Thank you for standing by, welcome to the NEXTDC FY 2021 results announcement conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question you will need to press star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Craig Scroggie, Chief Executive Officer. Please go ahead.
Thanks, Travis, and good morning, ladies and gentlemen. Welcome to the NEXTDC results presentation for FY 2021. I'm joined today by our CFO, Oskar Tomaszewski. Beginning on slide two, we're pleased to present another set of record results. Revenue of AUD 246 million. Underlying EBITDA of AUD 134.5 million, exceeding our upgraded guidance of AUD 130 million-AUD 133 million. Contracted utilization now stands at 75.5 MW. Our network connections continue to expand, growing to more than 14,700, up 13% in the last 12 months. The ecosystem continues to evolve with 1,540 customers, 730 partners, and 70 connectivity service providers. On slide three, our strong performance in FY 2021 is highlighted by robust key operating metrics. Revenue from data center services increased 23% to AUD 246 million. Contracted utilization increased 8% to 75.5 MW, and interconnection accounted for 7.7% of recurring revenue.
Our results further demonstrate the company's operating leverage, with underlying EBITDA increasing 29% to AUD 135 million. Operating cash flow grew 148% to AUD 133 million, and billing utilization up 24%. We remain well-capitalized to support our growth plans. Total liquidity over AUD 1.7 billion, inclusive of undrawn debt of over AUD 1 billion, which achieved financial close in December 2020. Our balance sheet's underpinned by a total of AUD 2.6 billion in assets. Our data center fleet continues to evolve at a rapid pace. The fit out of our S2 and M2 facilities in the gateway regions of Sydney and Melbourne continues, with 17 MW of capacity built this year. S3 development is on schedule for practical completion in the second half of 2022, with building construction well progressed. M3's planned capacity has been increased to 150 MW thanks to recent further land acquisitions.
Groundworks are well progressed and building construction now underway, on target for practical completion in the first half of 2023. Finally, we announced our first hyperscale campus in Western Sydney, adding 300 MW of development pipeline as the land is progressively settled between 2H 2024 and 1H 2025. I'll now hand over to Oskar.
Thank you, Craig. Let's now turn to slide five, a summary of our profit and loss for the year. The statutory results reflect data center services revenue of AUD 246.1 million, an increase of 23% on the same period last year. A net loss after tax of AUD 20.7 million. Our non-statutory highlights include, as mentioned by Craig, an underlying EBITDA of AUD 134.5 million, which is an increase of 29% on the same period last year. Direct costs of AUD 42.9 million, which rose in line with customer power consumption, offset by falling energy costs as well as improved efficiency. Facility costs, which increased to AUD 24.7 million as we ramped up operations across our facilities, including the full year of operations at P2, as well as increased property holding costs and the addition of the M3 site.
Finally, corporate costs increased to AUD 43.4 million, reflecting the investment NEXTDC is making into the ongoing growth of our business, as well as the market-wide increase in insurance costs, particularly for D&O cover. On to slide six. Revenue generated from racks, suites, cross connects, and other recurring sources accounted for 96% of total revenue, with project income representing a lower proportion of revenue each year. The underlying EBITDA performance highlights NEXTDC's operating leverage, as demonstrated by the 29% growth in earnings relative to 23% growth in data center services revenue over the past 12 months. This trend is further demonstrated by the longer-term earnings and revenue CAGR figures of 37% and 22%, respectively. Slide seven sets out our revenue per unit metrics. Annualized revenue metrics continue to perform strongly throughout FY 2021, moving in line with lower power costs, which are largely passed through to customers.
Revenues from larger ecosystem-enhancing customer deployments increase over time due to higher usage of contracted power capacity, increased demand for interconnection, as well as the use of ancillary services over time. Slide eight summarizes our balance sheet position and cash flows. At 30 June, NEXTDC owned property with a carrying value of AUD 997 million, as well as plant and equipment with a carrying value of AUD 785 million. Our net assets stood at AUD 1.7 billion. Finally, we remain well-capitalized to continue our growth trajectory with total liquidity comprising cash and undrawn debt facilities of just over AUD 1.7 billion. I'll now hand you back across to Craig to go through our business performance and outlook for the 2021 financial year.
Thanks, Oskar. On slide 10, our non-financial metrics. The total number of customers is up 13% to 1,547. Total interconnections rose 13% to 14,718, and total Cross Connects are at 9.5 per customer. On slide 11 is further insight into the diversity of our business. The breakdown of customers by industry shows strong representation from enterprise and connectivity, as well as our system integrators and cloud partners. The increasing skew towards higher density deployments reflects the growth of hyper-converged infrastructure and hybrid clouds. On slide 12, at 3rd of June, 79% of installed capacity was under contract, and 87% of contracted capacity was billing and generating revenue. In the past 12 months, there was a 24% increase in billing capacity, which now stands at 65.4 MW.
With over 10 MW of contracted capacity at June 30 still to commence billing, the scale for continued improvement in operating leverage and for strong revenue and earnings growth. Slide 13 sets out capacity and utilization. We now have a total planned capacity of 400 MW across the facilities that are either open or under construction. In New South Wales and ACT, we completed the fit out of S2, taking total capacity installed to its design of 30 MW. The S3 development is tracking well. We're fitting out the first 12 MW, which is on target for practical completion in 2H 2022. In Victoria, M2's expansion is also going well, with 9 MW delivered in 2021, and building expansion works to further deliver 9 MW to support customer expansions. At M3, we've increased the planned capacity to 150 MW. Groundworks are well progressed, and the building construction has commenced.
We are on target for practical completion in 1H 2023, with an initial 13.5 MW of capacity. Lastly, we secured a fantastic site in Western Sydney to support our long-term development pipeline, with expansion capacity of at least 300 MW. On Slide 15, we provide a summary of our ESG highlights. As data centers continue to grow as a major feature in the infrastructure landscape, the focus on energy usage and the environment is critically important. During FY 2021, the company made significant progress across numerous ESG areas, including energy efficiency, renewable energy generation, carbon neutrality, minimization of general waste, a reduction in water waste, giving back to our communities, driving social engagement, and managing our supply chain. On slide 16 is a summary of our safety highlights.
As our national fleet of mission-critical infrastructure assets continues to grow in size and complexity, so too does the importance of keeping our workforce safe. With more than half a billion dollars of capital works and construction projects concurrently in flight around the country, there is significant focus on achieving our goal of zero injuries in the workplace. This includes programs that support operational safety, construction safety, and most recently, important priorities for COVID management and mental health. Turning to slide 18, which provides our guidance for FY 2022. We expect revenue of AUD 285 million-AUD 295 million, representing an increase of 16%-20% on the recent record results achieved in 2021. Our revenue guidance is underpinned by strong growth in recurring revenues and long-term customer contracts, with substantial contracts capacity yet to commence billing.
We expect underlying EBITDA of AUD 160 million-AUD 165 million, with scale and earnings growth continuing to be driven by our generation two facilities. Total CapEx for the year is expected to be between AUD 480 million and AUD 540 million, with significant investments into our M2, M3, and S3 projects. FY 2022 will be a year of continued growth for the digital economy and supporting digital infrastructure growth for NEXTDC. The foundations we've put in place over the last decade will see the company continue to scale rapidly through the next decade. We're building tomorrow's digital infrastructure today. With that, I'll open the line for questions. Thanks, Travis.
Thank you. To ask a question press star one and wait for your name to be announced. To cancel your request press star then two. If you are using a speaker phone please pick up the handset to ask your querstion. The first question comes from Garry Sherriff from RBC. Please go ahead.
Morning, Craig and Oskar. Thank you for taking my questions. The first one just on that CapEx that looks like it's flipped about AUD 100 million from FY 2021 into FY 2022. Just wanted to try and get a sense. Is that COVID impacts from construction? I mean, does that push out any of your plans for developments for any of your assets?
Thanks, Garry. The AUD 100 million in FY 2021 CapEx was largely timing. Really, as the projects get larger, obviously, if you went back a few years, a big project and a large CapEx year might've been AUD 200 million or AUD 300 million. As we're at the AUD 400 million -AUD 500 million type range, these larger scale development programs, it really just comes down to how much CapEx is sitting with at any given time. The actual total amount that we had forecast in FY 2021 will continue to flow through. It'll just flow through into FY 2022. As it relates specifically to COVID impact, obviously right now, both in New South Wales and in Victoria, there is a reduction in the number of workers that can be on the site at any given time.
Like most other people, it's of a concern to us in relation to the ability to freely move around and get access to trades and other things that are needed to deliver large-scale construction projects. The forecast that we have given in relation to the delivery of S3, will only be impacted by a relatively short timeframe. As it currently stands, based on the government's advice for vaccination levels being achieved and people going back to work, and us delivering S3, we would probably estimate something in the order of 90 days impact. That's based on current information. It won't make any real material difference to the current forecast that we have for the opening time. We continue to watch that situation very closely in New South Wales, and in Victoria as the numbers continue to climb.
Not a significant impact at this point in time. The site is still active. It is mission-critical infrastructure. We are still able to develop, even when much of the rest of the industry in construction won't be able to continue. It is something that does concern us, and we will continue to pay very close attention to that, Garry.
Thanks, Craig. A couple of more questions. One on the revenue per square meter and revenue per megawatts, which were down on the first half. Is that mix shift from hyperscale? How should we think about, or should we still think about dilution on those metrics in relation to the hyperscale weighting across the portfolio, given that's going to increase over time?
Yeah, sure. Oskar, you can take this one. You might be on mute, Oskar.
Sorry. Sorry, just taking myself off mute. Hi, Garry. Thanks for the question. There's really a couple of key drivers of that. The first one is really power prices. We do have considerable power pass-through revenue, particularly in relation to our larger customers. We have been able to negotiate considerably lower power prices, particularly in this calendar year, relative to last calendar year. Overall, there has been an impact from that, albeit from a net revenue point of view. We're still tracking very well. The other impact is really sales mix. We have had considerable large contracts go online over the past 12 months or so, and that has caused an impact, in terms of the annualized revenue per megawatt.
As you know, those larger hyperscale deployments are much high density, so we are still seeing an overall upward trend over time, on a per sq m basis.
Okay. Understood. That makes sense. The last question, just in relation to our current projections. Do you think you guys will go dark between now and when S3 comes online? By that I mean, I recall you saying there wasn't a huge amount of capacity to sell in Sydney, between the S2 completion and S3 coming online. Just wanted to get some form of color on that, whether there were perhaps enterprise customers potentially going to competitors, if that is the case.
Thanks, Garry. In relation to S2 inventory, obviously we've sold quite a significant amount. We've now fitted out the entire facility. The target date to open S3, we were going to be very close in the context of inventory management, sort of seamlessly transition out of S2 into S3. As I mentioned earlier, the construction progress and issues in relation to COVID management in New South Wales, we continue to watch very closely. It is likely that we will sell out. We have a very, very strong pipeline, obviously of deals that we're closing out in S2, and that will well and truly fill and spill S2 into S3. COVID is an interesting circumstance. Whilst we continue to operate, getting people, particularly for international customers, having them move out and send infrastructure into the country and then have it installed and operational, does create interesting dynamics.
As far as our overall delivery of inventory is concerned, yeah, we hope that we will be able to move customers nicely into S3. We've got a very, very big order book that we're working through now. Most customers are very happy to engage on the idea of potentially they may have looked at deploying in S2, potentially they can go into S3 early. The proximity of the facilities is in the same availability zone. That's a fantastic transition for us to be able to move clients seamlessly from S2 to S3. At this point in time, our anticipation is that we should hopefully be able to transition from S2 to S3 without any customer impact.
I will note that we do have our strongest backlog of opportunities that we've ever had, and it is reasonable, and I would assume that we could sell out early for sure.
Very helpful. Thank you both.
Thank you. The next question comes from Kane Hannan from Goldman Sachs. Please go ahead.
Morning, guys. Just a couple from me, please. Maybe just in terms of the revenue outcome, the bottom end of that guidance range from February, and then as you were talking through that step down in revenue per megawatt, just give us a little bit more color around what happened since February when you did upgrade that revenue range and, I suppose, what's been playing out there, please?
Yeah. Oskar, you can have that.
Yeah. No problem. Firstly, thanks for the question. The first thing I would note is we did come into the revised guidance range. No real surprises there. Every year as we look at revenue, there are a few different moving parts. We do participate in some energy programs that can have an impact on the revenue from one period to another. There was a little bit of a swing factor on that side of things. Overall, we came in within the range. It's within the expectations that we had back in February.
Okay.
Yeah. I'll just add to that. Yeah. The only thing I'd add, which is worth noting, and something you may or may not be across in power pricing, to the extent that we monitor it, power costs fell. Power costs down and net margin increased. Yeah, it is what it is. Gross margin has improved. Overall, the movements in power pricing have been positive for us.
No delays or any in terms of ramping up some of the installed base that we should be thinking about. It's just a greater than expected fall in power prices.
As Oskar mentioned, obviously when we upgraded guidance, both upgraded revenue and upgraded EBITDA, at the time, we didn't necessarily forecast that power prices were going to fall quite as much as what they did. It's a bit of an art and a little bit of a science at the same time, forecasting power prices, as many of you probably know. Yeah, we had strong growth, and we upgraded into that growth. We had the benefit of power prices coming down. We don't look at the variability on the revenue side as a negative in that regard. If the margin is improving, quality of the business is improving, so therefore that's a positive. The revenue line can be a touch outside of our control as it relates to the final position of power prices at any given point in time.
Yeah, that makes sense. Just one last one, just the S4 hyperscale campus. Just interested if you'd talk a bit more high level around that announcement. I suppose how we think about the funding of what's going to be a very large build. Given that move into the pure hyperscale market, how you leverage your enterprise ecosystem to potentially improve some of the returns of that facility, or just how we think about the returns of the S4.
Yeah. Look, this is a huge opportunity for us. We've not been, I guess, a key player or a key competitor focused on exclusively hyperscale opportunities. Many in the industry that are just focused on winning in that very large-scale space. As a company over the course of the last 10 years, we've always been focused on those ecosystem-enhancing deals. The enterprise and government sector. Interconnection is a core pillar to our strategy. They're all margin enhancing. They drive a lot of outlier value. When we build very dense enterprise and government ecosystems in building, it's one of the key drivers why we have the largest number of cloud on-ramps in Australia today. If you're a public or private cloud hosting provider, you want to go where your target audience is.
If you're a big public or private provider and you want to offer low latency, sub-millisecond services, data doesn't need to leave the building. The more you deploy your cloud on-ramps into those locations, the better number of target customers you have to access. The simplicity of those people accessing that infrastructure behind the network, so to speak, offers a lot of advantages. That strategy has obviously served the company very, very well over time. We're not changing that strategy. We still see interconnection as a core pillar of our growth over the next decade. It's a very, very important piece of the puzzle. Connectivity is the glue that binds the internet to public and private cloud. Hybrid will continue to be a feature for a very long time.
As it relates to S4, we have an opportunity now to think about our growth pipeline and where the hyperscale market is going over the next decade. If you consider in each of the availability zones, larger providers will have somewhere in the order of a 300 MW to 500-MW target capacity each. That would put the total zone power targets and IT load somewhere in the order of 1 GW to 1.5 GW. If you're looking at a handful of facilities in Western Sydney serving the hyperscale market that are in that 1 GW to 1.5 GW target range. We'll have a good size facility that can take a similar amount of market share to what we would have in the enterprise business today in Australia. Obviously, I'd like to see us improve our market share.
The key for me is using our key points of differentiation and our competitive advantage as a company. We built Tier IV. We certified with the Uptime Institute to operational gold standards, the highest operational standard in the world today. We're the only operator that's NABERS 5-star certified, which allows us to independently certify and guarantee to our customers they're getting the lowest power costs. Very important going forward, obviously the ESG implications that flow with those for sustainability, water recycling. You've got all of the ecosystem elements. We will take our network, as we have done with S1 and S2, connecting to S3. We'll have diverse metro fiber connected to S4 that will allow us to offer our enterprise and government customers campus solutions.
The enterprise and government component of the business, just because we're looking at this facility primarily as a hyperscale campus, it's going to be extremely attractive to enterprise and government customers who can tap into those network services. Today, more than 730 partners and tens of thousands of behind-the-internet connectivity services puts us in an extremely powerful position to leverage the size and scale of our network. The S4 opportunity is just an amazing opportunity for the company over the course of the next decade. The sizing of it is, in a similar fashion when we look forward to total capacity over the next decade, similar market share to what we would have today. Obviously, I'd hope to continue to grow that. The mix of customers, the things that we do that are unique in the industry, we'll continue to focus on as our competitive advantages.
Margins, obviously, published globally. People know what hyperscale returns look like. That particular point gives us the opportunity, now that we have secured the land, to work with potential funding partners to ascertain if that's the right long-term balance sheet structure for the company. If you look at successful examples, most recently, Equinix's partnership with GIC. For those who may have watched the Equinix Investor Day, you would've seen Keith talk about how outstanding the performance of the xScale business has been. GIC as a partner and their funding capability. I think all of those things are very logical, and we would expect to explore a similar path to that. We've got good time to plan for that. Large scale deployments of this size and scale take a couple years.
We're already actively working with our customers on what that planning would look like, and I'm just thrilled that we're in a position to be able to go into an entire new market, expand the company's execution capability out into a new zone, and take all of our competitive advantage, the things that the company's been recognized for doing well on a global scale, and do that over the course of the next 10 years. S4's really exciting.
Perfect. Thanks very much.
Thank you. The next question comes from Paul Mason from E&P. Please go ahead.
Hey, guys. Just a few from me. The first one, just towards the back of your presentation, there's sort of a bullet about S4 saying six further developments to be disclosed. Is that something like just S4 is going to be built as six by 50 MW parcels, or is that something else?
Thanks, Paul. I can always count on you to find the finer detail in the presentation. Thanks for picking that one up. Yeah. Obviously there is a long pipeline of facility development work that we've been doing over the last couple of years. It took a couple of years to get S4 out, given the size and scale of that. It's a huge development. When you're developing over 100,000 square meters like that, it is years worth of planning. There are a number of other developments, obviously, concurrently going on in the background, and land that we're acquiring to continue to expand our footprint. S4 was the first new additional one that we had disclosed. There are a further six that are currently in the planning phase at the moment that will be announced shortly.
There will be a number of additional new announcements for new developments over the course of 2022 that will see us bring another six data center developments to market.
Right. Okay, great. The second one's just on M2. I just wanted to make sure my numbers are right. The 9 MW of extra capacity that you're bringing forward, that brings you to 28 that you'll have fitted out at that facility. Is that right?
Yeah. Oskar, do you want to take it?
Sorry, Paul, would you mind repeating the question?
Yeah. In the presentation, it says that you're bringing forward another 9 MW. The way I've read it, there was 10 MW historically. You've delivered nine this year. It looks like you're doing another nine next year. Is that correct?
At M2, that's correct. Yes.
Yeah. 28.
Yeah. Great. Okay, cool. Just you sort of skipped over the bullet on P1 going to 10 MW. I was wondering if you could maybe talk a little bit about what's going on there.
Another good pickup, Paul. Yeah, the final design expansion of P1 will be four to six . We'll take the conservative position at the moment. We have acquired the additional surrounding land at P1. P1's down to its last data hall. The team has done an outstanding job in Perth, obviously, with P2 coming on. Having two active locations to sell, which is our strategy, we want to have two active inventories to sell in every market so that you can win both ends of deployments, both for enterprise and government and for hyperscale. Being in a position to have inventory in both markets means that we need to obviously continue to edge out in the existing facilities and certainly for the first-generation ones, many of those, obviously as you know, are full. We successfully acquired surrounding land for P1 to grow.
The current design will see us double the size of P1, potentially. It was six, adding another six, but we've taken the conservative position of calling it four at this time until the development approval is worked through with council, and that would take P1 to 10 MW, potentially 12 MW. That will give us like for like inventory to continue to sell P1 and P2 in tandem. Good pickup, Paul.
Just the last one from me, just a more strategy question. Historically, you guys have had a policy that you don't build speculative wholesale capacity in advance of an order. The build or the fiat follows the order. Is that still on foot, that policy?
That is true.
Great. All right. That's all from me. Thanks a lot.
Thank you. The next question comes from Tim Plumbe from UBS. Please go ahead.
Hi, guys. How you doing?
Good thanks, Tim.
A couple of my questions have been asked already. Just one that I was hoping you could elaborate on, please, Craig. The 5.5 MW that you added this year, of which four and a half of those were in the second half. Can you just talk to the composition of those? Digital Realty recently noted that they'd seen an uplift in terms of enterprise customers coming through and kind of putting that down to that post-COVID movement. Have you guys started seeing that accelerated trend coming through in terms of enterprise customers? Do you think that that plays out to a further extent in FY 2022?
Thanks, Tim. Yeah, look, it was obviously a good half-megawatt event. We always track to look for that megawatt worth of enterprise and government in each half. Remember, that's churn. That's the final number. Puts and takes. Customers go up and down, consolidate, move to the cloud, they repatriate. What goes on inside the deployments is incredibly dynamic. I mean, the volume of movement around in platform architecture at the moment is just like nothing else I've seen in my entire career in the IT industry. I've been doing IT for 25 years, I've just never seen anything quite like what we're seeing at the moment. It's just amazing. Because of that fluidity in enterprise architecture and people sort of experimenting public and private cloud and then repatriating some data sets and got obviously very large-scale legacy infrastructure that's causing hybrid deployments.
The enterprise is probably the single greatest opportunity that we've got today. Hyperscale is great. It's big. It's exciting. Everybody's drawn to the big infrastructure-like opportunity. It's why every global sovereign wealth fund in the universe is chasing us and others to get a seat at the table. Everyone wants to play in this space. The real opportunity, the great quality business, is continuing to work with enterprises that are managing their own infrastructure and utilizing public and private cloud where it makes sense. We did see very, very strong enterprise growth in the second half. That will translate over time or continue to translate over time into growth, S2, S3, M3, et cetera. Tim, the key point for me really is that the performance for us in the second half was characterized by a couple of really interesting trends that are emerging.
The first one is that we're seeing what we would call the next wave of challenges in the hyperscale space. Now, they may not be hyperscale in size or what you would expect a hyperscale to represent. Remembering that Microsoft, Amazon, and Google account for 70% of the market. Today, if you're 70% of the global hyperscale business, when they're placing an order, that order could be 3 MW, 5 MW, 7 MW, 10 MW. They're very good size orders, particularly given the volume of those that they're placing in multiple locations. As an example, one 10-MW order in a single location will have two or three other 10-MW orders that are dragged along behind it. A 10-MW order in one of our availability zones actually will result in 30 MW or 40 MW worth of deployed capacity.
What we've seen, which is the really exciting part, is the next wave. We did get some wins in the hyperscale space during the second half that were challenger brands, like OVHcloud, Europe's leading private cloud provider. The OVHcloud team are obviously a big challenger opportunity to the Microsofts and others of the world. There are many more of those coming. The pipeline is really booming in that regard because the challenger brands are starting to edge out into regions. On a global scale, a region, Australia is a region when you think about if you're in the U.S. or Europe, you're edging out into Australia. When we talk about regions, we're going from Sydney and Melbourne, talking about Brisbane and Perth. There will be more markets. We will edge out further, and we'll talk about edge strategy soon.
Not today, we will obviously reveal a little more about our edge deployment strategy and where regional and edge data centers will go because it's a significantly important piece of the digital infrastructure puzzle over the next decade. Playing in the edge will be an important pillar of our data center services strategy. The key point to call out, Tim, to your question is that challenger clouds are starting to emerge. In the enterprise, we're getting continued growth as a result of COVID. Tim, I can use your own company as an example, and thank you for your business, but we managed to secure UBS globally as a leading financial services brand. We'll be hosting your organization as a client in Australia.
There are many other global banks that still have their data centers on-premise in their offices, and COVID itself has been an important catalyst to driving transition and the prioritization. We found a compelling event that in a lot of cases enterprises were missing. They didn't have a compelling event, the catalyst driving them to prioritize getting out of the on-premise data center. COVID's been a really good reminder for organizations, particularly on the risk management side, that they need to be able to operate remotely. I know it's a long answer, Tim, but there's quite a little bit in there to unpack because there is a lot of things that are starting to emerge in growth, that we really haven't seen before. It's super exciting for us.
Completely agree. You guys have got pretty good line of sight in terms of deployment of hyperscaler capacity into your data centers. I guess one of the areas that can surprise to the upside is the uptake of enterprise. Have you factored in much of an acceleration into that FY 2022 guidance? Is that an area that could provide upside if you do get that accelerating trend coming through in 2022?
Look, we always expect I get asked the question regularly, Tim, "Why don't you expect the enterprise number to be bigger or faster?" It's not that we don't want to win a larger share, but we continue to focus on the premium end of the market. We're not the price leader. We're not trying to sell cheap. We are the premium product. We are Tier IV. At that level, we are focusing on segments of the market that are the premium end. The market is larger than everything that we play in. If we wanted to go downstream and dabble in other lower-cost data center services, we potentially could in the future, but it's not currently a feature of our strategy.
The enterprise, when people look at the size of hyperscaler orders, they sort of see big numbers and go, "Oh, well, that's where all the focus is." When you think that we win racks literally every single day, two racks, five racks, 10 racks, day in and day out. That enterprise business is the high-margin business that drives outlier margin performance for the company. It drives high volume interconnectivity. It is incredibly difficult to unpick over time. The real focus for us to continue to build great profitability in the company long term is that highly diversified mix of enterprise customers and the very rich interconnection ecosystem, and the wonderful margin that comes along with that. In the enterprise, yeah, we want to continue to win our unfair share. Hundreds and hundreds of deals are done.
Almost 200 net new customers in FY 2021. Yeah, sometimes the deals are a little larger. Every day, 1 rack a day keeps the CEO away. We keep driving the sales team to win our unfair share. Yeah, enterprise is exciting, and it could certainly surprise on the upside, Tim. We always take the conservative position that a megawatt of run rate is a very strong result, and we'll continue to do that. There's also net churn. Anything that we lose in power upgrades and downgrades and other bits and pieces, churn's still a relatively small feature in our business. A decade on, we're still focused on the enterprise.
Got it. Just last question from me. Microsoft have got a couple of DA approvals out in the Sydney market at the moment, which is a bit of a change in terms of the way that they've done things compared to historically. Any comments that you can make in terms of how that could change the dynamics of the industry?
Yeah, look, I think that past history is the best predictor of future performance. Just tend to the 16. When you look at what Microsoft and Amazon and Google generally do in the U.S. market, it's close to home. As the size and scale of the platforms get larger, you would expect them to do a little bit themselves as they have done. Amazon have been building their own and using colo in Australia since they started. Microsoft should do the same. Google haven't. They could do the same. These are, I guess, just features of a install base that's 10 years mature. There's a baseline level of capacity that if you're building and thinking long term, these organizations, just like us, have to think long term.
You've got to take at least at a minimum, you're taking a decade-long view as to the deployment of your infrastructure. The bulk of these contracts that we sign are decade long with decade-long options. In the majority of cases, they're not moving in situ infrastructure because once it's deployed, it's carrying the base load, so to speak, and everything that's being built is being built to try and offset some of the additional demand variability. Most organizations in that regard still struggle to forecast their own future demand. As-a-Service, you would've seen the extraordinary numbers coming out of all of those key CSP leaders. It's just a great feature of their business. Their business gets larger. The volume of online products. Online gaming is becoming a really big feature.
We won some deals, just as an example, Pentanet in Perth as a partner with deploying a gaming platform, which is a NVIDIA gaming platform that they exclusively distribute between Perth and Sydney. These are all features of, I guess, just maturing growth, both in private cloud and the hyperscale, and you would expect these guys to do a little bit of that as they've done successfully in the U.S. I don't see really any change in strategy. I think that's consistent with what they've done in other markets. In the most part, we're all focused on trying to keep up with developing and meeting that exponential demand curve for the next decade. We still don't build ahead of capacity. One of the challenges for everyone really is you don't know where the designs are going.
If I just take M2 as an example, the M2 designs, the level of density, our changes on the UPS infrastructure and how that works, changes on airflow and air management. A lot of the PhD research work we are doing in relation to cooling technology. It is just amazing stuff, but it is moving so quickly that you do not want to build a lot of capacity in advance of having sold it. We want to build enterprise and government capacity because you need it on hand. You need a little bit of inventory on hand to meet customer requirements so that you do not go dark. In the hyperscale space, whether it is public or private cloud, and regardless of the size and scale of hyperscale.
A lot of those wins that we had in the second half are what I would call the mini hyperscalers or the emerging hyperscalers, the key challenges in that market. Just because they're small doesn't mean that they're not incredibly innovative in the type of designs and technology that they're building themselves. They're building their own GPU stacks and flash storage arrays and other things. Each time we do a unique design, there's just so many elements that need to be customized. It's a key feature. It's a competitive advantage for us having our own in-house engineering team that do these designs in collaboration with customers. It also earns a lot of credibility for us as a partner because we're not going out to third-party engineering organizations.
Our chief engineer and the engineering team that we've had obviously as a key competitive feature of our business from day one, continue to develop very deep relationships inside the research and development engineering teams of our key customers. Yeah, it's an interesting dynamic. It's a good feature of the industry. Not unusual or unexpected, and we're all focused on where we need to be to support growth over the next decade.
Great. Thanks, guys. Appreciate you taking my question.
Thank you. The next question comes from Bob Chen from JP Morgan. Please go ahead.
Hey, good morning, guys. Just a couple of questions from me. Recently, you guys put out the announcement that you've got the government or public certification. Can you talk a little bit about that part of the market, the sort of the public sector part of the market? What sort of capacity could you pick up there?
Thanks, Bob. The DTA thing's really exciting. For anyone that's not across the detail there, the federal government obviously very focused on changes in the threat landscape. Foreign actors, the underlying ownership of Australian infrastructure assets, and clearly in the past if it was ports and power infrastructure and other critical services, FIRB would've played a role and been involved in the ownership considerations related to those. In the data center sense, what has colloquially become known as the Global Switch clause, you're in a situation or circumstance where what was a U.K.-owned business becomes owned by the Chinese. When it's 100% owned by the Chinese, the concern is obvious in that regard. The Five Eyes partners and the Five Eyes Defense Partnership alliance that Australia is a key player in. That is an important feature of protecting Australian critical infrastructure.
The DTA, the Digital Transformation Agency, which is the primary agency for the federal government in this area, as a result of a lot of the questions that were being asked on ownership. Bob, if you haven't seen it, Bob Katter was regularly asking Scott Morrison in Parliament why the Department of Defence and Tax Office and others weren't urgently required to leave Global Switch as a result of that Chinese ownership. Bob Katter kept pressing on the Prime Minister as to how important it was to get any federal or state-owned IT infrastructure out of Chinese-owned facilities. It's been a very hot topic. For us, the DTA certification at Certified Strategic, there are two levels.
Certified Strategic is the highest level, and having gone through that work with the Federal Government for many months, we took the decision rather than to certify maybe only one or two facilities. We took the decision to certify the entire national fleet. It took some time to, particularly with COVID, the Federal Government auditors needed to visit every facility in the country for us to get that certification. We now have the single largest fleet of Federal Government-certified facilities in the country today. They are certified to the highest standard, certified secure. There is no higher standard today available. Really pleased that we're in that position to be a key provider to Federal, state, and local government agencies and alleviate any of those concerns. The issues in relation to foreign actors and security concerns are real.
I spent the best part of a decade in the security industry before I spent the last decade here at NEXTDC. Nothing's changed. The threat landscape just continues to evolve and develop and become more sophisticated. I think the government's decision to play a heavy-handed role in ensuring they can protect Australian critical infrastructure, particularly in the digital age, is a really important one. We're thrilled, privileged to be Certified Strategic. I see that as a great opportunity. We want to win more in federal government, the federal government markets, a couple hundred million dollars a year. We'd love to be winning our unfair share there. We're going to continue to do more in that space and try and grow our current footprint there. Yeah, it's a great opportunity. Pleased to have the certification out.
Yeah, it's a big segment of the market that we'd like to win more in.
Okay, great. Obviously a lot of construction going on and even further expansion capacity going forwards as well. How are you thinking about the funding requirements for some of this expansionary capacity in the future?
Look, we've got a lot of firepower at the moment to be deployed in the existing developments. The team will be upsizing our debt facility. Not that we certainly got plenty of cash on hand at the moment and got significant amount of debt available to us to continue to invest in the business. We've already kicked off a process to upsize our existing AUD 1.85 billion in debt. Very strong reverse inquiry. The level of inbound encouraging the company to substantially upsize its debt facility. The movement in financial markets, credit pricing, all very positive, and the company's been presented with the opportunity to substantially reduce its cost of debt, and significantly increase the size of debt. Some number in excess of AUD a couple of billion. The team are working through that at the moment.
I would expect that over the course of the next two, maybe three months, the team will work with those that have been inbound, to encourage us to take a substantially larger secured debt position in the market, take advantage of significant pricing improvements to reduce the cost of our debt. It's just a great time. Obviously, this is perfect timing for us to get a really good reduction in the cost of the debt and improve our overall WACC. Nothing like getting free money, and when there's free money on offer, I'll be the first in the queue with my hand out.
All right, great. Thanks, Craig.
Thank you. That does conclude the time permitted for questions today, as well as today's call. Thank you for participating. You may now disconnect.