\n\nCore FFO impact of holding '22 Exchange Rates Constant [(2)] 9,413 —\n\n**Constant Currency Core FFO** **$502,913** **$484,490**\n\nWeighted-average shares and units outstanding - diluted 297,382 290,662\n\n**Constant Currency CFFO Per Share** **$1.69** **$1.67**\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2023 constant with average currency translation rates that were applicable to the same periods in 2022\n\n\n-----\n\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2023 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of\nthese risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of the risks and\nuncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  increased competition or available supply of data center space;\n\n-  decreased rental rates, increased operating costs or increased vacancy rates;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers and business partners during a pandemic, such as COVID-19;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2022 and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, and PlatformDIGITAL®, Data Gravity Index and Data Gravity Index DGx are registered\ntrademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks and service marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 2\n\nBEGIN DOCUMENT 3:\n**Digital Realty Reports Second Quarter 2024 Results**\n\n**Austin, TX — July 25, 2024 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation, and**\ninterconnection solutions, announced today financial results for the second quarter of 2024. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $0.20 per share in 2Q24, compared to $0.34 in 2Q23\n\n-  Reported FFO per share of $1.57 in 2Q24, compared to $1.52 in 2Q23\n\n-  Reported Core FFO per share of $1.65 in 2Q24, compared to $1.68 in 2Q23\n\n-  Reported rental rate increases on renewal leases of 4.0% on a cash basis in 2Q24\n\n-  Signed total bookings during 2Q24 that are expected to generate $164 million of annualized GAAP rental revenue, including a $40 million\ncontribution from the 0–1 megawatt category and $14 million contribution from interconnection\n\n-  Maintained 2024 Core FFO per share outlook of $6.60 - $6.75\n\n**Financial Results**\n\nDigital Realty reported revenues of $1.4 billion in the second quarter of 2024, a 2% increase from the previous quarter and a 1% decrease from the\nsame quarter last year.\n\nThe company delivered net income of $75 million in the second quarter of 2024, and net income available to common stockholders of $70 million, or\n$0.20 per diluted share, compared to $0.82 per diluted share in the previous quarter and $0.34 per diluted share in the same quarter last year.\n\nDigital Realty generated Adjusted EBITDA of $727 million in the second quarter of 2024, a 2% increase from the previous quarter and a 4% increase over\nthe same quarter last year.\n\nThe company reported Funds From Operations (FFO) of $511 million in the second quarter of 2024, or $1.57 per share, compared to $1.41 per share in\nthe previous quarter and $1.52 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered Core FFO per share of $1.65 in the second\nquarter of 2024, compared to $1.67 per share in the previous quarter and $1.68 per share in the same quarter last year. Digital Realty delivered\nConstant-Currency Core FFO per share of $1.66 for the second quarter of 2024 and $3.33 per share for the six-month period ended June 30, 2024.\n\n“Digital Realty’s second quarter results reflect the continued strength of demand for data center capacity, along with a keen focus on our value\nproposition,” said Digital Realty President & Chief Executive Officer Andy Power. “We have returned our balance sheet to below-target leverage levels\nand broadened our capital sources to capitalize on the global opportunity we see for data center infrastructure.”\n\n**Leasing Activity**\n\nIn the second quarter, Digital Realty signed total bookings that are expected to generate $164 million of annualized GAAP rental revenue, including a\n$40 million contribution from the 0–1 megawatt category and a $14 million contribution from interconnection.\n\nThe weighted-average lag between new leases signed during the second quarter of 2024 and the contractual commencement date was 20 months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $215 million of annualized cash rental revenue during the\nquarter. Rental rates on renewal leases signed during the second quarter of 2024 increased 4.0% on a cash basis and 7.5% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the second quarter of 2024 are summarized by region and product as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $13,980 58 $239 4.4 $263\n\n> 1 MW 87,212 359 243 49.8 146\n\nOther [(1)] 183 6 32 — —\n\n**Total** **$101,375** **423** **$239** **54.2** **$155**\n\n**EMEA [(2)]**\n\n0-1 MW $19,397 48 $406 4.9 $331\n\n> 1 MW 14,309 80 178 7.6 158\n\nOther [(1)] 37 4 10 — —\n\n**Total** **$33,743** **132** **$256** **12.4** **$226**\n\n**Asia Pacific [(2)]**\n\n0-1 MW $6,264 20 $316 1.7 $304\n\n> 1 MW 8,728 27 327 2.8 264\n\nOther [(1)] 129 1 118 — —\n\n**Total** **$15,121** **48** **$318** **4.5** **$279**\n\n**All Regions [(2)]**\n\n0-1 MW $39,642 126 $315 11.0 $299\n\n> 1 MW 110,249 466 236 60.1 153\n\nOther [(1)] 349 10 34 — —\n\n**Total** **$150,239** **603** **$249** **71.1** **$176**\n\n**Interconnection** **$14,011** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$164,250** **603** **$249** **71.1** **$176**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(2) Based on quarterly average exchange rates during the three months ended June 30, 2024.\n\n**Investment Activity**\n\nAs previously disclosed, Digital Realty closed on the sale to Digital Core REIT (SGX: DCRU) of an additional 24.9% interest in a data center facility located\nin Frankfurt, Germany for €117 million, or approximately $125 million. The transaction valued the Frankfurt facility at €470 million, or approximately\n$504 million (at 100% share).\n\nAlso previously disclosed, Digital Realty expanded its existing joint venture with GI Partners in Chicago, with the sale of a 75% interest in a third\nstabilized hyperscale data center that is situated on the same campus as two stabilized hyperscale data centers that were contributed to the joint\nventure with GI Partners in July 2023. Digital Realty received approximately $388 million of gross proceeds and maintained a 25% interest in the joint\nventure.\n\nDuring the quarter, Digital Realty acquired a 4.1-acre parcel of land in Amsterdam, near one of its existing campuses for approximately €7.4 million or\n$7.9 million. The site comprises approximately 70,000 square feet leased to local tenants and approximately 39,000 square feet of land which will be\nused to develop a new high voltage substation to drive growth at the campus and optimize the use of a previously acquired land plot in the vicinity.\n\nAlso during the quarter, Digital Realty liquidated its 17% interest in Colovore, generating gross proceeds of approximately $35 million. Digital Realty\nrealized a gain of approximately $27 million on its original investments, made in 2015 and 2017.\n\nSubsequent to quarter end, and as previously disclosed, Digital Realty closed on its purchase option to acquire two data centers located in the Slough\nTrading Estate for $200 million. The two stabilized data centers offer a combined 15 MW of IT load, with an established community of 150+ customers,\nincluding a broad array of connectivity providers, technology companies, and financial services firms, utilizing over 2,000 cross connects. The acquisition\nmarked Digital Realty’s entry into the west London, UK submarket, complementing Digital Realty’s existing colocation capabilities in the City and the\nDocklands.\n\n\n-----\n\n**Balance Sheet**\n\nDigital Realty had approximately $16.3 billion of total debt outstanding as of June 30, 2024, comprised of $15.6 billion of unsecured debt and\napproximately $0.7 billion of secured debt and other. At the end of the second quarter of 2024, net debt-to-Adjusted EBITDA was 5.3x, debt-pluspreferred-to-total enterprise value was 25.3% and fixed charge coverage was 4.1x.\n\nDigital Realty completed the following financing transactions during the second quarter:\n\n-  In April, the company repaid €600 million ($647 million) in aggregate principal amount of its 2.625% senior notes;\n\n-  In May, Digital Realty sold 12.1 million shares of common stock at $144.63 per share pursuant to a follow-on equity offering, raising $1.65\nbillion of net proceeds; and\n\n-  The company also sold 1.2 million shares of common stock under its At-The-Market (ATM) equity issuance program at a weighted average\nprice of $148.99 per share, for net proceeds of approximately $177 million.\n\nSubsequent to quarter end, the company sold an additional 1.4 million shares of common stock under its ATM program at a weighted average price of\n$152.77 per share, for net proceeds of approximately $219 million. In July, the company also repaid £250 million ($316 million) in aggregate principal\namount of its 2.75% senior notes.\n\n\n-----\n\n**2024 Outlook**\n\nDigital Realty maintained its 2024 Core FFO per share and Constant-Currency Core FFO per share outlook of $6.60 - $6.75. The assumptions underlying\nthe outlook are summarized in the following table.\n\n\n**As of**\n\n**February 15, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n4.0% - 6.0%\n\n6.0% - 8.0%\n\n+100 - 200 bps\n\n2.0% - 3.0%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.80 - $1.95**\n\n$4.40 - $4.40\n\n**$6.20 - $6.35**\n\n$0.40 - $0.40\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n**As of**\n\n**May 2, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n5.0% - 7.0%\n\n7.0% - 9.0%\n\n+100 - 200 bps\n\n2.5% - 3.5%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.80 - $1.95**\n\n$4.40 - $4.40\n\n**$6.20 - $6.35**\n\n$0.40 - $0.40\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n**As of**\n\n**July 25, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n5.0% - 7.0%\n\n7.0% - 9.0%\n\n+100 - 200 bps\n\n2.5% - 3.5%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.40 - $1.55**\n\n$4.75 - $4.75\n\n**$6.15 - $6.30**\n\n$0.45 - $0.45\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments [(1)]\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-Capital\" cash NOI growth [(2)]\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (Net of Partner Contributions) [(3)]\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx [(4)]\n\nRecurring CapEx + capitalized leasing costs [(5)]\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations / share**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “Same-Capital” pool includes properties owned as of December 31, 2022 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2023-2024, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Excludes land acquisitions and includes Digital Realty’s share of JV contributions. Figure is net of JV partner contributions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a\nreconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “SameCapital” Cash NOI are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to\nAdjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash\nNOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items such as debt issuances, that have not yet occurred, are out of the Company's control and/or cannot be reasonably\npredicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP\nfinancial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial\nmeasures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on July 25, 2024, a presentation will be posted to the Investors section of\n[the company’s website at https://investor.digitalrealty.com. The presentation is designed to accompany the discussion of the company’s second quarter](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n2024 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and Chief Financial\nOfficer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 2977783 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until August 25, 2024. The telephone replay can be accessed by dialing +1 (877) 344-7529\n(for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 2171709. The webcast replay can be accessed on\nDigital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data meeting place and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected data communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 25+ countries\n[on six continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and X.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n\n**Second Quarter 2024**\n\n**Three Months Ended** **Six Months Ended**\n\n**30-Jun-24** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **30-Jun-24** **30-Jun-23**\n\n\nRental revenues $912,994 $894,409 $885,694 $886,960 $869,298   $1,807,402 [ $1,740,273 ]\n\nTenant reimbursements - Utilities 274,505 276,357 316,634 335,477 330,416 550,862 647,565\n\nTenant reimbursements - Other 41,964 38,434 46,418 64,876 46,192 80,398 86,342\n\nInterconnection & other 109,505 108,071 106,413 107,305 104,521 217,576 206,216\n\nFee income 15,656 13,010 14,330 7,819 14,908 28,666 22,777\n\nOther 2,125 862 144 — 932 2,987 1,819\n\n**Total Operating Revenues** **[ $1,356,749 ]** **$1,331,143** **$1,369,633** **$1,402,437** **$1,366,267** **[ $2,687,892 ]** **$2,704,991**\n\nUtilities $315,248 $324,571 $366,083 $384,455 $374,934 $639,818 $721,298\n\nRental property operating 237,653 224,369 237,118 223,089 224,762 462,021 449,623\n\nProperty taxes 49,620 41,156 40,161 72,279 46,718 90,776 87,141\n\nInsurance 4,755 2,694 3,794 4,289 4,385 7,449 8,739\n\nDepreciation & amortization 425,343 431,102 420,475 420,613 432,573 856,445 853,771\n\nGeneral & administration 119,511 114,419 109,235 108,039 105,964 233,931 213,730\n\nSeverance, equity acceleration and legal expenses 884 791 7,565 2,682 3,652 1,675 7,807\n\nTransaction and integration expenses 26,072 31,839 40,226 14,465 17,764 57,911 30,031\n\nProvision for impairment 168,303 — 5,363 113,000 — 168,303 —\n\nOther expenses (529) 10,836 5,580 1,295 655 10,306 655\n\n**Total Operating Expenses** **[ $1,346,860 ]** **$1,181,776** **$1,235,598** **$1,344,206** **$1,211,407** **[ $2,528,636 ]** **$2,372,795**\n\n**Operating Income** **$9,889** **$149,367** **$134,035** **$58,231** **$154,860** **$159,256** **$332,196**\n\nEquity in earnings / (loss) of unconsolidated joint ventures (41,443) (16,008) (29,955) (19,793) 5,059 (57,451) 19,957\n\nGain / (loss) on sale of investments 173,709 277,787 (103) 810,688 89,946 451,496 89,946\n\nInterest and other income / (expense), net 62,261 9,709 50,269 24,812 (6,930) 71,970 (6,650)\n\nInterest (expense) (114,756) (109,535) (113,638) (110,767) (111,116) (224,291) (213,336)\n\nIncome tax benefit / (expense) (14,992) (22,413) (20,724) (17,228) (16,173) (37,405) (37,627)\n\nLoss from early extinguishment of debt — (1,070) — — — (1,070) —\n\n**Net Income** **$74,668** **$287,837** **$19,884** **$745,941** **$115,647** **$362,505** **$184,486**\n\nNet (income) / loss attributable to noncontrolling interests 5,552 (6,329) 8,419 (12,320) 2,538 (777) 2,427\n\n**Net Income Attributable to Digital Realty Trust, Inc.** **$80,220** **$281,508** **$28,304** **$733,621** **$118,185** **$361,728** **$186,913**\n\nPreferred stock dividends (10,181) (10,181) (10,181) (10,181) (10,181) (20,363) (20,363)\n\n**Net Income / (Loss) Available to Common Stockholders** **$70,039** **$271,327** **$18,122** **$723,440** **$108,003** **$341,366** **$166,550**\n\nWeighted-average shares outstanding - basic 319,537 312,292 305,781 301,827 295,390 315,915 293,316\n\nWeighted-average shares outstanding - diluted 327,946 320,798 314,995 311,341 306,819 324,451 304,452\n\nWeighted-average fully diluted shares and units 334,186 326,975 321,173 317,539 313,022 330,687 310,588\n\nNet income / (loss) per share - basic $0.22 $0.87 $0.06 $2.40 $0.37 $1.08 $0.57\n\nNet income / (loss) per share - diluted [(1)] $0.20 $0.82 $0.03 $2.31 $0.34 $1.01 $0.52\n\n(1) The Company has made an adjustment to previously reported amounts to correct an immaterial error in the computation of fully diluted earnings per share in each of the interim periods\nended June 30, 2023, September 30, 2023, and December 31, 2023. This adjustment does not impact any of the other diluted measures per share for FFO, Core FFO or Adjusted FFO.\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n\n**Second Quarter 2024**\n\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|Col3|Col4|Col5|Col6|Col7|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|Three Months Ended Reconciliation of Net Income to Funds From Operations (FFO) 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23 Net Income / (Loss) Available to Common Stockholders $70,039 $271,327 $18,122 $723,440 $108,003 Adjustments: Non-controlling interest in operating partnership 1,500 6,200 410 16,300 2,500 Real estate related depreciation & amortization (1) 414,920 420,591 410,167 410,836 424,044 Reconciling items related to non-controlling interests (17,317) (8,017) (15,377) (14,569) (14,144) Unconsolidated JV real estate related depreciation & amortization 47,117 47,877 64,833 43,215 35,386 (Gain) / loss on real estate transactions (173,709) (286,704) 103 (810,688) (89,946) Provision for impairment 168,303 — 5,363 113,000 —||||||Six Months Ended|||\n|||||||30-Jun-24 30-Jun-23|||\n|||||||$341,366 $166,550 7,700 4,000 835,511 836,236 (25,335) (27,532) 94,993 69,105 (460,413) (97,771) 168,303 —|||\n|Funds From Operations $510,852 $451,273 $483,621 $481,535 $465,844 Weighted-average shares and units outstanding - basic 325,777 318,469 311,960 308,024 301,593 Weighted-average shares and units outstanding - diluted (2) (3) 334,186 326,975 321,173 317,539 313,022 Funds From Operations per share - basic $1.57 $1.42 $1.55 $1.56 $1.54 Funds From Operations per share - diluted (2) (3) $1.57 $1.41 $1.53 $1.55 $1.52 Thr e e Months End ed Reconciliation of FFO to Core FFO 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23 Funds From Operations $510,852 $451,273 $483,621 $481,535 $465,844 Other non-core revenue adjustments (4) (33,818) 3,525 (146) (27) 27,454 Transaction and integration expenses 26,072 31,839 40,226 14,465 17,764 Loss from early extinguishment of debt — 1,070 — — — Severance, equity acceleration and legal expenses (5) 884 791 7,565 2,682 3,652 (Gain) / Loss on FX revaluation 32,222 33,602 (24,804) 451 (7,868) Other non-core expense adjustments (6) 2,271 10,052 1,956 1,295 655||||||$962,125 $950,589 322,151 299,452 330,687 310,588 $2.99 $3.17 $2.98 $3.13 Six Mon th s Ended|||\n|||||||30-Jun-24 30-Jun-23|||\n|||||||$962,125 $950,589 (30,293) 26,566 57,911 30,031 1,070 — 1,675 7,807 65,824 (14,647) 12,323 655|||\n|Core Funds From Operations $538,482 $532,153 $508,417 $500,402 $507,501 Weighted-average shares and units outstanding - diluted (2) (3) 326,181 319,138 312,356 308,539 301,806||||||$1,070,634 $1,001,001 322,619 299,730|||\n|Core Funds From Operations per share - diluted (2) $1.65 $1.67 $1.63 $1.62 $1.68 (1) Real Estate Related Depreciation & Amortization Thr e e Months End ed 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23 Depreciation & amortization per income statement $425,343 $431,102 $420,475 $420,613 $432,573 Non-real estate depreciation (10,424) (10,511) (10,308) (9,777) (8,529)||||||$3.32 $3.34 Six Mon th s Ended|||\n|||||||30-Jun-24 30-Jun-23|||\n|||||||$856,445 $853,771 (20,935) (17,535)|||\n|Real Estate Related Depreciation & Amortization|$414,920|$420,591|$410,167|$410,836|$424,044||$835,511|$836,236|\n\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value\nof shares of Digital Realty common stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This\nsame approach was utilized to calculate FFO/share. The potential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs –\ncausing diluted share count to be higher for FFO than for Core FFO and AFFO. When calculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the\ndenominator assumes all shares have been put back to Digital Realty.\n\n|Three Months Ended 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23 Teraco noncontrolling share of FFO $12,453 $9,768 $7,135 $11,537 $9,645|Col2|Col3|Col4|Col5|Col6|Six Months Ended|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|||||||30-Jun-24 30-Jun-23|||\n|||||||$22,221 $20,714|||\n|Teraco related minority interest|$12,453|$9,768|$7,135|$11,537|$9,645||$22,221|$20,714|\n\n\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the\noccurrence of specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we\nconsider highly improbable. See above for calculations of FFO and the share count detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted average\ncommon stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the Definitions section.\n\n(4) Includes deferred rent adjustments related to a customer bankruptcy, joint venture development fees included in gains, lease termination fees and gain on sale of equity investment\nincluded in other income.\n\n(5) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n(6) Includes write-offs associated with bankrupt or terminated customers, non-recurring legal expenses and adjustments to reflect our proportionate share of transaction costs associated with\nnoncontrolling interests.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n\n**Second Quarter 2024**\n\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|\n|---|---|\n|Three Months Ended Reconciliation of Core FFO to AFFO 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23 Core FFO available to common stockholders and unitholders $538,482 $532,153 $508,417 $500,402 $507,501 Adjustments: Non-real estate depreciation 10,424 10,511 10,308 9,777 8,529 Amortization of deferred financing costs 5,072 5,576 5,744 5,776 5,984 Amortization of debt discount/premium 1,321 1,832 973 1,360 1,339 Non-cash stock-based compensation expense 14,464 12,592 9,226 14,062 13,893 Straight-line rental revenue 334 9,976 (21,992) (14,080) (16,151) Straight-line rental expense 782 1,111 (4,999) 1,427 520 Above- and below-market rent amortization (1,691) (854) (856) (1,127) (1,195) Deferred tax (benefit) / expense (9,982) (3,437) 33,448 (8,539) 1,339 Leasing compensation & internal lease commissions 10,519 13,291 9,848 12,515 11,611 Recurring capital expenditures (1) (60,483) (47,676) (142,808) (90,251) (53,498)|Six Months Ended|\n||30-Jun-24 30-Jun-23|\n||$1,070,634 $1,001,001 20,935 17,535 10,648 10,056 3,153 2,640 27,056 26,949 10,310 (32,344) 1,893 5 (2,545) (2,421) (13,420) (8,456) 23,809 22,678 (108,159) (93,963)|\n|AFFO available to common stockholders and unitholders (2) $509,241 $535,073 $407,306 $431,322 $479,873 Weighted-average shares and units outstanding - basic 325,777 318,469 311,960 308,024 301,593 Weighted-average shares and units outstanding - diluted (3) 326,181 319,138 312,356 308,539 301,806 AFFO per share - diluted (3) $1.56 $1.68 $1.30 $1.40 $1.59 Dividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22 Diluted AFFO Payout Ratio 78.1% 72.8% 93.6% 87.3% 76.7% Thr e e Months End ed Share Count Detail 30-Jun-24 31-Mar-24 31-Dec-23 30-Sep-23 30-Jun-23|$1,044,314 $943,679 322,151 299,452 322,619 299,730 $3.24 $3.15 $2.44 $2.44 75.4% 77.5% Six Months Ended|\n||30-Jun-24 30-Jun-23|\n\n\n|Weighted Average Common Stock and Units Outstanding 325,777 318,469 311,960 308,024 301,593 Add: Effect of dilutive securities 404 669 396 515 213|Col2|Col3|Col4|Col5|Col6|322,151 299,452 467 278|Col8|\n|---|---|---|---|---|---|---|---|\n|Weighted Avg. Common Stock and Units Outstanding - diluted|326,181|319,138|312,356|308,539|301,806|322,618|299,730|\n\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building\nup to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the Definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of FFO and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Consolidated Balance Sheets**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n**Assets**\n\nInvestments in real estate:\n\n\n**Second Quarter 2024**\n\n**30-Jun-24** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23**\n\n\nReal estate $27,470,635 $27,122,796 $27,306,369 $25,887,031 $27,087,769\n\nConstruction in progress 4,676,012 4,496,840 4,635,215 5,020,464 4,635,939\n\nLand held for future development 93,938 114,240 118,190 179,959 193,936\n\n**Investments in Real Estate** **$32,240,584** **$31,733,877** **$32,059,773** **$31,087,453** **$31,917,644**\n\nAccumulated depreciation and amortization (8,303,070) (7,976,093) (7,823,685) (7,489,193) (7,739,462)\n\n**Net Investments in Properties** **$23,937,514** **$23,757,784** **$24,236,089** **$23,598,260** **$24,178,182**\n\nInvestment in unconsolidated joint ventures 2,332,698 2,365,821 2,295,889 2,180,313 2,040,452\n\n**Net Investments in Real Estate** **$26,270,212** **$26,123,605** **$26,531,977** **$25,778,573** **$26,218,634**\n\nOperating lease right-of-use assets, net $1,211,003 $1,233,410 $1,414,256 $1,274,410 $1,291,233\n\nCash and cash equivalents 2,282,062 1,193,784 1,625,495 1,062,050 124,519\n\nAccounts and other receivables, net [(1)] 1,222,403 1,217,276 1,278,110 1,325,725 1,158,383\n\nDeferred rent, net 613,749 611,670 624,427 586,418 613,796\n\nGoodwill 9,128,811 9,105,026 9,239,871 8,998,074 9,148,603\n\nCustomer relationship value, deferred leasing costs & other intangibles, net 2,315,143 2,359,380 2,500,237 2,506,198 2,825,596\n\nAssets held for sale — 287,064 478,503 — 593,892\n\nOther assets 563,500 501,875 420,382 401,068 414,078\n\n**Total Assets** **$43,606,883** **$42,633,089** **$44,113,257** **$41,932,515** **$42,388,735**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities, net $1,848,167 $1,901,126 $1,812,287 $1,698,780 $2,242,258\n\nUnsecured term loans, net 1,297,893 1,303,263 1,560,305 1,524,663 1,548,780\n\nUnsecured senior notes, net of discount 12,507,551 13,190,202 13,422,342 13,072,102 13,383,819\n\nSecured and other debt, net of discount 686,135 625,750 630,973 574,231 554,594\n\nOperating lease liabilities 1,336,839 1,357,751 1,542,094 1,404,510 1,420,239\n\nAccounts payable and other accrued liabilities 1,973,798 1,870,344 2,168,983 2,147,103 2,214,820\n\nDeferred tax liabilities, net 1,132,090 1,121,224 1,151,096 1,088,724 1,128,961\n\nAccrued dividends and distributions — — 387,988 — —\n\nSecurity deposits and prepaid rents 416,705 413,225 401,867 385,521 417,693\n\nObligations associated with assets held for sale — 9,981 39,001 — 4,990\n\n**Total Liabilities** **$21,199,178** **$21,792,866** **$23,116,936** **$21,895,634** **$22,916,155**\n\nRedeemable non-controlling interests 1,399,889 1,350,736 1,394,814 1,360,308 1,367,422\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share, 110,000 shares authorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share, 392,000 shares authorized [(5)] 3,231 3,097 3,088 3,002 2,967\n\nAdditional paid-in capital 26,388,393 24,508,683 24,396,797 23,239,088 22,882,200\n\nDividends in excess of earnings (5,701,096) (5,373,529) (5,262,648) (4,900,757) (5,253,915)\n\nAccumulated other comprehensive (loss), net (884,715) (850,091) (751,393) (882,996) (741,484)\n\n**Total Stockholders’ Equity** **$20,537,503** **$19,019,850** **$19,117,535** **$18,190,026** **$17,621,456**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $434,253 $438,422 $438,081 $441,366 $436,099\n\nNoncontrolling interest in consolidated joint ventures 36,060 31,215 45,892 45,182 47,603\n\n**Total Noncontrolling Interests** **$470,313** **$469,637** **$483,972** **$486,547** **$483,702**\n\n**Total Equity** **$21,007,816** **$19,489,487** **$19,601,507** **$18,676,573** **$18,105,158**\n\n|Total Liabilities and Equity|$43,606,883|$42,633,089|$44,113,257|$41,932,515|$42,388,735|\n|---|---|---|---|---|---|\n\n\n\n(1) Net of allowance for doubtful accounts of $50,609 and $42,624 as of June 30, 2024 and June 30, 2023, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 liquidation preference ($25.00 per share), 8,000 shares issued and outstanding as of June 30, 2024 and June 30, 2023.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 liquidation preference ($25.00 per share), 8,400 shares issued and outstanding as of June 30, 2024 and June 30, 2023.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 liquidation preference ($25.00 per share), 13,800 shares issued and outstanding as of June 30, 2024 and June 30, 2023.\n\n(5) Common Stock: 325,885 and 299,240 shares issued and outstanding as of June 30, 2024 and June 30, 2023, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n**Amortization and Financial Ratios**\n\n**Unaudited and Dollars in Thousands**\n\n\n**Second Quarter 2024**\n\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **30-Jun-24** **[31-Mar-24 ]** **[31-Dec-23 ]** **[30-Sep-23 ]** **[30-Jun-23 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$70,039** **$271,327** **$18,122** **$723,440** **$108,003**\n\nInterest 114,756 109,535 113,638 110,767 111,116\n\nLoss from early extinguishment of debt — 1,070 — — —\n\nIncome tax expense (benefit) 14,992 22,413 20,724 17,228 16,173\n\nDepreciation & amortization 425,343 431,102 420,475 420,613 432,573\n\n**EBITDA** **$625,130** **$835,446** **$572,958** **$1,272,048** **$667,866**\n\nUnconsolidated JV real estate related depreciation & amortization 47,117 47,877 64,833 43,214 35,386\n\nUnconsolidated JV interest expense and tax expense 27,704 34,271 42,140 27,000 32,105\n\nSeverance, equity acceleration and legal expenses 884 791 7,565 2,682 3,652\n\nTransaction and integration expenses 26,072 31,839 40,226 14,465 17,764\n\n(Gain) / loss on sale of investments (173,709) (277,787) 103 (810,688) (89,946)\n\nProvision for impairment 168,303 — 5,363 113,000 —\n\nOther non-core adjustments, net [(2)] 743 21,608 (35,439) 1,719 22,132\n\nNon-controlling interests (5,552) 6,329 (8,419) 12,320 (2,538)\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Adjusted EBITDA** **$726,874** **$710,556** **$699,509** **$685,943** **$696,604**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the Definitions section.\n\n(2) Includes foreign exchange net unrealized gains/losses attributable to remeasurement, deferred rent adjustments related to a customer bankruptcy, write offs associated with bankrupt or\nterminated customers, non-recurring legal expenses, gain on sale of land option and lease termination fees.\n\n**Three Months Ended**\n\n**Financial Ratios** **30-Jun-24** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23**\n\nTotal GAAP interest expense $114,756 $109,535 $113,638 $110,767 $111,116\n\nCapitalized interest 27,592 28,522 33,032 29,130 27,883\n\nChange in accrued interest and other non-cash amounts (55,605) 55,421 (66,013) 44,183 (60,612)\n\n**Cash Interest Expense [(3)]** **$86,743** **$193,479** **$80,657** **$184,081** **$78,387**\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(4)]** **$152,529** **$148,239** **$156,851** **$150,079** **$149,181**\n\n**Coverage**\n\nInterest coverage ratio [(5)] 4.3x 4.3x 4.0x 4.3x 4.5x\n\nCash interest coverage ratio [(6)] 6.4x 3.2x 6.4x 3.4x 7.4x\n\nFixed charge coverage ratio [(7)] 4.1x 4.0x 3.8x 4.1x 4.2x\n\nCash fixed charge coverage ratio [(8)] 5.9x 3.1x 5.8x 3.2x 6.6x\n\n**Leverage**\n\nDebt to total enterprise value [(9)(10)] 24.2% 26.7% 28.6% 30.6% 33.3%\n\nDebt-plus-preferred-stock-to-total-enterprise-value [(10)(11)] 25.3% 27.9% 29.8% 32.0% 34.7%\n\nPre-tax income to interest expense [(12)] 1.7x 3.6x 1.2x 7.7x 2.0x\n\nNet Debt-to-Adjusted EBITDA [(13)] 5.3x 6.1x 6.2x 6.3x 6.8x\n\n(3) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash interest expense to be a\nuseful measure of interest as it excludes non-cash-based interest expense.\n\n(4) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred stock dividends.\n\n(5) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(7) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(8) Adjusted EBITDA divided by the sum of cash interest expense and preferred stock dividends (including our pro rata share of unconsolidated joint venture cash fixed charges).\n\n(9) Total debt divided by market value of common equity plus debt plus preferred stock.\n\n(10) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(11) Same as (9), except numerator includes preferred stock.\n\n(12) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(13) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less cash and cash equivalents\n(including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint\nventure EBITDA), multiplied by four.\n\n\n-----\n\n**Definitions**\n\n**Funds From Operations (FFO):**\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts\n(Nareit) in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO is a non-GAAP financial measure and represents net income (loss)\n(computed in accordance with GAAP), excluding gain (loss) from the disposition of real estate assets, provision for impairment, real estate related\ndepreciation and amortization (excluding amortization of deferred financing costs), our share of unconsolidated JV real estate related depreciation &\namortization, net income attributable to non-controlling interests in operating partnership and, depreciation related to non-controlling interests.\nManagement uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and\nlosses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that,\nwhen compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized\nmeasure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However,\nbecause FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market\nconditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data\ncenters, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a\nmeasure of our performance is limited. Other REITs may not calculate FFO in accordance with the Nareit definition and, accordingly, our FFO may not be\ncomparable to other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our\nperformance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, (i) unconsolidated joint venture real estate\nrelated depreciation & amortization, (ii) unconsolidated joint venture interest expense and tax, (iii) severance, equity acceleration and legal expenses,\n(iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi) provision for impairment, (vii) other non-core adjustments, net,\n(viii) non-controlling interests, (ix) preferred stock dividends, and (x) issuance costs associated with redeemed preferred stock. Adjusted EBITDA is\nEBITDA excluding (i) unconsolidated joint venture real estate related depreciation & amortization, (ii) unconsolidated joint venture interest expense and\ntax, (iii) severance, equity acceleration and legal expenses, (iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi)\nprovision for impairment, (vii) other non-core adjustments, net, (vii) non-controlling interests, (ix) preferred stock dividends, and (x) gain on / issuance\ncosts associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts,\ninvestors, and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges\nincluding interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or\nother recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and\nAdjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs’ EBITDA and Adjusted\nEBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a\nmeasure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental\nproperty operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by\nstockholders, company management and industry analysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is\nNOI less straight-line rents and above- and below-market rent amortization. Cash NOI is commonly used by stockholders, company management and\nindustry analysts as a measure of property operating performance on a cash basis. Same-Capital Cash NOI represents buildings owned as of December\n31, 2022 of the prior year with less than 5% of total rentable square feet under development and excludes buildings that were undergoing, or were\nexpected to undergo, development activities in 2023-2024, buildings classified as held for sale, and buildings sold or contributed to joint ventures for all\nperiods presented (prior period numbers adjusted to reflect current same-capital pool). However, because NOI and cash NOI exclude depreciation and\namortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic\neffect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs\nmay calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash\nNOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of\nunconsolidated joint venture debt, less cash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of\nAdjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is total debt plus preferred stock divided by total debt plus the liquidation value of preferred stock and the market value of\noutstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty\nTrust, Inc. common stock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest and preferred stock dividends. For the quarter ended\nJune 30, 2024, GAAP interest expense was $115 million, capitalized interest was $28 million and preferred stock dividends was $10 million.\n\n|Reconciliation of Net Operating Income (NOI) Three Months Ended (in thousands) 30-Jun-24 31-Mar-24 30-Jun-23 Operating income $9,889 $149,367 $154,860 Fee income (15,656) (13,010) (14,908) Other income (2,125) (862) (932) Depreciation and amortization 425,343 431,102 432,573 General and administrative 119,511 114,419 105,964 Severance, equity acceleration and legal expenses 884 791 3,652 Transaction expenses 26,072 31,839 17,764 Provision for impairment 168,303 — — Other expenses (529) 10,836 655|Six Months Ended 30-Jun-24 30-Jun-23|\n|---|---|\n||$159,256 $332,196 (28,666) (22,777) (2,987) (1,819) 856,445 853,771 233,931 213,730 1,675 7,807 57,911 30,031 168,303 — 10,306 655|\n|Net Operating Income $731,692 $724,482 $699,629 Cash Net Operating Income (Cash NOI) Net Operating Income $731,692 $724,482 $699,629 Straight-line rental revenue (2,873) (2,522) 12,116 Straight-line rental expense 959 1,369 722 Above- and below-market rent amortization (1,691) (854) (1,195)|$1,456,175 $1,413,594|\n||$1,456,175 $1,413,594 (5,395) (3,815) 2,328 212 (2,545) (2,421)|\n|Cash Net Operating Income $728,088 $722,474 $711,272 Constant Currency CFFO Reconciliation Three Months Ended (in thousands, except per share data) 30-Jun-24 30-Jun-23 Core FFO (1) $538,482 $507,501 Core FFO impact of holding '23 Exchange Rates Constant (2) 3,841 —|$1,450,563 $1,407,570|\n||Six Months Ended 30-Jun-24 30-Jun-23|\n||$1,070,634 $1,001,001 5,180 —|\n|Constant Currency Core FFO $542,323 $507,501 Weighted-average shares and units outstanding - diluted 326,181 301,806 Constant Currency CFFO Per Share $1.66 $1.68|$1,075,814 $1,001,001 322,619 299,730 $3.33 $3.34|\n\n\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2024 constant with average currency translation rates that were applicable to the same periods in 2023.\n\n\n-----\n\nThis document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2024 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more\nof these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks\nand uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  decreased rental rates, increased operating costs, or increased vacancy rates;\n\n-  increased competition or available supply of data center space;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers, and business partners during a pandemic, such as COVID-19;\n\n-  the expected operating performance of anticipated near-term acquisitions and descriptions relating to these expectations;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws, and regulations, including related to taxation, real estate, and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2023, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, PDx,\nData Gravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks\nand service marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 3\n\nBEGIN DOCUMENT 4:\n**Digital Realty Reports Second Quarter 2023 Results**\n\n**Austin, TX — July 27, 2023 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation and**\ninterconnection solutions, announced today financial results for the second quarter of 2023. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $0.37 per share in 2Q23, compared to $0.19 in 2Q22\n\n-  Reported FFO per share of $1.52 in 2Q23, compared to $1.55 in 2Q22\n\n-  Reported Core FFO per share of $1.68 in 2Q23, compared to $1.72 in 2Q22\n\n-  Reported Constant-Currency Core FFO per share of $1.69 in 2Q23 and $3.38 per share for the six months ended June 30, 2023\n\n-  Reported “Same-Capital” cash NOI growth of 5.6% in 2Q23\n\n-  Reported rental rate increases on renewal leases of 6.9% on a cash basis in 2Q23\n\n-  Signed total bookings during 2Q23 that are expected to generate $114 million of annualized GAAP rental revenue, including a $37 million\ncontribution from the 0–1 megawatt category and a $13 million contribution from interconnection\n\n-  Adjusted 2023 Core FFO per share outlook to $6.55 - $6.65\n\n**Financial Results**\n\nDigital Realty reported revenues for the second quarter of 2023 of $1.4 billion, a 2% increase from the previous quarter and a 20% increase from the\nsame quarter last year.\n\nThe company delivered second quarter of 2023 net income of $116 million, and net income available to common stockholders of $108 million, or $0.37\nper diluted share, compared to $0.19 per diluted share in the previous quarter and $0.19 per diluted share in the same quarter last year.\n\nDigital Realty generated second quarter of 2023 Adjusted EBITDA of $697 million, a 4% increase from the previous quarter and a 14% increase over the\nsame quarter last year.\n\nThe company reported second quarter of 2023 funds from operations (FFO) of $466 million, or $1.52 per share, compared to $1.60 per share in the\nprevious quarter and $1.55 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2023 Core FFO per share of\n$1.68, compared to $1.66 per share in the previous quarter and $1.72 per share in the same quarter last year. Digital Realty delivered ConstantCurrency Core FFO per share of $1.69 for the second quarter of 2023 and $3.38 per share for the six-month period ended June 30, 2023.\n\n“Digital Realty’s second-quarter results demonstrate the positive momentum in our operating business, with improving fundamentals highlighted by\nstrong enterprise leasing activity along with robust renewal spreads and healthy organic growth,” said Digital Realty President & Chief Executive Officer\nAndy Power. “We advanced our funding plan by completing two capital recycling transactions that generated more than $2 billion in gross proceeds,\nhelping to position Digital Realty for the opportunity that lies ahead.”\n\n**Leasing Activity**\n\nIn the second quarter, Digital Realty signed total bookings that are expected to generate $114 million of annualized GAAP rental revenue, including a\n$37 million contribution from the 0–1 megawatt category and a $13 million contribution from interconnection.\n\nThe weighted-average lag between new leases signed during the second quarter of 2023 and the contractual commencement date was eleven months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $211 million of annualized GAAP rental revenue during the\nquarter. Rental rates on renewal leases signed during the second quarter of 2023 rolled up 6.9% on a cash basis and up 14.6% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the second quarter of 2023 are summarized by region as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**The Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $15,019 65 $232 5.6 $225\n\n> 1 MW [(1)] 11,506 30 387 3.2 300\n\nOther [(2)] 2,915 41 71 — —\n\n**Total** **$29,441** **136** **$217** **8.8** **$252**\n\n**EMEA [(3)]**\n\n0-1 MW $15,427 60 $259 4.0 $319\n\n> 1 MW 47,329 477 99 31.7 124\n\nOther [(2)] 18 1 27 — —\n\n**Total** **$62,774** **537** **$117** **35.8** **$146**\n\n**Asia Pacific [(3)]**\n\n0-1 MW $6,235 15 $404 1.4 $377\n\n> 1 MW 2,640 12 217 1.5 149\n\nOther [(2)] 87 1 96 — —\n\n**Total** **$8,962** **29** **$314** **2.9** **$259**\n\n**All Regions [(3)]**\n\n0-1 MW $36,682 140 $263 11.0 $278\n\n> 1 MW 61,475 519 118 36.4 141\n\nOther [(2)] 3,020 43 70 — —\n\n**Total** **$101,177** **701** **$144** **47.4** **$173**\n\n**Interconnection** **$12,653** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$113,830** **701** **$144** **47.4** **$173**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) >1 MW Base Rent includes the net uplift related to an eight-megawatt lease replacement which resulted in an increased rate for the same capacity. GAAP Base Rent per Square Foot and per\nKilowatt metrics reflect the incremental additional Base Rent with no incremental capacity added.\n\n(2) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(3) Based on quarterly average exchange rates during the three months ended June 30, 2023.\n\n**Investment Activity**\n\nDuring the second quarter, Digital Realty sold a non‐core data center in Texas realizing approximately $150 million of net proceeds. The property was sold at a 4.4% cap rate, based on\nin-place net operating income (NOI), and generated a capital gain of approximately $88 million.\n\nIn Amsterdam during the second quarter, Digital Realty acquired the land and building shell of a previously leased 15 megawatts data center (AMS7) for €17 million or $18 million.\nThis was a contractual purchase obligation which was a part of the Interxion transaction, and the asset was acquired at an 8.3% cap rate.\n\nDigital Realty also acquired a nine‐acre land parcel located nearby AMS7 on its existing Amsterdam Schiphol campus for €26 million or $28 million. The Schiphol campus is one of the\nmost highly connected data center campuses in the Netherlands. The parcel has the capacity to support a data center with a total IT load in excess of 40 megawatts and will be\ninterconnected with Digital Realty’s existing Schiphol data centers.\n\nAfter the close of the second quarter, Digital Realty partnered with GI Partners to establish a joint venture for the sale of a 65% interest in two stabilized hyperscale data center\nbuildings in the Chicago metropolitan area. Digital received approximately $743 million of gross proceeds related to the joint venture and the associated financing and maintains a\n35% interest in the joint venture while continuing to manage the day‐to‐day operations of the assets. Based on annualized in‐place cash NOI at June 30, 2023 and the benefit of leases\nsigned but not yet commenced, the transaction values the two facilities at approximately a 6.5% cap rate. Digital Realty also granted GI Partners an option to purchase an interest in\nthe third facility on the same data center campus.\n\nIn July, Digital Realty partnered with TPG Real Estate to establish a joint venture for the sale of an 80% interest in three stabilized hyperscale data center buildings in Northern Virginia.\nDigital Realty will receive approximately $1.3 billion of gross proceeds related to the joint venture and the associated financing and will maintain a 20% interest in the joint venture\nwhile continuing to manage the day‐to‐day operations of the assets. Based on annualized in‐place cash NOI on June 30, 2023, net of signed leases and known move-out, the\ntransaction values the three facilities at approximately a 6.0% cap rate.\n\nAlso in July, Digital Realty announced the expansion of its joint venture in India with Brookfield Infrastructure through the addition of Jio, a Reliance Industries, Ltd. company. The new\njoint venture, ‘Digital Connexion: A Brookfield, Jio and Digital Realty Company’, succeeds BAM Digital Realty.\n\n\n-----\n\n**Balance Sheet**\n\nDigital Realty had approximately $17.7 billion of total debt outstanding as of June 30, 2023, comprised of $17.2 billion of unsecured debt and\napproximately $0.5 billion of secured debt and other. At the end of the second quarter of 2023, net debt-to-Adjusted EBITDA was 6.8x, debt-pluspreferred-to-total enterprise value was 34.7% and fixed charge coverage was 4.2x. Pro forma for the completion of the two stabilized hyperscale joint\nventures completed in July 2023 and full physical settlement of the outstanding amount under the 2Q23 forward equity sales agreements, net debt-toadjusted EBITDA was 6.3x and fixed charge coverage ratio was 4.6x.\n\nDuring the second quarter, Digital Realty sold 7.8 million shares of its common stock at a weighted average price of $95.96 per share through its ATM\nprogram, realizing approximately $743 million of net proceeds. In addition, the company entered into forward sale agreements under its ATM program\nwith respect to 3.5 million shares of its common stock at approximately $97.68 per share. Subsequent to quarter end, the company settled the\noutstanding forward sales for net proceeds of approximately $336 million.\n\n\n-----\n\n**2023 Outlook**\n\nDigital Realty adjusted its 2023 Core FFO per share and constant-currency Core FFO per share outlook to $6.55 - $6.65. The assumptions underlying the\noutlook are summarized in the following table.\n\n\n**As of**\n\n**February 16, 2023**\n\n$5.700 - $5.800 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.00 - $1.05\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n4.5% - 5.5%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**As of**\n\n**April 27, 2023**\n\n$5.500 - $5.600 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n5.5% - 6.0%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**As of**\n\n**July 27, 2023**\n\n$5.500 - $5.600 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 4.0%\n\nGreater than 8.0%\n\n84.0% - 85.0%\n\n4.0% - 5.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$2.2 - $3.0 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$740 million\n\n5.5%\n\nCompleted\n\n**$1.05 - $1.15**\n\n$5.25 - $5.25\n\n**$6.30 - $6.40**\n\n$0.25 - $0.25\n\n**$6.55 - $6.65**\n\n$0.00 - $0.00\n\n**$6.55 - $6.65**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments (1)\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-capital\" cash NOI growth (2)\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (3)\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx (4)\n\nRecurring CapEx + capitalized leasing costs (5)\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations / share**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “same-capital” pool includes properties owned as of December 31, 2021 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2022-2023, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Includes land acquisitions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a\nreconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “SameCapital” Cash NOI are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to\nAdjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash\nNOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items, that have not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the\nsame reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial\nmeasures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial\nmeasures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on July 27, 2023, a presentation will be posted to the Investors section of\n[the company’s website at https://investor.digitalrealty.com/. The presentation is designed to accompany the discussion of the company’s second](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\nquarter 2023 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and Chief\nFinancial Officer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 5098292 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com/.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until August 27, 2023. The telephone replay can be accessed by dialing +1 (877) 344-7529\n(for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 3348387. The webcast replay can be accessed on\nDigital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data “meeting place” and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 27 countries on six\n[continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and Twitter.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n|Unaudited and Dollars in Thousands, Except Per Share Data|Second Quarter 2023|\n|---|---|\n|Thr e e Months En ded 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Rental revenues $869,298 $870,975 $834,374 $787,839 $767,313 Tenant reimbursements - Utilities 330,416 317,148 247,725 251,420 218,198 Tenant reimbursements - Other 46,192 40,150 46,045 49,419 52,688 Interconnection & other 104,521 101,695 97,286 95,486 93,338 Fee income 14,908 7,868 7,508 6,169 5,072 Other 932 887 168 1,749 2,713 Total Operating Revenues $1,366,267 $1,338,724 $1,233,108 $1,192,082 $1,139,321 Utilities $374,934 $346,364 $268,561 $271,844 $223,426 Rental property operating 224,762 224,861 222,430 205,886 198,076 Property taxes 46,718 40,424 42,032 39,860 47,213 Insurance 4,385 4,355 4,578 4,002 3,836 Depreciation & amortization 432,573 421,198 430,130 388,704 376,967 General & administration 105,964 107,766 104,452 95,792 101,991 Severance, equity acceleration, and legal expenses 3,652 4,155 15,980 1,655 3,786 Transaction and integration expenses 17,764 12,267 17,350 25,862 13,586 Impairment of investments in real estate — — 3,000 — — Other expenses 655 — 3,615 1,096 70 Total Operating Expenses $1,211,407 $1,161,388 $1,112,127 $1,034,701 $968,950 Operating Income $154,860 $177,335 $120,981 $157,381 $170,371 Equity in earnings / (loss) of unconsolidated joint ventures 5,059 14,897 (28,112) (12,254) (34,088) Gain / (loss) on sale of investments 89,946 — (6) 173,990 — Interest and other income / (expense), net (6,930) 280 (22,894) 15,752 13,008 Interest (expense) (111,116) (102,220) (86,882) (76,502) (69,023) Income tax benefit / (expense) (16,173) (21,454) 17,676 (19,576) (16,406) Loss from early extinguishment of debt — — — — — Net Income $115,647 $68,839 $763 $238,791 $63,862 Net income / (loss) attributable to noncontrolling interests 2,538 (111) 3,326 (1,716) (436) Net Income Attributable to Digital Realty Trust, Inc. $118,185 $68,728 $4,089 $237,075 $63,426 Preferred stock dividends, including undeclared dividends (10,181) (10,181) (10,181) (10,181) (10,181) Net Income / (Loss) Available to Common Stockholders $108,003 $58,547 ($6,093) $226,894 $53,245 Weighted-average shares outstanding - basic 295,390,446 291,218,549 289,364,739 286,693,071 284,694,064 Weighted-average shares outstanding - diluted 306,818,538 303,064,832 301,712,082 296,414,726 285,109,903 Weighted-average fully diluted shares and units 313,020,947 309,026,076 307,546,353 302,257,518 290,944,163 Net income / (loss) per share - basic $0.37 $0.20 ($0.02) $0.79 $0.19 Net income / (loss) per share - diluted $0.37 $0.19 ($0.02) $0.75 $0.19|Six Mon ths Ended|\n||30-Jun-23 30-Jun-22|\n||$1,740,273 $1,519,275 647,565 442,745 86,342 104,198 206,216 186,868 22,777 10,829 1,819 2,728 $2,704,991 $2,266,644 $721,298 $464,665 449,623 392,430 87,141 93,738 8,739 7,534 853,771 759,099 213,730 198,426 7,807 5,863 30,031 25,554 — — 655 7,727 $2,372,795 $1,955,037 $332,196 $311,607 19,957 26,870 89,946 2,770 (6,650) 16,059 (213,336) (135,748) (37,627) (29,650) — (51,135) $184,486 $140,773 2,427 (4,065) $186,913 $136,708 (20,363) (20,363) $166,550 $116,346 293,316,022 284,610,492 304,453,040 284,979,709 310,589,141 290,716,197 $0.57 $0.41 $0.57 $0.41|\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|Col3|Col4|Col5|Col6|Second Quarter 2023|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|Thr e e Months End ed Reconciliation of Net Income to Funds From Operations (FFO) 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Net Income / (Loss) Available to Common Stockholders $108,003 $58,547 ($6,093) $226,894 $53,245 Adjustments: Non-controlling interest in operating partnership 2,500 1,500 (586) 5,400 1,500 Real estate related depreciation & amortization (1) 424,044 412,192 422,951 381,425 369,327 Depreciation related to non-controlling interests (14,144) (13,388) (13,856) (8,254) - Unconsolidated JV real estate related depreciation & amortization 35,386 33,719 33,927 30,831 29,022 (Gain) / loss on real estate transactions (89,946) (7,825) 572 (173,990) (1,144) Impairment of investments in real estate - - 3,000 - -||||||Six Mon th s Ended|||\n|||||||30-Jun-23 30-Jun-22|||\n|||||||$166,550 $116,346 4,000 3,100 836,236 743,489 (27,532) - 69,105 58,341 (97,771) (3,914) - -|||\n|Funds From Operations - diluted $465,844 $484,745 $439,915 $462,306 $451,949 Weighted-average shares and units outstanding - basic 301,593 297,180 295,199 292,536 290,528 Weighted-average shares and units outstanding - diluted (2)(3) 313,021 309,026 307,546 302,258 290,944 Funds From Operations per share - basic $1.54 $1.63 $1.49 $1.58 $1.56 Funds From Operations per share - diluted (2)(3) $1.52 $1.60 $1.45 $1.55 $1.55 Thr e e Months End ed Reconciliation of FFO to Core FFO 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Funds From Operations - diluted $465,844 $484,745 $439,915 $462,306 $451,949 Other non-core revenue adjustments 27,454 (887) (3,786) (1,818) 456 Transaction and integration expenses 17,764 12,267 17,350 25,862 13,586 Loss from early extinguishment of debt - - - - - Severance, equity acceleration, and legal expenses (4) 3,652 4,155 15,980 1,655 3,786 (Gain) / Loss on FX revaluation (7,868) (6,778) 14,564 (1,120) 29,539 Other non-core expense adjustments 655 - 3,615 1,046 70||||||$950,589 $917,362 299,452 290,346 310,589 290,716 $3.17 $3.16 $3.13 $3.16 Six Mon th s Ended|||\n|||||||30-Jun-23 30-Jun-22|||\n|||||||$950,589 $917,362 26,566 14,372 30,031 25,554 - 51,135 7,807 5,863 (14,647) (38,137) 655 7,727|||\n|Core Funds From Operations - diluted $507,501 $493,500 $487,638 $487,931 $499,386 Weighted-average shares and units outstanding - diluted (2)(3) 301,806 297,382 295,519 292,830 290,944||||||$1,001,001 $983,875 299,730 290,716|||\n|Core Funds From Operations per share - diluted (2) $1.68 $1.66 $1.65 $1.67 $1.72 (1) Real Estate Related Depreciation & Amortization Thr e e Months End ed 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Depreciation & amortization per income statement $432,573 $421,198 $430,130 $388,704 $376,967 Non-real estate depreciation (8,529) (9,006) (7,179) (7,279) (7,640)||||||$3.34 $3.38 Six Mon th s Ended|||\n|||||||30-Jun-23 30-Jun-22|||\n|||||||$853,771 $759,099 (17,535) (15,610)|||\n|Real Estate Related Depreciation & Amortization|$424,044|$412,192|$422,951|$381,425|$369,327||$836,236|$743,489|\n\n\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value of shares of Digital Realty\ncommon stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This same approach was utilized to calculate FFO/share. The\npotential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs – causing diluted share count to be higher for FFO than for Core FFO and AFFO. When\ncalculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the denominator assumes all shares have been put back to Digital Realty.\n\n|Three Months Ended 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Teraco noncontrolling share of FFO $9,645 $11,069 $7,213 $4,706 -|Col2|Col3|Col4|Col5|Col6|Six Months Ended|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|||||||30-Jun-23 30-Jun-22|||\n|||||||$20,714 -|||\n|Teraco related minority interest|$9,645|$11,069|$7,213|$4,706|-||$20,714|-|\n\n\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control\ntransactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO and the\nshare count detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted average common stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the\ndefinitions section.\n\n(4) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n|Unaudited and in Thousands, Except Per Share Data|Second Quarter 2023|\n|---|---|\n|Thr e e Months End ed Reconciliation of Core FFO to AFFO 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 30-Jun-22 Core FFO available to common stockholders and unitholders $507,501 $493,500 $487,638 $487,931 $499,386 Adjustments: Non-real estate depreciation 8,529 9,006 7,179 7,279 7,640 Amortization of deferred financing costs 5,984 4,072 3,753 3,270 3,330 Amortization of debt discount/premium 1,339 1,301 1,276 1,146 1,193 Non-cash stock-based compensation expense 13,893 13,056 16,042 15,948 15,799 Straight-line rental revenue (16,151) (16,194) (29,392) (18,123) (17,278) Straight-line rental expense 520 (515) (208) 2,679 (2,237) Above- and below-market rent amortization (1,195) (1,226) (762) (465) 196 Deferred tax (benefit) / expense 1,339 (9,795) (4,885) (5,233) (769) Leasing compensation & internal lease commissions 11,611 11,067 9,578 9,866 9,411 Recurring capital expenditures (1) (53,498) (40,465) (109,999) (66,200) (43,497)|Six Mon th s Ended|\n||30-Jun-23 30-Jun-22|\n||$1,001,001 $983,875 17,535 15,610 10,056 6,964 2,640 2,407 26,949 30,253 (32,344) (36,089) 5 1,931 (2,421) 531 (8,456) (2,372) 22,678 22,672 (93,963) (90,267)|\n|AFFO available to common stockholders and unitholders (2) $479,873 $463,807 $380,220 $438,097 $473,173 Weighted-average shares and units outstanding - basic 301,593 297,180 295,199 292,536 290,528 Weighted-average shares and units outstanding - diluted (3) 301,806 297,382 295,519 292,830 290,944 AFFO per share - diluted (3) $1.59 $1.56 $1.29 $1.50 $1.63 Dividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22 Diluted AFFO Payout Ratio 76.7% 78.2% 94.8% 81.5% 75.0%|$943,679 $935,514 299,452 290,346 299,730 290,716 $3.15 $3.22 $2.44 $2.44 . 77.5% 75.8%|\n\n\n\n**Three Months Ended** **Six Months Ended**\n\n**Share Count Detail** **30-Jun-23** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22** **30-Jun-23** **30-Jun-22**\n\n|Weighted Average Common Stock and Units Outstanding 301,593 297,180 295,199 292,536 290,528 Add: Effect of dilutive securities 213 202 320 294 416|Col2|Col3|Col4|Col5|Col6|299,452 290,346 278 370|Col8|\n|---|---|---|---|---|---|---|---|\n|Weighted Avg. Common Stock and Units Outstanding - diluted|301,806|297,382|295,519|292,830|290,944|299,730|290,716|\n\n\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building\nup to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of diluted FFO available to common stockholders and unitholders and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Consolidated Balance Sheets**\n\n**Unaudited and in Thousands, Except Share and Per Share Data** **Second Quarter 2023**\n\n**30-Jun-23** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22**\n\n**Assets**\n\nInvestments in real estate:\n\nReal estate $27,087,769 $27,052,022 $26,136,057 $24,876,600 $24,065,933\n\nConstruction in progress 4,635,939 4,563,578 4,789,134 4,222,142 3,362,114\n\nLand held for future development 193,936 194,564 118,452 34,713 37,460\n\n**Investments in real estate** **$31,917,644** **$31,810,164** **$31,043,643** **$29,133,455** **$27,465,507**\n\nAccumulated depreciation and amortization (7,739,462) (7,600,559) (7,268,981) (6,826,918) (6,665,118)\n\n**Net Investments in Properties** **$24,178,182** **$24,209,605** **$23,774,662** **$22,306,537** **$20,800,389**\n\nInvestment in unconsolidated joint ventures 2,040,452 1,995,576 1,991,426 1,912,958 1,942,549\n\n**Net Investments in Real Estate** **$26,218,634** **$26,205,180** **$25,766,088** **$24,219,495** **$22,742,937**\n\nCash and cash equivalents $124,519 $131,406 $141,773 $176,969 $99,226\n\nAccounts and other receivables [(1)] 1,158,383 1,070,066 969,292 861,117 797,208\n\nDeferred rent 613,796 627,700 601,590 556,198 554,016\n\nCustomer relationship value, deferred leasing costs & other\n2,825,596 3,015,291 3,092,627 3,035,861 2,521,390\nintangibles, net\n\nGoodwill 9,148,603 9,199,636 9,208,497 8,728,105 7,545,107\n\nAssets held for sale 593,892 — — — —\n\nOperating lease right-of-use assets 1,291,233 1,317,293 1,351,329 1,253,393 1,310,970\n\nOther assets 414,078 386,495 353,802 384,079 385,202\n\n**Total Assets** **$42,388,735** **$41,953,068** **$41,484,998** **$39,215,217** **$35,956,057**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities $2,242,258 $2,514,202 $2,150,451 $2,255,139 $1,440,040\n\nUnsecured term loans 1,548,780 1,542,275 797,449 729,976 —\n\nUnsecured senior notes, net of discount 13,383,819 13,258,079 13,120,033 12,281,410 12,695,568\n\nSecured debt and other, net of premiums 554,594 560,955 528,870 491,984 158,699\n\nOperating lease liabilities 1,420,239 1,443,994 1,471,044 1,363,712 1,418,540\n\nAccounts payable and other accrued liabilities 2,214,820 1,923,819 1,868,884 1,621,406 1,619,222\n\nDeferred tax liabilities, net 1,128,961 1,164,276 1,192,752 1,145,097 611,582\n\nAccrued dividends and distributions — — 363,716 — —\n\nSecurity deposits and prepaid rent 417,693 392,021 369,654 341,552 341,140\n\nLiabilities associated with assets held for sale 4,990 — — — —\n\n**Total Liabilities** **$22,916,155** **$22,799,620** **$21,862,853** **$20,230,276** **$18,284,791**\n\nRedeemable non-controlling interests 1,367,422 1,448,772 1,514,680 1,429,920 41,047\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share, 110,000,000 shares\nauthorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share, 392,000,000 shares\n2,967 2,888 2,887 2,851 2,824\nauthorized [(5)]\n\nAdditional paid-in capital 22,882,200 22,126,379 22,142,868 21,528,384 21,091,364\n\nDividends in excess of earnings (5,253,915) (4,995,982) (4,698,313) (4,336,201) (4,211,685)\n\nAccumulated other comprehensive (loss), net (741,484) (652,486) (595,798) (862,804) (475,561)\n\n**Total Stockholders' Equity** **$17,621,456** **$17,212,490** **$17,583,334** **$17,063,920** **$17,138,632**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $436,099 $444,843 $419,317 $421,484 $432,213\n\nNoncontrolling interest in consolidated joint ventures 47,603 47,342 104,814 69,617 59,374\n\n**Total Noncontrolling Interests** **$483,702** **$492,185** **$524,131** **$491,101** **$491,587**\n\n**Total Equity** **$18,105,158** **$17,704,675** **$18,107,465** **$17,555,021** **$17,630,219**\n\n|Total Liabilities and Equity|$42,388,735|$41,953,068|$41,484,998|$39,215,217|$35,956,057|\n|---|---|---|---|---|---|\n\n\n\n(1) Net of allowance for doubtful accounts of $42,624 and $33,048 as of June 30, 2023 and December 31, 2022, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and\n\noutstanding as of June 30, 2023 and December 31, 2022, respectively.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $210,000 liquidation preference, respectively ($25.00 per share), 8,400,000 and 8,400,000 shares issued and\n\noutstanding as of June 30, 2023 and December 31, 2022, respectively.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 and $345,000 liquidation preference, respectively ($25.00 per share), 13,800,000 and 13,800,000 shares issued and\n\noutstanding as of June 30, 2023 and December 31, 2022, respectively.\n\n(5) Common Stock: 299,240,366 and 291,148,222 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n**Amortization and Financial Ratios**\n\n**Unaudited and Dollars in Thousands** **Second Quarter 2023**\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **30-Jun-23** **[31-Mar-23 ]** **[31-Dec-22 ]** **[30-Sep-22 ]** **[30-Jun-22 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$108,003** **$58,547** **($6,093)** **$226,894** **$53,245**\n\nInterest 111,116 102,220 86,882 76,502 69,023\n\nIncome tax expense (benefit) 16,173 21,454 (17,676) 19,576 16,406\n\nDepreciation & amortization 432,573 421,198 430,130 388,704 376,967\n\n**EBITDA** **$667,866** **$603,419** **$493,244** **$711,676** **$515,642**\n\nUnconsolidated JV real estate related depreciation & amortization 35,386 33,719 33,927 30,831 29,023\n\nUnconsolidated JV interest expense and tax expense 32,105 18,556 53,481 11,948 6,708\n\nSeverance, equity acceleration, and legal expenses 3,652 4,155 15,980 1,655 3,786\n\nTransaction and integration expenses 17,764 12,267 17,350 25,862 13,586\n\n(Gain) / loss on sale of investments (89,946) — 6 (173,990) —\n\nImpairment of investments in real estate — — 3,000 — —\n\nOther non-core adjustments, net 22,132 (14,604) 15,127 (94) 31,633\n\nNon-controlling interests (2,538) 111 (3,326) 1,716 436\n\nPreferred stock dividends, including undeclared dividends 10,181 10,181 10,181 10,181 10,181\n\n**Adjusted EBITDA** **$696,604** **$667,804** **$638,969** **$619,786** **$610,994**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the definitions section.\n\n**Three Months Ended**\n\n**Financial Ratios** **30-Jun-23** **31-Mar-23** **31-Dec-22** **30-Sep-22** **30-Jun-22**\n\nTotal GAAP interest expense $111,116 $102,220 $86,882 $76,502 $69,023\n\nCapitalized interest 27,883 26,771 24,581 17,304 14,131\n\nChange in accrued interest and other non-cash amounts (60,612) 38,137 (67,909) 31,860 (43,952)\n\n**Cash Interest Expense [(2)]** **$78,387** **$167,128** **$43,554** **$125,666** **$39,202**\n\nPreferred dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(3)]** **$149,181** **$139,172** **$121,645** **$103,987** **$93,335**\n\n**Coverage**\n\nInterest coverage ratio [(4)] 4.5x 4.7x 5.3x 6.1x 6.6x\n\nCash interest coverage ratio [(5)] 7.4x 3.7x 11.9x 4.6x 12.6x\n\nFixed charge coverage ratio [(6)] 4.2x 4.4x 4.9x 5.5x 6.0x\n\nCash fixed charge coverage ratio [(7)] 6.6x 3.5x 10.0x 4.3x 10.4x\n\n**Leverage**\n\nDebt to total enterprise value [(8)(9)] 33.3% 37.3% 35.2% 34.5% 27.1%\n\nDebt plus preferred stock to total enterprise value [(9)(10)] 34.7% 38.9% 36.8% 36.2% 28.5%\n\nPre-tax income to interest expense [(11)] 2.0x 1.7x 1.0x 4.1x 1.9x\n\nNet Debt to Adjusted EBITDA [(12)] 6.8x 7.1x 6.9x 6.7x 6.2x\n\n(2) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash\ninterest expense to be a useful measure of interest as it excludes non-cash-based interest expense.\n\n(3) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred dividends.\n\n(4) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(5) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(7) Adjusted EBITDA divided by the sum of cash interest expense, and preferred dividends (including our pro rata share of unconsolidated joint venture cash fixed\ncharges).\n\n(8) Mortgage debt and other loans divided by market value of common equity plus debt plus preferred stock.\n\n(9) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(10) Same as (8), except numerator includes preferred stock.\n\n(11) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(12) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less\ncash, and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital\nRealty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\n\n-----\n\n**Definition**\n\n**Funds From Operations (FFO):**\n\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts,\nor Nareit, in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with\nGAAP), excluding gains (or losses) from real estate transactions, impairment of investment in real estate, real estate related depreciation and\namortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling\ninterests in operating partnership, depreciation related to non-controlling interests and after adjustments for unconsolidated partnerships and joint\nventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and\ngains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance\nmeasure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely\nrecognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other\nREITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from\nuse or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of\nour data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of\nFFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO\nmay not be comparable to other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration, and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, unconsolidated joint venture real estate\nrelated depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses,\ntransaction and integration expenses, gain on sale / deconsolidation, impairment of investments in real estate, other non-core adjustments, net, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted\nEBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense\nand tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, impairment of\ninvestments in real estate, other non-core adjustments, net, non-controlling interests, preferred stock dividends, including undeclared dividends, and\ngain on / issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by\nsecurities analysts, investors, and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before\nrecurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for\ncapital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may\ncalculate EBITDA and Adjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs’\nEBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in\naccordance with GAAP as a measure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental\nproperty operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by\nstockholders, company management and industry analysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is\nNOI less straight-line rents and above- and below-market rent amortization. Cash NOI is commonly used by stockholders, company management and\nindustry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and\namortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic\neffect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs\nmay calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash\nNOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata\nshare of unconsolidated joint venture debt, less cash, and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture\ncash) divided by the product of Adjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the\nliquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units,\nassuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments\nand preferred dividends. For the quarter ended June 30, 2023, GAAP interest expense was $111 million, capitalized interest was $28 million and\nscheduled debt principal payments and preferred dividends was $10 million.\n\n|Reconciliation of Net Operating Income (NOI) Three Months Ended (in thousands) 30-Jun-23 31-Mar-23 30-Jun-22 Operating income $154,860 $177,335 $170,371 Fee income (14,908) (7,868) (5,072) Other income (932) (887) (2,713) Depreciation and amortization 432,573 421,198 376,967 General and administrative 105,964 107,766 101,991 Severance, equity acceleration, and legal expenses 3,652 4,155 3,786 Transaction expenses 17,764 12,267 13,586 Other expenses 655 — 70|Six Months Ended 30-Jun-23 30-Jun-22|\n|---|---|\n||$332,196 $311,607 (22,777) (10,829) (1,819) (2,728) 853,771 759,099 213,730 198,426 7,807 5,863 30,031 25,554 655 7,727|\n|Net Operating Income $699,629 $713,965 $658,986 Cash Net Operating Income (Cash NOI) Net Operating Income $699,629 $713,965 $658,986 Straight-line rental revenue 12,116 (16,327) (14,134) Straight-line rental expense 722 (510) (2,609) Above- and below-market rent amortization (1,195) (1,226) 196|$1,413,594 $1,294,720|\n||$1,413,594 $1,294,720 (4,211) (20,664) 212 1,037 (2,421) 531|\n|Cash Net Operating Income $711,272 $695,902 $642,439 Constant Currency CFFO Reconciliation Three Months Ended (in thousands) 30-Jun-23 31-Mar-23 30-Jun-22 Core FFO (1) $507,501 $499,386 Core FFO impact of holding '22 Exchange Rates Constant (2) 1,870 —|$1,407,174 $1,275,624|\n||Six Months Ended 30-Jun-23 30-Jun-22|\n||$1,001,001 $983,875 11,416 —|\n|Constant Currency Core FFO $509,371 $499,386 Weighted-average shares and units outstanding - diluted 301,806 290,944 Constant Currency CFFO Per Share $1.69 $1.72|$1,012,417 $983,875 299,730 290,716 $3.38 $3.38|\n\n\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2023 constant with average currency translation rates that were applicable to the same periods in 2022.\n\n\n-----\n\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2023 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more\nof these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks\nand uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  increased competition or available supply of data center space;\n\n-  decreased rental rates, increased operating costs or increased vacancy rates;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers and business partners during a pandemic, such as COVID-19;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2022, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, Data\nGravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks and\nservice marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 4\n\nBEGIN DOCUMENT 5:\n**Digital Realty Reports First Quarter 2024 Results**\n\n**Austin, TX — May 2, 2024 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation, and**\ninterconnection solutions, announced today financial results for the first quarter of 2024. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $0.82 per share in 1Q24, compared to $0.20 in 1Q23\n\n-  Reported FFO per share of $1.41 in 1Q24, compared to $1.60 in 1Q23\n\n-  Reported Core FFO per share of $1.67 in 1Q24, compared to $1.66 in 1Q23\n\n-  Reported “Same-Capital” cash NOI growth of 4.7% in 1Q24\n\n-  Reported rental rate increases on renewal leases of 11.8% on a cash basis in 1Q24\n\n-  Signed total bookings during 1Q24 that are expected to generate $252 million of annualized GAAP rental revenue, including a $40 million\ncontribution from the 0–1 megawatt category and $13 million contribution from interconnection\n\n-  Maintained 2024 Core FFO per share outlook of $6.60 - $6.75\n\n**Financial Results**\n\nDigital Realty reported revenues of $1.3 billion in the first quarter of 2024, a 3% decrease from the previous quarter and an 1% decrease from the same\nquarter last year.\n\nThe company delivered net income of $288 million in the first quarter of 2024, and net income available to common stockholders of $271 million, or\n$0.82 per diluted share, compared to $0.08 per diluted share in the previous quarter and $0.20 per diluted share in the same quarter last year.\n\nDigital Realty generated Adjusted EBITDA of $711 million in the first quarter of 2024, a 2% increase from the previous quarter and 6% increase over the\nsame quarter last year.\n\nThe company reported Funds From Operations (FFO) of $451 million in the first quarter of 2024, or $1.41 per share, compared to $1.53 per share in the\nprevious quarter and $1.60 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered Core FFO per share of $1.67 in the first quarter\nof 2024, compared to $1.63 per share in the previous quarter and $1.66 per share in the same quarter last year. Digital Realty delivered ConstantCurrency Core FFO per share of $1.67 for the first quarter of 2024.\n\n“Digital Realty saw accelerating demand in the first quarter, executing on a number of multifaceted AI-oriented opportunities, while continuing to\nsupport hybrid multi-cloud requirements. Strong demand supported a new leasing record, driven by large footprint deals,” said Digital Realty President\n& Chief Executive Officer Andy Power. “In support of this demand, we sourced over $1 billion of fresh capital through asset sales and joint ventures,\nfurther reducing our reported leverage while positioning the company to meet our customers' growing needs.”\n\n**Leasing Activity**\n\nIn the first quarter, Digital Realty signed total bookings that are expected to generate $252 million of annualized GAAP rental revenue, including a $40\nmillion contribution from the 0–1 megawatt category and a $13 million contribution from interconnection.\n\nThe weighted-average lag between new leases signed during the first quarter of 2024 and the contractual commencement date was 7 months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $248 million of annualized cash rental revenue during the\nquarter. Rental rates on renewal leases signed during the first quarter of 2024 increased 11.8% on a cash basis and 13.0% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the first quarter of 2024 are summarized by region and product as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $19,050 67 $283 6.5 $243\n\n> 1 MW 175,200 636 275 84.0 174\n\nOther [(1)] 495 10 51 — —\n\n**Total** **$194,746** **713** **$273** **90.5** **$179**\n\n**EMEA [(2)]**\n\n0-1 MW $14,754 60 $246 5.5 $224\n\n> 1 MW 23,020 112 206 13.7 140\n\nOther [(1)] 72 1 117 — —\n\n**Total** **$37,846** **173** **$219** **19.2** **$164**\n\n**Asia Pacific [(2)]**\n\n0-1 MW $6,192 18 $343 1.5 $333\n\n> 1 MW — — — — —\n\nOther [(1)] 159 3 56 — —\n\n**Total** **$6,351** **21** **$304** **1.5** **$333**\n\n**All Regions [(2)]**\n\n0-1 MW $39,996 145 $275 13.6 $246\n\n> 1 MW 198,220 748 265 97.7 169\n\nOther [(1)] 726 13 55 — —\n\n**Total** **$238,942** **907** **$264** **111.2** **$178**\n\n**Interconnection** **$13,240** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$252,182** **907** **$264** **111.2** **$178**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(2) Based on quarterly average exchange rates during the three months ended March 31, 2024.\n\n**Investment Activity**\n\nAs previously disclosed, in the first quarter, Digital Realty successfully resolved its relationship with Cyxtera, with the closing of a series of transactions\nwith Brookfield Infrastructure Partners L.P., Cyxtera Technologies and Digital Core REIT. Digital Realty received $277 million for its interest in four data\ncenters and redeployed $55 million to buy out Cyxtera’s leases in Digital Realty’s Frankfurt and Singapore data centers. Digital Realty also exercised its\noption to purchase a data center outside of London, UK, which is expected to close in the second quarter.\n\nAlso previously disclosed, in January, Digital Realty and Blackstone Inc. established the first phase of their $7 billion hyperscale data center development\njoint venture, which includes campuses in Paris and Northern Virginia. The second phase is scheduled to close later this year, upon obtaining the\nrequired approvals.\n\nAs announced in early March, Digital Realty and Mitsubishi Corporation established a joint venture to support the development of two build-to-suit data\ncenters in the Dallas metro area. The two data centers commenced construction in the fourth quarter of 2022 and can deliver up to 48 megawatts of IT\nload. Mitsubishi initially invested approximately $200 million to acquire a 65% equity interest in the venture, while Digital Realty maintains a 35%\ninterest. Each partner will fund its pro rata share of the remaining development costs for the two facilities, which are slated for initial completion and\ncommencement in late 2024.\n\nAdditionally, as previously disclosed, during the quarter, Digital Realty closed on the purchase of approximately 19 acres of land in Paris, France for\napproximately €70 million or $76 million. The parcel of land, which was previously leased to Digital Realty, is currently under development to support up\nto 77 megawatts of IT load.\n\nDuring the quarter, Digital Realty closed on the sale of 19 acres of vacant land in Sydney, Australia for approximately AU$96 million or $63 million.\n\nDigital Realty also received approximately $92 million of proceeds during the first quarter, pursuant to an agreement to grant land easements for the\nuse of substations on its Digital Dulles campus.\n\nDuring the first quarter, MC Digital Realty closed on the acquisition of five acres of land in Osaka, Japan which could support the development of up to\n18 megawatts of IT load, for approximately JPY1 billion or $7 million.\n\n\n-----\n\nSubsequent to quarter end, Digital Realty and GI Partners expanded their existing joint venture in Chicago, with the sale to GI Partners of a 75% interest\nin a stabilized hyperscale data center that is situated on the same campus as two stabilized hyperscale data centers that were previously contributed to\na joint venture with GI Partners in July 2023. Digital Realty received approximately $388 million of gross proceeds and will maintain a 25% interest in the\njoint venture. Based on annualized in‐place cash NOI as of March 31, 2024, adjusted for a customary vacancy allowance, the transaction values the\nfacility at a 6.5% cap rate. As previously disclosed, in January, GI Partners executed its option to increase its stake from 65% to 80% in the two original\nstabilized hyperscale data centers within the Chicago joint venture.\n\nSubsequent to quarter end, Digital Realty closed on the sale to Digital Core REIT (SGX: DCRU) of an additional 24.9% interest in a data center facility\nlocated in Frankfurt, Germany for €117 million, or approximately $129 million. The transaction valued the Frankfurt facility at €470 million, or\napproximately $517 million (at 100% share). Digital Core REIT has an option to acquire up to an 89.9% total ownership interest in the facility.\n\n**Balance Sheet**\n\nDigital Realty had approximately $17.0 billion of total debt outstanding as of March 31, 2024, comprised of $16.4 billion of unsecured debt and\napproximately $0.6 billion of secured debt and other. At the end of the first quarter of 2024, net debt-to-Adjusted EBITDA was 6.1x, debt-pluspreferred-to-total enterprise value was 27.9% and fixed charge coverage was 4.0x. Pro forma for the completion of the second phase of the Blackstone\ndevelopment joint ventures announced in December 2023, as well as the expansion of the joint venture with GI Partners and the sale of an interest in\nan asset to Digital Core REIT subsequent to quarter end, net debt-to-Adjusted EBITDA was 5.8x.\n\nAs previously disclosed, in January, Digital Realty sold 0.6 million shares of its common stock at a weighted average price of $133.43 per share for net\nproceeds of approximately $84 million.\n\nSubsequent to quarter end, the company repaid €600 million ($647 million) aggregate principal amount of its 2.625% notes.\n\n\n-----\n\n**2024 Outlook**\n\nDigital Realty maintained its 2024 Core FFO per share and Constant-Currency Core FFO per share outlook of $6.60 - $6.75. The assumptions underlying\nthe outlook are summarized in the following table.\n\n\n**As of**\n\n**February 15, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n4.0% - 6.0%\n\n6.0% - 8.0%\n\n+100 - 200 bps\n\n2.0% - 3.0%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.80 - $1.95**\n\n$4.40 - $4.40\n\n**$6.20 - $6.35**\n\n$0.40 - $0.40\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n**As of**\n\n**May 2, 2024**\n\n$5.550 - $5.650 billion\n\n($35 - $40 million)\n\n$2.800 - $2.900 billion\n\n$450 - $460 million\n\n5.0% - 7.0%\n\n7.0% - 9.0%\n\n+100 - 200 bps\n\n2.5% - 3.5%\n\n$1.25 - $1.30\n\n$1.05 - $1.10\n\n$1,000 - $1,500 million\n\n6.0% - 8.0%\n\n$2,000 - $2,500 million\n\n10.0%+\n\n$15 - $20 million\n\n$260 - $275 million\n\n$0 - $1,000 million\n\n5.0% - 5.5%\n\nMid-Year\n\n**$1.80 - $1.95**\n\n$4.40 - $4.40\n\n**$6.20 - $6.35**\n\n$0.40 - $0.40\n\n**$6.60 - $6.75**\n\n$0.00 - $0.00\n\n**$6.60 - $6.75**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments [(1)]\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-Capital\" cash NOI growth [(2)]\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (Net of Partner Contributions) [(3)]\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx [(4)]\n\nRecurring CapEx + capitalized leasing costs [(5)]\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations / share**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “Same-Capital” pool includes properties owned as of December 31, 2022 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2023-2024, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Excludes land acquisitions and includes Digital Realty’s share of JV contributions. Figure is net of JV partner contributions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a\nreconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “SameCapital” Cash NOI are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to\nAdjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash\nNOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items such as debt issuances, that have not yet occurred, are out of the Company's control and/or cannot be reasonably\npredicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP\nfinancial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial\nmeasures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on May 2, 2024, a presentation will be posted to the Investors section of\n[the company’s website at https://investor.digitalrealty.com. The presentation is designed to accompany the discussion of the company’s first quarter](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n2024 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and Chief Financial\nOfficer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 1322262 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until June 2, 2024. The telephone replay can be accessed by dialing +1 (877) 344-7529 (for\ndomestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 7673278. The webcast replay can be accessed on\nDigital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data meeting place and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected data communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 25+ countries\n[on six continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and X.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n\n**First Quarter 2024**\n\n\n**Three Months Ended**\n\n**31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\nRental revenues $894,409 $885,694 $886,960 $869,298 $870,975\n\nTenant reimbursements - Utilities 276,357 316,634 335,477 330,416 317,148\n\nTenant reimbursements - Other 38,434 46,418 64,876 46,192 40,150\n\nInterconnection & other 108,071 106,413 107,305 104,521 101,695\n\nFee income 13,010 14,330 7,819 14,908 7,868\n\nOther 862 144 — 932 887\n\n**Total Operating Revenues** **$1,331,143** **$1,369,633** **$1,402,437** **$1,366,267** **$1,338,724**\n\nUtilities $324,571 $366,083 $384,455 $374,934 $346,364\n\nRental property operating 224,369 237,118 223,089 224,762 224,861\n\nProperty taxes 41,156 40,161 72,279 46,718 40,424\n\nInsurance 2,694 3,794 4,289 4,385 4,355\n\nDepreciation & amortization 431,102 420,475 420,613 432,573 421,198\n\nGeneral & administration 114,419 109,235 108,039 105,964 107,766\n\nSeverance, equity acceleration and legal expenses 791 7,565 2,682 3,652 4,155\n\nTransaction and integration expenses 31,839 40,226 14,465 17,764 12,267\n\nProvision for impairment — 5,363 113,000 — —\n\nOther expenses 10,836 5,580 1,295 655 —\n\n**Total Operating Expenses** **$1,181,776** **$1,235,598** **$1,344,206** **$1,211,407** **$1,161,388**\n\n**Operating Income** **$149,367** **$134,035** **$58,231** **$154,860** **$177,335**\n\nEquity in earnings / (loss) of unconsolidated joint ventures (16,008) (29,955) (19,793) 5,059 14,897\n\nGain / (loss) on sale of investments 277,787 (103) 810,688 89,946 —\n\nInterest and other income / (expense), net 9,709 50,269 24,812 (6,930) 280\n\nInterest (expense) (109,535) (113,638) (110,767) (111,116) (102,220)\n\nIncome tax benefit / (expense) (22,413) (20,724) (17,228) (16,173) (21,454)\n\nLoss from early extinguishment of debt (1,070) — — — —\n\n**Net Income** **$287,837** **$19,884** **$745,941** **$115,647** **$68,839**\n\nNet income / (loss) attributable to noncontrolling interests (6,329) 8,419 (12,320) 2,538 (111)\n\n**Net Income Attributable to Digital Realty Trust, Inc.** **$281,508** **$28,304** **$733,621** **$118,185** **$68,728**\n\nPreferred stock dividends (10,181) (10,181) (10,181) (10,181) (10,181)\n\n**Net Income / (Loss) Available to Common Stockholders** **$271,327** **$18,122** **$723,440** **$108,003** **$58,547**\n\nWeighted-average shares outstanding - basic 312,292 305,781 301,827 295,390 291,219\n\nWeighted-average shares outstanding - diluted 320,798 314,995 311,341 306,819 303,065\n\nWeighted-average fully diluted shares and units 326,975 321,173 317,539 313,021 309,026\n\nNet income / (loss) per share - basic $0.87 $0.06 $2.40 $0.37 $0.20\n\nNet income / (loss) per share - diluted $0.82 $0.08 $2.34 $0.35 $0.20\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n\n**First Quarter 2024**\n\n\n**Three Months Ended**\n\n**Reconciliation of Net Income to Funds From Operations (FFO)** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\n**Net Income / (Loss) Available to Common Stockholders** **$271,327** **$18,122** **$723,440** **$108,003** **$58,547**\n\nAdjustments:\n\nNon-controlling interest in operating partnership 6,200 410 16,300 2,500 1,500\n\nReal estate related depreciation & amortization [(1)] 420,591 410,167 410,836 424,044 412,192\n\nReconciling items related to non-controlling interests (8,017) (15,377) (14,569) (14,144) (13,388)\n\nUnconsolidated JV real estate related depreciation & amortization 47,877 64,833 43,215 35,386 33,719\n\n(Gain) / loss on real estate transactions (286,704) 103 (810,688) (89,946) (7,825)\n\nProvision for impairment — 5,363 113,000 — —\n\n|Funds From Operations|$451,273|$483,621 $481,535 $465,844 $484,745|\n|---|---|---|\n\n\n\nWeighted-average shares and units outstanding - basic 318,469 311,960 308,024 301,593 297,180\n\nWeighted-average shares and units outstanding - diluted [(2) (3)] 326,975 321,173 317,539 313,021 309,026\n\n**Funds From Operations per share - basic** **$1.42** **$1.55** **$1.56** **$1.54** **$1.63**\n\n**Funds From Operations per share - diluted[ (2) (3)]** **$1.41** **$1.53** **$1.55** **$1.52** **$1.60**\n\n**Three Months Ended**\n\n**Reconciliation of FFO to Core FFO** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\n**Funds From Operations** **$451,273** **$483,621** **$481,535** **$465,844** **$484,745**\n\nOther non-core revenue adjustments 3,525 (146) (27) 27,454 (887)\n\nTransaction and integration expenses 31,839 40,226 14,465 17,764 12,267\n\nLoss from early extinguishment of debt 1,070 — — — —\n\nSeverance, equity acceleration and legal expenses [(4)] 791 7,565 2,682 3,652 4,155\n\n(Gain) / Loss on FX revaluation 33,602 (24,804) 451 (7,868) (6,778)\n\nOther non-core expense adjustments 10,052 1,956 1,295 655 —\n\n|Core Funds From Operations|$532,153|$508,417 $500,402 $507,501 $493,500|\n|---|---|---|\n\n\n\nWeighted-average shares and units outstanding - diluted[ (2) (3)] 319,138 312,356 308,539 301,806 297,382\n\n|Core Funds From Operations per share - diluted (2)|$1.67|$1.63 $1.62 $1.68 $1.66|\n|---|---|---|\n\n\n\n(1)     Real Estate Related Depreciation & Amortization **Three Months Ended**\n\n**31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\nDepreciation & amortization per income statement $431,102 $420,475 $420,613 $432,573 $421,198\n\nNon-real estate depreciation (10,511) (10,308) (9,777) (8,529) (9,006)\n\n**Real Estate Related Depreciation & Amortization** **$420,591** **$410,167** **$410,836** **$424,044** **$412,192**\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value\nof shares of Digital Realty common stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This\nsame approach was utilized to calculate FFO/share. The potential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs –\ncausing diluted share count to be higher for FFO than for Core FFO and AFFO. When calculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the\ndenominator assumes all shares have been put back to Digital Realty.\n\n**Three Months Ended**\n\n**31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\nTeraco noncontrolling share of FFO $9,768 $7,135 $11,537 $9,645 $11,069\n\n**Teraco related minority interest** **$9,768** **$7,135** **$11,537** **$9,645** **$11,069**\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the\noccurrence of specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we\nconsider highly improbable. See above for calculations of FFO and the share count detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted average\ncommon stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the Definitions section.\n\n(4) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n\n**First Quarter 2024**\n\n\n**Three Months Ended**\n\n**Reconciliation of Core FFO to AFFO** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\n**Core FFO available to common stockholders and unitholders** **$532,153** **$508,417** **$500,402** **$507,501** **$493,500**\n\nAdjustments:\n\nNon-real estate depreciation 10,511 10,308 9,777 8,529 9,006\n\nAmortization of deferred financing costs 5,576 5,744 5,776 5,984 4,072\n\nAmortization of debt discount/premium 1,832 973 1,360 1,339 1,301\n\nNon-cash stock-based compensation expense 12,592 9,226 14,062 13,893 13,056\n\nStraight-line rental revenue 9,976 (21,992) (14,080) (16,151) (16,194)\n\nStraight-line rental expense 1,111 (4,999) 1,427 520 (515)\n\nAbove- and below-market rent amortization (854) (856) (1,127) (1,195) (1,226)\n\nDeferred tax (benefit) / expense (3,437) 33,448 (8,539) 1,339 (9,795)\n\nLeasing compensation & internal lease commissions 13,291 9,848 12,515 11,611 11,067\n\nRecurring capital expenditures [(1)] (47,676) (142,808) (90,251) (53,498) (40,465)\n\n**AFFO available to common stockholders and unitholders [(2)]** **$535,073** **$407,306** **$431,322** **$479,873** **$463,807**\n\nWeighted-average shares and units outstanding - basic 318,469 311,960 308,024 301,593 297,180\n\nWeighted-average shares and units outstanding - diluted [(3)] 319,138 312,356 308,539 301,806 297,382\n\n**AFFO per share - diluted [(3)]** **$1.68** **$1.30** **$1.40** **$1.59** **$1.56**\n\nDividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22\n\n**Diluted AFFO Payout Ratio** **72.8%** **93.6%** **87.3%** **76.7%** **78.2%**\n\n**Three Months Ended**\n\n**Share Count Detail** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\n**Weighted Average Common Stock and Units Outstanding** **318,469** **311,960** **308,024** **301,593** **297,180**\n\nAdd: Effect of dilutive securities 669 396 515 213 202\n\n**Weighted Avg. Common Stock and Units Outstanding - diluted** **319,138** **312,356** **308,539** **301,806** **297,382**\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building\nup to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the Definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of FFO and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Consolidated Balance Sheets**\n\n**Unaudited and in Thousands, Except Per Share Data**\n\n**Assets**\n\nInvestments in real estate:\n\n\n**First Quarter 2024**\n\n**31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\n\nReal estate $27,122,796 $27,306,369 $25,887,031 $27,087,769 $27,052,022\n\nConstruction in progress 4,496,840 4,635,215 5,020,464 4,635,939 4,563,578\n\nLand held for future development 114,240 118,190 179,959 193,936 194,564\n\n**Investments in Real Estate** **$31,733,877** **$32,059,773** **$31,087,453** **$31,917,644** **$31,810,164**\n\nAccumulated depreciation and amortization (7,976,093) (7,823,685) (7,489,193) (7,739,462) (7,600,559)\n\n**Net Investments in Properties** **$23,757,784** **$24,236,089** **$23,598,260** **$24,178,182** **$24,209,605**\n\nInvestment in unconsolidated joint ventures 2,365,821 2,295,889 2,180,313 2,040,452 1,995,576\n\n**Net Investments in Real Estate** **$26,123,605** **$26,531,977** **$25,778,573** **$26,218,634** **$26,205,180**\n\nOperating lease right-of-use assets, net $1,233,410 $1,414,256 $1,274,410 $1,291,233 $1,317,293\n\nCash and cash equivalents 1,193,784 1,625,495 1,062,050 124,519 131,406\n\nAccounts and other receivables, net [(1)] 1,217,276 1,278,110 1,325,725 1,158,383 1,070,066\n\nDeferred rent, net 611,670 624,427 586,418 613,796 627,700\n\nGoodwill 9,105,026 9,239,871 8,998,074 9,148,603 9,199,636\n\nCustomer relationship value, deferred leasing costs & other intangibles, net 2,359,380 2,500,237 2,506,198 2,825,596 3,015,291\n\nAssets held for sale 287,064 478,503 — 593,892 —\n\nOther assets 501,875 420,382 401,068 414,078 386,495\n\n**Total Assets** **$42,633,089** **$44,113,257** **$41,932,515** **$42,388,735** **$41,953,068**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities, net $1,901,126 $1,812,287 $1,698,780 $2,242,258 $2,514,202\n\nUnsecured term loans, net 1,303,263 1,560,305 1,524,663 1,548,780 1,542,275\n\nUnsecured senior notes, net of discount 13,190,202 13,422,342 13,072,102 13,383,819 13,258,079\n\nSecured and other debt, net of discount 625,750 630,973 574,231 554,594 560,955\n\nOperating lease liabilities 1,357,751 1,542,094 1,404,510 1,420,239 1,443,994\n\nAccounts payable and other accrued liabilities 1,870,344 2,168,983 2,147,103 2,214,820 1,923,819\n\nDeferred tax liabilities, net 1,121,224 1,151,096 1,088,724 1,128,961 1,164,276\n\nAccrued dividends and distributions — 387,988 — — —\n\nSecurity deposits and prepaid rents 413,225 401,867 385,521 417,693 392,021\n\nObligations associated with assets held for sale 9,981 39,001 — 4,990 —\n\n**Total Liabilities** **$21,792,866** **$23,116,936** **$21,895,634** **$22,916,155** **$22,799,620**\n\nRedeemable non-controlling interests 1,350,736 1,394,814 1,360,308 1,367,422 1,448,772\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share, 110,000 shares authorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share, 392,000 shares authorized [(5)] 3,097 3,088 3,002 2,967 2,888\n\nAdditional paid-in capital 24,508,683 24,396,797 23,239,088 22,882,200 22,126,379\n\nDividends in excess of earnings (5,373,529) (5,262,648) (4,900,757) (5,253,915) (4,995,982)\n\nAccumulated other comprehensive (loss), net (850,091) (751,393) (882,996) (741,484) (652,486)\n\n**Total Stockholders' Equity** **$19,019,850** **$19,117,535** **$18,190,026** **$17,621,456** **$17,212,490**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $438,422 $438,081 $441,366 $436,099 $444,843\n\nNoncontrolling interest in consolidated joint ventures 31,215 45,892 45,182 47,603 47,342\n\n**Total Noncontrolling Interests** **$469,637** **$483,972** **$486,547** **$483,702** **$492,185**\n\n**Total Equity** **$19,489,487** **$19,601,507** **$18,676,573** **$18,105,158** **$17,704,675**\n\n|Total Liabilities and Equity|$42,633,089|$44,113,257|$41,932,515|$42,388,735|$41,953,068|\n|---|---|---|---|---|---|\n\n\n\n(1) Net of allowance for doubtful accounts of $43,873 and $36,240 as of March 31, 2024 and March 31, 2023, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 liquidation preference ($25.00 per share), 8,000 shares issued and outstanding as of March 31, 2024 and March 31, 2023.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 liquidation preference ($25.00 per share), 8,400 shares issued and outstanding as of March 31, 2024 and March 31,\n2023.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 liquidation preference ($25.00 per share), 13,800 shares issued and outstanding as of March 31, 2024 and March 31,\n2023.\n\n(5) Common Stock: 312,421 and 291,299 shares issued and outstanding as of March 31, 2024 and March 31, 2023, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n\n**Unaudited and Dollars in Thousands**\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **31-Mar-24** **[31-Dec-23 ]** **[30-Sep-23 ]** **[30-Jun-23 ]** **[31-Mar-23 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$271,327** **$18,122** **$723,440** **$108,003** **$58,547**\n\nInterest 109,535 113,638 110,767 111,116 102,220\n\nLoss from early extinguishment of debt 1,070 — — — —\n\nIncome tax expense (benefit) 22,413 20,724 17,228 16,173 21,454\n\nDepreciation & amortization 431,102 420,475 420,613 432,573 421,198\n\n**EBITDA** **$835,446** **$572,958** **$1,272,048** **$667,866** **$603,420**\n\nUnconsolidated JV real estate related depreciation & amortization 47,877 64,833 43,214 35,386 33,719\n\nUnconsolidated JV interest expense and tax expense 34,271 42,140 27,000 32,105 18,556\n\nSeverance, equity acceleration and legal expenses 791 7,565 2,682 3,652 4,155\n\nTransaction and integration expenses 31,839 40,226 14,465 17,764 12,267\n\n(Gain) / loss on sale of investments (277,787) 103 (810,688) (89,946) —\n\nProvision for impairment — 5,363 113,000 — —\n\nOther non-core adjustments, net 21,608 (35,439) 1,719 22,132 (14,604)\n\nNon-controlling interests 6,329 (8,419) 12,320 (2,538) 111\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Adjusted EBITDA** **$710,556** **$699,509** **$685,943** **$696,604** **$667,804**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the Definitions section.\n\n**Three Months Ended**\n\n**Financial Ratios** **31-Mar-24** **31-Dec-23** **30-Sep-23** **30-Jun-23** **31-Mar-23**\n\nTotal GAAP interest expense $109,535 $113,638 $110,767 $111,116 $102,220\n\nCapitalized interest 28,522 33,032 29,130 27,883 26,771\n\nChange in accrued interest and other non-cash amounts 55,421 (66,013) 44,183 (60,612) 38,137\n\n**Cash Interest Expense [(2)]** **$193,479** **$80,657** **$184,081** **$78,387** **$167,128**\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(3)]** **$148,239** **$156,851** **$150,079** **$149,181** **$139,172**\n\n**Coverage**\n\nInterest coverage ratio [(4)] 4.3x 4.0x 4.3x 4.5x 4.7x\n\nCash interest coverage ratio [(5)] 3.2x 6.4x 3.4x 7.4x 3.7x\n\nFixed charge coverage ratio [(6)] 4.0x 3.8x 4.1x 4.2x 4.4x\n\nCash fixed charge coverage ratio [(7)] 3.1x 5.8x 3.2x 6.6x 3.5x\n\n**Leverage**\n\nDebt to total enterprise value [(8)(9)] 26.7% 28.6% 30.6% 33.3% 37.3%\n\nDebt-plus-preferred-stock-to-total-enterprise-value [(9)(10)] 27.9% 29.8% 32.0% 34.7% 38.9%\n\nPre-tax income to interest expense [(11)] 3.6x 1.2x 7.7x 2.0x 1.7x\n\nNet Debt-to-Adjusted EBITDA [(12)] 6.1x 6.2x 6.3x 6.8x 7.1x\n\n(2) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash\ninterest expense to be a useful measure of interest as it excludes non-cash-based interest expense.\n\n(3) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred stock dividends.\n\n(4) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(5) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(7) Adjusted EBITDA divided by the sum of cash interest expense and preferred stock dividends (including our pro rata share of unconsolidated joint venture cash fixed\ncharges).\n\n(8) Total debt divided by market value of common equity plus debt plus preferred stock.\n\n(9) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(10) Same as (8), except numerator includes preferred stock.\n\n(11) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(12) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less\ncash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital\nRealty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\n\n-----\n\n**Definitions**\n\n**Funds From Operations (FFO):**\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts\n(Nareit) in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO is a non-GAAP financial measure and represents net income (loss)\n(computed in accordance with GAAP), excluding gain (loss) from the disposition of real estate assets, provision for impairment, real estate related\ndepreciation and amortization (excluding amortization of deferred financing costs), our share of unconsolidated JV real estate related depreciation &\namortization, net income attributable to non-controlling interests in operating partnership and, depreciation related to non-controlling interests.\nManagement uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and\nlosses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that,\nwhen compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized\nmeasure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However,\nbecause FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market\nconditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data\ncenters, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a\nmeasure of our performance is limited. Other REITs may not calculate FFO in accordance with the Nareit definition and, accordingly, our FFO may not be\ncomparable to other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our\nperformance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, (i) unconsolidated joint venture real estate\nrelated depreciation & amortization, (ii) unconsolidated joint venture interest expense and tax, (iii) severance, equity acceleration and legal expenses,\n(iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi) provision for impairment, (vii) other non-core adjustments, net,\n(viii) non-controlling interests, (ix) preferred stock dividends, and (x) issuance costs associated with redeemed preferred stock. Adjusted EBITDA is\nEBITDA excluding (i) unconsolidated joint venture real estate related depreciation & amortization, (ii) unconsolidated joint venture interest expense and\ntax, (iii) severance, equity acceleration and legal expenses, (iv) transaction and integration expenses, (v) gain (loss) on sale / deconsolidation, (vi)\nprovision for impairment, (vii) other non-core adjustments, net, (vii) non-controlling interests, (ix) preferred stock dividends, and (x) gain on / issuance\ncosts associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts,\ninvestors, and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges\nincluding interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or\nother recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and\nAdjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs’ EBITDA and Adjusted\nEBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a\nmeasure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating\nexpenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry\nanalysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is NOI less straight-line rents and above- and below-market rent\namortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis.\nSame-Capital Cash NOI represents buildings owned as of December 31, 2022 of the prior year with less than 5% of total rentable square feet under development and\nexcludes buildings that were undergoing, or were expected to undergo, development activities in 2023-2024, buildings classified as held for sale, and buildings sold or\ncontributed to joint ventures for all periods presented (prior period numbers adjusted to reflect current same-capital pool). However, because NOI and cash NOI exclude\ndepreciation and amortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could\nmaterially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI\ndifferently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash NOI. NOI and cash NOI should be considered only as\nsupplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of\nunconsolidated joint venture debt, less cash and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of\nAdjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is total debt plus preferred stock divided by total debt plus the liquidation value of preferred stock and the market value of\noutstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty\nTrust, Inc. common stock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest and preferred stock dividends. For the quarter ended\nMarch 31, 2024, GAAP interest expense was $110 million, capitalized interest was $29 million and preferred stock dividends was $10 million.\n\n**Reconciliation of Net Operating Income (NOI)** **Three Months Ended**\n\n**(in thousands)** **31-Mar-24** **31-Dec-23** **31-Mar-23**\n\n**Operating income** **$149,367** **$134,035** **$177,335**\n\nFee income (13,010) (14,330) (7,868)\n\nOther income (862) (144) (887)\n\nDepreciation and amortization 431,102 420,475 421,198\n\nGeneral and administrative 114,419 109,235 107,766\n\nSeverance, equity acceleration and legal expenses 791 7,565 4,155\n\nTransaction expenses 31,839 40,226 12,267\n\nProvision for impairment — 5,363 —\n\nOther expenses 10,836 5,580 —\n\n**Net Operating Income** **$724,482** **$708,003** **$713,965**\n\n**Cash Net Operating Income (Cash NOI)**\n\n**Net Operating Income** **$724,482** **$708,003** **$713,965**\n\nStraight-line rental revenue (2,522) (22,085) (16,327)\n\nStraight-line rental expense 1,369 (4,745) (510)\n\nAbove- and below-market rent amortization (854) (856) (1,226)\n\n**Cash Net Operating Income** **$722,474** **$680,317** **$695,902**\n\n**Constant Currency CFFO Reconciliation** **Three Months Ended**\n\n**(in thousands, except per share data)** **31-Mar-24** **31-Mar-23**\n\n**Core FFO [(1)]** **$532,153** **$493,500**\n\nCore FFO impact of holding '23 Exchange Rates Constant [(2)] 1,119 —\n\n**Constant Currency Core FFO** **$533,272** **$493,500**\n\nWeighted-average shares and units outstanding - diluted 319,138 297,382\n\n**Constant Currency CFFO Per Share** **$1.67** **$1.66**\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2024 constant with average currency translation rates that were applicable to the same periods in 2023.\n\n\n-----\n\nThis document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2024 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more\nof these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks\nand uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  decreased rental rates, increased operating costs, or increased vacancy rates;\n\n-  increased competition or available supply of data center space;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers, and business partners during a pandemic, such as COVID-19;\n\n-  the expected operating performance of anticipated near-term acquisitions and descriptions relating to these expectations;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws, and regulations, including related to taxation, real estate, and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2023, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, PDx,\nData Gravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks\nand service marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 5\n\nBEGIN DOCUMENT 6:\n**Digital Realty Reports Third Quarter 2023 Results**\n\n**Austin, TX — October 26, 2023 — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation and**\ninterconnection solutions, announced today financial results for the third quarter of 2023. All per share results are presented on a fully diluted basis.\n\n**Highlights**\n\n-  Reported net income available to common stockholders of $2.33 per share in 3Q23, compared to $0.75 in 3Q22\n\n-  Reported FFO per share of $1.55 in 3Q23, compared to $1.55 in 3Q22\n\n-  Reported Core FFO per share of $1.62 in 3Q23, compared to $1.67 in 3Q22\n\n-  Reported Constant-Currency Core FFO per share of $1.60 in 3Q23 and $4.96 per share for the nine months ended September 30, 2023\n\n-  Reported “Same-Capital” cash NOI growth of 9.4% in 3Q23\n\n-  Reported rental rate increases on renewal leases of 7.4% on a cash basis in 3Q23\n\n-  Signed total bookings during 3Q23 that are expected to generate $152 million of annualized GAAP rental revenue, including a $42 million\ncontribution from the 0–1 megawatt category and $12 million contribution from interconnection\n\n-  Narrowed 2023 Core FFO per share outlook to $6.58 - $6.62\n\n**Financial Results**\n\nDigital Realty reported revenues of $1.4 billion in the third quarter of 2023, a 3% increase from the previous quarter and an 18% increase from the same\nquarter last year.\n\nThe company delivered net income of $746 million in the third quarter of 2023, and net income available to common stockholders of $723 million, or\n$2.33 per diluted share, compared to $0.37 per diluted share in the previous quarter and $0.75 per diluted share in the same quarter last year.\n\nDigital Realty generated Adjusted EBITDA of $686 million in the third quarter of 2023, a 2% decrease from the previous quarter and 11% increase over\nthe same quarter last year.\n\nThe company reported Funds From Operations (FFO) of $482 million in the third quarter of 2023, or $1.55 per share, compared to $1.52 per share in the\nprevious quarter and $1.55 per share in the same quarter last year.\n\nExcluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered Core FFO per share of $1.62 in the third\nquarter of 2023, compared to $1.68 per share in the previous quarter and $1.67 per share in the same quarter last year. Digital Realty delivered\nConstant-Currency Core FFO per share of $1.60 for the third quarter of 2023 and $4.96 per share for the nine-month period ended September 30, 2023.\n\n“Digital Realty’s third quarter results demonstrate strong and broad-based demand across our product spectrum. We posted record leasing in the 0-1\nmegawatt plus interconnection category and robust leasing in the greater-than-a-megawatt category,” said Digital Realty President & Chief Executive\nOfficer Andy Power. “Accelerating Same-Capital cash NOI growth combined with strong progress on our funding plan have enabled the company to delever while reinvesting to meet the needs of our customers.”\n\n**Leasing Activity**\n\nIn the third quarter, Digital Realty signed total bookings that are expected to generate $152 million of annualized GAAP rental revenue, including a $42\nmillion contribution from the 0–1 megawatt category and a $12 million contribution from interconnection.\n\nThe weighted-average lag between new leases signed during the third quarter of 2023 and the contractual commencement date was 12 months.\n\nIn addition to new leases signed, Digital Realty also signed renewal leases representing $157 million of annualized GAAP rental revenue during the\nquarter. Rental rates on renewal leases signed during the third quarter of 2023 increased 7.4% on a cash basis and 9.5% on a GAAP basis.\n\n\n-----\n\nNew leases signed during the third quarter of 2023 are summarized by region and product as follows:\n\n**Annualized GAAP**\n\n**Base Rent** **Square Feet** **GAAP Base Rent** **GAAP Base Rent**\n\n**The Americas** **(in thousands)** **(in thousands)** **per Square Foot** **Megawatts** **per Kilowatt**\n\n0-1 MW $22,233 96 $230 8.2 $227\n\n> 1 MW 68,378 274 250 40.9 139\n\nOther [(1)] 1,128 11 100 — —\n\n**Total** **$91,739** **382** **$240** **49.1** **$154**\n\n**EMEA [(2)]**\n\n0-1 MW $15,164 56 $270 4.4 $286\n\n> 1 MW 5,193 41 125 3.2 135\n\nOther [(1)] 188 4 46 — —\n\n**Total** **$20,545** **102** **$202** **7.6** **$223**\n\n**Asia Pacific [(2)]**\n\n0-1 MW $4,378 11 $383 1.3 $284\n\n> 1 MW 23,307 132 176 11.9 164\n\nOther [(1)] 53 1 100 — —\n\n**Total** **$27,738** **144** **$192** **13.1** **$176**\n\n**All Regions [(2)]**\n\n0-1 MW $41,776 164 $254 13.9 $251\n\n> 1 MW 96,877 447 217 56.0 144\n\nOther [(1)] 1,370 16 86 — —\n\n**Total** **$140,023** **627** **$223** **69.8** **$166**\n\n**Interconnection** **$12,106** **N/A** **N/A** **N/A** **N/A**\n\n**Grand Total** **$152,128** **627** **$223** **69.8** **$166**\n\nNote: Totals may not foot due to rounding differences.\n\n(1) Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.\n\n(2) Based on quarterly average exchange rates during the three months ended September 30, 2023.\n\n**Investment Activity**\n\nAs previously disclosed, in July, Digital Realty formed a joint venture in which GI Partners purchased a 65% interest in two stabilized hyperscale data centers in the Chicago metro area.\nDigital Realty received approximately $743 million of gross proceeds from the sale and the associated financing and maintains a 35% interest in the joint venture. Based on annualized\nin‐place cash NOI at June 30, 2023 and the benefit of leases signed but not yet commenced, the transaction valued the two facilities at an approximate 6.5% cap rate. Digital Realty\nalso granted GI Partners options to purchase an interest in the third facility on the same data center campus, along with the ability to increase its stake in the assets up to 80%.\n\nAlso previously disclosed, in late July, Digital Realty formed a joint venture in which TPG Real Estate purchased an 80% interest in three stabilized hyperscale data centers in Northern\nVirginia. Digital Realty received approximately $1.4 billion of gross proceeds from the sale and the associated financing and maintains a 20% interest in the joint venture. Based on\nannualized in‐place cash NOI at June 30, 2023, net of signed leases and known move-outs, the transaction valued the facilities at an approximate 6.0% cap rate.\n\nIn addition, Digital Realty previously announced plans to expand its joint venture in India with Brookfield Infrastructure through the addition of Jio, a Reliance Industries, Ltd.\ncompany. Upon closing, the new joint venture, ‘Digital Connexion: A Brookfield, Jio and Digital Realty Company’, will succeed BAM Digital Realty.\n\nDuring the third quarter, Digital Realty signed a 50-year right of use agreement related to a 2.7-acre site (MRS5) in Marseille, France, which can support the development of data\ncenter capacity with approximately 22 megawatts of IT load, as an extension to its existing highly connected campus in the port of Marseille. The minimum total payments over the\nnext 30 years for MRS5 will be €62 million or $65 million. Marseille is a key connectivity gateway in Europe.\n\nAdditionally, Digital Realty secured approximately 27 acres (MRS6) near Marseille for a purchase price of €47 million or $49 million. MRS6 can support the development of data center\ncapacity of up to 50 megawatts of IT load to support the increasing demand from cloud service providers.\n\nFurther during the third quarter, Digital Realty sold a non-core data center in Watford, United Kingdom for approximately $146 million of net proceeds representing a 9.8% cap rate\nbased on in-place NOI adjusted for known move-outs. Additionally, Digital Realty sold a non-core data center in Chantilly, Virginia for approximately $43 million, representing a 9.3%\ncap rate based on in-place NOI at September 30, 2023.\n\n\n-----\n\nDigital Realty had approximately $16.9 billion of total debt outstanding as of September 30, 2023, comprised of $16.3 billion of unsecured debt and\napproximately $0.6 billion of secured debt and other. At the end of the third quarter of 2023, net debt-to-Adjusted EBITDA was 6.3x, debt-pluspreferred-to-total enterprise value was 32.0% and fixed charge coverage was 4.1x.\n\nDuring the quarter, Digital Realty settled its previously disclosed forward sales agreements under its ATM program, issuing 3.5 million shares at a\nweighted average price of $97.23 per share, realizing approximately $336 million of net proceeds.\n\n\n-----\n\n**2023 Outlook**\n\nDigital Realty narrowed its 2023 Core FFO per share and constant-currency Core FFO per share outlook to $6.58 - $6.62. The assumptions underlying the\noutlook are summarized in the following table.\n\n\n**As of**\n\n**February 16, 2023**\n\n$5.700 - $5.800 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.00 - $1.05\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n4.5% - 5.5%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**As of**\n\n**April 27, 2023**\n\n$5.500 - $5.600 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 3.0%\n\nGreater than 3.0%\n\n85.0% - 86.0%\n\n3.0% - 4.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$1.5 - $2.5 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$1.0 - $1.5 billion\n\n5.5% - 6.0%\n\nFirst Half 2023\n\n**$1.15 - $1.25**\n\n$5.25 - $5.25\n\n**$6.40 - $6.50**\n\n$0.25 - $0.25\n\n**$6.65 - $6.75**\n\n$0.00 - $0.00\n\n**$6.65 - $6.75**\n\n\n**As of**\n\n**July 27, 2023**\n\n$5.500 - $5.600 billion\n\n($55 - $60 million)\n\n$2.675 - $2.725 billion\n\n$425 - $435 million\n\nGreater than 4.0%\n\nGreater than 8.0%\n\n84.0% - 85.0%\n\n4.0% - 5.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$2.2 - $3.0 billion\n\n0.0% - 10.0%\n\n$2.3 - $2.5 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$740 million\n\n5.5%\n\nCompleted\n\n**$1.05 - $1.15**\n\n$5.25 - $5.25\n\n**$6.30 - $6.40**\n\n$0.25 - $0.25\n\n**$6.55 - $6.65**\n\n$0.00 - $0.00\n\n**$6.55 - $6.65**\n\n\n**As of**\n\n**October 26, 2023**\n\n$5.475 - $5.525 billion\n\n($55 - $60 million)\n\n$2.685 - $2.715 billion\n\n$425 - $435 million\n\nGreater than 5.0%\n\nGreater than 9.0%\n\n83.0% - 84.0%\n\n6.0% - 7.0%\n\n$1.20 - $1.25\n\n$1.05 - $1.10\n\n$2.7 - $3.2 billion\n\n0.0% - 10.0%\n\n$2.7 - $2.9 billion\n\n9.0% - 15.0%\n\n$15 - $20 million\n\n$230 - $240 million\n\n$740 million\n\n5.5%\n\nCompleted\n\n**$3.18 - $3.22**\n\n$3.15 - $3.15\n\n**$6.33 - $6.37**\n\n$0.25 - $0.25\n\n**$6.58 - $6.62**\n\n$0.00 - $0.00\n\n**$6.58 - $6.62**\n\n\n**Top-Line and Cost Structure**\n\nTotal revenue\n\nNet non-cash rent adjustments (1)\n\nAdjusted EBITDA\n\nG&A\n\n**Internal Growth**\n\nRental rates on renewal leases\n\nCash basis\n\nGAAP basis\n\nYear-end portfolio occupancy\n\n\"Same-capital\" cash NOI growth (2)\n\nForeign Exchange Rates\n\nU.S. Dollar / Pound Sterling\n\nU.S. Dollar / Euro\n\n**External Growth**\n\nDispositions / Joint Venture Capital\n\nDollar volume\n\nCap rate\n\nDevelopment\n\nCapEx (3)\n\nAverage stabilized yields\n\nEnhancements and other non-recurring CapEx (4)\n\nRecurring CapEx + capitalized leasing costs (5)\n\n**Balance Sheet**\n\nLong-term debt issuance\n\nDollar amount\n\nPricing\n\nTiming\n\n**Net income per diluted share**\n\nReal estate depreciation and (gain) / loss on sale\n\n**Funds From Operations / share (NAREIT-Defined)**\n\nNon-core expenses and revenue streams\n\n**Core Funds From Operations / share**\n\nForeign currency translation adjustments\n\n**Constant-Currency Core Funds From Operations /**\n**share**\n\n\n(1) Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rental expense, as well as the amortization of above- and belowmarket leases (i.e., ASC 805 adjustments).\n\n(2) The “same-capital” pool includes properties owned as of December 31, 2021 with less than 5% of total rentable square feet under development. It excludes\nproperties that were undergoing, or were expected to undergo, development activities in 2022-2023, properties classified as held for sale, and properties sold or\ncontributed to joint ventures for all periods presented.\n\n(3) Includes land acquisitions.\n\n(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software\ndevelopment costs.\n\n(5) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing\ncommissions.\n\nNote: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate\ncalculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document\nfor further discussion.\n\n\n-----\n\n**Non-GAAP Financial Measures**\n\nThis document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI\nand Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a\nreconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “SameCapital” Cash NOI are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to\nAdjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash\nNOI, and fixed charge coverage ratio are included as an attachment to this document.\n\nThe Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or\naccurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent\ndifficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted\nshare, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as\ndispositions, and balance sheet items, that have not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the\nsame reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial\nmeasures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial\nmeasures.\n\n**Investor Conference Call**\n\nPrior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on October 26, 2023, a presentation will be posted to the Investors\n[section of the company’s website at https://investor.digitalrealty.com/. The presentation is designed to accompany the discussion of the company’s](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\nthird quarter 2023 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and\nChief Financial Officer Matt Mercier.\n\nTo participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and\nreference the conference ID# 0455927 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of\n[Digital Realty’s website at https://investor.digitalrealty.com/.](https://investor.digitalrealty.com/overview/investor-relations-overview/default.aspx)\n\nTelephone and webcast replays will be available after the call until November 26, 2023. The telephone replay can be accessed by dialing +1 (877) 3447529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 5888857. The webcast replay can be\naccessed on Digital Realty’s website.\n\n**About Digital Realty**\n\nDigital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions.\nPlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data “meeting place” and a proven Pervasive Datacenter\nArchitecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers\naccess to the connected communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 25+ countries on six\n[continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and X.](https://www.digitalrealty.com/)\n\n**Contact Information**\n\nMatt Mercier\nChief Financial Officer\nDigital Realty\n(737) 281-0101\n\nJordan Sadler / Jim Huseby\nInvestor Relations\nDigital Realty\n(737) 281-0101\n\n\n-----\n\n**Consolidated Quarterly Statements of Operations**\n\n|Unaudited and Dollars in Thousands, Except Per Share Data|Third Quarter 2023|\n|---|---|\n|Thr e e Months En ded 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Rental revenues $886,960 $869,298 $870,975 $834,374 $787,839 Tenant reimbursements - Utilities 335,477 330,416 317,148 247,725 251,420 Tenant reimbursements - Other 64,876 46,192 40,150 46,045 49,419 Interconnection & other 107,305 104,521 101,695 97,286 95,486 Fee income 7,819 14,908 7,868 7,508 6,169 Other — 932 887 168 1,749 Total Operating Revenues $1,402,437 $1,366,267 $1,338,724 $1,233,108 $1,192,082 Utilities $384,455 $374,934 $346,364 $268,561 $271,844 Rental property operating 223,089 224,762 224,861 222,430 205,886 Property taxes 72,279 46,718 40,424 42,032 39,860 Insurance 4,289 4,385 4,355 4,578 4,002 Depreciation & amortization 420,613 432,573 421,198 430,130 388,704 General & administration 108,039 105,964 107,766 104,452 95,792 Severance, equity acceleration, and legal expenses 2,682 3,652 4,155 15,980 1,655 Transaction and integration expenses 14,465 17,764 12,267 17,350 25,862 Provision for impairment 113,000 — — 3,000 — Other expenses 1,295 655 — 3,615 1,096 Total Operating Expenses $1,344,206 $1,211,407 $1,161,388 $1,112,127 $1,034,701 Operating Income $58,231 $154,860 $177,335 $120,981 $157,381 Equity in earnings / (loss) of unconsolidated joint ventures (19,793) 5,059 14,897 (28,112) (12,254) Gain / (loss) on sale of investments 810,688 89,946 — (6) 173,990 Interest and other income / (expense), net 24,812 (6,930) 280 (22,894) 15,752 Interest (expense) (110,767) (111,116) (102,220) (86,882) (76,502) Income tax benefit / (expense) (17,228) (16,173) (21,454) 17,676 (19,576) Loss from early extinguishment of debt — — — — — Net Income $745,941 $115,647 $68,839 $763 $238,791 Net income / (loss) attributable to noncontrolling interests (12,320) 2,538 (111) 3,326 (1,716) Net Income Attributable to Digital Realty Trust, Inc. $733,621 $118,185 $68,728 $4,089 $237,075 Preferred stock dividends (10,181) (10,181) (10,181) (10,181) (10,181) Net Income / (Loss) Available to Common Stockholders $723,440 $108,003 $58,547 ($6,093) $226,894 Weighted-average shares outstanding - basic 301,826,890 295,390,446 291,218,549 289,364,739 286,693,071 Weighted-average shares outstanding - diluted 311,341,418 306,818,538 303,064,832 301,712,082 296,414,726 Weighted-average fully diluted shares and units 317,538,689 313,020,947 309,026,076 307,546,353 302,257,518 Net income / (loss) per share - basic $2.40 $0.37 $0.20 ($0.02) $0.79 Net income / (loss) per share - diluted $2.33 $0.37 $0.19 ($0.02) $0.75|Nine Mo nth s Ended|\n||30-Sep-23 30-Sep-22|\n||$2,627,233 $2,307,114 983,041 694,166 151,218 153,618 313,521 282,354 30,596 16,998 1,819 4,477 $4,107,428 $3,458,726 $1,105,753 $736,509 672,712 598,317 159,420 133,598 13,029 11,536 1,274,384 1,147,803 321,769 294,217 10,489 7,519 44,496 51,416 113,000 — 1,949 8,823 $3,717,001 $2,989,738 $390,426 $468,988 164 14,616 900,634 176,760 18,162 31,811 (324,103) (212,250) (54,855) (49,227) — (51,135) $930,427 $379,564 (9,893) (5,781) $920,534 $373,783 (30,544) (30,544) $889,990 $343,240 296,184,154 285,312,314 306,734,807 294,257,222 312,866,880 300,028,470 $3.00 $1.20 $2.93 $1.15|\n\n\n-----\n\n**Funds From Operations and Core Funds From Operations**\n\n|Unaudited and in Thousands, Except Per Share Data|Col2|Col3|Col4|Col5|Col6|Third Quarter 2023|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|Thr e e Months End ed Reconciliation of Net Income to Funds From Operations (FFO) 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Net Income / (Loss) Available to Common Stockholders $723,440 $108,003 $58,547 ($6,093) $226,894 Adjustments: Non-controlling interest in operating partnership 16,300 2,500 1,500 (586) 5,400 Real estate related depreciation & amortization (1) 410,836 424,044 412,192 422,951 381,425 Depreciation related to non-controlling interests (14,569) (14,144) (13,388) (13,856) (8,254) Unconsolidated JV real estate related depreciation & amortization 43,215 35,386 33,719 33,927 30,831 (Gain) / loss on real estate transactions (810,688) (89,946) (7,825) 572 (173,990) Provision for impairment 113,000 - - 3,000 -||||||Nine Mo nth s Ended|||\n|||||||30-Sep-23 30-Sep-22|||\n|||||||$889,990 $343,240 20,300 8,500 1,247,072 1,124,914 (42,101) (8,254) 112,320 89,172 (908,459) (177,904) 113,000 -|||\n|Funds From Operations - diluted $481,535 $465,844 $484,745 $439,915 $462,306 Weighted-average shares and units outstanding - basic 308,024 301,593 297,180 295,199 292,536 Weighted-average shares and units outstanding - diluted (2)(3) 317,539 313,021 309,026 307,546 302,258 Funds From Operations per share - basic $1.56 $1.54 $1.63 $1.49 $1.58 Funds From Operations per share - diluted (2)(3) $1.55 $1.52 $1.60 $1.45 $1.55 Thr e e Months End ed Reconciliation of FFO to Core FFO 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Funds From Operations - diluted $481,535 $465,844 $484,745 $439,915 $462,306 Other non-core revenue adjustments (27) 27,454 (887) (3,786) (1,818) Transaction and integration expenses 14,465 17,764 12,267 17,350 25,862 Loss from early extinguishment of debt - - - - - Severance, equity acceleration, and legal expenses (4) 2,682 3,652 4,155 15,980 1,655 (Gain) / Loss on FX revaluation 451 (7,868) (6,778) 14,564 (1,120) Other non-core expense adjustments 1,295 655 - 3,615 1,046||||||$1,432,124 $1,379,667 302,316 291,084 312,867 300,028 $4.74 $4.74 $4.68 $4.61 Nine Mo nth s Ended|||\n|||||||30-Sep-23 30-Sep-22|||\n|||||||$1,432,124 $1,379,667 26,540 12,554 44,496 51,416 - 51,135 10,489 7,519 (14,195) (39,258) 1,949 8,773|||\n|Core Funds From Operations - diluted $500,402 $507,501 $493,500 $487,638 $487,931 Weighted-average shares and units outstanding - diluted (2)(3) 308,539 301,806 297,382 295,519 292,830||||||$1,501,403 $1,471,806 302,740 291,461|||\n|Core Funds From Operations per share - diluted (2) $1.62 $1.68 $1.66 $1.65 $1.67 (1) Real Estate Related Depreciation & Amortization Thr e e Months End ed 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Depreciation & amortization per income statement $420,613 $432,573 $421,198 $430,130 $388,704 Non-real estate depreciation (9,777) (8,529) (9,006) (7,179) (7,279)||||||$4.96 $5.05 Nine Mo nth s Ended|||\n|||||||30-Sep-23 30-Sep-22|||\n|||||||$1,274,384 $1,147,803 (27,312) (22,889)|||\n|Real Estate Related Depreciation & Amortization|$410,836|$424,044|$412,192|$422,951|$381,425||$1,247,072|$1,124,914|\n\n\n\n(2) Certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to Digital Realty in exchange for cash or the equivalent value of shares of Digital Realty\ncommon stock, or a combination thereof. US GAAP requires Digital Realty to assume the put right is settled in shares for purposes of calculating diluted EPS. This same approach was utilized to calculate FFO/share. The\npotential future dilutive impact associated with this put right will be excluded from Core FFO and AFFO until settlement occurs – causing diluted share count to be higher for FFO than for Core FFO and AFFO. When\ncalculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the denominator assumes all shares have been put back to Digital Realty.\n\n|Three Months Ended 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Teraco noncontrolling share of FFO $11,537 $9,645 $11,069 $7,213 $4,706|Col2|Col3|Col4|Col5|Col6|Nine Months Ended|Col8|Col9|\n|---|---|---|---|---|---|---|---|---|\n|||||||30-Sep-23 30-Sep-22|||\n|||||||$32,251 $4,706|||\n|Teraco related minority interest|$11,537|$9,645|$11,069|$7,213|$4,706||$32,251|$4,706|\n\n\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control\ntransactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO and the\nshare count detail section that follows the reconciliation of Core FFO to AFFO for calculations of weighted average common stock and units outstanding. For definitions and discussion of FFO and Core FFO, see the\ndefinitions section.\n\n(4) Relates to severance and other charges related to the departure of company executives and integration-related severance.\n\n\n-----\n\n**Adjusted Funds From Operations (AFFO)**\n\n|Unaudited and in Thousands, Except Per Share Data|Third Quarter 2023|\n|---|---|\n|Thr e e Months End ed Reconciliation of Core FFO to AFFO 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22 Core FFO available to common stockholders and unitholders $500,402 $507,501 $493,500 $487,638 $487,931 Adjustments: Non-real estate depreciation 9,777 8,529 9,006 7,179 7,279 Amortization of deferred financing costs 5,776 5,984 4,072 3,753 3,270 Amortization of debt discount/premium 1,360 1,339 1,301 1,276 1,146 Non-cash stock-based compensation expense 14,062 13,893 13,056 16,042 15,948 Straight-line rental revenue (14,080) (16,151) (16,194) (29,392) (18,123) Straight-line rental expense 1,427 520 (515) (208) 2,679 Above- and below-market rent amortization (1,127) (1,195) (1,226) (762) (465) Deferred tax (benefit) / expense (8,539) 1,339 (9,795) (4,885) (5,233) Leasing compensation & internal lease commissions 12,515 11,611 11,067 9,578 9,866 Recurring capital expenditures (1) (90,251) (53,498) (40,465) (109,999) (66,200)|Nine Months Ended|\n||30-Sep-23 30-Sep-22|\n||$1,501,403 $1,471,806 27,312 22,889 15,832 10,234 4,000 3,553 41,012 46,201 (46,424) (54,212) 1,432 4,609 (3,548) 65 (16,995) (7,605) 35,193 32,538 (184,214) (156,467)|\n|AFFO available to common stockholders and unitholders (2) $431,322 $479,873 $463,807 $380,220 $438,097 Weighted-average shares and units outstanding - basic 308,024 301,593 297,180 295,199 292,536 Weighted-average shares and units outstanding - diluted (3) 308,539 301,806 297,382 295,519 292,830 AFFO per share - diluted (3) $1.40 $1.59 $1.56 $1.29 $1.50 Dividends per share and common unit $1.22 $1.22 $1.22 $1.22 $1.22 Diluted AFFO Payout Ratio 87.3% 76.7% 78.2% 94.8% 81.5% Thr e e Months End ed Share Count Detail 30-Sep-23 30-Jun-23 31-Mar-23 31-Dec-22 30-Sep-22|$1,375,001 $1,373,611 302,316 291,084 302,740 291,461 $4.54 $4.71 $3.66 $3.66 . 80.6% 77.7% Nine Months Ended|\n||30-Sep-23 30-Sep-22|\n\n\n|Weighted Average Common Stock and Units Outstanding 308,024 301,593 297,180 295,199 292,536 Add: Effect of dilutive securities 515 213 202 320 294|Col2|Col3|Col4|Col5|Col6|302,316 291,084 424 377|Col8|\n|---|---|---|---|---|---|---|---|\n|Weighted Avg. Common Stock and Units Outstanding - diluted|308,539|301,806|297,382|295,519|292,830|302,740|291,461|\n\n\n\n(1) Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external\nleasing commissions. Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building\nup to Digital Realty’s operating standards, or internal leasing commissions.\n\n(2) For a definition and discussion of AFFO, see the definitions section. For a reconciliation of net income available to common stockholders to FFO and Core FFO, see above.\n\n(3) For all periods presented, we have excluded the effect of dilutive series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence\nof specified change in control transactions as described in the articles supplementary governing the series J, series K and series L preferred stock, as applicable, which we consider highly\nimprobable. See above for calculations of diluted FFO available to common stockholders and unitholders and for calculations of weighted average common stock and units outstanding.\n\n\n-----\n\n**Consolidated Balance Sheets**\n\n**Unaudited and in Thousands, Except Share and Per Share Data** **Third Quarter 2023**\n\n**30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22** **30-Sep-22**\n\n**Assets**\n\nInvestments in real estate:\n\nReal estate $25,887,031 $27,087,769 $27,052,022 $26,136,057 $24,876,600\n\nConstruction in progress 5,020,464 4,635,939 4,563,578 4,789,134 4,222,142\n\nLand held for future development 179,959 193,936 194,564 118,452 34,713\n\n**Investments in Real Estate** **$31,087,453** **$31,917,644** **$31,810,164** **$31,043,643** **$29,133,455**\n\nAccumulated depreciation and amortization (7,489,193) (7,739,462) (7,600,559) (7,268,981) (6,826,918)\n\n**Net Investments in Properties** **$23,598,260** **$24,178,182** **$24,209,605** **$23,774,662** **$22,306,537**\n\nInvestment in unconsolidated joint ventures 2,180,313 2,040,452 1,995,576 1,991,426 1,912,958\n\n**Net Investments in Real Estate** **$25,778,573** **$26,218,634** **$26,205,180** **$25,766,088** **$24,219,495**\n\nCash and cash equivalents $1,062,050 $124,519 $131,406 $141,773 $176,969\n\nAccounts and other receivables [(1)] 1,325,725 1,158,383 1,070,066 969,292 861,117\n\nDeferred rent 586,418 613,796 627,700 601,590 556,198\n\nCustomer relationship value, deferred leasing costs & other\n2,506,198 2,825,596 3,015,291 3,092,627 3,035,861\nintangibles, net\n\nGoodwill 8,998,074 9,148,603 9,199,636 9,208,497 8,728,105\n\nAssets held for sale — 593,892 — — —\n\nOperating lease right-of-use assets 1,274,410 1,291,233 1,317,293 1,351,329 1,253,393\n\nOther assets 401,068 414,078 386,495 353,802 384,079\n\n**Total Assets** **$41,932,515** **$42,388,735** **$41,953,068** **$41,484,998** **$39,215,217**\n\n**Liabilities and Equity**\n\nGlobal unsecured revolving credit facilities $1,698,780 $2,242,258 $2,514,202 $2,150,451 $2,255,139\n\nUnsecured term loans 1,524,663 1,548,780 1,542,275 797,449 729,976\n\nUnsecured senior notes, net of discount 13,072,102 13,383,819 13,258,079 13,120,033 12,281,410\n\nSecured debt and other, net of premiums 574,231 554,594 560,955 528,870 491,984\n\nOperating lease liabilities 1,404,510 1,420,239 1,443,994 1,471,044 1,363,712\n\nAccounts payable and other accrued liabilities 2,147,103 2,214,820 1,923,819 1,868,884 1,621,406\n\nDeferred tax liabilities, net 1,088,724 1,128,961 1,164,276 1,192,752 1,145,097\n\nAccrued dividends and distributions — — — 363,716 —\n\nSecurity deposits and prepaid rent 385,521 417,693 392,021 369,654 341,552\n\nLiabilities associated with assets held for sale — 4,990 — — —\n\n**Total Liabilities** **$21,895,634** **$22,916,155** **$22,799,620** **$21,862,853** **$20,230,276**\n\nRedeemable non-controlling interests 1,360,308 1,367,422 1,448,772 1,514,680 1,429,920\n\n**Equity**\n\nPreferred Stock: $0.01 par value per share, 110,000,000 shares\nauthorized:\n\nSeries J Cumulative Redeemable Preferred Stock [(2)] $193,540 $193,540 $193,540 $193,540 $193,540\n\nSeries K Cumulative Redeemable Preferred Stock [(3)] 203,264 203,264 203,264 203,264 203,264\n\nSeries L Cumulative Redeemable Preferred Stock [(4)] 334,886 334,886 334,886 334,886 334,886\n\nCommon Stock: $0.01 par value per share, 392,000,000 shares\n3,002 2,967 2,888 2,887 2,851\nauthorized [(5)]\n\nAdditional paid-in capital 23,239,088 22,882,200 22,126,379 22,142,868 21,528,384\n\nDividends in excess of earnings (4,900,757) (5,253,915) (4,995,982) (4,698,313) (4,336,201)\n\nAccumulated other comprehensive (loss), net (882,996) (741,484) (652,486) (595,798) (862,804)\n\n**Total Stockholders' Equity** **$18,190,026** **$17,621,456** **$17,212,490** **$17,583,334** **$17,063,920**\n\n**Noncontrolling Interests**\n\nNoncontrolling interest in operating partnership $441,366 $436,099 $444,843 $419,317 $421,484\n\nNoncontrolling interest in consolidated joint ventures 45,182 47,603 47,342 104,814 69,617\n\n**Total Noncontrolling Interests** **$486,547** **$483,702** **$492,185** **$524,131** **$491,101**\n\n**Total Equity** **$18,676,573** **$18,105,158** **$17,704,675** **$18,107,465** **$17,555,021**\n\n|Total Liabilities and Equity|$41,932,515|$42,388,735|$41,953,068|$41,484,998|$39,215,217|\n|---|---|---|---|---|---|\n\n\n\n(1) Net of allowance for doubtful accounts of $46,643 and $33,048 as of September 30, 2023 and December 31, 2022, respectively.\n\n(2) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and\n\noutstanding as of September 30, 2023 and December 31, 2022, respectively.\n\n(3) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $210,000 liquidation preference, respectively ($25.00 per share), 8,400,000 and 8,400,000 shares issued and\n\noutstanding as of September 30, 2023 and December 31, 2022, respectively.\n\n(4) Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 and $345,000 liquidation preference, respectively ($25.00 per share), 13,800,000 and 13,800,000 shares issued and\n\noutstanding as of September 30, 2023 and December 31, 2022, respectively.\n\n(5) Common Stock: 302,846,026 and 291,148,222 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.\n\n\n-----\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation &**\n**Amortization and Financial Ratios**\n\n**Unaudited and Dollars in Thousands** **Third Quarter 2023**\n\n**Three Months Ended**\n\n**Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization**\n**(EBITDA) [(1)]** **30-Sep-23** **[30-Jun-23 ]** **[31-Mar-23 ]** **[31-Dec-22 ]** **[30-Sep-22 ]**\n\n**Net Income / (Loss) Available to Common Stockholders** **$723,440** **$108,003** **$58,547** **($6,093)** **$226,894**\n\nInterest 110,767 111,116 102,220 86,882 76,502\n\nIncome tax expense (benefit) 17,228 16,173 21,454 (17,676) 19,576\n\nDepreciation & amortization 420,613 432,573 421,198 430,130 388,704\n\n**EBITDA** **$1,272,048** **$667,866** **$603,420** **$493,243** **$711,676**\n\nUnconsolidated JV real estate related depreciation & amortization 43,214 35,386 33,719 33,927 30,831\n\nUnconsolidated JV interest expense and tax expense 27,000 32,105 18,556 53,481 11,948\n\nSeverance, equity acceleration, and legal expenses 2,682 3,652 4,155 15,980 1,655\n\nTransaction and integration expenses 14,465 17,764 12,267 17,350 25,862\n\n(Gain) / loss on sale of investments (810,688) (89,946) — 6 (173,990)\n\nProvision for impairment 113,000 — — 3,000 —\n\nOther non-core adjustments, net 1,719 22,132 (14,604) 15,127 (94)\n\nNon-controlling interests 12,320 (2,538) 111 (3,326) 1,716\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Adjusted EBITDA** **$685,943** **$696,604** **$667,804** **$638,969** **$619,786**\n\n(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the definitions section.\n\n**Three Months Ended**\n\n**Financial Ratios** **30-Sep-23** **30-Jun-23** **31-Mar-23** **31-Dec-22** **30-Sep-22**\n\nTotal GAAP interest expense $110,767 $111,116 $102,220 $86,882 $76,502\n\nCapitalized interest 29,130 27,883 26,771 24,581 17,304\n\nChange in accrued interest and other non-cash amounts 44,183 (60,612) 38,137 (67,909) 31,860\n\n**Cash Interest Expense [(2)]** **$184,081** **$78,387** **$167,128** **$43,554** **$125,666**\n\nPreferred stock dividends 10,181 10,181 10,181 10,181 10,181\n\n**Total Fixed Charges [(3)]** **$150,079** **$149,181** **$139,172** **$121,645** **$103,987**\n\n**Coverage**\n\nInterest coverage ratio [(4)] 4.3x 4.5x 4.7x 5.3x 6.1x\n\nCash interest coverage ratio [(5)] 3.4x 7.4x 3.7x 11.9x 4.6x\n\nFixed charge coverage ratio [(6)] 4.1x 4.2x 4.4x 4.9x 5.5x\n\nCash fixed charge coverage ratio [(7)] 3.2x 6.6x 3.5x 10.0x 4.3x\n\n**Leverage**\n\nDebt to total enterprise value [(8)(9)] 30.6% 33.3% 37.3% 35.2% 34.5%\n\nDebt plus preferred stock to total enterprise value [(9)(10)] 32.0% 34.7% 38.9% 36.8% 36.2%\n\nPre-tax income to interest expense [(11)] 7.7x 2.0x 1.7x 1.0x 4.1x\n\nNet Debt to Adjusted EBITDA [(12)] 6.3x 6.8x 7.1x 6.9x 6.7x\n\n(2) Cash interest expense is interest expense less amortization of debt discount and deferred financing fees and includes interest that we capitalized. We consider cash\ninterest expense to be a useful measure of interest as it excludes non-cash-based interest expense.\n\n(3) Fixed charges consist of GAAP interest expense, capitalized interest, and preferred stock dividends.\n\n(4) Adjusted EBITDA divided by GAAP interest expense plus capitalized interest (including our pro rata share of unconsolidated joint venture interest expense).\n\n(5) Adjusted EBITDA divided by cash interest expense (including our pro rata share of unconsolidated joint venture interest expense).\n\n(6) Adjusted EBITDA divided by fixed charges (including our pro rata share of unconsolidated joint venture fixed charges).\n\n(7) Adjusted EBITDA divided by the sum of cash interest expense, and preferred stock dividends (including our pro rata share of unconsolidated joint venture cash fixed\ncharges).\n\n(8) Mortgage debt and other loans divided by market value of common equity plus debt plus preferred stock.\n\n(9) Total enterprise value defined as market value of common equity plus debt plus preferred stock.\n\n(10) Same as (8), except numerator includes preferred stock.\n\n(11) Calculated as net income plus interest expense divided by GAAP interest expense.\n\n(12) Calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less\ncash, and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital\nRealty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\n\n-----\n\n**Definition**\n\n**Funds From Operations (FFO):**\n\nWe calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts,\nor Nareit, in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with\nGAAP), excluding gains (or losses) from real estate transactions, provision for impairment, real estate related depreciation and amortization (excluding\namortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating\npartnership, depreciation related to non-controlling interests and after adjustments for unconsolidated partnerships and joint ventures. Management\nuses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from\nproperty dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when\ncompared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of\nthe performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because\nFFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market conditions,\nnor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of\nwhich have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our\nperformance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable\nto other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our\nperformance.\n\n**Core Funds from Operations (Core FFO):**\nWe present core funds from operations, or Core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core\nrevenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating\nperformance. We calculate Core FFO by adding to or subtracting from FFO (i) other non-core revenue adjustments, (ii) transaction and integration\nexpenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity\nacceleration, and legal expenses, (vi) gain/loss on FX revaluation, and (vii) other non-core expense adjustments. Because certain of these adjustments\nhave a real economic impact on our financial condition and results from operations, the utility of Core FFO as a measure of our performance is limited.\nOther REITs may calculate Core FFO differently than we do and accordingly, our Core FFO may not be comparable to other REITs’ Core FFO. Core FFO\nshould be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.\n\n**Adjusted Funds from Operations (AFFO):**\nWe present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our\nability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the\noperations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on\na per share and unit basis. We calculate AFFO by adding to or subtracting from Core FFO (i) non-real estate depreciation, (ii) amortization of deferred\nfinancing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue,\n(vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and\ninternal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, accordingly, our AFFO\nmay not be comparable to other REITs’ AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a\nmeasure of our performance.\n\n**EBITDA and Adjusted EBITDA:**\nWe believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and\nAdjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the\nimpact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, unconsolidated joint venture real estate\nrelated depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses,\ntransaction and integration expenses, gain on sale / deconsolidation, provision for impairment, other non-core adjustments, net, non-controlling\ninterests, preferred stock dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding unconsolidated\njoint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration,\nand legal expenses, transaction and integration expenses, gain on sale / deconsolidation, provision for impairment, other non-core adjustments, net,\nnon-controlling interests, preferred stock dividends, and gain on / issuance costs associated with redeemed preferred stock. In addition, we believe\nEBITDA and Adjusted EBITDA are frequently used by securities analysts, investors, and other interested parties in the evaluation of REITs. Because\nEBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such\nas leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of\nour performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do and, accordingly, our EBITDA and Adjusted\nEBITDA may not be comparable to other REITs’ EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as\nsupplements to net income computed in accordance with GAAP as a measure of our financial performance.\n\n\n-----\n\n**Net Operating Income (NOI) and Cash NOI:**\nNet operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating\nexpenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry\nanalysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is NOI less straight-line rents and above- and below-market rent\namortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis.\nSame-Capital Cash NOI represents buildings owned as of December 31, 2021 of the prior year with less than 5% of total rentable square feet under development and\nexcludes buildings that were undergoing, or were expected to undergo, development activities in 2022-2023, buildings classified as held for sale, and buildings sold or\ncontributed to joint ventures for all periods presented (prior period numbers adjusted to reflect current same-capital pool). However, because NOI and cash NOI exclude\ndepreciation and amortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital\nexpenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could\nmaterially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI\ndifferently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash NOI. NOI and cash NOI should be considered only as\nsupplements to net income computed in accordance with GAAP as measures of our performance.\n\n**Additional Definitions**\n\nNet debt-to-Adjusted EBITDA ratio is calculated as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of\nunconsolidated joint venture debt, less cash, and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of\nAdjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture EBITDA), multiplied by four.\n\nDebt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of\npreferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty\nTrust, L.P. units for shares of Digital Realty Trust, Inc. common stock.\n\nFixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred stock\ndividends. For the quarter ended September 30, 2023, GAAP interest expense was $111 million, capitalized interest was $29 million and scheduled debt principal payments\nand preferred stock dividends was $10 million.\n\n|Reconciliation of Net Operating Income (NOI) Three Months Ended (in thousands) 30-Sep-23 30-Jun-23 30-Sep-22 Operating income $58,231 $154,860 $157,381 Fee income (7,819) (14,908) (6,169) Other income — (932) (1,749) Depreciation and amortization 420,613 432,573 388,704 General and administrative 108,039 105,964 95,792 Severance, equity acceleration, and legal expenses 2,682 3,652 1,655 Transaction expenses 14,465 17,764 25,862 Provision for impairment 113,000 — — Other expenses 1,295 655 1,096|Nine Months Ended 30-Sep-23 30-Sep-22|\n|---|---|\n||$390,426 $468,988 (30,596) (16,998) (1,819) (4,477) 1,274,384 1,147,803 321,769 294,217 10,489 7,519 44,496 51,416 113,000 — 1,949 8,823|\n|Net Operating Income $710,505 $699,629 $662,572 Cash Net Operating Income (Cash NOI) Net Operating Income $710,505 $699,629 $662,572 Straight-line rental revenue (14,185) 12,116 (17,505) Straight-line rental expense 1,632 722 2,499 Above- and below-market rent amortization (1,127) (1,195) (465)|$2,124,099 $1,957,291|\n||$2,124,099 $1,957,291 (18,395) (38,168) 1,844 3,536 (3,548) 65|\n|Cash Net Operating Income $696,826 $711,272 $647,101 Constant Currency CFFO Reconciliation Three Months Ended (in thousands) 30-Sep-23 30-Jun-23 30-Sep-22 Core FFO (1) $500,402 $487,931 Core FFO impact of holding '22 Exchange Rates Constant (2) (5,393) —|$2,104,000 $1,922,725|\n||Nine Months Ended 30-Sep-23 30-Sep-22|\n||$1,501,403 $1,471,806 (683) —|\n|Constant Currency Core FFO $495,009 $487,931 Weighted-average shares and units outstanding - diluted 308,539 292,830 Constant Currency CFFO Per Share $1.60 $1.67|$1,500,720 $1,471,806 302,740 291,461 $4.96 $5.05|\n\n\n\n1) As reconciled to net income above.\n\n2) Adjustment calculated by holding currency translation rates for 2023 constant with average currency translation rates that were applicable to the same periods in 2022.\n\n\n-----\n\nThis document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and\nuncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment\nand expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and\ndisposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, rent from leases\nthat have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates\nand yields, investment activity, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2023 outlook and underlying assumptions, information related to trends,\nour strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect\nnew leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on\ninvestment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial\ndata. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and\nassumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more\nof these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks\nand uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the\nfollowing:\n\n-  reduced demand for data centers or decreases in information technology spending;\n\n-  increased competition or available supply of data center space;\n\n-  decreased rental rates, increased operating costs or increased vacancy rates;\n\n-  the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information\nsecurity infrastructure or services;\n\n-  our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by\ncustomers;\n\n-  our ability to attract and retain customers;\n\n-  breaches of our obligations or restrictions under our contracts with our customers;\n\n-  our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;\n\n-  the impact of current global and local economic, credit and market conditions;\n\n-  our inability to retain data center space that we lease or sublease from third parties;\n\n-  global supply chain or procurement disruptions, or increased supply chain costs;\n\n-  information security and data privacy breaches;\n\n-  difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;\n\n-  our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;\n\n-  our failure to successfully integrate and operate acquired or developed properties or businesses;\n\n-  difficulties in identifying properties to acquire and completing acquisitions;\n\n-  risks related to joint venture investments, including as a result of our lack of control of such investments;\n\n-  risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings\nor our breach of covenants or other terms contained in our loan facilities and agreements;\n\n-  our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;\n\n-  financial market fluctuations and changes in foreign currency exchange rates;\n\n-  adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment\ncharges and goodwill and other intangible asset impairment charges;\n\n-  our inability to manage our growth effectively;\n\n-  losses in excess of our insurance coverage;\n\n-  our inability to attract and retain talent;\n\n-  impact on our operations and on the operations of our customers, suppliers and business partners during a pandemic, such as COVID-19;\n\n-  environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;\n\n-  our inability to comply with rules and regulations applicable to our company;\n\n-  Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;\n\n-  Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;\n\n-  restrictions on our ability to engage in certain business activities;\n\n-  changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates; and\n\n-  the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.\n\nThe risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. Several additional material risks are discussed in our annual report\non Form 10-K for the year ended December 31, 2022, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial\ncondition. Moreover, we operate in a competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk\nfactors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those\ncontained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.\nDigital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, PDx,\nData Gravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks\nand service marks are the property of their respective owners.\n\n\n-----\nEND DOCUMENT 6\n\nEND INPUT DOCUMENTS\n\nAnswer the following question using the input documents provided above.\n\nSTART QUESTION\n\nConsider investments and sales made over the trailing 12 months ending 30 June 2024. What is the net acres of land have been acquired. To calculate this value, sum the acquired acres of land including right of use agreements, and subtract the sales of land including options.\n\nEND QUESTION\n", "role": "user"}], "target": "20.8", "id": 28, "group_id": 28, "metadata": {"question": "Consider investments and sales made over the trailing 12 months ending 30 June 2024. What is the net acres of land have been acquired. To calculate this value, sum the acquired acres of land including right of use agreements, and subtract the sales of land including options.", "data_source_urls": "https://s29.q4cdn.com/106493612/files/doc_financials/2024/q1/Digital-Realty-1Q24-Earnings-Press-Release-FINAL-5-2-24.pdf;https://s29.q4cdn.com/106493612/files/doc_financials/2023/q3/Digital-Realty-3Q23-Earnings-Press-Release.pdf;https://s29.q4cdn.com/106493612/files/doc_financials/2024/q2/Digital-Realty-2Q24-Earnings-Press-Release-07-25-2024-FINAL.pdf;https://s29.q4cdn.com/106493612/files/doc_financials/2023/q4/Digital-Realty-4Q23-Earnings-Press-Release-FINAL-2-15-24.pdf;https://s29.q4cdn.com/106493612/files/doc_financials/2023/q2/Digital-Realty-2Q23-Earnings-Press-Release-FINAL.pdf;https://s29.q4cdn.com/106493612/files/doc_financials/2023/q1/Digital-Realty-s-1Q23-Earnings-Press-Release.pdf", "input_tokens": 93760}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "long_context", "weight": 0.09999999999999999, "dataset_name": "aa_lcr", "subset_name": "default"}
{"index": 5, "prompt": {"input": [{"id": "174bcd53", "content": "\nBEGIN INPUT DOCUMENTS\n\nBEGIN DOCUMENT 1:\n# Smartsheet Inc. NYSE:SMAR\n\n## Earnings Call\n\n_Tuesday, March 14, 2023 8:30 PM GMT_\n\n### CALL PARTICIPANTS 2\n\n PRESENTATION 3\n\n QUESTION AND ANSWER 8\n\n-  Capability needed to view estimates data. Please contact your account\nmanager.\n................................................................................................\n....................................................................\n**WWW.SPCAPITALIQ.COM**\n\n\n-----\n\n## Call Participants\n\n....................................................................................................................................................................\n\n**EXECUTIVES**\n\n**Aaron Turner**\n_VP of Investor Relations &_\n_Treasurer_\n\n**Mark P. Mader**\n_President, CEO & Director_\n\n**Pete Godbole**\n_CFO & Treasurer_\n\n**ANALYSTS**\n\n\n**Aleksandr J. Zukin**\n_Wolfe Research, LLC_\n\n**Brent John Thill**\n_Jefferies LLC, Research Division_\n\n**David E. Hynes**\n_Canaccord Genuity Corp.,_\n_Research Division_\n\n**Jackson Edmund Ader**\n_SVB Securities_\n\n**Jacob Roberge**\n_William Blair & Company L.L.C.,_\n_Research Division_\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC,_\n_Research Division_\n\n**Michael James Turrin**\n_Wells Fargo Securities, LLC,_\n_Research Division_\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research_\n_Division_\n\n**Rishi Nitya Jaluria**\n_RBC Capital Markets, Research_\n_Division_\n\n\n**Robert Edward Simmons**\n_D.A. Davidson & Co., Research_\n_Division_\n\n**Scott Randolph Berg**\n_Needham & Company, LLC,_\n_Research Division_\n\n**Seoyoung Lee**\n_Morgan Stanley, Research Division_\n\n**Terrell Frederick Tillman**\n_Truist Securities, Inc., Research_\n_Division_\n\n**Unknown Analyst**\n\n\n-----\n\n## Presentation\n....................................................................................................................................................................\n\n**Operator**\n\nLadies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference\noperator today. At this time, I would like to welcome everyone to the Smartsheet Fourth Quarter Fiscal\n2023 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn today's call over to\nMr. Aaron Turner, Head of Investor Relations. Sir, please go ahead.\n\n**Aaron Turner**\n_VP of Investor Relations & Treasurer_\n\nThank you, Brent. Good afternoon, and welcome, everyone, to Smartsheet's Fourth Quarter and Fiscal\nYear 2023 Earnings Call. We will be discussing the results announced in our press release issued after\nthe market closed today. With me today are Smartsheet's CEO, Mark Mader; and our CFO, Pete Godbole.\nToday's call is being webcast and will also be available for replay on our Investor Relations website at\ninvestors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which\ncan be viewed in the Events section of our Investor Relations website.\n\nDuring this call, we will make forward-looking statements within the meaning of the federal securities\nlaws. We have based these forward-looking statements largely on our current expectations and projections\nabout future events and financial trends. These forward-looking statements are subject to a number of\nrisks and other factors, including, but not limited to, those described in our SEC filings available on our\nInvestor Relations website and on the SEC website at www.sec.gov.\n\nAlthough we believe that the expectations reflected in the forward-looking statements are reasonable, our\nactual results may differ materially and adversely. All forward-looking statements made during this call\nare based on information available to us as of today, and we do not assume any obligation to update these\nstatements as a result of new information or future events, except as required by law.\n\nIn addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A\nreconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that\naccompanies this call, which can also be found on our Investor Relations website. With that, let me turn\nthe call over to Mark.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nHello, and welcome to our fourth quarter earnings call for fiscal year '23. Our fourth quarter results caped\noff a strong year for Smartsheet, a year in which we extended our leadership position in collaborative work\nmanagement, delivered our best year ever for new customer bookings, acquired outfit to strengthen our\nmarketing and creative management solutions, added 2.2 million users to the Smartsheet platform and\ngenerated positive free cash flow for the year for the first time.\n\nWhile Pete will provide additional details, I want to call out some of our highlights from the quarter.\nRevenue for the quarter was $212 million, up 35% year-over-year. We added $62 million in annual\nrecurring revenue in Q4, bringing our total ARR to more than $854 million.\n\nIn Q4, we saw expansions at Volvo, USA Today and Allscripts, among many others. And we had new\ncustomer wins at companies such as [indiscernible]. Our expansion motion within our customer base\ncontinued with 311 customers expanding by $50,000 or more and 118 expanding by $100,000 or more.\n\nIn Q4, we had 2 transactions of more than $1 million and now have a total of 45 customers with ARR over\n$1 million. Despite these successes, we've seen the changing macroeconomic environment negatively\nimpact expansion rates across customer segments. However, even with these less favorable macro\nbackdrops, our enterprise customers continue to exhibit the fastest growth rates.\n\n\n-----\n\nOur product investment and go-to-market strategy is focused on winning the enterprise, and we have\nseen great success in this segment. We now have over 3,300 large enterprise customers, defined as\norganizations with over 10,000 employees. ARR from just this customer segment is now over $260 million\nand grew over 40% in FY '23.\n\nWe believe this segment alone represents a multibillion-dollar revenue opportunity for Smartsheet.\n\nWhile we may have seen some companies be more thoughtful with spending in this environment, we\nbelieve that in the long term, enterprises, especially large enterprises, remain the best opportunity to\ndrive long-term profitable growth. and no one in this category is winning the enterprise like we are.\n\nIn FY '23, in response to the changing macroeconomic environment, we took steps to improve our\nprofitability. These actions resulted in Q4 profitability, non-GAAP operating income and free cash flow\nexceeding our guidance. As we look ahead, we expect our scale combined with our increasingly efficient\noperating model to generate positive operating margins and over $110 million of free cash flow in FY '24.\n\nOur scale and profitable business model further secure Smartsheet as the leader in collaborative work\nmanagement. We are operating at an ARR scale, enterprise adoption rate and profitability level that are\nunmatched in category. This leadership position is recognized by top-tier review sites and publications.\nWe recently earned a top 5 placement on G2's 2023 Best Products for Enterprise List, making us the only\nCWM platform to rank anywhere in the top 50. The list recognizes software companies that have best-inclass enterprise customer service, products and experiences. And earlier this month, we were recognized\nfor our industry-leading enterprise work management and digital asset management solutions on Fast\nCompany's Most Innovative Companies List in the enterprise category.\n\nAt Smartsheet, adoption of our capabilities-based products play a key role in our enterprise success. These\ncapabilities now make up 31% of our subscription revenue, up 5 points year-over-year. Capabilities drove\nmany large customer expansions in Q4. For example, a leading enterprise human capital management\nprovider signed a 3-year enterprise license agreement that will give all 8,000 Smartsheet users at the\ncompany access to our full suite of advanced capabilities.\n\nThrough January, on a year-over-year basis, they created 67% more forms, provisioned 132% more\ncontrol center projects and created 210% more WorkApps. A key smart use case at this HCM provider is\nin professional services org, where they use Smartsheet to manage customer deployments. Smartsheet\nhas become their global standard for customer deployments in part because our enterprise-grade security\ngives them the ability to manage sensitive customer data on our platform while still allowing for efficient\ncollaboration.\n\nOur secure collaboration model has allowed this company to bring more than 42,000 external collaborators\nfrom different client organizations onto the Smartsheet platform.\n\nQ4 was a strong quarter for Smartsheet Advance. A Fortune 500 global manufacturer had a high 6-figure\nannual expansion that included an upgrade to a higher-advanced tier. This upgrade resulted from the viral\nadoption of Smartsheet across the organization. This year alone, they created over 5,000 dashboards,\nincreased their WorkApps used by 430% and provisioned nearly 5,000 projects using control center.\n\nThis company will now use Smartsheet to help achieve its $1 billion 3-year operational cost savings\ninitiative.\n\nAdvanced usage through connected users also drove a 7-figure expansion at a Fortune 100 telecom\ncompany, which brought the customer's total ARR to over $3 million. Over 50,000 Smartsheet users\nacross 11 departments in 8 countries now use Smartsheet. This deal was driven by increased demand and\nadoption as more teams look to centralize their work on Smartsheet.\n\nOur platform underpins over 1,000 WorkApps, 4,000 projects managed using control center and over\n28,000 dashboards. It is now the starting point for thousands of workflows that span integrated apps such\nas Salesforce, Jira and Slack, and serves as a central hub for the company's collaboration with more than\n500 external organizations.\n\n\n-----\n\nWins such as these speak to the power of the advanced model where the value of Smartsheet increases as\nthe use of Smartsheet grows. In January, we published our inaugural Future of Work Management report,\nwhich showed that over 80% of workers at every level across organizations say, project management is\nbeing done by people whose title or job description doesn't include Project Manager. The research also\nshowed a significant perception gap between leaders and workers with respect to their current project\nmanagement tools.\n\n60% of leaders say they've made the necessary investment in tools, but just 36% of workers who\nresponded feel this way. This gap drives a robust, continuous flow of opportunity for Smartsheet.\n\nHere's a great example of how the best tools can empower people and business transformation. In Q4,\nwe had an RFP win against 3 CWM competitors, which expanded our footprint at a Fortune 500 global\nbiopharma company. The seeds of this win were planted when one team member in the purchasing\norganization took the initiative to design a Smartsheet-based system to automate the company's complex\nand time-consuming paper and e-mail-based purchase order management process.\n\nSmartsheet didn't just modernize PO management, our platform also reached the company's\ntransformation office, where Smartsheet is now supporting the company's critical initiatives. As the\ncompany's business transformation platform, Smartsheet Control Center and WorkApps are now helping\nthem manage 5 strategic portfolios of work, each containing dozens of work streams that will guide the\ncompany towards its goal of positively impacting the health of 2.5 billion people in the next 10 years.\n\nOn the product front, we closed out another year of customer-focused innovation, having delivered over\n400 product enhancements. In Q4, we launched the Smartsheet Desktop Application, content automation\nwith integration of outfit, capacity view and numerous automation enhancements. We also further\nincreased platform scalability to power sophisticated workflows and drive thousands of business-critical\nwork streams for customers of all sizes.\n\nIn FY '24, our investment efforts will be focused on helping our biggest customers grow faster with us as\nwell as driving efficiency and how we sell to and serve our emerging customers.\n\nTo enhance customer experience and value, we continue to evaluate and integrate artificial intelligence\ninto the Smartsheet platform. Our AI innovation began in 2018 following our acquisition of Converse.AI.\nMore recently, we have enabled petabyte-scale intelligent content management through our proprietary\npowered AI engine [indiscernible] Intelligence. Using recognition models, content is analyzed and tagged,\nmaking it easier for people to find creative assets with natural language search. And for over a year,\npredictive models have powered navigation recommendations in Smartsheet.\n\nNow our sights are set on the next wave of innovation, degenerative AI. The progress we've made in our\nearly development is very promising and the impact to accelerating customer onboarding, solving for\nadvanced business designs and unlocking self-directed discovery can serve as a catalyst for growth in FY\n'25 and beyond.\n\nIn closing, I'm proud of how our team executed in FY '23, expanding our enterprise leadership position,\nwhile navigating macro headwinds and driving significant efficiencies in the business. We continue to\nkeep our customers' needs top of mind as we prioritize investments that enable them to drive meaningful\nchange for their organizations.\n\nQ4 was another showcase of our CWM leadership, our winning enterprise strategy, the power of our\nplatform and the scalability of our business model. We are excited to continue this momentum in FY '24\nand beyond. Before I turn the call over to Pete, I want to acknowledge the transition of Smartsheet's\nBoard Chair role.\n\nWe recently appointed Mike Gregoire as the new Chair of our Board of Directors. He succeeds Geoff\nBarker, who has been on our Board since 2012 and has served as Chair since 2017 and will remain on\nthe Board following this transition. We appreciate and thank Geoff for his leadership. His commitment to\ngovernance and execution during the company's transition from private to public and in the years that\nfollowed, strengthened our ability to deliver value to customers and shareholders.\n\n\n-----\n\nMike has been a valuable member of the Smartsheet Board since late 2019. His expertise in operating\ntechnology companies at scale aligns very well for our next phase of growth. We are pleased to welcome\nMike to the chair position and look forward to working with him more closely. Now let me turn the call over\nto Pete. Pete?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nThank you, Mark, and good afternoon, everyone. As Mark mentioned, Q4 was another strong quarter. We\nexceeded our guidance across the top and bottom line and posted quarterly operating income for the first\ntime. We saw particular strength in our largest customers who continue to exhibit expansion rates above\nour overall net dollar retention rate, an advance, which contributed a record level of billings and revenue\nin the quarter.\n\nDespite strength in these areas, we saw the impacts of a worsening macro environment. Similar to past\nquarters, we see these pressures manifest as smaller deal sizes and longer sales cycles, which ultimately\nled to lower expansion rates among our customers.\n\nIn FY '23, we placed an intense focus on driving operational efficiencies, which has resulted in a faster\npath to profitability than previously contemplated. We focused on driving operational efficiencies by\neliminating lower value activities, while maintaining sales capacity. These operating efficiencies have\ncontributed to our outperformance in our operating income and free cash flow in Q4 and our guidance for\nFY '24.\n\nWe expect the macro to worsen in FY '24, but the plan we have created positions the company to\ncapitalize on an improving economy when that eventually occurs. We are continuing to pursue sustained\ngrowth and profitability in a disciplined and thoughtful manner, while focusing on allocating capital to\ngrowth initiatives.\n\nOur strategy of focusing on large accounts for the last several years has been a part of that thinking and\nthis year, we plan to invest in 4 areas: first, widen our competitive lead on the dimension of enterprise\nscale; second, unlock product-led discovery and adoption; third, enhance IT, governance, control and\nsecurity; and fourth, elevate our user experience.\n\nI will now go through our financial results for the full year and fourth quarter. Unless otherwise stated, all\nreferences to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP\nresults in the earnings release and presentation that was posted before the call.\n\nFor the full fiscal year '23, we ended with total revenue of $766.9 million, up 39% year-over-year. Billings\nof $892 million, up 35% year-over-year. Operating loss of $36 million and free cash flow of $9.8 million.\n\nWe ended the year with annual recurring revenue of over $854 million, a year-over-year increase of $215\nmillion.\n\nNext, I will provide more color on our fourth quarter financial results. Fourth quarter revenue came in at\n$212.3 million, up 35% year-over-year. Subscription revenue was $198.9 million, representing year-overyear growth of 37%. The Services revenue was $13.5 million, representing year-over-year growth of 15%.\nCapabilities made up 31% of subscription revenue, up from 26% of revenue in Q4 of last year.\n\nTurning to billings. Fourth quarter billings came in at $286.7 million, representing year-over-year growth\nof 28%. Approximately 94% of our subscription billings were annual with 3% monthly. Quarterly and\nsemiannual represented approximately 3% of the total. Multiyear billings represented less than 0.5% of\ntotal billings.\n\nMoving on to our reported metrics. The number of customers with ARR over $50,000 grew 36% year-overyear to 3,206 and the number of customers with ARR over $100,000 grew 45% year-over-year to 1,484.\nThese customer segments now represent 62% and 48%, respectively, of total ARR. The percentage of our\nARR coming from customers with ARR over $5,000 is now 89%.\n\n\n-----\n\nNext, our domain average ACV grew 20% year-over-year to $8,377. We ended the quarter with a dollarbased net retention rate of 125%. The full churn rate remains below 4%. Consistent with our assumption\nof the macro environment in FY '24, we expect our net dollar retention rate to trend lower into the high\nteens by the end of the year.\n\nNow turning back to the financials. Our total gross margin was 82%. Our Q4 subscription gross margin\nwas 86%. We expect our gross margin for FY '24 to remain above 80%.\n\nOverall operating income in the quarter was $7.5 million or 4% of revenue, which represents a 6\npercentage point sequential margin improvement. Free cash flow in the quarter was positive $16.4 million.\n\nNow let me move on to guidance. Our guidance reflects the expectations of a worsening macroeconomic\nenvironment. Therefore, we have incorporated more conservatism into our guidance philosophy. If the\nmacro environment does not decline, this will be a source of upside to our current full year expectations.\n\nIn FY '23, we placed a heavy internal focus and operational rigor and moderating our hiring plan to\nadapt to the changing macro economy. In FY '24, these initiatives combined with the natural economies\nof scale in our business will result in significant improvements in our margin profile and free cash flow\nperformance.\n\nIn FY '24, we are investing in enterprise growth with the ramped sales team and continue to invest in\nwidening the technology advantage of our platform. As a business approaching $1 billion of ARR, we are\nset up to leverage this natural scale via operational initiatives that we started in FY '23.\n\nFor the first quarter of FY '24, we expect revenue to be in the range of $213 million to $215 million, and\nnon-GAAP operating income to be in the range of $8 million to $10 million. We expect non-GAAP EPS to be\n$0.08 to $0.09 based on diluted weighted average shares outstanding of 136 million.\n\nFor the full fiscal year '24, we expect our revenue guidance to be $943 million to $948 million,\nrepresenting growth of 23% to 24%. We expect services to be 6% of total revenue. We expect our\nnon-GAAP operating income to be in the range of $35 million to $45 million, representing an operating\nmargin of 4% to 5% and a non-GAAP net income per share to be $0.31 to $0.38 for the year based on\napproximately 137.5 million diluted weighted average shares outstanding.\n\nWe expect FY '24 billings growth to be 20%, and we expect our free cash flow for FY '24 to be $110\nmillion.\n\nTo conclude, Q4 was another strong quarter, highlighted by our continued outperformance, our strength in\nthe enterprise and emerging profitability. We see FY '24 as a year where our enterprise investments set us\nup for durable, long-term growth.\nNow let me turn the call over to the operator. Operator?\n\n\n-----\n\n## Question and Answer\n....................................................................................................................................................................\n\n**Operator**\n\n[Operator Instructions] Your first question is from the line of John DiFucci with Guggenheim Securities.\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC, Research Division_\n\nWell, first of all, congrats on elevating Mike Gregoire to the Chairman position. I think he fits really well\nwith our view at least of how you guys approach the business. He's pretty straightforward. It's also nice to\nsee you demonstrate the profit power of the software model with both the results this quarter, but also in\nyour guidance for next year. So it's great to see [indiscernible]. But my question, Pete, you said guidance\nreflects a worsening macro. So it sounds it's a little more conservative than usual, which I think is the\nright thing to do here.\n\nBut last quarter, you gave some specifics around go-to-market metrics. And you talked about positive\ncomments on pipeline, close rates, sales productivity, [indiscernible]. You also said you'd be close to a fully\nramped sales force, and I think you sort of mentioned that too here. Can you sort of hit some of those, do\nyou think that are most important? And what you're -- what is implied in guidance in this year? Are they\nall -- are you assuming all of those things sort of moderate throughout the year? Or are there some of\nthem that actually hold steady and some sort of moderate?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo John, I'll parse that question down to what you asked. So let's start with Q4. We exceeded our\nguidance relative to the expectations we have set based on advanced booking and larger transactions that\nwe did. But as we built through the quarter, we saw a nominal worsening relative to past trends. And what\nthat meant was a slight degradation in the close rate and an elongation of the sales cycle.\n\nWe're seeing a strong pipeline. It's the close rate that we're seeing the slight degradation on. So given\nthat phenomena, what we've opted to do is be conservative in building a nominally worsening guide for\nthose in FY '24 as it relates to our top line view.\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC, Research Division_\n\nOkay. That makes sense. And if I could, just a quick follow-up to that, Pete. It sounds like the NRR is\ngoing to -- though you said it will decline to the high teens by the end of the year. So it sounds like it's\nprogressively. And I realize that's a trailing 12-month metric. But does that imply that -- should I be\nthinking about that as like the year-over-year subscription growth or perhaps the ACV growth would also\ndecelerate throughout the year too? Or is it not quite that?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo the net dollar retention rate, John, aligns with our billings guide, if you think of the top line, those are\nintertwined. And the same factors that affect the billings guide we just walked through are at play for\nthe net dollar retention rate. So you're seeing a basic macroeconomic impact. We have a pretty healthy\ngrowth rate but there's a macroeconomic impact that puts a slight pullback from those rates, if you will.\n\n**Operator**\n\nYour next question is from the line of Brent Thill with Jefferies.\n\n**Brent John Thill**\n_Jefferies LLC, Research Division_\n\n\n-----\n\nMark, on the enterprise, it seemed like that held up better. Can you just give us a little more color on\nwhat you're seeing and kind of back to Pete's comments in the monitoring of demand? Or where are you\nfactoring in for the enterprise close in the back half? And for Pete, just when you think about the economic\nheadwinds worsening, did you see that across multiple countries? Was it more pronounced in Europe\nversus U.S.? Any color you can get from a geographic perspective would be great.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nBrent, I think one of the things that I was looking for in the quarter was how the conversion of pipeline\nthat extended in the previous quarter played out. So one of the things that was really encouraging to see\nwas in business that did extend last quarter, a lot of that business converted this quarter. And when I look\nat our net sequential adds on over $50,000, $100,000, we saw really healthy numbers. We added, I think,\n138 over $100,000 customers. We added over 240 over $50,000. So I was really pleased to see that.\nSo we continue to see strength there. I think the expectations from customers is clarity on what one's\npresenting to them and how it connects to value. Are you helping me identify new sources of revenue? Are\nyou helping me retain my existing ones? Are you helping me drive savings? So some of them spoke to in\nmy remarks, spoke to that ability to help customers expand or drive savings. And that remains very much\nalive and well.\n\nI think the -- going into the year, I feel like we have a sales team, which is probably the most ramped\nteam we have -- have had heading into a year. So I think that will continue to yield nicely on that part of\nour business.\n\nNow as we make investments in our product, I'm also as motivated to continue to drive that product-led\ngrowth piece, which builds all the future growers. So we do talk about enterprise a lot, but I think there's\nalso some really favorable things coming out this year, which helped lay that foundation for future growth.\nPete?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSure. And then to the second part of your question, we did see more macroeconomic, sort of, what I call,\npressure in Europe. That's one part of it. But between the customer base over here, we saw really good\nsuccess with our larger enterprise customers. And we probably saw a little more pressure with our SMB\nand smaller ARR customers. So that's a little bit of texture where we saw it.\n\n**Operator**\n\nYour next question is from the line of Josh Baer with Morgan Stanley.\n\n**Seoyoung Lee**\n_Morgan Stanley, Research Division_\n\nThis is Sophie Lee on for Josh Baer. I'm wondering if you saw any benefit of vendor consolidation? And if\nyou saw any customers consolidating to the Smartsheet platform? If you can also highlight any customer\nconversations that changed meaningfully in the past quarter and some of the outcome of that discussion?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think on the consolidation front, Sophie, we're seeing -- it's quite common when we have a multi -$100,000, multimillion dollar opportunity that there is presence of others in the environment. I think\nwhere we benefit is we have very commonly presence within multiple nodes of the business. We remain,\nI think, really grateful for those high conversion rates in those situations. I spoke to one of those in the\nbiopharma space this year, which was a bake-off where we were able to demonstrate the value and they\nmoved quite quickly. That is going to be a very large account for us over the next 10 years.\n\n\n-----\n\nSo I would say the number of times, there is that formal RFP really high diligence bake-off, those are still\npretty few and far between, but they typically happen on the accounts that really matter. So we definitely\nput energy into those when they do come about.\n\n**Operator**\n\nYour next question is from the line of Alex Zukin with Wolfe Research.\n\n**Aleksandr J. Zukin**\n_Wolfe Research, LLC_\n\nGood to see a solid quarter, and congrats on kind of the margin guide. Just 2 quick ones for me. First, if\nwe dig in a little bit to the macro factors that you saw in the quarter versus what you guided to getting\nworse. I guess clearly, your churn was strong at some 4% but maybe if you split up what you're seeing\naround expansions with existing customers versus net new, where are you seeing that bigger impact from\nthe macro, any downward pressure on renewals? And then I have a quick follow-up.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo Alex, I'll take your question in pieces. So first of all, the net dollar retention rates are fairly healthy.\nAnd the pullback that we've seen is on the expansion side of it tied to sort of what's happening in the\nmacro. And what we've seen is it's been relatively strong with our larger customers and our enterprise\ncustomers, and there's a little more pressure with the SMB and smaller ARR customers. So that's how\nwe've seen it play out. We haven't seen, as I said, the churn number materially get impacted. So we've\nseen fairly strong commitment to the Smartsheet platform.\n\n**Aleksandr J. Zukin**\n_Wolfe Research, LLC_\n\nPerfect. And then, I guess, with respect to the margin guidance, maybe talk about through the linearities\nthrough the year, the exit rate that we should be looking at for fiscal '24. And specifically, as you\ncontemplate kind of this net new growth algorithm -- growth profitability algorithm where your billings\ngrowth is at that kind of 20% level, what is the aspiration around sales efficiency in terms of that magic\nnumber or the ability to kind of generate a balance of both?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo I'll start by saying that this is a big market, and we think there's plenty of room in the growth in this\nmarket long term. We're bullish in this market, and we are the leaders in the enterprise segment and\nacross the whole category. So when we think of this business in terms of the longer-term growth, we see\nthis as a solid growth.\n\nNow there's going to be macroeconomic adjustments as we go through different cycles of macroeconomic\nchange. So that's one part of it. But the second part of your question is on the profitability and how\nwe think of that moving forward. We're going to continue to be optimizing essentially the scale we've\nattained. So if you think of the scale we've achieved, we don't need to add a lot of resources just given\nthe scale in terms of where we're at. And we're being more and more efficient because the -- every dollar\nwe've already gained cost us a lot less to serve compared to the dollar we need to invest to gain. So that's\nplaying into the economics you're seeing in sales and marketing is going to continue through. So you're\ngoing to see that play itself in the future as well.\n\n**Operator**\n\nYour next question is from the line of Terry Tillman with Truist Securities.\n\n**Terrell Frederick Tillman**\n_Truist Securities, Inc., Research Division_\n\n\n-----\n\nI had to look at the press release like 3 times because I kept looking at -- is that $110 million of free cash\nflow and surely it was. So great to see that. I have 2 questions. The first one is a multi-parter. And then\nthe second question, I'll follow up with. But on the first question around product and packaging. I think,\nMark, you said you have 3,300 customers that are considered enterprise. But I'm curious about is the\npenetration of Advance now in that segment? And then if we take a step back, if we're looking at 23% to\n24% growth in the total revenue, how should we be thinking about the enterprise segment? And then I\nhave a follow-up around [indiscernible].\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nTerry, the 3,300, again, that ties out to the large enterprise. That's over 10,000 employees. We obviously\nhave many more companies north of 2,000 employees as well. So in that very large segment, it is still\nreally early innings for Advance. We have -- while the bookings do tie out to a lot of the larger transactions\nwe have, it's a minority of that base. So we think it's still -- we're trying to figure out ways in addition to\nour people-based processes to get these capabilities presented to people.\n\nAs I said on past calls on some of our road shows, we are working on both getting our professional sales\nteam able to solution advise and do outcome mapping with people, while getting our advanced product\nline into a self-discovered state. So what that means is people at those 3,300 customers using our product\nin the context of what they're trying to solve, whether it's integration, whether it's providing advanced\naccess to data, having those things presented to them [indiscernible] having them experience those things\nand then do -- really have inbound demand to us saying, hey, we use this thing, we'd like to talk to you\nabout this capability, which ultimately leads to a discussion of Advance.\n\nSo we are still, call it, second inning on the Advance penetration as it relates to these super large\ncustomers. What's neat though is that we have enough data points now that really help us understand\nhow people are adopting those, what it means for connected users and how that flows through on the\neconomics.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nAnd Terry, the second part of your question is that -- was on the 23% to 24% revenue growth and how\nthat parses out across segment. So our revenue growth is a function of our billings and our net dollar\nretention rates, you think of the largest customers, they grow with us the fastest as we -- as Mark shared\non our biggest large enterprise customers, you can see the growth rate is really quick. And the best part\nabout that is they will grow faster than our median growth rate but what's interesting is that our biggest\ncustomers are the most profitable for us as well. But that's the scale that leads to the $110 million you\nsee, which you referenced at the start. So we're pretty excited by those economics.\n\n**Terrell Frederick Tillman**\n_Truist Securities, Inc., Research Division_\n\nYes. Got it. And I guess just following up on the first part of the question. I mean, Mark, you were kind of\ngoing down the path of product discovery. And I know we've talked about that a bunch in the past. You\ngo on the website. And if you just look at the sheer number of capabilities, a lot of these folks probably\ndon't even know all of what is under the hood, but is there a point in time this year where there is a major\nkind of milestone where whether it's the technology, the AI or people they could really unleash this where\npotentially this could become an upside driver around some of the product discovery initiatives on whether\nit's billings or revenue?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes, Terry, we expect to benefit from this beginning in the second half. So engineering is underway right\nnow. Some of that self-discovery will be available heading into the second half. And consistent with how\nPete and I have forecasted the business, until a new idea, a new concept, the new innovation yields, we\ndon't bake it into our guide. So I would see that, Terry, if it performs to be incremental.\n\n\n-----\n\n**Operator**\n\nYour next question comes from the line of Michael Turrin with Wells Fargo Securities.\n\n**Michael James Turrin**\n_Wells Fargo Securities, LLC, Research Division_\n\nGreat. Appreciate you taking the question and nice job with the close of the year. I think given the\nprepared remarks, the focus on enterprise is clear. Could you just speak to how margin complements\nthat? I would think that could prove more people heavy, but clearly not the case given you're giving 10\npercentage points of implied free cash flow margin expansion into next year. So can you just add more on\nwhat enables that from the Smartsheet side and how you're able to balance both an enterprise focus and\nthe margin expansion in the current environment?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSure. So Michael, 2 parts of it. The first one is, when you think of the enterprise customers and you think\nof their -- the growth rates they have, that's a really high number. It sort of is better than our average by\na fair bit. And what that does for us is it creates a space where if you're looking at our growth and you're\nlooking at how much we invest in retaining the dollars we've already got, that's a fairly low number.\n\nSo that provides the basis for the margin accretion. We are investing in getting the new dollar, but\nthe base is growing by such a large number that it provides natural scale impact benefit to sales and\nmarketing. So that's one part of the equation. And the second part of the question is just a simple part of\n-- we hired a lot of people last year given the size at which we are, and we don't need to hire the same\nnumber of people and that lower hiring that we're going to go through this year is margin accretive. Those\nare -- think of them as 2 simple facts that really drive the margin story.\n\n**Michael James Turrin**\n_Wells Fargo Securities, LLC, Research Division_\n\nThat's helpful. And then, I guess, just the other point that you mentioned in the prepared remarks, Pete,\nwas just also making sure you're able to capture the improvement whenever that were to surface in\nthe world. So it sounds like you have some natural capacity to grow into, but just how you continue to\nthoughtfully add capacity to make sure you're striking the right balance?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nYes. For us, we are a sales-assisted motion. And now we've [indiscernible] with obviously the selfdiscovery that makes that motion go faster. But if you think about the way we've modeled it, we've\nmodeled our sales productivity in line with the way we think the macro is going to play. If the macro\nchanges and it turns on us, you will see a ramp in sales productivity because we've already got a ramped\nsales force we brought in this year that's now enabled with the best technique. So we're ready to get\nthere. So that's the upside we see as the environment changes or as Mark mentioned, as we see the\nbenefit of some of these things, which we can measure, we can put more energy behind those initiatives\nand drive upside to the current plan we have.\n\n**Operator**\n\nYour next question is from the line of Pinjalim Bora with JPMorgan.\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research Division_\n\nCongrats on the quarter. Mark, good to hear that you're kind of leaning in on generative AI. Maybe help\nus understand some of the use cases. But more fundamentally, how do you differentiate with generative\nAI when everyone is kind of rushing to implement those large language models? Do you think it becomes\nkind of table stakes at some point versus kind of increasing competitive advantage?\n\n\n-----\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. I love the question. I think those who sprint towards embedding a standard capability that is not\ndifferentiating can say that they're participating. But I actually don't think it really separates you from\nthe competition. I think the marriage between what is distinct and unique to your offering paired with\ngenerative AI, that's the magic. So when we think about our assets and digital asset management,\nwhether it's the generation or images, manipulation of images that is paired with the Brandfolder and\nOutfit offerings.\n\nWhen I think about where we see major value unlocks in our world in terms of Smartsheet [indiscernible],\nI think of the thousands of cases we get every single quarter from people saying, trying to figure out how\nto design the most advanced formula and logic-based workflows in our app.\n\nWe've already done research. We've already generated formulas and logic with the help of generative AI,\nwhich we think will be a major design win for customers. So when you think about -- it's not just driving\ndown the cost, it is unlocking a whole new set of population that in the current form may be dissuaded\nfrom taking the next step. So I think it's in the context of the work people are tracking and designing\nin Smartsheet, the digital asset. And then the third vector is really all of the inflow we get from our\ncustomers into our help center.\n\nPeople are trying to -- when you look at the percentage of cases that come in, it's not break/fix. It's\ntypically grounded in how do I -- and how do I unlock with generative AI is significant. So the very\npromising remark that I made in my remarks ties up to those 3 vectors that we're pursuing. And you'll\nsee us continue to engage our community and our customers through Early Adopter Program in the\ncoming quarters. And I would say I'm quite bullish for the out years in terms of what that means for our\ncustomers.\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research Division_\n\nGot it. Understood. And Pete, one question for you on the FCF guide. Obviously, it's extremely strong. But\nhelp me understand kind of the context with respect to stock-based compensation on that. Seems like SBC\nis growing about 23%, our understanding is that hiring is probably going to moderate. Help us understand\nthe FCF guide versus the SBC number. Is there a change in kind of comp structure going into this fiscal\nyear?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo the guide we provided obviously shows an improvement in the GAAP margins as well. So you can see a\nproportionate improvement in the GAAP margins consistent with the non-GAAP margin improvement, and\nit embeds a stock-based compensation element that basically shows it's being -- we're managing it to be\nflat year-on-year. And we've taken a sort of special emphasis and initiatives that we can use to reduce the\nstock-based compensation.\n\nObviously, there is a stacking effect that happens in stock compensation of previous historical brands. So\nwe're very mindful of what we're adding into the pile. And for example, this quarter, we made the change\nto convert the bonuses we paid to senior employees, which used to be in stock to convert them to cash.\nThat's an example of, among many others of how we're managing stock-based compensation.\n\n**Operator**\n\nYour next question is from the line of Rishi Jaluria with RBC Capital Markets.\n\n**Rishi Nitya Jaluria**\n_RBC Capital Markets, Research Division_\n\nWonderful. First, I wanted to maybe hit a little bit on the macro side. And what sort of impact have you\nseen from your existing customer base? And what are you kind of contemplating from the seat count\n\n\n-----\n\nreductions or I guess the layoffs you've been seeing across and what that means on the seat count side? I\nknow you're very well diversified, but we've seen a lot of layoffs in tech. So maybe you could talk through\nwhat you've seen so far, what you're modeling and any tools that you've kind of had in your arsenal to be\nable to counteract that or maybe slightly offset that? And then I've got a quick follow-up.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nYes. So the -- for us, the major element of what we're seeing is when you think of the expansion, it's\nreally on the gross expansion side of it. We're not seeing anything more than the normal historical\nmovement on what we would consider reduction. And to parse that even further, we are seeing sort of\nwhat I call some seat churn, but that's not unusually different from the capability churn we see. So it's\nsort of aligned and moving in lockstep together.\n\nSome part of that obviously comes down to what we're doing. So what we're doing is we don't have an\nELA type model. What we have is the earned enterprise, which means we don't sell seats ahead of their\nusage. People are using them, they leverage them. It is the same concept we use for connected users.\nYou're not paying for users you don't need. That really helps keep people on the side of the ledger where\nthey're staying with what they have. And then the question really becomes one of, what are you adding to\nthe list? Or how much are you going to add and when are you going to add those?\n\n**Rishi Nitya Jaluria**\n_RBC Capital Markets, Research Division_\n\nGot it. That's helpful. And then the other kind of macro-related question, I wanted to better understand.\nPete, when you were talking about the impacts that you're modeling, you've seen lower close rates, you're\nassuming that degrades further, which makes a lot of sense. Have you also seen deal compression as\nwell in terms of you thought a deal would be, call it, $1 million in ARR, and it ends up coming at less than\nthat, $800,000 or whatever be the case? And what are you modeling in terms of deal compression going\nforward? Is that embedded in guidance?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nYes. So Rishi, we've modeled the trends we've seen. And so what we have modeled is some degradation,\nthe close rate. We've modeled some elongation in the sales cycles. And the deal compression that happens\ntypically is people deciding not to buy is not the issue, they're buying either things a la carte and in\nsmaller pieces. So it's still a healthy expansion rate, which is what I was looking at. Looking at our\nexpansion rate is healthy. And even the one we've guided to is a healthy expansion rate. It's just a matter\nof moderation in the macroeconomic phase that exists.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nRishi, I think one thing also that has been helpful is there are some of the transactions this last quarter,\nI would class as compliance-based licensing. So we have an agreement with you, you use the product\nextensively. You have all these connected users and that discussion happens around, okay, here's the new\nlevel at which you're engaging with the platform. It's not you making a choice over, oh, I think this would\nbe interesting, I didn't get value. It's a decision you made quarters ago that you're not clicking into and\nthose discussions are usually much more high velocity because it's really maintaining compliance than it is\nmaking a new business decision.\n\n**Operator**\n\nYour next question is from the line of Jackson Ader with SVB Securities.\n\n**Jackson Edmund Ader**\n_SVB Securities_\n\n\n-----\n\nThe first one, just given that these things are happening concurrently, like how confident are you -- there's\nbeen a lot of discussion with [indiscernible] how confident are you that none of the [indiscernible] or close\nrates are impacted by some of the expense cuts that you've made over the last kind of 6 to 12 months?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nJackson, the short answer to your question is, if we've made expense reductions, we've made them\nin areas which are ancillary to the core selling or product areas. So we made changes, for example, in\nsupport resources. We made changes in expenses that we spend on, we just reduced the dollar value\nof those normal procurement type of things. So we haven't -- we've actually maintained our sales\ncapacity, and that's one thing we're pretty excited about going into the year. So when you talk about deal\ncompression or you talk about elongated sales cycles, that's really about what customers are feeling and\nexperiencing as they're making plans of their own on how to plan their business.\n\n**Unknown Analyst**\n\nOkay. Yes, that makes sense. So they're outside of the scope that you would expect to see. Okay. And\nthen, Mark, when we're talking about those rare instances where it might be a bigger RFP and Smartsheet\nis already installed in a couple of [indiscernible], are there any business units that you feel like have an\noutside influence on the ultimate company-wide decision, whether it's finance or IT or sales, marketing,\nwhatever?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI would say [indiscernible] user population as well as those responsible for ensuring a safe and scaled\nenvironment. And I would say there are certain things that are non-negotiables where you have to\nconform, whether that's in how it's administered, how you are licensed, how you allow non-licensed\npeople to interact with the information that is being stored. Those are all things that are, I think, pretty\ntried, true and tested in that enterprise environment. I would say that the organization from a functional\nstandpoint, which I think are getting outsized sort of wait on the scale right now are those who are tying\nout to revenue and both growth and retention. So I think the presence of field ops, any organization is\ndirectly tied to customer experience, and financials, I would say, it plays a larger role today.\n\n**Operator**\n\nYour next question is from the line of DJ Hynes with Canaccord.\n\n**David E. Hynes**\n_Canaccord Genuity Corp., Research Division_\n\nMark, can you talk about what you've seen with some of your more marketing-oriented use cases,\nBrandfolder, Outfit? It just feels like that's a category of spend that's seeing more scrutiny. So it would be\ngreat to get any observations there.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. I think conversations in the marketing and creative management arena that tie out to sort of concrete\nfinancial benefit, like that presentation of value is landing very well. I think things are that are more\nqualitative in nature in terms of being more confident about the work you're managing, being a little bit\nmore clear on the status of something still important, but probably not enough to tip the scales.\n\nSo on most of our large marketing-based solution discussions now, we are grounding it in accelerating\nthe completion of work, the elimination of third-party resource to get that work done and then the\nquantification of what that campaign or that asset is actually yielding for your company. And people are\nvery interested to learn about how to quantify that. And the more weaken our marketers in going to their\nCFOs, Pete, no offence, right, in presenting the value, I think that really gives the marketing teams much\n\n\n-----\n\nmore confidence. So it's a newer arena for many marketing organizations, but I think it's -- it actually is\nquite promising for the year ahead.\n\n**David E. Hynes**\n_Canaccord Genuity Corp., Research Division_\n\nYes. Okay. That's helpful. And then, Pete, just a follow-up for you. So look, in the context of the big\nmargin upside next year, and I know this is a question you won't want to answer, but can you help frame\nlike what kind of sales capacity you're thinking of adding in fiscal '24, maybe relative to what you did in\nfiscal 2023? And the reason I ask, like, I think investors are going to want some assurances that we're\ncontinuing to invest and position for growth in fiscal '25 and beyond. So any color there would be helpful\nfor folks.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo DJ, I think we're committed to growth. So think of that growth coming from a more efficient model.\nSo quite simply, if you think of the size of our base that we bring in for renewal, the cost in terms of what\nit takes to service that base is much lower than what the cost is for bringing in a new dollar of business.\nThat economic or that effect is going to stack into how many resources we need. And now we will continue\nto hire. We're going to hire this year as well. We'll hire next year, but the classes in size will be smaller\nthan what we have historically done. So you see an accretion to margin as a part of our longer-term plan\nto grow margins.\n\n**Operator**\n\nYour next question is from the line of Scott Berg with Needham.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\nEveryone, congrats on the nice results this quarter. I guess, Mark, I want to start with a question on a\ntotally different kind of, I guess, agenda is the company is pretty close to a $1 billion revenue run rate.\nHow does Smartsheet look differently at a $2 billion run rate, do you think?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think the enrollment, Scott, of many more customers having a diversified experience in Smartsheet, that\nwill be very much present at $2 billion. So today, we talk about thousands of companies benefiting from\nAdvance. I think a couple of years from now, we're going to see tens of thousands of organizations having\na much more complete Smartsheet experience.\n\nSo a couple of years ago at Analyst Day, someone said, what's the thing you would most like to have\nin your product and you know what, don't give me another thing. I want our customers to have perfect\ninformation on what's possible. Now fortunately, I have done a whole bunch of them in those 2 years, but\nI want those assets, those capabilities to land with our median customer. So we are working very hard,\nnot just to cater to the largest of the large, but how do you get that midsized customer and that upper\nmid customer and even an emerging customer to understand the power of the platform. So I believe\nyou're going to have a much more cross-connected product experience across the various disciplines\nwithin Smartsheet, whether it is on strategic transformation, it's marketing creative management, it's\nPPM, it's core work management. You're going to have much more complete usage. And today, you'd see\n-- you'll have evidence of hundreds of customers using us at scale, doing very sophisticated things that\nwill be driving towards the [indiscernible].\n\nAnd I would say what that will result in is not only more customers, but also a significantly higher average\ncontribution per customer. So our ASP will climb meaningfully over the next few years as a result of that.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\n\n-----\n\nGot it. That's very helpful. And then from a brief follow-up perspective, a lot of discussion on the macro,\nobviously, not a surprise given what's going on. But how do you all view your opportunity or recent\nworking with partners? Partners continue to become increasingly more important component of, I think,\nsome of your sales process, it's not that they necessarily sell directly, but they seem to influence it. Are\nyou seeing anything different out of partners recently than maybe what you had in the past?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI'll start, Scott, by talking to -- a message I sent to -- a video message I did for the kickoff of one of\nour global SIs who has one of their global practices building a set of workflows and solutions on the\nSmartsheet platform. In this -- for this large global SI, every single M&A transaction and divestiture\nwithin this industry practice is backboned by Smartsheet. Every single project they do is navigated with\nSmartsheet. Every time they leave the customer site post that transaction being completed, Smartsheet is\nleft behind with the customer for it to continue in those operations.\n\nSo that is a few years ago, those types of discussions, those types of experiences never existed. It was\nmuch more the midsized SI. We still have hundreds and hundreds of SIs in the middle range who are\ncontributing, influencing. We do as much co-selling with them as we do them closing deals independent\nof us. But I would say the really notable ones, the ones that sort of give me the most confidence in terms\nof high impact are those larger players who are developing practices around us. And that is not just one\nglobal SI. We have 3 of those in play right now.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\nVery good. Congrats on nice results this quarter.\n\n**Operator**\n\nYour next question is from the line of Robert Simmons with D.A. Davidson.\n\n**Robert Edward Simmons**\n_D.A. Davidson & Co., Research Division_\n\nI was wondering, given the way valuations have generally come down and maybe stabilized a little bit\nprivately, what's your current thought for us on doing further M&A? And kind of how much cash do you\nneed to keep on your balance sheet? So kind of what's going in your capacity or bandwidth?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo we have a healthy cash balance. And our approach to M&A has been that we want to look for\nadjacencies when they come up, but they have to be accretive relative to our margin model. So we're not\nlooking for visionary M&A that doesn't have a clear payback or a clear ROI. So that's been our strategy,\nand we continue to pursue that aggressively.\n\n**Robert Edward Simmons**\n_D.A. Davidson & Co., Research Division_\n\nGot it. And then talking about an existing one. Can you tell us about how it has been performing, a little\nmore quantitatively perhaps than you did before in terms of like a lot of -- like the actual performance?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo Outfit has performed to our expectation. It's done a really kind of effective job. The way we went\nabout Outfit was it really tags along with Brandfolder as a part of templating that you need when you're\ndoing Brandfolder deals. And we're seeing a good sort of, what I call, synergistic effect and the product\nintegration we're thinking about between Brandfolder and Outfit makes this even more compelling when\nthat comes through.\n\n\n-----\n\n**Operator**\n\nYour next question is from the line of Jacob Roberge with William Blair.\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nCongrats on your results, especially on that profitability guidance. It was awesome to see. I understand\nthere was a slight degradation in close rates and sales cycles, but you're still seeing some pretty strong\nnew customer activity with new bookings and the user growth number. I know those customers start\nsmall, but were there any particular segments or industry verticals that stood out on that front?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nI think if you look at the segments that come out for us, which are very strong, in that new user, et cetera,\nwe've launched essentially a lot of new activities with customers. And what we're seeing is our largest\ncustomers that come in from the largest companies, new nodes within companies coming forward, they\nseem to be really resonating with our product. And what they're hearing is capabilities can be launched\nearlier. We still do deals with Advance, which surprises sometimes us internally that says it's a new\ncustomer, they start with the brand. That's somebody deciding that they don't want the primitives as they\nget started. They just want to start with what gets them the lift in productivity that they need.\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nOkay. Great. And then would love to just touch on what you're seeing in the market from a competitive\nperspective. It seems like some of your competitors are calling out some headwinds and undergoing some\nfairly large risks, while you're obviously continuing to execute pretty well. Have you started seeing any\ncompetitive benefits in the pipeline as a result of those changes?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo what we are seeing is -- 2 things happening. First is the market for hiring talent has obviously gotten\nbetter, which is a macro statement about everything we've done. And then the one thing we are finding\nis on the marketing side, the competition for [indiscernible], et cetera, is proving to be easier. The cost is\ndropping over there. So we're benefiting on those 2 fronts.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think in terms of the teams in our pursuit, the large opportunities that we pursue, where we have\nestablished footprints, those are very rarely highly contested. It's really us demonstrating value and\nseeking greater investment from our client. It's pretty rare that one of our large existing customers that's\ngrowing quickly that they're in the process of reconsidering -- considering a platform change. So it's -- we\nreally haven't seen that manifest or the median sales cycle for us.\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nGreat. Congrats again on the great results.\n\n**Operator**\n\nYour final question comes from the line of Steve Enders with Citi.\n\n**Unknown Analyst**\n\nThis is George on for Steve. I guess on the macro, if you could discuss the degree of linearity you saw\nthrough the quarter, it sounds like things may be progressively got worse on the conversion rates and\nsales cycles. So just any comments there. And then what you've seen in February and March so far?\n\n\n-----\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo as we looked at the quarter and how it played out, the build through the quarter had some element of\nwhat I call, degradation that took place between November, moving into December and January, that you\ncould describe as the elements I described before, that macro degradation was a function of like elongated\nsales cycles and what I call some degradation of the close rate that we saw. We saw that play out as we\nprogressed through the quarter. So that's first part of it.\n\nWhat have we observed so far in February, I think we've got to a February start, which is consistent with\nthe first month of the quarter. But essentially, the trend we expected to have continue, which is a part of\nour guide. It's built out. We have seen the close rate and what I call sales cycles, not sort of improved,\nthey stayed sort of marginally a tad bit sort of worse than [indiscernible]. So that's how they played out.\n\n**Unknown Analyst**\n\nGot it. That's helpful. And then one quick follow-up on the margin guidance in your sales and marketing\nspend. I just wanted to kind of understand if there are any kind of KPIs that you would see that might lead\nyou to sort of turn on that investment flow? Or is this kind of all sort of according to plan and regardless\nof what you see in the macro side, you're kind of going forward with this ramp sales force that you have\ntoday?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nI think, George, our model is based on sort of reading the signals and seeing what comes out. So I would\ndescribe it to you is if we see a macro opportunity, as long as the ROI and the payback is there, we will\ncontinue to invest, which sort of provides the stability in op margins, but allows us to accelerate revenue\non one side of it. We'll do the same thing with -- for example, things we generate internally, we see\nsomething that has [indiscernible] and it's driving to good ROIs, we'll continue to invest behind it. That's\nthe approach we're taking.\n\n**Operator**\n\nAt this time, I will now turn the call back over to Mr. Aaron Turner.\n\n**Aaron Turner**\n_VP of Investor Relations & Treasurer_\n\nGreat. Thanks, everyone, for joining us this quarter, and we'll talk to you again next quarter.\n\n**Operator**\nLadies and gentlemen, thank you for participating. This concludes today's conference call. 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(TEAM)\nQ3 2023 Earnings Call\n\n### CORPORATE PARTICIPANTS\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nMartin Lam\nHead-Investor Relations, Atlassian Corp.\n\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n\n\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\n......................................................................................................................................................................................................................................................\n\n### OTHER PARTICIPANTS\n\n\nGregg Moskowitz\nAnalyst, Mizuho Securities USA LLC\n\nBrent Thill\nAnalyst, Jefferies LLC\n\nKeith Weiss\nAnalyst, Morgan Stanley & Co. LLC\n\nFatima Boolani\nAnalyst, Citigroup Global Markets, Inc.\n\nMichael Turrin\nAnalyst, Wells Fargo Securities LLC\n\nKash Rangan\nAnalyst, Goldman Sachs & Co. LLC\n\nMichael Turits\nAnalyst, KeyBanc Capital Markets, Inc.\n\n\nKeith Bachman\nAnalyst, BMO Capital Markets Corp.\n\nFrederick Havemeyer\nAnalyst, Macquarie Capital (USA), Inc.\n\nRyan MacWilliams\nAnalyst, Barclays Capital, Inc.\n\nAdam Tindle\nAnalyst, Raymond James & Associates, Inc.\n\nPeter Weed\nAnalyst, Sanford C. Bernstein & Co. LLC\n\nAri Terjanian\nAnalyst, Cleveland Research Co. LLC\n\nJake Roberge\nAnalyst, William Blair & Co. LLC\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n### MANAGEMENT DISCUSSION SECTION\n\n\nCorrected Transcript\n\n04-May-2023\n\n\n**Operator: Good afternoon and thank you for joining Atlassian's Earnings Conference Call for the Third Quarter**\nof Fiscal Year 2023. As a reminder, this conference call is being recorded and will be available for replay from the\nInvestor Relations section of Atlassian's website following this call.\n\nI will now hand the call over to Martin Lam, Atlassian's Head of Investor Relation.\n......................................................................................................................................................................................................................................................\n##### Martin Lam\nHead-Investor Relations, Atlassian Corp.\n\nWelcome to Atlassian's third quarter of fiscal year 2023 earnings call. Thank you for joining us today. Joining me\non the call today, we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes;\nour Chief Revenue Officer, Cameron Deatsch; and Chief Financial Officer, Joe Binz.\n\nEarlier today, we published a shareholder letter and press release with our financial results and commentary for\nour third quarter of fiscal year 2023. The shareholder letter is available on the Atlassian's Work Life blog and the\nInvestor Relations section of our website, where you will also find other earnings related materials, including the\nearnings press release and supplemental investor datasheet.\n\nAs always, our shareholder letter contains management's insights and commentary for the quarter. So, during the\ncall today, we'll have brief opening remarks and then focus our time on Q&A.\n\nThis call will include forward-looking statements. Forward-looking statements involve known and unknown risks,\nuncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove\nincorrect, our results could differ materially from the results expressed or implied by the forward-looking\nstatements we make. You should not rely upon forward-looking statements as predictions of future events.\nForward-looking statements represent our management's beliefs and assumptions only as of the date such\nstatements are made and we undertake no obligation to update or revise such statements should they change or\ncease to be current.\n\nFurther information on these and other factors that could affect our financial results is included in filings we make\nwith the Securities and Exchange Commission from time-to-time, including the section titled Risk Factors in our\nmost recently filed annual and quarterly reports.\n\nIn today's call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in\naddition to and are not a substitute for or superior to measures of financial performance prepared in accordance\nwith GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder\nletter, earnings release and investor datasheet on the IR website.\n\nPlease keep in mind that we'd like to allow as many of you to participate in Q&A as possible. To facilitate that,\nwe'll take one question at a time. Please rejoin the queue if you have another question or a follow-up and we'll do\nour best to come back to you later in the session.\n\nWith that, I'll turn the call over to Scott for opening remarks.\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n##### Scott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nThank you for joining us today. As you've already read in our shareholder letter, we delivered another solid\nquarter of financial results, and continue the steady drumbeat of innovation to help our customers transform the\nway they work. We've just wrapped Team '23, our annual Atlassian conference, where we gathered with\nthousands of customers and partners.\n\nThe Atlassian community has never been stronger and the enthusiasm for our product announcements was\nunmatched. We introduced Atlassian Intelligence, a virtual teammate which uses generative AI technology and\nleverages the Atlassian platform to accelerate customers work in a way that is tailored to them. With 20 years of\nknowledge reflecting how hundreds of thousands of software, IT and business teams plan, track and deliver work,\nAtlassian Intelligence is like a floodlight, lighting up new customer insights. We're excited to see how AI will\nunleash our customers potential and strengthen our competitive advantage.\n\nIn addition to Atlassian Intelligence, we also announced exciting new features and platform enhancements,\nincluding Confluence in whiteboards and databases, supports up to 50,000 users in our cloud, and Beacon, our\nnew threat detection and mitigation product, just to name a few. It's incredibly exciting to think about the\nopportunities we have in front of us. With unique features and capability for Atlassian Intelligence and the platform\ninnovations we're delivering, customers are more enthusiastic than ever to migrate to the cloud, and we look\nforward to helping them on that journey.\n\nWith that, I'll pass the call to the operator for Q&A.\n......................................................................................................................................................................................................................................................\n### QUESTION AND ANSWER SECTION\n\n**Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes**\nfrom Gregg Moskowitz from Mizuho Securities. Gregg, your question please.\n......................................................................................................................................................................................................................................................\nGregg Moskowitz\nAnalyst, Mizuho Securities USA LLC\n# Q\n\nOkay. Thank you very much for taking the question. Good afternoon, everyone. You mentioned in the shareholder\nletter that the Q4 guide includes an assumption of increasing headwinds for churn and for premium addition\nupsells, even though you yet to see a significant impact in those areas, and I think that's prudent. But wondering if\nyou could contextualize this a bit more for us, for instance, are you basing in a modest incremental headwind, or\nwould you say that it's more substantial in that?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks, Gregg. Really no change to our guidance approach that we took back in February when it comes\nto the cloud guidance specifically. That cloud guidance range assumes the macroeconomic environment gets\nworse in Q4 and year-to-date trend lines continue into Q4. You're right to call out the fact that the low-end of that\nrange not only assumes continued weakness in the two drivers that we've seen to-date around paid seat\nexpansion at existing customers and free-to-paid conversions, but it also does include some macro impact to\nareas that have held up well year-to-date, like churn, upsell and migrations.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nSo, we do expect and have built in pretty substantial macroeconomic headwinds at the low-end of that range. The\nother thing I'd call out really quickly is, if you take that Q4 guidance, it puts our full-year FY 2023 cloud guidance\nat 37% year-over-year. That's squarely within the range of the 35% to 40% we provided in February. So really no\nfundamental change overall in our cloud outlook or our approach to guidance.\n......................................................................................................................................................................................................................................................\nGregg Moskowitz\nAnalyst, Mizuho Securities USA LLC\n# Q\n\nThank you, Joe. It's helpful.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Brent Thill from Jefferies. Brent, your question, please.**\n......................................................................................................................................................................................................................................................\nBrent Thill\nAnalyst, Jefferies LLC\n# Q\n\nJoe, EMEA grew 22% this quarter, I think last quarter was 30%. It seems like you had some weakness in the\nregion. Can you just give us a sense what happened there, and maybe, I'm just reading too much into the\nnumbers, but anything to call out there?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Awesome. Thanks, Brent, and great to hear from you. I'll start and then I'll let Cameron chime in. In EMEA,\nrevenue trends tend to be quite volatile quarter-to-quarter than the US. And the reason for that is pretty simple.\nEMEA has been slower to adopt the cloud. So there is more data center revenue in the EMEA sales mix. And DC,\nas you know, is inherently more volatile for two reasons. One is revenue recognition. 20% of DC license value is\nrecognized upfront. And then secondarily, customer purchasing behavior around data center pricing changes also\ncreate some volatility. So, I wouldn't read too much into that. It's typically just a function of quarter-to-quarter\nvolatility,\n\nBut I'll pass it to Cameron for more on the customer insight.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. Repeating what Joe said there. But I would like to speak just to the cloud adoption in EMEA. Obviously, we\ndo see cloud adoption lagging behind the US and the Americas. But, in general, over the last year, as we've done\nthings like data residency in Germany, as well as higher requirements for [ph] ban fee (00:07:27) for financial\nservices organizations, we've been able to see more and more of our larger customers in Europe choosing to go\nto cloud. We actually worked with a very large European bank over the last few months, getting them signed up\nfor cloud and we're starting to migrate them today. So, I will say that, although they're lagging, we are seeing that\nadoption continuing to increase more in line with the US numbers.\n......................................................................................................................................................................................................................................................\nBrent Thill\nAnalyst, Jefferies LLC\n# Q\n\nThank you.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.**\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\nKeith Weiss\nAnalyst, Morgan Stanley & Co. LLC\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nExcellent. So, I'm going to sneak in two questions. One, kind of more tactical and short term in nature and one\nlonger term. On the short term – and this is going off of Gregg's question. I think what a lot of people are trying to\nunderstand is what the shape of the quarter was and how demand held up through the quarter, and whether that\ninfluenced sort of the more conservative Q4 guide?\n\nSo, maybe if Cameron, give us a view on kind of like how the quarter progressed?\n\nThe longer-term question comes from sort of – I think the debate that all of us are having around like large\nlanguage models and generative AI, whether they're going to be disruptive or complementary to a lot of existing\nbusinesses? You guys have already rolled out functionality when it comes to [indiscernible] (00:08:43) the ITSM\nside of the equation. So, how do you guys think about that question, sort of the risk of being displaced by people\nutilizing these new technologies versus your ability and what's going to make you sticky and being able to benefit\nfrom them?\n\nAnd does that necessitate, at all, kind of changing the pricing model, moving away from the per seat pricing\nmodel, mainly to better sort of account for the value that you're adding that doesn't take place with the agent itself,\nbut takes place on the platform actually doing a lot more of the work?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nThanks for the question, Keith. This is Joe. I'll take the first part with Cameron, and then Mike will chime in on the\nsecond. In terms of the linear nature of the quarter, we did not see anything unusual about the linearity of our\nbillings in the quarter nor did we see anything unusual in the month of April where trends were consistent with Q3.\nCam?\n......................................................................................................................................................................................................................................................\nKeith Weiss\nAnalyst, Morgan Stanley & Co. LLC\n# Q\n\nPerfect.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. I'd say, the only thing is, as all of you know, we did a price change on our server and data center license in\nmid-February. That, of course, caused us some behavior throughout the quarter, but nothing significant\nthroughout the quarter beyond the reaction to the price changes. Mike?\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nYeah. Thanks, Keith. Great question. Look, quite clearly, what I can say from Atlassian's point of view, we think\nthat AI, large language models, as you mentioned, is a huge opportunity for us as a business. If you look at our\nfundamentals, we've always tried to solve human problems, not technology problems, all right, which means, we\nhave a lot of customer knowledge and data entrusted to us over the last two decades. We have a fantastic\nplatform to build on top of that connects that knowledge together, and we have a fantastic R&D team to build\nfeatures on top of these things. So, AI allows our customers to be significantly more efficient to get to our mission\nof unleashing the potential of every team. That's what we believe what we did.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nSo, from our point of view, we think our best opportunity to grow our business through the Atlassian Intelligence\nfeature set, is to drive customer growth, right. We have a goal of, in the long term, winning a Fortune 500,000, not\na Fortune 500, and we think these technologies will help us get there. That's why we're including the features in\nall additions, rather than as a separate SKU. It's not a good customer experience, and we think it will slow\nadoption to put it that way around.\n\nWe also obviously have a major trend [indiscernible] (00:11:15) migrations to the cloud in our business. Our\nlargest customers [ph] in data center (00:11:21) have the most amount of knowledge and data built up over time,\nwhich means they can get the most amount of efficiency. And with this feature set being only available in the\ncloud, it's a further reason for them to migrate or bring forward their migrations. And as we know that the migrated\ncustomers have really great economics for Atlassian, faster expansion rates, et cetera. So, that's the reason we're\nlooking at it that way. Fundamentally, yes, a huge advantage for our customers, which is why we're in this\nbusiness in the first place. And secondly, that's how we're looking at growing Atlassian's business through the\nAtlassian Intelligence feature set.\n......................................................................................................................................................................................................................................................\nKeith Weiss\nAnalyst, Morgan Stanley & Co. LLC\n# Q\n\nAwesome. Appreciate the color.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Fatima Boolani from Citi. Please go ahead.**\n......................................................................................................................................................................................................................................................\nFatima Boolani\nAnalyst, Citigroup Global Markets, Inc.\n# Q\n\nWell, good afternoon. Thank you for taking my questions. Mike, maybe for you or Scott, on the Jira Service\nManagement product where a lot of the activity in action is really boosting the use cases that you think can be\ndeployed in specifically around external customer support use cases, and we're familiar with certain vendors in\nthat market. So, I'm curious what else needs to happen to really drive more monetization scale in JSM and\nparticularly, in the context of some of your very large customers, who are working through the head count\nretrenchment process, where JSM can be very [indiscernible] (00:12:51) investment? And then a quick follow-up\nfor Joe, if I may.\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nSure. I can certainly take that for you, Fatima. Look, we remain incredibly bullish on our position in the ITSM and\nESM spaces, and obviously, Jira Service Management is a huge part of that. I think as customers naturally are\nlooking to be more efficient with their spend in a more turbulent economic time, that would lead to advantages. In\nJira Service Management, we'll continue to push those. We've invested heavily with Atlassian Intelligence feature\nsets and virtual agents and all sorts of other technologies that make customers more efficient, make agents more\nefficient, fundamentally allow them to process more requests per day, per hour with, hopefully, greater customer\nfidelity as well. So it's one of the reasons we're incredibly bullish at the moment.\n\nSecond is, Jira Service Management, just to remind people, it lands predominantly in IT teams, but it does have a\ngreat expansion story to other parts of the organization in terms of like HR, finance, marketing, legal areas which\nare fundamentally service-driven parts of an organization that have their customers being other parts of the\norganization. That has long been our thesis.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nAgain, our fundamental philosophy is that there are far more agents, we believe, inside a company than other\ncompanies, I think and the other vendors think, because we're not just targeting the IT team. That said, obviously,\nwe have a wonderful landing spot through the development and IT organization and expansion, and we continue\nto see that throughout the quarter as customers increasingly use Jira Service Management outside of IT teams\nand that's a long-term growth vector for us.\n......................................................................................................................................................................................................................................................\nFatima Boolani\nAnalyst, Citigroup Global Markets, Inc.\n# Q\n\nI appreciate the detail. And, Joe, the question for you is just on the cloud trajectory. I know a lot of us have been\ngrappling with how that segment is digesting and absorbing the pretty meaningful moderation you've seen in seat\nexpansion. And I know you alluded to in your shareholder letter that churn levels necessarily have not increased.\nBut can you help us sort of understand or at least maybe put some sort of a downside cap on how you're thinking\nabout that dynamic where you're really actively trying to manage gross seat churn in order to support that growth\nin that segment?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks for the question, Fatima. When we look at the churn rates, especially customer churn, it's been very\nconsistent and stable throughout the year. That suggests there's nothing that's changed from our structural\ncompetitive position. Customers continue to come to our site, try our products, our monthly active users, our free\ninstances. All of that seems very healthy and strong. So, churn has not been a big issue for us.\n\nThe primary driver of the pressure that we're seeing in that cloud segment is really around paid seat expansion at\nexisting customers and the free-to-paid conversion rates that we've talked about. The remainder of the business,\nwhether it's migrations or upsell or cross-sell, pricing, all those drivers continue to be very healthy from our\nperspective. So that's really been the core issue that we've been working through.\n......................................................................................................................................................................................................................................................\nFatima Boolani\nAnalyst, Citigroup Global Markets, Inc.\n# Q\n\nThank you.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.**\n......................................................................................................................................................................................................................................................\nMichael Turrin\nAnalyst, Wells Fargo Securities LLC\n# Q\n\nHey, great. Thanks. Good afternoon. Appreciate you taking the question. Maybe one for me on margin. We\nentered the year expecting mid-teens operating margin. You just delivered a second consecutive quarter of 20plus-percent. Maybe, Joe, if you can speak to what's driving that uplift?\n\nAnd then as a second part, at the investor session, there was a comment around fiscal 2024 as a year of\ncontinued investment. So any color in helping us square that with just anything else you're doing to help optimize\non the cost side, as we're thinking through the puts and takes of margin trajectory and some of the offsets you\nhave within your control? Thank you.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nYeah. Great question. Thanks for asking. If you look at our operating margin performance in the quarter, we did\noutperform our expectations by 6 percentage points to 7 percentage points. 5 points of that was driven by lower\noperating expenses and better operating leverage. Those operating expenses were – favorability was driven in\ntwo primary areas. First, we have less- than-expected payroll-related costs from lower bonus expenses and head\ncount, including about $10 million in savings related to our restructuring. And then secondarily, we have less-thanexpected discretionary costs in areas like professional services and T&E is part of our plan that we discussed\nearlier in the year to be responsive to the macro impact on our business and align our cost structure with revenue\ngrowth.\n\nI'll let Scott talk to the comments at Team '23. The last point I would make just is, the focus for the team has been\naround maximizing the return on every dollar spent, making disciplined prioritization of resource allocation calls,\nand driving operational efficiencies. And I really believe the team has done a really good job this year of executing\nacross those three things, and that's what you see showing up in that operating expense favorability. Scott?\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nYeah. Just to reiterate what you'd mentioned, Michael, for those that weren't at our investor call or at our TEAM\nConference that, yeah, we did say that we see FY 2024 being a continued investment year. We still see huge\nopportunities out there in those areas. We talked about migrations, enterprise, ITSM that we're being aggressive\nin investing behind, and we expect those investments to continue through FY 2024, of course, taking into account\n\n[indiscernible] (00:18:49).\n......................................................................................................................................................................................................................................................\nMichael Turrin\nAnalyst, Wells Fargo Securities LLC\n# Q\n\nThank you.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.**\n......................................................................................................................................................................................................................................................\nKash Rangan\nAnalyst, Goldman Sachs & Co. LLC\n# Q\n\nHi. Thank you very much. Just a quick couple of introspective questions here. The cloud growth rate is certainly\nlooking to reset for deceleration in Q4. As you look at next year, is there any reason to believe that cloud growth\nrate could reaccelerate at some point in fiscal 2024 based on your assessment of timeline of migrations and the\nproduct readiness?\n\nAnd also, as it relates to generative AI, I'm wondering if you can – and it's been hard to get clarity out of company\nmanagement because it's such a nebulous topic. To the best of your abilities, can you prognosticate if this will\nmean that you will need fewer developers and fewer service people and, therefore, there is the idea of a shrinking\nTAM, but then you gain share relative to the TAM, because your technology will allow to displace workers that do\nnot have generative AI capability, or is it that it actually grows the pie because a number of developers will\nactually grow, because the barrier to software development comes down, so people like me can start to develop.\nHopefully, that should not the case. But how should we think about the TAM implication from a head count\nperspective as a result of generative AI and what it does for developers and service people? Thank you so much.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nHey, Kash. This is Joe. Thanks for the question. Obviously, we aren't providing specific quantitative guidance on\nFY 2024, but I would offer up the following how to think about it directionally, specifically as it relates to the cloud\nspace. But the big caveat I always offer here is, on revenue, there's a lot of moving parts, but the biggest being\nthe macroeconomic outlook, which is highly uncertain. And as you've seen in FY 2023, that can have an impact\non our business. We're not immune to those factors.\n\nBeyond macro, I'd have you think about the following. Mathematically, we will have easier comps as we move\nthrough the next year. We will have a significant event in the second half of the year with the Server end-of-life,\nand our focus there is really on migrating those customers to either our cloud preferably, or data center offerings.\nWe'll also have some benefit from pricing as prior price increases and less loyalty discounts layer into the model.\nAnd then lastly, the decisions that we've made this year around rebalancing and reprioritization to reinvigorate\nrevenue growth will begin to land and have positive impact as we move through FY 2024. So, in the end, macro is\ngoing to play a big role and we'll see what that ultimately brings, but hopefully, that helps you think through some\nof the other dynamics that will relate to cloud revenue in FY 2024. Mike?\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nYeah. Kash, I can chip in if you're looking for prognostication. That's probably my column. I would answer two\nways personally. Firstly, the software world, if you want to think about it, you asked if there's going to be less\ndevelopers, et cetera. My view and our house view, I suppose, is no, right. The simple answer to that is software\nis not demand constrained, it is supply constrained. We are constrained by the supply of developers in the world,\nnot the demand, the number of ideas for pieces of software we could create. So, when you create tooling that\nmakes it possible for efficiency of any form, you will suck up more of that demand with the existing supply. Ergo,\nthe supply won't go down. And number of developers, I don't think goes down. It's not the way sort of human\ncreativity, which is ultimately the way the software works.\n\nSecondly, when you make software developers more efficient, if you're talking about artificial intelligence or large\nlanguage models with cognitive systems and writing code, et cetera or creating parts of software, that makes far\nmore software. The more software there is in the world, that's good for Atlassian in a generalized sense. We're\nnot necessarily working on individual developers. Again, in Jira Software, there are about a quarter of the\naudience are software developers. The more software you have, the more need you have for still designers and\nprogram managers, and making sure that we have the right software that we're building.\n\nYou now have a lot of software to operate, run, and manage. So the more software there is in the world, that's\ngenerally, I think a good thing for Atlassian. There will be puts and takes across this world as it flows through. But\nthose would be my two fundamental points. We maintain incredible optimism for artificial intelligence, and what it\ncan do for us as a business to help unleash the potential of our customers, to help them create and manage more\nsoftware in that market [indiscernible] (00:23:47).\n......................................................................................................................................................................................................................................................\nKash Rangan\nAnalyst, Goldman Sachs & Co. LLC\n# Q\n\nThanks, Mike. I will learn to code. Thanks.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Michael Turits from KeyBanc. Please go ahead.**\n......................................................................................................................................................................................................................................................\nMichael Turits\nAnalyst, KeyBanc Capital Markets, Inc.\n# Q\n\n##### 10\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nHey, guys. I wanted to just talk about data center versus cloud. You're saying that some of those impacts on\nexpansion, free-to-paid impacting cloud. Data center upbeat in the quarter. It sounds like you're talking for only a\nminor decel in data center going into next quarter. So, could you tell us what's supporting that growth on a relative\nbasis versus cloud?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks for the question, Michael. This is Joe. You're right, data center had another strong quarter of\nrevenue growth that accelerated to 47% and was better than we expected. And that was primarily driven by two\nthings; stronger-than-expected renewals and better-than-expected seat expansion for existing customers. We\nwere helped a little by the pull forward resulting from the price change in February, but it was largely consistent\nwith prior year and only slightly higher than our expectations, and certainly not nearly as significant or pronounced\nas it was two years ago.\n\nHaving said that, migrations from data center to cloud remain very healthy. Year-to-date, over 50% of cloud\nmigrations are coming from data center, and that's up from about a third a year ago. So, we've got good progress\nthere as well. And then in terms of the guidance, we do expect growth rates there to moderate a little bit in Q4 and\nbeyond. And that's really driven by increasing migrations from data center and server to cloud, as we remove\nmigration blockers and add compelling features and value to our cloud offering.\n\nAnd then secondly, in the data center, we are starting to lap strong prior year comparables in Q4. And so, that's\nanother factor in the growth guidance that we've given.\n......................................................................................................................................................................................................................................................\nMichael Turits\nAnalyst, KeyBanc Capital Markets, Inc.\n# Q\n\nThanks.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. This is Cameron. I'll just add a little bit on the data center side. Just largely basically talking to customers,\nwe were at Team '23 roughly a few weeks ago, where many of our largest customers are there, and many of\nthose customers are still on data center, have been on data center for many years. Got to say, just the tone with\nthose customers over the last few years, I'd say, last Team a few years ago, three years ago, was always about\nlike why should I move to cloud? What are the capabilities? Are you going to get to my data privacy\nrequirements? You name it. I'd say that tone this year, just talking with all those customers is okay, how do I get\nthere? Right. You deliver the new AI. We have this new functionality. We're bought in. Now help us guide us\nthrough this plan. And I just think that overall total shift has been super positive and helping get more data center\ncustomers moving to cloud going forward.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Keith Bachman from BMO Capital Markets. Please go ahead.**\n......................................................................................................................................................................................................................................................\nKeith Bachman\nAnalyst, BMO Capital Markets Corp.\n# Q\n\nHi. Thank you. My question relates to what Cameron was just talking about. As you think about just\nphilosophically in FY 2024, would you expect data center to continue to outgrow cloud or [ph] do they compare\nwith (00:26:46) some of the other feature set things you're just talking about?\n\n##### 11\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nAnd then underneath that, you've talked pretty consistently about cloud is getting the benefit of 10 points of\ngrowth associated with conversions. As you think about what happens with that 10 points as you anniversary or\nget beyond the server date, which is mid-Feb, a year away from now? Does that cloud conversion go to zero, or is\nthere continued benefit as you migrate longer term from data center to cloud when you, in fact, perhaps move to\nenterprise versions? In other words, is there still a longer-term benefit of cloud conversion or is that 10 points go\nto zero? Thank you.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nThank you. So, this is Cameron. I'll talk to just largely the customer choice ahead of us and you're absolutely right.\nSo, Server end-of-life goes into effect February of next year, and we still have a variety of server customers still\nsitting out there on a variety of sizes that effectively need to make that choice between now and February, and\nmany are doing it month by month. Obviously, many are going to wait for the last minute to make that choice. And\nthey do have two choices.\n\nNow, obviously, we're going to lead and try and get as many of those customers to choose cloud. But, obviously,\nwe have data center as a very strong capable version for them going forward. So, I see that continued\n\n[indiscernible] (00:28:10) we still have a sizable data center customer base on which to continue to migrate\ncustomers to the cloud. So this migration journey that we are on does not stop February of next year. It is a multiyear journey, as we continue to get all of our on-premise customers eventually to the cloud.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks, Cam. And I would say, nothing more to add to that beyond, we continue to invest to grow and\naccelerate that migration to the cloud where we're removing blockers. We're making migration easier through\ntooling and support investments. We're also closing the gap on pricing between advantage pricing on DC and\ncloud with our overall pricing strategy. And just overall, the cloud platform provides the best experience, whether\nit's analytics or automation or AI or collaboration and better TCO. Those factors will only increase over time. And\nthen just to reiterate what Cameron said, there's a lot of runway left on that cloud migration story, and we expect\nto continue to see that even after the Server end-of-life.\n......................................................................................................................................................................................................................................................\nKeith Bachman\nAnalyst, BMO Capital Markets Corp.\n# Q\n\nOkay. Perfect. Many thanks.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Fred Havemeyer from Macquarie. Fred, please go ahead.**\n......................................................................................................................................................................................................................................................\nFrederick Havemeyer\nAnalyst, Macquarie Capital (USA), Inc.\n# Q\n\nHi. Thank you very much. I wanted to ask about Beacon. Actually, it caught my attention in your shareholder letter\noffering – it's, of course, an early access product, but shifting and focusing a bit on cybersecurity as it relates to\njust Atlassian's Cloud ecosystem seems an interest adjacency here. I'm curious, with this early access program,\nare you seeing signs that there's demand across your customer base for just a broader set of cybersecurity\nsolutions? Is this something that you think is specifically monetizable? And is there any sort of scale of customer\nthat is particularly applicable to?\n......................................................................................................................................................................................................................................................\n\n##### 12\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nThanks for the question. Scott here. Just a reminder, so firstly, there's a big demand for these sort of products\nfrom Atlassian – from our customers, particularly at our user conference. And just customers are excited by this.\nAnd if you think about moving to the cloud, customers want to make sure that their data is secured and the things\nthat we can do and OS that we can do and we can see the shape of usage of our products that allow us to work\nwith our customers on flagging things that might be of interest to them.\n\nI just want to remind that this is not a generic security product. This is across our data and our cloud. Now, we\nhave advantages because we have one platform in the cloud and we can offer Beacon across most of our\nproducts. So it's an advantage there from a sort of consolidation perspective. And from an IT admin play, in a\nsimilar way, you've seen us to access on the user authentication side, but this is really a product to help\ncustomers be very comfortable with how their data gets used in the cloud. And in most cases, what we can offer\nhere is again ahead of what other customers could do themselves in a behind-the-firewall setting. And so, this is\njust yet another example of how the cloud is overall better for our customers than what they can do themselves\nand another reason for them to migrate.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Alex Zukin from Wolfe Research. Alex, please go ahead.**\n......................................................................................................................................................................................................................................................\n\n# Q\n\nHey, guys. This is [indiscernible] (00:31:41) on for Alex Zukin. I just wanted to ask you a financial question. If I\nthink about the shape of NRR through the quarter, I know this isn't a metric you guys report to, but just to better\nunderstand the growth that you're seeing in the business, can you just, at a high level, talk about what that shape\nlooked like through the quarter and through April?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks for the question. Unfortunately, no specifics to share with you today on the NRR. Given the macro\npressure and headwinds, we do see on space seat expansion, it is trending lower. There was nothing unusual\nabout that trend in Q3 relative to Q1 and Q2. Those trends just continued into Q3. And I'd say, lastly, the\nunderlying fundamentals in our business remain very strong. We see no change to our structural competitive\nposition. So, we do expect those retention rates to recover once the macro picture stabilizes and improves.\n......................................................................................................................................................................................................................................................\n\n# Q\n\nGot it. Okay. And just as a quick follow-up, appreciate the color on the guide for Q4 of cloud growth benefiting 10\npoints from migrations. Just so kind to have the numbers correctly here, do you mind just kind of telling us like\nwhat that exact benefit was in this quarter in the last two quarters or so? Thank you.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. We've consistently said we're getting, overall, approximately 10 points of revenue growth in the cloud\nbusiness from migrations. That hasn't changed dramatically throughout the year.\n......................................................................................................................................................................................................................................................\n\n##### 13\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\n**Operator: Your next question comes from Ryan MacWilliams at Barclays. Ryan, please go ahead.**\n......................................................................................................................................................................................................................................................\nRyan MacWilliams\nAnalyst, Barclays Capital, Inc.\n# Q\n\nThanks for taking the question. Just on the vertical standpoint, any verticals worth pulling out that may have\nimpacted the quarter or the guide? And, at this point, do you have a sense maybe what percentage of server\ncustomers might choose to remain on server, even past the end-of-life for a couple of quarters after? Thanks.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. This is Cameron. I'll take that. Yeah. Just from a customer perspective, as we mentioned, with over\n250,000 customers and across all industries, geographies with a sizeable type, we see that we can have a\nmassive competitive differentiation for Atlassian, giving us plenty of growth opportunities across the customer\nbase for quite some time. Of course, the trends we've seen in seat expansion slowing down is broad based\nacross the entire customer base that we see today. One advantage we have is that, as every company starts\nbringing in more and more technology to deliver value to their customers, we obviously had to take advantage of\nthat as we are helping companies with technology teams and business teams work better together going forward.\n\nOh, and then the second part on the Server end-of-life thing. Largely, most of those customers we see, there will\nbe some that have a professional license. There will be some customers we believe that most will choose cloud.\nSome will go to data center and, obviously, some will continue to use the server licenses unsupported. Just about\nevery customer size that I speak to, largely is under a compliance requirement or just general IT guidance\ninternally that they do not run unsupported software, and that will be choosing cloud or data center post the endof-life. So, I really see that as a very small portion of the customer base.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Adam Tindle from Raymond James. Adam, please go ahead.**\n......................................................................................................................................................................................................................................................\nAdam Tindle\nAnalyst, Raymond James & Associates, Inc.\n# Q\n\nOkay. Thank you. Maybe one for Mike or Scott. I was going back to my notes from this time last year where you\nannounced free editions of cloud products. And you talked about it echoing an approach from 2008-2009 where\nyou brought in your customer base by offering a $10 starter license. So, if we fast forward one year later, your\ncustomer account is still growing, so you're certainly broadening the base like you did in 2008-2009. The question\nwould be, maybe take us back to the upsell motion from the starter license and compare and contrast that to\nupselling from the free cloud, what you learned then and what you can apply now to improve cloud upsell?\nThanks.\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nHi. Scott here, Adam. Great question. And so, just a reminder for those who haven't followed the Atlassian story\nfor such a long time that back in the 2008-2009 financial downturn, we introduced free versions of our behind-thefirewall products back then, and $10 data, I guess, was really what we introduced back then where you had to pay\n$10 and you got 10 users of our products, down from what was a couple of thousand dollars with our lowest price\nat that time. So, very disruptive pricing changes. And that was a long-term play for us, because we left a lot of\nmoney on the table. People who were previously paying us thousands of dollars are now paying us $10 to get a\nversion of our software.\n\n##### 14\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nAnd the good thing about that is it opens a funnel up to a whole bunch of companies that otherwise would not\nhave considered our products. And over the long term, they go from 10 to 11 to 12 users and then start paying us\n\n[indiscernible] (00:36:44). So, echoing that, in the COVID time period a couple of years ago, we introduced\nbasically free versions of products down from $10 a month in the cloud down to $3. And soon, we saw that open\nthe funnel at the top of our customer acquisition side of things. And so, I mean, natural questions asked, well then\nhow do you convert more of those free customers to paid and how do you change that cycle?\n\nThat is something we do, yeah, but honestly, most of our free-to-paid is based on usage and based on customer\nvalue and changing from 10 to 11 users. And you could – one of the advantage [indiscernible] (00:37:26)\nbusiness model is that customers pay us as they start using more of our features, and we don't even spend a\nhuge amount of energy trying to call them, trying to encourage them. You could waste a lot of money in a sales\nmachine doing that. And so, what we do is spend a lot of time looking at the levels at which we charge for things,\nand make sure that is the appropriate gates, and make sure we provide value to our customers. And so, as they\nuse our products more and more, we get the value as they increase their usage.\n\nNow, not only have we done free at the start of COVID when we saw a couple of months ago more interesting\nmacroeconomic signs, we decided to go harder on ITSM, on our JSM offering where we made it cheaper at the\nlow-end on hand for competitive migration, so people that were switching out from other higher-priced offerings.\nAnd so, Adam, last thing we talk sometimes about the price rises that come through various parts of our cycle, but\nwe also spend a lot of time looking at how do we make it cheaper in other areas, like in order to more\naggressively get market share. And so, for us, it's a long-term play about getting market share, and not really a\nshort-term [indiscernible] (00:38:38) trying to convert those free customers to paid in any particular given time\nperiod.\n......................................................................................................................................................................................................................................................\nAdam Tindle\nAnalyst, Raymond James & Associates, Inc.\n# Q\n\nMakes sense. Thank you so much.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Peter Weed from Bernstein. Peter, please go ahead.**\n......................................................................................................................................................................................................................................................\nPeter Weed\nAnalyst, Sanford C. Bernstein & Co. LLC\n# Q\n\nThank you. I guess, there's two parts to this, kind of both focused maybe on a follow-on even with new customers.\nYou certainly had a nice uptick this last quarter relative to the prior one on net new customers. And I guess,\nthere's two parts of there. One is, we were backing out in our model, what portion of the kind of new revenue\ngrowth was coming from the two? And it looked like you were probably seeing kind of flat quarter-over-quarter\nrevenue contribution from kind of new customers over the trailing 12 months. And most of the headwinds are\nreally coming from existing customers. So, does that seem about right that the new customers were probably kind\nof like flattening and it was mostly the existing customers' expansion that that had been the issue?\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. This is Cameron. I'll speak to the net new customer number. So, as we said before, the new customer\nnumber does jump around from quarter-to-quarter for a variety of reasons. That said, very glad to see the\nincrease from Q2 to Q3 with over 6,500 net new customers. It's showing that there's continued demand for what\nwe have, that we still can convert those free customers to paid customers, and it's nice to see the quarter-onquarter increase.\n\n##### 15\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nHowever, I do want to call out that that challenge that we've been mentioning for the last few quarters of our\nconversion rate from free plans to paid plans is still lower than it was historically before we saw this\nmacroeconomic headwinds. As far as net new customers impact into our short term revenue, it is minimal. And\ntoday, where we always focus on the net new customer, overall number is really a better guide for our long-term\nportion of our business.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Ari Terjanian from Cleveland Research. Your question, please.**\n......................................................................................................................................................................................................................................................\nAri Terjanian\nAnalyst, Cleveland Research Co. LLC\n# Q\n\nHi, all. Thanks for taking the question. Just a question on the cloud growth and expectations here. One, given the\nstrength in data center, you called that out as better than expected in the quarter. Does that suggest potentially\nthat future migration to cloud may not be quite as pronounced, given customers are renewing on data center more\nthan you expected.\n\nAnd second, I believe in the shareholder letter, it was called out, for the first time, there was an impact from seat\ncount reductions. Do you believe that's more reflective of layoffs that are being occurring today or more reflective\nof the layoffs that we saw last year? Thank you.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Multi-part question here. This is Joe. I'll take part of it, and then Cam will chime in. I'd say in terms of the\ndata center to cloud migrations, not at all. We expect those to continue to be strong for the foreseeable future.\nCam spoke earlier about the multi-year journey we're on. We continue to add a ton of value in the cloud. We\ncontinue to invest in migration tooling and customer support. We continue to invest in data residency and\nscalability and certifications and extensibility, and all the things that are going to enable more customers in that\ndata center category to move to the cloud. So, we remain very bullish on that opportunity.\n\nCam, you want to take the next part?\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. I'll just clarify the – just we see customers using data center as further investment in Atlassian and our\nmulti-year journey of getting customers to the cloud is very much on track with our expectations, and we\nincreasingly improve our ability to migrate customers every single day. As far as your mention on the seat count\nreduction, in general, I'd say, the biggest issue that we focus on is the paid seat expansion. And customers are\nstill expanding their seats. It's just not at the same rate that we saw before the macroeconomic headwinds.\n\nOf course, there are a subset of our customers, a very small subset, that have reduced their employee count over\nthe last few months. And when their renewals come up, they're renewing at a lower tier than what they previously\nrenewed, because they have less new users in their business. But overall, that is a small overall percentage of\nour customer base. The bulk of where we focus is really the paid seat expansion.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Jake Roberge from William Blair. Jake, please go ahead.**\n......................................................................................................................................................................................................................................................\n\n##### 16\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\nJake Roberge\nAnalyst, William Blair & Co. LLC\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nYes. Thanks for taking my questions. Just wanted to double click on the data center strength you saw in the\nquarter. Is that more a result of new customers starting to land there or upsells within existing customers? Or is\nthat really just the server migrations going more towards DC than you expected to cloud? And then more of a\nhigh-level one, but what's driving the seat expansion for DC versus the headwinds for cloud? Is that primarily a\nresult of the enterprise focus in DC?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks for the question. This is Joe. As we discussed earlier, when you look at that DC strength and\nresilience, it's really driven by two things; better-than-expected renewals; and then paid seat expansions at\nexisting customers. Cam?\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. I have to say, just in the quarter, we have to remember, we did do a price change on data center and that\ncauses customers to make a choice, whether they – if they're thinking about adding users in the future, then it's a\ngood compelling event for them to choose data center. But, once again, we see that past the data center. We\nproved it again and again. We have the ability to move data center customers to the cloud. Over the last year, half\nof the seats we moved to cloud are from data center customers. So, we see this as – within the quarter, it's\nfantastic. People choose data center, so that's great. We can eventually get them to cloud and we're proving that\nevery day.\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. And that concludes our question-and-answer session. I will now turn the call over to Mike**\nfor closing remarks.\n......................................................................................................................................................................................................................................................\n##### Michael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\nI just wanted to say, thank you, everyone, for your questions. Thank you to those who came to our Analyst\nFunction at Team '23. And I hope you all have a fantastic rest of your day.\n\n##### 17\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n04-May-2023\n\n\nDisclaimer\nThe information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data.\nAs such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any\ninformation provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis\nof investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. 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All rights reserved.\n\n##### 18\n\n\n-----\nEND DOCUMENT 2\n\nBEGIN DOCUMENT 3:\n##### 03-Aug-2023\n (TEAM)\n## Atlassian Corp.\n\n##### Q4 2023 Earnings Call\n\n\n##### Total Pages: 17\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n### CORPORATE PARTICIPANTS\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nMartin Lam\nHead-Investor Relations, Atlassian Corp.\n\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n\n\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\n......................................................................................................................................................................................................................................................\n\n### OTHER PARTICIPANTS\n\n\nMichael Turrin\nAnalyst, Wells Fargo Securities LLC\n\nSanjit K. Singh\nAnalyst, Morgan Stanley & Co. LLC\n\nArjun Bhatia\nAnalyst, William Blair & Co. LLC\n\nRyan MacWilliams\nAnalyst, Barclays Capital, Inc.\n\nKash Rangan\nAnalyst, Goldman Sachs & Co. LLC\n\nGregg Moskowitz\nAnalyst, Mizuho Securities USA LLC\n\nBrent Thill\nAnalyst, Jefferies LLC\n\n\nAri Terjanian\nAnalyst, Cleveland Research Co. LLC\n\nMichael Turits\nAnalyst, KeyBanc Capital Markets, Inc.\n\nAlex Zukin\nAnalyst, Wolfe Research LLC\n\nFrederick Havemeyer\nAnalyst, Macquarie Capital (USA), Inc.\n\nPeter Weed\nAnalyst, Sanford C. Bernstein & Co. LLC\n\nDerrick Wood\nAnalyst, Cowen & Co. LLC\n\nAustin Cole\nAnalyst, JMP Securities\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n### MANAGEMENT DISCUSSION SECTION\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\n**Operator: Good afternoon and thank you for joining Atlassian's Earnings Conference Call for the Fourth Quarter**\nof Fiscal Year 2023. As a reminder, this conference call is being recorded and will be available for replay from the\nInvestor Relations section of Atlassian's website following this call.\n\nI will now hand the call over to Martin Lam, Atlassian's Head of Investor Relation.\n......................................................................................................................................................................................................................................................\n##### Martin Lam\nHead-Investor Relations, Atlassian Corp.\n\nWelcome to Atlassian's fourth quarter of fiscal year 2023 earnings call. Thank you for joining us today. Joining me\non the call today, we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes;\nour Chief Revenue Officer, Cameron Deatsch; and Chief Financial Officer, Joe Binz.\n\nEarlier today, we published a shareholder letter and press release with our financial results and commentary for\nour third quarter of fiscal year 2023. The shareholder letter is available on Atlassian's Work Life blog and the\nInvestor Relations section of our website, where you will also find other earnings related materials, including the\nearnings press release and supplemental investor datasheet.\n\nAs always, our shareholder letter contains management's insights and commentary for the quarter. So, during the\ncall today, we'll have brief opening remarks and then focus our time on Q&A.\n\nThis call will include forward-looking statements. Forward-looking statements involve known and unknown risks,\nuncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove\nincorrect, our results could differ materially from the results expressed or implied by the forward-looking\nstatements we make. You should not rely upon forward-looking statements as predictions of future events.\nForward-looking statements represent our management's beliefs and assumptions only as of the date such\nstatements are made and we undertake no obligation to update or revise such statements should they change or\ncease to be current.\n\nFurther information on these and other factors that could affect our financial results is included in filings we make\nwith the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our\nmost recently filed annual and quarterly reports.\n\nDuring the call today, we will also discuss non-GAAP financial measures. These non-GAAP financial measures\nare in addition to and are not a substitute for or superior to measures of financial performance prepared in\naccordance with GAAP. The reconciliation between GAAP and non-GAAP financial measures is available in our\nshareholder letter, earnings release and investor datasheet on the IR website.\n\nPlease keep in mind that we'd like to allow as many of you to participate in Q&A as possible. To facilitate that,\nwe'll take one question at a time. Please rejoin the queue if you have another question or a follow-up, and we'll do\nour best to come back to you later in the session.\n\nWith that, I'll turn the call over to Mike for opening remarks.\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n##### Michael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nThank you all for joining us today. As you've already read in our shareholder letter, we delivered a strong quarter\nfinancial results. We closed out FY 2023 with great momentum in cloud migrations, in enterprise and across all\nour three markets. We generated over $3.5 billion in revenue this year and over 250,000 customers now power\ntheir collaboration on our world-class cloud platform. Amidst a challenging year, we're extremely proud of all that\nwe've accomplished. We said we'd play offense in FY 2023, and that's exactly what we did. We migrated millions\nof users to our world-class cloud platform. We built game-changing innovations such as Atlassian Intelligence,\nlaunching new products like Jira Product Discovery, delivered increased scale on our cloud platform and unlocked\ndata residency in new locations like Germany and Singapore for our global customer base.\n\nWorking deeply with our customers, we're more and more excited about the value Atlassian Intelligence will\ndeliver by leveraging the latest advancements in large language models combined with each customer's unique\ndata and our world-class cloud platform with our two decades of data-driven insights into how teams work, we'll\nbe able to further unleash each of our customer's potential across all our three markets. Today we're seeing our\nbets pay off and that's strengthening our conviction in our strategy. As we enter FY 2024, we're eager to get after\nthose large opportunities and believe we're well-positioned to come out of the year even stronger.\n\nWith that, I'll pass the call to the operator for Q&A.\n......................................................................................................................................................................................................................................................\n### QUESTION AND ANSWER SECTION\n\n**Operator: We will now begin our question-and-answer session. [Operator Instructions] Your first question comes**\nfrom Michael Turrin from Wells Fargo Securities. Please go ahead.\n......................................................................................................................................................................................................................................................\nMichael Turrin\nAnalyst, Wells Fargo Securities LLC\n# Q\n\nHey. Great. Thanks. Appreciate you taking the question. Joe, given it's your first full year guide, maybe you can\nstart by walking us through the process there, the visibility into and confidence in framing those cloud targets for\nfiscal 2024. And there's some commentary in the letter just around the proportions you're expecting between data\ncenter and cloud and just some details in there I think it's useful to bring to the front of the call. So anything on just\nthe signals you're watching and how the end-of-life event is taken into account, all very useful. Thanks.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nGreat. Thanks for the question. I think I'd just start with our cloud revenue guide of 25% to 30%. That assumes\nthe macro headwinds in FY 2023 persist into FY 2024 and that migrations from server and data center will\ncontinue to be strong contributors to cloud growth, approximately 10 points. So we do expect the momentum that\nwe've seen in 2023 on that front to continue. The low end of our cloud guidance range assumes continued macro\nweakness throughout FY 2024, as well as some macro impact areas that have held up really well in FY 2023, like\nchurn, upsell and migrations. Finally, we do expect cloud revenue growth rates to gradually improve throughout\nthe year, driven by the easier prior-year comparables that we have in the second half of the year.\n\nNow, you mentioned data center. In terms of data center, we do expect decelerating revenue growth rates in FY\n2024 driven by a few things. First and foremost, lower migration from server following the server end of support.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nWe do expect greater migrations from data center to cloud as we remove migration blockers and enhance our\ncloud offering. And then of course, data center has difficult prior-year comparables in the second half of the year.\n\nAnd then finally, we expect a steep decrease in our server revenue up to end of support in February 2024, at\nwhich point we'll no longer recognize any further revenue. So that's a general outline of how we're thinking about\nthat for next year.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.**\n......................................................................................................................................................................................................................................................\nSanjit K. Singh\nAnalyst, Morgan Stanley & Co. LLC\n# Q\n\nThank you for taking the questions. This is Sanjit Singh for Keith. One of the challenges of the last couple\nquarters is really the – this free-to-paid conversation, the letter suggests that was still sort of an impact again, this\nquarter. As we go into next year, just wanted to get a sense of what it would take to sort of reignite growth in that\nsegment of the customer base. Is it simply just a better macro or there's things on the funnel side, the sales side\nand the execution side that could help reinvigorate growth in that side of the business.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYes. This is Cameron. I'll speak to the new customer number. So in Q4, we definitely saw that continued\ndownward pressure on our free-to-paid conversion that we've been speaking about largely through the last four\nquarters or so. Although we do continue to increase the total number of free customers out there in the pool and\nserve those customers year-on-year, simply those customers are slower to take up the credit card and purchase\nour software, which is fine. We can be patient and convert them over a longer period of time.\n\nThe bigger shift that we saw between Q3 and Q4 was actually due to something that we had full control of as we\nlook to our budgets, and we're very diligent with all of our budget this year, but we really went into our marketing\ncampaigns then and marketing campaign budgets and looked at ROI of those investments. Based off a deep dive\nof that analysis we were actually able to redirect some of our top-of-funnel spend towards higher value, longerterm customers. The result here was that we got less customers overall in the funnel and converted to paid\ncustomers in Q4. But the customers we did bring in will be by the higher, longer-term value, higher ROI customers\nfor that marketing spend.\n\nGoing forward, as Joe already mentioned, we do continue to believe that the macroeconomic pressure against\nthe free-to-paid will continue. But we will always be optimizing our marketing spend for the highest ROI possible.\nAnd where we see good ROI, we will put more investment behind it.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Arjun Bhatia from William Blair. Please go ahead.**\n......................................................................................................................................................................................................................................................\nArjun Bhatia\nAnalyst, William Blair & Co. LLC\n# Q\n\nHey. Thank you guys for taking the questions. Maybe one for Cameron or Joe. Just as you're thinking about how\nfiscal 2024 plays out, how should we think about the cadence of the migrations that are left as we approach the\nFebruary end of life? And maybe this one's more for Cameron, but who are the customers that are still left on\nserver, do they tend to skew smaller or larger? Anything you can give us there would be super helpful. Thank you,\nguys.\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nYes, Arjun, this is Joe. I'll take it first, and then Cam can chime in at the end. As you mentioned, we had support\nfor our server products in February 2024. Our focus there is obviously on migrating our remaining server\ncustomers to either our cloud or data center offerings. We expect that there will be uncertainty in quarter-toquarter variability based on when and how our server customers ultimately choose to migrate. For now, we are\nassuming the trends we saw in FY 2023 with respect to how many server seats migrate and where they migrate\nto will continue in FY 2024 directionally through end of support. And that at end of support, we expect most of the\nremaining server seats that migrate will migrate to data center and we've also built appropriately prudent\nassumptions for customers who will choose not to migrate in FY 2024 into our guidance. And we'll be able to\nshare more on quarter-to-quarter assumptions related to that server end-of-support dynamics when we provide\nour Q2 guidance next quarter. Cam?\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. Just adding to that, I just want to highlight that this entire transition since we announced the end of server\nsupport almost three years ago has been a multi-year journey and a multi-year investment across all factions of\nAtlassian, whether it's go to market or getting closer to our customers, whether it's R&D teams, eliminating cloud\nblockers, delivering scale, certifications, you name it. And of course, the variety of programs we've rolled out from\nprice changes to loyalty discounts and of course this large compelling event with the end of service support\ncoming up in February.\n\nSo like I said, it's been a multi-year journey and as we've been saying, we're very consistent and very happy with\nour performance along the way. We were able to retain a very large portion of our server customers while getting\nour customers to choose cloud or data center appropriately.\n\nThat said, we have about six months more as we come up to February. We have a significant server customer\nbase still out there. They are of all shapes and sizes, I have to say. But they're the ones who waited the last – to\nthe latest to make this choice, which is perfectly fine. The good part there is we are in a better position than we've\never been to help those customers make the right choice for their company and transition as quickly as possible.\nObviously, we'll incentivize our customers to choose cloud first and foremost in all those conversations, but data\ncenter of course is there and honestly a great option for some customers out there who simply are still not ready\nto move to cloud.\n\nAs far as who will choose what, as Joe said, we largely see that customer choice falling in line with what we've\nkind of seen over the last year. And of course, the customers who wait for the last minute definitely will have data\ncenter as a easy migration path for them if they want to stay on prem.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Ryan MacWilliams from Barclays. Please go ahead.**\n......................................................................................................................................................................................................................................................\nRyan MacWilliams\nAnalyst, Barclays Capital, Inc.\n# Q\n\nThanks for taking the question; two part question here on 4Q cloud results. Could you maybe provide some\ncontext around what the contribution was from migration to cloud growth in the quarter? And how should we also\nthink about the contribution from the expiration of the loyalty discount program to that fourth quarter cloud growth?\nThanks.\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nYeah. Thanks for the question. The first part of the question in terms of migrations, the migrations contribution to\ngrowth in the quarter was very consistent with what it's been in the past. I think we've talked about it being\napproximately 10 points in FY 2023. That was a similar outcome in Q4.\n\nIn terms of outperformance to the revenue guide, the outperformance was driven by stronger than expected\npurchasing in June and primarily in enterprise ahead of the expiration of our loyalty discount program. And that\ncame in the form of both more deals and higher contract value per deal, and it drove strong results in migration,\nseat expansion and upsell to premium and enterprise versions of our products across both our cloud and data\ncenter businesses. And that drove the outperformance there.\n\nThe server outperformance in the quarter was driven strictly by stronger than expected renewals and larger deal\nsizes. And then finally, marketplace outperformance was driven by our pull-through on the stronger cloud and\ndata center sales I noted earlier; hope that helps.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. And this is Cameron. Just from a customer perspective, I just want to say that none of this was really a\nsurprise for the customers. We've been very open along the way for over the last few years about how the loyalty\ndiscount program would be staging down over three years and going away entirely on July 1. And it's that\nopenness that these customers – largely we've been working with them for many months, sometimes with these\nbigger customers for years knowing that this date was out there and giving a large, compelling event to make that\nchoice. Of course, as I already mentioned, we still have another big date out there with next February, and we'll\ncontinue to work with our customers who still remain on server between now and then.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Kash Rangan from Goldman Sachs. Just go ahead.**\n......................................................................................................................................................................................................................................................\nKash Rangan\nAnalyst, Goldman Sachs & Co. LLC\n# Q\n\nHi. Thank you very much. I was curious if you could just comment on the transition. We've had a transition of\nsorts in the company and with the CRO transition, how are you approaching the next year's planning? Are you\nlooking for a new leader within the company, are you hiring somebody outside? What are the considerations on\nthat transition? Thank you so much.\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nIt's Scott here. I just want to say a huge thank you to Cameron for his 11 years at Atlassian. And Cameron's done\nevery job at Atlassian. He's done marketing presales and now eventually, what he's at, running all of our sales\nand marketing, and he's done an incredible job. And when we chatted about this, it's been the right time for\nCameron to step back because the cloud migrations and end of life of server are going so well. So it turns out\nthat's the right time for Cameron to spend a bit of time on skiing given he lives up in Tahoe at the moment.\n\nIn terms of what happens going forward, Cameron has some really strong leaders under him inside the business,\nparticularly on the sales side, he's got a leader that runs most of the sales organization at the moment and so we\nexpect there to be a strong continuity of that leadership.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nAt this stage, we're not saying exactly how that role will be replaced or refilled, but I don't expect there to be\nsignificant changes from what we've done in the past.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Gregg Moskowitz from Mizuho Securities. Please go ahead.**\n......................................................................................................................................................................................................................................................\nGregg Moskowitz\nAnalyst, Mizuho Securities USA LLC\n# Q\n\nOkay. Thank you for taking the question and best wishes to Cameron. For Michael or Scott, you were very clear\nat the Atlassian summit in April that Atlassian Intelligence would be embedded in all of your cloud additions and\nbe free of charge. But since that time, we've seen several software companies, GitLab, to name one of them,\nannounce specific pricing for their Gen AI tech. And so, I'm curious to hear your thoughts on the direct\nmonetization plans that are developing in the industry. Also, if Atlassian Intelligence delivers the value to\ncustomers that you think it can, could all of this potentially make you rethink your approach at some point?\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nYeah. Hi, Gregg, it's Mike here. Thanks for the question. Look, I would start with our philosophy here and longterm thinking as a company. We clearly believe that Atlassian Intelligence and AI and new models are a huge\nopportunity for us. We think that software is supply-constrained, not demand-constrained, that will enable the\ncreation of far more software. We are a content, text-based business and anything that allows you to manipulate,\ngenerate, parse, understand text is very good for us as a company that targets collaboration and knowledge\nworkers. We have a huge amount of data across our set of products and connections to third-party products and\nthe best-of-breed products in the world.\n\nThat is incredibly value for us.\n\nSo we are huge believers in AI and the potential of Atlassian Intelligence to drive significant value change for our\ncustomers. Secondly, our philosophy is to lead with R&D, to build and then customer value before thinking about\nmonetization. I know there may be others in the industry who go the other way around it and announce a price,\nthen build something, then work out if customers care. We don't work that way. We go in the other direction.\n\nSo you've seen us execute that plan and that play many times over two decades, and that's exactly what we're\ndoing in terms of the Atlassian Intelligence. We are super excited and I believe you're at TEAM 2023, one of the\nbest feature set customer resonances we've had at the announcement and the launch of what we demonstrated\nto customers, huge customer excitement. Our job now is to turn that into actual customer usage in a huge manner\nfirst, and that is exactly what we're doing. Those features are now in the hands of the order of thousands of\ncustomers, and we are working every single day to make sure that those features deliver customer value and are\nactually used first.\n\nWe do believe they'll drive significant product competitiveness and unleash the potential of every team, which is\nwhat we're here to do. There are a number of ways we believe, as we've said before, that we gain economically\nfrom the Atlassian Intelligence feature set. Again, first and foremost, we do believe it will continue to drive\nsignificant momentum in migrations of customers from server and data center products to the cloud. Atlassian\nIntelligence features only exist in the cloud and can only exist in the cloud. So anything that is a carrot to further\nimprove that migration flow is a good thing for us economically as a business.\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nSecondly, we do believe it'll drive product competitiveness and improve our new to new customer conversion\nrates and our win rates against competitors in all markets. Worth saying that we have built Atlassian intelligence\nleveraging our cloud platform, which is both world-class and quite unique. It is a great example of why we spent 5\nto 10 years building this cloud platform, because we can ship Atlassian intelligence features in every product, in\nevery category that we're in, every market, to improve our competitive standing across the board. And we think\nthat will come back in new customers and competitive wins over the medium to long term.\n\nAnd thirdly, some Atlassian intelligence features enhance and leverage features that are packaged into premium\nand enterprise editions. So we do believe that it will drive some additional movement as customers go from free to\nstandard and standard to premium and premium to enterprise. Some features do exist in enterprise levels. For\nexample, the Atlassian Analytics features that exist in the enterprise edition, very powerful set of features to be\nable to use Atlassian Intelligence to generate queries for you is one of the resonant features, but that will\nhopefully drive more enterprise edition upgrades.\n\nSo we do believe there is monetization opportunities for us in Atlassian Intelligence in summary, but\nphilosophically we're starting with R&D and building a deep set of core capabilities we believe we can scale for\nthe next 5 to 10 years as this wave takes over all software. And secondly, we are focusing on delivering customer\nvalue first. We are doing it every single day and we remain incredibly bullish about this area of the company.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Brent Thill from Jefferies. Please go ahead.**\n......................................................................................................................................................................................................................................................\nBrent Thill\nAnalyst, Jefferies LLC\n# Q\n\nThanks. Joe, on the operating margin, you're guiding down 200 basis points year-over-year and I think in the\nshareholder letter, you expect that trend to reverse. Can you just walk through that the next couple-year cadence\nand how you're thinking about the investments you're going after and then maybe tie that into that expansion and\nhow you're thinking about how that plays out. Thanks.\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nIt's Scott here, I'll take the first part about that and Joe can get in with the details. And just to remind those who\nmight be new to Atlassian's story, well, I think we've run a very successful and highly profitable business over a\nreally long period of time [indiscernible] (00:22:11) free cash flow, has great margins. And about 18 months ago,\nwe identified a set of opportunities where we wanted to invest heavy arm behind those opportunities than we had\nhistorically. And the three opportunities we articulated to you, our investors – at our Investor Day, were investing\nheavier in enterprise cloud, investing heavier in our cloud migrations and investing more in our ITSM set of\nproducts.\n\nAnd on all three, I mean super happy with the returns we've been getting, migrations were – continuing at the\npace that we thought. We were – ITSM, particularly in this time of consolidation and people looking to get off highpriced legacy vendors, we've seen a lot of competitive switch-outs, and in enterprise cloud, you're seeing now\nsome of the numbers now $0.5 million, $1 million deals in our shareholder letter like we're seeing a great uptick in\nour enterprise segment as well. So all three of those are going really well.\n\nNow, you, as investors have rightly asked, well, what does the shape of that investment look like? How many\nyears are we doing that for? And in our investor letter this year, just that we – just came out today, we shared that\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nwe expect the FY 2024 margin profile to be the sort of lowest point in our margin and we expect them to climb\nover the coming years back to towards our historical norms. Joe, do you want to add any more color to that?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks, Scott. Brent, I'm just going to walk you through some of the mechanics. So in the FY 2024, we do\nexpect operating margins of approximately 18.5% as Scott mentioned. That's lower than this year and it's driven\nby the strategic high-priority areas we're investing in that Scott and Mike have both highlighted, including the\nareas of innovation like AI. Keep in mind, in FY 2024, we'll also be lapping the H2 benefit of restructuring savings\nand lower bonus expense that we had in FY 2023.\n\nIn terms of FY 2025, what's happening there is we do expect continued healthy revenue growth in FY 2025\ncombined with our expectation of improving operating leverage as operating expense growth moderates, as Scott\nmentioned, particularly in the big areas of investment like cloud migrations. And we will continue to drive general\nefficiency improvements with scale. So that's some of the mechanics underneath the philosophy that Scott\narticulated.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Ari Terjanian from Cleveland Research. Please go ahead.**\n......................................................................................................................................................................................................................................................\nAri Terjanian\nAnalyst, Cleveland Research Co. LLC\n# Q\n\nThank you for the question and congrats on the results, Cameron. I know you're leaving at the end of the year, but\ncongrats on a great run. I guess, question for you, a lot of strength here in the quarter on enterprise size. If you\ncould double click, what do you think has changed from a go-to-market perspective, investments into enterprise\nadvocates and the partner side that helped drive some of these larger deals and do you feel like Atlassian's at a\nsteady state now in terms of the investments on a go-to-market side or is there more to come here as you think\nabout the future? Thank you.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nThank you for the question. And yes, we're very happy with the results we had in Q4 and the strength we continue\nto see in migrations and enterprise. But like I said, none of this happened overnight and none of this was\nspecifically just because the go-to-market tends to focus more on enterprise. This really has been a multi-year\ninvestment from Atlassian, largely with the commitment to get closer to our largest customers and deliver –\nhonestly to become the strategic partners that they want us to be.\n\nNow, this starts with R&D, and you see us deliver massive investments in scale. We have 50,000 users in our\ncloud products today, certifications, extensibility, and largely just understanding our enterprise customers' unique\nneeds much more closely. And then of course, we match that investment and go to market by including our\nenterprise advocates, our technical account managers, our customer success managers and so on. And as we\ngot closer, we've been able to get larger deals, longer term commitments, and become the strategic partner that\ncustomers want.\n\nHowever, we've been able to do this all through evolution, as we said, not revolution. And you see that today in\nour sales and marketing spend. So we've been able to actually get closer to our largest customers to do these\nlarger enterprise transactions, all while maintaining largely-industry leading sales and marketing expense,\nsomething that I'm exceedingly proud of and something that I'm very happy with my team will continue to do going\n\n##### 10\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nforward is have that great balance of understanding our flywheel and product-led growth and all those great\nprinciples that Mike largely laid out earlier of how we're even thinking about AI. But then, of course, when we're\nready, go to our largest customers and bring those solutions to them. And of course, get value in return for that.\n\nSo we will continue to get closer to our largest customers but we will absolutely continue to maintain our\nincredible efficient go-to-market structure going forward.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Michael Turits from KeyBanc Capital Markets. Please go ahead.**\n......................................................................................................................................................................................................................................................\nMichael Turits\nAnalyst, KeyBanc Capital Markets, Inc.\n# Q\n\nThank you. Hey, guys. Good evening. So you said in a couple of places that migrations are strong, but you talked\nabout them both to data centers as well to cloud. I was wondering if you could drill down specifically on the\nmigrations to cloud. Scott mentioned things like data residency that were obstacles that were being removed. But\nare we in a position where whether it's because macro feels better people are okay on TCO or some other reason\nthat the actual migrations from let's just call it on-prem whether it's from data center or server to cloud are\nimproving at this point, s that sustainable?\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nThis is Cameron here. So the migration plan like I said is a multiyear program we put in place and as the\ncustomers choosing cloud choosing data center has been very much in line with what we've expected as we\neliminate cloud blockers, whether that's data residency, scale, extensibility and to be perfectly honest, we have a\npublic roadmap where we show all of our customers, here's all the things that we are shipping down the road so\nthey can make the appropriate choices going forward. It's a combination of all those things that have allowed us to\nget these large customers choosing to move to cloud.\n\nOf course, as we've said, there are still plenty of customers out there that aren't ready for cloud, would prefer to\nstay on premises and are choosing data center. And we will continue to see, I think a large portion of customers\ngoing over the next year choosing data center as that option. But that's not a dead end. We largely see that\ninvestment in data center as a further commitment into Atlassian and we've proven again and again that we can\nmove data center customers to the cloud with half of our migrated seats coming from data center customers. So\nonce again, we provide the optionality for the customers throughout, if they choose data center, that's great. We'll\ncontinue to work with them on moving them to cloud and getting the most value from Atlassian long-term. Mike,\nyou got anything to add?\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nNothing Cameron. I think you nailed it. Just re-emphasizing that half our migrated seats coming from data center\nis a really important milestone for us as we continue this long-term journey.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.**\n......................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\n##### 11\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nHey, guys. Thanks for taking the question. Maybe just first, if we look at the cloud revenue growth number and we\nlook at – we try to decompose net new ARR into net new versus migration versus expansion, you've talked a little\nbit about the migration dynamic, but how much – like if we look at the – if we just ask you like a cloud NRR metric\nand how much was coming from expansion, it'd be great to understand that particularly as we're getting into the\nlater innings of the migration. And then maybe just as a follow-up, you talked about healthy top line growth for\nfiscal 2025, you gave the 25% to 30% growth range for 2024, which we really appreciate, by the way.\n\nIs that a durable kind of growth rate? It's obviously a wider range, given the macro uncertainty, but is that growth\nrate likely to stay durable, particularly as maybe the migration tailwinds start to add a little bit as we get past the\nserver end of life?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nYeah. Thanks for the question, Alex. I'd say starting with your last question, in terms of FY 2025, we're obviously\nnot giving any guidance on that. To your broader question, I do believe it's durable. The value that we're adding to\nthe products that cloud brings, it's very specific, the value it delivers to customers, I think there's a lot of\nopportunity for tailwind in that business. And so, directionally speaking, we should continue to see very healthy\ngrowth as I mentioned for FY 2025 that will be driven primarily by cloud as the server revenue base goes away\nand increasingly data center customers migrate to the cloud.\n\nIn terms of your first question on net retention rates, I would just say paid seat expansion and free-to-paid\nconversions continue to be impacted by the economic headwinds that we've seen that would impact that area of\nthe business. In terms of a specific expansion rate, as you know, we don't share quarterly retention and\nexpansion rates. Having said that, we've talked about the macroeconomic pressures and the underlying\nfundamentals in our business outside of that remain very strong, however, and we see no change to our structural\ncompetitive position. So we do expect those retention rates to improve once the macro picture stabilizes and\nbegins to improve.\n\nAnd then as you talked about earlier, I'd also highlight other key aspects of our business, like migrations and\ncross-sell and upsell and monthly active usage. Those all remain very healthy and speak to the highly valuable\nand mission-critical nature of our products. And those will also feed future expansion rate improvement. So our\noutlook is very positive on that going forward.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Fred Havemeyer from Macquarie. Please go ahead.**\n......................................................................................................................................................................................................................................................\nFrederick Havemeyer\nAnalyst, Macquarie Capital (USA), Inc.\n# Q\n\nHi. Thank you very much for the question. Firstly, actually, another thank you for introducing a dark theme as well\nto – for people like me is greatly appreciated, especially when I'm on with some of my colleagues in Australia late\nat night. The question right now is really focusing on the migration tooling that you have as you're looking at and\nkind of reviewing the learnings that you have and the investments you've made into your migration tooling, just\nhow confident are you that at this point you have the server to either data center or a cloud migration tooling on\nramp capabilities really solved versus are there any significant risks you still see for some of those larger\nenterprise customers post server end of life to need to wait a little longer to have additional tools built out. Thank\nyou.\n......................................................................................................................................................................................................................................................\n\n##### 12\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nHey, Fred, I can take that. It's Mike. And thanks for the kudos on dark theme in Jira. It's actually a good example\nof the amazing R&D team we have. It's done properly with design tokens and all sorts of things across our cloud\nplatform using Atlaskit. So it will be coming to other products shortly. It's already in a handful of products but you'll\nsee it all across the area. We have a huge focus on accessibility, which has kept us into migrations. Dark theme is\nquite challenging to do in an accessible way that works to meet all of the standards required for people who have\naccessibility issues when it comes to software.\n\nGets to some of the migration tooling questions that you've asked. Our migration tooling continues to improve\nquarter-on-quarter. We work really hard on the tools to make that as self-service as possible. And largely what we\nare doing is continue to work on the scale and speed of the tools to move huge amounts of data faster and faster.\nThe repeatability of those tools, our customers don't do one-shot migrations, especially the larger ones. They will\nmigrate their data across, test it, migrate it again, and do that multiple times so the tooling becomes incredibly\nimportant to be repeatable and reliable.\n\nAnd lastly, we work with customers who have lots of edge cases. Some of them have 10 to 20 years of JIRA\nfamily or Confluence data on prem. They may have edited their own database. They may have done a whole lot\nof things that we have to take as edge cases to move them across. We continue to work on how to do that as we\nget bigger and bigger customers and we encounter more and more edge cases, more of the tooling is self-service\nand repeatable. And lastly, we are continuing to work with app vendors and our amazing marketplace community\nto make sure that their app data and the apps themselves can be migrated as they move from our on-premise\nextensibility and plugin systems to connect and forge in the cloud. That's quite a unique migration challenge.\n\nI would say, every quarter we get better and better at doing this. We can use less human power to do migrations.\nWe can do bigger migrations. And really proud of how the team is going on managing all of that tooling. So\ncontinuing to improve. I don't know, it's – your question was around, is it solved? It will get better every single\nquarter as it has done for the last three years and we will continue to do that as we migrate more and more server\nand data center customers over time.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Peter Weed from AllianceBernstein. Please go ahead.**\n......................................................................................................................................................................................................................................................\nPeter Weed\nAnalyst, Sanford C. Bernstein & Co. LLC\n# Q\n\nThank you and great to see IT service management growth called out in the note. It was top of mind for us too.\nWe see it as a really large opportunity for you going forward. Obviously it already is a large business. Really\nimpressive to see the 45,000 customers and 80% year-over-year growth. Kind of looking forward how should we\nthink about the total upside from here? Like, what are the profiles of the companies that are the largest\nopportunity going forward that will drive more growth? And how much additional headroom do you see in this over\nthe coming kind of three-ish years?\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nThanks, Peter. Scott here. Look, I think we have a huge opportunity for durable growth over such a long period of\ntime. We operate in three very large markets. And so, take them one by one. You talked about Jira Service\nManagement and ITSM, the opportunity there is we're the challenger in that particular market and, there's plenty\n\n##### 13\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nof large incumbents there and plenty of unhappy customers in those large incumbents. And so there's just\nmassive opportunities for us to take market share in that particular space.\n\nIn our migrations – well, actually let me talk about work management's role, there's definitely huge opportunities\nthere, that's a very large market. And if you look at the stronghold we have around developers and around\ndevelopment teams and when I talk to CEOs these days around the world, like the biggest asks – one of the\nbiggest issues is how do they make the development teams productive, how do they get more out of development\nteams? And when we look at customers consolidating around what work management for all items, they throw out\nother vendors, but they can't get rid of the tools that power their engineering teams. And so we have a huge\nopportunity for consolidation in our work management for all market.\n\nAnd then if I look at the innovations that we're bringing to our traditional Agile and DevOps market, we're a large\nplayer there, but there's just so many different customer problems that we can be solving for them. And you saw\nus launch Jira Product Discovery to target product managers. So if we start tackling more and more personas\nacross there, there's just so much customer value that we can produce. And so I'd say huge opportunities in every\nmarket that we have at the moment. And so I don't really see any limit there. Migrations of our customers from\nserver to the cloud is just a stepping stone for us to be able to keep delivering huge value and increased cloud\nrevenue.\n......................................................................................................................................................................................................................................................\nCameron Deatsch\nChief Revenue Officer, Atlassian Corp.\n# A\n\nYeah. And Cameron here, I'll follow up just speaking with customers as well, the IT service business – as we\nmentioned, 80% growth in our largest enterprise customers with Jira Service Management last year, which shows\nthat, hey, we've struck a vein here with the customers where you look at the trends in the market, customers are\ntrying to consolidate vendors and save money. Jira Service Management for existing Atlassian customers is a\ngreat opportunity. Customers also want their development teams and IT teams to come closer together to work on\na common platform. Jira Service Management provides that absolute capability, and customers want more\nflexibility, quicker time to value of their investments. They don't want to spend 6 to 12 months rolling out these\ntools. They want to be able to purchase software, get it running and start delivering value to their end users, in\ndays, weeks at most and Jira Service Management once again delivers value here.\n\nSo, in the IT service management market broadly, I think we have a very unique offering with a very unique value\nprop at a very unique price point. And all three of those reasons are the reasons why customers continue to look\nto us and invest in Jira Service Management.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Derrick Wood from TD Cowen. Please go ahead.**\n......................................................................................................................................................................................................................................................\nDerrick Wood\nAnalyst, Cowen & Co. LLC\n# Q\n\nOh, great. Thanks. I guess, Joe, this is for you. I wanted to ask about some of the expansion headwinds being felt\nupmarket. I think with your smaller customers, I know a lot are on monthly contracts. So, perhaps, net expansion\nrates normalize quicker, but within your enterprise customers, you often have multiyear contracts. Customers\nwould historically buy seats for growth to take advantage of pricing. And we've heard from other seat-based\nmodels that as growth in the tech world has slowed, expansions on renewals can be a lot more challenging. So\njust curious, is that something you're seeing and do you think we still need some time quarters ahead to fully cycle\nthrough this with kind of longer enterprise contracts?\n......................................................................................................................................................................................................................................................\n\n##### 14\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nYeah. Thanks for the question. Let me just talk a little bit about the differences between SMB and enterprise, and\nI think it will get to your question. The SMB segment of our business is the most sensitive to macro, and it has\nbeen the most impacted over the last year by the macroeconomic headwinds. We also do see the impact of\nchanges in SMB in our cloud revenue sooner than in enterprise, simply given the mix of monthly cloud billings that\nwe have in SMB. So I do expect SMB to be an area that will most benefit in our portfolio if macro improves and\nwe'll see that impact in a fairly timely way in our revenue and P&L when it occurs.\n\nNow, as you point out, enterprise has slightly different dynamics. It's been less macro-sensitive over the last year,\nstill impacted by macro, but not to the same degree as SMB. And as you pointed out, enterprise also benefits\nfrom the investments we've made to unblock cloud migrations and improve enterprise capabilities, including\npremium enterprise SKU value. And they purchase that value through a higher percentage of annual and multiyear contract billings, and that reduces the quarter to quarter revenue variability to some degree. So you will see\nthat play out over time and it does take longer for us to see that goodness from enterprise fully reflected in the\nP&L as a result of that.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Austin Cole from Citizens JMP Securities. Please go ahead.**\n......................................................................................................................................................................................................................................................\nAustin Cole\nAnalyst, JMP Securities\n# Q\n\nYeah. Thanks for taking my question. Congrats on the results. So just cash now exceeds $2 billion on the balance\nsheet, kind of a milestone there. I was wondering if you guys could share anything on how you guys are thinking\nabout M&A strategy at this stage.\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nWell, yes, thanks for the question. I'll talk a little bit just in general about our capital allocation philosophy, which\nreally hasn't changed. The first priority is investment to drive the long-term growth of our business, both from an\norganic R&D and sales and marketing perspective, as well as, as you point out, mergers and acquisitions and\nstrategic investments. And from there, we typically look to opportunistically return capital to shareholders as we're\ncurrently doing through the share repurchase plan.\n\nSo Atlassian has always done M&A as part of its growth strategy and that continues to be part of it going forward\nas well. Scott?\n......................................................................................................................................................................................................................................................\nScott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nI don't think there's any change to our philosophy irrespective of what our balance sheet numbers look like, we've\nalways been a company that thinks about the long term in terms of our investments. And it's not going to change\nas a result of having a large or a small cash balance out there. We look at the right things – [indiscernible]\n(00:44:01) from a acquisition perspective [indiscernible] (00:44:06) we're willing to sit around and wait for\nsomething that really fits us and really provides value to our customers. And so, for us, we're always on the\nlookout for great value assets and we'll do them when the time is right, not irrespective of our bank balance.\n......................................................................................................................................................................................................................................................\n\n**Operator: Your next question comes from Fred Havemeyer from Macquarie. Please go ahead.**\n\n##### 15\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\nFrederick Havemeyer\nAnalyst, Macquarie Capital (USA), Inc.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nHey, I'm back. Thank you. I wanted to also ask on the ITSM side of the business as well in Jira Service\nManagement, just the enterprise growth in particular, I think you noted about 80% year-over-year is looking quite\nimpressive. Just hoping to better understand what's really started to work there to be able to turn on that\nenterprise growth within service management?\n......................................................................................................................................................................................................................................................\nJoe Binz\nChief Financial Officer, Atlassian Corp.\n# A\n\nCameron here. I'll call out the bits – what's driving the enterprise success and IT service management; largely\ncomes off the back of many of our enterprise investments [ph] broadly (00:45:08) at the Atlassian Cloud platform\nlevel, whether that was data residency, whether that's certifications, all the same benefit that we had for driving\nmigrations in large enterprise automatically gets translated to Jira Service Management.\n\nHowever, the Jira Service Management team has also been exceedingly focused on knocking down the specific\nIT requirements of those larger customers and you see that largely show up the validation of that as we are in the\nleadership quadrant in the Gartner IT Magic Quadrant, which basically shows that, hey, yeah, we check all the\nboxes that those customers require while maintaining that unique value of bringing dev and IT together at a get a\nrelatively competitive price point. So it's really the investment across the board in IT service management, as we\nsaid a few years ago, now we're going to double down this area. And as we've paid off those R&D investments\nand focused our go-to-market efforts, as we reach out to our larger customers and we talk to them about\nmigrating the cloud, we're not just talking about getting what they already have over to the cloud, we talk about\nexpanding the overall Atlassian value prop as we move to the Atlassian Cloud platform. And that's also helped us\nexpand the Jira Service Management offerings. Mike?\n......................................................................................................................................................................................................................................................\nMichael Cannon-Brookes\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n# A\n\nYeah. I just wanted to add on one thing I was talking to an enterprise customer maybe a month, month-and-a-half\nago, and one of the things that was coming through to them was the value of the Atlassian platform and one of\nthe reasons why they opted for JSM. In particular in this case they used Atlassian in their Agile and DevOps, the\nJira software and other products. The combination of development teams and IT change is increasingly important.\nWe have an incredibly unique value advantage there as every customer, every company becomes a software\ncompany, that connectivity between development teams and IT teams is incredibly important. That's powered by\nour investments in the Atlassian platform over time. You're seeing that come through in Atlassian Intelligence and\na whole host of other ways. But it's really gratifying to us to see that resonating with customers, especially the\nlarge customers and it's a big differentiator.\n\nThe same actually applies on the connectivity between IT and service teams in an organization and the work\nmanagement space. So on the other side of our market combinations, as enterprise service management\ncontinues to roll out, our virtual agent technologies using Atlassian Intelligence, I think will be a huge boon to\nlarger enterprises in trying to take service management more broadly from IT into HR, finance, marketing and\nother capabilities. This all relies on the power of the Atlassian Cloud platform. It'll continue to drive migrations of\nour largest customers there and I think be a differentiator in the ITSM space.\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. That's all the questions we have time for today. I will now turn the call over to Scott for**\nclosing remarks.\n......................................................................................................................................................................................................................................................\n\n##### 16\n\n\n-----\n\n#### Atlassian Corp. (TEAM)\nQ4 2023 Earnings Call\n\n##### Scott Farquhar\nCo-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.\n\n\nCorrected Transcript\n\n03-Aug-2023\n\n\nThank you everyone for joining our call today. As always, we appreciate your thoughtful questions and continued\nsupport and a special thank you to the Atlassian team for your resilience and closing the year with strong\nmomentum. Also want to say a special thank you to Cameron; that was his last earnings call. I want to say a huge\nthank you for the revenues you've given to Atlassian so far. Thank you all. And I'll see you next quarter.\n\nDisclaimer\nThe information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data.\nAs such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. 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All rights reserved.\n\n##### 17\n\n\n-----\nEND DOCUMENT 3\n\nBEGIN DOCUMENT 4:\n##### 08-Mar-2023\n (ASAN)\n## Asana, Inc.\n\n##### Q4 2023 Earnings Call\n\n\n##### Total Pages: 22\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n### CORPORATE PARTICIPANTS\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nCatherine Buan\nHead-Investor Relations, Asana, Inc.\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n\n\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n\n\n.....................................................................................................................................................................................................................................................................\n\n### OTHER PARTICIPANTS\n\n\nAnnick Baumann\nAnalyst, Jefferies International Ltd.\nJackson E. Ader\nAnalyst, SVB MoffettNathanson\nAlex Zukin\nAnalyst, Wolfe Research LLC\nAndrew DeGasperi\nAnalyst, Berenberg Capital Markets LLC\nRob Oliver\nAnalyst, Robert W. Baird & Co., Inc.\nBrent A. Bracelin\nAnalyst, Piper Sandler & Co.\n\n\nGeorge Iwanyc\nAnalyst, Oppenheimer & Co., Inc.\nRobert Simmons\nAnalyst, D.A. Davidson & Co.\nSteven Enders\nAnalyst, Citigroup Global Markets, Inc.\nFred Lee\nAnalyst, Credit Suisse Securities (USA) LLC\nJason Celino\nAnalyst, KeyBanc Capital Markets, Inc.\nShebly Seyrafi\nAnalyst, FBN Securities, Inc.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n### MANAGEMENT DISCUSSION SECTION\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\n**Operator: Good afternoon, and thank you for attending today's Asana Fourth Quarter and Fiscal Year 2023**\nEarnings Call. My name is Danielle and I'll be the moderator for today's call. All lines will be muted during the\npresentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]\n\nIt is now my pleasure to pass the conference over to our host Catherine Buan, Head of Investor Relations.\nCatherine, you may proceed.\n.....................................................................................................................................................................................................................................................................\n##### Catherine Buan\nHead-Investor Relations, Asana, Inc.\n\nGood afternoon, and thank you for joining us on today's conference call to discuss the financial results for Asana's\nfourth quarter and fiscal year 2023. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO;\nAnne Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer.\n\nToday's call will include forward-looking statements, including statements regarding our expectations for free cash\nflow, our financial outlook, strategic plans, our market position and growth opportunities. Forward-looking\nstatements involve risks, uncertainties, and assumptions that may cause our actual results to be materially\ndifferent from those expressed or implied by the forward-looking statements. Please refer to our filings with the\nSEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, for additional\ninformation on risks, uncertainties and assumptions that may cause actual results to differ materially from those\nset forth in such statements.\n\nIn addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial\nmeasures are in addition to and not a substitute for or superior to measures of financial performance prepared in\naccordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the\nlimitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings\nrelease, which is posted on our Investor Relations webpage at investors.asana.com.\n\nAnd with that, I'd like to turn the call over to Dustin.\n.....................................................................................................................................................................................................................................................................\n##### Dustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n\nThank you, Catherine, and thank you all for joining us on the call today. Despite a challenging year, we finished\nour fiscal 2023 with strong growth, driven by our continued success serving enterprise customers and meaningful\nprogress towards profitability.\n\nQ4 revenues grew 34% year-over-year and fiscal year revenue grew 45% year-over-year. This growth was fueled\nby some of the largest companies in the world, who are Asana customers and represent industries such as\nmedia, automotive, professional services, manufacturing, healthcare, transportation, logistics, telecommunications\nand financial services.\n\nDuring the fiscal year, we closed deals with three of the world's largest automotive manufacturers, four of the\nlargest telecommunications and internet service providers, several large professional services companies, five of\nthe largest media conglomerates, a top-five shipping and logistics company, and six financial services firms.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nOverall, 8 out of the top 10 tech companies are Asana customers and 80% of the Fortune 100 use Asana. And in\na moment, Anne will share more of our specific Q4 wins.\n\nWhen you segment our customer base by those with more than 2,000 employees, an even more precise look at\nour enterprise penetration, we have well over 1,500 enterprise customers. Our seat penetration in most of these\naccounts is significant, but still in the single-digit percentages on average. So, there is a large opportunity for\nfuture growth.\n\nSome of the most strategic companies in the world are partnering with Asana to define what work management at\nscale looks like. We have several Asana customers who have over 10,000 paying seats. We now have more than\n139,000 paying customers as demand for our work management solution continues to increase.\n\nCustomers with over $100,000 annualized spend grew 49% year over year. As these customers continue to grow\nwith Asana their dollar net retention rate continues at a very strong pace at over 135%. Revenue from this cohort\ngrew 80% for the fiscal year and represents about a quarter of our total revenue.\n\nDespite more budget scrutiny in enterprises, our win rates remain strong. We are winning more consolidation\ndeals and are seeing an increase in large multiyear commitments, as customers grow their investment in Asana.\n\nIn Q4, the momentum in our non-GAAP operating margins turned the corner and we expect to continue positive\nmomentum over the next several quarters. We expect to drive significant improvement in non-GAAP operating\nmargin this coming year as we focus on operational efficiency and growth, which Tim will talk about more.\n\nAs we look towards fiscal 2024, we're focusing even more on our go-to-market strategies. We'll be scaling our\nwinning playbook across the entire sales organization, increasing operational excellence and discipline, and\nensuring we have proven enterprise talent to lead.\n\nWhile we expect the current challenging macroeconomic environment to continue for the near term, we're\nencouraged by the way the longer term trends are playing out. The need for digital transformation isn't going\nanywhere. Customers are making multiyear commitments with Asana as they look to disrupt the status quo and\nget measurable ROI and time to value for their investments. And when companies want to consolidate their spend\non work management, we are winning.\n\nWe're fortunate to serve and learn from some of the most innovative organizations in the world. Working with\ncompanies across major sports leagues, financial services, media, multinational consumer goods, and\nmanufacturing has also given us unique insights into potential growth opportunities in the areas where we need to\nevolve in the coming years. I'm excited that Asana has reached a stage where these investments can be\nleveraged to create value across many more large enterprise customers.\n\nCore to serving these customers is the way our product has evolved as well. We believe Asana has the most\nscalable architecture and data model and can support the most users, the largest volume of work, and incredibly\ncomplex workflows. The Asana platform is quickly becoming the work management solution of choice for large\norganizations looking to transform the way they work. There are four areas where we've seen recent traction in\nthe enterprise: Goals, cross-functional collaboration, compliance, and integrations.\n\nAsana Goals was already the number one goal product, according to the G2 Enterprise Objectives and Key\nResults software market. The vast majority of our $100,000 or more customers use Goals and over 90% of the\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nones that do connect them to work. Companies are moving goal management from standalone OKR vendors into\nAsana, and CIOs are recognizing our product as a consolidation opportunity.\n\nOur customers continue to realize value from Asana's cross-functional capabilities, which allow people from\nmultiple teams to work together seamlessly. In order to run their business processes, cross-functional\ncollaboration is not a thing businesses do, it's everything they do. Asana is a critical platform that allows\ncompanies to work the way things get done. As we have mentioned before, virtually all of our customers use\nAsana cross functionally.\n\nIf you look at the nature of the work within each customer, the majority of their work in Asana is cross-functional\ncollaboration, in contrast to other applications that track single projects for single teams. This number is even\nhigher for customers spending more than $100,000. We see an even higher proportion of this cross-functional\ncollaboration in the features we've built as we've moved up-market, including Goals and Portfolios.\n\nFor compliance, our newly launched HIPAA offering is enabling customers to bring more of their patient care\nmanagement workflows into Asana. We have dozens of customers using our HIPAA solution just four months\nafter its release, and we continue to see opportunities open up in healthcare and healthcare insurance related\ndeals.\n\nWe're also seeing traction as more and more companies build integrations with Asana. Integrations help\ncustomers make better use of existing investments and improve the productivity and quality of work across their\napplications. These include HubSpot, Rules integrations with Gmail, PagerDuty, and Twilio. Salesforce for Goals\nis our first out-of-the-box integration for Asana Goals and it was just rolled out to customers this quarter.\n\nWe're already seeing an over 50% increase in Salesforce integration from our top-100 customers. When work\nhappens in Salesforce, the progress of linked goals in Asana is automatically updated, making it easier to monitor\nimpact and make informed decisions.\n\nOn March 28, we will be hosting our first event of the year, Asana Forward. This virtual program will feature\ncutting-edge research and real-life insights from Asana customers Amazon Web Services, Zoom, T-Mobile, Live\nNation, and Morningstar. Attendees will hear why these companies chose work management software and how\nthey're doing change management, supporting new revenue streams, and using IT to drive process excellence.\n\nThose attending will also learn first-hand about Collaborative Intelligence, the next phase of Asana's proprietary\ntechnology, the Work Graph. Just as Asana led the way in defining the work management category, we're taking\nthe next step to shape the future of work.\n\nBefore I close, I want to mention some of the industry recognition Asana has recently been given. In Okta's most\nrecent Businesses at Work Report for 2022, Asana is the fastest-growing app in our category among the top-50\nmost popular apps on the Okta platform.\n\nAlso, Asana was named as a Leader in The Forrester Wave Collaborative Work Management Tools Q4 2022\nreport. The report specifically differentiated Asana for how our Work Graph data model connects information,\npeople, and objectives that drive work through the organization, and how our goal management structure helps\norganizations connect disparate teams with a common focus.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nAsana was also recognized as a top 100 in Glassdoor's Best Places to Work Award for the fourth time. And by\nNewsweek in cooperation with Plant-A Insights Group, Asana was awarded one of America's Greatest\nWorkplaces for Diversity 2023.\n\nI also want to highlight the release today of our fourth-annual Anatomy of Work Global Index, an in-depth analysis\ninto how work has evolved during this time of rapid volatility. Conducted by GlobalWebIndex on behalf of Asana,\nthe 2023 Anatomy of Work Global Index surveyed the behaviors and attitudes of more than 9,000 knowledge\nworkers across the United States, the UK, Australia, France, Germany, and Japan to understand the impact of\ncross-functional collaboration, including what's working and what's not.\n\nThe report highlights that successful cross-functional collaboration helps organizations tackle challenges more\neffectively, leading to more revenue growth and adaptability for business and how clear goals contribute to\nbusiness success by boosting collaboration, innovation, and employee engagement. This report is another\nexample of how Asana continues to serve as a thought partner to our customers on the future of work.\n\nThere are three things I want to reiterate before handing it over to Anne. First, we're building a long-term\nsustainable business, focused on both growth and profitability. In Q4, we improved our non-GAAP operating\nmargin by over 14 percentage points year-over-year. And as you can see from our guidance, we're expecting to\nimprove our non-GAAP operating margin by 19 percentage points for the full fiscal year in 2024. This would be a\n50% improvement versus fiscal year 2023 through a combination of efficient investment and growth.\n\nSecond, we're planning for pricing and packaging opportunities in the future to better match price to value for our\nenterprise customers. This is another area where larger deployments help us understand where we can evolve\nand add more value. We also expect this work to generate better leads for seat expansion and new opportunities\nin the future to upsell using add-ons.\n\nAnd third, as I mentioned before, we are launching Collaborative Intelligence, the next phase of Asana's\nproprietary technology, the Work Graph. Our virtual event will be on March 28, featuring Amazon Web Services,\nZoom, T-Mobile, Live Nation and Morningstar.\n\nIn fiscal 2024, we're aligning our actions to optimize for serving enterprises well, which will be our key driver of\ngrowth, new use cases within existing customers and use cases that drive new lands. We've already been making\nprogress in this direction and are now well positioned to become the category leader, with consistently high\nreviews from users and analysts, and the largest existing deployments in enterprise.\n\nThe future of work is every organization working from a shared system of clarity and accountability, built on the\nAsana Work Graph. Our strategy is focused on bringing that future to life.\n\nNow, I'll turn it over to Anne.\n.....................................................................................................................................................................................................................................................................\n##### Anne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n\nThanks, Dustin. The macro headwinds continue to impact our expansions and created longer sales cycles in Q4\nand will continue to impact us going into fiscal year 2024. Top-of-funnel demand remained stable in the fourth\nquarter. Our free-to-paid conversion rate was also stable and helped feed our total customer number. We added\n4,000 customers in Q4, consistent with the previous quarter.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nThe softness in Q4 was somewhat offset by overachievement in our enterprise and strategic accounts. Our\nlargest customers really tell the story of the kind of value and ROI Asana delivers and how much potential\nopportunity there is in the market. We have invested heavily in our enterprise products over the years and we will\nfurther build our organizational go-to-market muscle in fiscal year 2024 for the growth opportunity ahead. We\nexpect to see those investments fully materialize by the end of this year.\n\nBeyond the macro headwinds, I also believe that this is an important time for us to be building for longer term\nsuccess. There are areas where I know we can do even better. We have identified additional opportunities for\nexecution improvement, especially ramping sales reps, and increasing productivity across the field and sales\noperations. We also recently reorganized territories and teams and rolled out new messaging in order to better\nposition us for the next few years. And there is still more work to be done to execute consistently and broadly in\nall regions around the world.\n\nWhen I look back, we had some significant highlights and momentum that will carry our business forward. Looking\nat our largest customers, they continue to grow with us for multiple years. There are a number of strategic use\ncases that drive these long-term investments.\n\nDigital transformation projects are our largest. One of the world's largest consumer and industrial electronics\nmanufacturers and IT service providers has been undergoing a company-wide digital transformation. Asana is\nbeing used by thousands of users across their transformation office, designers, marketing, business planning, and\nbusiness systems project teams to gain more visibility and clarity into their cross-functional working processes so\nthey can execute and make business decisions faster.\n\nAnother strong use case for Asana is global client and campaign management. One of the world's largest global\nconsulting firms signed a global MSA which cements Asana as the worldwide work management provider of\nchoice for every office.\n\nAlso, Asana Goals has proven to be a significant differentiator in the market, so setting and tracking goals across\nteams in the organization is a very compelling use case. In fact, a revolutionary carbon transformation company is\nusing Asana Goals to help achieve their mission to eliminate global emissions and build a fossil-free future. And\nas Dustin shared, the vast majority of our cohort of customers with $100,000 or more annualized spend use\nAsana Goals and connect them to work.\n\nMany of these long-term investments are multiyear agreements of which we have started to see more of. Another\ntheme this quarter was vendor consolidation. As organizations look to simplify and streamline their vendors,\nAsana is winning vendor consolidation decisions.\n\nOne of the largest marketing and advertising agencies in the world had a significant expansion with Asana in Q4.\nThey signed a multiyear contract for our enterprise solution expanding to 13,000 seats across 13 agencies. Their\nagencies around the world use Asana as part of a strategic initiative to more effectively manage their clients'\nmedia and marketing campaigns to help grow their businesses and gain market share.\n\nCoupa, the platform transforming the way businesses manage their spend, signed a multiyear agreement for our\nenterprise solution in Q4. Across Coupa, customer-facing teams, marketing, IT, business operations, finance and\nengineering rely on Asana to manage large strategic projects tied to company goals as well as their daily work.\nEric Tan, CIO at Coupa said, we consolidated on Asana recognizing the importance of building a common\nplatform for our employees and customer communities to work together to drive meaningful results.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nOne of the world's most recognized brands in short-term vacation rental platforms chose our enterprise solution\nvia a strategic, multiyear agreement as their foundational collaboration platform in their consolidated tech stack.\nThis will enable the organization to create a consistent method for managing workflows across the business and\nto have a system of record for all work in the organization. This consolidation onto Asana will help them drive\nefficiencies now that the company is remote-first. Plus, it will improve accountability and alignment across the\ncompany so employees can focus their energy and effort on innovation and delivering the best experience for\ntheir customers.\n\nAnd we're seeing expansions broadly across several diverse industries, as we continue to expand beyond our\nleadership in the tech industry. We're seeing continued growth within the financial services industry. For example,\none of the world's largest European exchanges significantly expanded their use of Asana in Q4 to thousands of\nseats. Asana is now heavily used within their product, data, engineering, analytics, and machine learning teams to\nmanage their roadmaps and project execution. We were the only work management platform that met their\nstringent security and compliance requirements.\n\nFor those of you that love pizza, we saw a great expansion with PizzaExpress, the British multinational pizza\nrestaurant and food retail chain with 360 locations across the UK and 100 overseas in Europe, in Q4. They began\nusing Asana in Q2 within their innovation team and will now be implementing Asana across all of their operations,\nincluding front-line employees, to drive growth in the business.\n\nIn summary, we are seeing more multiyear deals, winning more vendor consolidation decisions and continuing to\ndiversify our enterprise success across more and more industries. All this said, we can do more. Looking forward,\nwe have a number of big initiatives in fiscal year 2024.\n\nFirst, our strategic accounts initiative. The goal of this initiative is to ensure that we are focused on our most\nleveraged account opportunities. We've already reviewed our top accounts by region to identify where our\ninvestments would be highly leveraged, and with this initiative, we can focus even further on our account\nmanagement, customer success, and R&D resources where we will likely see growth opportunities and high ROI.\n\nThese accounts represent some of the largest names in technology, telecom, professional services, retail,\nmanufacturing, consumer goods, media, and financial services. And we've already seen some proof of success.\nOur enterprise customers, which we define as organizations with over 2,000 employees, was our fastest growing\ncustomer segment.\n\nSecond, my goal is to increase average productivity per sales rep by 20% by the end of the second half of fiscal\nyear 2024. We'll continue to improve our sales enablement capabilities and lead generation initiatives targeted at\nenterprise accounts. We'll also be elevating our sales playbook to focus primarily on high ROI workflows, quick\ntime to value use cases, digital transformation, Goals and Reporting and ensuring that customers understand and\nexperience that Asana is a must-have.\n\nThird, we will further build our enterprise leadership bench strength. In EMEA, Sanj Bhayro has recently joined as\nour new General Manager of EMEA. We also brought on board Shannon Sullivan Duffy as our new Chief\nMarketing Officer. And Neeracha Taychakhoonavudh has joined us as our new Head of Global Customer\nExperience.\n\nTogether, these new leaders have over 70 years of combined experience in enterprise sales and marketing\nmanagement and scaling fast-growing businesses from companies such as Salesforce and Oracle. We're also\nactively recruiting for a new Chief Revenue Officer who will help lead and accelerate our move further up-market.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nAnd with that, I'll hand it over to Tim.\n.....................................................................................................................................................................................................................................................................\n##### Tim M. Wan\nChief Financial Officer, Asana, Inc.\n\nThank you, Anne. Q4 revenues came in at $150.2 million, up 34% year-over-year. Revenue from the US grew\n40% year-over-year, accounting for 61% of our total revenue. International grew 26% year-over-year, accounting\nfor 39% of our revenue. Currency impacted our international growth rate by roughly 300 basis points and the\noverall growth rate by about 100 basis points. International growth would have been 29% year-over-year and total\nrevenue growth would have been 35% year-over-year without the impact of currency.\n\nRevenue from customers spending $5,000 or more on an annualized basis grew 42% year-over-year. This cohort\nrepresented 73% of our revenues in Q4, up from 69% in the year-ago quarter. We have 19,432 customers\nspending $5,000 or more on an annualized basis, up 26% year-over-year. Our largest customers remain our\nfastest-growing cohort. We have 506 customers spending $100,000 or more on an annualized basis and the\ncustomer cohort is growing at 49% year-over-year.\n\nAs a reminder, we define these customer cohorts based on annualized GAAP revenues in a given quarter. Our\ndollar-based net retention rates were lower, but remained healthy across every cohort. Our overall dollar-based\nnet-retention rate was over 115%.\n\nAmong customers spending $5,000 or more, our dollar-based net-retention rate was over 120%. And among\ncustomers spending $100,000 or more, our dollar-based net-retention rate was over 135%. As a reminder, our\ndollar-based net retention rate is a trailing four-quarter average calculation.\n\nWe continue to see stable gross churn rates overall and across the cohorts and low churn in our large accounts,\ndemonstrating the value we deliver for our enterprise customers. However, we expect our overall dollar-based net\nretention rates to trend lower as companies remain mindful of the near-term economic challenges.\n\nAs I turn to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in\nthe balance of my remarks. Keep in mind, non-GAAP results exclude stock-based compensation and the onetime restructuring costs that we incurred in Q4.\n\nGross margins came in at 90.5%. Research and development was $51.6 million or 34% of revenue. Sales and\nmarketing was $93.2 million or 62% of revenue. G&A was $28.6 million or 19% of revenue, an improvement from\n28% a year ago.\n\nOperating loss was $37.4 million and the operating loss margin was 25%, representing a 14 percentage point\nimprovement versus a year ago. The improvement in our operating margin demonstrates our ability to drive more\nefficient growth and manage our operating expenses with increased discipline. Net loss was $33.2 million and our\nnet loss per share was $0.15.\n\nLooking at the highlights from the full fiscal year. Fiscal year revenue grew 45% year-over-year to $547.2 million.\nWe added almost 4,000 customers spending $5,000 or more on an annualized basis during the year. And we also\nadded 166 customers spending $100,000 or more on an annualized basis during the year. Revenues from\ncustomers spending $100,000 or more on an annualized basis grew over 80% year-over-year. This cohort\nrepresented 25% of our revenues for the full year.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nMoving on to the balance sheet and cash flow, cash and marketable securities at the end of Q4 were\napproximately $529.3 million. Our remaining performance obligations, or RPO, was $299.2 million, up 37% from\nthe year-ago quarter. 84% of our RPO will be recognized over the next 12 months. That current portion of RPO\ngrew 36% from the year-ago quarter. Total deferred revenue at the end of Q4 was $233.6 million, up 34% yearover-year.\n\nOur free cash flow is defined as net cash from operating activities, less cash used in property and equipment and\ncapitalized software costs, excluding the non-recurring items such as costs related to restructuring. In Q4, free\ncash flow was negative $26.5 million or negative 18% on a margin basis, an improvement from the negative 37%\nfrom the year-ago quarter. We ended the fiscal year with 1,782 employees.\n\nMoving to guidance, for Q1 fiscal 2024, we expect revenues of $150 million to $151 million, representing growth\nrates of 24% to 25% year-over-year. We expect non-GAAP loss from operations of $40 million to $38 million, and\nwe expect net loss per share of $0.19 to $0.18 assuming basic and diluted weighted average shares outstanding\nof approximately 215 million.\n\nFor the full fiscal year 2024, we expect revenue to be in a range of $638 million to $648 million, representing a\ngrowth rate of 17% to 18% year-over-year. We expect Non-GAAP loss from operations of $130 million to $120\nmillion, operating margin of 19% at the midpoint of guidance, a 50% improvement from fiscal year 2023. And we\nexpect net loss per share of $0.59 to $0.55, assuming basic and diluted weighted average shares outstanding of\napproximately 219 million.\n\nOur guidance assumes the macro environment continues to create headwinds, especially in the first half of fiscal\n2024. I'm also baking in some assumptions that our new leaders will need some time to execute on our strategies.\n\nFrom an expense management standpoint, we implemented a number of initiatives to improve our operating\nmargins, which you saw begin to manifest as early as Q4. First, we reduced our global head count as part of a\nrestructuring designed to better prioritize our resources on moving up-market and improve operating efficiency for\nthe long run. This reduction resulted in non-recurring restructuring charges of $9.3 million in Q4, which will be\nexcluded from our non-GAAP results and free cash flow per our definition.\n\nSecond, we are continuing to evaluate every investment ensuring that we prioritize the highest ROI investments\nwith shorter payback periods and aligning with our focus on moving up-market And third, we are continuing to\nevaluate our spend with every vendor, consolidating where there might be overlap and renegotiating our contracts\nto better match the value we are realizing with these providers. We expect these expense-related initiatives will\ndrive measurable improvements in our operating margins in fiscal year 2024 and beyond.\n\nOur guidance implies that operating expenses grow in the low-single digits or essentially stay flat to the previous\nyear. Despite the uncertainty with the macro environment, we have increased confidence in our ability to be free\ncash flow positive before the end of calendar 2024, while balancing growth and profitability.\n\nWith that, I'll hand it back to Dustin, for some final remarks.\n.....................................................................................................................................................................................................................................................................\n##### Dustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n\nThanks, Tim. One thing I want to add to my formal comments is that I'm planning to enter into a 10b5-1 trading\nplan on March 9, 2023 to purchase up to 30 million shares of our Class A common stock, subject to the required\ncooling off period. I'm doing this because I personally believe Asana shares are undervalued, given the scale of\n\n##### 10\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nthe opportunity I see in front of us. The work management market is an enormous underpenetrated market that I\nbelieve we're well positioned to lead, especially in enterprise.\n\nWorking alongside some of the most strategic leaders in the respective industries gives us unique insights into\ntheir complex enterprise needs and various business models. This helps inform our product strategy and positions\nus well to understand the future of work and helps solve our customers' most critical challenges over the longterm.\n.....................................................................................................................................................................................................................................................................\n##### Catherine Buan\nHead-Investor Relations, Asana, Inc.\n\nThank you, Dustin. And before I open it up to Q&A, I want to note that Mr. Moskovitz's statements regarding his\ntrading plan to purchase shares of our Class A common stock may be considered forward-looking statements that\nare subject to risks and uncertainties, including that his trading plan may be modified, suspended or terminated by\nhim at any time, and there can be no assurance that the price and volume parameters of his trading plan will\nresult in purchases of shares of our Class A common stock, in line with his expectations in such forward-looking\nstatements.\n\nAnd with that, operator, we can open it up for Q&A.\n.....................................................................................................................................................................................................................................................................\n### QUESTION AND ANSWER SECTION\n\n**Operator: Certainly. [Operator Instructions] The first question comes from the line of Brent Thill of Jefferies. You**\nmay proceed.\n.....................................................................................................................................................................................................................................................................\nAnnick Baumann\nAnalyst, Jefferies International Ltd.\n# Q\n\nThis is Annick Baumann on for Brent Thill. Dustin, in the face of decelerating top line, which is undoubtedly\nmacro-led, what continues to give you faith that you will ultimately win the enterprise and what is left to do to\nsolidify that position?\n.....................................................................................................................................................................................................................................................................\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nYeah. Thanks for the question. There are a lot of things that I think are really positive signs for us. I think that the\nthing that I feel most excited about is just the strength of the really impressive customers that we have and how\nhealthy those accounts are. So, even though, we've seen headwinds in the form of longer sales cycles that we\ntalked about this quarter and last quarter, we know that there is still really high utilization even when the deals are\nstalled, we know those customers aren't going to competitors and we have a lot of signs from them that they\nintend to expand with us over time. And so, we feel really great about the places where we've landed already,\nespecially in the Fortune 100 and other enterprises. And we think there is just a ton of room to expand there.\n\nAnd we know that when we do see consolidation conversations and customers looking to really take the next step\nand commit to a partner, we're really well positioned. We often win those, thanks to the strength of the Work\nGraph and the way it facilitates cross-functional use cases, the fact that it's loved across many functions instead\nof specializing into one, and the credibility we have not just from having the existing deployments, but also from\nthe high ratings we get from analysts that are focused on the enterprise segment.\n\n##### 11\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\n**Operator: Thank you. The next question comes from Jackson Ader of SVB. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nJackson E. Ader\nAnalyst, SVB MoffettNathanson\n# Q\n\nGreat. Thanks for taking my questions, guys. The first one, Anne, I think it was you that mentioned some\nopportunities on pricing and packaging, specifically in the enterprise. I'm sure these are like still in the works, but\nany kind of specifics you can give us, like ideas that are kind of bouncing around and also why just focus on the\nenterprise?\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nHi, Jackson, thanks so much for your question. Yeah, the updates we're exploring are really focused on aligning\nvalue for our customers and they're deeply informed by both existing enterprise customers as well as prospects\nwe're speaking with and market analysis. Our priorities – as you might imagine, we are exploring a whole number\nof options. I think Dustin mentioned add-ons. But really what we're thinking about there is making sure that our\nenterprise customer needs are met and we're delivering for them and they're realizing value as they scale and\ngrow with us. And so, that's why we're focusing on that particular segment. Our current pricing and packaging\nplans have evolved over the years specifically for the existing base and with the growth in enterprise, that's why\nwe're laser focused on pricing and packaging for those customers.\n.....................................................................................................................................................................................................................................................................\nJackson E. Ader\nAnalyst, SVB MoffettNathanson\n# Q\n\nOkay. Great. Thanks. And then a quick follow-up. So, actually, just on those, like the multiyear deals that you sign\nwith these Fortune 100 companies, do the contracts – do they have like minimum seat ramps that go up through\nthe multi-years? Is it adoption-based or are they buying like a big pool of seats where they might create some\nshelfware? I'm just curious how those multiyear deals are layered in.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. Hey, Jackson. This is Tim. I would say, the common theme that we see across these multiyear\nconsolidation plays is, one, the fact that these customers want to consolidate on a scalable enterprise platform.\nSo in many cases, we are being deployed and they're lowering their spend across some of the other work\nmanagement players. So, that's one. Two, given the macro, most companies are being very mindful of how many\nseats they buy. So, they are buying up to their usage. So, these are all very healthy accounts. Now, to the degree\nthat companies are growing, many times what we see is that they do ask for tranches on how they buy the next\nset of seats. So, it does give them some flexibility to move up with some price certainty.\n\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. And the next question comes from the line of Alex Zukin of Wolfe Research. Please**\nproceed.\n.....................................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\nHey, guys. Can you hear me okay? Guys, can you hear me?\n.....................................................................................................................................................................................................................................................................\n\n##### 12\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nYes.\n.....................................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\nSo, maybe just a few for me. One kind of generative AI question, which is par for the course right now for most\ninvestors, and then one financial one. Dustin, I guess, long term, when we've kind of talked about visions for\nAsana, I think one of the visions you've always had is that ultimately Asana, based on the corpus of knowledge\nand interactions and cross-functional data that you have, when an individual comes to work, they could kind of\nask your platform, what's the next – what should I do today, right? And then it assigns – it could assign\ntheoretically those next actions.\n\nWhat's the right way to think about unlocking the value of generative AI in the Asana product, platform, vision?\nAnd how do you see this evolving? How do you monetize this? Is it just table stakes that every work management\nvendor has? Would love to kind of get your thoughts on that, and then I'll ask a couple of math questions.\n.....................................................................................................................................................................................................................................................................\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nYeah. Great question. Obviously, it's a really exciting time in AI. We've been following really closely. I also like to\npoint out we're really close to the OpenAI team in particular. We share a board member in Adam D'Angelo and\nthe CEO, Sam Altman, actually led our Series C a few years back. So, we've been able to talk to them about the\nbest ways to leverage GPT in Asana and how they think about the future.\n\nAnd to your question about leveraging the unique value of the Work Graph, just to step back, there is a sort of\nlarger arc AI story for us that involves multiple kinds of technology, not just the ChatGPT style language models.\nAnd we've been working with machine learning for a while now. We actually have some data-driven experiences\nin the product today and we're continuing to build on that direction. We are also prototyping things internally with\nthe language models and have a lot of exciting ideas there.\n\nIn terms of the generative stuff, I actually think that the exact use case you gave, I think you might be able to use\nlanguage models for that. I think the other machine learning approaches may be better suited and we'll try both.\nBut I do think that there's a lot of other possibilities with generative models, like summarizing long threads for you,\nwriting up status updates, trying to just aggregate all the information in a project and pull out the highlights,\nsummarizing meeting transcripts. We're already seeing a lot of that from other SaaS products already, and we're\nstudents of the space. So, we'll incorporate the best ideas.\n\nBut I think whether or not, for the use case you suggested of really understanding the corpus of data, the structure\nof data, what's important to that particular end user, I think whether you're using a language model or another AI\napproach, the structure inherent in the Work Graph and just the information that users are putting into our system\njust give us a leg up. We have more data for those models to read and understand and create insights and help\ndirect users to the most important work. So, I think the Work Graph actually ends up being an advantage, but\ndefinitely expect to see AI used across a variety of products.\n.....................................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\nThat's awesome. I'll put in the joke about no more TPS report.\n\n##### 13\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nExactly. No more hand-written ones anyway.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Andrew DeGasperi of Berenberg. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nAndrew DeGasperi\nAnalyst, Berenberg Capital Markets LLC\n# Q\n\nThanks for taking my question. Just maybe back to the sales reorganization or, the changes you're making in the\nsales motion. Can you let us know what led you to do this kind of drastic shift? What did you learn over the last\nyear or two since you've ticked off on the enterprise side? And then, generally, how would this reflect in the next\nfew quarters in terms of the growth? I know you're baking in some conservatism in the guidance, and just\nwondering how should we think about this proceeding as we move through the year.\n\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nHi, Andrew. It's Anne. Thanks so much for that question. So, the way we're thinking about it is we're really\nfocused on building and scaling our enterprise selling infrastructure. So, we rapidly added to the sales team last\nfiscal year. And now, we're frankly ensuring that all the operational systems and enablement support is scaling to\nmeet that investment. And really, what I'm laser focused on is to make sure our enterprise sales reps' time is\nfocused on landing and expanding with the right customers and delivering fast, measurable business value. And\nwe're doing that much more consistently and repeatedly in every market. So, that's the focus that you'll see that\nwe are committed to. And that's also the focus as we bring on great new sales leaders around the world. And\nthen, I think Tim will share a little bit more about the second part of your question.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nHey, Andrew, just adding on to Anne, I think Dustin mentioned this in the script. We do have over 1,500\nenterprise customers. And when we look at the data, customers that are spending more than $100,000 with us,\ntheir net expansion rate this last quarter was over 135%. And when we peel back the onion and look at the data,\nthose expansions aren't just through up-tiering. Many of those, the vast majority of that growth and expansion is\nthrough seats and getting more deployment and across the company. So, that gives us a lot of confidence in\nterms of the strategy that we're moving forward with. So, that's one.\n\nAnd then two, in terms of the guidance, I think I mentioned this on the call, I think we're still seeing kind of there\nis a lot of macro uncertainty. The Fed is still likely to raise rates. There's geopolitical issues kind of about. So, I\nthink we're trying to be really thoughtful in the first half being continued to see challenges and that our\ncustomers, especially in the short term, will be very mindful of their spend.\n\nWe've also baked in some time, for our leadership changes to ramp up and for the strategies to take hold. So to\nthe degree that there will be out-performance, I think it will come from the enterprise that businesses start\nreleasing their budget and being much more thoughtful about investments. So, my approach, I think, if you ask\nme about guidances, I don't think there is a lot of downside to the guidance and I would just not model or just be\ncautious on not having a lot of upside in the model this early in the year.\n.....................................................................................................................................................................................................................................................................\n\n##### 14\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\nAndrew DeGasperi\nAnalyst, Berenberg Capital Markets LLC\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nThat's helpful. And just on a math question that Alex didn't get to ask, in terms of the OpEx rising low-single\ndigits, ihow should we think about it, should it be R&D really kind of growing a little bit faster overall and you're\njust taking a cut to sales and marketing? How should we think about the moving parts on that?\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. I think R&D as a percent of revenue will be relatively flat, and I wouldn't say sales and marketing is a cut. I\nthink the way to think about it is really a reallocation of where those resources were in prior years or even last\nyear, where we're still focused on the SMB, and we're redirecting many of those resources towards moving upmarket. So, I think you'll continue to see leverage, like you saw this last quarter in sales and marketing, and\nyou'll continue to see leverage in G&A. And then, I would expect R&D to be relatively flat on a year-over-year\nbasis.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Rob Oliver of Baird. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nRob Oliver\nAnalyst, Robert W. Baird & Co., Inc.\n# Q\n\nGreat. Thank you, guys. Can you hear me okay?\n.....................................................................................................................................................................................................................................................................\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nYes.\n.....................................................................................................................................................................................................................................................................\nRob Oliver\nAnalyst, Robert W. Baird & Co., Inc.\n# Q\n\nHello. Good evening. Yeah. Great. Hi. Thanks. Thanks so much, guys. So, a question, Dustin, for you or for Anne.\nIt sounds as if the consolidation play is a nice change for you guys relative to last quarter and I know that, Anne,\nyou had mentioned last quarter that you guys were engaging more at the C level. So, can you talk a little bit more\nabout those vendor consolidation wins you guys have had? Are they seat expansion that's coming at the expense\nof other vendors as people kind of do the same thing that Tim mentioned he's doing, which is rationalizing\nvendors? And are these C level decisions, are they influenced by sort of the bottoms-up strength that you guys\nhave with users? Talk a little bit more about those consolidation wins, and then I just had a quick follow up.\nThanks.\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nYeah. Hi, Rob. Thanks so much for your question. So, yes, we're seeing consolidation wins for Asana, especially\nas CIOs are looking to drive consistency across their organizations and reduce the total number of applications\nthat they're supporting. So, a couple of factors in our favor specifically are our proven ability to scale to over\n150,000 seats and growing, and then the power of our Work Graph architecture which really allows these\norganizations to consolidate multiple divisions or functions. And to your point, it's really driven by the strong usage\nand the love for the product that exists in the organization.\n\n##### 15\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nA few other things that we've been seeing. Our Goals product enables executives to connect the company's top\npriorities to all the work that's necessary to achieve those priorities. And so, they can do that all in Asana. The\nmajority of our $100,000-plus customers are using Goals and 90-plus percent of those are using Goals connected\nto the underlying work. So, we're seeing that in this environment be especially valuable and impactful.\n.....................................................................................................................................................................................................................................................................\nRob Oliver\nAnalyst, Robert W. Baird & Co., Inc.\n# Q\n\nGreat. That's helpful. Thanks, Anne. I appreciate that. And then, Tim, just one for you. Really appreciate the color\naround your thoughts relative to the cadence of the guidance through the year with Q1, obviously, being strong.\nBut it sounds like you're giving yourself some room there on the ramp with some of the new managers. How is\nhead count relative to where you think it needs to be on that guidance, both sales head count and general head\ncount within the firm? Thank you.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. Just from a head count perspective, we're pretty comfortable with where we're at right now. As we look\nthroughout the year, we'll be looking for signs where we can invest. So, to the degree that pipeline is stronger\nthan our expectation, productivity is increasing, deal cycle time is decreasing, all those things will inform us on\nhow fast we want to grow our heads. But at this point, I think we're fairly comfortable with what we have. We\nwant to demonstrate leverage in the business. Even if you look at our guidance, our operating margins are going\nto improve by about 50% year-on-year. So, those are all the progress that we want to make sure that we're\ndelivering and we'll be very mindful throughout the year.\n\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Brent Bracelin of Piper Sandler. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nBrent A. Bracelin\nAnalyst, Piper Sandler & Co.\n# Q\n\nGood afternoon. I guess, love to see the focus on the enterprise and some of these multiyear deals. Maybe for\nAnne or Tim, on the NRR, even with some of the multiyear deals, that NRR rate did downtick. It's a little bit\nlagging, because it's trailing 12 months, but it did downtick. How much of that slowdown there is tied to just the\nmacro slowing the pace of expansions across the base of, it sounds like, 1,500 enterprises? Or are you also\nseeing a drag or seat contraction with some of the broader layoffs that we're seeing in the tech space? Just\ntrying to parse out what those drags are you're seeing. I understand it's still very healthy. But in period certainly\ndown-ticked and would love to have a better explanation on what's contributing to that downtick in NRR.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah, sure. Hey. This is Tim, Brent. So, I would say that the color I would add to that is the NRR downtick is\ndriven really by two things. It's really driven by expansions being lower than historic, primarily because\ncompanies aren't hiring as fast. And then the other piece is some downgrades within some of our customers\nparticularly in tech, who many of you know, have had layoffs. But when I look at the logo churn, those remain\nhealthy, especially around our $50,000 and $100,000 customers. There's virtually zero churn or logo churn\nwithin those customer base.\n\nSo, in the short term, companies are kind of hunkering down a bit in terms of their spend, but they're still\ndeploying more seats. And to the degree that some of the companies that may have over-hired and have\n\n##### 16\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nhad layoffs, we do see downgrades with that customer cohort. But when we look at the data, the logo churn is\nhealthy. And for those companies that haven't had layoffs, some of these consolidation plays, those are all\nseat expansions.\n.....................................................................................................................................................................................................................................................................\n\nBrent A. Bracelin\nAnalyst, Piper Sandler & Co.\n# Q\n\nGreat. My last follow-up here is for Dustin. Now that ChatGPT has an API released, how quickly do you plan to\ntest and trial and embrace some of these LLMs and AI transformers out there? Thanks.\n.....................................................................................................................................................................................................................................................................\n\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nYeah, this is Dustin. Definitely intend to test them right away. We've been prototyping things, but I don't have\nanything to announce in terms of when we'll have customer availability on any of that.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question is from Alex Zukin of Wolfe Research. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\nHey, guys. So on those math questions I promised, I guess, first around the NRR, Tim, with the commentary\nabout customers in tech verticals kind of downshifting or right-sizing, how long do you expect those trends to\nlast? And the key question being, given it's a trailing four-quarter metric, it's exiting the year clearly lower than\n115% in aggregate. Where is the confidence interval around where it troughs? And when do you feel like you're\ngoing to be through the anniversarying of the primary cohorts that are downshifting? And then, I've got a quick\nfollow-up on just the revenue breakout for $5,000 up and $5,000 below.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. Sure, Alex. When you kind of look at the NRR, I would say, we will see some continued compression,\nbecause it is a four-quarter trailing number. But I would expect Q3 and Q4 of this year to provide some better\ncomps for us on that NRR, because it's kind of Q3 and Q4 was when we started to see a lot more of the tech\nverticals start right-sizing and having more layoffs. So, that's kind of the timing in terms of the NRR, Alex.\n\n.....................................................................................................................................................................................................................................................................\nAlex Zukin\nAnalyst, Wolfe Research LLC\n# Q\n\nGot it. And then, I guess, to the comments that you've made around being a little bit more conservative in your\nassumptions and giving the new sales heads time to ramp, looking for a CRO, that all makes sense. Should we\nassume that for the year revenue from the customers that are spending over $5,000, does that go into the\nhigh-70s as a percentage of total? Because when you model it out, it still looks like even that cohort is going to dip\nto the low-20s percent growth. So, just help us a little bit understand of what's happening there. And again, when\nthat could start to bottom?\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah, great question, Alex. I think you're referring to the number being in the low-20s, right? So, the way to\nthink about it is, we're going to focus much more on the $50,000 and $100,000 cohort customers and\n\n##### 17\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\npushing for much more moving up-market than even just like slightly above $5,000 or the $5,000 to $10,000. So,\nI do think, in aggregate, the $5,000 and above will continue to trend north as a percentage of our revenue,\nprobably closer to like between 78% and 80% as a percent of our total revenue over time. But the focus is\nmoving even more up-market towards $100,000 type of customers.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from George Iwanyc of Oppenheimer. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nGeorge Iwanyc\nAnalyst, Oppenheimer & Co., Inc.\n# Q\n\nThank you for taking my question. Anne, maybe following up on your comments on Goals. Can you give us a\nsense of what you're seeing from Workflow Builder and automation and how that's helping with the consolidation\nactivity you're seeing?\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nYeah, George. Thanks so much for that question. Maybe a good way to answer that is just an example with a\ncustomer that did consolidate. So, a leading global vacation rental platform consolidated last quarter on Asana to\nreally enable every employee to have a single consistent place to collaborate and drive improved productivity and\nexecution, and they've gone remote first. So, the rules, the automation, the workflows are really helping to make\nsure that there is no more siloed work for them, that there is improved accountability. And it's also providing more\ntime for their teams to focus on innovation and improving customer experience for their millions of global\ncustomers. And in fact, they have a dedicated center of excellence and an internal team partnering with our\naccount team to really make sure they're making the most of every aspect of Asana.\n\nSo, we see those features all coming together. And now, since their entire organization is on Asana, the ability to\nthen implement and connect all of their company goals down all the way through the organization to an individual\nlevel, so employees can come in and know exactly what matters and how their work connects to their company\ngoals. And that's especially important for this organization, again, because all – employees are completely\ndistributed around the world. And so, they're all just collaborating through technology and through Asana with one\nanother.\n.....................................................................................................................................................................................................................................................................\nGeorge Iwanyc\nAnalyst, Oppenheimer & Co., Inc.\n# Q\n\nAnd following up on that, with all the sales changes you're making, can you give us some perspective on what\nyou're doing with the channel and system integrators?\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nYeah, absolutely. So, the way that we think about channel and then partners overall is, because our focus is on\ngrowing with enterprise customers in our priority markets, we really want to ensure we're building those\nrelationships in a really strategic way. So, for enterprise customers, strong partnerships with SIs and service\npartners actually are important, as well as our deep partnerships with best-of-breed software companies, those\nare really important for our enterprise customers. With our channel partners, we really see them as important to\nhelping us extend our reach in markets where we're still early and don't have our sales teams on the ground. So,\nthat's the way that we're approaching not just our channel strategy, but our overall partner strategy.\n.....................................................................................................................................................................................................................................................................\n\n##### 18\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\n**Operator: Thank you. The next question comes from Robert Simmons of D.A. Davidson. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nRobert Simmons\nAnalyst, D.A. Davidson & Co.\n# Q\n\nHey. Thanks for taking my questions. First, I was wondering, could you give us a little bit of a preview on what\nCollaborative Intelligence is, or is that too early for that?\n.....................................................................................................................................................................................................................................................................\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nYeah, absolutely. We're really excited about the event coming up. We've made a lot of progress over the years in\ngetting our customers to put their projects and portfolios and workflows into Asana, and Collaborative Intelligence\nis really about aggregating the information that we see across those and giving leaders and executives more of\nthat top-down view on how work is progressing. So, it really enables them to identify collaboration hotspots and\nmake better, faster, data-driven decisions. So, really excited about that, and we've been talking about AI a lot\ntoday. This is kind of like Asana intelligence, a different version of AI, but it's also Collaborative Intelligence,\nbecause really everyone is inputting their own view of the Work Graph, but we're able to provide views and\ninsights that really take all those bits of information and put them into more of a coherent story.\n.....................................................................................................................................................................................................................................................................\nRobert Simmons\nAnalyst, D.A. Davidson & Co.\n# Q\n\nGot it. That makes sense. And then, kind of reading between the lines between some of your comments, would\nit be fair to characterize the quarter as a bit weaker on the SMB side, but actually pretty solid for your larger\naccounts customers, relatively speaking?\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYes. Yeah, Robert. I think that's a fair statement.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Steve Enders of Citi. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nSteven Enders\nAnalyst, Citigroup Global Markets, Inc.\n# Q\n\nAll right. Great. Thanks for taking the questions here. I want to dig in a little bit about some of the comments on\nthe go-to-market side, talking about trying to drive 20% better rep productivity through the year. So, I guess,\nhow are you thinking about the biggest levers that you can pull to be able to achieve that and the changes being\nmade on that front? And then, for Tim, how are you contemplating the productivity changes in the guide and the\noutlook here?\n.....................................................................................................................................................................................................................................................................\nAnne Raimondi\nChief Operating Officer & Head-Business, Asana, Inc.\n# A\n\nYeah, thanks so much, I appreciate you asking that and on productivity specifically. So, there's a couple of factors\ncontributing to sales productivity. The first is about a quarter of our sales team is still ramping. And the second is\nthat the reduction in force we implemented in November did impact productivity as managers and teams\nadjusted to those changes. So, our focus now really is on investing in several areas. Certainly, the infrastructure,\nthe tools and training needed to deliver repeatable and predictable lands and expands, especially in our larger\n\n##### 19\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\naccounts. So, that's a lot about enablement. It's also about our partnership internally with our enterprise\ntechnology team, investments in RevOps.\n\nSo, it's all of that geared towards our enterprise selling motion. And we're excited about the early traction on that\nfront, but know that we have a lot of work to do. So, those are the areas that we are really focusing on.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. In terms of the guide, I would say, in Anne's comments, I'm not sure if you all heard it, but we really talked\nabout that 20% ramping at the end. So, you can think of it as we're making progress throughout the year. But I\nwould say, to the degree that the reps productivity – we hit that 20% early in the year, that would probably be\nupside to the model.\n.....................................................................................................................................................................................................................................................................\nSteven Enders\nAnalyst, Citigroup Global Markets, Inc.\n# Q\n\nOkay. Perfect. That's helpful. Thanks for taking the question.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Fred Lee of Credit Suisse. Please proceed.**\n.....................................................................................................................................................................................................................................................................\nFred Lee\nAnalyst, Credit Suisse Securities (USA) LLC\n# Q\n\nHey. Good afternoon. It's very encouraging to see the significant increase in incremental margins in the quarter\nand also implied in the guide. Tim, you talked about evaluating every investment to prioritize high ROI\ninvestments with shorter payback periods. Can you tell us a little bit about some of those high priority investments\nthat make the cut and some of the projects that take a backseat? Thank you.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. I think at a very high level, it's really looking at our customer base and where we have penetration, and\nthe size of their employee base and where we think we can really make progress with those accounts versus\nsmaller accounts where you may be capped at in terms of the number of employees. So even when you break\nout the NRR, you can really see the difference between the downgrade and the churn and the smaller paying\ncustomers, the SMB and the VSB, and then the higher paying accounts, which many of the enterprise\ncustomers, where you don't see logo churn and you really see more seat expansion. So, I would say, that's an\narea where we've done a lot of focus and kind of shifted both our marketing spend and our sales capacity and\ntrying to move more up-market.\n.....................................................................................................................................................................................................................................................................\nDustin Moskovitz\nChief Executive Officer, Co-Founder & Director, Asana, Inc.\n# A\n\nAnd this is Dustin. I would just add, there is also a regional angle to this. So, we have different sort of CAC\npayback and LTV by country. And we focused a little more on where we already have strength in the market and\nwhere the market is just a stronger economy and more buying power. And so, we've shifted some of our attention\nmore into our Tier 1, Tier 2 markets and less in emerging markets.\n.....................................................................................................................................................................................................................................................................\nFred Lee\nAnalyst, Credit Suisse Securities (USA) LLC\n# Q\n\n##### 20\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\nGreat. Thank you for the color. Appreciate it.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. The next question comes from Jason Celino of KeyBanc Capital Markets. Please**\nproceed.\n.....................................................................................................................................................................................................................................................................\nJason Celino\nAnalyst, KeyBanc Capital Markets, Inc.\n# Q\n\nHey. Thanks for fitting me in. Just one question and maybe I'll just ask it plainly, but it sounds like you've built in\nsome conservatism on the revenue guidance. How should we think about the conservatism or the\naggressiveness of the operating margin framework given so much improvement you're expecting? Thanks.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nI would say, we're committed to delivering free cash flow before the end of calendar 2024. We've made vast\nimprovements in terms of the operating margin guide. And hopefully, we'll continue to under-promise and overdeliver for you guys. And that's kind of how I would characterize the guidance.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: Thank you. And our last question comes from the line of Shebly Seyrafi of FBN Securities. Please**\nproceed.\n.....................................................................................................................................................................................................................................................................\nShebly Seyrafi\nAnalyst, FBN Securities, Inc.\n# Q\n\nYes. Thank you very much. So, can you talk about the linearity during the quarter? I noticed that receivables\ngrew by 39% sequentially, much more than 6% revenue growth. How was January like versus December? And\nhow is February, which also passed, how was it versus January?\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah. December is an odd one to compare to primarily because of the holidays. But we certainly had a very\nsolid finish to the fiscal year. And I would tell you we're encouraged by what we're seeing right now with the\nconversations we're having with customers in February.\n.....................................................................................................................................................................................................................................................................\nShebly Seyrafi\nAnalyst, FBN Securities, Inc.\n# Q\n\nOkay. And also, your seat growth was, according to my model, like 30%. Am I in the right ballpark? That was\nmuch more than your customer growth. And importantly, in my model at least, your price per seat was flat year-toyear. And I'm wondering whether you're modeling flat, up, or down in 2024 for price per seat.\n.....................................................................................................................................................................................................................................................................\nTim M. Wan\nChief Financial Officer, Asana, Inc.\n# A\n\nYeah, I would say, your model's not too far off in terms of seat. I think we've talked on the call and even with what\nwe've done in person meetings that the focus is seat deployment and getting as many seats as possible within\nthese large enterprises. And that, over time, we view price as just another lever for growth and moving those\ncustomers up as we deliver more value. So, you're not too far off in terms of how you're thinking about the\nbusiness and how you should model it.\n.....................................................................................................................................................................................................................................................................\n\n##### 21\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ4 2023 Earnings Call\n\n\nCorrected Transcript\n\n08-Mar-2023\n\n\n**Operator: Thank you. And with that, we will conclude our question-and-answer session of today's call. I would**\nnow like to hand the call back over to the management team for closing remarks.\n.....................................................................................................................................................................................................................................................................\n##### Catherine Buan\nHead-Investor Relations, Asana, Inc.\n\nThanks so much. Just a final thank you to everybody joining the call today. I know it's a busy season. We look\nforward to seeing you out on the road this quarter and thanks again.\n.....................................................................................................................................................................................................................................................................\n\n**Operator: And with that, we will conclude today's call. Thank you for participating and you may now disconnect**\nyour line.\n\nDisclaimer\nThe information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data.\nAs such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any\ninformation provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis\nof investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. 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All rights reserved.\n\n##### 22\n\n\n-----\nEND DOCUMENT 4\n\nBEGIN DOCUMENT 5:\n##### 01-Dec-2022\n## Asana, Inc. (ASAN)\n\nQ3 2023 Earnings Call\n\n\n##### Total Pages: 22\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n### CORPORATE PARTICIPANTS\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nCatherine Buan\n_Head-Investor_ _Relations,_ _Asana,_ _Inc._\n\nDustin Moskovitz\n_Chief_ _Executive_ _Officer,_ _Co-Founder_ _&_ _Director,_ _Asana,_ _Inc._\n\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _&_ _Head-Business,_ _Asana,_ _Inc._\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n\n......................................................................................................................................................................................................................................................\n\n### OTHER PARTICIPANTS\n\n\nAndrew DeGasperi\n_Analyst,_ _Berenberg_ _Capital_ _Markets_ _LLC_\n\nIttai Kidron\n_Analyst,_ _Oppenheimer_ _&_ _Co._ _Inc._\n\nAllan Verkhovski\n_Analyst, Wolfe Research LLC_\n\nSteven Enders\n_Analyst,_ _Citigroup_ _Global_ _Markets,_ _Inc._\n\nBrent Thill\n_Analyst, Jefferies LLC_\n\nSophie Lee\n_Analyst,_ _Morgan_ _Stanley_\n\n\nBrent A. Bracelin\n_Analyst,_ _Piper_ _Sandler_ _&_ _Co._\n\nJackson E. Ader\n_Analyst,_ _MoffettNathanson_ _LLC_\n\nJason Celino\n_Analyst,_ _KeyBanc_ _Capital_ _Markets,_ _Inc._\n\nRobert Simmons\n_Analyst, D._ _A._ _Davidson_ _& Co._\n\nPatrick Walravens\n_Analyst, JMP_ _Securities LLC_\n\nRob Oliver\n_Analyst,_ _Robert_ _W._ _Baird_ _&_ _Co.,_ _Inc._ _(Broker)_\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n### MANAGEMENT DISCUSSION SECTION\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\n**Operator: Good afternoon. Thank you for attending today's Asana Q3 Fiscal Year 2023 Earnings Call. My name**\nis Bethany, I will be the moderator for today's call. All lines will be muted during the presentation portion of the call\nwith an opportunity for questions and answers at the end. [Operator Instructions]\n\nI would now like to pass the conference over to our host, Catherine Buan. Please go ahead.\n\n......................................................................................................................................................................................................................................................\n\nCatherine Buan\n_Head-Investor_ _Relations,_ _Asana,_ _Inc._\n\nHi. Good afternoon and thank you for joining us on today's conference call to discuss the financial results of\nAsana's third quarter fiscal 2023. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO;\nAnne Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer.\n\nToday's call will include forward-looking statements, including statements regarding our expectations regarding\nfree cash flow, our financial outlook, strategic plans, our market position and growth opportunities. Forwardlooking statements involve risks, uncertainties, and assumptions that may cause our actual results to be\nmaterially different from those expressed or implied by the forward-looking statements. Please refer to our filings\nwith the SEC, including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for\nadditional information on risks, uncertainties and assumptions that may cause actual results to differ materially\nfrom those set forth in such statements.\n\nIn addition, during today's call, we will be discussing non-GAAP financial measures. These non-GAAP financial\nmeasures are in addition to and not a substitute for or superior to measures of financial performance prepared in\naccordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures, and a discussion of\nthe limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings\nrelease, which is posted on our Investor Relations Web page at investors.asana.com.\n\nAnd with that, I'd like to turn the call over to Dustin.\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief_ _Executive_ _Officer,_ _Co-Founder_ _&_ _Director,_ _Asana,_ _Inc._\n\nThank you, Catherine, and thank you to everyone for joining us on the call today. As you saw in the earnings\nrelease, Asana reported strong Q3 revenue growth and notable operating margin improvement in the quarter.\nRevenue in the quarter grew 41% year-over-year, or 43% when adjusted for foreign currency. Operating income\nwas over $11 million better than expectations, a credit to our revenue outperformance as well as our continuing\nfocus on managing our expenses.\n\nWe had 493 customers spending $100,000 or more in the annualized GAAP revenue, up 78% year-over-year,\nand continue to be the work management solution of choice at some of the world's leading enterprises. In\naddition, our largest deployment has now reached over 150,000 paying seats, further widening our significant\nlead in enterprise deployments. Our enterprise business is growing more rapidly than our overall growth rate,\ncontinuing to become a larger portion of our business over time. And the net retention rate of our customers\nspending $100,000 or more continues to be very strong at over 140%.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nAnne will talk more in a moment about some of these large customers who represent some of the world's leading\ncompanies and best-known brands.\n\nLooking back to fiscal 2021, we had accelerated revenue growth year-over-year, so we ramped up heavily in the\nsecond half of fiscal year 2022 to increase capacity for what we believed could potentially be an even bigger year\nin fiscal 2023. But last spring, the macroeconomic environment started to turn on our international business. So in\nQ2, we slowed head count growth, started pacing investments in lower ROI geographies, and started taking\nsignificant measures to manage spend. By September, those conditions became even more challenging,\nincluding for our US business.\n\nBased on all of these factors, we made the difficult decision last month to reduce the size of our overall\norganization by 9%. We also adjusted our full-year outlook to capture these impacts. Our current expectation is\nthat these factors will persist through the fourth quarter and into the next fiscal year.\n\nWhile the macroeconomic trends have been dynamic, it hasn't changed the size of our market opportunity and our\nproduct strategy. Asana's work management platform is now a strategic choice as organizations look to\nsuccessfully navigate these uncertain times.\n\nI've been on the road recently meeting with customers. We're fortunate to work with some of the most innovative\ncompanies in the world; companies that have successfully deployed Asana to tens of thousands of users. This\nscale and their perspective has given us unique insights into how enterprise organizations are thinking about their\ncurrent and future software needs.\n\nWith that, there's three things to note. First of all, while buying decisions are being considered carefully by the Csuite during this macroeconomic cycle, they're still investing in solutions that help them do more with their tech\nstack, offer time to value and focus employees on work that matters. This is a long-term tailwind that will likely\ncontinue in the years to come.\n\nSecond, we're seeing a similar strategy in more traditional industries where there's real urgency to digitally\ntransform and disrupt the old ways of working. Companies in automotive, financial services, professional services,\nhealthcare, manufacturing and shipping and transportation are automating their workflows with Asana. We're\neven seeing cross-pollination from organization to organization as Asana advocates take on roles at new\ncompanies. A few years ago, the term work management didn't even exist; and today, it's approaching the\nmainstream.\n\nAnd third, especially in this macroeconomic climate and during the season of annual planning, we're repeatedly\nhearing how critical it is for leaders to have visibility and accountability. This helps to ensure that the work delivers\non business priorities. When work is connected to goals in Asana, it creates a dynamic constellation of where\nthings are successfully aligned and where the hotspots are. With this bird's eye view, leaders can take action,\npivot quickly, and be more competitive.\n\nAsana is honored to be recently recognized for our goal-oriented approach that drives greater enterprise\nadoption. The Forrester Wave[TM]: Collaboration Work Management Tools, Q4 2022 evaluation has named Asana\na Leader in its assessment of the top 13 vendors in the market. The new report specifically calls out our strategic\ndifferentiation in two areas. First, for how our Work Graph data model connects information, people, and\nobjectives that drive work through the organization. And second, for how our goal management structure helps\norganizations connect disparate teams with a common focus. Asana's recognition as a leader in the Forrester\nWave follows its #1 ranking in the G2 Grid[Ò] Report for Objectives and Key Results (OKR) providing strong,\ncustomer review-based validation of product and competitive differentiation.\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nEarly data from our recent Q3 enterprise product announcements has been strong. We're seeing higher quality\nleads with larger customers at later stages in the funnel. Companies are moving goal management from\nstandalone OKR vendors into Asana, and CIOs are recognizing our product as consolidation opportunity of key\ngoals and work management.\n\nOne of our customers has been celebrated for its rapid growth after quickly and successfully shifting strategies.\nThe need for this kind of agility is why they made a Q3 move from their standalone OKR solution to Asana, where\nthey can connect the work that matters to company goals. Some of the big enhancements to goals that we\nintroduced this year have been driving adoption.\n\nFor example, since launching Goals with Universal Reporting last quarter, we've seen goal creation has almost\ndoubled in each customer year-over-year across our $100,000 or more cohort.\n\nOur newly HIPAA-compliant offering opened new doors this past quarter with companies that store, consume,\nand transmit personal health information. And even though it was just released, we've already closed multiple\ndeals across healthcare and insurance around the world. Our HIPAA offering will enable them to bring more of\ntheir patient care management workflows into Asana.\n\nAnd we've seen large customers in Australia and Japan migrate their work data into our new regional data\ncenters, a testament to their continued usage of and investment in Asana.\n\nAs we look to fiscal year 2024, we'll continue to build out Asana's Work Graph as a critical navigation system for\ncompanies. I'm excited alongside customers to share much more on how the power of collective intelligence will\naccelerate organizations during our next marketing event in Q1. This means our customers get data-backed\ninsights as well as turn-by-turn directions that help them address real business challenges.\n\nIn the shorter term, we're specifically focused on helping leaders across operations move faster and continuing to\nbuild for the enterprise at scale. Asana gives strategy and ops a single source of truth to track requests across\nemail, chat, documents, and other frequently used applications. They're able to maximize efficiency and pivot\nwork to achieve critical organizational goals. We're also giving IT the needed roles-based guardrails to scale up\nonboarding and manage faster and more successful deployments.\n\nBefore I hand it over to Anne, I want to again acknowledge that we're making decisive moves to improve our\nmargin profile. With over $545 million in cash, we believe we're fully funded to execute on the current strategy and\nachieve free cash flow positive by the end of calendar 2024. We're not satisfied with our performance and we'll be\nfocused on driving growth and enhancing our global go-to-market execution. I believe Asana is uniquely\npositioned to help companies through these current challenges, and we'll continue to invest conscientiously, while\nmaintaining our leadership and product innovation.\n\nNow, I'll turn it over to Anne.\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _&_ _Head-Business,_ _Asana,_ _Inc._\n\nThanks, Dustin. As Dustin mentioned, we noticed increasing pressures on our customers at the end of\nSeptember, when the budget tightening and longer deal cycles became more apparent in the US. The\nmacroenvironment was having an impact on some of our customers' ability to increase headcount. As a result,\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nsome of our expansion activities slowed, especially in mid-market and smaller accounts. By the end of the\nquarter, we made the hard decision to restructure and realign our business. Despite the macro backdrop, we\ncontinue to see thousands of organizations and large enterprises realizing the value of work management and\nchoosing Asana.\n\nWhile the SMB and very small business markets are softer, we continue to see strong traction in the enterprise\norganizations and larger deployments. The category is large and we are still in the early innings, so the\ncompetitive dynamics in the market are unchanged. At the same time, the number of multiyear deals went up\nsequentially and on an annualized basis. More customers are making longer-term commitments with Asana.\n\nI spend most of my time with our teams and our customers, and this is what I'm hearing. There's increased\nscrutiny on deals globally. Executives want higher and faster ROI from their investments. There's increased\nparticipation of executives in deal and work management investments are being elevated to the CIO/CFO level\nmore than they have ever been.\n\nDuring the dynamic macroeconomic periods like now, organizations are looking to be able to set goals and\nincrease accountability across their business and to make quick resourcing decisions as things shift. The buying\nenvironment is more measured but budget impacts vary across industries and Asana is well-positioned in these\nconversations.\n\nIn the third quarter, we continue to gain traction in healthcare. Norton Healthcare, the hospital and health care\nsystem that has 340 locations throughout Kentucky and Southern Indiana expanded their use of Asana in Q3. My\nfavorite use case of theirs is how they onboard new physician providers in Asana year round.\n\nPreviously, they managed this complex process manually and important documentation like medical certifications\nand licenses was easily lost in long e-mail threads. Today, they run this whole process in Asana via a purposebuilt workflow that includes a checklist of every step to ensure it's done accurately and successfully. You could\nliken this workflow to onboarding a whole new business unit to a company. This is not only made the process\nmuch more efficient so they can scale quickly, but also helps them automate steps and save cost.\n\nAs Dustin mentioned, the HIPAA compliance announcement this fall is opening doors even further. The product\nhas only been available for over a month and we have already closed a number of HIPAA-compliant deals.\n\nMacroeconomic factors and currency fluctuations have driven up costs, but several industries have benefited and\nare accelerating the speed at which they deploy their capital into digital transformation. For example, we've seen\nmajor Japanese manufacturing companies investing in digital transformation to secure competitive advantage,\nenhance operations and processes with a focus on the supply chain and improve profitability through better\nmanagement with cross-functional visibility. For Asana to be used like this in both innovation centers and core\nmanufacturing departments, it's a testament to our product's deep value and flexibility.\n\nSonder, a leading next-generation hospitality company that operates in over 40 cities across 10 countries, uses\nAsana to make decisions rapidly and adapt quickly to changing factors. They use Asana across the entire\ncompany, from property managers, to maintenance teams, to the strategic initiative team, and upgraded to our\nenterprise solution this quarter for the enhanced security functionality.\n\nAnother innovative customer using Asana to help manage their supply chain is HelloFresh, the world's leading\nmeal kit provider. Headquartered in Germany and serving 17 countries, HelloFresh's strategic procurement and\ningredient development teams use Asana to manage their ingredient-sourcing and inventory workflows. Their old\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nway of working wasn't efficient or scalable. Now, HelloFresh is able to more quickly develop and launch new\nseasonal recipes that meet their customers' preferences across 30 different recipes offered each week.\n\nIn Q3, we continued to see companies in media and financial services expand with us. These are just a few\nexamples of leading companies who are choosing Asana because the Work Graph is the most scalable platform,\nconnects schools to the work across the organization and provides quick, measurable business ROI. We are\ncontinuing to see broad cross-industry adoption with significant traction in Fortune 100 customers, of which 80%\nuse Asana.\n\nThese successes are just the beginning and we have a lot of work ahead. The key to success for us is to\ncontinually improve our ability to address our customers' needs and drive growth across our large customer\nbase. We're making strategic changes in our organization to better realign resources for long-term high-leverage\ngrowth. Our key areas of focus include: taking our success with our largest customers and making it a replicable,\nscalable process across our entire go-to market motion; serving our smaller customers in a more scalable way by\nfurther leveraging our product-led capabilities; maximizing data from product-led motion to better support the\nsales-led process and customer lifecycle; and bringing in new leadership to elevate our enterprise success to the\nnext level.\n\nWith that, I'll hand it over to Tim.\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\nThank you, Anne. Q3 revenues came in at $141.4 million, up 41% year-over-year. This puts us at an annualized\nquarterly revenue run rate of $566 million. Revenue from the US grew 47% year-over-year, accounting for 61% of\nour total revenue. International grew 33% year-over-year, accounting for 39% of our revenue. Currency impacted\nour international growth rate by roughly 500 basis points and the overall revenue growth rate by about 200 basis\npoints. International growth would have been 38% year-over-year and total revenue growth would have been 43%\nyear-over-year without the impact of currency.\n\nRevenue from customers spending $5,000 or more on an annualized basis grew 52% year-over-year. This cohort\nrepresented 73% of our revenue in Q3, up from 68% in the year-ago quarter. We have 18,700 customers\nspending $5,000 or more on an annualized basis, up 32% year-over-year. Our largest customers remain our\nfastest growing cohort. We have 493 customers spending $100,000 or more on an annualized basis and the\ncustomer cohort is growing at 78% year-over-year. We believe this metric is a good proxy for our enterprise\nbusiness. As a reminder, we define these customers' cohort based on annualized GAAP revenue in a given\nquarter.\n\nOur dollar-based net retention rates remained strong across every cohort. Our overall dollar-based net retention\nrate was over 120%. Among customers spending $5,000 or more, our dollar-based net retention rate was over\n128%. And among customers spending $100,000 or more, our dollar-based net retention rate was over 140%. As\na reminder, our dollar-based net retention rate is a trailing four-quarter average calculation.\n\nWe continue to see stable churn rates across the cohorts and low churn in our large accounts, demonstrating the\nvalue we deliver for our enterprise customers. However, as Anne mentioned, we did see customers pausing\ngrowth or hiring more slowly, and the expansion in our business slowed as a result. We expect our overall dollarbased net retention rates to trend lower during this economic cycle.\n\nAs I turn to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in\nthe balance of my remarks. Gross margins came in at 89.6% from 90.7% in the year-ago quarter. Research and\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\ndevelopment was $50.2 million, or 36% of revenue. We continue investing to win and fuel innovation in our\nproprietary technology, which will help us deliver on our vision. Sales and marketing was $98.5 million, or 70% of\nrevenue. And G&A was $30.6 million, or 22% of revenue.\n\nOperating loss was $52.6 million, and operating loss margin was 37%. The improvement in our operating margin\ndemonstrates our ability to drive more efficient growth and manage our operating expenses with increased\ndiscipline. Net loss was $52.4 million, and our net loss per share was $0.26.\n\nLast month, we reduced our global head count by approximately 9% as part of a restructuring designed to better\nmanage the business with a balance towards growth and profitability. This reduction will result in a non-recurring\nrestructuring charge of $9 million to $11 million, which will be excluded from our future non-GAAP results. We\nexpect the charges to be incurred primarily in the fourth quarter of fiscal 2023 and our restructuring efforts to\nultimately result in annualized savings of roughly $40 million for the company going forward.\n\nMoving on to the balance sheet and cash flow. Cash and marketable securities at the end of Q3 were\napproximately $545.4 million. Our remaining performance obligations, or RPO, was $271.6 million, up 43% from\nthe year-ago quarter. 86% of our RPO will be recognized over the next 12 months. That current portion of RPO\ngrew 43% from the year-ago quarter. Total deferred revenue at the end of Q3 was $214.8 million, up 39% yearover-year.\n\nWhile we don't normally comment on calculated billings*, since currency fluctuations continue to have an impact\nthis quarter, I want to call out that currency impacted calculated billings growth by over 400 basis points, and thus,\n31% when adjusted for the FX impact. Our free cash flow is defined as net cash from operating activities less\ncash used in property and equipment and capitalized software costs excluding non-recurring items. In Q3, free\ncash flow was negative $48.5 million or negative 34% on a margin basis.\n\nMoving on to our outlook. For Q4 fiscal 2023, we expect revenues of $144 million to $146 million, representing\ngrowth rates of 30% year-over-year at the midpoint. We expect non-GAAP loss from operations of $60 million to\n$57 million, and we expect net loss per share of $0.28 to $0.27 assuming basic and diluted weighted average\nshares outstanding of approximately $215 million.\n\nFor the full fiscal 2023, we expect the revenues to be in the range of $541 million to $543 million, representing a\ngrowth rate of 43% year-over-year. We expect FX to negatively impact our full-year growth by approximately 200\nbasis points. Excluding the currency impact, our growth would have been 45% year-over-year. We expect nonGAAP loss from operations of $230 million to $227 million. And we expect net loss per share of $1.15 to $1.14,\nassuming basic and diluted weighted average shares outstanding of approximately 200 million.\n\nWe're being very measured with our guidance with several factors in mind. Our outlook assumes that currency\ndoesn't change, and macroeconomic factors will continue to drive a more tempered buying environment and\nincreased scrutiny on purchase decisions. And we assume this persists into the next fiscal year. Despite the\nuncertainty with the macroeconomic environment, we still expect to be free cash flow positive before the end of\ncalendar 2024 while balancing growth and profitability.\n\nWith that, I'll hand it back to Dustin for some final remarks.\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief_ _Executive_ _Officer,_ _Co-Founder_ _&_ _Director,_ _Asana,_ _Inc._\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nBefore we go to questions, I wanted to summarize by noting, like many of our peers, we're operating in a very\nchallenging macroeconomic environment, so we're actively managing to mitigate the impacts to the bottom line\nand taking the opportunity to elevate and further build our enterprise business. While we are de-risking for the\nshort term, I continue to focus on the long-term opportunity.\n\nWhen I meet with customers, I recognize that we have a unique perspective collaborating with some of the largest\nand most innovative companies in the world, including the 80% of the Fortune 100. I'm further reminded that work\nmanagement is an enormous and underpenetrated market. The underlying business trends remain intact, and I'm\nexcited about Asana's position.\n\n......................................................................................................................................................................................................................................................\n\nCatherine Buan\n_Head-Investor_ _Relations,_ _Asana,_ _Inc._\n\nThank you, Dustin. And with that, I'll turn it back to the operator for the Q&A session.\n\n......................................................................................................................................................................................................................................................\n\n### QUESTION AND ANSWER SECTION\n\n**Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first**\nquestion comes from the line of Andrew DeGasperi with Berenberg. Please go ahead.\n\n......................................................................................................................................................................................................................................................\n\nAndrew DeGasperi\n_Analyst,_ _Berenberg_ _Capital_ _Markets_ _LLC_\n\n# Q\n\nThanks for taking my question. I guess, we're clearly seeing similar kind of weakness across most software\ncategories. I was just wondering in the conversation that you have with investors, is there anything that they're\ntelling you differently in terms of work management and how they prioritize it relative to other software categories?\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nHey, Andrew. It's Anne. Thanks so much for that question. I'll tell you that what we're seeing is certainly more\nincreased scrutiny on spending on technology overall. Executives want higher and faster ROI from their\ninvestments. What we're really seeing is more just a pause on the decision making versus deprioritization of the\ncategory, just as they evaluate where they're going to make those investments.\n\nIn these periods what we're excited about though and positive about is executives are looking to be able to set\ngoals and increase accountability across their business. As Dustin mentioned, goals in particular is really\nresonating. So the fact that we've been increasing our investment there has been helpful in these conversations,\nbecause they are looking to get faster decision making rolled out through the company as they're facing these\nchanges. But overall, I would say, mostly, what we're seeing is more a pause in decision making than anything.\n\n......................................................................................................................................................................................................................................................\n\nAndrew DeGasperi\n_Analyst,_ _Berenberg_ _Capital_ _Markets_ _LLC_\n\n# Q\n\nThat's helpful. And then, maybe on the restructuring, I was just wondering, what does that translate in terms of the\ntimeline to breakeven, I guess, from a profitability point of view, from a free cash flow point of view, is there\nanything you can comment on that?\n\n......................................................................................................................................................................................................................................................\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\nTim M. Wan\n_Chief Financial_ _Officer,_ _Asana,_ _Inc._\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nYeah, Andrew, as I commented on the call, no change in terms of timeline from a go-forward basis, the\nsavings from the restructuring was about $40 million on a go forward basis. But we're holding and committed to\ndelivering free cash flow before the end of calendar 2024.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Ittai Kidron with Oppenheimer. Please go ahead.**\n\n......................................................................................................................................................................................................................................................\n\nIttai Kidron\n_Analyst,_ _Oppenheimer_ _&_ _Co._ _Inc._\n\n# Q\n\nThanks. Hey, guys. I guess, I want to go into the head count reduction. Can you give me a little bit more color on\nhow this 9% spreads across the functions? And I guess, the associated question with this, how do I think about\nhow this cut catches up to you? Meaning, clearly, there's some sales functions that are part of this as well. And\nhow do I think about the capacity loss or the points of growth in a quarter growth eliminated through this as we\nthink about fiscal 2024?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nYeah. Thanks. I'll start off. This is Dustin. So just thinking about where we reduce roles, a lot of how we structured\nour hiring plan for fiscal 2023, we frontloaded quite a lot of hiring, especially in sales and marketing, and\nespecially, in talent acquisition, to help us do the frontloaded hiring. And so – and then we had an ambitious plan\nfor R&D as well, but we had it more paced throughout the year and we ended up really moderating and then\npausing hiring fairly early in the year.\n\nSo when we came to think about the risk, we really looked at it primarily through the lens of sort of unwinding the\nover-investment we made in the first two categories, and really, rightsizing it to the amount of demand we were\nseeing in the market. And so I feel comfortable with the staffing we have now and the people that we have in\nthese roles are ramped and ready for fiscal year 2024 and able to serve our best customers. And anything you\nwant to add to that, Anne?\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. On the sales side, in particular, I'll just add that that as we did the restructuring, we were really focused on\nbetter aligning our teams with where we see growth, which is in enterprise. So with a softening in SMB due to the\nmacro conditions, we made adjustments there to ensure we could increase efficiency and productivity, and really\nmake sure that the team we have here can be set up to be successful. So some other things, in particular, we're\ndoing are increasing our focus on delivering scaled and efficient programs for those smaller customers without\nsacrificing the quality of their experience. But a lot of the focus is ensuring we're well-staffed for enterprise growth.\n\n......................................................................................................................................................................................................................................................\n\nIttai Kidron\n_Analyst,_ _Oppenheimer_ _&_ _Co._ _Inc._\n\n# Q\n\nOkay. Maybe as a follow-up, Dustin, what is it that you need to see for you to feel comfortable re-accelerating\nhiring again? Like, what is the key KPI that you're watching for? Because I'm pretty sure, I mean, clearly, you\ndon't want to be behind, right? So the tricky part is to try and put your finger on what would be the right thing to\nlook for to get the green light to go ahead a little bit more aggressively. Can you give us some insight as to what it\nis that you're looking forward to make that decision?\n\n##### 10\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nYeah. That's a great question and certainly one top of mind. I think that a lot of what we're looking at is really\nmacro signal and signal from customers in the conversation. So, Anne talked about some of our best customers,\nthey haven't deprioritized digital transformation, but they do have things a little bit on pause. They themselves are\n– in many cases, are just reacting to changing macro landscape for themselves and trying to re-evaluate and get\ntheir footing again and decide – regain confidence to start increasing their deployments.\n\nAnd so to some extent, you will be seeing that happen. So having the customers get back into a place of wanting\nto expand their deployments more rapidly. And I think, in turn, they will be looking to changes in the market,\nobviously changes in interest rates, and changes in their own customer demand.\n\nNow, that said, a lot of our customers are still growing. We would have loved to have had even more growth this\nquarter, but it's still quite a lot of growth. And so another thing that could happen is just that that growth continues\nand we grow into our OpEx footprint, and then that would be more of a sort of gradual turn back towards investing\nand hiring again on our side. And so, yeah, it might be quite acute or it might be more gradual. And I think in both\ncases – well, in the first case, it will depend on changes in the macroenvironment, which I do think could happen\nquickly, but they might not. And then, in the second case, just the sort of re-evolving of the customer relationships\nand category growth.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Alex Zukin with Wolfe Research. Please go**\nahead.\n\n......................................................................................................................................................................................................................................................\n\nAllan Verkhovski\n_Analyst, Wolfe Research LLC_\n\n# Q\n\nHey, there. This is Allan Verkhovski on for Alex Zukin. Thanks for taking the question. I really appreciated the\ncolor that you guys provided with respect to the impacts you're seeing from the macro. Can you just dive into the\ntrends you saw on a per month basis through November around expansion trends, free-to-paid conversions, and\njust general top-of-funnel activity? I think that'd be really helpful.\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nHey. This is Tim. I would say, like, where we had talked about in Q2 about the macro impact in Europe. And I\nwould say, starting kind of in September, maybe towards the end of September, we started seeing some of those\nsame trends and same conversations happening – same conversations happening in the US.\n\nI think what I'm really encouraged about is, when we go deep into the data, one of the things that's really continues\nto be strong is, if you look at our $5,000 customer, that revenue base continues to grow at a very healthy clip. You\nlook at our logo retention, our logo retention is stable, and we continue to have high NRR for our customers that\nare above $50,000 or $100,000.\n\nBut I do think the conversations that we're seeing, the types of engagement that we're having is while the pipeline\nisn't going away, I think many of our customers are just, like, taking a beat and saying, hey, what's going on in the\nmarket? Everyone is trying to right-size their own cost structure, trying to understand their own outlook based on\nthe macroenvironment. But we do expect many of these customers to re-engage over the next few months and\ncreate opportunity for us.\n\n......................................................................................................................................................................................................................................................\n\n##### 11\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\nAllan Verkhovski\n_Analyst, Wolfe Research LLC_\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nOkay. Got it. And then just as a follow-up to that point, like, for the disaggregates, the expansion business and the\nnet new business. I would assume expansion deals are a little easier to get over the line in this environment, but\nthat's kind of an inconsistent thought depending on other SaaS providers in the space. So what are you hearing\nfrom your reps about these areas? And how does that affect your strategy for next year?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nMaybe I'll start. I mean, it's a little of both – and it depends on the segment. So probably, in the smaller segments,\nSMB and midmarket, maybe a little more pressure against conversion and jumping into something new, a new\ncategory they haven't been spending on before, but not too dramatic. And then, expansion more at the enterprise\ncustomers, it's not even necessarily that they aren't expanding, but maybe they're just being a little more modest\nabout it. There are a couple of cases where customers were taking some of the roles that were eliminated had\nlicensed seats and they simply repurposed them to actually expand usage in other parts of the company.\n\nAnd so in some sense, they were expanding. It just wasn't necessarily translating into dollars for us. And then,\nsimilarly, all of the currency headwind really shows up of what turns out to be negative renewals even if the seats\nare still there. And we're still heavily driven based on those trends and just on seat expansion. So I don't think\nthere's anything that stands out too much. When I think of where our internal forecasts were most of it was in\nthose more modest expansions relative to what we were hoping for.\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. the only thing that I'll add to that is our champions are still quite engaged with us on those expansions. And\nso a lot of the focus in the discussions really is where can we make the highest impact and deliver the highest ROI\nand in the shortest amount of time. So some of it is just re-evaluating together where we expand the deployment\nand which cross-functional use cases.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question is from the line of Steve Enders with Citi. Please go ahead.**\n\n......................................................................................................................................................................................................................................................\n\nSteven Enders\n_Analyst,_ _Citigroup_ _Global_ _Markets,_ _Inc._\n\n# Q\n\nI want to ask on the expansion within that largest customer now expanding up to 150,000 seats. I guess, just\nwondering – as we think about that account, what were kind of the incremental either use cases or areas that\nyou were beginning to see that expansion take place in? And I guess, how should we think about kind of the\nfurther scalability that you could capture within that account there?\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. Thanks so much for that question. I think what we're actually seeing in that account is expansion across\nmany different divisions and departments. It's a large global organization. And so we are deployed in across many\nfunctions, many business units. And what we're seeing that drives that growth is that it's really how many of the\norganizations work and how they onboard new employees, how they train their employees, how they deploy their\nend customers. And so they're codifying essentially how they intend collaboration to work within the organization.\n\nSo it's not so much sort of one specific use case, but rather that we are now part of the stack of collaboration in\n\n##### 12\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nthat organization. And we're excited to see that, because that really is a playbook that we feel we can replicate\nin a lot of our large enterprise customers that are starting to see that similar behavior where it's across multiple\ndepartments, it's across multiple divisions, and it's really facilitating those cross-team initiatives that are so\ncritical right now.\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nI just want to jump in to add to the question about future potential. I think this is really sort of indicative of a few of\nour large customers where, again, they're the – in this environment, the company wants to have more control over\nthe pace of deployment and how spend happens. But underneath that, there's quite a lot of organic demand in\nthis account and others, and they're almost being held back from adoption, so that the company can pace in an\nintentional, controlled way. And that's fine. We'll work with them, but we're excited to embrace that sort of latent\ndemand and work with them when they're back into a place of spending more budget to embrace it and license it.\n\n......................................................................................................................................................................................................................................................\n\nSteven Enders\n_Analyst,_ _Citigroup_ _Global_ _Markets,_ _Inc._\n\n# Q\n\nGot it. Okay, that's helpful. And then, you made a comment in there around – well, in the prepared remarks about\nkind of taking the lessons you're learning from the largest customers and trying to apply that to kind of the rest of\nthe go-to-market strategy to drive enterprise adoption. I guess, what are kind of the key things that you've learned\nso far and kind of what are the things that you can control that can drive that expansion notion into other large\npotential accounts here?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nYeah. Two great lessons. One plays off of what I was just saying. These companies want to really control how\nAsana is deployed and be able to automatically manage thousands of accounts at a time and have that synced\nup with other things they're doing with the organization. So integrate it with their other ways of managing people\nand licenses, be able to have a lot of great visibility into how people are using the product and what kind of value\nthey're getting. And so we're translating that straight into the kinds of views we give in our admin console, how we\ntalk to the customer directly and what kind of data we're able to sort of provide from them ad hoc.\n\nAnd then, the second big thing that we really piloted with this larger customer is more customized in product\neducation. So being able to really speak their language, have the assets that teach them how to use Asana in that\ncompany culture really at the ready. And that can really accelerate adoption, and that's something we're excited to\nbring to other large customers.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Brent Thill with Jefferies. Please go ahead.**\n\n.....................................................................................................................................................................................................................................................\n\nBrent Thill\n\n_Analyst, Jefferies LLC_\n\n# Q\n\nDustin, investors want a faster path to profitability, but we know you have to balance the long-term and the\npotential to take share could be greater in a downturn. So I'm just curious how you're thinking about weighing the\nshort term versus the long term and how you're thinking through that desire from investors to make the quick turn\nhere?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\n##### 13\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nWell, yeah, as Tim said, we're still committed to the timeline that we provided last quarter, so I think that's really\nthe overarching picture – we need to balance it. In the short run, I always have heartburn around the category\nchanging and moving on without us, but I'm also just cognizant of the fact that if the customer demand isn't there,\nthen it's easy to spend the money inefficiently.\n\nAnd so the easiest place to turn up and down the throttle there is with programmatic marketing spend. And just\nfrom a math basis, we know that the payback is getting longer and the immediate ROI you get on that is\nchanging and we should react to that. So we're relatively well aligned when the market's ready to grow, when our\ncustomers are ready to grow, that's the right time for us to be spending more aggressively. But there are also\nthings that play out over longer cycles, like how our product roadmap works. And so there it's more of a judgment\ncall on what's the right pace. But you can see that we've been getting leverage throughout this year in R&D as a\npercent of revenue. And I think that will continue.\n\nAnd we'll just be looking at exactly what is the shape of that trend line and when do we have a little more capacity\nto reinvest there and reinvest in head count and programmatic spends elsewhere in the company.\n\n......................................................................................................................................................................................................................................................\n\nBrent Thill\n_Analyst, Jefferies LLC_\n\n# Q\n\nQuick follow-up for Tim. Is there a way to split SMB versus enterprise as a mix, just a ballpark, I think, through\nthat allocation of revenue to each of those buckets?\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Our next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.**\n\n......................................................................................................................................................................................................................................................\n\nSophie Lee\n_Analyst,_ _Morgan_ _Stanley_\n\n# Q\n\nHi. Thanks for taking my question. This is Sophie Lee on for Josh Baer. I guess, my question is, when you say\nyou expect NRR to be continued to be pressured going forward, what kind of churn and expansion dynamics are\nyou kind of thinking about? Are those more related to less seat expansions? Or are you implying more lower\ndollar expansions as customers downgrade to cheaper plans? Just curious what you're thinking about there?\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nYeah. Let me try to answer Brent's question first. I think I was on mute and then I'll jump back into this churn\nquestion. Brent, your question about how to think about the two segments of the business, I would\n\n##### 14\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nlook at our business like the sub-$5,000 as one part of our business and the above $5,000 as another part of the\nbusiness.\n\nAnd if you look at that, if you break up our sub-$5,000 business, it grew at about 18% year-on-year and our\n$5,000 cohort grew north of 50%. And that cohort also has much stronger NRR than the sub $5,000. And that's\nbeen the way we've been running the business and like how do we move these $5,000 customers up into\n$25,000, $50,000, $100,000. And that's really been the motion that we're focused on and will continue to invest\nin.\n\nNow back to the churn question or the net expansion rate question, I would probably prioritize it as one, we're not\nseeing logo churn. Logo churn is actually quite stable, so customers are not churning off Asana, that's one. Two,\nthere's probably some component, but I think it's relatively small of downgrades, meaning some customers have\npre-bought into thinking that they would grow into a certain size, and given the macroenvironment, they've decided\nto downgrade during their renewal. So we see some of that.\n\nI think the bigger impact primarily has been kind of the expansion rates. And the expansion rate is just a\ncombination of customers taking a pause right now, given the macro, to try to understand how fast they want to\ngrow their head count, how much hiring they want to do over the next 12 to 24 months, and just have a lot more\ncertainty around their own business before making that investment.\n\nSo as I mentioned earlier, the pipeline hasn't changed. The conversations are still happening. But I would say,\nwe did see some noticeable pause in some deals where customers are trying to reflect on their own plans before\nmoving forward.\n\n......................................................................................................................................................................................................................................................\n\nSophie Lee\n_Analyst,_ _Morgan_ _Stanley_\n\n# Q\n\nSounds good. And a quick follow-up, what are the incentives for customers to sign on to a multi-year deal despite\na more challenging budgetary environment?\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nI would say most of these larger deals are negotiated. So there's some combination of pricing that gets\ndiscussed, if customers are willing to move into a multi-year deal. And then, the other lever for customers – and\nespecially in this environment, I think customers are looking for this. And it impacts billing as they're asking for\ndifferent payment terms, a different structure in terms of how the timing of which they'll pay us. So those are\ngenerally the two things that I would say that customers are kind of looking at. And we did actually saw a\nnoticeable increase in our multi-year deals this quarter versus last quarter, which is really encouraging as well.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Brent Bracelin with Piper Sandler. Please go**\nahead.\n\n......................................................................................................................................................................................................................................................\n\nBrent A. Bracelin\n_Analyst,_ _Piper_ _Sandler_ _&_ _Co._\n\n# Q\n\nGood afternoon. Maybe I'll start here with a question for Anne or Tim here on the industry vertical breakout. We've\nseen several software companies that have gained popularity with digital natives and tech and Internet names\nthat are really starting to see their growth being pressured. And so from an industry vertical perspective, what\nportion of the revenue today is tied to tech, Internet, software? And the pause that you're talking about here, is it\n\n##### 15\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\npredominantly in just tech? Or are you seeing the pause in both the tech Internet space and other areas as well?\nAny thoughts there would be helpful.\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. Brent, thanks for that question. We have been traditionally very strong in tech, but it's the plurality not\nnecessarily the majority globally. So certainly some of what we're seeing comes from what's happening to our tech\ncustomers as they pause hiring or in some cases had layoffs. But as we continue to broaden across industries,\nwe're definitely seeing strong fit with media, automotive, financial services, along with professional services,\nhealthcare, consumer goods and retail.\n\nSo consistent themes in those verticals are the desire for speed in their digital transformation initiative and being\nable to respond quickly in this macro. We really feel like our value proposition well-suited to these companies\nthat are looking at transformation to better compete and drive efficiency. So yes, tech, we're seeing that. But as\nwe diversify across verticals, really seeing some of those other industries actually embrace transformation more\nquickly.\n\n......................................................................................................................................................................................................................................................\n\nBrent A. Bracelin\n_Analyst,_ _Piper_ _Sandler_ _&_ _Co._\n\n# Q\n\nGot it. So it sounds like they're really pause in tech. But in these other areas that you talked about, there isn't a\npause that you're flagging at this point.\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nI guess, it's really hard to answer that in a blanket way. I think when we were talking about our Q2 results, we\nwere talking about some similar dynamics in Europe, which was a blend of industries. And then, this time like tech\nis a factor. But that is where a lot of these pauses are. But again, in some cases, those customers are deploying\nmore aggressively and we're still signing new multi-year deals, and going wall to wall in those customers.\n\nAnd in some non-tech cases, there's a pause. And my mental model on the economy is that it's sort of hitting the\nsectors in waves. I'm a little reluctant to say the whole problem is tech and then next quarter, it's a different\nsector that's kind of feeling the impact. So it's really a mix. But that said, I think in America, it's a larger plurality,\nstill not the majority and it's more represented in our very largest customers.\n\nIn terms of the strategic accounts expanding a little more modestly, I think it's fair to say that that trend is more\nconcentrated in tech, and it's not something I expect to be ongoing. I think that they're mostly reacting in an acute\nsort of shocked way to what happened in the market and really in this particular timeframe.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Jackson Ader with SVB Securities'**\nMoffettNathanson. Please go ahead.\n\n......................................................................................................................................................................................................................................................\n\nJackson E. Ader\n_Analyst,_ _MoffettNathanson_ _LLC_\n\n# Q\n\nGreat. Thanks for taking my questions, guys. First, Dustin, maybe on the over-hiring of talent acquisition and new\nsales that you were talking about. Outside of the macroenvironment, I'm just curious, do you feel like it was working\nand when things start to turn more positive in the macroenvironment, you feel like you have a good playbook just to\nspin that motion back up? Or is it more like you have some learnings that, say, I'm not really sure if that was the way\nto go anyway?\n\n##### 16\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nIt's a complex hypothetical question. I think some things we're working, some things we revisited, as we always\ndo when we're sort of executing in the wild. But for the most part, I think that the rising tide of the category was\ncontinuing and we were investing into that trend. And so that just in like the 20,000-foot view, I'd expect it to\ncontinue. I think it's still working. We're succeeding in our move up market to enterprise and especially just seeing\na lot of learnings there on exactly how to make customers successful very, very quickly; and, again, reintegrating\nthat straight into the product experience.\n\nSo all of that I think will be the strengths that we build on before we start hiring again. There's still quite a lot of\nAsanas here, quite a lot of customers growing. And it's a little hard for me to think about it because it almost\nsounds like, oh, we stopped the whole engine, which isn't the case. We're just taking a beat ourselves before we\nstep on the gas again in the future.\n\n......................................................................................................................................................................................................................................................\n\nJackson E. Ader\n_Analyst,_ _MoffettNathanson_ _LLC_\n\n# Q\n\nOkay. All right. Got it. And then, as my follow-up, Tim, why wouldn't $40 million in annual savings bring the timing of\nthe free cash flow breakeven – even if you don't want to put a date on it, shouldn't $40 million of annual savings\nbring the timeline in a little bit?\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nYeah. I think a lot of this is really about trying to understand and assess what the macro is going to look like and\nthe growth rate over the next two years. To the degree we grow faster, I absolutely believe that we'll be able to\npull it in. But if the economy actually gets worse, and sitting here today, there are just like no signals that things\nwill be better yet. I'd rather be more cautious and conservative as we continue to provide both guidance and\noutlook on kind of the financials.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets.**\nPlease go ahead.\n\n......................................................................................................................................................................................................................................................\n\nJason Celino\n_Analyst,_ _KeyBanc_ _Capital_ _Markets,_ _Inc._\n\n# Q\n\nHey. Thanks, everyone, for putting me in. I guess, just a couple Q4 guidance questions. I totally understand the\nmacro challenges, and I think, Tim, in your prepared remarks, you said that you're assuming the environment to\nkind of remain the same for Q4. But when I look at the sequential growth, it's much less than what we found Q3.\nHow conservative is this Q4? And are there any other factors that we might not be thinking about?\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nI would say we are being extremely thoughtful and conservative in terms of how we provided the Q4 guidance.\n\n......................................................................................................................................................................................................................................................\n\n##### 17\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\nJason Celino\n_Analyst,_ _KeyBanc_ _Capital_ _Markets,_ _Inc._\n\nOkay. Perfect. I think let's leave it at that then. I'll pass it on.\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nOkay. Thank you.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Robert Simmons with D.A. Davidson. Please go**\nahead.\n\n......................................................................................................................................................................................................................................................\n\nRobert Simmons\n_Analyst, D. A. Davidson_ _&_ _Co._\n\n# Q\n\nHey, thanks for taking my question. So one of the things you mentioned in the script was maximizing data from\nthe product-led motion. And I'm wondering if you could give us some more details on what that means, is that\nsomething along the lines of get them up and running quickly and that's sort of thing or is there more to it?\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. Thanks so much for that question. I think we are excited about that on a number of fronts both in larger\naccounts, where there is team adoption across the board. And how do we get that information more quickly to our\nsales team with the context on which teams, what's the usage, how they're already collaborating with other teams\nand departments that are fully deployed. So certainly, product data in existing accounts as well as product data in\nnew accounts and new sign-ups, how we can do a faster, more intelligent job with the scoring of that product\nusage early in their journey and pass those more quickly to sales to have really relevant and rich conversations\nearly on.\n\nA lot of times, what we see is if we can get customers set up early on and talk to them about the total potential of\nAsana, that growth is accelerated. So we just want to do more of that, leveraging the rich insights and data we\nhave in our product platform.\n\n......................................................................................................................................................................................................................................................\n\nRobert Simmons\n_Analyst, D. A. Davidson_ _&_ _Co._\n\n# Q\n\nGot it. That makes sense. And then, on the HIPAA compliance, you've mentioned that it helped you close some\ndeals. Was that important for Norton and then any color on that would be helpful.\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. And we're excited about it because we're early in it. We've only had it for a month and it was important in\nNorton and a number of other deals. We had a nice expansion with a global healthcare customer as a result. So\nthere's been a number of, I'll call it, smaller deployments within healthcare and healthcare technology\norganizations who've been excited for us to become HIPAA-compliant to really unlock more opportunities. We\nfeel like we're early on that, but it's been really helpful, including Norton as well as a number of other global\nhealthcare customers.\n\n......................................................................................................................................................................................................................................................\n\n##### 18\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\n**Operator: Thank you. Our next question comes from the line of Fred Lee with Credit Suisse. Please go ahead.**\n\n......................................................................................................................................................................................................................................................\n\n# Q\n\nHi. This is Tim Jausovec on for Fred Lee. Thank you for taking my question. To what degree do you see\nachieving your calendar 2024 free cash flow target entirely within your control versus dependent on the\nmacroeconomic environment, or differently, how broad is the range of macroeconomic scenarios under which you\nwill achieve the target?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nHey. This is Dustin. I think that we feel comfortable, given the current macro context, that we can achieve free\ncash flow on the timeline we laid out, and that we're fully funded to achieve it importantly. But it's been a really\nvolatile year, and there have been a lot of surprises. And there could be new things that happen in the future. And\nso it's really hard to promise that we have complete control over things because there's a lot that we're at the\neffect of.\n\nI've been saying that I'm the CEO of the Asana company, but lately Jay Powell has been CEO of the stock price\nand a lot of the sort of business inputs. But that doesn't mean we can't react to things that change. And we're\nalways behind the wheel. If new surprises show up, then we may have to make new decisions and reaction. But\nwe still feel pretty good about being able to achieve that timeline.\n\n......................................................................................................................................................................................................................................................\n\n# Q\n\nThank you.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Patrick Walravens with JMP Securities. Please**\ngo ahead.\n\n......................................................................................................................................................................................................................................................\n\nPatrick Walravens\n_Analyst, JMP Securities LLC_\n\n# Q\n\nOh, great. Thanks. So, look, very big picture maybe for Dustin, but if anyone else wants to chime in. If you take a\ncurrent stockholder today and we look forward three years, how do we win and what would make us lose?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nSo from a stockholder perspective, it's the business succeeding – obviously achieving the free cash flow\nmilestone, but also achieving a lot of top line growth. And the way we win is by moving up market and being the\ncategory leader, especially in enterprises. And again, we're talking a lot about the sort of blended overall growth\nrates for the business. But when you look underneath the hood, there are a lot of signs of strength in the larger\nsegments, we still have 140% net dollar retention across our very largest customers.\n\nWe have very large individual deployments, including 150,000 seats. We're in the leader circle from Forrester –\n2.5 million paying seats, so we see that we're deploying very quickly into these organizations, into the greenfield\nopportunity that is the work management category. And so that’s continuing is the way to success. There's a lot\nof ways that competitors might monetize differently in the short run or specialize into different niches. But the\n\n##### 19\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nAsana strategy is to be the leading pure play work management platform for enterprises. And I think we're on a\ngreat path there. And that's how we win. I'll leave it at that.\n\n......................................................................................................................................................................................................................................................\n\nPatrick Walravens\n_Analyst, JMP Securities LLC_\n\n# Q\n\nWhat do you think is the most likely way you end up losing?\n\n......................................................................................................................................................................................................................................................\n\nDustin Moskovitz\n_Chief Executive Officer, Co-Founder_ _& Director,_ _Asana, Inc._\n\n# A\n\nWell, the common advice is not to focus on the wall, which is not there. But the most common way to lose – I am\nworried about other macro surprises. And we're definitely keeping an eye on the war, on inflation, on the situation\nin China – we think that's least absorbed into the global economy right now. And those will affect everybody. But\nif they slow us down, then that can have an asymmetric impact on us versus the rest of the field, and might\nadvantage certain players in certain ways. So we'll see what happens. And that's really the primary thing I think\nabout.\n\nWe have a lot of opportunities to capitalize on in terms of further widening our lead in terms of our product\ndifferentiation, and making it clear to the market. And I'm not satisfied with how clear it is right now. I think it's very\nclear to our large customers, because they're living it and getting the value proposition and experiencing the\nincreasing returns to scale. But we need to be able to replay that story for investors and for new customers and\nfor analysts. And we're getting better at it all the time but there's a long way to go there. And our competitors\nhave a vested interest in trying to minimize those differences. And so that's part of the game as well. But I feel\nconfident in our ability to succeed in that way.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. Our next question comes from the line of Rob Oliver with Baird. Please go ahead.**\n\n......................................................................................................................................................................................................................................................\n\nRob Oliver\n_Analyst,_ _Robert W. Baird_ _& Co., Inc. (Broker)_\n\n# Q\n\nGreat. Thanks. Good afternoon, guys. Thanks for squeezing me in here. Anne, my question is for you and I have\na follow-up for Tim. You talked in your prepared remarks, Anne, about the elevation of the buying decision to the\nCEO/CIO level. And I know Dustin said there's no change in the competitive landscape. But when you get up to\nthat level, you're in the turf of some big incumbent legacy companies that have solutions that are trying to\ncompete with you guys very actively.\n\nSo how, if at all, does the strategy change? I mean, clearly, scalability is not an issue. Product is not an issue.\nYou guys have the best. But maybe we get into an environment where maybe the best doesn't win, how does the\nstrategy change when you're competing in some of those larger incumbents?\n\n......................................................................................................................................................................................................................................................\n\nAnne Raimondi\n_Chief_ _Operating_ _Officer_ _& Head-Business, Asana,_ _Inc._\n\n# A\n\nYeah. Thanks so much for that question, Rob. I think what we've been seeing is certainly in this environment,\nCIOs, CFOs are part of the decision-making process for all sort of technology investment. To your question on\nhow we think about it if there's incumbent technology, I think what our teams are still doing is really focusing\ndeeply on understanding our customers' most pressing business problems and how Asana can differentially solve\nthose problems, because in the end that's where they want to make the investment.\n\nA lot of the execs also recognize that those are not being adopted even if they're available. So in the end, the\n\n##### 20\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nadoption of the technology and then the ROI on that is what they're focused on. And there's just in this\nenvironment just greater scrutiny to double-check that investment and tie it to KPIs. And so that's what a lot of our\nteam is focused on, is making sure we understand that upfront, making sure we align on the KPIs, and then most\nimportantly, delivering on those as we deploy and move forward with them.\n\n......................................................................................................................................................................................................................................................\n\nRob Oliver\n_Analyst,_ _Robert W. Baird_ _& Co., Inc. (Broker)_\n\n# Q\n\nOkay. Great. Yeah. That's helpful. You want to help a CIO and CFO avoid the decision to buy shelfware that their\nusers don't want when they want you guys. That makes a lot of sense.\n\nTim, a follow-up for you. Dustin alluded to marketing budgets earlier and clearly the marketing budget is a big line\nitem for you guys. As you guys push more into enterprise successfully, albeit with the pause that you guys have\ntalked about here. Does that give you more leverage on that line item in terms of less focus on that SMB customer\nor that freemium branding that maybe you had needed to do earlier on? Thank you.\n\n......................................................................................................................................................................................................................................................\n\nTim M. Wan\n_Chief_ _Financial_ _Officer,_ _Asana,_ _Inc._\n\n# A\n\nI do think as we move up market, we'll generally get more leverage in the business, I'd agree on marketing, but\nalso on R&D and really across all functions. So that's a big part of why we're doing it. But I do think marketing still\nhas a really important role to play in reaching enterprises, including in our existing deployments. I mentioned that\nwe have a lot of organic growth that sometimes the company is holding back. But some of the way that organic\ngrowth happens is supported by our marketing efforts as well. So I think we get similar amounts of ROI in\nenterprise through some of that spend.\n\nAnd then I'd also just point out that the world's a big place and we have different levels of category maturity and\nAsana presence in the market in different countries. And we'll need to apply marketing dollars in different ways to\nbuild that awareness in places where we're less deployed or less present.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: Thank you. That concludes the question-and-answer session. I would like to pass the conference**\nback to Catherine Buan for any closing remarks.\n\n......................................................................................................................................................................................................................................................\n\nCatherine Buan\n_Head-Investor_ _Relations,_ _Asana,_ _Inc._\n\nYes. Just want to thank everyone for joining the call today. We know it's a busy week, and we really appreciate\nyour time and you covering Asana. As always, please feel free to call me if you have any follow-up questions.\nAnd we will be out at the various conferences, so we look forward to seeing you on the road. Thanks very much.\n\n......................................................................................................................................................................................................................................................\n\n**Operator: That concludes today's conference call. I hope you all enjoy the rest of your day. You may now**\ndisconnect your lines.\n\n*************************************************************************************\n*Calculated Billings\n\nWe define calculated billings as total revenue plus the changes in deferred revenue in the period.\n\n##### 21\n\n\n-----\n\n#### Asana, Inc. (ASAN)\nQ3 2023 Earnings Call\n\n\nCorrected Transcript\n\n01-Dec-2022\n\n\nDisclaimer\nThe information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data.\nAs such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any\ninformation provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis\nof investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. 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All rights reserved.\n\n##### 22\n\n\n-----\nEND DOCUMENT 5\n\nBEGIN DOCUMENT 6:\n# Smartsheet Inc. NYSE:SMAR\n\n## Earnings Call\n\n_Thursday, December 1, 2022 9:30 PM GMT_\n\n### CALL PARTICIPANTS 2\n\n PRESENTATION 3\n\n QUESTION AND ANSWER 7\n\n-  Capability needed to view estimates data. Please contact your account\nmanager.\n................................................................................................\n....................................................................\n**WWW.SPCAPITALIQ.COM**\n\n\n-----\n\n## Call Participants\n\n....................................................................................................................................................................\n\n**EXECUTIVES**\n\n**Aaron Turner**\n_VP of Investor Relations &_\n_Treasurer_\n\n**Mark P. Mader**\n_President, CEO & Director_\n\n**Pete Godbole**\n_CFO & Treasurer_\n\n\n**Michael Bird**\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research_\n_Division_\n\n**Richard David Poland**\n_RBC Capital Markets, Research_\n_Division_\n\n**Robert William Dee**\n_Truist Securities, Inc., Research_\n_Division_\n\n**Scott Randolph Berg**\n_Needham & Company, LLC,_\n_Research Division_\n\n**Unknown Analyst**\n\n\n**ANALYSTS**\n\n**Brent John Thill**\n_Jefferies LLC, Research Division_\n\n**David E. Hynes**\n_Canaccord Genuity Corp.,_\n_Research Division_\n\n**Ethan Bruck**\n\n**Fred Lee**\n\n**George Michael Iwanyc**\n_Oppenheimer & Co. Inc., Research_\n_Division_\n\n**Jacob Roberge**\n_William Blair & Company L.L.C.,_\n_Research Division_\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC,_\n_Research Division_\n\n**Joshua Phillip Baer**\n_Morgan Stanley, Research Division_\n\n**Kyle Diehl**\n_MoffettNathanson LLC_\n\n\n-----\n\n## Presentation\n....................................................................................................................................................................\n\n**Operator**\n\nLadies and Gentlemen, thank you for standing by. My name is Brent, and I will be your conference\noperator today. At this time, I would like to welcome everyone to the Smartsheet Third Quarter Fiscal\n2023 Earnings Conference Call. [Operator Instructions]\n\nIt is now my pleasure to turn today's call over to Mr. Aaron Turner, Head of Investor Relations. Sir, please\ngo ahead.\n\n**Aaron Turner**\n_VP of Investor Relations & Treasurer_\n\nThank you, Brent. Good afternoon, and welcome, everyone, to Smartsheet's Third Quarter of Fiscal Year\n2023 Earnings Call. We will be discussing the results announced in our press release issued after the\nmarket closed today.\n\nWith me today are Smartsheet's CEO, Mark Mader; and our CFO, Pete Godbole.\n\nToday's call is being webcast and will also be available for replay on our Investor Relations website at\ninvestors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which\ncan be viewed in the Events section of our Investor Relations website. During this call, we will make\nforward-looking statements within the meaning of the federal securities laws. We have based these\nforward-looking statements largely on our current expectations and projections about future events and\nfinancial trends. These forward-looking statements are subject to a number of risks and other factors,\nincluding, but not limited to, those described in our SEC filings available on our Investor Relations website\nand on the SEC website at www.sec.gov.\n\nAlthough we believe that the expectations reflected in the forward-looking statements are reasonable, our\nactual results may differ materially and adversely. All forward-looking statements made during this call\nare based on information available to us as of today, and we do not assume any obligation to update these\nstatements as a result of new information or future events, except as required by law. In addition to the\nU.S. GAAP financials, we will discuss certain non-GAAP financial measures.\n\nA reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that\naccompanies this call, which can also be found on our Investor Relations website.\n\nAnd with that, let me turn the call over to Mark.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nThanks, Aaron. Hello, and welcome to our third quarter earnings call for fiscal year 2023. Today, I'd like\nto focus on 3 topics: our solid performance in the quarter, how we're improving our operational efficiency\nin the current macro environment; and how delivering measurable ROI for customers drives our durable\nlong-term growth. While Pete will provide additional details, I want to call out some of our strong financials\nfrom the quarter.\n\nRevenue for the quarter was $199.6 million, up 38% year-over-year. We added $56 million in annual\nrecurring revenue, bringing our total ARR to more than $792 million. We added many new customers in\nthe quarter, such as recruiting software providers seek out, Monster Energy, the social good empowerment\nplatform, Bonterra and Arizona Beverages. And we expanded Smartsheet's footprint significantly at Picasa,\nAGC Biologics and Seattle Children's Hospital, among others.\n\nOur strong expanded climb motion within our customer base continued with 235 customers expanding\nby $50,000 or more and 79 customers expanding by $100,000 or more. We also now have 40 customers\nwith ARR over $1 million. And we ended the quarter with more than 11.7 million Smartsheet users. Last\nquarter, we discussed how our new sales reps were ramping more slowly than sales reps from previous\n\n\n-----\n\nyears. This quarter, we saw improvements in quota attainment and pipeline generation from our newest\nreps. We exited the quarter with a record pipeline, improved after macro-related softening in Q2. We\nalso made significant improvements to our profitability in Q3. Our Q3 non-GAAP operating loss was\nnegative $4.3 million significantly better than our guidance and a 7 percentage point sequential margin\nimprovement from Q2. This improvement is a function of the adjustments we've made to our hiring plan\nfor the year, a heightened focus on operational rigor and financial policies and inherent economies of scale\nin our business model.\n\nWe expect these margin benefits to persist, allowing us to improve our non-GAAP operating income and\nfree cash flow guidance for the year and beyond. The growth we experienced in the quarter came in\nlarge part from Smartsheet's ability to provide measurable ROI for customers as they navigate the macro\nbackdrop. For example, in Q3, a Fortune 50 healthcare company expanded its Smartsheet investment by\nover $0.5 million, bringing their total Smartsheet ARR to nearly $2 million.\n\nSince moving to Advance Gold a year ago, they've seen a 56% increase in license growth as more teams\nacross the organization leverage advanced capabilities to manage programs and processes at scale. Their\nData Shuttle usage has increased almost 300% over the past year, and they now have 85 workflows\npowered by our Bridge integration product. One of the biggest benefits this customer is seeing from\nSmartsheet is improved efficiency, leading to a measurable ROI. For example, one team used a workflow\npowered by Bridge to automate a complex manual process for managing staff changes and application\nrequests, decreasing the amount of time spent on it by more than 50%.\n\nWe also saw a leading provider of customs brokerage and logistics upgrade to Smartsheet's enterprise\nlicensing and Advance Gold platform after determining that advance would save them nearly 3,000\nhours of labor each year. Those hours saved are delivering more than $300,000 in ROI for the company\nwhile giving it the ability to handle a larger volume of quick win transactions and improve employee\nengagement. In another Q3 advanced deal, the leading integrated reporting platform provider, Workiva\nmoved up to advance, so the professional services group could leverage Control Center and the\nSmartsheet Salesforce connector to implement a new project and portfolio management solution.\n\nThey chose Smartsheet as their PPM platform because it offers both introductory and professional-grade\ntools for project management that can scale to enterprise levels. This solution also gives project managers\ninsight into project risks and time lines and makes it easy for them to see all assignments in one view,\nhelping reduce project cost overruns. They estimate that in over 3 years, they will earn a 340% return\non their Smartsheet investment. On the innovation front, we launched several Smartsheet capabilities\nand experiences at our September ENGAGE conference. where we welcome thousands of Smartsheet\ncustomers and partners in person for the first time in 3 years.\n\nIt was incredibly energizing and gratifying to connect with customers face-to-face and hear their\nSmartsheet stories. HP, Webex, AbbVie and many more presented during breakout sessions and shared\nhow Smartsheet is empowering them to solve tough problems, deliver on promises and drive tangible\nresults. At Engage, we launched portfolio WorkApps, which combines the power of control center for\nmanaging large portfolios with the end user simplicity of WorkApps. A global food services company\nrecently chose portfolio WorkApps as the PPM solution for its global transformation initiatives.\n\nThe company has a complex global operating model and portfolio WorkApps gives its portfolio managers\nthe ability to create portfolio views tailored to specific organizational roles that span multiple regions,\ncountries and segments. By leveraging portfolio WorkApps, the company now has a clear line of sight into\nany given initiative across a global matrix environment, allowing leadership to drive a strategic road map\nand achieve KPI targets. We're also deepening our investment in the PPM space by launching new resource\nmanagement capabilities such as capacity view that gives resource managers increased visibility of their\ncapacity for planning and deploying talent. We're continually refining our governance and security controls\nto meet customers' current and future needs. At ENGAGE, we shared details on data egress, a new layer\nof control over how Smartsheet data can be exported outside of an organization. Such robust security\nand governance capabilities, which protect confidential information via granular control are a key reason\nmany companies choose our platform. For example, in Q3, a large mortgage lender chose Smartsheet\n\n\n-----\n\nover another CWM solution when the competitor's solution was unable to comply with certain mandatory\nrequirements.\n\nThis customer was impressed with Smartsheet's enterprise-grade security and like how easy it was for\nteams across various lines of business to start using the platform. Ultimately, they felt Smartsheet was\nthe best platform to help them meet their COO's goals for managing the business more securely and\nefficiently. We also announced our new desktop application, which was enthusiastically received by people.\nAs worth of new ML-powered home and reimagined search functions. These investments streamline the\ndaily Smartsheet experience for all users by enabling them to find and act on their work quickly. On\nlast quarter's earnings call, I mentioned our acquisition of the Outfit brand management templating and\ncreative automation platform, which we have integrated with Brandfolder.\n\nThe synergy of the Brandfolder Outfit solution is already providing its value for customers in a meaningful\nway. In Q3, we landed a $300,000 plus deal with a major appliance manufacturer that will be using\nBrandfolder plus outfit as their single source of truth for digital asset management and production. Each\nbrand within the company will use Brandfolder to track and manage assets, helping reduce assets for all.\nOutfit will provide a self-service model for building automated asset templates that they can distribute to\nwholesalers and retailers to ensure consistent brand marketing. This Outfit powered content automation\nsolution will help the company reduce a 14- to 16-week creative and distribution process to 4 weeks,\ndriving a 400% faster time to market for their marketing campaigns. By providing transparent and\nefficient content creation distribution and tracking capabilities. The new system allows the company to\nutilize its existing in-house creative team while eliminating significant outside agency-related costs.\n\nAs you've heard today, despite the current macro environment, we had a strong quarter and remain well\npositioned for continued growth. Just last month, in their Q4 2022 report, Smartsheet was named a leader\nin the Forrester Wave for collaborative work management tools. The report recognized that Smartsheet\ncontinues to provide an extremely broad set of use cases among the leaders in this Forrester Wave. And\nthat Smartsheet strengths are the extensive availability of work types, flexible use case creation and\nend user automation capabilities. With people under greater pressure to choose the right CWM solution\nfor their needs, reports like this are important in helping guide their decision-making. In closing, Q3\nwas another solid quarter for our company, especially considering the global macro headwinds. With\nour performance in the quarter, a continued focus on operational efficiency and the way we're delivering\nROI for customers, I remain confident in our ability to deliver long-term durable growth with improving\nprofitability.\n\nNow, Let me turn you over to Pete. Pete?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nThank you, Mark, and good afternoon, everyone. As Mark mentioned, Q3 was a strong quarter that\nreflected durable growth and improving profitability. We exceeded our guidance on both the top and\nbottom line as customers continue to turn to Smartsheet for their diverse set of mission-critical work\nmanagement needs, and we benefit from improving economies of scale and an intense focus on\noperational efficiency.\n\nWe saw particular strength among our enterprise customers as these customers continue to deploy our\ncapability-based products to streamline their most mission-critical workflows. Capabilities grew to 29% of\nsubscription revenue in Q3, aided by strong growth in our advanced offering and Brandfolder. I will now go\nthrough our financial results for the third quarter. Unless otherwise stated, all references to our expenses\nand operating results on a non-GAAP basis and are reconciled to our GAAP results in the earnings release\nand presentation that was posted before the call. Third quarter revenue came in at $199.6 million, up 38%\nyear-over-year.\n\nSubscription revenue was $186.1 million, representing year-over-year growth of 40%. Services revenue\nwas $13.5 million representing year-over-year growth of 12%.\n\n\n-----\n\nTurning to billings. Third quarter billings came in at $219.6 million, representing year-over-year growth\nof 36%, approximately 92% of our subscription billings were annual with 4% monthly. Quarterly and\nsemiannual represented approximately 3% of the total. Multiyear billings represented less than 1% of total\nbillings. Moving on to our reported metrics.\n\nThe number of customers with ARR over $50,000 grew 43% year-over-year to 2,962 and the number of\ncustomers with ARR over $100,000, grew 55% year-over-year to 1,346. These customer segments now\nrepresent 60% and 46%, respectively, of total ARR. The percentage of our ARR coming from customers\nwith ARR over $5,000 is now 89%. Next, our domain average ACV grew 25% year-over-year to $7,951.\nWe ended the quarter with a dollar-based net retention rate of 129%. The full churn rate remains below\n4% given the current macro environment, we expect our overall dollar-based net retention rate to be in\nthe mid-120s by the end of the year.\n\nNow turning back to the financials. Our total gross margin was 81%. Our Q3 subscription gross margin\nwas 87%. We continue to expect our gross margin for FY '23 to remain above 80%. Overall, operating\nloss in the quarter was negative $4.3 million or negative 2% of revenue, which represents a 7 percentage\npoint sequential margin improvement. The margin improvement was the result of cost-saving initiatives\nwe discussed in previous quarters, which included moderation of our hiring plan and cost rationalization.\n\nAdditionally, we led portion of our revenue outperformance dropped to the bottom line, demonstrating\nthe operating leverage inherent in our business model. Based on our improved gross retention, we also\nmoved to our 4-year amortization period for our commission base -- commission expense from a 3-year\namortization period. This accounting change contributed about 3 points of margin improvement in Q3.\nFree cash flow in the quarter was negative $4.6 million.\n\nNow let me move on to guidance. Before I go into the details, a few comments on our approach to\nguidance. The macro environment dynamic, which impacts near-term visibility. We are, therefore, electing\nto remain appropriately prudent as it relates to our top line performance. For the fourth quarter of FY '23,\nwe expect revenue to be in the range of $205 million to $207 million and non-GAAP operating loss to be\nin the range of negative $2 to $0. We expect non-GAAP net loss per share to be negative $0.02 to $0.00\nbased on weighted average shares outstanding of 131.5 million. For the full fiscal year '23, we are raising\nour billings guidance to $878 million to $885 million, representing growth of 33% to 34%. We are also\nraising our revenue guidance to $760 million to $762 million, representing growth of 38%. We expect\nservices to be 7% of total revenue. We are improving our non-GAAP operating loss to be in the range of\n$45 million to $43 million and non-GAAP net loss per share to be $0.31 to $0.30 for the year based on\napproximately 130 million weighted average shares outstanding.\nWe are raising our free cash flow guidance for the year to $5 million. To conclude, Q3 was another strong\nquarter. We continue to demonstrate our ability to drive durable growth with improving profitability as the\nmost demanding businesses in the world turn to Smartsheet for their mission-critical and data-intensive\nwork management needs. Now let me turn it back to the operator for questions. Operator?\n\n\n-----\n\n## Question and Answer\n....................................................................................................................................................................\n\n**Operator**\n\n[Operator Instructions] Your first question comes from the line of John DiFucci with Guggenheim\nSecurities.\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC, Research Division_\n\nI wanted to dig in on your comment about improved pipeline conversion given the softening macro\nbackdrop. You raised billings guidance for the year modestly, which is certainly positive. As we think about\nnext year, are you assuming that pipeline conversion stays at current levels or improves throughout the\nyear? And how should we think about pipeline conversion relative to workforce productivity, some of the\ninvestments you've made on the front and the sales force continues to ramp. Sorry for the long question.\nThat's my bad habit.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nJohn, this is Pete. I'll take your question in parts. The first part of your question was pipeline conversion\nessentially, what I talked about last time was ramping our new reps, we saw our pipeline conversions\nrelated to rep productivity improve from that sense. And what we saw in terms of the physical view\nclosing and pipeline, October was a strong month for us as it relates to pipeline closing. So those are the\n2 elements of dimension on sort of how pipeline conversion looked. One, from a rep standpoint, and the\nother from the business deals and how they closed. Can you repeat the second part of your question you\nasked about, so I just want to take them in sequence.\n\n**John Stephen DiFucci**\n_Guggenheim Securities, LLC, Research Division_\n\nAs we think about next year, should we assume that pipeline conversion stays at the current levels, or\nshould we assume it gets better or who knows macro backdrop, maybe that changes for the worst, too.\nHow should we think about it? How do you think about it as it relates to guidance?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo we haven't come up with guidance for next year. But what I would tell you is 2 things, it's going to be\na function of sort of what the macro is because that's going to decide sort of the number of deals and how\nthose are progressing. We will go into the year with a sales team that's very ramped, and that's going to\nbe positive to conversion.\n\n**Operator**\n\nYour next question is from the line of DJ Hynes with Canaccord Genuity.\n\n**David E. Hynes**\n_Canaccord Genuity Corp., Research Division_\n\nCongrats on the nice set of numbers here. Mark, one for you. I'm curious how, if at all, you've evolved the\ngo-to-market messaging in the current environment? I mean, obviously, ROI is important in any sale. You\nmentioned it several times in your prepared remarks. I'm wondering if there are certain products or use\ncases that get more emphasis in a tougher environment?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think when you break it down in its most simplest terms, we're helping companies drive revenue or\nachieve cost savings. And when you can apply a program or process, something is scaled to one of the\n\n\n-----\n\nthings that they're trying to achieve and using plans speak like that, you typically have an opportunity to\nhave a conversation. So when we think about things like control center, Data Shuttle moving information\nmore quickly and efficiently across systems. We think about having fewer hands on things so you can\nget shorter cycle times. These are all very hard ROI calculations you can make. So I think the shift, the\ncontinued shift from the soft benefits in terms of employee engagement, which is super important, but\nharder to calculate a benefit from. Customers are responding to how we've oriented ourselves into such\ndiscussions. And I think that goes across not only selling seats to somebody, but also introducing our\ncapabilities, which are really the underpinning for a lot of those calculations.\n\n**David E. Hynes**\n_Canaccord Genuity Corp., Research Division_\n\nYes. That's helpful. And then as a follow-up, look, I mean, a strong quarter improving conversion rates,\nrecord pipeline. Does it at all make you kind of rethink the moderation in hiring plans that we've talked\nabout? And I realize this stuff doesn't whip around in 90-day cycles. But I guess I'm getting kind of the\ncommitment to longer-term margin expansion based on what you're seeing?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think we had a really robust start to the year. We brought on a healthy number of team members. And\nwe have not gone through a massive layoff in our company. So we have retained really good strength.\nWe've invested in ramping those individuals. And as Pete just said, I think going into the end of the\nyear with a ramp team, a larger ramp team than we had a year ago, that actually gives us quite a bit of\nconfidence to out and execute. So I think it would be in a different position had we finished the year with a\nvery [indiscernible] all of that great talent we brought on the beginning of the year. So I feel like we're still\nthe beneficiaries of some of those earlier in the year moves.\n\n**Operator**\n\nYour next question is from the line of Brent Thill with Jefferies.\n\n**Brent John Thill**\n_Jefferies LLC, Research Division_\n\nMark, you were in the CRO last time we went through the recession. Obviously, you're in a completely\ndifferent position. But any learnings parallels that you're seeing in KPIs you're monitoring going into\ncalendar '23?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. I think one of the big lessons, Brent, is just being quick, and the another sole notion survival of the\nquickest. I think you have to pair that, though, would be thoughtful. And it's like we're not just solving for\nQ3, we're not just solving for Q4. FY '24 is right around the corner. Pete and I are started talking about FY\n'25. So it's like these are all important dimensions. And I think one of the learnings is not to get too overrotated on that next 90-day window. And I think Pete has been a good partner to me in helping manage\nsome of that balance. So I think that's probably the largest takeaway.\n\n**Brent John Thill**\n_Jefferies LLC, Research Division_\n\nYes. I mean, Pete, just as a quick follow-up on the rep productivity. I mean, it's kind of counter to what\nwe're hearing at other companies. What do you think inverted the quota attainment for you, what changed\nthere? Was it something that happened in the demand environment? Was it one particular geography?\nWhat -- was there anything you can put your pulse on because that's kind of counter to what we're\nhearing in other companies right now?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\n\n-----\n\nYes, the rep productivity that I was describing was for our newer reps. We had a series of what I call welltimed and absolutely meticulously defined initiatives of how we would ramp the newer reps into territories\nthey had never managed accounts, they had never managed. And I think we're seeing the dividends of\nthat play. So we've seen the productivity of those reps client. Now remember, we had a significant class\nthat we ramped in. So when you're looking at the weighted average of the impact of that many people\ngetting ramped up with a systematic set of plays, that's what we're seeing.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think it's also an important, Brent, to recognize that we're making a relative statement. We were not\npleased with where we were last quarter in terms of rep productivity on certain cohorts. We're seeing\nimprovement there. So heading in the right direction. I think that is a statement though against what we\nsaw last quarter as opposed to we are exceeding at all levels on all fronts. I think we still have a good\nroom to go to continue to improve.\n\n**Operator**\n\nYour next question is from the line of Pinjalim Bora with JPMorgan.\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research Division_\n\nCongrats on the quarter. Mark, I just wanted to understand a little bit. I guess it's a great quarter. It\nseems like numbers are great, but we are hearing a lot of consternation from other companies as well,\nright? Last quarter was you had faced some difficulties. So I'm trying to understand how does the macro\nfeel for you? Is it the improvement that you did within some of these messaging plays that helped you this\nquarter versus the normal discussions on a macro front. Is that kind of similar to last quarter? Or is it -does it feel a little bit better or worse?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think it feels quite similar. I think the way we're engaging in those conversations are starting to produce\nyield for us. But I would say that the tenor within the customer environment is quite similar. I would say\nhow we're responding to that has proven to be positive. And I think that is a function of reps feeling more\nconfident, thus being able to present these solutions in ways that resonate with them. But I would say it is\nas much getting yourself higher in that priority list for customer consideration as opposed to the amount\nof budget customers have starting to swell again. So I think it's really our placement in that stack rank,\nthat's helping us.\n\n**Pinjalim Bora**\n_JPMorgan Chase & Co, Research Division_\n\nYes. Got it. One follow-up. I wanted to ask you about WorkApps. We have some -- we have had some\nconversations with some of your customers who are talking about consolidation, not just around work\nmanagement applications, but consolidation of other third-party apps, in-house apps, scheduling app or\nsomething else, right, which are being built on top of WorkApps. Are you seeing that? Is that kind of a\ndriver for the enterprise plan at this point where people are trying to save money to more with less?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. I think any time you have a -- the beautiful thing about the platform as opposed to a point tool is that\nit can be utilized in a multitude of ways. And I think any time someone sees a set of technologies that they\ncan utilize across multiple use cases and drive a higher yield for an amount of spending. That's a good\nthing. So I think WorkApps is a contributing for us there. I wouldn't say WorkApps is the tip of the spear.\nIt's one of a whole multitude of things that we're presenting to clients. I think in the coming years, I think\nWorkApps will continue to gain steam, the release we had an ENGAGE by connecting it to control center,\nwhich has been a really successful offering for us. Customers are really happy to see that.\n\n\n-----\n\nI think we'll see some benefits of that marriage between touch control center and WorkApps in the\nquarters to come.\n\n**Operator**\n\nYour next question is from the line of Josh Baer with Morgan Stanley.\n\n**Joshua Phillip Baer**\n_Morgan Stanley, Research Division_\n\nCongrats on a strong quarter. I wanted to ask one on macro and sort of in relation to guidance. We can\nsee the deceleration in the implied Q4 billings guidance and the commentary just around the decline in the\nnet retention rate. So I was hoping you could talk about some of the macro assumptions that's embedded\nin that guidance? And when you talk about prudence, what does that mean if you could add some details\nthere?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nAbsolutely. So Josh, the growth decel implied in our billings guidance is a function of the strong comp\nfrom Q4 from a year ago. And we've combined that with sort of a prudent outlook given the macro\nenvironment, which includes an expectation of lower customer budget spending sort of compared to prior\nperiods. And that's what substantiates the macro in your question, which is we're seeing a macro that's\nworsening. But the good news is when I gave you guidance a quarter ago, I gave you a composite guide\nof Q3 and Q4 and we had projected that Q4 would be softer given a worsening macro that was built in. So\nthat's the basis of the assumption.\n\n**Joshua Phillip Baer**\n_Morgan Stanley, Research Division_\n\nOkay. Great. That makes a lot of sense. And then if you could just add any commentary on the linearity of\nsort of demand trends month-to-month throughout the quarter and into November. Have you been seeing\nthings get worse over the last months leading into Q4?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo the -- October was a strong month for us relative to the, what I call the close rates and the pipeline\nclose rates we saw. November turned out steady to our expectations. We expected the macro cycle to\nbe in play, and it produced results that are very consistent with our expectations. So remember, in Q4,\nthere is a great deal of business to be booked in December and January. So that's what's built into our\nassumption as we've guided to the quarter.\n\n**Operator**\n\nYour next question comes from the line of Scott Berg with Needham.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\nCongrats on good quarter and I guess that 2 questions here. First of all, Pete, you talked about capabilities\nwhere I think it was 29% of revenues in the quarter. As the company continues to move upmarket more,\nwhat does that mix look like at kind of, I don't know, peak levels? And then how should we think about the\nARPU lift that you're gaining from those customers that are adding on some of these capabilities today?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nStill the, I think, a [ meta ] statement of sort of where we see capabilities. And I think when you talk\nabout a percentage of capabilities of total, it sort of implies that there isn't going to be as much growth\non the user license part of it. We see both as really solid drivers. We see the width of our use case, if you\n\n\n-----\n\nremember the information Mark provided on the latest reports, we have a wide variety of use cases that\ndrive what I call our expand motion. Think of capabilities as the client piece of it. We think of that number\nas being -- as growing over time because they are fast growing relative to our core license business. And\nwe gave some guidance during our last Analyst Day on how big they could be but we're stretching the\nsurface on that part of it.\n\nSo I do feel like as customers start to unlock the scale that they need after they've deployed the solution,\nyou're going to see more and more customers small and large start to use them in the most demanding\nway.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\nGot it. That's helpful. And then from a follow-up perspective, maybe this is for Mark. I wanted to see if you\ncan talk about the competitive environment a little bit. And I asked the question in the framework. You\nhad a competitor report their results tonight that were not nearly as strong as yours we'll go with that.\n\nAre you seeing anything different out there that might be driving the strength of your business versus\nothers maybe not continuing as well.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nIt's harder for me to make a relative statement, Scott. I think as I said earlier, I can share what customers\nappear to be responding well to in our offering. And I think the capabilities alongside the core licenses,\nthat is a composite that people are responding to, and it manifests itself not only in growth but also\nretention. If you have multiple value points that you can deliver to somebody, I think you have a healthier\nrelationship. And I think that's helping drive our business.\n\n**Scott Randolph Berg**\n_Needham & Company, LLC, Research Division_\n\nCongrats on the good quarter.\n\n**Operator**\n\nYour next question comes from the line of George Iwanyc with Oppenheimer.\n\n**George Michael Iwanyc**\n_Oppenheimer & Co. Inc., Research Division_\n\nAlso my congratulations. Mark, maybe could you give us a bit of perspective on the desktop app and what\nkind of feedback you're getting from this launch at this point?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes, George, I think one of the things that's always I find funny over the many years we've been doing\nthis is somehow software companies get so excited about the next most extremely high-value obscure\nfeature than someone says, but I really want the easy thing. And I think the desktop app is just such a\nbeautiful example of that where people want to see it in the tray on their machine. They want to be able\nto get quick access to it. They don't want the tabs that represent all their work in Smartsheet co-mingled\nwith a bunch of other tabs in their Chrome or Safari browsers or Microsoft browser. So these are very\nsimple things that people respond to.\n\nAnd I think when someone is living in your app and you can make their life easier, either through better\ndesign, or more quicker access, they're thankful for it. I think some of our team members were surprised\nat ENGAGE. And this is something which you just can't substitute with the digital conference. When you\nlook at the number of people queued up at a booth, wanting to learn about this thing versus many other\nthings, you really get that topical sense for [ how ] this matters. And the desktop app is one of those. It's\nbeen something we've been working on for some time. Thousands of people, many thousands of people\n\n\n-----\n\nare using it today. I think it's still an EAP. It will be released shortly, broadly. So we'll continue to invest\nbehind that.\n\n**George Michael Iwanyc**\n_Oppenheimer & Co. Inc., Research Division_\n\nAnd with that, maybe could you give some perspective on when people are in the app, are you seeing\nthem engage with multiple products in a more broad way with the overall platform?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nWhen you say more products you mean more elements of our product or integrations with...\n\n**George Michael Iwanyc**\n_Oppenheimer & Co. Inc., Research Division_\n\nYes, more elements of your product.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. And I think as we dovetail things like Brandfolder into the experience and our resource management\nmore into our core experience, by lowering that hurdle height for people to easily traverse, yes, we are\nseeing that happen. The one thing that I'm quite looking forward to and I shared this on a prior call, as\nwe remove -- further remove the friction from people being able to explore our entire portfolio. As Pete\nsaid a second ago, today a lot of those capabilities are really consultative sale. And what Praerit and the\nengineering team are working on continue to let people discover, explore, realize the value and then\nultimately buy those in a self-directed manner. So I think in the coming 2 years, you're going to see a\nmuch greater diversity in people using more things in our products because we're lowering that friction.\n\n**Operator**\n\nYour next question comes from the line of Alex Zukin with Wolfe Research.\n\n**Ethan Bruck**\n\nThis is Ethan Bruck on for Alex Zukin. Congrats on the quarter. I wanted to ask, I appreciate the color for\nwhere NRR will go next quarter. But as you think about looking to next year, is like mid-120 [ brings ] the\nright way we should think about I guess where NRR would stabilize, and if you look to next year, it's high\n20s growth the right way we should be thinking about it.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nEthan, we're not talking about next year because that's a part of the whole construct of how we see next\nyear. It's related to what we see bookings, billings, all those elements. So it's a little premature to talk\nabout sort of where that number will be. I think longer term, we see great capability for that number to\ngrow just based on our history and sort of the products we've got in the pipeline. So that's the way I'll\nleave it.\n\n**Ethan Bruck**\n\nGreat. And then congrats also on showing the great improvement in incremental margins improved\nfrom like negative 20 to negative 3%. I guess is this the kind of the pace and rate we should think\nabout margin improvement going forward? And I guess how are you thinking about balancing, I guess,\nimproving this margin, [indiscernible] a little bit more? Can we expect a little bit more on the margin side?\nAnd also, I just want to ask, is the 10% free cash flow margin for calendar '24 still on the table?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\n\n-----\n\nSo Ethan, I appreciate the question. We've made significant strides by really focusing on operational\nimprovements and moderating hiring. So we've seen that play out in the margins you've just seen. What I\nwould tell you is we're going to continue that effort by trying to go after efficient growth, and that's going\nto be something we'll continue for several years as we go through it. That being said, we're not going\nthrough specific callouts of how much margin improvement there is and what rate it clips at. There's a\nlittle bit of work to be done before we get to that point.\n\n**Ethan Bruck**\n\nCongrats, again, on the good quarter.\n\n**Operator**\n\nYour next question comes from the line of Rishi Jaluria with RBC Capital Markets.\n\n**Richard David Poland**\n_RBC Capital Markets, Research Division_\n\nThis is Richard Poland on for Rishi Jaluria. I guess just in terms of the macro environment versus what you\nsaw 90 days ago, is there any way to kind of bifurcate what you're seeing between SMB and enterprise\nand just kind of -- are there any pockets of either demand improvement or demand softening that you'd\ncall out within that?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo Richard, this is Pete. What we've seen is we've seen, if you would parse the segments of the market\ndifferently. I would say in the U.S. mid-market, we've seen sort of global impacts more broadly so. I would\nsay we've had strength in the enterprise based on just the number of transactions we've been able to\nbook with these enterprises. So those would be like the texture on it. I think you're looking for that level. I\nthink in terms of verticals, we've seen strength in manufacturing, global energy architecture, construction,\nif you will, and some of the weaker verticals for us have been technology, probably consumer good, and\nmedia, if you will.\n\n**Richard David Poland**\n_RBC Capital Markets, Research Division_\n\nGreat. That's very helpful. And then just as I think about SBC, I mean, stock-based compensation came\ndown nicely in the quarter. Should we expect that to continue to trend down. Just kind of any update on\nyour thoughts around how you think about stock-based comp?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nYes. Stock-based comp is really important to us because it's a key element of how we look at the business.\nI think you should expect a few things to happen. I'll answer your question right at the outset, do we\nexpect stock-based compensation in the future to decline as a percent of revenue? Yes, it should decline.\nThat's the way the results will come out.\n\nNow when you think of stock-based compensation, think of it as a number of people times the how much\nyou offer them being the driver. We've essentially, going forward, moderated our hiring plan because\nwe don't need to hire the same pace. We're doing this very differently. So what you're going to see is\na positive impact on the number of people we're bringing in and the impact it has on stock comp. That\nbeing said, stock comp is dictated by the history of what you've done in the past. So when you look at\nit, you say large part of it is already set by the prior hires that we've put in place. But -- so those are the\n2 effects that play into the total stock comp that gets created, and we're focused on making sure that it\ngoes down year-over-year as a percent of revenue.\n\n**Operator**\n\nYour next question is from the line of Terry Tillman with Truist Securities.\n\n\n-----\n\n**Robert William Dee**\n_Truist Securities, Inc., Research Division_\n\nThis is Robert Dee on for Terry. Curious to get an update on the newer onboarding experience and some\nof the other recent initiatives around helping users start quickly. Have you all started to see greater usage\nand penetration with newer customers today versus newer customers from say a year ago, what have\nbeen the specific drivers of that, if so?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes. We have a number of measures there, Robert. And one of the things that we've seen a nice uptick in\nis the percentage of new participants who are successful in creating their first solution, the first thing that\nthey're starting to try and work with. We saw really nice improvements in that. That was one of the early\nsuccess factors that we were trying to solve for. There are a number of other designs and elements that\nare being rolled in later this quarter targeted for Q1 and Q2, which I think will also have beneficial results\nin terms of conversion rate. But really pleased with what the team has put out there in terms of improving\nthat experience.\n\nOne other really nice benefit from what the team put in, we have greater visibility into what somebody's\nintent is and that can come on a few fronts. The more we understand someone's intent, the better we can\nserve them, both in terms of consulting, advising templates to them, how we support them. So overall, it\nhelps us serve better, help someone get navigated and started better. So pleased with the improvements.\n\n**Robert William Dee**\n_Truist Securities, Inc., Research Division_\n\nThat's great. And just one quick follow-up. Hoping to dive a little deeper on Brandfolder, how attach rates\nand penetration for the solution been performing relative to expectations? And what trends are you seeing\nin the overall digital asset management market from a demand perspective?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo Robert, we were pretty pleased with our performance with Brandfolder. We're seeing broad resonance\nas people look at the combined Brandfolder Smartsheet solution together. I think what's really helped is,\none, the customers' impact which comes from both those solutions together. And this year, we launched a\nmodel where we basically turned on our core Smartsheet sellers to help in selling Brandfolder, that's paid\npretty good dividends for us as well. As far as the digital market and Brandfolder, I'll let Mark speak to that\na little bit.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think there's still a huge opportunity for us to educate our customers and prospects about what's\navailable to them and I think, well we have examples that we can point to like this big appliance\nmanufacturer who's doing pretty impressive stuff in terms of content automation. A lot of times when we\nshare those stories with people, they're unfamiliar that, that's even possible.\n\nSo I think while digital asset management has been around and sort of many -- some customers are\nfluent in it, the majority are not, and it's still in an education phase. I think with our -- as we talked about\nramp up reps, we talk often about our newest cohort. I also think about ramping in productivity with our\nexisting reps on new lines of business like Brandfolder and Outfit. And I think, I would say with the median\nrep on our team who's experienced is much better suited today to speak to that value proposition. So\nagain, I think it's a very different phase in terms of stage, in terms of market understanding, and we're\nleaning into it.\n\n**Operator**\n\nYour next question is from the line of Jake Roberge with William Blair.\n\n\n-----\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nCongrats on the great results. Pete, you've talked a lot about cost rationalization and moderation of your\nhiring plan helping on the margin front. Given you beat by over $16 million on the operating margin front,\ncould you dig a little more into the areas you're finding leverage in the model. And then when we think\nabout moderation in hiring, do you expect that to continue into next year when comparing it to this year's\nhiring plan?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo the $16 million beat you're referencing is for the quarter, right? So I just want to make sure I answer\nyour question.\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nYes, for the quarter.\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nGreat. So I'd say the 2 elements of that beat are coming from -- I'll lay it out for you, probably half the\nbeat is coming from the revenue leverage that we've had as we've moderated and controlled costs. So\nrevenues have grown up. We've moderated our hiring and people-related costs that go with it. that's\nproduced sort of more than half the effect. About 3 points or 3 percentage points of it have come from\n-- we've looked at the customer duration that's associated with a greater gross retention rate, and that's\nmeant a lower commission expense, that's accounted for about 3% of it. So that gives you some texture.\nAnd the rest of it is just hard core operational cost containment. Looking at every dollar that you're\nspending and asking whether it has value in terms of the priorities you've set up. That's the first part of it.\n\nAnd the second part of your question was on hiring in the future. We don't expect to have a similar sized\nhiring class coming on board and hiring expectations in the future will be significantly smaller. So we're\ngoing to see the benefit that we've created this year in a continued manner next year as we think of the\noperating leverage.\n\n**Jacob Roberge**\n_William Blair & Company L.L.C., Research Division_\n\nThat's really helpful context. And then some of your peers have called out some headwinds from a user\nperspective, given slower hiring rates and some layoffs at tech companies. Have you seen any large\ncustomers reduce headcount as a result of those headwinds, or just given your enterprise customer base\nand that focus, are you more immune to those issues than some other peers?\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nI think for the last 5 years, our whole mindset about penetrating the enterprise has been what we call the\nearned enterprise. So what we don't do is we don't go in and sell what we think at the time is a big air or\na deal and go wall to wall. We say, how can we mobilize, how can we deliver value and then we grow over\ntime with them because very few of our large customers are full wall to wall where your dollar retention is\nreliant on the next person they hire. We're actually somewhat insulated from that. The other piece that's\nhelpful to us is because some of our ARR is grounded in value components that we call capabilities, it's\nactually not tied out to a user license.\n\nAnd if you want to keep benefiting from that, you will keep subscribing to it. But it is not hinged on that\nnext hire. And I think that's where our mixed model or hybrid model is turning out to be quite helpful.\n\n**Operator**\n\n\n-----\n\nYour next question comes from the line of Steve Enders with Citi.\n\n**Unknown Analyst**\n\nThis is George on for Steve. Just want to congrats on great execution in a difficult environment. I wanted\nto circle back on the discussion earlier about rep productivity. I think when you were talking last quarter,\nyou were talking about expected improvement over the forward 3 to 6 month time frame. But I am just\ncurious, obviously we have seen improvements over these first 3 months. What are you thinking about -how are you viewing improvement potential in Q4? And is there any of that baked into the guidance?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nGeorge, this is Pete. I just wanted to quickly say, we are really pleased with how the field teams have sort\nof gone about improving productivity of newer reps who have started. We've seen the benefits of it as\nthey've become productive. Our expectation is we will continue to see productivity improvements in those\nreps because our plans involve multi-quarter changes and how we get them productive. That's baked\ninto our guidance. So you should think of our guidance as an overlay of improving new rep productivity,\ncombined with the macro that we have thoughtfully and prudently considered.\n\n**Unknown Analyst**\n\nGot it. That makes sense. And then just 1 quick follow-up on the billings upside came in quite ahead of -Are we still remodeling. I was wondering if you could just dig into kind of what drove that upside and if\nthere's anything unusual or onetime in nature that we should be aware of?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nGeorge, there was nothing unusual or onetime nature in those numbers. So it's organic bookings which\ntranslates into billings.\n\n**Operator**\n\nYour next question is from the line of Michael Turrin with Wells Fargo.\n\n**Michael Bird**\n\nThis is Michael Bird on for Michael Turrin. I wanted to dive into expansion rates again quickly, they have\nbeen pretty nicely in the quarter. And I know the exit rate expectations are still the same. Maybe with a\ndiscussion on potential seat expansion issue, you can walk us through the mix of seats versus capabilities\non driving that expansion rate number and if that's changed meaningfully over the past quarter or 2?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nI'll start with the question. And then from a meta standpoint, Mark will chime in, in terms of how that's\noperating. We're not seeing a big difference between the seats and the, what I call, capabilities. Obviously,\ncapabilities are still growing faster than the sear part of it, that is factored into the expansion rates we\nsee. We gave you some stats on capabilities. We said that they're 29% of revenue. And if you looked at\nthem sort of a year ago, they were 24%. So clearly, people are expanding with capabilities. but you're\nseeing a healthy mix of people with seats as well in that mix. So that's kind of a meta point of like how\nexpansion rates are moving.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nYes, I think -- I don't think I have much to add to that.\n\n**Operator**\n\nYour next question comes from the line of Jackson Ader with MoffettNathanson.\n\n\n-----\n\n**Kyle Diehl**\n_MoffettNathanson LLC_\n\nThis is Kyle Diehl on for Jackson Ader. Just to dig a little bit deeper onto that expansion kind of the time\nline that you guys are seeing. Is the time line for expansion slowing at all? Or do you kind of see that\nslowing in the near term future here? Or has that kind of remaining constant as to what you've seen\nhistorically?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo the -- if you think of expansions and you convert them into its core fundamental, you're talking\nabout bookings and how quickly they materialize. Obviously, expansions are a key part of bookings and\nbillings. So you should think of it as being -- we've seen an elongation in sales cycles and we've seen deal\ncompression. So let's talk about how that actually plays itself out. The way we've seen elongations, people\njust stay longer with a number of potential reviews that take place for any purchase, those are happening.\nThe second part of it is the deal compression. The way that would happen with these capabilities and\nexpansion is you can either buy a package, which is likely packaged up value in advance or you can still\nbuy pieces of it, we don't tell customers how they should buy it, but they buy a la carte capabilities that\nhit a specific need, those represent if you buy the a la carte capabilities, you're getting a smaller bite\nin bookings. Obviously, over time, you're going to get all the bookings, but it means a different size. So\nthat's how expansions play out.\n\n**Kyle Diehl**\n_MoffettNathanson LLC_\n\nOkay. Great. That's helpful. And then I guess just in terms of next year's IT budgets, historically are you\nable to attribute a decent or a majority of revenue growth to IT budget expansion? How do you see it\nplaying out if IT budgets kind of come down next year. Do you see that as having a meaningful impact on\nthe top line growth?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo I would say that the budgets for our funding. Remember if you're dealing with -- this isn't one\npurchaser and 1 department. There are hundreds and thousands of people in enterprise who are buying\nit. See you have as much of people with line of business budgets that are buying it as they are IT folks in\nthere. So I think it is fairly broad based in terms of budget.\n\n**Operator**\n\nYour next question comes from with line of Fred Lee with Credit Suisse.\n\n**Fred Lee**\n\nVery nice quarter, particularly in this environment. I was wondering if you were seeing any change\nin behavior from your competitions, specifically privately held companies that might be slowing their\ninvestment in market expense and then a quick follow-up after that.\n\n**Mark P. Mader**\n_President, CEO & Director_\n\nNo. Even given the thousands of transactions we do in the quarter, the median transaction is still really\nhelping if someone progressed from their status quo, which isn't grounded in a CWM player and getting\ninto CWM for the first time. So it's difficult for us to speak. It will not be really well grounded for us to\nspeak to these huge patterns that we see. We have seen -- you do see it manifest itself in some other\nways in terms of you definitely get a sense that those companies are hiring less. I think some of the\npeople who joined companies, would have now been let go, obviously talk to people in the community, and\nI think there's less chatter around people considering going to such companies. I think that's one of the\n\n\n-----\n\nthings that more established companies will benefit from in the coming quarters. In terms of what we're\nseeing in market, nothing that we've really heard from customers on that front.\n\n**Fred Lee**\n\nAnd just a quick follow-up on the net retention metric eventually in the 20s by the end of the year, I was\nwondering if you could drill down a little bit on what's contributing to the sequential decline in the metric?\n\n**Pete Godbole**\n_CFO & Treasurer_\n\nSo Fred, the net dollar retention rate metric is a full year look back. So we look at what happened over\nthe full year, if you will. So when you think of what comes into the calculation when we report out at the\nend of Q4, is you're going to be replacing a very strong quarter with a macro that was very different,\nexpansion need that was very different without something that's in a different macro phase. So you're\njust swapping out one quarter for the other, and that's where you see look back of a full year in expansion\nrates dropping to where we've guided.\n\n**Operator**\n\nThere are no further questions at this time. I will now turn the call back to Mr. Aaron Turner.\n\n**Aaron Turner**\n_VP of Investor Relations & Treasurer_\n\nGreat. Well, thank you for joining us, everyone, and we will speak with you again next quarter.\n\n**Operator**\nLadies and gentlemen, thank you for participating. This concludes today's conference call. You may now\ndisconnect.\n\n\n-----\n\nThe information in the transcripts (\"Content\") are provided for internal business purposes and should not be used to assemble\nor create a database. 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In addition, the Content speaks only as of the date\nissued and is based on conference calls that may contain projections of other forward-looking statements. You should not rely on\nthe Content as expressing Capital IQ’s opinion or as representing current information. Capital IQ has not undertaken, and do not\nundertake any duty to update the Content or otherwise advise you of changes in the Content.\nTHE CONTENT IS PROVIDED \"AS IS\" AND \"AS AVAILABLE\" WITHOUT WARRANTY OF ANY KIND. USE OF THE CONTENT IS AT THE\nUSERS OWN RISK. IN NO EVENT SHALL CAPITAL IQ BE LIABLE FOR ANY DECISION MADE OR ACTION OR INACTION TAKEN IN\nRELIANCE ON ANY CONTENT, INCLUDING THIRD-PARTY CONTENT. CAPITAL IQ FURTHER EXPLICITLY DISCLAIMS, ANY WARRANTY\nOF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR\nPURPOSE AND NON-INFRINGEMENT. CAPITAL IQ, SUPPLIERS OF THIRD-PARTY CONTENT AND ANY OTHER THIRD PARTY WORKING\nWITH CAPITAL IQ SHALL NOT BE RESPONSIBLE OR LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY DAMAGES OR LOSS (INCLUDING\nDIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL AND ANY AND ALL OTHER FORMS OF DAMAGES OR LOSSES REGARDLESS OF\nTHE FORM OF THE ACTION OR THE BASIS OF THE CLAIM) CAUSED OR ALLEGED TO BE CAUSED IN CONNECTION WITH YOUR USE\nOF THE CONTENT WHETHER OR NOT FORESEEABLE, EVEN IF CAPITAL IQ OR ANY OF THE SUPPLIERS OF THIRD-PARTY CONTENT OR\nOTHER THIRD PARTIES WORKING WITH CAPITAL IQ IN CONNECTION WITH THE CONTENT HAS BEEN ADVISED OF THE POSSIBILITY\nOR LIKELIHOOD OF SUCH DAMAGES.\n© 2022 Capital IQ, Inc.\n\n\n-----\nEND DOCUMENT 6\n\nEND INPUT DOCUMENTS\n\nAnswer the following question using the input documents provided above.\n\nSTART QUESTION\n\nWhich member in an earnings call is most likely to be the final person to have recorded dialogue in the transcript? In your answer, list only the title of this person.\n\nEND QUESTION\n", "role": "user"}], "target": "Operator", "id": 53, "group_id": 53, "metadata": {"question": "Which member in an earnings call is most likely to be the final person to have recorded dialogue in the transcript? In your answer, list only the title of this person.", "data_source_urls": "https://s28.q4cdn.com/541786762/files/doc_financials/2023/q3/CORRECTED-TRANSCRIPT_-Atlassian-Corp-TEAM-US-Q3-2023-Earnings-Call-4-May-2023-5_00-PM-ET.pdf;https://s202.q4cdn.com/318750635/files/doc_financials/2023/q3/Smartsheet-Transcript-3Q23.pdf;https://s28.q4cdn.com/541786762/files/doc_financials/2023/q4/CORRECTED-TRANSCRIPT_-Atlassian-Corp-TEAM-US-Q4-2023-Earnings-Call-3-August-2023-5_00-PM-ET.pdf;https://s202.q4cdn.com/318750635/files/doc_financials/2023/q4/34978780_1824791928_2764985_Transcript_EditedCopy_20230315012544.pdf;https://investors.asana.com/static-files/1dcdfcf5-788a-4bbc-988b-539ff92a8a56;https://investors.asana.com/static-files/769a2895-9ab8-48e6-9d33-8d3863bcc565", "input_tokens": 84451}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "long_context", "weight": 0.09999999999999999, "dataset_name": "aa_lcr", "subset_name": "default"}
{"index": 6, "prompt": {"input": [{"id": "97d78487", "content": "Please provide the names of 5 famous moms in JSON format. Please, use any interesting or weird tone. Your entire output should just contain a JSON block, nothing else.", "role": "user"}], "target": "", "id": 15, "group_id": 15, "metadata": {"key": 1094, "prompt": "Please provide the names of 5 famous moms in JSON format. Please, use any interesting or weird tone. Your entire output should just contain a JSON block, nothing else.", "instruction_id_list": ["detectable_format:json_format"], "kwargs": [{"num_highlights": null, "relation": null, "num_words": null, "num_placeholders": null, "prompt_to_repeat": null, "num_bullets": null, "section_spliter": null, "num_sections": null, "capital_relation": null, "capital_frequency": null, "keywords": null, "num_paragraphs": null, "language": null, "let_relation": null, "letter": null, "let_frequency": null, "end_phrase": null, "forbidden_words": null, "keyword": null, "frequency": null, "num_sentences": null, "postscript_marker": null, "first_word": null, "nth_paragraph": null}]}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "instruction_following", "weight": 0.1, "dataset_name": "ifeval", "subset_name": "default"}
{"index": 7, "prompt": {"input": [{"id": "730ec7fd", "content": "Write a college academic paper about President of the United States being stressed. Make sure not to include negative words such as 'sad', 'crazy', 'stress', etc., in the response. Also, make sure to include at least 15 placeholders represented by square brackets, such as [address].", "role": "user"}], "target": "", "id": 284, "group_id": 284, "metadata": {"key": 2471, "prompt": "Write a college academic paper about President of the United States being stressed. Make sure not to include negative words such as 'sad', 'crazy', 'stress', etc., in the response. Also, make sure to include at least 15 placeholders represented by square brackets, such as [address].", "instruction_id_list": ["keywords:forbidden_words", "detectable_content:number_placeholders"], "kwargs": [{"num_highlights": null, "relation": null, "num_words": null, "num_placeholders": null, "prompt_to_repeat": null, "num_bullets": null, "section_spliter": null, "num_sections": null, "capital_relation": null, "capital_frequency": null, "keywords": null, "num_paragraphs": null, "language": null, "let_relation": null, "letter": null, "let_frequency": null, "end_phrase": null, "forbidden_words": ["sad", "crazy", "stress"], "keyword": null, "frequency": null, "num_sentences": null, "postscript_marker": null, "first_word": null, "nth_paragraph": null}, {"num_highlights": null, "relation": null, "num_words": null, "num_placeholders": 15, "prompt_to_repeat": null, "num_bullets": null, "section_spliter": null, "num_sections": null, "capital_relation": null, "capital_frequency": null, "keywords": null, "num_paragraphs": null, "language": null, "let_relation": null, "letter": null, "let_frequency": null, "end_phrase": null, "forbidden_words": null, "keyword": null, "frequency": null, "num_sentences": null, "postscript_marker": null, "first_word": null, "nth_paragraph": null}]}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "instruction_following", "weight": 0.1, "dataset_name": "ifeval", "subset_name": "default"}
{"index": 8, "prompt": {"input": [{"id": "da72a201", "content": "How to write a good Chinese poem? At the end of your response, please explicitly add a note starting with \"P.S.\"", "role": "user"}], "target": "", "id": 142, "group_id": 142, "metadata": {"key": 1759, "prompt": "How to write a good Chinese poem? At the end of your response, please explicitly add a note starting with \"P.S.\"", "instruction_id_list": ["detectable_content:postscript"], "kwargs": [{"num_highlights": null, "relation": null, "num_words": null, "num_placeholders": null, "prompt_to_repeat": null, "num_bullets": null, "section_spliter": null, "num_sections": null, "capital_relation": null, "capital_frequency": null, "keywords": null, "num_paragraphs": null, "language": null, "let_relation": null, "letter": null, "let_frequency": null, "end_phrase": null, "forbidden_words": null, "keyword": null, "frequency": null, "num_sentences": null, "postscript_marker": "P.S.", "first_word": null, "nth_paragraph": null}]}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "instruction_following", "weight": 0.1, "dataset_name": "ifeval", "subset_name": "default"}
{"index": 9, "prompt": {"input": [{"id": "68913da4", "content": "Write a list of instructions for a dog trainer to teach a dog to sit, stay, and fetch. Your list should contain exactly 3 bullet points in the markdown format such as:\n* Bullet point 1\n* Bullet point 2", "role": "user"}], "target": "", "id": 216, "group_id": 216, "metadata": {"key": 2195, "prompt": "Write a list of instructions for a dog trainer to teach a dog to sit, stay, and fetch. Your list should contain exactly 3 bullet points in the markdown format such as:\n* Bullet point 1\n* Bullet point 2", "instruction_id_list": ["detectable_format:number_bullet_lists"], "kwargs": [{"num_highlights": null, "relation": null, "num_words": null, "num_placeholders": null, "prompt_to_repeat": null, "num_bullets": 3, "section_spliter": null, "num_sections": null, "capital_relation": null, "capital_frequency": null, "keywords": null, "num_paragraphs": null, "language": null, "let_relation": null, "letter": null, "let_frequency": null, "end_phrase": null, "forbidden_words": null, "keyword": null, "frequency": null, "num_sentences": null, "postscript_marker": null, "first_word": null, "nth_paragraph": null}]}}, "tags": ["rag"], "categories": ["rag_index"], "task_type": "instruction_following", "weight": 0.1, "dataset_name": "ifeval", "subset_name": "default"}
