Digital Realty Trust (DLR) Q4 2024 Earnings Call February 13, 2025 05:00 PM ET Company Participants Jordan Sadler - Senior Vice President-Public and Private Investor RelationsAndrew Power - President & Chief Executive OfficerMatt Mercier - Chief Financial OfficerDavid Barden - Managing DirectorChris Sharp - Chief Technology OfficerRichard Choe - Vice PresidentIrvin Liu - Vice PresidentJonathan Atkin - Managing DirectorColin McLean - Chief Revenue OfficerAri Klein - Director - Equity ResearchDavid Guarino - ...

Financial Data and Key Metrics Changes - For Q4 2024, net sales were $1.1 billion, a 5% decrease compared to Q4 2023, with organic sales down 1% after adjusting for external impacts [11][46] - Full year 2024 net sales were flat at $4.6 billion, with organic sales down 5% or down 2% excluding China and one-time disruptions [12][46] - Q4 2024 EPS was $0.98, up 3% from Q4 2023, while full year EPS was $4.12, a 5% increase over 2023 [11][13] - Operating margins for Q4 were 16.4%, a 60 basis point improvement year-over-year, and full year operating margins increased by 90 basis points to 16.9% [12][46] Business Line Data and Key Metrics Changes - Water Innovation segment saw Q4 sales down 3%, but organic sales increased 2% when excluding China and hurricane impacts, with operating margins at 23.7% [29][47] - Outdoor segment sales decreased by 2% in Q4, but full year sales increased by 1%, with operating margins at 18.2% for Q4 [35][51] - Security segment sales were down 17% in Q4, or down 10% when adjusting for a software outage, with full year sales down 4% [37][53] Market Data and Key Metrics Changes - The overall market for products is expected to be down 2% to up 1% in 2025, with U.S. R&R (repair and remodel) projected to be down 1% to up 2% [59][60] - The single-family new construction market is anticipated to be flat in 2025, with low single-digit growth in starts and completions [26][59] Company Strategy and Development Direction - The company is focusing on high-growth and profitable opportunities, simplifying its leadership structure, and investing in digital transformation and brand building [5][9][10] - A new $1 billion share repurchase authorization was approved, reflecting confidence in cash generation and long-term shareholder value [14][54] - The company plans to leverage its digital capabilities and partnerships to drive growth, particularly in the connected products space [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform in 2025, citing strong brand positioning and innovation [6][24] - The macro environment remains challenging, but there are medium to long-term tailwinds expected due to strong consumer demand for homes [25][56] - Management anticipates a cautious approach in the first half of 2025, with expectations for gradual improvement in the second half [72][76] Other Important Information - The company is moving its regional offices to a new headquarters in Deerfield, Illinois, to foster innovation and collaboration [8] - Significant investments were made in digital products, with digital sales reaching $214 million in 2024 and expected to contribute 150 basis points to growth in 2025 [16][21] Q&A Session Summary Question: Can you talk about the initiatives and actions taken over the last twelve months and their implications for 2025? - Management highlighted growth in the water segment and strong performance in the outdoor business, with digital assets and marketing strategies set to drive growth in 2025 [67][70] Question: How is the state of the consumer as we enter 2025? - The consumer remains cautious, but there is resilience in the high-end market, with efforts to differentiate brands against counterfeit products expected to drive sales [79][81] Question: Can you elaborate on the Connected Products growth and its contribution to overall sales? - Connected Products are expected to contribute 150 basis points to growth in 2025, with significant sales activation and conversion efforts underway [90]

Financial Data and Key Metrics Changes - Revenue for FY 2023-2024 was INR 35,634 million, an increase of 7% compared to the previous year [14] - EBITDA for the same period was INR 6,756 million, also reflecting a 7% increase year-over-year [14] - Profit before tax decreased by 77% to INR 232 million, while profit after tax saw a significant decline of 93% to INR 49 million [14] Business Line Data and Key Metrics Changes - Revenue from data center colocation services grew by 9% year-over-year [12] - Revenue from digital services decreased by 1% compared to the previous year [12] - Revenue from network-centric services increased by 10% over the last year [12] - The revenue split among business lines was 31% from data center colocation, 28% from digital services, and 41% from network services [12] Market Data and Key Metrics Changes - As of March 31, 2024, the company operated 1,033 fiber nodes, a 16% increase from the same quarter last year [13] - The company has deployed 7,835 contracted LDR and service points across the country [13] Company Strategy and Development Direction - The company is focused on expanding its data center presence and increasing capacity at existing facilities to meet demand [15] - There is a commitment to fortifying network infrastructure and cloud interconnectivity [15] - The company aims to enhance its workforce capabilities and competencies to drive innovation and efficiency [16] Management's Comments on Operating Environment and Future Outlook - The management highlighted the positive business environment in India, which is attracting international investments and partnerships [9] - The outlook for digital services is optimistic, with deeper customer engagements expected to yield results in the near future [25] - The company believes that AI and ML activities are significant demand drivers, independent of regulatory changes like the data privacy law [29] Other Important Information - The company has invested a cumulative total of $7.22 million in startups in Silicon Valley as part of its corporate venture capital initiative [13] - The cash balance at the end of the fiscal year was INR 5,835 million [16] Q&A Session Summary Question: Rationale behind the proposed rights offering - The rights offering aims to finance data center expansion and invest in digital services growth, engaging existing shareholders in the next growth phase [19] Question: Projected CapEx for the coming fiscal year - Projected CapEx will be similar to the last two years, averaging around INR 1,400 crores [20] Question: Data center roadmap and new facilities - Two greenfield projects are set to go live in Fiscal 2025, one in Noida and another in Chennai, with additional capacity planned for Mumbai [21][22] Question: Current operational status of Tower 5 in Mumbai - The Tower 5 facility has a total capacity of 38 megawatts, with nearly two-thirds expected to be occupied by the end of March 2025 [23] Question: Performance of network services in the last quarter - The network business showed organic growth, with continued investments planned for expanding network infrastructure [24] Question: Factors driving the decline in digital services - The decline was attributed to lower integration service projects, while cloud and network managed services continue to scale [26] Question: Status of the data privacy law - The data privacy law has been announced but is not yet effective; rules are expected to be issued after the new government is formed [28] Question: Impact of the data privacy law on business - The company believes that data center and network growth are driven more by AI and ML activities than by regulatory changes [29]